Is there any conflict between free parking and a free market in parking? This question came up last year during a spirited online debate with Randal O’Toole. The debate centered on government regulation of off-street parking, and it took an unexpected turn. I, an urban planner, strongly criticized cities’ requirements for off-street parking while O’Toole, a libertarian, said the requirements don’t do any harm. I advocated fair market prices for on-street parking, while O’Toole downplayed the problems caused by free curb parking. I was delighted when Jason Kuznicki asked me to write about the issue for Cato Unbound, and asked Randal O’Toole, Sanford Ikeda, and Cliff Winston to respond to my essay. And I was also pleased to see that two of the three—Ikeda and Winston—fully agreed with my recommendations to remove minimum parking requirements, charge market prices for curb parking, and use the meter revenue to finance local public services. All three responses have brought up some important new issues that I will discuss: restrictions on parking, lessons from Texas, employer-paid parking, the political feasibility of charging for curb parking, and privatizing curb parking.
Restrictions on Parking?
Randal O’Toole says in his essay, “Instead of just eliminating minimum-parking requirements, many cities are substituting maximum-parking requirements.” Are many cities really eliminating their minimum parking requirements and imposing maximum parking requirements? No, they are not. A few cities have eliminated minimum parking requirements, but only in their central business districts. Even fewer cities—such as New York, San Francisco, and Philadelphia—have imposed maximum parking requirements, also only in their central business districts. When it comes to parking, cities almost always require rather than restrict it.
The suspicion that feral planners are conspiring to restrict parking has a long history. In his famous 1997 article on “Cars and Their Enemies,” the eminent political scientist James Q. Wilson mentioned parking four times, and all his comments are about restrictions: “heavy restrictions on downtown parking,” “restrict parking spaces,” “parking restrictions,” and “higher parking charges.”[1] One would never know from Wilson’s comments that planning for parking is almost exclusively about setting minimum parking requirements for every land use. One would be also be surprised after reading Wilson (or O’Toole) to learn that American drivers park free at the end of 99 percent of their automobile trips. If Wilson or O’Toole were writing about actual parking requirements in zoning ordinances, the article’s title could be “Cars and Their Friends.”
Parking spaces are essential for automobile travel, almost as oxygen in the atmosphere is essential to life. As a result, most people seem to think that parking requirements are an essential feature of city planning, but, as Cliff Winston says, economists have only recently begun to study the cost of these requirements. For example, a large-scale econometric study found that minimum parking requirements significantly increase the number of parking spaces in cities. Bowman Cutter, Sofia Franco, and Autumn DeWoody (2010) used data for 9,279 nonresidential properties in Los Angeles County to investigate whether parking requirements force up the parking supply.
They took two approaches to answer this question. First, they compared the number of parking spaces at office buildings with the parking requirements. They found the buildings provided, on average, 97 percent of the spaces that cities required, showing that most developers provide only the required number of spaces.
Second, they used data on the sales prices of buildings to compare the marginal cost of a parking space with the resulting increase in a building’s value. For the entire nonresidential sample, the last parking space added $7,500 more to a building’s cost than it added to the building’s value. For service retail, such as restaurants with high parking requirements, the last parking space added $14,700 more to a building’s cost than it added to the building’s value. Minimum parking requirements thus place a heavy economic burden on development by forcing developers to provide parking spaces that lose money. In effect, minimum parking requirements are a tax on building area to subsidize parking.
A recent study in New York City also found that most developers build only the minimum number of parking spaces required by zoning. Simon McDonnell, Josiah Madar, and Vicki Been (2011) studied 38 large residential projects in Queens and compared the number of actual spaces in the buildings to the city’s parking requirements. They found the number of parking spaces equaled the minimum parking requirement in 47 percent of the buildings and fell short of the required minimum in another 11 percent. The parking supply exceeded the required minimum by more than 25 percent in only 13 percent of the buildings. They concluded that the city’s parking requirements probably forced most developers to provide either more parking spaces or fewer housing units than the market would have otherwise provided.
Turning to Texas
Randal O’Toole says, “To find out what cities would be like without minimum parking requirements, we must turn to Texas, where counties aren’t even allowed to zone, much less impose minimum parking requirements.” However, even Houston, which does not have zoning, has minimum parking requirements, and they resemble the parking requirements in almost every other city in the United States. Houston requires 1.25 parking spaces for each efficiency apartment in an apartment building, for example, and 1.333 parking spaces for each one-bedroom apartment. Can planners in Houston really predict the “need” for parking at every apartment to one-thousandth of a parking space?
