2009/12/10

How to toll a country for free

It is now possible to address all user fees, charges, taxes and insurance premiums paid by motorists for road and parking use in a single, transparent payment management system. This permits a government that employs this technology to obtain road tolling as a free service riding on a broader service suite of GNSS-mediated parking management, pay-as-you-go insurance and mobility credits and rewards. In other words, allow profitable, value-added services to fund system operational costs of road tolling, on the same business model that Google funds certain free services to Internet users from its advertising services. Here is how.

Increasingly, countries, states, regions and cities are considering tolling all or most roads in their jurisdiction. Why they wish to do this may be related to congestion, pollution, or sustainable funding and is discussed in many other articles and reports. Here, we assume the reader knows this process has started and will likely complete, worldwide, between 2020 and 2025. There are many commitments to deploy related systems in the next 3 to 5 years, some already legislated or in progress.

There are three usage-based, mobility-related payments that motorists must make when using their vehicles: parking payments, insurance payments and road-use payments.

Parking payments, when a payment is due, may be made at the beginning or end of a parking event, with the assistance of a person or a machine and sometimes only monthly in the form of the purchase of a monthly pass near a work location. Parking payments are variable, a nuisance to make, and costly to collect. They are managed with petty a
nd annoying fines for non-payment or meter expiry. Parking payment management is a complex, costly, wasteful, frequently mismanaged and a somewhat absurd municipal activity. Underpriced parking is common, a principle cause of undersupply and, in consequence, a leading contributor to traffic congestion in our cities as drivers circle streets repeatedly to find an available spot. In many circumstances, the act of payment of street-curb parking is far more painful to drivers than is the actual expenditure itself. Drivers would do well to be relieved of this nuisance. Cities would do well to increase the volume of such revenues collected while simultaneously reducing the expense of its collection. A halving of this expense ratio, often calculated at well over 50%, would retain large sums already paid by motorists in municipal coffers in most cities worldwide.

Automobile insurance payments are made annually, monthly and sometimes occasionally when renting a car. Premiums m
ay be determined by address, driving record, gender, self-declaration of average distance traveled, and possibly other demographic variables, but almost never by the most important indicator of risk – actual distance traveled. While a more costly payment than a single parking payment for urban dwellers, the usually overpriced insurance payment amounts to a lesser total annual expense than the usually underpriced parking expense. There are many reason for this odd payment misbalance, again well discussed in many other articles and papers. A critical problem in automotive insurance is that over-payers, who drive less than they pay for, subsidize under-payers, who drive more than they pay for. The recommended solution to this problem, known as pay-as-you-drive insurance ideally charges motorists an amount equitably measured to the amount of distance traveled and weighted by effective demographic variables and/or driving record). It is repeatedly reported that PAYD insurance, reduces mileage traveled, saves households money, improves safety, assigns risk more equitably, rewards non-SOV mobility and reduces congestion.

Road use payments are made in a variety of ways: fuel taxes, vehicle registration taxes, tire taxes and road tolls may be supplemented in many jurisdictions by property taxes, sales
taxes and monies allocated from general public funds. The number and amount of these payments are hardly understood by most motorists. In some European jurisdictions, taxes charged against fuel use and ownership of an automobile overpay road expenses, while in North American jurisdictions, these taxes are too little to pay road expenses. In Canada, there is a 29% shortfall in these taxes for its highway systems, while urban streets and roads in Ontario’s cities, such as Toronto, are largely paid by property taxes generating unfairness and some animosity between internal residents with high property taxes and residents of surrounding municipalities with lower property taxes who use Toronto’s streets to drive in for work. In the US states, collection of fuel taxes pay between 50% and 90% of the expense creating what many consider a pressing funding crisis. There is a more fundamental problem in the way motorists make road-use payments: most of it is invisible to motorists and many payments (such as property tax paid by someone who uses non-SOV modalities) form cross-subsidies. These payments are essentially unrelated to how much, where or when a driver chooses to drive and is a principle contributor to emission volumes and congestion on all road types.

Transparent, simple and frequent pricing signals would alter motorists perception of the social cost of driving at certain times and in certain places. The point made here is that the parking, insurance, and road-use payments we make, whether sufficient in aggregate or not, are remarkably inefficient economically. They provide no signal to motorists as to the social cost incurred by choosing when and where to drive. The act of driving a motorized vehicle, which has innumerable social, personal and commercial benefits is confounded by the choice and when and where to drive so that the social and personal benefits are partially and sometimes completely negated by an equivalent set of social, personal and commercial harms. If these three payment categories – parking, insurance and roads – were each fairly calculated relative to use, transparently visible to the motorist and with payment made effortlessly (debt and credit) and frequently (monthly), this would have the greatest single impact on decisions contributing to automotive usage demand.

There is now a single, unified, payment technology, based on in-car telematics, that measures exact use of parking, insurance and roads, scaled to vehicle type as well as to time and place of usage that permits governments and insurance companies to set and collect per-use charges in this fairer, more transparent way. This technology, standardized by ISO/CEN and under development in both Europe and North America, is a new generation of tolling technology that can be deployed wirelessly and requires no ground or curb-side infrastructure. Mobile spot-checking is still needed, but can be done far more cheaply than now because cost is shareable over all three sectors.

I opened this article pointing out that many governments are considering tolling all or most roads in their jurisdiction. These governments are correctly focused on the immediate culprit in transport demand problems: transport demand due to mispricing. Unfortunately, the effects of underpriced parking and mispriced insurance, while harder to fathom, are also not only underappreciated as causes of congestion, but form an opportunity for demand management via price correction far greater than does price correction to road pricing.

Gradually correcting all three payment regimes, even if expense-neutral in aggregate to each motorist, would generate powerful economic signals to that motorist. There are few things that garner attention like money.

