Value Pricing, Not Congestion Pricing

Want to discredit a good idea? Implement a bad idea but name it after the good idea. That is what New York City is doing with its so-called congestion pricing scheme.

If you think density relieves congestion, try driving around Manhattan.
Flickr photo by 708718.

What Mayor Bloomberg proposes is to charge every car that enters south Manhattan between 6 am and 6 pm weekdays. He would then spend the money on mass transit. To be accurate, this should be called a cordon tax — that is, you pay a tax when you pass a line (a cordon).

True congestion pricing differs in several ways. First, with congestion pricing you pay for the use of a road, not for crossing a line. Second, with congestion pricing, the price varies depending on the amount of traffic there is. If it is constant all day long, it will fail to smooth out the peaks and valleys in traffic flows. Third, a congestion fee (as a opposed to a tax) would be spent on things that relieve congestion rather than on subsidies to other people.

Of course, transit riders are thrilled to get more subsidies from the cordon tax. But even in the New York urban area, transit and autos serve two different markets. Transit mainly serves New York City residents, while autos are the mode of choice for commuters from New Jersey and other outlying suburbs. Most people cannot easily switch from one to another. So the cordon tax takes from one group and subsidizes another group, but will probably do little to actually increase transit ridership or relieve congestion.

Bloomberg’s cordon tax is a copy from London’s similar charge. As previously noted here, that charge has not stopped London congestion from “spiraling out of control.”

It appears that the London cordon tax resulted in a one-time reduction of traffic, but did not slow the growth in traffic after that. In contrast, true congestion-priced roads the best solution to congestion. Mayor Bloomberg’s cordon tax is only an attempt to solve the city’s transit deficits.

If even New York City’s rail system cannot get by without continually increasing subsidies from auto drivers, how will rail systems in other cities make it? Part of the answer is that rail is “affordable” (meaning it isn’t sending cities into bankruptcy) in regions outside New York simply because almost no one rides it — meaning everyone else is a pigeon being forced to pay for it.

Supporters of true congestion pricing have a defense against the defamation from calling a cordon tax “congestion pricing”: they can change the name of their proposals. Some have promoted the term value pricing, because you pay for enjoying the value of less delay.

In any case, don’t be fooled by Mayor Bloomberg’s cordon tax. It is not congestion pricing, it will not reduce congestion, and it will not benefit the people who will have to pay the tax.

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24 thoughts on “Value Pricing, Not Congestion Pricing

  1. D4P

    If, as you claim, “Most people (in the New York area) cannot easily switch from” cars to transit and vice versa, how would “true congestion pricing” reduce congestion? Are you assuming that “a lot” of people have flexible schedules? Wouldn’t congestion pricing just punish those with the least flexible schedules? Aren’t those with the least flexible schedules likely to be relatively lower-level employees?

  2. aynrandgirl

    Isn’t congestion pricing just closing the proverbial barn door after the horse has bolted? If development of the road system had been continued in line with population growth we wouldn’t be in this mess. Instead, municipalities are being rewarded with extra tax revenue (tolls) for their criminal lack of investment in the road system, and they’re going to use that tax revenue on yet another public transit boondoggle. Given the incentives in place, I don’t see how any city government would bother doing anything about congestion. Congestion is the key to opening taxpayers’ pocketbooks. Look good, do nothing, and when that doesn’t relieve congestion ask for more money.

  3. Veddie Edder

    The congestion fee plan and its supporters are missing – or avoiding – the 900 pound gorilla in the room. The foremost reason why New York has a congestion problem is because it has a capacity problem. This area has just undergone a 50-year experiment to see what happens when a growing region refuses to add capacity to its transportation infrastructure. The result is intolerable congestion.