Because minimum parking requirements are often the real limit to the density of development, Houston’s parking requirements may help to explain a longstanding mystery in city planning: If Los Angeles has had zoning for a hundred years and Houston has never had zoning, why do they look the same?
To be fair to O’Toole, Houston is a city, not a county, but even the counties in Texas have subdivision guidelines as suggestions to private-sector applicants. For example, Montgomery County (north of Houston) recommends 1.25 spaces per efficiency apartment and 1.33 spaces per one-bedroom apartment. In his research on developer decisionmaking, Cornell professor Rolf Pendall found that, “as in any long-term relationship, the suggestions of one partner (government engineers) will generally shape the behavior of the other partner (the project sponsor). Otherwise the recommender will lose patience with the recommendee and begin to make his/her life less pleasant. Unlike attorneys and economists, most (though certainly not all) developers like to get through with as little argument as possible and get on to their next project.”
The vision behind minimum parking requirements is a drive-in utopia, and cities legislate this vision into reality for every new building, regardless of the cost. Off-street parking requirements that satisfy the peak demand for free parking are, in reality, free parking requirements. Most urban planners seem to believe in the immaculate conception of parking demand, and many libertarians seem to believe that market choices reveal consumer preferences for travel by car. For example, O’Toole says, “free parking is a free-market choice,” but this statement neglects the heavy thumb of minimum parking requirements on one side of the scales. The demand for parking was not immaculately conceived, and it does not result from consumer preferences revealed in a fair market. Instead, planning and the market coupled long ago to produce the misbegotten glut of free parking.
Employer-paid Parking
Drivers who think planners are conspiring against their cars somehow manage to ignore the parking subsidies right under their wheels. Consider, for example, employers in downtown Washington, D.C, who offer free parking for commuters. The market price of commuter parking in the commercial garages near the Capitol averages about $255 a month. Valued at market prices, free parking near the Capitol thus reduces the cost of driving to work by $255 a month. If commuters drive the national average round-trip distance to work of 32 miles a day for 22 days a month, free parking near the Capitol thus reduces the cost of driving to work by 36¢ per mile ($255/22 days/32 miles). According to the American Automobile Association, the average operating cost of a car is about 18¢ per mile. Because the employer’s parking subsidy is twice the operating cost of driving to work, it reduces the out-of-pocket costs of driving to work by two-thirds. Free parking for commuters strongly distorts choices in favor of cars, and it is one example of what I mean by the high cost of free parking.
My point, however, is not to criticize employers who offer free parking. I will, however, criticize the federal tax policy that encourages the decision to subsidize free parking. The Internal Revenue Code creates the incentive to offer free parking at work by exempting the subsidy from both income and payroll taxes. The Internal Revenue Code encourages all employers to convert taxable wages into nontaxable parking subsidies. With the average 19 percent federal marginal income tax rate and the average 6.5 percent state marginal income tax rate, a commuter faces a 25.5 percent combined marginal income tax rate. Social Security and Medicare add an additional payroll tax rate of 7.65 percent, so a typical commuter’s marginal tax rate on earned income is about 33 percent. Employers (even tax-exempt Cato) also pay 7.65 percent in payroll taxes. Therefore, the total marginal tax rate on earned income is about 40 percent. Converting $100/month of taxable salary into a tax-exempt parking subsidy of $100/month thus saves the commuter $33 and saves the employer $7.65.
This tax subsidy is a strong incentive for every employer to offer free parking at work and thus subsidize driving to work. It also helps to explain why 95 percent of all automobile commuters in the United States park free at work. Unwise tax policy distorts the employers’ choices about transportation fringe benefits, and in turn the employers’ misguided fringe benefits distort commuters’ transportation decisions.
Employer-paid parking is the most common tax-exempt fringe benefit in the U.S., but it is also an anomaly. Most tax exemptions are intended to promote a public purpose, but the tax exemption for employer-paid parking encourages solo driving to work. Parking cash out can eliminate this price distortion caused by employer-paid parking. Offering commuters the choice between a parking subsidy or its cash equivalent makes it clear that even free parking has a cost—the foregone cash. The option to cash out employer-paid parking thus raises the effective price of commuter parking without charging for it. Drivers can continue to park free at work, but the option to take cash instead of free parking rewards commuters who do not drive to work. Parking cash out therefore increases the share of commuters who carpool, ride public transit, walk, or bike to work.
Parking cash out is a market-oriented policy that does not mandate parking charges because commuters who choose to drive can still park free. Rather, parking cash out simply gives the same subsidy to every commuter, regardless of travel mode choice, while free parking gives a subsidy to drivers and nothing to other commuters. Parking cash out also expands the range of individual choice, a core value for libertarians.
