The purpose of this procedure is to provide staff with guidelines for updating or establishing user fees.
All user fees will be updated annually as part of the operating budget process and displayed on the town website. The full cost of providing each User Fee service shall be determined as the starting point for setting the user fee regardless of whether the full cost is to be recovered. New fees shall not be introduced without knowing the full cost of providing the service for which a fee is being considered. The costing model developed by the Financial Planning department shall be the basis for the costing of town services.
User fees will be set to recover the full cost of providing the applicable service, except where:
- Council has approved a subsidy or exemption.
- Services benefit the community or general public and not just the individual, group of individual or business sectors.
- Services are based on competition in the open market.
- Fee amounts are legislated by the Province.
The amount of a fee must not exceed the full cost of providing the applicable service.
1. When to Charge User Fees
Where it is determined that a service or activity provided by the town confers a direct benefit on individuals, identifiable groups or businesses, a user fee will be set to recover the cost of providing the User Fee service. User Fee services shall be funded fully through the user fee charged for the service, unless otherwise determined.
Where it is determined that a service or activity provided by the town confers a direct benefit to individuals, identifiable groups or businesses but also results in benefits to the general public, it will be partially funded by other revenue sources by way of a subsidy.
The characteristic of the service and the nature of the benefits derived will help to determine the type of service and when to charge user fees. Services delivered by government are generally classified into the following major categories:
- Public Service: Benefits the general public; it is impossible to exclude someone from using or enjoying the benefits provided by the service.
- Private Service: Benefits specific individuals, groups or businesses; it is possible to exclude someone from using the service.
- Mixed Service: Benefits the general public as well as the specific individual, group or business using the service.
The 'Decision Matrix Chart' attached under 'References and Related Documents' represents a decision matrix to assist in determining whether a service is to be funded by user fees, property tax revenues, other revenue, or a combination of such, based on the type of service (public or private) and who benefits.
As illustrated in the chart, the analysis distinguishes the degree to which a service benefits the community as a whole, an individual, or groups of individuals and how it should be funded.
Notwithstanding that a service qualifies for user fee, the service may be subsidized by other sources of revenue either entirely or partially if it is determined that full cost recovery would not be cost effective or would be inconsistent with achieving the town’s policy objectives or legislative requirements.
Every town service must be reviewed at least once every four years to determine if the cost of providing the service should be recovered through user fees or funded from property tax revenues or any other source of revenue. In order to accomplish this, Directors will determine:
- the degree to which the benefits that each service provides accrue directly to specific individuals or groups of individuals or businesses (a private service), and
- whether the service should be paid for by users of the service or whether the service benefits the entire community (a public service) and should be funded from the property tax revenues or other revenue source.
2. Determine the Full Service Cost
The full cost of providing each User Fee Service shall be determined as the starting point for setting the user fee regardless of whether the full cost will be recovered. New fees will not be introduced without knowing the full cost of providing the service for which a fee is being considered. The costing model developed by the Financial Planning department will be the basis for the costing of town services.
The full cost shall include:
- Direct costs attributed to the delivery of the service such as salaries and benefits, materials, supplies and purchased services.
- Indirect costs that cannot be identified and charged directly to a specific program but are related to the resources dedicated to support it, such as costs associated with Corporate Support.
- Capital costs for asset utilization referred to as capital amortization. Amortization is defined as the original cost of the tangible capital asset divided by its useful life. Examples of capital assets used in the delivery of a program include buildings, vehicles and equipment.
3. Develop the Cost-Recovery Strategy
The major principle of the User Fee Policy is that those who receive the benefits should pay. Therefore, cost recovery strategies are developed to consider the extent of the benefits received by identifiable individuals/groups (private benefit) versus that received by the general public. In situations where full cost recovery is not the appropriate pricing strategy, the level of subsidy is based on the full cost of delivering the service and the reasons for recovering less than the full cost of providing the service stated. This improves consistency, transparency and accountability in managing user fees and facilitates Council's decision-making process.
The following factors shall be considered when setting user fees and cost recovery levels.
(i) Community-wide versus individual benefits. Where the town provides goods or services that have societal benefits, the level of user fees shall reflect the benefits received by the general public relative to the private benefits.
(ii) Affordability of the service. Where services are specifically designed to serve particular groups or segments of the population affordability will be considered in order to achieve public policy outcomes.
(iii) Where the town provides a cost recoverable service that is similar to services provided by the private sector under competitive market conditions, the town’s user fees should be in line with prices charged in the private sector, unless the user fees do not achieve an appropriate level of cost recovery in which case the service provided by the town should be reviewed to determine its feasibility. To ensure that competitiveness is maintained, the town’s user fees must be compared annually to the prices charged in the private sector.
(iv) The fee charged for services can significantly impact demand. In an environment with increasing public demand for services, user fees can be utilized as a mechanism for allocating scarce resources in an efficient manner. The implementation of full cost recovery generally ensures that the town is providing a service for which there is a genuine demand that is not overly stimulated by fees that are substantially below cost.
(v) Where there are limits set by town policy objectives or other legislative requirements on the level of cost recovery, pricing shall reflect these limits.
An impact assessment must be conducted to ensure that the value of the benefit provided bears a relation to the user fee associated with the service. The impact assessment should focus on factors such as economic competitiveness and on social factors such as access to town services by low-income residents.
