IES04

The personal automobile plays a central role in almost all facets of modern culture. It has redefined work and social relations and has dominated land use and transportation planning over the past 50 years. However, despite the modern conveniences of the automobile, there are many negative consequences associated with an automobile-dependent society. Until fairly recently, these negative consequences were either unknown or overlooked, but many studies have now made the link between excessive automobile dependency and a number of human health and environmental concerns. As a result, there is a pressing need to redefine current transportation policies so that they adequately address the severe health, environmental and economic ramifications of an automobile-dependent society.

Contrary to transportation systems dependent on subsidies and central planning, economist Paul Hawken identifies a trend of emerging solutions based on creative public policy instruments which introduce market mechanisms that:

The cost and availability of parking has been identified as a major factor affecting people’s choice of transportation mode (Beauvais, 1996:36). With greater availability of inexpensive parking, more people are encouraged to drive alone. Currently, many employees receive free or subsidized parking at work, but few receive a subsidy for any other transportation mode. Often tax policies and municipal parking requirements discourage employers from subsidizing other modes of transportation. As a result, employees who do not drive to work are essentially denied of a benefit they would otherwise receive.

An innovative approach to address this problem was first implemented in California in 1992. According to state legislation, employers of more than fifty employees who provide a parking subsidy must also offer a ‘parking cash-out program’. A parking cash-out program is defined by the legislation as "an employer-funded program under which an employer offers to provide a cash allowance to an employee equivalent to the parking subsidy that the employer would otherwise pay to provide the employee with a parking space…" (California Health & Safety Code, Section 43845).

The effect of this program is to eliminate the current situation where employees have to choose either a parking subsidy or no subsidy. Under the program, employees who were previously offered the benefit of free parking are given the choice between the parking subsidy and the cash equivalent of that subsidy. This has two important results. First, it improves the equity of employer-provided transportation subsidies for non-driving employees. Second, it creates a cost for parking, which in turn makes the cost of parking explicit for both employers and employees. Although employees still receive the same parking subsidy from the employer, there is an opportunity cost created in the form of the foregone cash allowance. Because employees who drive are in effect, ‘spending’ their cash on parking, the cost of driving is no longer hidden in a parking subsidy. This can have important implications on people’s choice of transportation mode.

The Impacts of Charging for Parking or Removing Employee Subsidies

Federal Government of Ottawa: The federal government began charging near market price for employee parking in Ottawa. As a result, solo driving decreased by 20 per cent (from 35 to 28 per cent of employees), with large shifts to transit even among higher income employees.

Commuter Computer: Employees driving solo to work at his Los Angeles based company dropped from 42 to 8 per cent by eliminating free parking.

Bellevue City Hall: The long standing City sponsored rideshare and fleet ridesharing program had little effect on solo driving before parking pricing. When the City began charging $30 per month for employee parking where previously parking was free, solo driving dropped 17 per cent.

The Sacremento Chamber of Commerce, Sierra Research of Sacramento and City of West Hollywood: These 3 organizations reduced solo driving between 16 and 23 per cent by offering cash allowances to employers who gave up parking.

(K.T. Analytics, Inc. 1995:58)

Cash out programs can reduce the number of single occupancy vehicles (SOVs) on the road (Shoup, 1997). This, in turn, reduces congestion, pollution and the negative health impacts stemming from automobiles. The elimination of employer-paid parking has in fact, been identified as one of the most cost-effective ways of reducing air pollution (Metro Planning, 1995). By improving the accessibility of employment locations and freeing up parking spaces for other uses, cashing out can also help strengthen the local economy (Shoup, 1994). Unlike other demand management strategies, cashing out does not reduce the total number of trips taken to an area.

Downtown worksites can also benefit from their higher property values. Because providing parking is more expensive for downtown employers than for suburban employers, they can typically offer more cash in lieu of a parking space without an expense increase to themselves. This higher cash option would make downtown work places relatively more attractive than suburban worksites for those who choose not to drive solo (Shoup, 1994: 174).

In addition, in cases where those employees who drive to work and receive the benefit of free parking do not adequately represent the gender, ethnic or income mix of the workplace, cashing out provides an equitable alternative (Shoup, 1997). This is because a cash out program provides equal benefit to all employees, not just to those who drive to work. Experience with cashing out programs has shown that cashing out is very attractive to lower paid employees. Since the lowest paid workers are in the lowest tax brackets, they would gain the most after-tax cash from a taxable cash allowance in lieu of employer-paid parking (Shoup, 1994).

