Lowering the price for eligible individuals could result in higher total revenues and greater compliance rates.
Local governments use fines and fees to discourage negative behavior and raise revenue. However, not everyone can afford to pay, leading to uncollected debt and harm to vulnerable communities. In the current one price for all model, low-income individuals pay proportionately more than those with a higher income. Segmented pricing, charging people the price they can afford, may improve compliance and ultimately generate more total revenue. Examples of related practices are payment plans and amnesty periods; although helpful to low-income communities, payment plans are generally used when individuals fall behind on their payments, and amnesty programs are offered infrequently. Segmented pricing would prevent people from falling behind on payments in the first place and could be widely and consistently used.
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Recommendations:
- People not financially challenged should continue to pay the original rate.
- Local governments should pursue segmented pricing for fines and fees.
- Determine which data can be used to identify eligibility for segmented pricing.
- Develop a plan to handle existing debt.