Transportation Taxes – Implement Congestion Pricing

 Revenue: $235 million

In 2000, over 578,000 people traveled into the Central Area of Chicago to work each weekday.[1]  The Central Area is roughly defined as the area containing the Loop, River North, Streeterville, the Cabrini Area, Chinatown, and the Near North, South, and West sides.[2]

People used public transportation for 52 percent of these trips.  The vast majority of the remaining 277,000 trips likely occurred via motor vehicles.[3]

There are currently no tolls on any of the major interstate highways that lead into downtown Chicago or on its main internal artery, Lake Shore Drive.  Once in the Central Area, parking is relatively expensive as the median daily parking rate in downtown Chicago is approximately $32, which is the fourth highest daily rate among U.S. cities.[4]

Under this option, Chicago would implement a congestion pricing system to charge motor vehicles a fee to both enter and exit the Central Area.

The City would charge a $5 fee both for entering or exiting the Central Area in a motor vehicle during weekday rush hours (6 am to 9:30 am and 3 pm to 7 pm).  Motor vehicles going through the Central Area on the Interstate Highways and Lake Shore Drive would not be charged the fee unless they exited those roadways.  In order to ensure that every vehicle was charged for entering and exiting the Central Area, sensors would be placed at each access point to the Area.  These sensors would be similar to the open-road tolling technology the Illinois Department of Transportation (IDOT) uses on some Illinois toll roads.  In addition to the sensors, each vehicle traveling to the Central Area would need a transponder.  Similar to IDOT’s system, a system of cameras would be set up at each access point to take pictures of the license plates of vehicles without transponders.  These vehicles would have the ability to go online and pay the congestion charge before being fined.

Using the Central Area Plan data, assume that 250,000 cars currently enter and exit the Central Area on an average weekday during rush hour.  If the City collected $5 for each of one these entrances and exits it would generate $2.5 million per weekday or approximately $625 million a year.  However, a significant number of the cars entering and exiting the Central Area would likely be exempted from the charges or at least receive reduced rates.  Other cities that have implemented congestion pricing have exempted or charged reduced rates to some of the following: taxicabs, commercial vehicles, motorcycles, and low-income vehicle owners.  If the City were to implement congestion pricing some of these exemptions or deductions would likely be included.  Even assuming, however, that one quarter of the 500,000 entrances and exits would not be charged, the City’s congestion pricing system would still generate $470 million annually.

One other major factor likely to reduce revenue is that by charging a fee to enter the Central Area, there will be a significant reduction in vehicle trips as people switch to other modes of transportation or not make trips into the Central Area at all.  In Singapore, which has had some form of congestion pricing in place since 1975, traffic declined 24 percent once electronic tolling was implemented in 1998.  In London, a congestion charge resulted in a 21 percent decline in traffic.[5]  In Stockholm, a similar charge resulted in a 10 to 15 percent reduction in traffic.  This traffic reduction is part of the goal of a congestion pricing system: by reducing traffic, congestion pricing shortens commute times for the remaining vehicles on the road and reduces pollution.

Assuming that the congestion pricing in Chicago would reduce traffic by 20 percent, 400,000 motor vehicles would enter and exit the Central Area each day.  If a quarter of these entrances and exits were exempted from the fee, the 300,000 remaining daily entrances and exits would yield $375 million annually for the City.

This revenue would be offset, at least in part, by the capital costs of implementing the system and the ongoing operation of the system.  The most significant capital cost would be the installation of structures, called gantries, which would span the entrances and exits to the Central Area that would be equipped with cameras and electronic transmitters to monitor traffic flow at each of the Central Area access points.  We assumed that the City would need 100 gantries to ensure that every vehicle entering the Central Area would pay the congestion fee.  Using a cost worksheet from the Federal Highway Administration, we estimated that the installation of 100 gantries would cost almost $300 million.[6]

Category

Cost

System-wide Gantry Costs

$245 million

Dynamic message sign, structure, and controller

$40 million

Transportation Management Center

$6 million

Conduit, design and fiber optic install

$2 million

Total

$293 million

  • Detailed Cost Worksheet (xls, csv)

This upfront capital cost of almost $300 million can be converted to an annual expense by applying a discount rate to the costs and determining the useful life of the asset.  Assuming a discount rate of 6 percent and a 10-year useful life for all the capital costs, the annualized capital cost for the congestion pricing system would be $40 million.[7]

In-car transponders would be another significant cost for the congestion pricing system.  In some systems, such as IDOT’s I-pass system, drivers bear the cost of the transponders.  If the City followed this model, the City’s transponder costs would be negligible.  Alternatively, the City could piggyback on IDOT’s I-pass system, which already operates as part of a regional, multi-state system, thereby substantially reducing the upfront costs to users and allowing users to have only one transponder in their vehicles.

The operating costs of running a congestion pricing system will be substantial.  In Singapore, the operating cost of the system is 20 percent of the annual revenues.[8]  New York City’s proposed congestion pricing system would have cost $240 million to operate, approximately 35 percent of gross revenues.[9]  A study by the Washington State Department of Transportation determined that the cost per transaction of a completely electronic toll system in Orange County, California was $.46.[10]  However, this was for a tolled highway and not a dense urban congestion pricing system.  By averaging the costs of the existing Singapore system and the proposed NYC system, assume the operation of the Chicago system would cost approximately 25 to 30 percent of its gross revenue.  At an estimated $375 million that equals approximately $100 million.

 

Combining the estimated annual operating costs of $100 million and the annualized capital cost of $40 million yields a total of approximately $140 million.  Accordingly, the estimated annual net revenue from the congestion pricing system would be $235 million.

