A study of 10 local governments' experiences with TUF ordinances spotlights those features that courts have upheld as representative of a fee rather than a tax.
Historically, cities and counties paid for roads with taxes and special assessments. Since the mid-1980s, localities in certain states also have imposed transportation impact fees. Even while tapping all these sources, many localities find their road needs outpacing their revenues. Property tax hikes are death politically, and transportation impact fees can be used only to meet the needs of new development. Local governments must come up with the funds to operate and maintain the new roads built with impact fees and to eliminate congested conditions on existing roads. These are precisely the uses of funds for which transportation utility fees (TUFs) are intended.
In jurisdictions with TUFs, roads are treated as a public utility, and developed properties are charged a fee for service in much the same way they are charged for water, sewer, trash collection and, increasingly, stormwater utility services. Like other utility fees, TUFs are imposed on a jurisdiction-wide basis and continue in perpetuity, financing ongoing operations.
In June 1992, Port Orange, Florida, became the 10th U.S. city (and the first east of the Mississippi River) to adopt a TUF. Initially, TUF funds will replace a 0.287-mill subsidy from the city's general fund and eliminate a shortfall in the city's road maintenance budget. Eventually, funds will be used to pave dirt roads, construct bike paths, and reconstruct and widen deficient city streets.
This article discusses legal and practical issues faced by Port Orange and others adopting TUFs. Findings and conclusions are based, in part, on a survey of localities with TUF ordinances. A nationwide search in late 1991 uncovered nine such places outside Florida. Exhibit 1 delineates the key characteristics of those TUF ordinances.
Main Advantage of a TUF
Use of a TUF to fund road maintenance has one compelling advantage over the common alternative of reliance on property tax receipts from the general fund. With a property tax, a significant percentage of traffic generators pay nothing due to their tax-exempt status. In contrast, with a TUF, every local traffic generator pays to support the local road system. Some inequity creeps into a transportation utility fee schedule because road use usually is estimated rather than measured and because estimates are based on averages for entire classes of property. Still, this shortcoming may be less problematic than the exemption of entire classes of developed property from any financial contribution to road maintenance. In Port Orange, the amount of tax-exempt property getting a free ride was a sore point with local officials.
Tax or User Fee?
In Florida as in most states, localities may levy taxes only if specifically authorized by state law, whereas they have blanket authority to charge user fees. The object in structuring a TUF, therefore, is to make it as much like a user fee and as little like a tax as possible. A TUF imposed by Fort Collins, Colorado, was upheld by the supreme court of that state when it was determined to be a valid fee. The Supreme Court of Idaho struck down Pocatello's TUF when it was held to be a disguised tax.
Among the forces shaping the design of TUFs are the Supreme Court of Colorado; the Supreme Court of Idaho; the Attorney General of Oregon, who opined that Ashland's TUF is a property tax; and the courts and legislatures of other states, which have drawn the line between user fees, taxes and special assessments through their case law and statutes.
To qualify as user fees, government charges must be reasonably related to the use of public facilities or services. For TUFs, the most reasonable basis for fee setting is the "cost occasioned" by a class of road users, that is cost incurred by government in meeting the needs of that class. …