Federal User Fees: A Design Guide (29-MAY-08, GAO-08-386SP).
The federal government will need to make the most of its
resources to meet the emerging challenges of the 21st century. As
new priorities emerge, policymakers have demonstrated interest in
user fees as a means of financing new and existing services. User
fees can be designed to reduce the burden on taxpayers to finance
the portions of activities that provide benefits to identifiable
users above and beyond what is normally provided to the public.
By charging the costs of those programs or activities to
beneficiaries, user fees can also promote economic efficiency and
equity. However, to achieve these goals, user fees must be well
designed. GAO was asked to study how user fee design
characteristics may influence the effectiveness of user fees.
Specifically, GAO examined how the four key design and
implementation characteristics of user fees--how fees are set,
collected, used, and reviewed--may affect the economic
efficiency, equity, revenue adequacy, and administrative burden
of cost-based fees. GAO reviewed economic and policy literature
on federal and nonfederal user fees, including prior GAO work,
and used relevant case examples to illustrate different types of
design elements and the impacts they may have.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-386SP
ACCNO: A82220
TITLE: Federal User Fees: A Design Guide
DATE: 05/29/2008
SUBJECT: Administrative costs
Cost accounting
Cost analysis
Cost control
Economic analysis
Economic development
Economic growth
Federal agencies
Federal regulations
Fees
Financial analysis
Financial management
Internal controls
Program evaluation
Program management
Strategic planning
User fees
Program goals or objectives
Program implementation
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GAO-08-386SP
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entitled 'Federal User Fees: A Design Guide' which was released on May
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
May 2008:
Federal User Fees:
A Design Guide:
GAO-08-386SP:
GAO Highlights:
Highlights of GAO-08-386SP, a report to congressional requesters.
Why GAO Did This Study:
The federal government will need to make the most of its resources to
meet the emerging challenges of the 21st century. As new priorities
emerge, policymakers have demonstrated interest in user fees as a means
of financing new and existing services. User fees can be designed to
reduce the burden on taxpayers to finance the portions of activities
that provide benefits to identifiable users above and beyond what is
normally provided to the public. By charging the costs of those
programs or activities to beneficiaries, user fees can also promote
economic efficiency and equity. However, to achieve these goals, user
fees must be well designed.
GAO was asked to study how user fee design characteristics may
influence the effectiveness of user fees. Specifically, GAO examined
how the four key design and implementation characteristics of user
fees�how fees are set, collected, used, and reviewed�may affect the
economic efficiency, equity, revenue adequacy, and administrative
burden of cost-based fees. GAO reviewed economic and policy literature
on federal and nonfederal user fees, including prior GAO work, and used
relevant case examples to illustrate different types of design elements
and the impacts they may have.
What GAO Found:
Setting user fees: Setting user fees according to the beneficiary-pays
principle can promote equity and economic efficiency. For cost-based
fees, the extent to which a program provides benefits to the general
public versus users and the cost of providing those benefits should,
theoretically, guide how much of total program costs are paid for by
user fees and the amount each user pays (see figure). Although this
principle provides a useful guideline for setting fees, strictly
following the principle is not always desirable or practical.
Collecting user fees: The primary challenge of determining when and how
to collect a fee is striking a balance between ensuring compliance and
minimizing administrative costs. In some cases, the collection systems
of another agency or a nonfederal entity, such as a private sector
enterprise, may be leveraged, as when the airlines collect passenger
inspection fees.
Using user fees: Determining how fees will be used is a balancing act
between Congressional oversight and agency flexibility. Congress gives
agencies various degrees of access to collected fees. For example, fees
may be dedicated to the related program or may instead be deposited to
the general fund of the U.S. Treasury and not used specifically for the
related program or agency. In addition, fee collections may be subject
to appropriation or obligation limits, which increase opportunity for
oversight but may limit agencies� ability to quickly respond to
changing conditions.
Reviewing user fees: Agencies must substantively review their fees on a
regular basis to ensure that they, Congress, and stakeholders have
complete information. Reviews provide information on whether the fee
rates and authorized activities are aligned with actual program costs
and activities, may provide opportunities for stakeholder input, and
can help promote understanding and acceptance of the fee.
Figure: Simplified, Hypothetical Example of Assigning Costs to
Beneficiaries:
[See PDF for image]
This figure contains a pie-chart and the following descriptive
information:
Types of beneficiaries of a federal program: Public beneficiaries
(general public): 60%;
- Services paid with general revenue; Private beneficiaries (users):
40%;
- Services paid with user fees: User A: 8% (payer); User B: 12%
(payer); User C: 20% (payer).
The amount of the fee reflects the cost of providing the service, which
differs among the three users. In this example, no users are exempt
from the fee, so all �users� of the service are also �payers� of the
fee.
Source: GAO.
[End of figure]
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-386SP]. For more
information, contact Susan J. Irving at (202) 512-9142 or
[email protected].
[End of section]
Contents:
Letter:
Background:
Setting User Fees: Determining Beneficiaries and Allocating Costs:
Collecting User Fees: Balancing Compliance with Administrative Costs:
Using User Fees: Balancing Congressional Oversight, Agency Flexibility,
and Stakeholder Expectations:
Reviewing User Fees: Providing Information on Costs and Program
Activities and Facilitating Stakeholder Support:
Concluding Observations:
Agency Comments:
Appendix I: Key Questions:
Appendix II: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: Questions to Consider When Setting User Fees:
Figure 2: Simplified, Hypothetical Example of Assigning Program Costs
to Beneficiaries, Including Users:
Figure 3: Examples of Federal Programs with Different Levels of Funding
from User Fees:
Figure 4: Questions to Consider When Designing How User Fees Will Be
Collected:
Figure 5: Questions to Consider When Designing How User Fees Can Be
Used:
Figure 6: Questions to Consider When Designing How User Fees Will Be
Reviewed:
Abbreviations:
AMS: Agricultural Marketing Services:
APHIS: Animal and Plant Health Inspection Service:
AQI: Agricultural Quarantine Inspection:
BLM: Bureau of Land Management:
CBP: U.S. Customs and Border Protection:
CFO: chief financial officer:
Corps: U.S. Army Corps of Engineers:
DHS: Department of Homeland Security:
FAA: Federal Aviation Administration:
FDA: Food and Drug Administration:
GDP: gross domestic product:
HMF: Harbor Maintenance Fee:
HMTF: Harbor Maintenance Trust Fund:
IOAA: Independent Offices Appropriation Act of 1952:
MOE: maintenance of effort:
MPF: Merchandise Processing Fee:
NPS: National Park Service:
OIC: Offer in Compromise:
OMB: Office of Management and Budget:
PAYGO: pay-as-you-go:
PDUFA: Prescription Drug User Fee Act:
REA: Federal Lands Recreation Enhancement Act:
USCIS: U.S. Citizenship and Immigration Services:
USDA: U.S. Department of Agriculture:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 29, 2008:
Congressional Requesters:
The federal government will need to make the most of its resources to
meet the emerging challenges of the 21st century. As the nation
continues to change in fundamental ways, a wide range of needs and
demands have emerged, for example, evolving defense and homeland
security programs, increasing global interdependence, and advances in
science and technology. At the same time, our current long-term
simulations of the federal budget show ever-larger deficits. As funds
become increasingly scarce and new priorities emerge, policymakers have
demonstrated interest in user fees as a means of financing new and
existing services.
Total federal user fees are in the hundreds of billions of dollars
annually and growing. According to Office of Management and Budget
(OMB) data, total fee collections increased 69 percent from $138
billion in fiscal year 1999 to $233 billion in fiscal year 2007.
[Footnote 1] Even after adjusting for inflation, fee collections grew
39 percent. During this time period, total user fee collections varied
from 6.4 to 7.6 percent of total federal spending (gross outlays).
User fees can be designed to reduce the burden on taxpayers to finance
the portions of activities that provide benefits to identifiable users
above and beyond what is normally provided to the public. By charging
the costs of programs or activities to identifiable beneficiaries, user
fees can promote economic efficiency and equity just as prices for
private goods and services can do in a free and competitive private
market. However, to achieve these goals, user fees must be well
designed. You asked us to study how user fee design characteristics may
influence the effectiveness of user fees. Specifically, we examined how
the four key design and implementation characteristics of user fees--
how fees are (1) set, (2) collected, (3) used, and (4) reviewed--may
affect the economic efficiency, equity, revenue adequacy, and
administrative burden of the fees.
There are various ways to design user fees to encourage greater
efficiency, equity, and revenue adequacy and reduce the administrative
burden on the agency and payers of the fees. We examined fees using
criteria that have often been used to assess user fees and other
government collections, specifically taxes.[Footnote 2]
* Efficiency: By requiring identifiable beneficiaries to pay for the
costs of services, user fees can simultaneously constrain demand and
reveal the value that beneficiaries place on the service. If those
benefiting from a service do not bear the full social cost of the
service, they may seek to have the government provide more of the
service than is economically efficient. User fees may also foster
production efficiency by increasing awareness of the costs of publicly
provided services and therefore increasing incentives to reduce costs
where possible.
* Equity: Equity means that everyone pays their fair share, but the
definition of fair share can have multiple facets, in part because
beneficiaries and users may not be the same as discussed in the section
"Setting User Fees." Under the beneficiary-pays principle, the
beneficiaries of a service pay for the cost of providing the service
from which they benefit. Under the ability-to-pay principle, those who
are more capable of bearing the burden of fees should pay more for the
service than those with less ability to pay.
* Revenue adequacy: Revenue adequacy is the extent to which the fee
collections cover the intended share of costs. It encompasses the
extent to which collections may change over time relative to the cost
of the program. For the purposes of our work, revenue adequacy also
incorporates the concept of revenue stability, which generally refers
to the degree to which short-term fluctuations in economic activity and
other factors affect the level of fee collections.
* Administrative burden: This is the cost of administering the fee,
including the cost of collection and enforcement, as well as the
compliance burden (the administrative costs imposed on the payers of
the fee).
These criteria interact and are often in conflict with each other; as
such, there are tradeoffs to consider among the criteria when designing
a fee. Every fee design will have pluses and minuses, and no design
will satisfy everyone on all dimensions. The weight that different
policymakers may place on different criteria will vary, depending on
how they value different attributes. To that end, understanding the
tradeoffs associated with different aspects of a fee's design can
provide decision makers with better information and support more robust
deliberations about user fee financing. The criteria, questions, and
illustrative examples presented in this guide are designed to aid
policymakers in thinking about issues to consider when designing new
user fees and redesigning or updating existing fees.
The questions and tradeoffs discussed in this guide relate to cost-
based user fees--including some dedicated excise taxes (i.e., those
that have a "user pays" aspect to them, such as the federal gas tax)--
for which private beneficiaries are discernable. They generally fall
into two broad categories: (1) business-type transactions, such as
recreation fees for parks and fees for grazing on federal land and (2)
regulatory transactions, such as food inspection and immigration fees
and fees for regulating the nuclear energy industry. Certain types of
fees have particular design elements, such as setting market-based fee
rates or insurance premiums, which are outside the scope of this
review.