A bill now in Congress would alter the Internal Revenue Code to reduce the price distortion in favor of free parking. Section 5 of H.R. 3271 would include parking cash out as a condition to qualify for the tax exemption for employer paid parking. That is, free parking would be a tax exempt fringe benefit if employers offer commuters the option to cash it out. The bill would allow commuters to make their transportation choices at fair market prices.
Opposition from Both the Left and Right
Free parking is the biggest subsidy for cars, and it causes serious problems. Drivers who cruise in search of free curb parking pay with time instead of money, and their cruising congests traffic, pollutes the air, and wastes fuel. In contrast, drivers who pay money for curb parking provide funds to improve public services. Nevertheless, some people oppose charging anything for curb parking. One group in San Francisco, the Act Now to Stop War and End Racism (ANSWER) Coalition, has strongly but unsuccessfully tried to block SFpark, which is the city’s new policy of charging market prices for curb parking. One flyer proclaimed:
Stop the parking meter hike! Make the rich pay, not the workers! Don’t squeeze workers and small business. This is a tax on the people! It’s time to organize and defeat the parking meter robbery!
The ANSWER Coalition opposes foreign wars for oil but supports free parking at home, and this sort of confusion is common in debates about parking policy. Thinking about parking seems to take place in the reptilian cortex, the most primitive part of the brain responsible for making snap decisions about urgent fight-or-flight choices, such as how to avoid being eaten. The reptilian cortex is said to govern instinctive behavior involved in aggression, dominance, territoriality, and ritual display—all important factors in debating about parking policies. Everyone’s critical and analytic faculties seem to shift to a lower level when they think about parking. Some strongly support market prices—except for parking. Some vehemently oppose subsidies—except for parking. Some abhor strict planning regulations—except for parking. Some insist on rigorous data collection and statistical tests—except for parking. This parking exceptionalism has impoverished our thinking about parking policies.
The ANSWER Coalition’s criticism of SFpark is misguided. Thirty percent of households in San Francisco don’t own a car, and the city uses all the parking meter revenue to subsidize public transit. Many poor people ride buses that are mired in traffic congested by richer drivers who are cruising for underpriced curb parking. We should be suspicious of any subsidy that is said to help the poor by helping everyone. The richest 20 percent of the population seems to consume at least 40 percent of everything—including cars, gasoline, and parking. As a result, the rich will probably get the lion’s share of any parking subsidy.
If you own a car, you obviously need a parking space, but owning a car doesn’t prove that you need a car, just as owning three cars doesn’t prove that you need three cars. And if you own a car, why is someone else responsible for providing the parking spaces you need, at no cost to you? You pay every time you board a bus, and that makes you think about whether you want to ride the bus. If you also paid every time you pulled into a parking space (which can be extremely expensive to provide), you would also think about whether you want to drive. Free parking doesn’t mean free markets; it often means freeloading.
Drivers who don’t want to pay for parking often push poor people out in front of them like human shields, claiming that charging for parking will hurt the poor. Free curb parking limits the revenue available to pay for public services, and poor people are less able to replace public services with private purchases the way richer people can. The poorest people cannot afford cars, but they can benefit from public services—such as public transportation—that are financed by parking revenues. Using curb parking revenue to pay for local public services is much fairer than keeping curb parking free and requiring ample off-street parking.
Some opposition to performance parking prices may be due to unfamiliarity, and only experience will change minds. Once drivers have become accustomed to paid parking and see that prices can decline as well as rise, they may come to value the ready availability of curb parking. What seems indefensible for a current generation may become indispensable for future generations. Familiarity breeds acceptability and, as Thomas Paine wrote, “Time makes more converts than reason.”
Persuading Both the Left and Right
Opposition to paying for parking extends across the political spectrum. With hostility to markets from the left and to governments from the right, it is hard to convince either side that governments should charge market prices for curb parking. No one wants to pay for parking, and few people believe that free parking produces bad results. The left often underestimates the importance of incentives on individual choices, and the right often underestimates the collective consequences of individual choices. As Niccolò Machiavelli wrote,
There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.
Market prices for curb parking may make sense in both theory and practice, but they are tough to sell politically. Paying for parking is a “grudge purchase” in marketing terminology—a purchase the buyer does not want to make, such as repairing a car after an accident. For some people, the idea of charging market prices for curb parking amounts to a thought crime. After all, taxes have already paid for the streets, so why should drivers have to pay even more to park on them? Nobody wants to pay for parking, but some cities have found strong political support for parking meters by using the meter revenue to pay for local public services the residents want.
