How to Stop Giving Parking Developers A Free Ride

As Donald Shoup lays out in exhaustive detail in his 733-page masterpiece, The High Cost of Free Parking, the subsidies we provide for car storage have shredded the fabric of America’s urban areas. By giving over so much land to cars, we weaken and undermine the things that make cities work well: the opportunities for easy interaction.

And there’s evidence that the effects of parking are causal. From 1960 onward, an increase in parking provision from 0.1 to 0.5 parking space per person was associated with an increase in automobile mode share of roughly 30 percentage points according to a study of nine cities. We have too much parking for many reasons: because we’ve subsidized highway construction and suburban homes, because we’ve mandated parking for most new residential and commercial buildings, and because we’ve decimated transit systems. But a key contributor to overparking is the strong financial incentives built into tax systems.

How parking is subsidized by our current tax system

In effect, our system of local property taxation plays a key role in subsidizing parking and car use. In nearly all US cities, the property tax is assessed equally on the value of both land and improvements, so if one improves a piece of property (by constructing or enlarging a building), the owner’s property taxes go up.  The contrary is also true, if a property is unimproved, or just covered in gravel or asphalt, the owner typically pays lower taxes based only on the value of the bare land.  In cities with high vacancy rates, the property tax actually rewards landowners who demolish buildings. The perverse incentives created by raising taxes on those who improve their land with active uses like offices, stores and homes, led Henry George in the 19th Century to propose a “single” tax on land, what is now generally called the “land value tax” (LVT).

The Land Value Tax, in essence, fixes the anti-development incentives that are built in to the property tax. Constructing a new building on a piece of land doesn’t cause the owner's taxes to rise, and those who own valuable property can’t avoid or minimize taxes by leaving it fallow. If a downtown block is zoned for office use, for example, it pays high taxes even if it’s a vacant lot.

But despite its appeal, there’s been little enthusiasm for land value taxes in the US. Only one large city, Pittsburgh has seriously flirted with the idea, for a time taxing property more heavily than improvements. But elsewhere, it’s been a non-starter.

Higher fees for parking as a “lite” land value tax

The City Council of Hartford Connecticut is considering an expanded fee on private commercial parking lots and structures that mimics some of the important features of a land value tax. Call it LVT-lite.

In Hartford, as in many US cities, much of the downtown area is given over to car parking, and surface parking lots pay lower rates than those lots with improvements.  The low rate of taxation on parking lots lowers the holding costs for landowners, and makes parking a more profitable use than developing these lots for other more intensive uses. One way to change that dynamic is to raise taxes or fees on parking, which is exactly what the city’s proposed ordinance would do.

As University of Connecticut engineering professor Norman Garrick has shown, Hartford’s downtown has been hollowed out by the construction of parking. As Garrick explains:

Not surprisingly, the proliferation of freeways and surface parking lots (shown in red) has coincided with a dramatic decline in the city’s population.

The Hartford ordinance would establish a sliding scale of fees for parking lots and structures based on the number of parking spaces. The fee would start in 2022, and be phased in over a period of years. When fully implemented, for large parking lots, the incremental fee works out to $125 per parking space per year, which is about 25 cents per working day per parking space.

Hartford’s proposed policy would effectively in place incentives to better use urban space, and to discourage excessive car travel.  As the Parking Reform Network‘s Tony Jordan told us:

Is taxing parking fair? 

Superficially, it might seem like raising fees on parking is somehow “picking on” cars and car ownership.  There should be a rational basis for any tax, and when it comes to parking there are very good reasons to raise fees and taxes to offset for the car subsidies built into our current systems of public finance. It’s worth stepping back a bit and considering just how much subsidy is extended to parking, and to car travel in general — because some of the biggest subsidies are not on anyone’s radar.

Take, for example, the cost of dealing with stormwater. Hartford, like many US cities, has an antiquated system of combined storm and sanitary sewers, and when there’s a heavy rainfall, water from streets, roofs and — wait for it — parking lots all flows into storm sewers, overwhelming the sanitary sewer system, and producing combined discharges of untreated sewage and stormwater into, in Hartford’s case, the Connecticut River.  The city is under a court order to fix the system, and is in the process of spending $2.5 billion to solve the problem.  The solution includes building a four-mile long 18-foot diameter tunnel — essentially a subway for stormwater.  (That’s not hyperbole; single-track subway tunnels, like San Francisco’s central subway are 20 feet in diameter).

We’ll bet you didn’t know that Hartford had a multi-billion dollar subway system.

To pay for the project, Hartford and surrounding cities are charging their residents a “Clean Water Project Charge” on their water bills.  Local residents actually pay more for the stormwater system, per gallon than they pay for their domestic water ($4.05 per hundred cubic feet for domestic water consumed, and are charged $4.10 per hundred feet of water used to pay for stormwater).  But keep in mind that the stormwater doesn’t result from domestic water use — it results from runoff from roofs, roads and parking lots.

While some cities charge based on the amount of a user’s “impervious surfaces,” Hartford does not.  As a result, neither cars, nor parking lots, pay anything toward the stormwater problems they cause.

And it is these impervious surfaces, like parking lots, that contribute enormously to the quantity and (bad) quality of stormwater.  Since they are large and impervious, they create the huge peak flows that cause overflows. And it’s also the case that cars — via pollution from tires, leaking engine oil and gasoline, and brake linings — that produce some of the most toxic elements in stormwater runoff itself.

Charging residential water users, but not car users and parking lots is, in turn, an equity issue. A Hartford resident who may not even own a car (per the US Census, roughly 23 percent of Hartford residents live in households that don’t own a car) has to pay for this problem through their water bill.  Meanwhile, a suburban commuter from outside the water district area would pay nothing toward Hartford’s stormwater system.

In short, there are good reasons of efficiency and fairness for asking parking lot owners to pay more toward dealing with the costs they impose.

For cities, imposing fees on parking makes fiscal and land use sense.  For too long, we’ve subsidized the assault on urban living by cars, and nothing has been more detrimental to cities than dedicating scarce and valuable urban land to car storage. Many of these subsidies are buried — literally and figuratively — in the way we pay for urban infrastructure, like stormwater runoff.  In Hartford, and many other cities, we have the perverse situation where car-free households are taxed to cleanup runoff from streets and parking lots, while road users pay nothing for the damages they cause.

Ultimately, a full-fledged land value tax would help correct the perverse incentives in the current property tax. But until then, charging a higher fees for parking lots is more efficient and fairer.