The Battle Ahead Over User Fees And Why Business May Lose

Faced with the tough task of balancing the budget without slashing popular programs, President Clinton came up with a clever idea: Make business pay billions in new user fees to help take up the slack. After all, what could be fairer than asking companies to pay for what they get? And pay they will. The 1998 spending blueprint crafted by Budget Director Franklin D. Raines would create a dozen new fees while increasing the take from 20 that already exist. Over the next five years, business would be hit with $47 billion in levies on everything from ship tonnage and bank examinations to railroad and slaughterhouse inspections.

The idea is that as direct government funding for regulation and services declines, the shortfall would be made up from fees paid by those who benefit from government activities. But the move has unleashed howls from executives, who fear the outcome will be fewer services and, in essence, a backdoor tax increase. "Clinton's bridge to the 21st century has three lanes closed, and the tolls are going up," gripes Genentech Inc. Vice-President David W. Beier.

The result could be a rash of nasty fights all over Capitol Hill as business tries to block the rush to user fees. But it will be an uphill struggle. Unwilling to raise taxes, lawmakers have already shown an inclination to join Clinton in financing services with ever-more fees.

The most dramatic example of this shift is in aviation. Today, the air traffic control system and some airport improvements are funded though ticket and fuel taxes. But Clinton would replace the system with an $8 billion-a-year fee tied to services such as air-traffic control and aircraft certification. That could force small airlines and private aviation to pay what critics say is their fair share. But Southwest and other low-cost carriers counter that increasing fees would lead to higher ticket prices and hurt consumers. And all carriers fear that Washington will siphon off a big chunk of the money to shrink the deficit, just as it has done with current air-tax revenues.

Many of the nation's most innovative companies will battle a plan to divert Patent & Trademark Office fees to other programs. In 1990, the feds imposed a surcharge on patent applicants and holders. Now, Clinton wants to snare $92 million, or 77%, for other programs. That could nearly double the time it takes to issue a patent. The office is being "raped and pillaged," fumes Michael K. Kirk, executive director of the American Intellectual Property Law Assn., which fears members won't get patents fast enough to protect their inventions.

Another case of business fees replacing government appropriations: the Food & Drug Administration. In 1992, drugmakers agreed to pay the FDA for faster reviews provided that the money--now about $88 million per year--went only for that purpose. But the White House now wants to extend the fees to include device makers and others, raising the total take to $237 million. Meanwhile, it would cut Washington's contribution to the FDA by 8%. Grumbles Genentech's Beier: "The industry that already agreed to pay user fees may end up being worse off."

But the White House insists that in tough fiscal times, business must do its part. Charging fees will also force agencies to become more efficient since industry will be closely watching how the money is spent, predict budget mavens. And White House officials insist that most fees will be used to fund services jeopardized by shrinking appropriations and won't disappear into the general fund.

Still, the temptation to grab the bucks will only grow along with user-fee cash. The question is how high the fees will climb--and how much the pols grab for deficit reduction.