ABSTRACT
State and local revenue from user charges—prices imposed for publicly provided goods and services—is a significant and growing source of financing for government services and capital investments. States and local governments impose user charges to finance a wide variety of activities, with rates established at levels that range from a token payment to full financing. Full costing estimates total cost by identifying and valuing all resources consumed in production. Full costs include those incurred directly in service production, costs allocated to a service from shared governmental support functions and operations, and apportioned expense for the use of capital assets. The determination of full cost provides a benchmark for pricing decisions. User charges based on full cost can reduce waste in service provision and relieve pressure on tax bases, while also increasing the equity of revenue systems by eliminating routine subsidy of services that benefit only a portion of the taxpaying public. This entry provides an overview of state and local government reliance on user charges; discusses service attributes required for pricing, benefits of user charges, and barriers to full cost fee-based financing; explains how governments may use cost finding, allocation, and apportionment to determine full cost; and concludes with consideration of pricing strategies.
