The City of New Rochelle, New York has hired you to develop a new method of financing the Office of Weights and Measures, specifically the costs associated with the position of City Sealer. You have been asked to develop a system of user fees to support this function. 

The City Sealer inspects the various gasoline stations and other devices, which distribute a good or commodity by a measured sale, verifying the correctness of the calibrations. Once approved, the City Sealer provides a selfadhesive sticker, depicting the weights and measures office seal indicating the approval of the city sealer.  Currently, there is no charge for this service.

In the first year, you are only required to recover the cost of the City Sealer’s and Secretary’s Wages plus benefits and the cost of the adhesive stickers used for each inspection. Develop a user charge for each delivery device inspected payable by the business or operation inspected. Market studies have suggested that the sector subject to the user fee will tolerate as reasonable a fee not to exceed $36 per inspected pump.

 

New Rochelle has 250 Gasoline Stations, each having four (4) gasoline pumps. There are two major bulk oil distributors, which pump other oil distillates such as kerosene, motor and household oils. The two (2) distributors have five hundred (500) pumps each. All of these are covered under the sealer ordinance. Assume all items regulated pass inspection.

 

                     City Sealer Annual Salary and benefits:                  $40,000.00

                   City Sealer Secretary and benefit:                            $24,000.00

                    Cost of a single pre-printed sticker:                               50¢ each

 

1. The user fee or rate base is the total number of devices that will be subject to inspection. Based upon this, what is the user fee or rate base for this service?  (1)

2. What is the total cost of delivering these regulatory services, based upon the city’s instruction that your fees must recover? The sealer and secretary annual salary and benefit are fixed costs. The pre-printed stickers are variable costs, i.e. the cost for each depends upon the number of devises you inspect.  Assume you have ample supply of stickers. If you intend to inspect every devise that makes up the user fee or rate base, what is the cost per unit for inspection? (Show the method of arriving at your answer) (2) It should be a rate in dollars per unit.

3. Based upon the market study, does your cost of inspection fall inside or outside of the amount tolerated by business payers of the fee? (1)

4. Distinguish the terms regulatory license and revenue license. Since the above represents a form of licensing, characterize the foregoing New Rochelle example as either being a regulatory license or a revenue license.  (1)

5. Since the above represents a form of licensing, characterize the foregoing New Rochelle example as either being a regulatory license or a revenue license.  (1)