If a focus on core priorities speaks to what cities should be doing, correct pricing speaks to how they should be doing it. The thrust here is three-fold. Cities should not only innovate with user fees by moving more services to user pay, but also begin charging individual users the full marginal costs of services wherever possible. This is especially the case with under-priced utility services that have promoted urban sprawl and led to over-consumption and increased infrastructure demand. It also speaks to some form of property tax reform, such that the costs of servicing different properties are better reflected in the taxes paid. All of this is not about raising revenue, achieving cost-recovery, cost-effectiveness or cost-containment. Rather, it is all about ensuring individuals pay the costs of what they consume to increase efficiency and discourage waste (Kitchen 1993, 2000).
■ Advantages: Correctly priced user pay systems promote effectiveness, equity and efficiency. People pay for what they use and the right amount of service is provided for the right price. User pay quickly dispels the myth that public goods are free and creates a new dynamic as people cut back on consumption to save money. User pay forces people to realize the actual costs of their behaviour, and even where they choose to live.
■ Disadvantages: If a gain in efficiency is the advantage, then a loss of distributional equality is the disadvantage. User pay is regressive - it provides for equity but not always equality. Further, user pay for some public goods and services can create new problems. For example, if solid waste collection is converted to user pay, some people may try to avoid the fees through illegal dumping.
■ Moving Forward: Traditional methods of municipal financing exert strong control and the status quo is heavily defended on the grounds of equality, being surrounded by interests with significant sums involved. For example, commercial properties are typically over-taxed relative to residential properties even though there is no reason for this as far as costs are concerned. But residential taxpayers know how much property tax they pay and will resist any attempt at shifting the burden to better reflect costs. Likewise, increasing the tax burden in the suburbs to better reflect the higher costs of services and infrastructure would hardly be popular. Such reforms will necessarily result in drastically increased costs in certain areas of a city and much lower costs in other areas, leading to significant fiscal dislocation. As such, cities need to make rational pricing and property tax reform a long-term objective to contain sprawl and end over-consumption. As a start, city officials need to identify services that provide significant private benefits and produce the fewest negative spillovers (e.g., water, sewer, recreation facilities, libraries, museums, solid waste service) and expand user fees based on marginal cost pricing with a commitment to corresponding reductions in taxes. Variable effective tax rates that reflect costs need to be considered, and research must begin now on how activity-based cost accounting, currently being developed across Europe and the U.S., can be implemented to measure costs (Goldsmith 1998).