A Review of Intragovernmental Service Fees Assessed and Collected by State Agencies
Executive Summary
Introduction
In response to a legislative request, the PEER Committee reviewed intragovernmental service fees assessed and collected by state agencies. PEER conducted the review pursuant to the authority granted by MISS. CODE ANN. § 5-3-57 et seq. (1972).
Specifically, PEER focused its review on state agencies that charge fees to other state agencies and the types, amounts, and legal authority of such fees. The review also sought to determine the costs associated with providing services to state agencies and the methods used by state agencies to recoup such costs.
Background
PEER defined intragovernmental services as services that one state agency provides to another state agency or state entity. PEER defined fees as assessments; room, office space, facility and building rental; training, consulting, and technical assistance charges; operating system and network user charges; and other contractual arrangements and monetary payments charged to state agencies for goods or services rendered.
PEER did not include fines for violations, licensing or certification fees, statutorily required assessments (e. g., workers’ compensation) or items held for trust (e. g., employee health premiums) as fee-for-service charges. Also, PEER did not consider use taxes as fees (e. g., the amusement tax remitted by Alcorn State, Jackson State, or Mississippi Valley State universities based on seven percent of ticket sales to the Veterans’ Memorial Stadium Commission for use of the stadium) or bed taxes as fee-for-service charges. Finally, PEER did not consider in this review those services provided by a state agency directly to private citizens for which the agency receives reimbursement from other state agencies.
Information Regarding State Agencies Charging Intragovernmental Service Fees
Seventeen state agencies charged fees to other state agencies in FY 2005.
The following state agencies charged fees to other state agencies during FY 2005: Office of the Attorney General, Department of Archives and History, Office of the State Auditor, Authority for Educational Television, Department of Employment Security, Fair Commission, Department of Finance and Administration, Fire Academy, Department of Information Technology Services, Institutions of Higher Learning (MARIS and Central Office), Mississippi University for Women, Supreme Court, Personnel Board, Department of Rehabilitation Services, Department of Transportation, Veterans’ Home Purchase Board, and Department of Public Safety.
The types of intragovernmental fees charged by state agencies to other state agencies in FY 2005 were varied, ranging from room rental to processing charges to program/tuition. With exception of the Department of Employment Security, Institutions of Higher Learning (Central Office), and Department of Transportation, the agencies have specific legal authority to charge the intragovernmental fees they charged in FY 2005.
In FY 2005, state agencies spent approximately $78 million providing services for other state agencies.
Of the approximately $78 million, the agencies providing the services expended approximately $59 million from fees, approximately $9 million in federal funds and other funds, and approximately $10 million in general funds to support intragovernmental services.
The Department of Information Technology Services collected the largest amount of fees, approximately $28 million, followed by the Department of Finance and Administration, collecting approximately $13 million.
State agencies used 35% general funds and 65% special funds to pay for services billed by the six agencies that constitute the bulk of intragovernmental services.
The six agencies that constitute the bulk of intragovernmental services use SAAS for billing purposes. The six agencies are the Department of Information Technology Services, the Department of Finance and Administration, the Office of the Attorney General, the State Personnel Board, the Office of the State Auditor, and the Department of Public Safety. These six agencies account for $57 million of the $59 million agencies expended from fees in support of intragovernmental services and PEER was able to determine the source of funds for these six agencies that billed agencies used to pay for all services received. (See the Exhibit, below.)