To address our objectives, we reviewed economic and policy literature
on federal and nonfederal user fees, including our prior work on user
fees. To illustrate different types of design elements and the impacts
they may have, we used relevant case examples found in the literature,
including our past reviews of user fees, in particular our recent
reviews of the Department of Homeland Security's (DHS) U.S. Customs and
Border Protection (CBP), U.S. Army Corps of Engineers (Corps), and U.S.
Department of Agriculture (USDA) fees. We used data on total federal
user fees and gross outlays for fiscal years 1999 through 2007
presented in OMB's Analytical Perspectives and adjusted those figures
for inflation using a fiscal year, chain-weighted gross domestic
product (GDP) price index.[Footnote 3]
We performed our work from February 2007 through May 2008 in
Washington, D.C. and Boston, Massachusetts.
Background:
User financing--in the form of user fees, user charges, or excise taxes
on certain products--is one approach to financing federal programs or
activities. User fees assign part or all of the costs of these programs
and activities--the cost of providing a benefit that is above and
beyond what is normally available to the general public--to readily
identifiable users of those programs and activities. Because user fees
represent a charge for a service or benefit received from a government
program, payers may expect a tight link between their payments and the
cost of providing services and have expectations about the quality of
the related service.
Definition of User Fees:
For the purposes of this guide we use the term user fees to include
user fees as well as excise taxes with a "user pays" element.[Footnote
4] Examples include those imposed on motor fuels, tires, and heavy
vehicles that accrue to the Highway Trust Fund, from which Congress
appropriates funds for federal highway and transit programs. Similarly,
Federal Aviation Administration (FAA) activities are funded in part by
excise taxes assessed on airline tickets, aviation fuel, and certain
cargo.[Footnote 5] A highway toll may also be considered a user fee
because it is related to the specific use of a particular section of
highway. The boundaries between fees and taxes are not always clear and
the tradeoffs among design elements presented in this guide can be
relevant to both.
In general, a user fee is related to some voluntary transaction or
request for government goods or services above and beyond what is
normally available to the public, such as a request that a public
agency permit an applicant to practice law or medicine or construct a
house or run a broadcast station.[Footnote 6] Taxes, on the other hand,
arise from the government's sovereign power to raise revenue and need
not be related to any specific benefit, and payment is not optional;
when Congress imposes taxes, it need not consider benefits bestowed by
the government on an individual but may base taxation solely on an
individual's ability to pay. The Supreme Court has ruled that a tax is
"an enforced contribution to provide for the support of government."
[Footnote 7] The legal distinction between a "fee" and a "tax" can be
complicated and depends largely on the context of the particular
assessment. Whether a particular assessment is statutorily referred to
as a tax or a fee is never legally determinative. Instead, federal
courts will examine the structure and the context of the assessment's
application.
Fees vary in the degree to which they can be considered truly voluntary
because the availability of reasonable substitutes varies. For example,
to enter certain national parks, one must pay an entrance fee. The fee
is voluntary to the extent that there are alternatives to national
parks for outdoor recreation, for example, state, county, or private
parks and recreation facilities. In contrast, people who want to
operate radio stations have no similarly close alternative and must
obtain a license from the Federal Communications Commission and pay a
fee for that license.
Authority to Charge Fees:
Agencies derive their authority to charge fees either from the
Independent Offices Appropriation Act of 1952 (IOAA)[Footnote 8] or
from specific statutory authority. IOAA provides broad authority to
assess user fees or charges on identifiable beneficiaries by
administrative regulation. User fees assessed under IOAA authority must
be (1) fair and (2) based on costs to the government, the value of the
service or thing to the recipient, public policy or interest serviced,
and other relevant facts. Fees collected under this authority are
deposited in the general fund of the U.S. Treasury and are generally
not available to the agency or the activity generating the fees. Unless
otherwise authorized by law, IOAA requires that agency regulations
establishing a user fee are subject to policies prescribed by the
President. OMB provides such guidance to executive branch agencies
under this authority through Circular No. A-25.[Footnote 9] The
Circular establishes federal guidelines regarding user fees assessed
under the authority of IOAA and other statutes, including the scope and
types of activities subject to user fees and the basis upon which the
fees are set. It also provides guidance for executive branch agency
implementation of fees and the disposition of collections.[Footnote 10]
In many instances, Congress has provided specific authority to federal
agencies to assess user fees--in agency authorizing or appropriations
legislation, for example. Legislation authorizing a user fee may enact
a specified rate or amount to be assessed or may stipulate how the fee
is to be calculated, such as a formula; the method and timing of
collection; and the authorized uses of the fee collections, which may
be broadly or narrowly defined. The amount of a fee may be set to
partially or fully recover costs or may be set according to some other
basis (e.g., market value). Specific authorizing statutes may even
grant the agency broad discretion to set and revise fee rates without
Congressional approval--that is, solely through the regulatory process-
-based on various factors. Specific user fee statutes should be
construed consistent with IOAA and OMB Circular No. A-25 to the extent
possible as part of an overall statutory scheme.[Footnote 11]
Setting User Fees: Determining Beneficiaries and Allocating Costs:
Of the four components of implementing a user fee, setting the rate of
the fee is perhaps the most challenging because determining the cost of
the service is often quite complex and requires consideration of a
range of issues (see fig. 1).
Figure 1: Questions to Consider When Setting User Fees:
[See PDF for image]
This figure is an illustration of questions to consider when setting
user fees, as follows:
Questions to consider:
* Who benefits from the program?
* What mechanisms help ensure the fee will cover the intended share of
costs over time?
* How should program costs be determined and assigned?
� How much does the program cost?
� How should program costs be divided among users?
Sources: GAO (information); PhotoDisc and Comstock� (images).
[End of figure]
To What Extent Does the Program Benefit Both the General Public and
Users?
In theory, the extent to which a program is funded by user fees should
generally be guided by who primarily benefits from the program, though,
as we discuss later, the extent to which a program benefits users or
the general public is not usually clear cut. This is known as the
beneficiary-pays principle. Under this principle, if a program
primarily benefits the general public (e.g., national defense), it
should be supported by general revenue, not user fees; if a program
primarily benefits identifiable users, such as customers of the U.S.
Postal Service, it should be funded by fees; and if a program benefits
both the general public and users, it should be funded in part by fees
and in part by general revenues.[Footnote 12] As shown in figure 2, the
beneficiary-pays principle can promote equity by assigning costs to
those who both use and benefit from the services. First, as shown on
the left side of figure 2, the extent to which a program provides
benefits to the general public versus users should guide the proportion
of total program costs that are paid for by general revenues versus
user fees. Second, as shown on the right side of the illustration, the
cost of providing the benefits to each user should be determined and
assigned through user fees. Figure 3 depicts selected federal programs
funded according to this principle.
Figure 2: Simplified, Hypothetical Example of Assigning Program Costs
to Beneficiaries, Including Users:
[See PDF for image]
This figure contains a pie-chart and the following descriptive
information:
Types of beneficiaries of a federal program: Public beneficiaries
(general public): 60%;
- Services paid with general revenue; Private beneficiaries (users):
40%;
- Services paid with user fees: User A: 8% (payer); User B: 12%
(payer); User C: 20% (payer).
Source: GAO.
Note: Though not shown in this example, fees may include exemptions, so
that some �users� of the program are not �payers� of the fee. The cost
of providing the service to exempt users may be paid for with general
revenues or by the fees of other users.
[End of figure]
Figure 3: Examples of Federal Programs with Different Levels of Funding
from User Fees:
[See PDF for image]
This figure contains an illustration of examples of federal programs
with different levels of funding from user fees, as follows:
National defense:
National defense benefits the general public. Therefore, it is fully
supported by general revenues, rather than user fees.
FDA prescription drug reviews:
FDA prescription drug reviews benefit drug sponsors and the public.
Therefore, they are supported in part by general revenues and in part
by user fees.
U.S. Postal Service:
Postal services directly benefit users sending letters or other mail.
Therefore, they are almost fully supported by user fees, rather than
general revenues.[A]
Sources: GAO (information); images: PhotoDisc (right and left), Dynamic
Graphics (center).
[A] The U.S. Postal Service gets a small proportion of its funding from
general revenues for costs of providing free mail for the blind and
overseas voting.
[End of figure]
Secondary beneficiaries of a program generally are not considered in
this examination. For example, consumers of new prescription drugs are
secondary beneficiaries of prescription drug reviews, which provide a
primary benefit to the drug sponsors.[Footnote 13] Similarly, fees
should be charged to the direct user, even if that payer then passes
the cost of the fee on to others. The entities that bear the burden of
a fee--what economists call the incidence of the fee--are not
necessarily those who legally must pay the fee. Fees may be passed
along to others through price changes, as the fee may change the price
of one good relative to another and therefore affect the allocation of
resources. How prices change--and therefore the incidence of the fee--
depends on (1) how responsive market supply and demand are to price
changes (price elasticity) and (2) market conditions that affect an
entity's ability to control prices.[Footnote 14] The ability of payers
to pass along the fee does not necessarily change the economic
efficiency effects of the fee but can affect its perceived equity and
the transparency of the fee.[Footnote 15]
User fees set under the beneficiary-pays principle can also enhance
economic efficiency by ensuring that resources are allocated to the
most highly valued use, as users make adjustments to their consumption
of the service based on their costs and benefits. For example, setting
a Food and Drug Administration (FDA) fee for new prescription drug
applications too high could discourage the development of new drugs. On
the other hand, setting the fee too low induces overuse of agency
resources and services. To the extent a fee is voluntary, user fees
based on a program or service's total costs may also act as a market
test and can help ensure that the benefits of the program are at least
as great as its costs.
Under the beneficiary-pays principle, the government may wish to charge
some users a lower fee or no fee to encourage certain behaviors that
provide a public benefit, such as advancing a public policy goal (e.g.,
promoting free trade). For example:
* Potential profits from the development of "orphan" drugs--those that
treat rare diseases--are limited by the small size of their market, and
therefore drug companies may be reluctant to invest in them; such drugs
are exempt from the FDA prescription drug application fee to encourage
their development.
* Imports from certain least developed countries are exempt from CBP's
Merchandise Processing Fee (MPF), which both addresses their ability to
pay and may help promote their economic development. DHS officials
noted that in other cases MPF exemptions have been used as a tool to
negotiate free trade agreements; an exemption may be extended as a
concession for the reduction of import tariffs on certain U.S. goods.
* Low-income taxpayers are exempt from the $150 application fee for the
Internal Revenue Service's Offer in Compromise (OIC) program--a program
for taxpayers unable to fully pay their tax liabilities--to make the
program more accessible and encourage participation.
