■ How it works: User fees defray the cost of services that provide private benefits, and are a significant source of funding for most cities. There are two types of fees. First are general user fees, which partially recover the costs of services such as transit, recreation, culture, and libraries. It is unclear the degree to which these fees cover operating costs as contrasted to capital needs. Most general user fees only partially recover costs. Second are utility fees, which are designed to fully recover the operating and capital costs of various utility services. Typical examples include water, sewer, and electricity. Some of these fees may also generate a profit, which is then used to support other general municipal government expenditures.
■ Assessing the potential: The potential of user fees to address infrastructure deficits in western cities is handicapped by two factors. First, a good portion of the infrastructure shortfall lies in tax-supported areas such as roadways. Traditionally, user fees have not been used to fund these areas. Second, utility-based user fees offer very little potential if only because the capital needs of most utility operations appear to be adequately funded, although Winnipeg and Saskatoon may be exceptions to this broader rule (Vander Ploeg 2003). While utility fees could be increased to generate more revenue to fund capital, that would also imply a violation of the principle of correct pricing. In this case, the overall price charged would be too high and would really amount to nothing more than a tax grab.
At issue, then, is the potential of general user fees, most of which accrue to the operating budget and would have to be transferred to capital. The problem is, most of these fees tend to cover only a portion of the costs associated with a specific set of municipal services. Not only have these user fees generally shown limited potential for growth, to contribute they would have to be drastically increased relative to the costs of providing services. This carries a substantial downside. For example, recreation facility fees could be increased to cover all the costs of operations and capital with the tax savings then applied to other infrastructure needs. But usage of those facilities could also decline as a result. If the facilities are not sustainable under full cost recovery, the facilities would have to close. Drastically increasing transit fares could result in a similar drop in usage, aggravating transportation problems elsewhere and hurting lower income citizens who depend on transit. In other words, the potential of user fees here cannot lie in simply hiking the rates.