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Criminal Justice Reform Requires Rethinking Public Finance Issues

Fines and fees can have a devastating impact on communities, often reinforcing structural inequalities. Changes to the ways cities collect revenues can help.

Over the past year, Ramsey County, Minn., decided to give up $1 million in expected revenues. The county didn’t pass a tax cut. Instead, it eliminated more than a dozen fees paid by people through its criminal justice system, including fees for probation supervision, home electronic monitoring, and diabetes supplies while incarcerated.

A million dollars isn’t a ton of money by the standards of a sizable urban county. (Ramsey County includes St. Paul, the state capital of Minnesota.) But it’s enough to put the county at the vanguard of a movement to rethink reliance on revenue sources that are inefficient, punitive, and often unfair.

In making these cuts, Ramsey County follows the lead of San Francisco and California. San Francisco was the leader in eliminating all locally controlled criminal justice fees and forgiving $33 million in criminal justice debt. Governor Newsom now has a bill on his desk that would eliminate fees statewide and provide $65.7 million in funding to backfill lost county revenue in the coming fiscal year.

For more than a decade, state and local governments have become addicted to heavy and increased use of fines and fees. Hundreds of municipalities rely on them for more than 20 percent of their general fund revenues; in 80, largely in the South, they account for more than half. In hundreds of other jurisdictions, fines and fees make up a small share of revenues overall but fund a large share of court and public safety costs.

Local governments are expected to compete with each other in terms of the levels of services they offer and the amount of revenues they collect to pay for them. Relying on revenue sources that aren’t paid by a majority of residents is almost like cheating, suggests Tracy Gordon, a Senior Fellow with the Urban-Brookings Tax Policy Center. “If you’re relying on fines and fees for 25 percent of your revenue, you are not a viable city,” she says. “It’s offensive that cities are nabbing money from people where they can, because they can, using the police power of the state.”

If you’re relying on fines and fees for 25 percent of your revenue, you are not a viable city.
Tracy Gordon, senior fellow with the Urban-Brookings Tax Policy Center

There’s an inherent fairness problem when cities or counties that rely on fines and fees can choose to increase their revenues not by raising general taxes, but by increasing quotas for, say, parking tickets. Advocates and policy experts from both the criminal justice and public finance worlds are starting to work together on strategies to help jurisdictions limit or eliminate their reliance on harmful fines and fees.

"From a public finance perspective, it is a 'bad tax.' Fines and fees treat people unfairly and in most cases are very expensive to collect," says Patrick Murphy, Arnold Ventures’ Vice President of Public Finance.

All too often, criminal justice reform advocates manage to convince local lawmakers that their systems of fines and fees are not defensible, yet nothing changes because government officials worry their elimination will create holes in their budgets. “Arguably the largest driver of fines and fees have been budget pressures that state and local governments are facing,” says Brian Highsmith, who has organized discussion of the issue at Yale University’s Arthur Liman Center for Public Interest Law.

This past spring, virtual convenings supported by Arnold Ventures were held at Yale University’s Arthur Liman Center for Public Interest Law, bringing together both criminal justice and public finance experts to better understand the misuse of court-based assessments resulting in regressive revenue streams.

Fees are supposed to be directly related to the services being provided, while fines are based on deterring the activity. Anyone might have to pay. Your city might ding you for letting your lawn grow above five inches, for example, while it’s likely to charge you for things like hunting licenses.

However, fines and fees have evolved into a sort of civic shakedown. They fall heavily on individuals who interact with the criminal justice system, who may face dozens or even hundreds of separate categories of penalties and charges. “Charging someone for a ride in the police cruiser is not a user fee,” Gordon says. “It’s an example of trying to extort money for general revenues.”

Back in 2014, Ferguson, Mo., became the center of an earlier wave of anti-racism and policing protests, after a white police officer shot and killed Michael Brown, a Black man. The U.S. Justice Department found that community distrust of police was largely rooted in the city’s excessive reliance on fines and fees as revenue sources: “Ferguson’s law enforcement practices are shaped by the city’s focus on revenue rather than by public safety needs.”

That created an incentive for local governments, and also state governments, to maximize revenue at a cost of legitimacy for those governments.
Juliene James, Director of Criminal Justice for Arnold Ventures

“There was an entire system of monetary sanctions that kept people in contact with the police and the justice system,” says Juliene James, Director of Criminal Justice for Arnold Ventures. “That created an incentive for local governments, and also state governments, to maximize revenue at a cost of legitimacy for those governments.”

State and local governments around the country find increased fines and fees politically easier to impose than hiking broad-based taxes on sales, property, or income. That’s particularly true at the local level, with more than 40 states limiting or capping cities’ and counties’ tax rates.

Fines and fees offer a way to skirt tax caps, but they are inefficient. Most fail to collect 20 to 30 percent of the fines and fees that they assess. One New Mexico county pays $1.17 to collect every dollar it brings in. Nearly all jurisdictions come out ahead, but many spend 40 cents of every dollar they bring in on collection costs, which often goes to private vendors. “We’ve been saying for a long time that the funding source is unreliable,” James says.

Fines and fees are not just inefficient economic policies. They fall hardest on low-income individuals who often belong to racial and ethnic minority groups. “Using fines and fees is probably one of the most painful ways you can raise revenue,” says Chris Mai, a Senior Research Associate at the Vera Institute of Justice, which is studying fine and fee structures in several states, “and in many cases, you’re raising it from people who don’t have the money in the first place.”

Individuals unable to pay off their criminal legal debt, depending on the jurisdiction, may lose their driver’s licenses or the right to vote, or end up with a record that undermines their ability to find work. “Fines and fees often come on top of jail or prison time,” says Sarah Schirmer, Deputy Director of the Center for Justice & Safety Finance at PFM, a consulting firm. “We’re punishing people twice.”

Failure to pay not just the initial fines and fees but spiraling interest and late fees sometimes lead to incarceration — a form of modern-day debtors’ prison. (In response to the pandemic, Maine courts have stopped issuing warrants for outstanding fines and fees.) That’s not only a tragedy for the individuals involved. Keeping people incarcerated, returning to court, or otherwise entangled with the criminal justice system represent hidden costs to governments that may view fines and fees as a profit center.

During the current wave of protests, there aren’t too many signs or chants complaining about unfair fines and fees. There is an incredible level of interest, however, in police budgets and funding. “This is a moment when we are seeing some of the largest mass mobilizations in our country’s history about policing and the injustices that pervade our criminal justice system from top to bottom,” Highsmith says.

But fines and fees have increased in direct response to the need for states and localities to make up for revenue lost to recession and tax limitation laws. The pandemic and the resulting economic downturn have opened up multibillion-dollar shortfalls all over the country.

Still, there’s starting to be more recognition among lawmakers and advocates that fines and fees don’t make sense, either in terms of pursuing criminal justice reform or as an effective means of revenue collection. “If there’s a window, it’s going to be because policymakers care about the two big threads of economic crisis and overdue racial reckoning,” James says.

As Ramsey County has shown, it is possible to find cost savings and other ways of paying for cops and courts. “They have eliminated fees even during this pandemic,” says Schirmer of PFM, which provided technical assistance to Ramsey County’s effort. “It is feasible for counties to eliminate their fines and fees and identify ways to fund their criminal justice systems through alternative revenue sources.”