    The claim behind the mayor’s plan is that it will reduce congestion by about 6% (check out the plan documents), however, nearly 20% of the traffic in Manhattan at any given time is simply passing through the island without originating in Manhattan or stopping there (for example, traffic from Queens heading to Newark) (source is report in NY Times). In other words, we can achieve three and a half times the traffic reduction without imposing a tax and surveillance system on our people by building below or above ground cross-town routes, and improve mobility, connectivity and disaster-preparedness in the bargain. No economic or environmental goal is served by the current state of affairs in which commercial and social ties between areas east and west of Manhattan are difficult to maintain.

    The congestion pricing plan is, by its terms, intended to route this through traffic around Manhattan, but the plan makes no provision to add capacity to the Staten Island or Bronx arteries that would presumably take on the diverted vehicles. Further, the simple fact is that regional congestion is equally intolerable on holidays and weekends when the vast majority of travelers are simply seeking to undertake social visits. The notion that a trip involving a family of five in Elmhurst on the way to visit relatives in Montclair can be undertaken by train is fanciful. This is a trip will happen by car or it won’t happen at all. There is no policy interest advanced by making it not happen.

  4. Kevyn Miller

    Ya gotta love aynrandgirl’s logic. Congestion is caused by population growth. Solution – stop population growth by demolishing more and more homes and offices to make space for more and more roads. Eventually the amount of homes and roads will reach equilibrium.

    Except clever dicks keep building taller and taller apartment and office blocks. How many layers of roads can you build before your city becomes too expensive to live or work in?

    Has Manhattan’s congestion got any better or worse at any time in the last 150 years, even with the addition of subways and autos? London’s certainly hasn’t. Even Ceasar’s Romans knew that cities and congestion go hand in hand.

    All we can really do is take Anti-planner’s advice on how to give employers an incentive to scrap their 9 to 5 workday for pen pushers. The root cause of the failure to build better roads is the failure to charge auto users the actual cost of providing better roads. Indexing fuel taxes to inflation or the construction price index would be a good start as it removes the democratic resistance to increasing fuel taxes. Then, of course, fund capacity increases using demand pricing. Finally, why stick with an antiquated revenue mechanism? Modern technology can monitor usage of roads for travel and parking and bill according to the value of travel or parking at that time and place. It need be no more intrusive than mobile phone service billing.

    Incidently, antiplanner, while you’re in New Zealand pick up a copy of the Road User Charges schedule of fees and let’s get your thoughts on this system of charges trucks and buses for their unique demands on roads and highways.

  5. aynrandgirl

    No economic or environmental goal is served by the current state of affairs in which commercial and social ties between areas east and west of Manhattan are difficult to maintain.

    No, but a political goal is served: marginalize the areas around Manhattan. The whole point of routing everything into Manhattan is to privilege Manhattan at the expense of its surrounding areas.

  6. Dan

    The whole point of routing everything into Manhattan is to privilege Manhattan at the expense of its surrounding areas.

    Pffft.

    It’s called ‘agglomeration’. Silicon Valley. Houston. Chicago. Las Vegas. LA, and Seattle all have agglomeration economies.

    DS

  7. aynrandgirl

    Ya gotta love aynrandgirl’s logic. Congestion is caused by population growth. Solution – stop population growth by demolishing more and more homes and offices to make space for more and more roads. Eventually the amount of homes and roads will reach equilibrium.

    Only if you assume that everything must be located in one central city. The reason “clever dicks” build apartment towers is because they can’t build less expensive housing elsewhere, often because said central city (or a committee substantially controlled by them) has development authority for its suburbs. Since many cities see themselves as the center of the universe, they work to prevent the suburbs from (as they see it) supplanting them. Congestion is maximized by making everybody go to the same place at the same time, an obvious fact that nonetheless doesn’t stop Manhattan from making a transportation proposal that does exactly that. Since I tend to see politicians as malicious rather than stupid, my interpretation is that congestion relief is mere pretext. The intent of the proposal is to create more union jobs for the public transportation unions who back said politicians and fleece the taxpayers for more cash for the general fund.