To complement the benefits of cashing out employer-paid parking is the relative ease with which a cash out program can be implemented. Program participants have praised cashing out for its minimal administrative burdens and the simple and flexible nature of the program (Shoup, 1994).

Impacts of Cashing Out in California

In a study conducted by Dr. D. Shoup, Professor of Urban Planning and Director of the Institute of Transportation Studies at the University of Los Angeles entitled, Evaluating the Effects of Cashing Out Employer-Paid Parking: Eight Case Studies, eight California-based firms’ experience with cashing out was monitored. The firms ranged in size between 120 and 300 employees with a total of 1,694 employees. The following summarizes some of the results of the study:

Vehicle miles traveled per employee per year decreased on average by 12%, the equivalent of removing 1 out of every 8 cars driven to work at the 8 firms.
Vehicle round trips to work decreased on average by 11%.
Car-poolers increased by 64%.
Transit ridership increased by 50%.
Walkers and cyclists increased by 39%.
Solo drivers decreased by 17%.
Vehicle emissions per employee per year decreased – ROG by 819g, NO_x by 683g, CO by 7.2 kg, PM10 by 500g and CO₂ by 367 kg.
The 8 firms’ average commuting subsidy per employee rose from $72 to $74 a month.
5 out of the 8 firms voluntarily went beyond just complying with the cash-out requirement by subsidizing non-solo drivers more than solo drivers. This contributed to the estimated increase in employer spending.

(Shoup, 1997:6)

Although cashing out has been required by state legislation in California since 1992, the implementation of such legislation was encouraged through a municipal ordinance. In 1989, the City of Los Angeles passed the Transit Subsidy Ordinance requiring employers who subsidize parking to offer a $15/month transit subsidy in lieu of a parking subsidy. More recently, the state of Maryland has legislated a credit against specified State taxes for employers providing employees a cash in lieu of parking program under its Commuter Benefit Act of 2000.

Both the California and Maryland legislation encourage cashing out, but the California legislation is mandatory while Maryland has legislated an incentive. In Maryland, the legislation encourages employers to offer cash in lieu of parking by entitling a business entity to claim a tax credit in an amount equal to 50 per cent of the cost of providing a cash out program, with a maximum credit of $30 per individual employee per month.

Cashing out has also entered US federal legislation. The 1998 US Transportation Equity Act for the 21^st Century modified the Internal Revenue Code to provide incentives for employers to offer cash in lieu of parking privileges (US Department of Federal Highway Administration, 1998). As a result, in a cash out situation, employees can now receive the taxable cash value of the parking or a tax-free transit or vanpool benefit of up to $65 per month (TEA-21, 1998).

The benefits derived from cashing out will depend on the effectiveness of the program. The effectiveness of a cash out program depends primarily on three factors:

Using the above criteria to determine the suitability of cashing out, it is likely that many urban centres in Canada could benefit from implementing cash out programs. Currently, there is no Provincial legislation in Canada encouraging cashing out. Similarly, Federal tax laws in Canada discourage employers from offering such programs by only excluding employee parking benefits from taxable income and not transit or vanpool benefits. However, just as in California, a municipal cash out by-law would be an important first step to changing Canadian government policy at the Provincial and Federal level.

In designing a cash out by-law for Canadian municipalities, it will be important to learn from and build upon the California experience. A cash out by-law in Canada should consider differing from the California legislation in the following 2 ways:

In addition, although California’s experience with cashing out has generally proven to be revenue neutral for employers, the extent to which cashing out may impose increased costs for Canadian employers cannot be fully extrapolated from the California experience. This needs to be explored on a case by case basis. Additional research is required to determine the extent to which Canadian employers would be required to pay cash to those employees for whom they had not previously leased parking. In California, it was estimated that this applied to less than 9% of employees (Shoup, 1994:168).

In promoting the concept of cashing out to Canadian municipalities, it will be important to clearly communicate the intent of the program. Cashing out, if misunderstood, may generate opposition from people who are uncomfortable with the notion of ‘paying people not to drive’. However, cashing out does not bribe commuters to leave their cars at home, rather, they are presented with new options – options that provide equal treatment for all modes of transportation. In order to maximize support for a cash out by-law, this aspect of cashing out should be made explicitly clear (Dadson et al, 1999:12).

