Employer-Paid Parking:A Matching Grant

• Employers pay for parking at work if the employee is willing to pay for driving to work

• Commuters who don’t drive to work don’t get a subsidy

• Employer-paid parking encourages solo driving

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%S

olo

dri

ver

sh

are

Driver-paid parkingEmployer-paid parking

42%

67%

Free parking increases solo driving by 60%

Parking Prices Affect Mode ChoicesFor Commuters to Downtown Los Angeles

0%

10%

20%

30%

40%

50%

60%

70%

80%

Co

mm

ute

r m

od

e s

hare

$0 $1 $2 $3 $4 $5 $6Price of parking at work ($/day)

Drive solo

Transit

Carpool

Source: Estimated from Willson (1991)

TABLE 22-3

EMPLOYER-PAID PARKING INCREASES DRIVING TO THE LOS ANGELES CBD

PriceEmployerDriverelasticityPercentAbsolutepays forpays forTravel behavior or

of demandchangechangeparkingparking travel expenditure(6)(5)=(4)/(2)(4)=(3)-(2)(3)(2)(1)

-0.18+44%+21%69%48%Solo driver share1.

+0.17-29%-7%17%24%Carpool share2.

+0.33-50%-14%14%28%Transit share3.

-0.15+34%+197556Cars driven to work4. (per 100 employees)

-0.15+34%+$187$750$563Parking expenditure5. (per employee per year)

-0.14+33%+6.024.118.1Vehicle miles traveled6. (per employee per day)

-0.14+33%+1,3115,2303,919Vehicle miles traveled7. (per employee per year)

-0.14+33%+$380$1,517$1,137Auto use expenditure8. (per employee per year)

-0.14+33%+$566$2,266$1,700Parking + auto use expenditure9. (per employee per year)

Source: Shoup (1992). The arc elasticity of demand is calculated with respect to the price of parking at work.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Co

mm

ute

r m

od

e s

hare

Solo driver Carpool Transit

Driver-paid parkingEmployer-paid parking

48%

69%

24%

17%

28%

14%

California’s Parking Cash-Out Law

• Employers must offer commuters the cash equivalent to any parking subsidy offered

• Only for leased parking spaces

• Only for firms with more than 50 employees

Free parking has an opportunity cost

• The foregone cash is a new price for taking the free parking, and this price increases the cost of solo driving.

• Some commuters cash out and begin to and ride public transit, carpool, walk, or bike to work.

Advantages of parking cash out

• Gives commuters a new choice

• Rewards the alternatives to solo driving

• Reduces vehicle trips

• Treats all commuters equally

• Costs firms very little

• Sidesteps employees’ opposition to charging for parking at work

Eight case studies in Southern California

• Data on commute mode shares from SCAQMD trip reduction plans

• Commute mode shares before and after parking cash out

0%

20%

40%

60%

80%

100%

Com

mute

r m

ode s

hare

Solo Driver Carpool Transit Walk BicycleCommuter mode choice

Before cash outAfter cash out

76%

23%

14%

63%

6%.9%.8%2%

9%3%

Commuter Mode Share Before and After Parking Cash Out

0%

20%

40%

60%

80%

100%

Com

mute

r m

ode s

hare

Drive alone Carpool Transit Walk BicycleCommuter mode choice

78

15

41 1

79

14

5

1 1

77

15

52 1

79

16

31 1

80

15

2 1 1

79

15

41 1

1990 1991 1992 1993 1994 1996

Figure 25-2

COMMUTER MODE SHARES IN SOUTHERN CALIFORNIA, 1990-1996

Comments from employers• The employees think it’s fair. (Case 2)

• Since we moved to cash out, we’ve always received a good response. (Case 4)

• I would definitely recommend [parking cash out]. We’ve always found that cash works. Cash is always a good incentive. (Case 4)

• People like the idea, they like the cash in hand, and it does add to their paycheck. (Case 5)

• [Employees] love it. The ones that qualify love it. And the ones who drive alone don’t care because they get free parking. (Case 6)

• If we decided to scratch the program, we would probably end up with at least fifty or sixty more employee cars, with no place to park. (Case 8)

• Cash works very well for us. (Case 8)

TABLE 25-6

DEMOGRAPHICS OF TRAVEL TO WORK

OtherTransitCarpoolSolo DriverGENDER

5%3%14%77%Men6%4%16%74%Women

AGE7%5%18%70%16-295%3%14%78%30-495%3%12%79%50-695%5%16%73%70+

INCOME8%6%19%66%Less than $20,0005%3%15%76%$20,000 - $39,9995%2%14%78%$40,000 - $59,9995%3%13%79%$60,000 - $79,9996%4%13%77%$80,000+

EDUCATION6%5%25%64%Less than high school5%3%15%78%High school6%5%12%77%Bachelor degree7%4%12%77%Graduate degree

ETHNICITY5%2%14%78%White8%8%18%65%Latino8%9%18%64%Asian9%16%17%58%Black

6%4%15%76%ALL COMMUTERSSource: Mode shares for commuting to work are calculated from the

1995 Nationwide Personal Transportation Survey.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Co

mm

ute

r m

od

e s

hare

White Latino Asian Black

78%

65% 64%

58%

2%

8% 9%

16%

Solo driverPublic transit

Proposal to amend the tax exemption for employer-paid parking

• Section 132(f)(5)(C): Qualified parking – The term “qualified parking” means parking provided to an employee on or near the business premises of the employer . . . if the employer offers the employee the option to receive, in lieu of the parking, the fair market value of the parking.

