More Municipalities Using Car Crashes As Money-Makers

Published January 23, 2011

New proposals to create accident fees which opponents have dubbed “crash taxes” continue to emerge in municipalities across the country.

Among the dozens of cities recently proposing to charge motorists involved in crashes for the costs of cleanup and emergency response are Tulsa, Oklahoma and New York City. The initial response to the fees in both cities was mixed.

Local officials who support accident fees see them as a way to increase revenues. They frame them as a “user fee” for emergency services delivered at the scene of an automobile accident. The fees do not replace, but rather are in addition to, property and other taxes already paid by residents and businesses for such local services.

Passing on Costs
Critics see these fees as attempts to pass on the costs of motor vehicle crashes from municipalities to auto insurance companies.
In New York City, Mayor Bloomberg has stated his preference for an accident tax, arguing in a recent radio interview on WOR New York that the tax was a better alternative to city firehouses closing. The City Council is split over the issue.

Supporters, such as Councilman Oliver Koppell, have told reporters crash taxes are usually covered by automobile insurance—but that’s not true.

Mary Bonelli of the Ohio Insurance Institute says the accident fees may end up being paid by the motorists. This can occur when the insurer refuses to pay the bills becasue the charges aren’t a covered expense. And drivers who do not have collision coverage—who have bought only liability coverage or are uninsured entirely—are stuck with the full bill.

“No matter how they’re disguised, these types of fees are double taxation,” Bonelli said. “And the reason we look at it from that standpoint is the fact that citizens and businesses pay taxes for public safety, and that includes your fire protection and police protection and emergency medical services.”

She said in communities where accident response fees are being proposed, officials are trying to shift the costs of taxpayer-supported emergency services onto insurance companies. Yet in Ohio and other states, most insurance providers do not cover the costs if they are nonmedical.

No Premiums
Because they were never intended to be covered, Bonelli said, insurers have never collected premiums to cover emergency service response costs.

“What happens in many situations is that when the bill is sent to the insurance company and is denied, the billing company, which is typically a third-party collection company, who collects anywhere 10 to 15 percent off the top of every dollar that’s collected, will turn around and attempt to recoup the fee from the driver,” she said.

Additionally, in some cities, according to Bonelli, most of the ordinances that create these programs do not provide for the collection of fees from drivers. In these cases, if the fee ends up in the hands of drivers, the bills are not legally enforceable.

“I think it’s very important that drivers understand how these ordinances are written within specific communities. Often they are written as soft billing ordinances, meaning that an individual who gets socked with one of these bills may not necessarily be required or mandated by law to pay it. They may be subjected to two to three billing statements from the vendor, and then if they are not paid, they typically go away,” said Bonelli.

“So what we recommend is that if an individual gets one of these bills, they should turn around and contact the city or municipality and ask for a copy of the accident response fee ordered and find out if it’s a soft-billing ordinance, and then make a decision as to whether or not to actually pay it.”

Possibly Illegal
Insurer groups including the Property Casualty Insurance Association of America argue the fees are unfair, discriminatory, and possibly illegal because they arbitrarily affect nonresidents, making them unconstitutional. In recent years, several states—including Arkansas, Georgia, Indiana, Missouri, Pennsylvania, and Tennessee—have passed legislation banning crash taxes.

Sam Sorich, president of the Association of California Insurance Companies, called these charges “bad public policy” in a recent Wall Street Journal article.

“Firefighters and policemen who come to a scene of an accident are seen and should be seen as providing relief and service, not there as a fee-generating opportunity for the city,” Sorich wrote. “The optics are not good.”

California Ban Effort
An effort to ban crash taxes is currently underway in California.

State Sen. Tony Strickland (R-Thousand Oaks) introduced a bill in December that would prohibit local governments from charging the fees. Stickland argues such fees are not fair to already tax-pressed Californians traveling across the state.

“Hardworking Californians are already struggling to make ends meet and simply cannot afford yet another tax,” Strickland said in a statement.

“Californians, regardless of the city in which they live, work, or visit, should be awarded certain public safety protections,” Strickland added. “They should be allowed to commute to work or travel on vacation without having to worry about a bill waiting for them when they get home.”

Matthew Glans ([email protected]) is a legislative specialist in financial services at The Heartland Institute.