Although user fees can promote one facet of equity--the beneficiary-
pays principle--they may run contrary to another facet--the ability-to-
pay principle. To the extent that user fees are a substitute for
funding through general tax revenues, they may be less progressive than
taxes and therefore shift additional burden on those less able to pay.
Fees (or taxes) that are proportionally more burdensome for low-income
than high-income individuals are said to be regressive. To address this
concern, the design of a fee may consider the ability of a user to pay,
for example, by exempting low-income users or scaling fees by some
measure of ability to pay.
In certain cases user fees may not be the most equitable, efficient
option for funding a program. Examples include fees for:
* government programs intended to provide a benefit based on need or
merit, such as the Department of Housing and Urban Development's
Section 8 housing voucher program (which assists low-income families,
including the elderly and the disabled);
* competing sectors within an industry (e.g., modes of transportation)
if the other sectors are not subject to similar fees; and:
* new industries that face high initial costs and may need government
support until they can become self-sustaining.
Abrupt imposition of new or substantially increased user fees could
have unintended consequences. For example, in May 2007, U.S.
Citizenship and Immigration Services (USCIS) published a new fee
schedule that raised fees effective July 2007 for immigrant and
naturalization benefit applications by an average of 88 percent. Large
numbers of applicants filed for benefits before the increase took
effect, which contributed to a surge that exacerbated USCIS's backlog
of applications. In cases like this, transitional measures such as
grandfather clauses or phasing in increases might help address concerns
about the adverse effects of the abrupt imposition of a fee, while
implementing the beneficiary-pays principle gradually. However, as is
the case with exemptions, the benefits of transitional measures must be
balanced with the likelihood of reduced efficiency and equity gains and
increased administrative costs. Furthermore, delaying a fee increase
may also have adverse effects on an agency's operations. In some cases,
new or increased user fees may also cause decreases in the value of
privately owned assets. We have previously reported on how user fees
can result in such capital losses, as well as ways of determining when,
how much, and to whom compensation for these losses should be paid.
[Footnote 16]
Although the beneficiary-pays principle is a useful guideline for
assigning costs, determining a program's beneficiaries and the extent
to which a program benefits users, the general public, or both is not
usually clear cut. For example, in prior work we found that National
Park Service (NPS) staff reported that they did not want to raise
federal grazing fees assessed on ranchers, even though these fees were
lower than fees charged by other government agencies and private
landowners, in part because grazing not only benefits ranchers but also
benefits parks--for example, by controlling vegetation.[Footnote 17] In
another example, USDA food safety inspections benefit the meat and
poultry industries as well as the general public: inspections improve
consumer confidence in the safety of those food products and the
companies can advertise their products as USDA inspected, which may
enhance the perceived quality. The inspections also benefit the general
public by preventing the spread of communicable diseases carried by
meat and poultry products, but it is difficult to quantify that public
health benefit and consequently the extent to which the program should
be covered by user fees versus general revenues.
Fees can be practical, equitable, and efficient only when the users can
be identified and charged for the service or program. Sometimes,
however, it may be difficult to identify specific users or to collect
fees from them, making it difficult to follow the beneficiary-pays
principle. NPS, which can identify and verify some users, also collects
fees from air tour operators that fly over certain national park units.
However, in prior work we found that because NPS could not verify air
tour activity over the parks, it relied on operators to voluntarily
report their air tours and pay the required fees.[Footnote 18] Some
tour operators paid and some did not, resulting in inequities and less-
than-owed fee collections.
What Mechanisms Help Ensure the Fee Will Cover the Intended Share of
Costs over Time?
Fee collections should be sufficient to cover the intended portion of
program costs over time. Although the costs of any particular program
may rise or fall, there is a general concern that fees may not keep
pace with increases in costs because of factors such as inflation. For
example, in recent testimony we noted that revenues to support federal
highway and transit funding are eroding in part because the federal
motor fuel tax, which is set at the fixed amount of 18.4 cents per
gallon, has not been increased since 1993. Therefore, the purchasing
power of fuel tax revenues has eroded.[Footnote 19] To address these
concerns, OMB Circular No. A-25 directs agencies to set fees as
percentages of some appropriate base rather than fixed dollar amounts
whenever possible. However, fees set at a percentage rate of some value
(the basis) will not remain aligned with program costs if the value of
the basis does not rise and fall in line with changes in the program
costs. For example, in recent years the Harbor Maintenance Fee (HMF),
which is assessed at a rate of 0.125 percent of the value of commercial
cargo, has resulted in substantially higher collections than spending
because the growth in the volume and value of commercial cargo has
exceeded increases in harbor maintenance spending. As a result, HMF
collections exceeded expenditures by over $506 million in fiscal year
2007. Thus, regardless of whether a fee is set at a flat dollar amount
or a percentage rate, regular reviews and updates of the fee are
necessary to ensure that the fee remains aligned with program costs
(see final section of this guide, "Reviewing User Fees: Providing
Information on Costs and Program Activities and Facilitating
Stakeholder Support").
On the other hand, fee payers and other stakeholders may be concerned
that, over time, the portion of program costs covered by general
revenues will decline. This concern may be well founded; in prior work
on fee-reliant agencies, we found that increased user fee collections
sometimes appeared to have replaced appropriated funds.[Footnote 20]
This substitution can be a particular concern when new or increased
fees are assessed to augment total funding for a service or program.
For example, part of the rationale for FDA's Prescription Drug User Fee
Act (PDUFA) fees was to increase FDA resources for--thereby decreasing
the processing time of--new drug applications. To assuage fee payers'
concerns that fees might not be used to increase the level of an
existing service--but instead simply be used as a substitute for
funding from general revenues--a fee statute may provide a kind of
maintenance of effort (MOE) requirement in terms of general revenues
funding.[Footnote 21] For example, in any year, FDA may only collect
and spend PDUFA fees when Congress has appropriated from general
revenues a certain amount specifically for FDA new drug application
reviews.[Footnote 22] Such provisions, however, can have unintended
consequences. In prior work we reported that according to FDA officials
the spending baseline for the drug review program reduced available
resources for other activities, such as reviewing over-the-counter and
generic products and inspecting medical product manufacturing
facilities.[Footnote 23] Increased reliance on fees as a source of
funding may lead to a misalignment between the beneficiaries of a
program and the sources of funding for the program and can have
significant implications for agencies.
How Should Program Costs Be Determined and Assigned to Users?
Assigning costs requires (1) determining how much a program costs and
(2) determining how to assign program costs among different users. As
the beneficiary-pays principle is useful in guiding decisions about how
program costs are divided between the general public and users, it can
also guide how program costs are assigned among users. Basing fees on
the cost of providing the program or service from which a user benefits
enhances equity, as measured by the beneficiary-pays principle, as each
user pays for the cost of services actually used. As discussed above,
fees set following the beneficiary-pays principle also generally
promote economic efficiency, as users take into account the "price" of
a service when deciding how much of the service to consume.
How Much Does the Program Cost?
To set fees so that total collections cover the intended share of
program costs, a reliable accounting of total program cost is
important.[Footnote 24] To obtain such an accounting, it is necessary
to determine which activities and costs should be included and which
should not.[Footnote 25] Unless the authorizing legislation specifies
costs that should be included or excluded, agencies should follow OMB
guidance. OMB Circulars No. A-25 and No. A-11 instruct agencies to
include all direct and indirect costs when determining full cost,
including but not limited to personnel costs, including salaries and
benefits such as medical insurance and retirement; physical overhead;
consulting; material and supply costs; utilities; insurance; travel;
rents or imputed rents on land, buildings, and equipment; management
and supervisory costs; costs of collecting and enforcing fees;
research; establishment of standards and regulation; and imputed
costs.[Footnote 26] In prior work we found inconsistent implementation
of this guidance. Some fees designed to cover the full cost of a
program include all direct and indirect costs, but others do not. The
power marketing administrations, for example, include all direct and
indirect costs--including the cost of employee retirement benefits paid
by the Office of Personnel Management--when setting their electricity
rates.[Footnote 27] On the other hand, in recent work, we found that
USDA's Animal and Plant Health Inspection Service (APHIS) did not
include certain indirect and imputed costs when calculating the
Agricultural Quarantine Inspection (AQI) fee rate.[Footnote 28]
Fees should also be set and adjusted to cover the intended share of
costs over time, which means agencies must project and consider future
program costs. For example, in 2006 USDA's Food Safety and Inspection
Service set fee rates through fiscal year 2008 for its meat, poultry,
and egg products overtime inspection services. The fee rates for each
year included adjustments for inflation and employee pay raises, so
that future fee collections were projected to grow with program
costs.[Footnote 29] When more than one agency implements--and therefore
incurs costs related to--a fee program, those agencies should work
together to agree on a method for estimating future costs and
collections. APHIS and CBP, for example, used different forecasting
assumptions related to the AQI fees. In response to our recent work,
the agencies now use common assumptions.[Footnote 30]
Whether fee rates will be set using average cost or marginal cost is
also an important consideration when setting fees. Setting fees at a
rate equal to the marginal cost of providing the service or product to
the user maximizes economic efficiency.[Footnote 31] In part because it
is often difficult to measure marginal cost, fee rates are sometimes
set based on average cost. The AQI fees are intended to cover total
program costs; to set these fees, APHIS projects program costs for
different inspection types (e.g., air passenger, commercial aircraft,
and commercial vessels) and divides each by the total projected number
of each type of payer. That is, each airline pays the same fee per
arrival to cover the costs related to inspecting aircraft.
When marginal costs are measurable but are low relative to the fixed
costs of the program, setting the fee at marginal cost will lead to
collections less than total costs. In these cases, users may be charged
more than marginal costs or the program may be funded in part through
general revenues.[Footnote 32] One option is to create a two-part fee
consisting of (1) a flat fee to cover fixed costs and (2) a usage-based
fee to cover marginal costs. For example, the marginal cost of
providing electricity (i.e., operating power plants and maintaining
transmission lines) is small compared with the costs of building power
plants and transmission lines; thus, electricity consumers could be
charged a flat monthly charge plus a charge that would vary based on
their consumption.[Footnote 33]
If a fee is to recover the costs associated with an agency program or
service or some portion thereof, it is critical that agencies record,
accumulate, and analyze timely and reliable data relating to those
costs, consistent with applicable accounting standards.[Footnote 34]
Many agencies, however, lack reliable cost data.[Footnote 35] For
example, we previously reported that DHS's U.S. Immigrations and
Customs Enforcement lacked adequate cost data to determine the portion
of costs related to international air passenger immigration
inspections, a fee-funded activity.[Footnote 36] Because generating and
maintaining reliable cost data can be expensive, agencies must consider
the costs of implementing, maintaining, and using financial management
systems when determining the level of cost detail they need.