Managing all three payments via a single system reduces the cost of that payment system. The cost of consumer-banking credit and debit systems is under 2% or 3% of money exchanged because of optimized system management, risk management, payment security, and payment volume. The current cost of road tolling payment management systems range from 20% to 40% of revenues and the cost of parking payment management systems can be twice that. Optimizing collection management, even ignoring the benefits of travel demand management, would conserve, in aggregate, many millions and for larger countries billions, of dollars per year for national, regional and municipal treasuries. Even leaving every motorist expense neutral would leave governments revenue positive. The extent of current system waste, redundancy and pricing misallocation is that high.

Where can we get started? Because motorists are more accustomed to parking payment than to road tolling, a program to redress urban parking underpayment over two or three years would meet with less motorist (voter!) resistance than a program of tolling existing roads or highways. If politicians were to apply market economics, this is an easier place to do so.

Driver behaviour is influenced by parking payment. Large payment differentials between on-street and off-street parking prices causes drivers to seek to minimize payment. Availability of free or under-priced street parking means avoidance of correctly-priced off-street parking. This alone generates a significant amount of inner-urban congestion as cars circle repeatedly to find cheap parking spots while passing up nearby garages that are priced higher. This also reduces incentive to invest in garage construction that would move these cars off street making room for pedestrians and bikes.

Market-priced management of urban street parking also reduces inter-urban and arterial congestion since it removes under-priced parking. Until now parking management systems have made this impossible because curb-side parking management is expensive, it can only be provided in area of greatest demand. This is a “long-tail” phenomena and works as follows.

Certain areas of a city experience high demand for parking. In those areas, the cost of parking management systems is less than the revenue that can be demanded for parking there. A municipal decision to charge for street parking is a local demand management decision predicated on charging slightly more that the amount needed to be able to pay the expenses of the requisite management system. A small surplus is taken to be sure the system expense does not become a financial burden to the city.

This is less of a profit-decision than could be taken by many municipal authorities. Rather many of these authorities are simply asking: “Can we afford to deploy a system to restrict parking to two-hours by charging a small amount that is sufficient to pay for meters so that we can in turn force compliance via issuing citations for meter violations?”

The answer for high-demand areas is: “yes!” Hence those areas get meters, but prices are set lower than market value because commercial interests argue that parking pricing hurts business. While this is demonstrably not always true (in fact the opposite is true in some circumstances), it can be true when free or cheaper parking is available in the next business district – i.e., when a motorist has an equally satisfying shopping, dining or entertainment choice away from priced parking.

Hence to make market-pricing work we need pricing management to be far more pervasive than now. Unfortunately, the per-spot expense of metering becomes prohibitive as soon as demand drops off. Hence while we can price modestly, or in rare circumstances, even sensibly in some high-demand urban areas, we cannot do so economically on the shoulders of those areas. This creates real or perceived disadvantages for commercial interests in competition with businesses outside of those shoulders, and suppresses parking payments that could be sensibly demanded, making it infeasible to deploy parking demand management systems outside relatively dense municipal areas, leaving these areas for free-parking, sign limited parking and tire-marking. Hence under-priced parking is baked in as a consequence of high management-system costs. Demand density dictates feasibility in the same way that density influences transit feasibility.

If the per-spot expense-ratio for parking payment management were the same for every parking spot in a city or region, and was a small fraction of current costs, these disparities would disappear. New in-car telematics-based payment systems do this.

More important than the simple argument that lower system costs would make parking management more available to municipalities, this technology unlocks a vast pent-up demand for parking management, which has associated with it the revenue that would fund system costs for region-wide and country-wide road tolling.

The net, combined expense to a motorist for paying for parking, road-use and insurance, on a single system can be arranged to leave a motorist expense-neutral, while providing cost transparency, privacy and convenience.

The net savings in payment management systems for all three can leave an increased revenue margin to governments that can be used to neutralize the expense of new country-wide road tolling programs.

How can we get started? Begin by tolling for parking, under a regime wherein there is a gradual schedule of growth in number of spots-under-management. Use the technology advantages to simultaneously reduce manage expenses and to manage areas that were not feasible to manage before. This program and technology combination allows the same enforcement staff compliment to manage two or three times more spots. There is no need to reduce staff in circumstances where parking management will expand.

Permit the payment system operator who is servicing a voluntary population of motorists to sell additional value-added services such as PAYD insurance, parking services for private parking operators and parking finders and the like.

Arrange for this payment service provider to provide road-tolling billing services for those voluntary motorists who would be billed for variable (TDP) road-tolls while receiving credits for fuel taxes (or other taxes) as calculated by the same telematics system. Specifically, this payment services program would be set up so that sufficient revenues are generated from value-added services to permit the payment system operator to provide the road-use billing-feed free of charge to a tolling authority.

This system would first attract users for whom the value of the additional services and fairness of the balancing tax rebates would permit the shift to be perceived as valuable. As value added services increase in value, costs decline, and this approach becomes more acceptable, more motorists will join voluntarily.

The schedule to move the motorist population to this new system could be expected to take three to five years. As the service suite expands the service becomes increasingly attractive until such point that the government can announce a final rollout to all vehicles.

This approach leaves government in control of the switchover schedule, allows motorists to subscribe voluntarily, and allows system revenues to self-fund the system, meaning that government needs very little investment to get the system seeded and has the option to allocate zero operational expenses to the road-tolling portion of the system.

1 comment:

Bill said...

Very persuasive arguments Ben
- do you know if tolling is or will come up in connection with climate talks in Copenhagen? - perhaps next week with the Mayors Climate Summit which starts Dec 14 which I'm trying to follow in my blog at http://pollutionfree.wordpress.com