What’s in a name? A tax by any other name hits just as hard.
Taxes provide dollars for everyday government expenses. Fees, at least in the traditional sense, provide funds for specific purposes. Then, in Illinois’ current spending plan, there’s the hybrid: fees that resemble taxes.
Gov. Rod Blagojevich’s first budget contains numerous new and enhanced fees that are expected to generate more than $300 million for the state during the fiscal year that began July 1. For instance, the fee to register a boat that is 16 feet to 26 feet in length was increased from $20 to $45, while the fee for replacing a lost boat registration decal was increased from $1 to $5.
It’s too early to determine the full impact of all these fees on the General Revenue Fund, the state’s main checking account, but it’s clear the impact will be considerable. A major-ity of the new revenue will go directly into the General Revenue Fund. A slice of it is slated for accounts that cover administrative costs at regula-tory agencies, which collect the fees. That move is designed to offset the state’s obligation for those costs — and to provide a net gain for the central fund.
In addition, the law that established these fee increases gives the governor’s budget director, John Filan, discretion to transfer to the General Revenue Fund a portion of the dollars in the special funds.
“I believe the intention is to have all of this go into the General Revenue Fund,” says Dan Long, executive director of the Illinois Economic and Fiscal Commission, referring to the new revenue to be generated by the fees. “That’s the plan. All this will go into GRF. That’s the way it’s supposed to work.”
The administration defends the practice as appropriate and timely. Becky Carroll, spokeswoman for Blagojevich’s budget office, says the additional fee-based revenue will help counter the deficit the administration blames on years of mismanagement.
“Illinois is one corporation, and everyone needs to find a way to contribute to closing our deficit,” she says. “For years on end, the taxpayers fronted the bill for many of the fees, permits or licenses that should have been picked up by the users of these permits and [licenses]. So, in some ways, we’re recouping our costs to the taxpayers over the years.
“We’re trying to make up for overspending of the past.”
The move will push such state agencies as the Environmental Protection Agency toward fee-based operations. Carroll says: “When there are regulating agencies that can raise revenue to support their own operations, they should do so instead of relying on the taxpayers. And that’s why we moved ahead with that.”
The environmental agency will draw some $55 million in new fee revenue, by the administration’s estimate, but only $22 million is earmarked for agency operations. The rest will flow to the General Revenue Fund.
The budget office projects new revenues from all fees will total $318.9 million. The Economic and Fiscal Commission, the legislature’s accounting arm, puts that figure at $302 million.
Those who will end up paying the new fees, however, argue that it’s illegal to fund ordinary state operations with fees attached to specific purposes.
In August, the city of Naperville even refused to pay a new annual $52,500 fee levied on its wastewater treatment facility. Previously, there was no charge for the permit.
The city, through area legislators, asked the attorney general’s office for an opinion on the legality of the fee. But the office declined in light of pending litigation. So, late last month, the city council was scheduled to revisit the issue to decide whether to pay the fee, or pay it under protest.
“Government certainly can adopt revenue-generating measures. They’re called taxes,” says Dan Blondin, Naperville’s city attorney. “But what they can’t do is pretend they’re adopting a fee — which would be related to the cost of administering the program — that is, in substance, really a tax. And that’s what you have in this situation.”
He says that under common law there must be a proportionality between the amount of a fee and the cost of a program.
Meanwhile, other municipalities are paying the fees, but registering their opposition in the hope they’ll be eligible for refunds should courts invalidate the fees. “It seems like the state really doesn’t understand economics,” says Kenneth Alderson, executive director of the Illinois Municipal League. “As the state has suffered from income tax and sales tax revenue declines, local governments have suffered the same percentage of decline as the state. The local government’s financial situation pretty much mirrors the state’s financial situation.”
The league is encouraging member communities across the state to pay under protest.
Some lawmakers are pleased with the fiscal shift. Sen. Jeff Schoenberg, an Evanston Democrat and vice chair of the Senate’s two appropriations committees, says previous practice “failed to take into account the larger picture and how we need to restructure our spending priorities, especially given the current difficult economic times.”
Others want to revisit the fee structure during the veto session scheduled for November.
One new fee in particular, the one charged for permits to dispose wastewater in Illinois waterways, is the subject of two measures filed with the House clerk in August. Both target new fees for National Pollutant Discharge Elimination System permits. As authorized by the federal Clean Water Act, the permit program is aimed at controlling water pollution by regulating the sources of pollutants.
The first measure, sponsored by Rep. Bill Mitchell, a Forsyth Republican, would exempt municipalities and non-profits from paying this fee. He says he introduced the bill after a small church camp in DeWitt County was charged a $1,500 fee for draining shower water into a waterway.
He notes that, per capita, smaller towns are hit with a larger burden than big ones. “A lot of my communities in my district are paying $2, $3, $4 per citizen,” he says. “They didn’t budget for that. They didn’t know about it.”
The Mitchell bill would not exempt businesses, many of which have their own waste treatment facilities, from paying the fee. But the second bill, sponsored by Rep. William Grunloh, an Effingham Democrat, would do away with the fee altogether.
Other states also have raised fees at a dramatic rate, though apparently no national government organization is tracking whether those new dollars are supporting general operations.
Mandy Rafool, a budget analyst who administers the National Conference of State Legislatures’ annual state tax and fee increase survey, says states raised fees by $2.8 billion in fiscal year 2004. This figure does not include California, Connecticut, New Hampshire or Pennsylvania, which had not reported to the conference as of mid-September. She says the survey does not ask states where the fee revenue is spent, but, “We suspect that the revenue is being used in the general fund.”
In Illinois, opponents of the new fees are pushing several legal angles. One of the most popular revolves around the uniformity clause of the Illinois Constitution, which states: “In any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.”
In 2001, the Illinois Supreme Court used the clause to invalidate imposition of “infrastructure fees” on wireless telecommunications providers. The law at issue, implemented in 1998, permits municipalities to impose the fee on telecom providers. But the high court held that because wireless companies do not maintain infrastructure on public rights of way, imposition of the fees on them was unreasonable and, therefore, impermissible under the uniformity clause.
More than 40 aggregate producers invoked the uniformity clause when they challenged the new wastewater disposal permit fee in August.
They argue in their lawsuit, filed in Sangamon County Circuit Court, that the fees for aggregate mines are “an arbitrary and excessive tax, in that they have no relation to the services rendered, and have been assessed to provide general revenue rather than compensation for services rendered or to pay for the [wastewater] permit program.”
The producers calculate this one fee is expected to generate $26 million, while the budget earmarked only $6.4 million to the agency for all costs associated with clean water activities.
“On a cost-to-service basis, there’s an extra $20 million that’s being collected here and it’s clear it’s going right into the General Revenue Fund,” says Allan Poole, Naperville’s public utilities director. “There’s no hiding any of this. That’s where it’s going.”
The budget office projects new revenues from all fees will total $318.9 million. The Economic and Fiscal Commission, the legislatureÿs accounting arm, puts that figure at $302 million.
Aaron Chambers can be reached at statehousebureau@aol.com.
Illinois Issues, October 2003