Several cities have begun to return meter revenue to the metered districts. Austin, Texas, uses parking meter revenue to pay for improved sidewalks, curb ramps, and street trees in its Parking Benefit District next to the University of Texas. In California, Pasadena, Redwood City, and Ventura return all the meter revenue to pay for added public services on the metered streets. In its performance parking pilot district, Washington, D.C. returns 75 percent of the meter revenue to pay for transportation improvements, including lighting, benches, and bicycle racks. The ordinance in Redwood City shows how simple the legislation can be:
Redwood City’s Performance Parking Ordinance
To accomplish the goal of managing the supply of parking and to make it reasonably available when and where needed, a target occupancy rate of eighty-five percent (85%) is hereby established.
The Parking Manager shall survey the average occupancy for each parking area in the Downtown Meter Zone that has parking meters. Based on the survey results, the Parking Manager shall adjust the rates up or down in twenty-five cent ($0.25) intervals to seek to achieve the target occupancy rate.
Revenues generated from on-street and off-street parking within the Downtown Meter Zone boundaries shall be accounted for separately from other City funds and may be used only … within or for the benefit of the Downtown Core Meter Zone.
[Sections 20.120 and 20.121 of the Redwood City Municipal Code]
Eugene, Oregon, has pioneered a particularly ingenious way to return benefits to a neighborhood. The University of Oregon wanted to build a new $227 million basketball arena, but residents of the nearby Fairmont neighborhood were concerned that events at the arena would attract drivers who would occupy all the on-street parking during games. But residents also did not want to pay for a permit district to solve a problem created by the new arena.
In 2010, the City of Eugene and the University of Oregon worked together to create an Event Parking District near the arena. The university can sell 500 event-day parking permits in the district for up to 22 events a year at the arena. Unlike a conventional permit district where residents pay for their permits, residents receive two free residential permits per property in the Event Permit District, and they can buy additional permits at the market price. The university charges ticket holders $8 to $10 for event parking in the permit district on game days and uses the resulting revenue to pay the city the full cost of managing the permit district. If the university does not receive enough revenue from the sale of the event parking permits, it pays the city the difference from its own funds.
The Event Parking District creates substantial benefits for everyone. The University avoids the game-day parking crush without building an expensive parking structure that would be underused much of the year. The adjacent neighborhood gets a residential permit district at no cost to the residents. The City of Eugene gets the revenue necessary to manage the district.
Eugene’s Event Parking District shows the possibility of a symbiotic relationship between residential neighborhoods and nearby traffic generators. Commercial developments with few on-site parking spaces increase demand for something that nearby neighborhoods can sell to nonresidents: curb parking. Other cities also charge nonresidents for parking in residential permit districts, but Eugene’s program demonstrates the benefits of this policy for land uses that cause short, sharp, and infrequent peaks in parking demand.
I certainly agree with Sanford Ikeda’s recommendation that neighborhoods should be able to spend their curb parking revenue on their highest priorities. Some people seem to think that parking meter revenue should go neither into the general fund nor back to the neighborhood but instead into a trust fund for motorists—for example, to build off-street parking garages. But if each neighborhood’s parking meter revenue goes into a trust fund for the neighborhood and the money can be spent for the neighborhood’s highest priorities, such as cleaner and safer sidewalks, residents may soon realize that subsidizing cars is not the best use of their trust fund.
Market Prices with or without Privatization
Cities can charge performance prices for curb parking without privatizing it, and can privatize curb parking without charging performance prices for it. In 2008, Chicago privatized its parking meters and missed a great opportunity to make performance pricing a part of the deal. Chicago’s primary goal for the concession contract was not to manage curb parking but “to maximize the amount of the upfront payment made for the Concession.”[2]
Chicago’s meter rates before the privatization were probably far too low. In 2008 they were only $3 an hour in the Loop, $1 an hour in the rest of the CBD, and from 25¢ to 75¢ an hour elsewhere. The concession contract sets caps on the meter rates in 2013 at $6.50 an hour in the Loop, $4 an hour in the rest of the CBD, and $2 an hour everywhere else in the city.[3] From 2014 to 2084, the meter rates can increase only at the rate of inflation. Chicago thus privatized its parking meters without using prices to manage the system properly.
Chicago also failed to get the highest possible upfront payment, because limiting meter rate increases after 2013 to the inflation rate must have limited what bidders were willing to pay for the 75-year concession. Even with the price caps, however, the winning bid was $1.16 billion for the 36,000 metered spaces. The parking spaces are thus worth at least $32,000 apiece.
