Parking Space Tax: Is It Really Such A Bolshevist Fantasy?

It appears that Tuesday's Mass Transit Committee hearing into alternatives to the sales tax increase built into SB 572 was a bust. I wasn't an eyewitness, but it seems the transit agency representatives and other interested parties came to bury rather than praise possible alternatives to an increase in the regressive RTA sales tax, whose limitation as a funding base is as evident as the current transit funding crisis.

Per the Chicago Tribune article, a tax on parking spaces, an idea that had created some buzz in the days leading up to the hearing, lacked an effective advocate and was treated like it was the fevered fantasy of an unreconstructed Bolshevik:

The alternative tax proposals, however, elicited no apparent support from lawmakers or civic groups at the hearing. No sooner was the parking-space tax proposal raised than it drew withering fire from civic groups and organizations representing retail merchants and manufacturers, who labeled it a levy on jobs and an extension of the property tax.

Skeptical lawmakers also raised numerous questions, such as who should pay the tax -- owners or users of property -- and how it would be collected. The questions remained unanswered, largely because such a tax has never been enacted elsewhere, officials said.

Two observations. First, the zeal with which transit funding advocates push a sales tax increase via SB 572 is puzzling. The RTA funding system has been based primarily on a regional sales tax for over two decades. The current funding crisis indicates that such heavy reliance on the sales tax at the exclusion of other funding sources is a bad idea. Raising the RTA sales tax may push off this structural funding problem for a few years, but even with the increase it will be deja vu all over again in the few years with more doomsday scenarios and the like.

Successful transit systems like the New York MTA have much more diversified funding sources. The Governor's opposition to an RTA sales tax increase but professed willingness to consider other options gives transit funding proponents a chance to diversify the public transit funding base in this region. They are squandering that opportunity by holding fast to SB 572 as drafted.

Second, a parking space tax to provide transit funding did not get a fair hearing. The statement by unnamed "officials" that "such a tax has never been enacted elsewhere" was false.

As capably outlined by Todd Litman in an article entitled "Parking Taxes: Evaluating Options and Impacts," a tax on parking spaces has been enacted in Vancouver to help fund its transit agency. Litman outlines parking space taxes in several Australian cities. There also are recent news reports of parking space tax initiatives underway in numerous places in Great Britain. Again, I wasn't at the Committee meeting so I hesitate to point fingers, but it was inaccurate for these "officials" to signal to the Committee that a parking space tax was untested if in fact they did so.

The parking space tax has some merits that bear serious consideration. In his article, Litman outlines two general kinds of parking taxes. The first and more common form of parking tax is imposed on commercial parking, typically a percentage or flat fee tacked on top of parking charges. The City of Chicago has imposed just such a tax. The second and for current purposes more interesting kind of parking tax is imposed on a range of non-residential parking spaces. The determination of the amount of parking spaces subject to tax generally is done as part of the property tax assessment process.

According to Litman the commercial parking tax has at least two undesirable consequences. First, it puts city centers with their paid parking and added-on tax at a competitive disadvantage against outlying areas with free parking and no tax. Second, the tax makes free parking more valuable on a comparative basis and stimulates the creation of more parking spaces in areas where some parking is priced and taxed.

In contrast, a tax on parking spaces that is applied widely to non-residential parking puts all areas in a region on a more level playing field. According to Litman, a per-space parking tax also:

encourages property owners to reduce parking supply (particularly seldom-used spaces) and manage their parking supply more efficiently, and it encourages pricing of parking. As a result, it encourages more compact, accessible, multi-modal land use patters and reduces sprawl. Its cost burden is more evenly distributed.

Free parking offered by employers is a major contributor to travel by car during peak travel periods when traffic congestion is endemic. A tax on parking spaces encourages employers to offer less parking and/or to price parking. Such a tax would also encourage employers to take advantage of existing employer-administered programs that allow employees to get a substantial tax break by purchasing transit tickets using pre-tax wages. These programs (e.g., here, here and here) allow employers to shift employees out of their cars and the now more expensive (because taxed) parking spaces and into the transit system. The revenue from the parking space tax helps fund the increased transit usage. It's a virtuous circle between tax and transit use in a way that the much more broadly based sales tax can never achieve.

Litman's article thus demonstrates that a regional tax on parking spaces is not a crazy Bolshivist idea, as the recent hearing seemed bent on establishing at the expense of both the facts and the putative merits of such a tax. He will be in Chicago on Monday to participate as a panelist in the Lipinksi Symposium on Transportation Policy. Maybe Litman will be prove to be a Gorbachev to our transportation system apparatchiks, whose approach to our transportation system challenges sometimes seems positively Brezhnev-like in nature.