TABLE 26-1

DISTRIBUTION OF SUBSIDIES IN A TDM PROGRAM

ShareShareSubsidySubsidyMarketSubsidyofofperperParkingparking

ratiosubsidyemployeesemployeevehiclechargepriceTravel mode(8)=(7)/(6)(7)(6)(5)(4)=(2)-(3)(3)(2)(1)

135%65%48%$50.00$50$50$100Solo driver

100%6%6%$37.50$75$25$1002-person carpool

91%10%11%$33.33$100$0$1003-person carpool

69%11%16%$25.00$100$0$10010-person vanpool

39%7%18%$15.00Public transit

Source: Mehranian, Wachs, Shoup, and Platkin (1987)

$0

$10

$20

$30

$40

$50

$60

Subsid

y p

er

em

plo

yee (

$/m

onth

)

Solo driver 2-person carpool3-person carpool10-person vanpool Public transit

$50

$37.50

$33.33

$25

$15

Subsidize people, not parking

Economics of automobile insurance

Automobile insurance is usually a fixed cost with respect to vehicle use.

Drivers usually don’t save money on insurance costs when they drive less.

Drivers usually don’t pay more when they drive more

No marginal cost of driving to pay for insurance

Pay-as-you-drive insurance

Pay-as-you-drive (PAYD) insurance converts some of the fixed cost to a variable cost.

Also called distance-based, per-mile, or cents-per-mile insurance.

Premiums are directly related to annual mileage driven or the total time spent driving

A new option

Motorists choose whether to pay by the year or by the mile, like a cell-phone contract

Some variations relate the premium-per-mile to where, when, and at what speed the car is driven.

All variations relate the premium-per-mile to the driving record of the owner. Higher per-mile premium for worse driving record, as with conventional insurance.

PAYD prices reflect costs

There is a small chance of a crash each time a car is driven.

And almost no chance of a crash when the car is parked.

PAYD pricing is based on the principle that prices should reflect costs.

Claims increase with mileage

With conventional insurance, low-mileage drivers overpay for their average claim cost

High mileage drivers underpay for their average claim cost.

Mileage is only one factor in claim costs.

Accuracy improves if annual mileage, along with other factors, determine the premiums.

Who saves money with PAYD insurance?

With conventional insurance, the insurance companies retain the cost savings that result when motorists reduce their annual mileage.

Higher profits for company, or lower premiums to drivers as a group.

With PAYD insurance, some of these savings are returned to individual motorists who reduce their mileage.

How does it work?Price per mile depends on each person’s driving record,

location of car, and other risk-related factors.

Odometer audits

Global positioning device

Measure the time a car is moving, and charge per minute

Driver prepays for expected mileage. At the end of the term, pays balance or receives rebate.

Insurance companies could charge a lower premium for pre-paid miles.

Minimum annual mileage purchase (such as 3,000 miles) to guarantee a minimum revenue per vehicle.

What can states do?

“A corporation shall be allowed a credit against the taxes that are otherwise due for providing motor vehicle insurance policies in this state that are at least 70 percent based on a mile‑based rating plan or a time‑based rating plan. The amount of the credit shall equal $100 for each vehicle insured under a policy.”

Oregon House Bill 2043, enacted in 2003.

Now, a new study commissioned by Conservation Law Foundation that looked at $502 million of claims on more than 3 million cars in Massachusetts, found that basing premiums even partially on mileage could end the practice of low-mileage drivers subsidizing higher-mileage ones. The study estimates that switching all Massachusetts drivers to pure per-mile auto insurance pricing would reduce mileage, accident costs, and fuel consumption by 9.5% and cut two million tons of carbon dioxide emissions. Another model with a flat yearly rate, plus per-mile pricing after the first 2,000 miles, would reduce both figures by about 5%.

How does it affect the price of driving?

Suppose your car gets 20 miles per gallon.Each 20¢ increase in the price of gasoline adds 1¢

per mile to the cost of driving.So each 1¢ per vehicle mile for insurance is like

increasing the price of gas by 20¢ a gallon.One guess is that the average PAYD premium will

be 6¢ per mile.But PAYD is not a new fee; it just converts a fixed

cost to a variable cost.

Would PAYD pay off for you?Your car gets 20 miles per gallon of gasoline.

Gasoline costs $3 a gallon.

Your gasoline cost per mile is $3 for 20 miles, or 15¢/mile.

You drive 10,000 miles per year and your insurance costs $1,000 per year, or 10¢/mile.

Your insurance company offers you a policy that costs 6¢/mile. Would you take it?

How would it affect the number of miles you drive?

Why PAYD?

Increases actuarial accuracyIncreases insurance affordability for low-mileage

driversSaves energy and reduces emissionsIncreases road safetyReduces congestionGives a new choiceHelps address insurance affordability problemsReduces costs for new roads and parking spaces

Increases highway safety

Reduces traffic volumes

Higher risk motorists have a greater incentive to reduce their mileage

Reduces uninsured driving, and thereby reduces financial risks to other motorists

Should especially benefit lower-income urban neighborhoods

Benefits to insurance companies

Opens new markets, including the currently uninsured.

Up to a third of currently insured motorists may be interested

Minimal risk if implemented on a trial basis

Simple economics

Fixed cost, average cost, variable cost, marginal cost

Getting the prices right can lead people to pursue public purposes.