Recognizing this, OMB Circular No. A-25 notes that program cost should
be determined or estimated from the best available records of the
agency and that new cost accounting systems need not be established
solely for this purpose. Still, unreliable cost information can skew
fee-setting decisions, so management needs reliable cost information to
ensure that user fees recover the intended share of costs. As such,
each agency should determine the appropriate level of detail for its
cost accounting processes and procedures.
How Should Program Costs Be Allocated across Users?
If the cost of providing a service varies for different types of users,
the fee may vary (a user-specific fee) or be set at an average rate (a
systemwide fee). All other things being equal, user-specific fees
promote equity and economic efficiency because the amount of the fee is
closely aligned with the cost of the service.[Footnote 37] Systemwide
fees may be higher or lower than the actual cost of providing a service
to certain types of users. As a result there may be cross-subsidies
across users. For example, we recently reported that FAA's current
funding structure raises concerns about equity and efficiency because
users pay more or less than the costs of the air traffic control
services they receive and therefore may lack incentives to use the
national airspace system as efficiently as possible.[Footnote 38]
Because user-specific fees require agencies to track the costs of
providing service to different users, these fees are often more costly
to administer than systemwide fees. Fees charged to vessel operators
for overtime immigration inspections are user specific. The fee is only
assessed when the vessel operator or its agent requests an overtime
inspection. The amount of the fee varies depending on the number and
pay grade of the inspectors and the amount of time spent on the
inspection. We recently reported that this structure increases the
fee's administrative costs.[Footnote 39] According to CBP estimates,
the cost of processing and billing the fee was 26 percent of related
collections in fiscal year 2007. In contrast, the commercial vessel AQI
fee is a systemwide fee. Vessel owners/operators pay the $492 fee
regardless of whether or not the ship is actually inspected by an
agricultural specialist and regardless of the agricultural risk posed
by the vessel. In managing these types of trade-offs between the
benefits and drawbacks of user-specific versus systemwide fees, several
factors may be important to consider.
1. The purpose of a program: Systemwide fees may promote a policy goal
such as helping to support national systems. For example, despite
variation in the amount of maintenance dredging needed at different
ports, the HMF is imposed uniformly at all ports at which shipments are
subject to the fee in order to support a national port system. This
means that users of naturally deep draft ports that require little
dredging (e.g., Seattle) in effect subsidize users of shallower and
river ports (e.g., New Orleans). A user-specific fee may be more
desirable if the fee is seen as a way to support individual entities or
locations or when maximizing economic efficiency outweighs the desire
to support a national system through the imposition of a uniform fee.
2. The amount of the fee: If the fee is small relative to other costs
that a user faces, it may be less important to have a user-specific fee
with different rates. For example, several ships' agents we spoke with
noted that carriers rarely question federal vessel inspection fees, in
part because the fees are such a small part of a commercial vessel's
overall expenses that they do not affect business decisions.
3. The amount of cost variation among users: If there are numerous
different groups of users and a small cost variation among them, the
efficiency gains of a user-specific fee may be overwhelmed by the added
administrative costs. Conversely, if a program has a relatively small
number of user groups and the cost of providing the service to those
groups differs significantly, then user-specific fees might be both
beneficial and feasible.
Some fees include provisions for exemptions, waivers, and caps to
promote certain policy goals and these provisions affect how program
costs are allocated among users. As discussed previously, exemptions
can promote one kind of equity by factoring the users' ability to pay
into the fee rate formula.[Footnote 40] However, as with systemwide
fees, such provisions may also increase cross-subsidies between users.
Exemptions and caps may also raise equity and efficiency concerns. For
example, shipments into certain ports are not subject to the HMF, which
may make these ports less costly to use than ports that are subject to
the HMF. Shippers may have an incentive to use a port that might
otherwise not be the most cost-efficient port to use, so the HMF as
designed may create competitive advantages and disadvantages among
ports. Stakeholders at HMF ports argued that the exemption is
inequitable and can diminish a port's ability to compete. For example,
officials at the port of Boston told us that they believe that one
importer moved its operations from Boston to the port of Quonset/
Davisville in Rhode Island where shipments are not subject to the HMF
to avoid paying the fee.[Footnote 41] Similarly, officials from ports
located near international borders reported that the HMF disadvantages
them relative to nearby foreign ports. Seattle port authority officials
consider the HMF to be a "punitive assessment" because they said it
decreases Seattle's competitiveness against nearby Canadian ports
(which do not charge the fee). The officials noted that the port of
Vancouver actively promotes itself as not charging the HMF and said
this partly explains why the port of Vancouver is growing faster than
the Seattle port.
Reliably accounting for the costs and benefits associated with such
provisions is important in order to ensure that these provisions are
achieving the intended results. In fully-fee-funded programs, if some
users are exempt from paying fees, total fee collections cannot cover
total program costs unless other users pay a higher fee to cover the
costs of the exempted users. For example, commercial and private
vessels are both subject to agricultural quarantine inspections, but
private vessels are exempt from the AQI fees. In prior work we found
that the costs of these private vessel inspections are included in the
AQI fee charged to commercial vessels. Thus commercial vessels are
paying for the cost of inspecting private vessels. An alternative to
cross-subsidization would be to pay for the costs of providing services
to exempt entities through general revenues. In this way the policy
goal is attained and the general public, rather than other users, make
up the cost of exempt users or discounted fees.
Finally, like user-specific fees, fee exemptions and caps can increase
administrative costs to the agency because the agency must carefully
track when fees are due and from whom rather than simply charging
everyone. Commercial vessel operators are generally assessed a $437
customs inspection fee when they arrive at port, but the fee is capped
at $5,955 per calendar year. This is approximately 13.6 payments. This
means that CBP has to calculate the point at which the vessel has
reached the cap and is no longer subject to the fee. We recently
reported that the cap increases CBP's administrative costs and the
potential for errors.[Footnote 42] This issue was particularly
problematic in 2007 because a fee increase took effect on April 1,
2007, so vessels arriving before and after that date paid two different
rates. Since the fee cap applies to payments received within a calendar
year, it was even more difficult for CBP to calculate the total amount
paid and determine if a vessel had reached the cap.
Collecting User Fees: Balancing Compliance with Administrative Costs:
The primary challenge in determining when and how to collect a fee is
striking a balance between ensuring compliance and minimizing
administrative costs (see fig. 4).
Figure 4: Questions to Consider When Designing How User Fees Will Be
Collected:
[See PDF for image]
This figure is an illustration of questions to consider when designing
how user fees will be collected, as follows:
Collecting Fees:
Questions to consider:
* At what point should the fees be collected?
* Can leveraging existing collection or compliance systems decrease
administrative costs?
Sources: GAO (information); PhotoDisc (images).
[End of figure]
At What Point Should the Fees Be Collected?
Fees can be collected (1) at the point of sale before the service is
provided, as airline passenger fees are paid when a ticket is
purchased; (2) at the point of service, as when visitors enter a
national park; or (3) after the service has been provided, for example
when the agency bills the user for a service, as with overtime vessel
inspections.[Footnote 43] Collecting the fee at the point of sale or
point of service may decrease administrative costs since billing
becomes unnecessary. However, point-of-sale/point-of-service
collections do not always ensure low administrative costs since other
practices can considerably complicate a point-of-sale/service
collections system. For example, commercial vessel customs inspection
fees are collected by inspectors at the time of inspection, usually in
the form of a check. We recently reported that because these
collections are not automated, they are administratively costly. When
an agency collects fees on the spot rather than billing for services
(e.g., the national parks system), the agency may have less work to do
in tracking who has paid and who has not, thus reducing administrative
tasks associated with ensuring compliance. However, internal controls
for fee collections are still necessary.
In some cases, collecting the fee at the point of service would present
challenges that make doing so impractical. For example, if CBP
collected fees from international air passengers at the airport, as is
the practice in some other countries, inspection wait times for
passengers would likely increase. For some fees, users are billed for
services. This may create additional administrative costs since agency
billings for services provided can add an extra step to the process. In
some instances agencies are able to reduce their cost of collecting
fees by using electronic payments or lockboxes[Footnote 44] or enabling
users to prepay their fees, thus reducing payments from many to perhaps
one time per year. Commercial trucks entering the United States, for
example, are subject to a $5.25 AQI fee, payable upon arrival. However,
the owner or operator of the truck can prepay the AQI fee annually and
receive a truck transponder that covers all entries for the calendar
year, which enables CBP to inspect the truck and then wave the driver
through, rather than taking the time to collect the fee at each
crossing.[Footnote 45] This prepayment reduces the administrative costs
for both the agency, which may collect an annual payment instead of
payments for every inspection, and the payer, who can make one payment
per year rather than paying at each crossing.
Can Leveraging Existing Collections or Compliance Systems Decrease
Administrative Costs?
In some cases, it makes sense for the agency to coordinate the
collection or audit function with a third party. Specifically, when an
entity or industry (e.g., shippers) is assessed multiple user fees
there may be opportunities for one agency to collect on behalf of
others. For example, HMF collections are used by the Corps for harbor
operations and maintenance costs, but the fee is collected by CBP
because CBP has the administrative structures in place to collect other
fees and duties assessed on the value of imported goods. It is less
costly for the government and payers of the fee for CBP to collect the
fee as part of the formal entry process than it would be for the Corps
or another entity to establish a new collections process. This cost
saving occurs because CBP already values cargo for the assessment of
duties so there is no duplication of effort. We recently reported that
customs brokers with whom we spoke said that this system for collecting
the HMF assessed on imported goods works well, is efficient, and
imposes minimal administrative costs.[Footnote 46] It may also make
sense for agencies to coordinate fee collections when multiple federal
agencies administer similar programs. For example, the Bureau of Land
Management (BLM) manages grazing programs operated on both BLM and
Department of Energy lands.[Footnote 47] Similarly, consolidating the
audit function of related fees within one agency or department can
lessen the administrative costs of auditing them. For example, the
audit function for the customs, immigration, and AQI user fee
remittances by air carriers was consolidated under a memorandum of
understanding between APHIS, the former U.S. Customs Service, and the
former Immigration and Naturalization Service before the three related
inspection functions were consolidated under CBP.[Footnote 48] In some
instances, as when CBP collects the HMF on behalf of the Corps, the
agency is compensated for its cost of collecting the fee.[Footnote 49]
In some cases, a nonfederal entity such as a state government or
private sector enterprise has an existing infrastructure that can
collect the fees. Passenger inspection fees, for example, are collected
by airlines and cruise lines along with ticket fares; the collections
are then remitted to CBP. However, when a private party takes over the
collection function, ensuring compliance may become more complicated,
contributing to administrative costs. Agencies may use audits to
monitor and enforce compliance with the requirement to remit fees. CBP
audits airlines and cruise lines to ensure that they are collecting and
remitting the inspection fees as required. There are a range of other
tools that can encourage compliance in these situations, for example,
bond requirements and rewards and penalties. However, we have
previously reported that to be effective, rewards and penalties must
meet specific criteria, that is, they must provide optimal incentives
and must correspond with performance.[Footnote 50]
Using User Fees: Balancing Congressional Oversight, Agency Flexibility,
and Stakeholder Expectations:
Congress determines to what extent an agency may access (obligate and
spend) fee collections. On the one hand, when the use of fee
collections is not dedicated to the related program or agency, Congress
has greater flexibility to make decisions about allocating resources
and play an active oversight role.[Footnote 51] While some maintain
that the merits of a program, rather than its ability to generate fees,
should influence federal funding decisions, dedicating fee collections
to the program that generated the fee and giving the agency authority
to obligate and expend the fees readily and decide how the collections
will be used enhance the agency's flexibility and ability to respond
quickly to changing conditions. Some have suggested that agencies will
have less motivation to collect and users to pay if the fees are not
credited to the activity that generated the fee. The extent to which
this is the case is unclear. Further, this may be dealt with by
engaging stakeholders--both in and out of government--to help improve
their understanding of the purpose and design of the fee. In designing
a fee, Congress has various mechanisms it can use to strike a balance
between flexibility and oversight (see fig. 5).