In cases where infrastructure for paid parking exists, there is minimal cost in implementing cashing out (K.T. Analytics, 1995:60). Costs for changes in notices and accounting operations are minimal. However, if pricing is entirely new to the site, new gated systems may be needed for parking garages, thereby increasing costs.

To ensure that cashing out is revenue neutral for employers, a mandatory cash out requirement should only apply to employers who can reduce, without penalty, the number of paid parking spaces they maintain. In California, this has in effect resulted in mandating only those employers with leases specifically for parking to implement cash out programs. Under such a program, there may be no net cost to employers since employees getting the subsidized parking get the cash equivalent instead (K.T. Analytics, 1995:60). However, in cases where the amount of parking spaces leased is based on the assumption that a certain number of employees do not drive, the employer will experience an expense increase if those employees for whom parking was not leased, opt for the cash equivalent of the parking space. The employer will also incur the cost of the payroll tax on the cash value of the parking subsidy when an employee opts for the cash rather than the parking subsidy. This cost however, can be addressed by either defining the cash out value of the parking subsidy as the cash value that, when payroll taxes are added, equals the fair market value of the parking subsidy or, by exempting cashed out parking subsidies from payroll taxes (Shoup, 1994:167).

Costs also depend on whether the cash out program is accompanied by discount carpool policies. Providing added incentives for employees to carpool (i.e. preferential parking) will require the employer or building management to check for carpool permits or monitor occupancy as vehicles arrive on site. If parking collection or attendant personnel are already present, the added cost for monitoring carpoolers will be small, but if there are no such personnel, a transportation or parking coordinator must be designated to spot check carpool parking (K.T. Analytics, Inc. 1995:60).

Initial research on the desirability and feasibility of implementing a cash out by-law in the City of Toronto found Toronto to be a promising candidate for such legislation (Dadson et al, 1998). Data from the 1996 Transportation Tomorrow Survey indicates that approximately 78 per cent of automobile commuters are parking for free in the City of Toronto, with close to 60 per cent of all employees offered the benefit of free parking. This implies that a municipal cashing out by-law in Toronto would apply to a significant number of commuters (Dadson et al, 1999:H-3).

Similarly, few, if any employers in Toronto own the parking spaces they provide for employees. The tendency in Toronto is for employers to lease parking spaces as part of their office lease (Dadson et al, 1999:13). This suggests that a cash out by-law designed to include new and renegotiated leases would be sufficient to address most of the employer-provided parking in the City. A cash out by-law would not apply to these businesses until their leases are renewed and would therefore experience some delay before it affects a substantial number of businesses in Toronto. The length of this delay depends on the rate at which new businesses enter the City, the rate of office relocations and the terms of current leases (Dadson et al, 1999:13).

Workplaces in downtown Toronto are especially suitable for cashing out. The high property values of downtown locations would enable employers to offer substantial cash allowances in lieu of parking, thus being a strong disincentive to drive solo. As well, travel alternatives are readily available in the downtown area. Additional research however, is required to determine the feasibility and potential impacts of implementing cashing out in areas surrounding the downtown core, which have lower property values and a less well developed network of travel alternatives.

Using market mechanisms to expose the true costs of parking and driving is, essentially, correcting a mistake. There is an obvious economic distortion in providing employee benefits only to those who drive to work. Cashing out employer-provided parking is a relatively simple policy that remedies this economic distortion - a distortion which is currently encouraging unsustainable urban development. It is an attractive program because it offers significant benefits at a low cost, requires little change in the way most people conduct their business and does not significantly redistribute any income. Experience clearly demonstrates that offering commuters the option to cash out their parking subsidies will reduce traffic congestion, improve air quality, conserve gasoline and enhance employee welfare. Cashing out policies and programs are the product of an emerging conceptual framework for transportation planning and policy - one that subsidizes commuters, not cars (Shoup, 1997).

Stephanie Tencer is an Associate with Peck & Associates, an environmental consulting firm specializing in the identification and implementation of economic solutions that generate positive environmental benefits. Stephanie has developed expertise in the areas of climate change mitigation and adaptation, transportation policy and eco-industrial networking. stencer@peck.ca

Trevor Fleck is currently a candidate for the MSc in Economics for Development at Oxford University, pursuing a research project concerned with common property management of environmental resources.

Joseph Dadson recently completed his Honours Bachelor’s of Science degree, specializing in Human Biology and Environmental Studies. While awaiting the results of applications to several Medical and Graduate Schools, Joseph is currently the Director of Business Development for Newsol Technologies, a Canadian Medical Manufacturer.