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The True Cost of Parking

by Aaron Houck

February 7,2008

On a quiet street near downtown, a man opens his car door, gets in, and drives away. A few minutes later another man follows suit. Finally, a husband and wife exit their home, kiss each other good-bye, and drive away in separate cars. Each of our characters, in his or her own car, drives the very same route, enters the very same parking deck and goes to work in the very same office.

What is wrong with these monsters, you ask? How could they be so ignorant of the problems of traffic congestion and air pollution plaguing the region? Do they know how much gas costs? How could they be so selfish and stupid? Who are these people? These people are two of my neighbors, my wife, and I (until I changed jobs). And, although my wife and I tried to commute together, the four of us often found ourselves driving to work alone.

Each member of our quartet is a rational and caring person. But if that’s the case, you say, how could we have produced such an inefficient – even wasteful – outcome? There has to be a better way to get the four of us downtown, right? After all, our street is just two miles from the office, and we live very close to a bus stop. Even so, walking four miles daily requires a significant investment of time, a costly proposition for many professionals. Biking shortens the trip, but – as with walking – exposes the traveler to the elements. The trip by bus is shorter and easier than walking or biking, but is longer and more expensive than driving.

Carpooling appears to be the most sensible alternative. If the four of us had taken one vehicle, we would have removed three cars from the road, reduced total miles driven, lowered emissions, and used less gasoline. But the nature of our work was such that we could not easily predict how early or late we could leave at the end of the day. Rather than suffering through complex coordination every morning, we traveled independently.

These explanations seem plausible but unsatisfactory. Something is amiss. How can it be cheaper for me to drive separately from my wife than for us to ride together? The short answer is: it’s not. The short commuting distance means that gasoline and wear-and-tear are negligible expenses. But there is a significant cost associated commuting to a high-rent district like downtown Charlotte: storing the car – parking. So you may not be surprised to learn that none of us paid for parking.

Many employers provide parking for their employees. The IRS treats parking costs (up to $220 monthly) as a tax-free fringe benefit. Employers are not required to pay payroll taxes on compensation in the form of free parking, and employees pay no income tax on the value of the benefit.

Employer-provided parking is a take-it-or-leave-it benefit – if you choose to walk, bike, use transit, or carpool, you cannot collect the money saved on your parking space. You may feel good about your social conscientiousness, but you are essentially leaving money on the table. Of course we were excessively disposed to driving when we did not have to pay the most significant cost of that behavior.

One means of curbing excessive employer-induced driving is to require “parking cash-outs.” If an employee declines to use the provided parking space, the employer provides a cash payment equal to the value of the space (once adjusted to avoid additional payroll taxes). In a similar vein, the tax code could extend the tax-free employer cash contribution to cover all “commuting costs” such as gas, parking, or transit passes. That way, bicyclists, carpoolers, and others paying less for their commute would be able to keep the rest of the fringe benefit. This would give workers an incentive to minimize commuting costs to capture as much of the cash as possible.

Each of the proposed solutions puts the costs of commuting more directly on the commuter. Only then will we be more thoughtful individually and more efficient collectively. As long as commuters don’t bear the full cost of their behavior, however, we have no reason to change our caravanning ways. See you in traffic!

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