Figure 5: Questions to Consider When Designing How User Fees Can Be
Used:
[See PDF for image]
This figure is an illustration of questions to consider when designing
how user fees can be used, as follows:
Using fees:
Questions to consider:
* To what extent is agency access to fee collections limited?
* To what extent are the activities for which the agency may use fee
collections limited?
Sources: GAO (information); PhotoDisc (images).
[End of figure]
What Are the Statutory Controls on Agency Use of Fee Collections?
Agency use of fee collections is determined by Congress. If fee
collections must be annually appropriated to an agency before the
agency may obligate and expend such collections, an agency has less
independence in using them than fees that are permanently
appropriated.[Footnote 52] Requiring an appropriation increases
opportunities for Congressional oversight on a regular basis.
Expenditures from the Harbor Maintenance Trust Fund (HMTF), for
example, are subject to annual appropriation, enabling Congress to
annually determine the level of federal spending on harbor maintenance
rather than automatically equating spending with total fee collections.
Although the HMTF had a balance of almost $4 billion at the end of
fiscal year 2007, the Corps obligated $798 million and $910 million
from the fund in fiscal years 2006 and 2007, respectively.[Footnote 53]
The level of spending from the HMTF reflects Congressional priorities,
possibly including reduction of the overall federal budget
deficit.[Footnote 54] Some stakeholders said, however, that there is a
backlog of harbor maintenance needs and that the misalignment between
the amount of fee collections and expenditures undermines the
credibility of the fee.[Footnote 55]
Conversely, a fee may be designed to give the agency authority to use
collections without additional Congressional action; this design may
enable the agency to respond more quickly to customers or to changing
conditions.[Footnote 56] For example, the authorizing statute makes
USDA Agricultural Marketing Services (AMS) fees directly available to
the agency without further Congressional action. A 1999 USDA report on
user fees noted that because AMS's services are voluntary and because
the agency is financed largely through user fees, AMS has a strong
incentive to develop services for which the industry is willing to pay.
The report also asserts that if AMS did not retain these fees,
innovations in service delivery would generate no financial return for
the agency.[Footnote 57] Further, the report stated that expanded
agency discretion for the use of fee collections will have the greatest
effect in agencies with substantial discretion for adjusting the types
and amounts of services they provide. Creating a structure for
oversight becomes even more important when agency discretion to use fee
collections is expanded.
Permanent authority for fee collections also increases agency
flexibility. With permanent authority, funds are available until
expended, which enables agencies to carry forward unexpended
collections to subsequent years and match fee collections to average
program costs over more than 1 year. Such carryovers are one way
agencies can establish reserve accounts, that is, revenue to sustain
operations in the event of a sharp downturn in collections. For
programs in which fees are expected to cover program costs and program
costs do not necessarily decline with a drop in fee collections, a
reserve is important. For example, the AQI fee statute gives APHIS
permanent authority to use the collected fees and APHIS maintains a
reserve in case of emergency. According to APHIS, the reserve is
necessary because the AQI program is funded solely through user fee
collections. However, with permanent spending authority, agencies may
have less incentive to limit total collections to total costs.
Whether a fee program is designated as mandatory or discretionary
within the budget context may affect the federal budget process more
broadly.[Footnote 58] Mandatory programs are subject to "pay-as-you-go"
(PAYGO) rules if they are in effect.[Footnote 59] Under such budget
rules, increases in mandatory spending or decreases in revenue must be
deficit neutral, that is, they must be offset by a decrease in
mandatory spending or an increase in revenue. For example, if the rate
of the HMF, which is classified as a mandatory governmental receipt,
were reduced and total collections decreased, Congress would have to
offset the lost revenues to comply with PAYGO rules. This requirement
has in the past led to situations in which extensions of expiring fees
are used to offset increases in unrelated programs.[Footnote 60]
Programs that are classified as discretionary are affected by
applicable discretionary spending limits under the Concurrent Budget
Resolution. Because some fees are classified as discretionary spending,
they must be considered in discretionary spending calculations.
[Footnote 61]
Whether fees are designed so that collections are received directly or
on a reimbursement basis also affects agency flexibility. The former
offers the advantage of making funds immediately available to an
agency, increasing its flexibility to plan and respond to changing
conditions. The AQI fee collections are shared between CBP and APHIS,
but only APHIS has authority to use its portion of the collections
directly. According to APHIS, having the funds automatically available
is useful because it facilitates the ability to keep pace with workload
demands and respond quickly to unplanned needs. CBP's portion of the
AQI fee collections--as well as its portion of the Immigration User
Fee--is set up as a "reimbursable account," wherein the agency must
spend other appropriations and apply for reimbursement. This design
means it takes longer for CBP to get fee collections than for APHIS.
According to CBP, this "reimbursable" arrangement results in less
flexibility and a greater administrative burden.[Footnote 62]
Similarly, issues may occur when a program has large up-front costs
(e.g., to develop an information technology system or purchase a
capital asset). Fees collected over subsequent years to cover those
costs would need to be either transferred to the U.S. Treasury's
general fund or "saved" for future capital expenditures, depending on
the statutory authority, because they cannot be used to reimburse
appropriations made in a prior fiscal year.
How Broadly or Narrowly Are the Authorized Uses of the Fee Collections
Defined?
How broadly or narrowly Congress defines the authorized uses for the
fee affects agency flexibility. For example, the AQI fee statute makes
the fee collections available to cover the costs of providing
agricultural quarantine inspection services and administrative costs
related to the fee. The customs inspection fees, however, are only
available to reimburse appropriations for a limited, prioritized set of
activities.[Footnote 63] Congress may also limit agency flexibility in
the use of the fees by directing the agency to use the fees at the
location where the fees were collected. NPS had a now-expired pilot
program under which 80 percent of fee collections were retained and
used by the park where they were collected.[Footnote 64]
Statutes that narrowly limit how fees may be used could reduce
Congress's and an agency's flexibility in making resource decisions
[Footnote 65] and reduce the agency's ability to adjust to changing
priorities or program needs. The previously referenced NPS program is
an example. We reported that restricting use of the 80 percent of fee
collections from the NPS program to the sites at which they were
collected created funding imbalances. This restriction resulted in some
high-revenue sites having more revenue than needed to meet priority
needs and contributed to a backlog of priority needs at lower-revenue
sites.[Footnote 66] Restrictions on use of fees may fail to keep pace
with program needs over time as activities that support the service
change. This can result in authorized activities that are misaligned
with actual service or program activities. We recently reported, for
example, that CBP officials said that since the terrorist attacks of
September 11, 2001, the merchandise processing program has a greater
focus on security than was the case in previous years. Although the
increase is understandable, it has led to a situation in which
activities associated with merchandise processing, including screening
and inspecting conveyances and inspecting vessels and containers, are
not reimbursable by the Merchandise Processing Fee (MPF), even though
CBP views these activities as part of the merchandise processing
service, the cost of which is offset by MPF collections.[Footnote 67]
Recalling the earlier discussion in this guide about public versus
private benefits, if it is determined that a portion of merchandise
processing activities primarily relates to national security--benefits
that primarily accrue to the general public--a case could also be made
that the corresponding costs be funded by general revenues.
Finally, although narrowing the authorized uses of a fee in statute may
facilitate Congressional oversight, it can also increase agency
administrative costs. Ensuring proper use of fee collections may
require collecting more detailed cost data at a greater cost to the
agency. For example, we recently reported that CBP must track the time
CBP officers spend on authorized activities for several of its
inspection fees. To help address a concern that timekeeping was taking
time away from officers' inspection duties, CBP implemented a standard
process for tracking time in early 2007. The process includes
estimating the amount of time officers conducting different functions
(e.g., vessel or passenger inspections) spend on different activities,
including customs, immigration, and agricultural quarantine
inspections.
These challenges mean that statutory fee authorities that make fee
collections available for obligation and expenditure for limited
purposes may require more frequent review and updating for the
authorized purposes to remain aligned with program needs.
Reviewing User Fees: Providing Information on Costs and Program
Activities and Facilitating Stakeholder Support:
By providing program information to agencies, stakeholders, and
Congress, reviews can improve transparency, help ensure that fees
remain aligned with program costs and activities, increase awareness of
the costs of the federal program, and therefore increase incentives to
reduce costs where possible (see fig. 6). Reviews can also provide an
opportunity to solicit stakeholder input on the fee and the programs it
supports.
Figure 6: Questions to Consider When Designing How User Fees Will Be
Reviewed:
[See PDF for image]
This figure is an illustration of questions to consider when designing
how user fees will be reviewed, as follows:
Reviewing fees:
Questions to consider:
* How is the fee updated?
* How often is the fee reviewed and what information is included in the
review?
* What role do stakeholders play in the fee reviews?
Sources: GAO (information); PhotoDisc (images).
[End of figure]
How Is the Fee Updated?
Fees that are not reviewed and adjusted regularly run the risk of
undercharging or overcharging users, raising equity, efficiency, and
revenue adequacy concerns. Fee rates may be adjusted by the agency
(i.e., by regulation) or by Congress (i.e., by legislation) depending
on the statute authorizing a fee.
When fees are adjusted by an agency through the regulatory process,
fees may be updated more frequently than fees adjusted by legislation
and this may improve the ability to keep fee collections aligned with
changes in program costs. APHIS, for example, periodically updates the
AQI fees through the regulatory process to ensure that collections are
aligned with the costs of the program. However, in past reviews
stakeholders have expressed distrust and concern about fee rates set by
regulation because agencies that retain fee collections may have
incentives to artificially inflate the costs of the user fee program.
This risk may be reduced, and tools for Congressional and stakeholder
oversight enhanced, if the agency clearly reports its methods for
setting the fee, including an accounting of program costs and the
assumptions it uses to project future program costs and fee
collections.