  8. aynrandgirl

    The whole point of routing everything into Manhattan is to privilege Manhattan at the expense of its surrounding areas.

    Pffft.
    It’s called ‘agglomeration’. Silicon Valley. Houston. Chicago. Las Vegas. LA, and Seattle all have agglomeration economies.
    You would have a point, if Silicon Valley routed all its traffic and commerce through San Francisco, or Anaheim did the same through LA.

  9. Veddie Edder

    The NY area road, train and bus networks are generally designed to route people and goods to and from Manhattan. The road netwok is the best of the three in also permitting traffic to move around the island. I doubt there’s a great deal of intent one way or another behind this. A Manhattan-centric network made sense for around 100 years. As late as the 1950s Manhattan had as many jobs as the state of NJ. NJ now has twice as many jobs as all of NYC. The problem is that route and capacity expansion ceased around 1970, but the region’s population and economic loci continued to disperse after that. Now you have the ridiculous situation where planning a trip from Greenpoint, Brooklyn five miles away to Kearney, NJ is like getting ready for a moon expedition. New Yorkers, at least the ones with influence, are horrified by highways, but I think the average US citizen looking at our 2 and 3 lane highways (that’s the widest they get in NYC) would be shocked that a region of this size forces traffic to squeeze into such narrow corridors.

    If you want to drive from Newark Airport to Maspeth, Queens (maybe 15 miles, probably less) — and for those of you who hate cars, imagine you are taking or coming from a long flight with three kids, are carrying luggage and you have a bad back so you have a really good excuse. You will take Route 1/9 over the Pulasi Skyway (two narrow lanes, no shoulder, center merges) through Jersey City (about 8 traffic lights), into the Holland Tunnel (two lanes, no shoulders) onto Canal Street, through another 10 traffic lights, up Centre Street (a few more lights), over to Delancey Street (another dozen lights), over the Williamsburg Bridge (circa 1910 or so), over to the BQE, three lanes, no shoulder, over the Koskiusko Bride (I never spell that correctly — no shoulders, poor sightlines, heavy merges and weaves), onto the LIE, three lanes no shoulders. Look, this is fun as a history lesson but not as transportation. No one does this for fun, and the idea that this is what we’re reduced to in 2008 is, to my mind, pretty disspiriting.

  10. Francis King

    Assorted comments:

    “Of course, transit riders are thrilled to get more subsidies from the cordon tax. But even in the New York urban area, transit and autos serve two different markets.”

    The transit riders are getting something for nothing which is always popular, but which says nothing about their interest if they have to pay more for the same thing. Light rail is always popular because the government pays for it, not the local council or the local transit company.

    “In any case, don’t be fooled by Mayor Bloomberg’s cordon tax. It is not congestion pricing, it will not reduce congestion, and it will not benefit the people who will have to pay the tax.”

    Neither will full congestion charging, which is dependent upon the time of day. In a free market, people buy cars much more than they buy bicycles, sporty sneakers, or bus tickets – despite cars being the most expensive choice by a long way. Accepting this fact is the only starting point which makes any sense to me. The task, then, is to provide alternatives to the car which are at least as good, and hopefully more fun and cheaper too.

    Congestion charging is something that I will call the ‘meat-and-two veg’ strategy. Something odd gets dumped on the plate, and then it’s covered in gravy. Here, some nasty and mean alternatives to the car are proposed, and then the whole thing is smothered in congestion charging.

    If a fraction of the effort spent on whacking car drivers was spent on devising some cool alternatives, we’d all be better off.

    “The claim behind the mayor’s plan is that it will reduce congestion by about 6% (check out the plan documents), however, nearly 20% of the traffic in Manhattan at any given time is simply passing through the island without originating in Manhattan or stopping there (for example, traffic from Queens heading to Newark) (source is report in NY Times). In other words, we can achieve three and a half times the traffic reduction without imposing a tax and surveillance system on our people by building below or above ground cross-town routes, and improve mobility, connectivity and disaster-preparedness in the bargain.”

