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Pricing Strategies to De-Congest Cities

March 8, 2019

In the country’s two biggest metropolitan areas, political leaders took big steps toward full-scale congestion pricing strategies last week.

New York’s Mayor Bill de Blasio vowed to support the plan devised by Governor Andrew Cuomo to charge drivers entering the busiest parts of Manhattan and use the revenue generated to support the city’s stressed transit agency. Across the continent, the Board of Directors of the Los Angeles County Metropolitan Transportation Authority ordered the agency to study whether congestion pricing is feasible in that region.

With other proposals active in Seattle, Boston, San Francisco and others, the idea to charge drivers that travel on roads during peak hours is becoming a popular idea throughout the country. Although its applications in the U.S. have been rather limited, receptivity is growing as congestion continues to increase at the same time revenues become more scarce. Moreover, advanced toll collection technologies enable charges to be collected without slowing down vehicles, thereby removing a significant barrier to implementing such a plan.

While the issue is hot right now, the idea is not new. A decade ago two different national commissions recommended congestion pricing as both a demand-based strategy as well as a revenue-raiser.

Congestion pricing comes in many forms. Corridor-based pricing involves tolling one of one more lanes of a particular roadway to reduce demand to the level of maximum efficient use of road capacity. Under some schemes pricing can vary based on time of day or amount of congestion. Congestion pricing can offer a number of benefits including increased access and revenue for public transit, not dissimilar to the new corridor-based tolling strategies underway today on highways in northern Virginia.

Under cordon (or area-wide) congestion pricing, a fee is charged for any vehicle that enters the cordoned area, usually a city center. The justification is that vehicles entering the cordoned area impose costs (congestion, air pollution, carbon emissions, road damage, etc.) on the residents of the area that are unfair and cannot be supported by the local tax base. An additional argument is that dense city centers work most efficiently when public road space is allocated in a manner that best sustains overall quality of life. These lessons are evident internationally in cities like Singapore, Stockholm, Oslo, and London which have adopted cordon pricing schemes.

Congestion pricing can also, and usually does, yield sufficient net revenues to provide for additional bus and rail capacity, bicycle and pedestrian improvements, or projects to provide alternative transportation through other modes within the cordon zone. Yet one important point associated with these international strategies is that revenue generation is not the only objective of cordon-style pricing. The primary objectives and benefits begin almost uniformly with the desire to reduce congestion in the urban core by reducing automobile traffic. Other objectives include increased accessibility, and environmental benefits of reduced vehicle emissions.

Despite these clear and oft-cited benefits, a critical factor in public acceptance for cordon pricing strategies is how the congestion charge revenues are spent. Complaints about the regressive nature of toll revenues remains a common concern, with low-income and high-income users paying the same price for access to the cordoned area. However, these charges could be considered through an expenditure lens, not an income lens. In other words, the equitable distribution of the toll revenue can be more important than the equitable distribution of congestion-relief benefits. For example, in Sweden where drivers are charged a fee for entering the city of Stockholm, it is estimated that motorists pay $3 in tolls for every $1 of benefit they receive from congestion relief. However there are benefits for those who take advantage of increased transit service, and general benefits to the city such as reduced air pollution.

These tradeoffs between equity, environment and financing needs can be addressed by reinvesting net revenues in creating more travel choices in order to yield the highest net public benefits. In this way, congestion pricing not only reflects the true economic cost of drivers’ use of the roadway network, reduces demand on the system, and promotes equitable treatment of disadvantaged groups; it can generate significant revenue to pay for needed projects.

With the attention to congestion pricing today, we will learn a lot about what is feasible in this country. Eno will be active in sharing those important lessons.

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