On the other hand, when fees are specified and adjusted by legislation,
Congress has more tools with which to play an active oversight role,
but the fees may not be updated as frequently because of competing
legislative priorities and other factors. For example, a fee for
registering aircraft with FAA has been an insignificant amount since
the 1960s.[Footnote 68] Fees set by statute can, of course, be
regularly adjusted. Such Congressional reviews and updates may be
triggered in several ways, including a sunset provision. FDA
prescription drug fees, for example, are authorized for 5 years at a
time. A sunset provision, however, may not guarantee that a fee will be
adjusted to reflect changes in program costs. Although the MPF includes
a sunset provision, the maximum and minimum fees, which are set in
legislation, have not been adjusted since 1995.
Congress may provide strict guidelines within which an agency may set
fees through a regulatory process that may depend on further
Congressional action. For example, the 2007 prescription drug user fee
authorizing legislation set base fee revenue amounts for fiscal years
2008 through 2012. For each year after 2008, the law permits FDA to
adjust the base fee revenue amounts to account for inflation and
workload, and to set fees annually through the regulatory process so
that total projected fee collections will approximate the revenue
levels set in statute.
How Often Is the Fee Reviewed and What Information Is Included in the
Review?
To ensure that Congress, stakeholders, and agencies have complete
information about changing program costs and whether authorized
activities align with program activities, agencies must substantively
review and report on their fees on a regular basis. When a fee's
authorizing statute does not specify review and reporting requirements,
and for fees that derive their statutory authority from IOAA, the Chief
Financial Officers (CFO) Act of 1990[Footnote 69] and OMB Circular No.
A-25 provide for biennial fee reviews that include recommendations
about adjustments to the fees, as appropriate.[Footnote 70]
The regulatory process is also used to provide information on fees to
Congress and stakeholders and to solicit stakeholder input.[Footnote
71] When an agency has authority to adjust a fee through the regulatory
process, it should make substantive information about recent and
projected program costs and fee collections available to the public
through notices in the Federal Register. For example, in 2004 APHIS set
the AQI fee rates for fiscal years 2005 through 2010. It published the
new fee rates, along with descriptions of the costs of the program,
projected program costs and fee collections, and the assumptions it
used to make those projections, in the Federal Register.[Footnote 72]
Similarly, USCIS notified the public of proposed fee adjustments in the
Federal Register. The notice provided information on the program's
workload and the agency's methodology for determining program costs,
including a list of program activities, how it accounts for the cost of
providing services to users exempt from the fees, and its assumptions
about inflation. For fees set in regulation, agencies must solicit
stakeholder input by requesting comments in the Federal Register.
[Footnote 73] This provides an opportunity for stakeholders to comment
on proposed regulatory changes--via written communication, not face-to-
face conversations. As the passenger facility charge[Footnote 74] user
fee was implemented, for example, stakeholders provided comments
regarding the fee, many of which ultimately were addressed in the final
design of the fee. Nevertheless, we previously reported that nonfederal
stakeholders have said that relying solely on notice and comment
through the Federal Register is insufficient for obtaining stakeholder
input.[Footnote 75] In the past, APHIS solicited stakeholder comments
as it adjusted the AQI fee, but it updated the fee using an interim
final rule that took effect prior to the end of the comment period.
Although an interim final rule does not preclude an agency from making
changes to the final rule, stakeholders said that APHIS did not take
their comments on the AQI fees into account because comments were not
solicited before the change was implemented and because no changes to
the fee were made during final rule making. Based on guidance from OMB,
APHIS is no longer updating its fees using interim final rules.
Whatever the means for disseminating information about the fee, if the
review is not comprehensive, it may not provide sufficient information
to assess whether a fee needs to be changed. For example, we recently
reported that the information on the MPF in CBP's biennial fee review
was insufficient to either project fee collections or to provide
assurance that the amount of the fee was aligned with program costs.
This was the case because the review lacked projections of future MPF
collections, the effects of exemptions, and changes in import
demographics. We noted that without this information, CBP is not able
to either determine if the amount, structure, or authorized uses of the
fee should be changed or comment on the need for any changes to the fee
statute. CBP's review noted that a detailed analysis of the current and
estimated future effects of MPF exemptions, changes in import
demographics, and a reliable cost estimate for processing merchandise
are needed.[Footnote 76]
What Role Do Stakeholders Play in the Fee Reviews?
Transparent processes for reviewing and updating fees help assure
payers and other stakeholders that fees are set fairly and accurately
and are spent on the programs and activities Congress intended. Also,
because user fees represent a charge for a service or benefit received
from a specific government program, payers may expect a tight link
between payments and the cost of providing services and have
expectations about the quality of the related service. Effectively
communicating with stakeholders involves sharing relevant analysis and
information as well as providing opportunities for stakeholder input.
In past user fee reviews, we have reported that agencies that do not
communicate with stakeholders miss opportunities for meaningful
feedback that could affect the outcome of changes in fees and program
implementation. Providing for stakeholder input may affect their
support for and acceptance of the fee, and may contribute to improved
understanding about how the fees work and what activities they may
fund. Payers may also expect to participate in decisions about the
provision of the service, including its form or quality. For example,
in prior work on a proposed user fee for FAA services, we found that
some stakeholders stated that if user fees are adopted, users should
have more input into FAA's operations, citing the "user pays, user
says" concept.[Footnote 77] Soliciting stakeholder input is
particularly important because government is often a monopoly supplier-
-that is, alternatives are limited so some fees are not fully
voluntary--users cannot "vote with their dollars" as freely as they can
in a competitive private market.
Agencies can accommodate payers' and stakeholders' input in various
ways. The authorizing legislation of some but not all fees stipulates
that the agency solicit stakeholder input in certain forms, including
an advisory committee.[Footnote 78] The immigration inspection fees
statute, for example, directed the Attorney General to establish an
advisory committee, whose membership consists of entities subject to
the fees, to advise the agency on the performance of the inspectional
services and the level of fees.[Footnote 79] As we recently reported,
the legislation that authorized the HMF did not establish an HMF
advisory committee, although it did establish an advisory committee for
a similar user-funded program for new work construction and
rehabilitation on inland waterways.[Footnote 80] PDUFA requires FDA to
work with stakeholders, including representatives from consumer,
patient, and health provider groups and the pharmaceutical and
biotechnology industries, to develop performance goals for the FDA
prescription drug review program.[Footnote 81]
It is important, however, that actions are taken to ensure that fee
programs do not become solely beholden to stakeholder interests. Where
Congress and fee payers agree on priorities, there may be no conflict
between oversight and accountability to Congress on the one hand and
accountability to fee payers on the other. Where Congressional and fee
payer priorities differ, however, the agency may be under greater
pressure to satisfy the demands of fee payers, particularly when a fee
is voluntary.[Footnote 82] For example, although the FDA performance
goals may be consistent with PDUFA's goal to improve FDA application
processing times for new prescription drugs, a Congressional Research
Service report on the fees cited some critics as saying that giving the
pharmaceutical industry a role in setting program performance goals
creates conflicts of interest and gives the industry too much influence
over FDA actions.[Footnote 83] We previously identified several
promising practices for forming and managing federal advisory
committees that could better ensure that committees are, and are
perceived as being, independent and balanced. These practices include
(1) obtaining nominations for committees from the public, (2) using
clearly defined processes to obtain and review pertinent information on
potential members regarding potential conflicts of interest and points
of view, and (3) prescreening prospective members using a structured
interview. [Footnote 84]
Concluding Observations:
The normative principles outlined in this guide are meant to present a
framework for considering user fee design. Any user fee design embodies
trade-offs among equity, efficiency, revenue adequacy, and
administrative burden. Focusing only on the pros and cons of any single
design element could make it difficult to achieve consensus on a fee's
design. Instead, policymakers will ultimately need to balance the
relative importance they place on each of these criteria and focus on
the overall fee design.
There are always exceptions to any rule, however; as such, there will
undoubtedly be cases in which policy considerations outweigh normative
design principles. Nevertheless, the criteria, questions, and
illustrative examples presented in this guide present real issues that
policymakers must face when designing or redesigning user fees. See
appendix I for a summary of key questions to consider.
Agency Comments:
We provided a draft of this guide to the Director of the Office of
Management and Budget and the Secretaries of Homeland Security,
Defense, and Agriculture for review. We received technical comments
from each agency, which we incorporated as appropriate.
We are sending copies of this guide to interested Congressional
committees as well as the Director of the Office of Management and
Budget and the Secretaries of Homeland Security, Defense, and
Agriculture. In addition, this guide will be available at no charge on
the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this guide, please
contact me at (202) 512-9142 or [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this guide. GAO staff who made major contributions to
this guide are listed in appendix II.
Signed by:
Susan J. Irving:
Director for Federal Budget Analysis:
Strategic Issues:
List of Requesters:
The Honorable Bennie G. Thompson:
Chairman:
The Honorable Peter T. King:
Ranking Member:
Committee on Homeland Security:
House of Representatives:
The Honorable Charles B. Rangel:
Chairman:
The Honorable Jim McCrery:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Key Questions:
(We note that some of these questions may overlap.)
Section I: Setting User Fees:
1. To what extent does the program benefit the general public and
identifiable users?
a. Does use of the program by certain users, or for certain types of
uses, provide a public benefit, for example, by advancing a public
policy goal?
b. What is the users' ability to pay?
c. To the extent that the fees are used to replace funding by general
revenues, what is the impact on the distribution of the burden of
financing the program?
d. What would be the impact of a fee on users' competitiveness with
others that would not be subject to the fee?
e. Is a similar service provided by the private sector? If so:
- Will private producers be subject to unfair competition if the fee is
not set to recover the full costs of the service?
- Should their charges be a reference point in setting fees?
f. For programs that have not been paid for by fees in the past, has
the value of the program been capitalized into private assets? If so:
- Could transitional measures be used to address these concerns?
2. How will the fee be linked to the cost?
a. Does the agency have timely and reliable cost data to link the fee
to program costs?
b. Will the fee recover full or partial costs?
c. Will the fee structure include exemptions or reduced fees?
d. Will the fee be set as a percentage rate or as a fixed dollar
amount?
e. If the fee varies, will fee minimum amount, maximum amount, or both
be set?
f. Will the fee structure be user-specific or systemwide?
- Is the amount of the fee small or large relative to other costs that
the user faces?
- Are there numerous different groups of users?
- Is the cost variation among the different groups of users large or
small?
g. Does the program have high fixed costs?
- Is a two-part fee structure, with a flat rate plus a fee based on
usage, appropriate?
3. How will the fee be structured to cover the intended share of
program costs over time?
a. Are fee collections projected to change over time in relation to the
cost of the program due, for example, to inflation?
b. To what degree will short-term fluctuations in economic activity and
other factors affect the level of fee collections?
c. Will the fee design include a maintenance of effort requirement?
