Subsidized Parking Hurts Cities. Here’s How to Start Fixing It.

By Tony Dutzik

Tony Dutzik is associate director and senior policy analyst with Frontier Group, a non-profit public policy think tank that provides information and ideas to build a cleaner, healthier, more democratic America.

Nov 6, 2017 | Governance, Mobility | 1 comment


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America’s dependence on cars – and the congestion and pollution it causes in our cities – is reinforced by a series of rules, practices and norms that make driving relatively easy and cheap and other options comparatively difficult and expensive. Some of these drivers of car dependence are obvious. But others are so well-hidden that we barely recognize their existence, and take the damage they do to our cities as a given.

So it is with the federal income tax exclusion for commuter parking, which enables workers to receive up to $255 a month worth of workplace parking from their employer without paying taxes on its value.

Three years ago, my organization, Frontier Group, teamed up with TransitCenter to study the impact of this “commuter parking subsidy” in a report called Subsidizing Congestion. We estimated that making workplace parking tax-free is costing federal and state governments $7.3 billion in lost tax revenue each year, even as it put an additional 820,000 cars on the road in our most crowded cities at precisely the points in time – rush hours – when they do the most to create congestion.

At a time when cities are investing energy and money into improving public transportation, expanding options for active transportation, and embracing new modes of mobility, the federal commuter parking subsidy is actively undermining those efforts. Worse, there are few immediate prospects for fixing it.

The good news is that cities have the tools to reduce the damage caused by federal tax policy and encourage sustainable modes of commuting. Recently, Frontier Group joined together with TransitCenter to produce a new report, Who Pays for Parking?: How Federal Tax Subsidies Jam More Cars into Congested Cities, and How Cities Can Reclaim Their Streets, that explores some of these options.

One approach – employed by cities from the Bay Area to New York City to D.C. – is to require large employers to offer tax-free transit benefits to their employees. These “commuter benefits ordinances” are relatively new – the first was adopted in 2009 – but have the potential to dramatically expand access to transit, especially to workers in lower-paying jobs who are currently less likely to receive tax-free transit benefits. Early evidence from the Bay Area suggests that requiring employers to offer the benefits can lead thousands of people to switch to lower-impact modes of commuting.

Another option for cities is to reclaim some of the public subsidies extended to auto commuters by taxing parking themselves. Many U.S. cities tax parking in garages, with some reinvesting revenues from those taxes or from parking meters into improvements that expand transportation options for residents. Other cities around the world go even further – Nottingham, England, for example, assesses an annual fee on all parking provided by employers, even those spaces provided to workers for free. The proceeds have thus far helped to finance the construction of two new tram lines, along with other transit improvements. Since the parking fee went into effect, transit ridership is up, more businesses have chosen to locate in the city, and there has been no increase in car traffic. That’s a win-win.

Cities can also reinforce policies and programs that work to reduce demand for drive-alone commuting through incentives, education and community engagement. Some of these “transportation demand management” (TDM) programs have shown impressive results in helping workers to transition to sustainable modes of transportation. Unfortunately, these programs often tend to be badly under-resourced, with total federal spending on TDM amounting to only $40 million in 2014 – about 0.1 percent of what the federal government spends each year on highways.

But while cities can do a great deal to reduce the impact of the commuter parking subsidy, it will ultimately be up to the federal government to develop a comprehensive commuter benefits policy that meets 21st century transportation needs. Nations around the world have taken steps to avoid or correct perverse incentives in their tax codes that encourage solo commutes to work. Those examples provide ideas for how a similar system could eventually be implemented here in the United States.

Who Pays for Parking? also recommends that the federal government revise commuter transit benefits to reflect today’s changing transportation opportunities and needs. One priority should be to expand access to tax-free transit benefits to the self-employed and workers in the “gig economy,” who are currently excluded. This is particularly important given the ongoing shifts in the structure of work. In addition, the federal government should make emerging transportation services that reduce environmental impacts and congestion– such as bikesharing – eligible for commuter benefits, and consider following the example of countries such as Belgium and the Netherlands in allowing employers to make tax-free payments to employees who walk or bike to work.

Cities can use their policy muscle and role as policy innovators to counteract the effects of the short-sighted federal tax subsidy for commuter parking. If enough cities take the leap, perhaps federal officials will follow suit to align the tax code with the transportation needs and priorities of the 21st century.

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1 Comment

  1. The insights in this article inspire me. In Chinese cities, government sector office area will provide free parking, and commercial district will charge for parking. In some cities, such as Shanghai, some univeristy or company will provide uniform transportaion subsidy for all staff, regardless of driving car or taking bus. The approach of providing subsidy only for taking public transit may be useful for switching to public transit. However, for those poeple sending kids to school, they may still choose to drive a car.

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