In chapter 8 there was much discussion on taxing and how different strategies affect behaviors and income. Examine the following situation:
Your city has decided to examine ways to diversify the funding of the fire department. The community needs to find a way to bring in $100,000 in revenue this year. It can not cut spending by $100,000, as any reduction in spending would result in failure to meet regulation and compliance requirements. It is removing $100,000 of the current funding from sales taxes and reallocating it to the parks department. Therefore, it is looking at doing 1 or more of these to raise the money (which then goes into the fire budget):
1) Currently the fire department fights approximately 100 fires per year. It would charge a fee to the property owner of $1000 for any firefighting efforts it provides. This would impact all fires the same regardless of how extensive they are (example a huge factory fire and a garbage can fire would each be billed $1000).
2) Currently the fire department fights approximately 100 fires per year. It would charge a fee to the property owner on a sliding scale based on resources used at the fire. As a result a huge factory fire might result in a $10,000 charge and a garbage can fire might cost $100.
3) There are 5000 homes and businesses in the community. Each would be assessed a $20/year fire services fee on their property tax bill.
Examine each option and tell me:
1) How would the fee affect the residence of the community?
2) Would you support that option and why / why not?
3) Do you believe the fee would actually return the expected net revenue or would it be more or less than expected? For example – just because the city assesses a fee doesn’t mean it gets collected.
Explain your answers. You do not need to tell me which you think is the best solution, just try to evaluate them.