Notwithstanding the principle that the full cost of user fee services be recovered, certain factors may exist that warrant recovery of less than full cost, or no recovery at all. The amount of the service that is not recovered from user fees would then be subsidized by the town, principally from property tax revenues. Subsidy for a particular service will be considered where:
- Full cost recovery would conflict with town policy objectives or priorities, or with legislative requirements.
- Consumption of the good or service provides societal benefits in excess of the value received by those paying for the service. In such cases, the amount of the subsidy should reflect the estimated value of the societal benefit derived from consumption of the service.
- Collecting the user fee is inefficient, not cost effective, or the fee constitutes an insignificant portion of the cost of the applicable service.
- Market conditions preclude setting user fees to recover the full cost of services that are offered in a competitive, open market environment.
- Other conditions exist, based on the extent of societal benefits derived from the general consumption of the service, which justify funding from other revenue sources.
The justification for the level of cost recovery associated with individual user fee services should be clear and explicit. Furthermore, the amount of subsidy shall be well defined and transparent to those providing and monitoring the user fee service.
As new services are introduced or changes to fee structure or cost recovery are recommended, the reason why a particular user fee service should be subsidized, the conditions and criteria will be reported to council prior to the annual update of the Rates and Fees schedule.
5. Waivers and Exemptions
Refer to the Corporate Community Assistance Policy - MS-SPR-002 and related procedures.
6. Full Service Cost Review
For services that require 100% cost recovery, the full cost of these services will be updated annually to ensure full cost recovery through user fees.
For services that require less than 100% cost recovery, the full cost of these services shall be updated at least once in a four year period. Notwithstanding the fact that the full cost of these services will be updated at least once in a four year period, market-based fees should still be reviewed annually to ensure that market competitiveness is maintained.
7. User Fees Review
Fees will be updated annually as part of the operating budget process. Fees that require 100% cost recovery will be updated to recover the full cost of providing the service and will be effective on January 1 of each year, subject to Council approval, or the start of the program offering.
Fees that require less than 100% cost recovery will be adjusted for inflationary changes and level or standard of service delivery, and will be effective on January 1 of each year, subject to Council approval, or the start of program offering. Authority is delegated to the appropriate Director and the Finance department to jointly determine the automatic annual inflationary adjustment to each user fee based on the projected rate of inflation for the upcoming year for the cost of each component of the overall cost of providing the user fee service.
All user fees shall be reviewed at least once in a four year cycle. The review will re-evaluate the assumptions upon which the user fee is based and the degree to which the User Fee Policy is complied with. The review will be coordinated between the Finance department and each program Director/Manager and will include the following.
- List of user fees along with primary beneficiaries of the relevant services;
- Full cost of providing each user fee services;
- User fee revenues generated for each service;
- Indication of whether subsidies are to be provided and why along with criteria for waiving the fee in whole or in part, if applicable;
- Service levels and standards established to deliver the service as well as actual performance levels that have been reached, and other relevant performance metrics.
Any changes to the user fees will be incorporated in the rates and fees schedule for Council consideration.
8. Categories of User Fees
To facilitate the review of user fees and evaluation of cost recovery rates, user fees are categorized based on the following classification:
a) Market-Based: Fees in this category are compared annually to rates charged by other service providers for the same or similar services to ensure that market competitiveness is maintained.
b) Province-Legislated: Fees in this category are legislated by the Province.
c) Town Policy: Fees in this category are determined by town policy and recover less than the full cost of providing the service.
d) Full Cost Recovery: Fees in this category recover the full cost of providing the service.
9. Information Required for Introduction of New User Fees
When introducing a new user fee outside the annual operating budget process, a staff report is to be prepared and submitted to Council requesting approval of the fee. The report to Council is to include the following:
- Service and user fee description;
- Primary users of the service for which the user fee relates;
- Full cost of providing the service;
- Proposed fee amount or rate;
- Justification for implementation of the proposed fee;
- Percentage of the full cost that will be recovered from the fee, and if less than full cost will be recovered the reasons for doing so;
- Estimated annual revenue that the fee will generate;
- Public consultation undertaken – when and how. Provide a summary of consultation outcomes; and
- Service levels and standards, and relevant performance measures.
User fees will be presented to Council annually as part of the operating budget process for approval and inclusion in the annual operating budget. Notice of this will be provided to the public on the town’s website and through advertisement in the local newspaper(s). Upon Council approval, all user fees will be posted on the town website.
Full Cost of Services - includes direct and indirect costs, including the costs of operations and maintenance, overhead, and charges for the use of capital assets used to provide the service.
Subsidy - is the amount of the full cost of providing a service that is not recovered from user fees but is paid for by the town, principally from property tax revenues.
User Fee - means a fee or charge to individuals or groups and/or businesses for the provision of a service, activity or product, or for conferring certain rights and privileges, which grant authorization or special permission to a person, or group of persons to access town-owned resources (including property) or areas of activity.
Directors are accountable for ensuring that user fees for services charged for their programs are properly charged, collected, deposited and in general, are administered in compliance with the principles set out in this procedure and the “User Fees” policy.
Council must authorize all user fees and charges for all programs prior to implementation of the user fees.