    The way it has been stated, the effect will be a lot more than three and a half times. Congestion is strongly non-linear, and a small change in traffic flows can have a massive effect on congestion levels. Therefore, the 6% reduction in congestion corresponds to a much smaller change in traffic flows.

    It’s also, if practical, a much more positive outcome than congestion charging.

  11. MJ

    D4P,

    Individuals pay for congestion, either with their money or their time. Unfortunately, public policy nearly always forces them to pay with the former, regardless of their preferences. If you’re arguing that lower-skilled/lower-income indviduals have less flexibility, then you also have to recognize that 1) many low-income individuals already use transit in New York, and 2) current public policy does not allow them to exercise options such as using a car, if that were the option they would choose.

    Kevyn,

    You ask rhetorically how many layers of roads can be built before a city becomes too expensive. We don’t really know — planners aren’t willing to test this hypothesis. Besides, ‘too expensive’ is a value judgement. Many people in NYC buy luxury goods that none of us would routinely consider, such as a million-dollar condo overlooking Central Park. How much is too much to them? Apparently they value accessibility quite highly.

    Dan,

    Agglomeration economies can be achieved at relatively low densities in most US cities. In many industries, physical proximity is being made obsolete by improvements in communications technologies. Only a few, such as finance, insurance, law and real estate, still require the physical proximity that traditonal CBDs provide. None of them require Manhattan-style densities. This is observed in the extensive sub-centering in cities like Chicago, Houston, and the SF Bay Area.

  12. MJ

    Francis,

    I agree partly with your “meat-and-two veg” characterization of this contortion of congestion pricing. As mentioned previously in this post, this is not a real congestion tax, as envisioned by economists. It overcharges midday users and likely undercharges peak period users. However, I believe restrictions on auto use are the meat and the transit subsidies to be drawn from the charge are the gravy.

    It is safe to say that this proposal would not have a leg to stand on were it not for the billions in new capital subsidies for NYMTC (alternatives) being dangled as bait. It is not really a congestion reduction measure. Like many similar proposals, it is simply redistribution in disguise, with the revenue coming from some politically unpopular group, in this case auto users who travel to or through New York City.

    It is hard to tell from the available information whether any reduction in congestion is due to reductions in flows on heavily-traveled routes, or whether the reductions are spread across several less-congested routes. Congestion is non-linear, but when the evidence provided is aggregate in nature, as the output from many transportation models is, the source of these effects is difficult, if not impossible, to specify.

    Surprisingly, there is no discussion of using the revenues from the congestion tax to reduce other distortionary taxes. In terms of either efficiency or equity, this would be a greatly preferable outcome. Unfortunately, the preferred solution is to paper over another problem (transit deficits) with the windfall from an unrelated tax.

  13. Kevyn Miller

    aynrandgirl, This time I really do love your logic. It still leads to the same conclusion but provides an elegantly simple solution. Eventually the amount of homes and roads will reach equilibrium in that city. Then growth will transfer to other cities that can accomodate it more efficiently. The markets will decide. Unfortunately there seems to be a belief that a city must either grow or decline so of course you get vested interests using politics and public funds to overrule market forces. Nobody benefits other than the vested interests and politicians.

    We have a similar situation here in New Zealand. Despite technical studies showing that the city I live has as much congestion as our financial capital 40% of my city’s fuel taxes are being spent solving congestion in the financial capital and also in the political capital which has less congestion. Of course these other two cities are home to my country’s politicians and news madia so these congestion studies have been swept under the carpet. I hope you can understand why I was annoyed by your initial response to antiplanner and delighted by your response to my comment. I loved to know what antiplanner thinks of your insightful observations.