Rather than setting caps on future meter rates, a city can set performance goals for a privatized system. For example, the contract could require the concessionaire to set meter rates so that the curb occupancy rate remains between 75 percent and 95 percent on every block for at least a certain number of hours every day, with penalty payments for failure to meet the occupancy goal. If professional operators can manage performance parking more effectively and at lower cost than the city’s staff can, privatization with appropriate performance goals may turn out to be a good way for a city to charge the right prices for curb parking.
I agree with Cliff Winston’s comment that privatized curb parking could result in monopolies that charge excessive prices. If the capital and operating costs of curb parking spaces are fixed regardless of the occupancy rate, a private owner will achieve maximum revenue and profits at the occupancy rate where reducing the price to attract additional customers produces no additional revenue, even if many parking spaces are vacant. Commercial parking operators face downward-sloping demand curves because they are in monopolistic competition, and with fixed costs regardless of the occupancy rate, the owner will maximize revenue and profits at the price where the elasticity of demand is unity.[4] If demand is inelastic, raising prices will increase revenue and profits. If demand is elastic, reducing prices will increase revenue and profits. If costs are fixed, maximum profits will accrue only at the price where the elasticity of demand is unity. For that reason, privatizing curb parking without appropriate performance goals could produce a large up-front payment but lead to inefficient results that stem from monopoly pricing.
Like burning furniture to stay warm on a cold night, selling city assets to pay current expenses is a bad idea. Some cities are considering more farsighted parking concessions that share the annual revenue rather than maximize the upfront payment. A concession with a professional operator who meets performance goals and shares the resulting revenue with the city can give the city two big advantages: (1) a well-managed parking system, and (2) a perpetual stream of income from market-based user charges, not taxes.
Parking around the World
I have focused on how performance parking policies can repair the damage minimum parking requirements have done to American cities, but the same policies are also appropriate for developing countries that do not yet have high levels of automobile ownership. Even countries with low automobile ownership have chaotic parking problems, as suggested by this description of Mexico City:
Cars dominate nearly every square inch of Mexico City’s public space. Vehicle owners double- and triple-park on the streets, to say nothing of curbs, sidewalks, gardens, alleys, boulevards and bike paths.[5]
Crowded cities in India also have problems with sacred cars, although only 14 percent of households in India own a car, and ownership is concentrated among the relatively rich.
Many big cities in poor countries have such a high density of people that even a low rate of car ownership per household leads to a high density of cars. If these cities adopt performance prices for curb parking and use the revenue to pay for local public services, never before will so many poor people receive so much public benefit paid for by so few rich people. Even drivers will benefit because performance prices will help solve the two most difficult problems of owning a car in these cities: traffic congestion and parking shortages.
Conclusion
Minimum parking requirements increase the supply of off-street parking, regardless of the costs and heedless of the consequences. They represent the hard path to solving the parking problem with asphalt and concrete. In contrast, market-rate prices for curb parking are an alternative soft path to solving the parking problem through better management. If cities adjust the price of curb parking to aim for one or two open spaces on every block, and use the resulting revenue to improve public services on the metered streets, this soft path can greatly improve urban life.
Urban problems often become widely recognized only after solutions become available, and now that cities have the technology available to charge fair market prices for curb parking it is easier to recognize all the problems caused by requiring too much off-street parking. Minimum parking requirements maximize the likelihood that everyone will own a car and drive wherever they go. They do provide the free parking we all want, but we give up a lot to get it. As Little Richard once sang, “He got what he wanted, but he lost what he had.”
Notes
[1] Wilson (1997, pp. 19, 20, and 21).
[2] City of Chicago (2009, 12–13).
[3] Ibid., 14–15.
[4] See Shoup (2005, 297–303).
[5] Dickerson (2004).
REFERENCES
City of Chicago, Office of the Inspector General. 2009. “Report of the Inspector General’s Findings and Recommendations: An Analysis of the Lease of the City’s Parking Meters.” Chicago: Office of the Inspector General, June 2, 2009.
Cutter, Bowman, Sofia Franco, and Autumn DeWoody. 2010. “Do Minimum Parking Requirements Force Developers to Provide More Parking than Privately Optimal?” Working Paper, Pomona College Department of Economics, August 2010.
Dickerson, Marla. 2004. “Mexico’s Economy Is Vrooming.” Los Angeles Times, December 26, 2004.
McDonnell, Simon, Josiah Madar, and Vicki Been. 2011. “Minimum Parking Requirements and Housing Affordability in New York City.” Housing Policy Debate, 21, no. 1: 45-68.
Shoup, Donald. 2005. The High Cost of Free Parking. Chicago: Planners Press.
Wilson, James Q.. 1997. “Cars and Their Enemies,” Commentary, July, pp. 17-23.