The Credit Fix for Congested Cities

There’s a lot to love about New York City’s eight-month-old “congestion pricing” toll on vehicles entering midtown and downtown Manhattan. The controversial levy has already significantly sped up travel times and generated hundreds of millions of dollars to improve the Big Apple’s beleaguered subway system.

But simply erecting a virtual fence around a neighborhood and charging drivers a hefty entrance fee is not realistic in most other American cities. In New York, the toll is generally a “progressive” tax since relatively few low-income people are moving around Manhattan in a personal vehicle. But most American cities lack robust public transit systems, so a flat toll to enter downtown would hit low-income commuters the hardest.

One alternative is “credit based decongestion pricing,” a concept that has been tossed around in various forms by economists for decades. Recently I spoke to Kara Kockelman, a professor of transportation engineering at the University of Texas who is one of its most prominent champions.

Kockelman envisions a system where every resident of a city gets a certain “credit” in their account every month. Let’s say $20. Each time you drive, you are charged a congestion fee that fluctuates based on the current demand on the roads. If you’re driving downtown at rush hour, the fee will be higher than if you’re driving at 3 a.m. Tolling points would be dispersed at bottlenecks throughout the city, and drivers would all have tags on their cars that allow them to be charged digitally. The prices will be dynamic, shifting in response to demand on the road.

Once you’ve exhausted your credits, you start paying the tolls out-of-pocket. But the credits would at least offer people a way to drive a certain amount for “free,” reducing the resentment that comes from being charged to use a public resource that you have already presumably paid for with your tax dollars.

“The people who live within the region don’t want to start paying for a resource that they’ve long shared,” she says. “The road is a public resource. It’s like a community garden. You can’t suddenly put fences around it and start charging people.”

In sharp contrast to traditional tolling schemes, Kockelman’s system is focused entirely on reducing congestion, rather than paying for infrastructure. Her ideal system would be as close to “revenue-neutral” as possible.

The way Kockelman sees it, a car traveling during rush-hour doesn’t impose a greater cost on the road than one traveling in the middle of the night, so there’s no reason the former should pay more to fund the roads –– or anything else.

The point of the congestion fee is merely to put in place a “price signal” that will prompt people to consider when they’re choosing to drive. When one more car enters a crowded road at rush hour, it slows down everyone else. That extra delay is a marginal cost imposed on others, but the driver doesn’t typically pay for it.

“It’s making the marginal cost visible to the traveler,” says Kockelman. “That’s how markets generally work. They’re supposed to be marginal cost based.”

If we’re looking for ways to pay for infrastructure, Kockelman believes the gas tax, which in the U.S. has not been raised in 32 years, is a far more sensible mechanism that prices the negative externalities of driving, from the toll it takes on the road to the environmental and health costs of carbon emissions. As EVs replace combustion vehicles, she says the best way to raise revenue for roads would be a simple tax tied to mileage, which has become increasingly easy to track via the connected devices embedded in new cars.

Ideally, people could use their congestion credits for other forms of transportation, including public transit or bike-share.

The closest thing to Kockelman’s ideal that exists is Singapore’s Electronic Road Pricing, which has now existed for 27 years. However, that system doesn’t include credits and the prices are fixed based on time and location.

Kockelman acknowledges that crafting a new system will involve some tough political choices. If it is a city or region implementing it, do they give everybody the same number of credits, no matter where they live? Should people receive more or less based on income? And what do we do about drivers visiting from out-of-town?

The exact price of a commute may vary by city, but the principle is universal: time has value, and treating it that way benefits everyone.

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