In the countdown to massive federal budget cuts, top-level agencies everywhere are bracing for bad news. They're not the only ones: The sequester puts many state budgets at risk, too. Losing federal aid for highway maintenance, vaccines, education, and other priorities would put more stress on governors already struggling to make ends meet. Since state governments aren’t allowed to run deficits in most places, don't be surprised if some start devising creative solutions to pay for their programs.
One way states have made up for their budget shortfalls in the past is through an easy-to-miss fee for 911 services levied on telephone customers. The money is supposed to go into a dedicated fund for building and maintaining first-responder infrastructure. At one time, it was used for exactly that. But today, states routinely raid those funds to buy things that may only be indirectly related to emergency response.
Here’s a sample bill that AT&T makes available on its website:
Although the state taxes and fees amount to less than a night out in this example, one Verizon spokesperson I talked to compared phone taxes to sin taxes like the kind that are often slapped on alcohol and tobacco. That analogy may be taking it a bit far; states aren’t penalizing consumers for the negative consequences of their behavior so much as asking them to contribute to a system that benefits everybody.
Where that arrangement falls short, though, is when states take revenues from 911 fees and use them for other purposes. It’s not technically illegal to do so, but it does disqualify states from receiving federal money for 911 services. It also exceeds the scope of what the state 911 funds were set up to do--which, among other things, was to help states comply with federal rules requiring emergency calls to transmit caller ID and location information.
So what are the states actually buying? The expenses aren’t that unreasonable--they include extra ambulances, walkie-talkies, and cell-phone towers to boost coverage in otherwise inaccessible areas. You could make the case that even if the money isn’t being spent on 911 infrastructure per se, it still provides a boost to the first-responder system overall. But some states have gone further, sweeping the money from 911 funds into their general budget, and the Federal Communications Commission doesn’t really know any more about the fate of those dollars than that.
In 2011, according to the latest FCC report (PDF) on the issue, five states admitted that they used 911 fees for non-911 purposes: Arizona, Georgia, Illinois, Maine, and New York. The money they diverted altogether adds up to more than $45 million. Some state laws mandate that the money be paid back into the 911 funds; in other places, there's no such requirement.
On the one hand, you could think of the 911 tax as an anachronism. Why continue taxing consumers for a project that's largely been completed? Most areas, with the exception of parts of Nevada, the Midwest, and the South, are fully compliant with the FCC’s 911 requirements.
On the other hand, the fact that this money is being used to plug gaps in the budget suggests that states really need it, regardless of the problem the tax was initially created to fix. It's an easy way to raise revenue without touching more controversial levers like income taxes. The question now is whether states will feel compelled to start hiking these semi-secret tax rates because of the sequester.