Section II: Collecting User Fees:
1. What mechanisms are available to ensure payment and compliance with
requirements while minimizing administrative costs?
a. To what extent do payment and compliance mechanisms impose
administrative costs on the agency, the payers, or both?
b. Do rewards and penalties for compliance correspond to performance?
2. Is there an agency or other entity that already collects or audits
fees from the users?
a. How will compatible policies and procedures and regular
communication be established?
b. How does coordination affect the administrative costs of fee
collection for the agency and payers?
c. Will collection by another entity affect compliance with fees?
Section III: Using User Fees:
1. What degree of access will the agency have to collected fees?
a. Will the fees directly support the related program or agency or be
deposited to the general fund of the U.S. Treasury?
b. Will agency access to fees be subject to Congressional
appropriation?
c. Will the budget execution of fee collections be through
reimbursement, or will the agency receive fee collections directly?
d. Will the amount of spending be tied to the amount of collections?
e. Will the fee be categorized as mandatory or discretionary?
2. How broadly or narrowly will the activities for which fee
collections can be used be defined?
Section IV: Reviewing User Fees:
1. Will the fee be updated through legislation or by agency regulation?
2. How frequently will fees be reviewed and updated?
a. Will legislation include a sunset provision to trigger fee updates?
b. Will legislation direct the agency to submit regular fee reviews to
Congress, different from the biennial fee review required by the Chief
Financial Officers Act of 1990?
3. What mechanisms will be used to gather stakeholder input?
a. Will the agency establish an advisory committee?
b. Will proposed changes to the fees be published for comment in the
Federal Register?
c. What safeguards will be used to prevent the agency from becoming
beholden to fee payers/stakeholders?
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Susan J. Irving, (202) 512-9142 or [email protected]:
Acknowledgments:
Jacqueline M. Nowicki (Assistant Director) and Susan E.M. Etzel managed
this assignment. Jessica Nierenberg, Kathleen Padulchick, and Amy
Rosewarne made key contributions to this guide. Jay Cherlow, Denise
Fantone, Chelsa Gurkin, Terrance N. Horner, Susan Offutt, Alessandra
Rivera, and Jack Warner also provided assistance. In addition, Pedro
Briones, Carlos Diz, and Sheila Rajabiun provided legal support, and
Donna Miller developed the guide's graphics.
[End of section]
Footnotes:
[1] These are data on "user charges," which OMB defines as fees,
charges, and assessments levied on individuals or organizations
directly benefiting from, or subject to regulation by, a federal
program or activity.
[2] See GAO, Understanding the Tax Reform Debate: Background, Criteria
& Questions, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-
1009SP] (Washington, D.C.: September 2005).
[3] The price index values we used are averages of quarterly indexes
from the Department of Commerce, Bureau of Economic Analysis' National
Income and Product Accounts, table 1.1.4, last revised January 30,
2008.
[4] The Congressional Budget Office has defined user charges as fees or
taxes that are based on benefits individuals or firms receive from the
federal government or that in some way compensate for costs they might
impose on society or its resources. See Congressional Budget Office,
The Growth of Federal User Charges (Washington, D.C.: August 1993). For
budget purposes, we define user fees as fees assessed on users for
goods or services provided by the federal government. See GAO, A
Glossary of Terms Used in the Federal Budget Process, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-734SP] (Washington, D.C.:
September 2005).
[5] See GAO, Aviation Finance: Observations on the Current FAA Funding
Structure's Support for Aviation Activities, Issues Affecting Future
Costs, and Proposed Funding Changes, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-1163T] (Washington, D.C.: Aug. 1, 2007).
[6] National Cable Television Ass'n v. United States, 415 U.S. 336, 341-
42 (1974).
[7] United States v. La Franca, 282 U.S. 568, 572 (1931).
[8] IOAA is codified at 31 U.S.C. � 9701.
[9] See [hyperlink,
http://www.whitehouse.gov/omb/circulars/a025/a025.html].
[10] OMB Circular No. A-25 does not apply to the activities of the
legislative and judicial branches of government or to mixed ownership
government corporations as defined by 31 U.S.C. � 9701.
[11] For more information, see GAO, Principles of Federal
Appropriations Law, vol. 4, 2nd ed., [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-179SP] (Washington, D.C.: March 2001).
[12] Programs that primarily benefit the general public are generally
nonexcludable, that is, there is no practical way of preventing someone
from benefiting from the program, and nonrival, that is, once the
program is in operation, there is no additional cost of providing it to
more people.
[13] A drug sponsor is the person or entity who assumes responsibility
for the marketing of a new drug, including responsibility for complying
with applicable provisions of laws, such as the Federal Food, Drug, and
Cosmetic Act and related regulations. The sponsor is usually an
individual, partnership, corporation, government agency, manufacturer,
or scientific institution.
[14] See GAO, Tax Policy: Effects of the Alcohol Fuels Tax Incentives,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-97-41]
(Washington, D.C.: Mar. 6, 1997).
[15] In prior work on tax systems, we found that transparent tax
systems enable payers to know their own tax burden and the tax burden
of others, irrespective of who legally must pay the tax (see
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-1009SP]).
[16] See GAO, Congressional Attention Is Warranted When User Charges Or
Other Policy Changes Cause Capital Losses, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/PAD-83-10] (Washington, D.C.:
Oct. 13, 1982).
[17] See GAO, Livestock Grazing: Federal Expenditures and Receipts
Vary, Depending on the Agency and the Purpose of the Fee Charged,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-869] (Washington,
D.C.: Sept. 30, 2005), and National Park Service: Opportunities Exist
to Clarify and Strengthen Special Uses Permit Guidance on Setting
Grazing Fees and Cost-Recovery, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-06-355R] (Washington, D.C.: Feb. 9, 2006).
[18] See GAO, National Parks Air Tour Fees: Effective Verification and
Enforcement Are Needed to Improve Compliance, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-06-468] (Washington, D.C.: May
11, 2006).
[19] See GAO, Surface Transportation: Preliminary Observations on
Efforts to Restructure Current Program, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-478T] (Washington, D.C.: Feb.
6, 2008).
[20] This study examined the overall fee collections of 27 agencies
from fiscal year 1991 through fiscal year 1996. See GAO, Federal User
Fees: Budgetary Treatment, Status, and Emerging Management Issues,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-11]
(Washington, D.C.: Dec. 19, 1997).
[21] MOE requirements help ensure that program funding from existing
sources remains at or near historic levels before funding from other
sources may be received. For example, federal grant programs may use
MOE requirements to ensure that grants to state or local governments
are used to supplement, rather than supplant, state and local program
funding.
[22] The specified amount is the amount appropriated for the program in
fiscal year 1997, adjusted for inflation as defined in statute.
[23] See GAO, Food and Drug Administration: Effect of User Fees on Drug
Approval Times, Withdrawals, and Other Agency Activities, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-958] (Washington, D.C.: Sept.
17, 2002).
[24] This does not apply when the government, not acting in its
capacity as sovereign, is leasing or selling goods or resources (e.g.,
offshore oil leases) or is providing a service (e.g., leasing space in
federally owned buildings). Under these business-type conditions, OMB
Circular No. A-25 guidance directs agencies to base user fees on market
prices. Market rates are intended to promote economic efficiency and
allow the private sector to compete with the government without
disadvantage. If user fees do not cover the full costs of a service
that is also privately produced, those private producers may be placed
at a competitive disadvantage. Although reliable program cost
information is not needed to set a market-based fee, the agency would
still need this information to effectively manage the program, as
discussed in Statement of Federal Financial Accounting Standards No. 4,
Managerial Cost Accounting Concepts and Standards for the Federal
Government (July 31, 1995).
[25] For more information on accounting for program costs, see GAO,
Managerial Cost Accounting Practices: Implementation and Use Vary
Widely across 10 Federal Agencies, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-679] (Washington, D.C.: July 20, 2007); Managerial
Cost Accounting Practices: Leadership and Internal Controls Are Key to
Successful Implementation, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-1013R] (Washington, D.C.: Sept. 2, 2005); and Human
Capital: DOD Needs Better Internal Controls and Visibility over Costs
for Implementing Its National Security Personnel System, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-851] (Washington, D.C.: July
16, 2007).
[26] Imputed costs of an agency are costs of goods or services incurred
on behalf of the agency that are paid by another federal entity, such
as certain retirement benefits paid to retirees by the Office of
Personnel Management.
[27] See, for example, Bonneville Power Administration, 2007 Annual
Report (Portland, Ore.: November 2007).
[28] See GAO, Federal User Fees: Substantive Reviews Needed to Align
Port-Related Fees with the Programs They Support, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-321] (Washington, D.C.: Feb.
22, 2008).
[29] Agencies must use realistic inflationary indicators if they want
to reasonably estimate future program costs and better align future
collections with those costs. OMB Circular No. A-94, which provides
guidance to agencies on benefit-cost analysis for federal programs,
notes that future inflation is highly uncertain and recommends that
when a general inflation assumption is needed, agencies use the rate of
increase in the GDP deflator from the administration's economic
assumptions for the period of the analysis.
[30] See GAO, Federal User Fees: Key Aspects of International Air
Passenger Inspection Fees Should Be Addressed Regardless of Whether
Fees Are Consolidated, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-1131] (Washington, D.C.: Sept. 24, 2007).
[31] Marginal cost is equal to the cost of providing an additional unit
of the good or service.
[32] There will be some loss of economic efficiency in either case:
user fees set above marginal cost and taxes--that is, general revenues-
-both result in some loss of economic efficiency. See [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-1009SP].
[33] For more information on pricing for federal services, see GAO, The
Congress Should Consider Exploring Opportunities To Expand And Improve
The Application Of User Charges By Federal Agencies, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/PAD-80-25] (Washington, D.C.:
Mar. 28, 1980).
[34] According to Statement of Federal Financial Accounting Standards
No. 4, reliable information on the costs of federal programs and
activities is crucial for effective management of government
operations, which includes setting user fees.
[35] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-679].
[36] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1131].
[37] Unless fees are perfectly user specific, some users will pay a
higher proportion of the costs they impose and some users will pay a
lower proportion of their costs. In the case of a fee that is not user
specific and recovers full program costs (i.e., does not use general
revenue funding), some users will pay more than the costs they impose,
essentially cross-subsidizing other users, who will pay less. See, for
example, GAO, Assigning Air Traffic Control Costs to Users: Elements of
FAA's Methodology Are Generally Consistent with Standards but Certain
Assumptions and Methods Need Additional Support, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-76] (Washington, D.C.: Oct.
19, 2007).
[38] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1163T].
[39] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-321].
[40] However, exemptions may only effectively address ability-to-pay
concerns if exempted entities are aware of the exemption and have the
capacity to make use of it. For example, a study by the Taxpayer
Advocate Service found that nearly half of taxpayers below the poverty
level, who should have been eligible for a waiver of the OIC fee, did
not submit the form required to obtain a waiver. See Taxpayer Advocate
Service, National Taxpayer Advocate: 2007 Annual Report to Congress,
vol. 1 (Washington, D.C.: Dec. 31, 2007). The Internal Revenue Service
revised the OIC application form and instructions in February 2007, and
they now contain several references to the fee waiver.
