In a new paper for the Institute on Municipal Finance and Governance (IMFG), Almos Tassonyi and Harry Kitchen set out to explain why user fees are a good source of revenue for certain municipal services, how user fees are employed by a select group of Ontario municipalities, and how municipalities can navigate the trade-off in user-fee design between efficiency and fairness.
The paper analyzes two approaches for implementing user fees: the “benefits-received” principle, which states that those who benefit from a service should bear the cost of it, and the “ability-to-pay” principle, which suggests that those with higher incomes should bear a greater proportion of the cost. It concludes by considering how user-fee design for nine services can apply these two principles.