    Is agglomeration economics anything more than head offices and their attendant industries collecting together and concentrating commercial wealth into one location? A cut of all the sales is sent to head office to pay the head office salaries. The result is a perception that each nation’s or region’s financial capital is the powerhouse of the economy when it is nothing of the sort. A useful parasite maybe, but definitely a parasitic relationship with the rest of the economy.

  14. Dan

    Agglomeration economies can be achieved at relatively low densities in most US cities. In many industries, physical proximity is being made obsolete by improvements in communications technologies. Only a few, such as finance, insurance, law and real estate, still require the physical proximity that traditonal CBDs provide. None of them require Manhattan-style densities. This is observed in the extensive sub-centering in cities like Chicago, Houston, and the SF Bay Area.

    Not only FIRE, but biomedical research as well. The CA Central Valley by Vacaville (off 505) is an example of relatively low density, because they basically built that park on farmland (and had the Interstate nearby) and that’s equilibrium there. The area around UW Med-Swedish in Seattle is an example of high density, as that is what surrounds the area, and that’s what equilibrium will support. So sure, you can have a one-story tilt-up built on a greenfield. No on says you can’t. Do you attract and keep happy people in the boonies, if you want the young and educated (a demographic that wants copious amenities? Maybe. Maybe that research will move to the city, adjacent to vibrant social amenities.

    DS

  15. Ettinger

    Federal Income tax + State Income Tax + NY Sales Tax + NY City Tax… and now + Cordon tax. I guess New York city looks ever more attractive as a place to live.

  16. bennett

    The only way congestion is reduced is if people leave the city/msa alltogether. If you city has population growth you going to have congestion, there is no way around it. You can always move to Detriot, I heard it’s easy to drive around there. If you think toll raods, additional highways, and street improvements helps relive congestion in any real way, it just ain’t so. As long as cities grow and we drive cars there will be congestion. Learn to live with it. Or if it is viable, ride the train.

  17. Dan

    Is agglomeration economics anything more than head offices and their attendant industries collecting together and concentrating commercial wealth into one location?

    I believe this is covered in the second or third week of undergrad urban econ. The answer is yes, as the collecting today is the collection of intellectual capital.

    This is evidenced in the US by expanding concentrations seen today in Silicon Valley, Wall St/Madison Ave, Seattle, Vacaville (where bases for collection are more about intellectual capital, and old school Pittsburgh, Detroit, Chicago, Houston etc, where these bases for collection were proximity to transportation (waterways).

    —-

    Eventually the amount of homes and roads will reach equilibrium in that city. Then growth will transfer to other cities that can accomodate it more efficiently. The markets will decide. Unfortunately there seems to be a belief that a city must either grow or decline so of course you get vested interests using politics and public funds to overrule market forces.

    This reasoning neglects the facts that housing stock turns over at the rate of ~1-2%/annum in cities, depending upon the market and growth rate and the fact that equilibrium rents + Ricardian rents derive ROIs in cities and as long as there is sufficient ROI then development will occur (usu. infill).

    The “belief” that cities “should” grow is based in the fact that human population continues to grow (so where ya gonna go?) and the planet-wide population is urbanizing. If a particular city doesn’t grow in Western first-world societies, then it is a failure under the ubiquitous capitalist system and migration occurs (Tiebout sorting in first-world, migration elsewhere is how the media likes to frame it). There is nothing wrong in capitalist systems in attempting to reverse decline, if capital can flow positively to investment. The market decides this investment risk, as seen in, say, Detroit where the risk is seen as too great, despite the inept government’s attempts to stimulate capital and human investment.

    DS

  18. Unowho

    With reference to the comments of ARG & VE above, Manhattan actually has less road capacity now than it had in 1973.

    Watching Bloomberg trying to get his toll (i.e. “congestion pricing”) plan approved is something to see. In order to get the less-privileged boroughs and the State on board, he’s been promising pieces of revenue and commission appointments like Max Bialystock selling shares of his awful play in The Producers. The current push for the plan has nothing to do with relieving congestion, as if it really ever did; the city is facing a federal funding deadline, and the MTA begging for more money (it has a projected capital-plan shortfall of $9 billion even with the toll revenues). Ironically, the toll revenue will probably be eaten up by the additional transit burden costs.