[41] According to Corps officials, shipments into the port of Quonset/
Davisville are not subject to the HMF because its harbor channel is not
a federal channel and no federal funding is used for maintenance
dredging of the channel.
[42] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-321].
[43] OMB Circular No. A-25 guidance states that fees should be
collected in advance of or at the point of service, unless
appropriations and authority are provided in advance to allow
reimbursable services. Regardless of the method of collection, the
guidance requires agencies to ensure that the requirements of OMB
Circular No. A-123 (Internal Control Systems) and appropriate audit
standards are applied to fee collections.
[44] Lockbox services are provided by banks, which receive and process
fee payments made by check or cash and send payment information to the
agency.
[45] For fiscal year 2008, the fee for the prepaid AQI truck
transponder is $105, 20 times the per arrival fee.
[46] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-321].
[47] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-869].
[48] With the creation of DHS in 2003, the customs, agricultural, and
immigration inspections of international airline passengers were
integrated into one program led by DHS's CBP.
[49] As outlined in OMB Circular No. A-25, the costs of administering
and collecting the fee should be included when calculating the cost of
the program and included in the fee rates when the fee is intended to
recover full costs.
[50] See GAO, Grants Management: Enhancing Performance Accountability
Provisions Could Lead to Better Results, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-06-1046] (Washington, D.C.: Sept.
29, 2006).
[51] Fees assessed by an agency under the authority of IOAA, rather
than under a specific authorizing statute, must be deposited to the
general fund of the U.S. Treasury and are not reserved for the agency
or program that generated the fees, unless otherwise authorized by law.
[52] There are two types of offsets: offsetting collections and
offsetting receipts. Offsetting collections are authorized by law to be
credited to expenditure accounts (in effect, a negative expenditure)
and are not subject to further Congressional appropriation before an
agency may obligate the collections; an annual appropriation act may
include limitations on the availability of obligation of these
collections. Offsetting receipts are offset against gross outlays; are
deposited in receipt accounts, which are generally dedicated to a
specific purpose; and must be appropriated before they are available
for obligation. However, most trust fund offsetting receipts are
permanently appropriated and, therefore, can be used without subsequent
annual appropriation legislation. A third type of collection,
governmental receipts, is not offset against outlays and whether its
use is subject to appropriation depends on the specific authorizing
legislation for the collection. See [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-734SP] and [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-98-11].
[53] Because of the way the appropriation was structured, if the Corps
were to obligate additional funds from the HMTF, it would have to
reduce, by the same amount, obligations for other Corps programs. For
example, in fiscal year 2006, Congress appropriated almost $2 billion
for the Corps' operation and maintenance program. This $2 billion
included amounts available for projects eligible for funding from the
HMTF. If the Corps decided to increase spending on operation and
maintenance of harbors and channels that is eligible for funding from
the HMTF, the Corps would have to reduce funding for other operation
and maintenance programs that are not eligible for funding from the
HMTF, such as flood and storm damage reduction projects and aquatic
ecosystems restoration.
[54] Trust fund surpluses add to the unified budget totals (increasing
a surplus or reducing a deficit) and any trust fund deficits subtract
from them. See GAO, Federal Trust and Other Earmarked Funds: Answers to
Frequently Asked Questions, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-199SP] (Washington, D.C.: January 2001).
[55] As noted in [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-
199SP], federal trust funds do not necessarily operate in the same way
as trust funds in the private sector. Specifically, designation as a
trust fund does not in and of itself impose a greater commitment on the
federal government to carry out that specified activity over other
government activities. However, the label trust fund may lead the
public to expect a greater commitment, setting up unrealistic
expectations. Stakeholders may expect that earmarked revenues--whether
they are in a trust fund, special fund, or the general fund--will be
spent because the revenues are there, regardless of the need for the
spending at the moment or the priority that would otherwise be given
such spending.
[56] OMB Circular No. A-25 notes that it may be appropriate for an
agency to seek multiyear or no-year spending authority if the program
depends on user demand that is irregular or unpredictable.
[57] U.S. Department of Agriculture, Economic Research Service, User-
Fee Financing of USDA Meat and Poultry Inspection (Washington, D.C.:
March 1999).
[58] Mandatory spending refers to budget authority that is provided in
laws other than appropriation acts and the outlays that result from
such budget authority. Congress controls spending for these programs
indirectly by defining eligibility and setting the benefit or payment
rules, rather than directly through appropriation acts. Discretionary
spending refers to outlays from budget authority that are provided in
and controlled by appropriation acts.
[59] Although statutory PAYGO expired in 2002, both chambers of the
110th Congress imposed PAYGO through their rules.
[60] For example, recently enacted legislation extended trade
adjustment assistance programs--programs for workers and farmers
adversely affected by increased imports--for 3 months. The legislation
provided offsets, including a 1-week extension of the expiration of
customs inspections fees, to make the legislation comply with PAYGO
rules under Congressional budget enforcement procedures. See Pub. L.
No. 110-89, 121 Stat. 982 (Sept. 28, 2007).
[61] The budget resolution sets a cap, called a 302a allocation, on
total appropriations for the Appropriations Committees. In turn, the
Appropriations Committees provide caps, or 302b allocations, to their
subcommittees. If a subcommittee were to exceed its 302b allocation,
another subcommittee would have to allocate less. The section 302
allocations refer to relevant sections of the Congressional Budget and
Impoundment Control Act of 1974.
[62] The Immigration User Fee Account is used to reimburse any expenses
incurred in providing immigration inspection and pre-inspection
services. Reimbursements are made on a quarterly basis. This has been a
problem for CBP, since it has to use appropriations to cover initial
costs and then later get reimbursed, raising concerns about revenue
adequacy and administrative burden. Because CBP is reimbursed by USDA/
APHIS on a bimonthly basis for its inspection activities, the APHIS fee
raises similar concerns.
[63] In this instance, although Congress limited agency flexibility by
limiting the use of fee collections, it did so in a way that did not
closely link the fee to the program. Specifically, not all of the
activities authorized to be funded by the custom fee are associated
with conducting customs inspections, and not all customs inspection
activities can be covered by user fee collections. In a recent user fee
review, we learned that this created the misimpression among
stakeholders that fees were being misused. See [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-1131].
[64] Congress authorized the pilot program, called the Recreational Fee
Demonstration Program, in 1996. See GAO, Recreation Fees: Management
Improvements Can Help the Demonstration Program Enhance Visitor
Services, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-10]
(Washington, D.C.: Nov. 26, 2001).
[65] Congress always maintains autonomy, as it can change authorized
activities through legislation. Nonetheless, Congress has more
flexibility as to how to use fee collections that are deposited to the
general fund of the U.S. Treasury.
[66] To address these concerns and other issues, Congress passed the
Federal Lands Recreation Enhancement Act (REA) in 2004. REA replaced
the pilot program with new fee authority that increased agency
flexibility for the expenditure of fee collections. Though, in general,
REA requires that the collecting unit retain a minimum of 80 percent of
fee collections, the agency may reduce the percentage allocation to as
little as 60 percent if it determines that the collections at a given
unit exceed its reasonable needs. See GAO, Recreation Fees: Agencies
Can Better Implement the Federal Lands Recreation Enhancement Act and
Account for Fee Revenues, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-06-1016] (Washington, D.C.: Sept. 22, 2006).
[67] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-321].
According to CBP, the agency has initiated a comprehensive review of
its costs and activities related to merchandise processing, as well as
MPF collections.
[68] The current House reauthorization bill, H.R. 2881, calls for
substantial fee increases. See [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-1163T].
[69] The CFO Act requires an agency's CFO to review, on a biennial
basis, the fees, royalties, rents, and other charges for services and
things of value and make recommendations on revising those charges to
reflect costs incurred. 31 U.S.C. � 902(a)(8).
[70] OMB Circular No. A-25 provides that each agency will review user
charges biennially. These reviews will include (1) assuring that
existing charges are adjusted to reflect unanticipated changes in costs
or market values and (2) a review of other programs within the agency
to determine whether fees should be initiated for government services
or goods for which it is not currently charging fees. It also states
that if imposing such fees is prohibited or restricted by law, agencies
will recommend legislative changes as appropriate. Further, the
Circular instructs agencies to discuss the results of the user fee
reviews and any resulting proposals in the CFO annual report required
by the CFO Act. This reporting may be done in agency performance and
accountability reports.
[71] Under the Administration Procedures Act, general notice for
proposed rule making is published in the Federal Register. After such
notice is published, an agency must provide an opportunity for
interested parties to comment. 5 U.S.C. � 553 (b), (c).
[72] In addition, each summer APHIS publishes an annual reminder notice
of upcoming user fee changes in the Federal Register.
[73] Executive Order 12866, Regulatory Planning and Review, requires
agencies to provide the public with meaningful participation in the
regulatory process, including an opportunity to comment on proposed
regulations, which in most cases should include a comment period of not
less than 60 days.
[74] Passenger facility charges are passenger fees that airlines
collect and remit to airports. Airports use the fees to fund FAA-
approved projects that enhance safety, security, or capacity; reduce
noise; or increase air carrier competition.
[75] See GAO, Reexamining Regulations: Opportunities Exist to Improve
the Effectiveness and Transparency of Retrospective Reviews,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-791] (Washington,
D.C.: July 16, 2007).
[76] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-321].
[77] See GAO, Aviation Finance: Observations on Potential FAA Funding
Options, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-973]
(Washington, D.C.: Sept. 29, 2006).
[78] Our prior work found that federal advisory committees play an
important role in shaping public policy by providing advice on a wide
array of issues. See GAO, Federal Advisory Committees: Additional
Guidance Could Help Agencies Better Ensure Independence and Balance,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-328] (Washington,
D.C.: Apr. 16, 2004). However, neither IOAA nor OMB Circular No. A-25
includes a requirement for agencies to establish an advisory committee
or solicit stakeholder input related to their user fees.
[79] The Immigration and Naturalization Service User Fee Advisory
Committee was first established in 1986. The Homeland Security Act of
2002 transferred the immigration inspection functions to the newly
created CBP in DHS, and the committee was renamed the Airport and
Seaport Inspections User Fee Advisory Committee.
[80] The purpose of this Inland Waterways Users Board is to make
recommendations on program priorities and spending.
[81] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-958].
[82] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-11].
[83] See Congressional Research Service, The Prescription Drug User Fee
Act (PDUFA): Background and Issues for PDUFA IV Reauthorization
(Washington, D.C.: Apr. 30, 2007).
[84] See GAO, Federal Advisory Committee Act: Issues Related to the
Independence and Balance of Advisory Committees, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-611T] (Washington, D.C.: Apr.
2, 2008).
[End of section]
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