By: Phil Dean
Note: The opinions expressed are those of the author alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.
Utah’s population and economy continue growing. This growth creates tremendous opportunities for Utahns. Growth also creates challenges. Some growth challenges stem from the interactions of topographical and other physical constraints with legacy transportation, land, air, and water use patterns. Other challenges arise because outdated systems poorly align with the modern economy. Yet transformational economic changes continue unabated.
Figure 1: Utah Population Change by Decade, 1920–2050
Source: Kem C. Gardner Policy Institute 2017 Population Projections
These pressures require constant adaptation, innovation, and realignment of Utah’s fiscal systems to ensure essential services continue. Utah’s leaders face critical design decisions as they generate and spend public funds for transportation, water, education, and other public services vital to Utah’s high quality of life.
User Fees vs. Taxes
In the private sector, prices ration scarce resources, sending signals to suppliers about how much to produce and to demanders about how much to buy. But unlike voluntary purchases in the private sector, government compels people to pay taxes. Taxes harm economic efficiency, but at the same time generate revenue needed to supply critical services supporting the economy.
Like taxes, government user fees also generate revenue to pay for critical services. But when designed well, fees can enhance economic efficiency by matching service demands with funding to supply those services, similar to the private market. In other words, all government revenue sources are not created equal. Different ways of paying for government create different economic effects.
User Fee Design
Even among fees, not all fees are created equal. Some fees are very distant from usage levels and function more like taxes, while others are much more closely aligned with usage levels. For example, a mileage-based road usage charge is much more closely aligned with use than an annual car registration fee, which is more of a