Franchise Fees - A Tax Loophole?
While most of Foster City’s residents were likely watching our San Francisco Giants win game seven of the National League Championship Series, a few of us were in a City Council meeting. At that meeting, the Council voted 3 – 2 to increase the Franchise Fees for trash collection from 5% to 10%.
What are Franchise Fees, you may ask? Well Franchise Fees are the fees that cities charge to vendors, such as Recology for the “privilege” of providing some service to the city residents and businesses. In this case it was trash and recycle collection. These fees are supposed to be used to offset the cost incurred by the City when the vendor provides services. In the case of trash collection those costs would include the cost for someone at the city to interface with residents, businesses and Recology when there are collection problems. Other costs would include things such as wear and tear on our streets from the trucks driving on them.
Who pays these Franchise Fees? Well, Recology pays them to Foster City, but Recology is allowed to treat them as what is called a “pass-thru” and pass the cost off to the ratepayers. In other words, you and I pay these fees.
You will soon be receiving a notice in the mail advising you of a change to the franchise fee along with some other changes. The good news will be that not only do we have the lowest collection rates in the County, there is also not going to be an increase for the coming year. Sounds great, right?
Well, actually the reason that there is not going to be an increase in the collection rate is because the City is expecting to actually collect from Foster City residents and businesses about $300,000 more than it will have to pay to Recology. Rather than return this money to us, the Council, by a vote of 3 – 2 decided to increase the Franchise Fee and keep about $275,000 of this money to use to offset the projected budget deficit! Moreover, this effect will be somewhat hidden since there are already excess funds collected and thus no need for a rate increase for the coming year. However, doubling the franchise fees will make it much more likely that there will be increases in the future, with us residents and businesses paying the City at least $275,000 more each year (and probably higher) in the form of these Franchise Fees.
Frankly, as I said at the Council meeting, I was shocked and offended. I told the Council that I saw this as a hidden tax and that there was no justifiable reason for increasing the Franchise Fees. I reminded them that I have always stood for the proposition that we should balance the budget by cutting excesses but not by taxing. If we get to the point where we need to decide to cut key services or tax, we should take it directly to the residents and businesses and allow them to decide by vote. Unfortunately three Council members disagreed and voted for the increase.
Cutting excesses and resetting other fees to appropriate levels could make unnecessary the $275,000 of additional fees that the City will be charging our residents and businesses. We could save $50,000 by not spending money on exploration of two new parks, Werder Park and Destination Park, during these difficult economic times. We could save another $50,000 not building a veteran’s wall with public funds. We could save $300,000 by ending the subsidy for recreation programs and simply charging those who use the programs the actual cost. (The $300,000 subsidy is down from about $600,000 when I was first elected to the Council). There are other things that can be cut and revised that will in no way effect the quality of life for Foster City residents and businesses. To do that, however, we need to stop spending on new and unnecessary programs. Until that happens, I urge all of our businesses and residents to stay aware of hidden taxes, such as increased Franchise Fees, because this could be just the tip of the iceberg.
It was argued at the meeting that the $275,000 represents less than $10 per resident and that other cities charge a 10% franchise fee. I find neither of these arguments persuasive nor, in fact, even relevant. If we want to tax we should put a tax measure on the ballot and let people vote. This is not the City’s money and the City should not presume to simply take it.
There will be further public hearing on these fees and I urge each and every one of you to understand this issue better and to make your position known and heard. Being fiscally conservative with your money is not always easy. There are hard decisions to make. Reasonable minds can disagree. But I think we should be more open about things such as Franchise Fees and other areas where costs are born by us, before we decide that taxing is the way to go.
Those are my thoughts. You can always share your ideas with me by email at email@example.com or call me at (650) 286-3504.
October 31, 2012
Franchise Fees - A Tax Loophole?