Desperate times call for desperate measures. Just ask New York City.
To help plug a $3.3 billion budget gap, the city will soon impose what’s called “emergency response billing”—or a “crash tax”—on anyone who has a car wreck on city streets and needs essential services, such as the fire department. By billing citizens for emergency services, the measure is expected to raise about $1 million in revenue. The city will use a third party to collect the fees.
Jason Post, spokesman for Mayor Michael Bloomberg, said the city will hire “whoever submits the best proposal, which is different than the cheapest, because the cost is a factor in our procurement process.”
The Big Apple is not alone in taking this step. As the financial crisis has grown, more and more states and municipalities have turned to bill collectors to impose crash taxes on citizens. Municipalities in 37 states bill for emergency services (though ten states, including Pennsylvania, have banned the practice).
As expected, taxpayers are outraged over the fees and collection agencies that go with them. Fire Recovery USA, based in Sacramento, California, was formed just a few years ago, yet today is one of the biggest billing companies in the field, operating in 26 states. According to its website, it “expects to continue as the fastest growing company” in the industry. The firm stands out because of its close alliance with the International Association of Fire Chiefs (IAFC).
“Cost recovery makes a lot of sense for cities in this tough economy,” said Rick Benner, chief financial officer of Fire Recovery USA. “Cities have decreasing sources of revenue, yet they’re still being asked to provide all the services they’ve provided before. Obviously that just doesn’t work. So they have a few choices to make. They can raise taxes, decrease services, or find an alternative solution. We help them file claims against the at-fault parties in various types of incidents.”
Critics say the use of collection fees or crash taxes is unfair, often hitting up low-income families with fees they can’t afford. Also, some people might decide not to call for a fire truck or ambulance if they know they’ll get socked with a fee, even when lives could be in danger. The auto insurance industry takes a particular position on this. “Public safety is at risk,” said Cassandra Anderson, director of communications with the New York State Insurance Association. “Most insurance policies don’t cover accident response fees. If insurance companies are forced to cover these new fees, consumers will end up paying through increased premiums.”
The billing firms disagree. “A significant portion of the runs that fire departments go on are covered by insurance,” said Benner of Fire Recovery USA.
Either way, the bigger question is whether this relatively new fee-generating scheme will be effective. While NYC expects to take in $1 million yearly, some doubt an intake of anything close to that. Even if that much is raised, it’s a mere drop in the bucket in the face of a $3.3 billion shortfall.
Visit the Debt Watch home page.
