Comparing city fees: A New Kind of Race to the Top

Mary Ann Miller

By:  Mary Ann Miller, President/CEO, Tempe Chamber of Commerce

City government has an interesting way of benchmarking against other cities.  Instead of looking to each other to share best practices, cities spend more time comparing what they charge.  As long as the charge or fee or tax is comparable to their neighbors, it’s deemed reasonable.

There are so many things wrong with this process, I’m not sure where to start.  I’ll just focus on three:

  • Fees are set with no actual relationship to the cost.
  • The comparisons give no indication as to the service actually provided.
  • Aiming for the mid-range of fees just results in higher and higher fees.

Let’s say, just for example, that the City of Tempe is looking at fees for fire inspection.  It currently doesn’t charge for the service, but it’s looking for ways to increase revenues.  As part of setting the amount, it looks at what is charged by Chandler, Mesa, and Phoenix.

So no one actually is looking at just what it actually costs to do the inspections.  No one analyzes just how long the inspections take, what level of staff is needed, nor how much it will cost to track and send bills.  Activity-based costing is a lost art.

Nor does anyone find out just what is being done in the other cities.  Are they productive or do they take more time than needed?  Does the inspector spend 10 minutes at a business or an hour?  Do they provide a written report to the business or just point things out?  Is the cost comparison based on anything comparable?

Then there’s the idea of pricing things somewhere in the middle.  So if Tempe sets a rate somewhere between Mesa and Phoenix, it may leave Chandler with the lowest fee.  Since the other cities are also comparing themselves, then Chandler can feel justified in raising its fees, which signals to others that they can raise their fees.  And so on.

Over the years I’ve seen this comparison used for everything from building permits to library usage.  Sometime the City Council decides to reject the new rates, but often the comparisons are accepted at face value and embraced.  It seems elected officials have forgotten the wisdom of just about every mother who’s asked to give permission for something that all their child’s friends are doing:  “If all your friends jumped off a cliff, would you do it too?”