Parking: An Underutilized Tool in the Recovery Toolbox
Image via Ruffa Jane Reyes on Unsplash.
Cities and households alike must make adjustments in spending based on cash flow. If your income is cut in half, then you have to dramatically rethink your standard of living. In the same vein, cities’ revenue streams cratered a month after the initial onset of the pandemic, forcing cities to make tough decisions on spending. At the end of 2020, the National League of Cities released a report that surveyed over 900 municipalities’ revenue impact as a result of the pandemic. According to the report, average revenues across the surveyed cities declined by 21%—coupled with increased expenditures of 17%—creating a combined budget gap of about $90 billion for 2020 alone. Starved tax revenues, unemployment, disruption to government services, and an overall climate of uncertainty bred a national fiscal crisis.
As we move forward and vaccinate more of our population, every industry—business, housing, transportation, and more—will play an important role in building our economy back. Parking is one existing city asset that can be leveraged. Overlooked by many cities, parking management can be a key tool not only in boosting cities’ revenue streams to help fund critical recovery priorities, but in achieving other community and public policy goals, like expanding access to transport and even affordable housing. Advances in parking management technology have made it possible to more strategically manage parking assets to produce substantial increases in revenue. The opportunity to leverage this resource looms large in order to fill the gap for much needed public services.
Scope of COVID’s Impact on City Revenue
Cities are facing unique fiscal circumstances, but parking can be a strong revenue tool across the board. Unlike other economic downturns, the pandemic reduced revenue at a much quicker rate. Municipalities that did not rely on a single source for revenue were more resilient. This made their economies less “elastic” to the extreme financial tension brought on by COVID.
The graph above illustrates a representative sample of cities’ revenue streams. Statistically, property taxes are a more stable revenue source than income and sales tax because they tend to be less susceptible to the gravitational pulls of store closures and unemployment.
A huge part of economic recovery is getting as many residents vaccinated as quickly as possible so that life can shift to our “new normal.” A city’s economy functions best when two criteria are met: 1) the business climate has high predictability and 2) residents experience consistency in their lifestyle. COVID-19 has brought both areas to a screeching halt. These two criteria will likely be met as vaccines become widely accessible. From a mobility perspective, returning to centers of entertainment like concerts, restaurants, bars and movie theaters will not only drive up sales tax but also increase the revenue cities gain from use of transit, parking, and other transportation modes.
The bottom line is that city officials must evaluate all their revenue options. Parking is a pragmatic option that does not require extensive rollout costs. As previously mentioned, the revenue potential gained from parking is relatively low hanging fruit with a substantial upside. There are a billion parking spots across the United States. The opportunity here is not in adding more parking spaces, as policies that increase parking supply tend to reduce overall transportation choices and have transit access concerns. Rather, the question is how cities can better manage the existing parking infrastructure to maximize revenue. Parking has relatively low maintenance costs and yields generous returns. Pricing policies play a significant role in strengthening these dividends. Cities can simultaneously improve revenue and the overall parking experience for drivers by increasing parking resource utilization.
Parking Revenue
Image via Rob Martinez on Unsplash.
Parking can earn substantial revenue even at modest prices. According to Donald C. Shoup, author of The High Cost of Free Parking, cities should be charging market rates for the real estate a car occupies. Market-priced curb parking can yield between 5% and 8% of the total land rent in a city. In Chicago, parking meters brought in $138.7 million, an increase of about $100 million since 2008. The city was able to do this by matching price to demand—without increasing supply—to maximize profits.
Variable pricing is another strategy cities have used to maximize profits. This pricing model is a pre-pandemic tool that more cities are exploring. Under a variable pricing model, parking operators can adjust the price of parking based on location and time. The intent is to collect more revenue by matching price with demand. The traditional fixed rate model places a standard rate on parking regardless of its location in a central business district or quiet side street. Say, for example, a parking space is priced at $1.00 per hour, occupied 10 hours per day, 25 days per month, that single space would generate about $250 per month or $3,000 per year. Under a variable rate, that same space would be $2.50 per hour 5 hours a day, and $1 the other 5 hours. This would generate $5,250 per year.
The City of Seattle provides a great example of effective variable pricing policy. At the height of the recession in 2008, Seattle opted for variable pricing for on-street parking. The city established that identified zones would have variable rates based on their location, demand density and time. The city adjusted rates on an annual basis based on performance and showed a $6 million increase in revenue in 2009. That revenue then increased by 31%, from $25 million to $37 million, between 2009 and 2013. The city proportions most of its parking revenue to its General Fund, increasing the budget for vital infrastructure improvements and services.
Having the resources to collect data on parking demand is crucial. Data on occupancy, demand trends, compliance rates, are essential ingredients for a smart parking management system. Data can also inform policy to incentivize behaviors the city is trying to encourage, such as zoning amendments that promote public transportation use, shared parking strategies, and non-motorized travel. Data can help re-envision what is possible with city government as cities think about their future mobility goals and tie those goals to revenue.
Localized Benefits
Residents who don’t see the benefits of the revenue generated from parking may be resistant to parking policies. Raising parking rates is an unpopular move when the public is not informed about how the revenue derived from parking will be used. Cities can mitigate this pushback by appealing to broader community goals when structuring pricing and communicating changes with residents. In Denver, money raised by parking is dispersed to more than 30 agencies and more than 200 public services and programs in the City and County of Denver.
A strong use case for this is affordable housing—a public good that has been particularly strained due to the pandemic. COVID budget cuts have further squeezed out funds that would help build new affordable housing, or maintenance of current housing. This has led to increased housing insecurity, particularly at a time of record unemployment. Parking revenues can be utilized to decrease the financial strain on budgets by allocating a predetermined percentage to a housing trust fund. In 2018, Pittsburgh voted to allocate up to $6.8 million in parking tax revenues over 19 years to help pay for affordable housing as part of a $47 million mixed use project. Under the proposal, 75% of the parking fees generated would be redirected to pay a $4.1 million loan needed to finance construction of 74 units of affordable housing. This allocation was part of 2016 guidelines developed to use parking-tax revenues to help pay for projects that create jobs for Pittsburgh residents, improve infrastructure, and enhance social equity in the community. Pittsburgh’s experience shows that cities can successfully use parking revenues to address the community’s priorities.
In sum, COVID has presented a unique opportunity for cities to look at revenue streams with an eye towards innovation. Revenue generation is a critical component of cities’ ability to provide essential public services and continue to serve its constituents. Building a coalition of advocates and allies, like multimodal transportation advocates, infill and affordable housing developers, small businesses, and historic preservationists can strengthen the case for parking management as a recovery tool. Parking revenue alone will not solve cities’ revenue challenges, but it can be a useful tool in the toolbox to start recovery.
About the Authors
Karra Gardin Tuluenga is a Manager of Government Relations at Passport Labs. She is passionate about innovative policy as it relates to driving equitable outcomes. She received her MPA from Columbia University’s School of International and Public Affairs. You can connect with her on LinkedIn and via email at karra.gardin@passportinc.com.
Joni Wickham is a Co-Founder of Wickham James Strategies & Solutions, a consulting firm focusing on strategic communications, government relations, public policy, political strategy, mediations and public speaking. She previously served as Chief of Staff to former Kansas City Mayor Sly James. You can connect with her on LinkedIn, via email at joni@wickhamjames.com, and on Twitter at @jonismithkcmo.