The Illinois Municipal Code states that “the corporate authorities of each municipality may regulate the use of the streets and other municipal property”.[11]  Thus, it is likely that the City has the authority to implement congestion pricing on any of its streets.  However, it is unclear if the City has the authority under State law to charge vehicles for driving on State roads that pass through the City.

Proponents might argue that congestion pricing is the most effective way of charging motor vehicle drivers for their use of valuable public land.  Congestion imposes costs on the entire city in terms of increased travel times, carbon emissions, etc.  Congestion pricing ensures that these costs are borne by the people most responsible: drivers of motor vehicles.   Additionally, some might argue that the revenues of the CTA, Metra, and Pace will increase as less people commute via automobile and switch to public transportation. Opponents might argue that congestion pricing amounts to a massive tax increase at a time when Chicagoland residents can least afford it.  Additionally, some might argue that the fee is unfair because it will fall most heavily on low-income residents and commuters.[12]  Others might argue that this would be unfair to Central Area residents as it would effectively trap them within the Central Area.

 

 

Discussion and Additional Questions

Other major cities that have introduced congestion pricing have accompanied the system’s implementation with large investments in public transportation in order to accommodate the expected shift from vehicles to public transportation.[13]  Thus, one might want to know what public transportation enhancements would accompany congestion pricing before deciding whether to implement congestion pricing.  An important consideration is estimating how many people would shift to public transportation if congestion pricing were implemented.

Additionally, there are a number of statistics about the City’s vehicle traffic that would help one better estimate the revenue impacts of implementing congestion pricing.  These include:

  • How many vehicles enter and exit the Central Area every weekday?
    • What is the breakdown of these vehicles among different categories: commercial, taxicabs, emergency vehicles, etc.?
  • What impact would congestion pricing have on parking tax revenues?

Another important consideration is who would end up paying and benefiting from the congestion charge.

  • What segments of the City and regional populations would pay the largest share of the charge?
  • In other jurisdictions that have implemented congestion pricing, what segments of the area populations bear the costs?
  • If significant upgrades in public transportation accompany congestion pricing who would benefit from these upgrades?

Finally, selecting $5 as the fee in this option is admittedly somewhat arbitrary.  An important consideration in implementing congestion pricing is deciding what the fee should be and when it should be applied.  Some questions might include:

  • Should the fee be fixed or variable depending on traffic volume or times of day?
  • Should it be charged for both entrances and exits?
  • Should it be charged on the weekends?
  • What impact would different fee structures have on revenue and traffic volume?
  • What relationship, if any, should the fee have to the fares for public transportation in the region?

Budget Details

Fund: Corporate Fund, 0100 Type of Revenue:  Transportation Taxes
This appropriation can be found on page 16 of the 2011 Annual Appropriation Ordinance.

http://www.cityofchicago.org/content/dam/city/depts/obm/supp_info/2011BudgetOrdinance.pdf

 

 


[2] Id.

[3] Id. A small amount of people likely biked or walked to work.

[4] CBS Chicago. “Chicagoans Pay Some of Nation’s Highest Parking Rates.” July 8, 2011.

http://chicago.cbslocal.com/2011/07/08/chicagoans-pay-some-of-nations-highest-parking-rates/

[5] U.S. Department of Transportation. Federal Highway Administration. “Lessons Learned from International Experience in Congestion Pricing”. August 2008.

http://ops.fhwa.dot.gov/publications/fhwahop08047/Intl_CPLessons.pdf

[6] Federal Highway Administration. “Value Pricing Pilot Program Planning and Decision Making Tools.” Original cost worksheet available here: http://ops.fhwa.dot.gov/tolling_pricing/value_pricing/tools/index.htm

OIG-modified worksheet available at: http://chicagoinspectorgeneral.org/major-initiatives/budget-options/

The cost worksheet is for the electronic tolling of highways and assumes that each gantry will need to span six lanes of traffic.

[7] Federal Highway Administration. “Value Pricing Pilot Program Planning and Decision Making Tools.” Cost worksheet available here: http://ops.fhwa.dot.gov/tolling_pricing/value_pricing/tools/index.htm

[8] MSI Global Pte Ltd. “Evaluation of Singapore’s Electronic Road Pricing (ERP) System (1998-present).” International Symposium on Road Pricing 2003. Slide 14.

www.trb.org/Conferences/RoadPricing/Presentations/Gopinath.ppt

[9] New York State Assemblyman Richard L. Brodsky. “Interim Report An Inquiry into Congestion Pricing as Proposed in PlaNYC 2030 and S.6068.” July 9, 2007. pgs. 4 and 5.

http://www.nytimes.com/packages/pdf/nyregion/city_room/20070409_BrodskyCongestionReport.pdf

[10] Washington State Department of Transportation. “Comparative Analysis of Toll Facility Operational Costs.” February 22, 2007. pg. 9. http://www.thenewspaper.com/rlc/docs/2008/07-wsdotoll.pdf

[11]llinois Complied Statutes. Illinois Municipal Code Chapter 65. Sec. 11‑80‑2. Streets and Public Ways http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=006500050HArt.+11+Div.+20&ActID=802&ChapterID=14&SeqStart=156700000&SeqEnd=158600000

[12] Peters, Jonathan and Gordon, Cameron. “Measuring the Equity Burden in Public Service Provision: The Case of New Jersey Toll Roads.” Economic Papers December 2008.

http://www.cunyspsc.org/files/papers_o/p_TRA_2008_peters_gordon_2008_toll_equity_35780426.pdf

[13] U.S. Department of Transportation. Federal Highway Administration. “Lessons Learned from International Experience in Congestion Pricing.” August 2008.

http://ops.fhwa.dot.gov/publications/fhwahop08047/Intl_CPLessons.pdf