    Life would be much simpler if real cities worked like SimCities.

  19. MJ

    Dan,

    Agglomeration economies can occur at a range of densities, as you mention. The examples of CBDs and university medical facilities being higher density concentrations are the result of large amounts of fixed capital being immobile. To a certain extent, these activities can decentralize. In the largest cities (e.g. Los Angeles), even universities can form smaller clusters (think Irvine in Orange County). Other industries are a bit more footloose and hence can relocate to lower-cost areas (e.g. Vacaville) where they substitute land for capital.

    This doesn’t really say anything about urban development policy. The young and educated, as well as old(er) and educated are scattered throughout urban areas. Moreover, the young and educated eventually get older and seek different locations just like the rest of us. In principle, cities should not be catering to either one, yet as Kevyn suggests, there is an imperative toward “industrial policy”.

    Failure of some cities to grow, economically or otherwise, is not a failure of capitalist economic systems. Labor and capital needs to be mobile in order to adapt to changing conditions. This leaves some places, like Buffalo, worse off. But, on the larger scale, growth continues to occur. Buffalo, and many northeastern cities like it, cannot be resurrected to their former stature. Nonetheless, they should still be able survive as smaller, second or third-order centers.

    Kevyn,

    The concept of agglomeration economies is not limited to the location of corporate offices, though this is probably the most cited example. Agglomeration occurs in retailing as well, which is why we commonly observe shopping centers and fewer isolated stores. Some firms derive benefits from locating near others (suppliers, competitors, etc.), while some prefer to be further away, perhaps in order to capture a specific market. The tension between these forces is what produces the outcomes we observe.

    Bennett,

    Some congestion occurs in all large urban areas. However, this should not lead to the conclusion that severe congestion is inevitable. Improving highway networks can have some positive impact, especially in the short term. Toll roads (and specifically pricing) can greatly reduce freeway congestion by solving the road space allocation problem (and the investment problem). Governments have generally not been effective at promoting, or even being responsive to, either of these policies. Hence, the levels of congestion we observe should not be surprising. What is surprising is that most people believe that with a few more dollars (and no policy reform), the problem could be greatly lessened, if not solved.

  20. MJ

    Unowho,

    The $767 million in improvements include only the transit capital improvements. There doesn’t appear to be an estimate yet on how much it will cost to install and enforce toll collection equipment. If the scheme will only generate about $400 million per year in revenues, the entire revenue stream might go up in smoke and leave the MTA with an even bigger mess.

    Any bets as to the real cost of the bus, subway and station improvements?

  21. Dan

    MJ, that’s an excellent comment in 20. Would that there were more here of such quality.

    Urban agglomeration in knowledge industries is reliant upon the young and highly educated, who are attracted to urban amenities (oppose this to your ‘retail’ example). Migrating to nonurban areas is natural as you say, for many urban policy reasons and for sociological reasons as well – differing life stages have differing wants and needs.

    As you say in your second para., In principle, cities should not be catering to either one, yet as Kevyn suggests, there is an imperative toward “industrial policy” , some think this leads to negative outcomes, and some think this leads to positive outcomes. Randal, who fetishizes Houston, included a link here some time ago that praised Houston for doing just what you decry. I don’t really have a view one way or another, as I don’t think society is monolithic, and I tend to discount the one-size-fits-all solutioning so common here (esp when the solution only works for a small minority).

    Wrt your last para., capitalist economies are run by people, as they are created by people and would not exist without people. Failure of cities to adapt their economies is indeed a function of the failure of the system (which relies on exploitation of natural resources); had we been speaking over a cold one I would have been able to acknowledge and expand upon your point about it being a people failure too – alas, on comment boards there is only so much time to convey thoughts.

    DS

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