Exhibit: Expenditures Supporting Intragovernmental Service Programs in FY 2005
| Assessing Agency | Total Program Expenditures FY 2005 | Intragovernmental Service Fees Expended FY 2005 | Federal and Other Funds Expended FY 2005 | General Funds Expended FY 2005 |
| Information Technology Services, Department of | $28,106,423 | $28,106,423 | $0 | $0 |
| Finance and Administration, Department of | 23,209,936 | 12,944,599 | 6,350,231 | 3,915,106 |
| Attorney General, Office of the | 7,581,291 | 6,932,126 | 0 | 649,165 |
| Personnel Board | 5,514,763 | 5,514,763 | 0 | 0 |
| Auditor, Office of the State † | 4,585,159 | 1,405,140 | 0 | 3,180,019 |
| Educational Television, Authority for † | 3,525,187 | 91,177 | 1,684,428 | 1,749,582 |
| Public Safety, Department of | 2,210,809 | 2,167,659 | 8,400 | 34,750 |
| Fire Academy * | 1,242,389 | 232,818 | 1,009,571 | 0 |
| Transportation, Department of | 484,113 | 484,113 | 0 | 0 |
| Archives and History, Department of | 429,014 | 78,334 | 0 | 350,680 |
| Rehabilitation Services, Department of | 325,972 | 325,972 | 0 | 0 |
| Mississippi University for Women | 314,459 | 314,459 | 0 | 0 |
| Institutions of Higher Learning, Board of Trustees of | 237,449 | 237,449 | 0 | 0 |
| Employment Security, Department of | 92,267 | 92,267 | 0 | 0 |
| Veterans’ Home Purchase Board | 47,243 | 47,243 | 0 | 0 |
| Fair Commission * | 32,753 | 32,340 | 413 | 0 |
| Supreme Court * | 4,674 | 34 | 289 | 4,351 |
| Totals | $77,943,901 | $59,006,916 | $9,053,332 | $9,883,653 |
† Program expenditures based on ratio of revenue generated from state agencies vs. total revenue generated.
* Program expenditures based on ratio of fees collected from state agencies vs. total fees collected.
SOURCE: PEER review of agencies’ survey responses.
Agencies’ Methods of Setting Fees
Although state law sets some agencies’ fees, these fees may not be based on the cost of service. Thus fee collections may not recover costs of providing services or may generate revenues above costs.
Office of the State Auditor
The Office of the State Auditor assesses fees for audit services based on the fees set in MISS. CODE ANN. §7-7-213 (1972). Based on 2,080 hours in a work year, the starting salary for an entry-level auditor is higher than the salary that could be recouped when billing for audit services at the statutory rate of $12.50 per hour. Even without considering the other costs associated with performing audit services, the statutory rate is set too low to recoup costs based on salaries alone.
Department of Finance and Administration
MISS. CODE ANN. Section 29-5-6 (1972) states that rental fees for properties under the control of the Department of Finance and Administration are to conform to prevailing commercial rates in the general area. Traditionally, DFA has not charged commercial rates because commercial rates include components such as profit margin and taxes, which are factors in determining commercial rates but would not be relevant for setting rates for state agencies. Although setting rental rates based on commercial rates would be in accordance with the governing statute, it would not be in accordance with the principle of setting rental fees based on the expenses associated with providing rental space to DFA’s tenants.
Central Office for the Board of Trustees of Institutions of Higher Learning
The Central Office for the Board of Trustees of Institutions of Higher Learning (IHL) has assessed new fees to tenants of the headquarters building of the IHL Complex and to the universities for FY 2006.
Documents of the Board of Trustees of IHL show that the agency implemented these new fees in order to restore funds lost through reductions to its budget. The board did not base these fees on the cost of maintenance and repair, housekeeping, grounds, and security of the IHL Complex on Ridgewood Road in Jackson.
Department of Archives and History
The Department of Archives and History has proposed new fees and fee increases for FY 2007 for services provided by the department’s State Records Center. The department based these fees on information yielded from an informal survey of other states and commercial storage facilities rather than on the actual cost of providing its services.
Fees Charged Without Legislative Authorization
Three state agencies--the Department of Transportation, the Department of Employment Security, and the Central Office of the Board of Trustees of Institutions of Higher Learning--charge other state agencies fees for services without legislative authorization.
PEER determined that the following three state agencies charge fees without legislative authorization.
To be in compliance with state law, agencies that have acted outside their legislative mandate by charging fees must either:
The latter option could impair other agencies’ ability to perform their legally mandated responsibilities. Of course, the Legislature could choose to amend state law to authorize the charging of these fees (see “Recommendations,” below).
Oversight of Intragovernmental Service Fees
Mississippi’s budget process does not require agencies to provide written justification to legislative committees when setting a new fee or increasing an existing one. As a result, agencies may set fees based on faulty methodology rather than on the cost of providing services.
Agencies use various methods to set their fees, ranging from cost-based methods to statutorily set fees to those arbitrarily based on unsound methodologies. One reason that this condition exists is because there is no state law that requires agencies to justify their fees or obtain the permission of the Legislature prior to setting or increasing a fee. Agencies are not required as part of the annual agency budget request or appropriations process to provide a cost analysis or needs assessment to legislative committees prior to setting or increasing a fee. As a result, agencies may set fees based on faulty methodology rather than on the cost of providing services.
Recommendations