Tag Archives: market failure

Jurisdictional tax/service packages and fire protection – an interesting case

Thanks to Keilani and Vickie for sharing links related to the case of the fire protection user fee that didn’t get paid.

Many are condemning the policy and the policymakers (not the firefighters themselves, said to be constrained by the ordinances in place).  However, do note that the services were from a neighboring jurisdiction.  Non-residents, outside the jurisdiction, are informed they must pay if they want coverage. Consider the residents inside the jurisdiction who would presumably be subject to a higher tax burden to cover NON-residents were there no fee structure in place for those who want the benefits of the protection but live outside the taxation border.  Not an easy situation – but highlights the issues of jurisdictional tax/service packages; insurance-style schemes (premium must be paid in advance, not after a loss) vs. user fees (could be paid after the fact – but how many would be willing to do so? You can also find stories of angry people who receive bills for emergency services, such as wilderness rescues – so a user fee approach would be no guarantee of satisfying people); and how insurance systems of any kind have to be structured to avoid moral hazard and adverse selection.

The Freakonomics blog post addresses the issue of excludability of fire protection which can differ depending on how far apart houses are (think about this – you should be able to understand it based on what we have worked through).  What that post does not address, however, in suggesting that a mandatory tax should be used rather than an annual payment, is that the homeowner who experienced the loss is OUTSIDE the boundaries of the relevant taxing jurisdiction (the “city” of South Fulton).  Within the boundaries, it sounds as though city residents receive fire protection services as part of the tax/service package.  Outside the boundaries, the fire protection services are available on an insurance-type scheme; pay the annual premium and you receive the services.  Choose not to or forget, and you don’t.  This is not as illegitimate as many are making it seem; it is very similar to all kinds of insurance we all purchase.  If the residents outside of the city limits want more fire services without insurance premia, they could in theory request annexation into the city (become part of the same tax/service package); or they could pressure the county to provide fire services at a LARGER jurisdictional level; or they could band together in a mutual aid association that establishes its own fire protection service (these are theoretical options; for political or regulatory reasons they may not all be equally practicable).

But if city residents were asked to pay more city taxes to subsidize the fire protection needs of those outside the city, they might find that inequitable, and in an environment with widely spaced houses (as the blog author notes), also unjustifiable on market failure/efficiency grounds.

Story on the episode: http://www.wpsdlocal6.com/internal?st=print&id=104052668&path=/news/local

Dan Hamermesh blog post on the NYTimes “Freakonomics” Blog: http://freakonomics.blogs.nytimes.com/2010/10/06/when-your-house-is-burning-down-how-good-is-a-public-good/

Comments Off on Jurisdictional tax/service packages and fire protection – an interesting case

Filed under public finance