Auckland Road Pricing: The benefits can be achieved at lower cost ....

Road Pricing in Auckland – a Comment

David Lupton

A report on road pricing in Auckland looked at five ways road pricing could be introduced. All options had some effect on congestion and produced benefits to road users overall. The report highlighted two areas of cost that offset the benefits from congestion reduction: the cost of collection/enforcement and the cost of mitigation. What the authors saw as the most effective option based on twin cordons also had the highest operation/mitigation costs.

This note presents a variation on the options outlined in the report that is designed to address these two areas of cost. The hope is to show that an attractive and effective road pricing scheme could be designed.

 

The perceived need for mitigation derives from a mindset that congestion charges are an extra tax. They need not be. In fact we should be simply viewing the road pricing issue as finding a more efficient and effective way of charging for roads.

 

When we travel on a train, or an airplane, we pay for the infrastructure we use (the railway, the airports and navigation systems) each time we travel. We don’t pay a charge every time we use a road because of the practical difficulties involved in tracking use and identifying and levying an appropriate fee. Instead we pay for roads through a number of indirect charges.

Currently we charge for roads through several means:

• A fuel levy (or in the case of diesel and heavy vehicles road user charges)
• Annual licence fees
• Property taxes (rates)
• (arguably) gst on motoring related expenditure

These measures are not perfect, but they are generally adequate for rural roads and highways and for suburban streets.  But there is a problem when demand for particular infrastructure exceeds its capacity.  Other pricing systems are able to cope with this  - airfares are higher at peak times for example, but the road pricing mechanisms we have are not capable of differentiating the time and place we use the vehicle.

When the price charged for something is too low and there are more people wanting to buy than there are goods available, we have to ration use somehow. In soviet Russia, people queued for hours for basic (subsidized) commodities. We queue for use of the road for the same reason – at the current price, more people want to use the road than its capacity. But we queue on the road, and perversely this reduces the capacity even further. (The flow of vehicles per hour on parts of Auckland’s motorway system is higher in the off peak when vehicles are flowing smoothly than in the peak when the pressure of traffic causes the road to grind to a halt).

I remember when airfares were set by government and you had to book well in advance to travel at popular times – and the planes were empty in the middle of the day.  What the airlines do now is called yield management. The airlines adjust the availability of discount seats to make more efficient use of their resources. Some people still travel in the peak and pay premium fares, but others choose to travel at other times. In other words, airlines now ration by price. And more people travel in total as the previously spare capacity is occupied. When this was introduced, no one suggested mitigation measures were needed for out of pocket businessmen. We were encouraged to focus on the discounts available if we traveled outside the peak.

If we had a way of charging directly for road use (instead of the indirect taxes) we could apply the same concept of yield management to roads – what we would do is price the use of roads to make the most efficient use of these resources. People who travel in the peak would pay more, but people who travel at other times would pay less

It’s the pay less bit that is missing from the proposals so far.  I propose that people pay a new charge to travel where and when the roads are currently congested, but pay less petrol tax and less property tax.  Those who commute to work in the suburbs or outside peak times would end up paying less than they do now. Demand for the use of roads would be spread over a longer period, so the infrastructure is used more effectively.

What about improvements to public transport so that people have options?  Relax. It will happen. If the cost of traveling by private car in the peak goes up, more people will travel by public transport. More people means more revenue and more services. More services mean it will be attractive to more people …  we get what is called a “virtuous circle”. Maybe there will be a need for some additional funding initially, but it need not be a huge cost. And existing public transport passengers will benefit from more services, better frequencies. Currently we subsidize public transport in order to try (largely unsuccessfully) to tempt people out of their cars. If we are pricing the roads correctly, we don’t need to subsidize public transport. (We may still want to subsidize off-peak public transport, but that’s another story).

So what we want to do is to replace the existing indirect taxes we use to pay for roads by a direct charge so we can use the price to make more efficient use of our road space.

It is now possible. Vehicles can be tracked electronically and charged very precisely based on the route and timing of each trip. The charging system can be designed to overcome privacy concerns (although some people might opt to be able to track their vehicle if it were stolen). It is still rather expensive, but the cost is coming down. However what road pricing in London has shown is that a much cruder pricing system (in London there is a fixed charge applying all day to vehicles crossing a specified cordon) can deliver substantial benefits without the need for such sophisticated systems.

Most of the options evaluated for Auckland were similar in concept to the London scheme. And they were expensive. The operating and enforcement costs of the London scheme are very high, but that reflects the philosophy underlying the enforcement regime. If you travel in London without paying, you will be caught. The high enforcement cost is necessary to ensure that (near) certainty.

There is another way. The deterrence effect of a fine depends on the size of the fine and the probability of being caught. If you increase the fine, you can reduce the level of enforcement (and thus the enforcement cost) and still have the same level of compliance.

So what I propose for Auckland is a cordon scheme but instead of expensive gantries and checkpoints, there would be random enforcement (perhaps by a private enforcement agency) and hefty fines for anyone caught traveling anywhere within the cordon.

This is how I would see it working:

There would be a cordon as proposed by the Auckland Road Pricing Report. To travel inside the cordon at peak times you would need a special licence. Note I said to travel within the cordon, not just to cross it.  There would be two forms of licence:

• A period licence – valid for a month or more
• A daily licence valid only on one day

Using the prices in the Auckland Road Pricing report as a guide, the period licence might be (say) $100 per month or $1,000 per year.  It would allow unlimited travel. A 6 month or annual licence could be purchased at the same time as normal registration. A monthly charge could be set up as a direct credit through internet banking or as a direct debit by a post office.

The daily licence could be purchased by text message, the internet or by phone. It could be a fixed fee (like the London one) in which case it might be $5 as indicated in the report, but it could be demand responsive. If it varied with the traffic, it would be more or less than $5 depending on the amount of traffic expected, and it might vary over the peak period, so people could chose to wait a little while for traffic to ease and the price to come down. It would be like being able to choose between a fixed contract (the monthly licence) or the spot market. With a mobile phone, you could text (eg CAR”)” to a number and it would respond with the current price based on your vehicle type and location relative to the cordon and it could tell you whether the price was expected to move up or down.  The same information would be available on the internet or by ordinary phone. (and no doubt on the radio).  The first time you used the service, you would reply with the number plate of your vehicle, but subsequently it could remember the plate number (or give you several to choose from if you had registered several vehicles). The charge would be made to your mobile phone account (as is now done at some parking meters).  Phone purchases would be to a credit/debit card – internet purchases could use the existing internet banking process.

For the less technologically able, you would be able to buy the day licence at a petrol station or post office, etc. 

The spot price would vary so as to keep traffic on key arterials flowing at a target rate – if the arterials start to clog up, the rate would increase – as traffic eased, the rate would come down. A variable charge should be more effective in curbing congestion and making effective use of the road space, but as we have seen in London, a fixed charge is quite effective, and certainly better than nothing.  A fixed charge gives people more certainty to plan their travel in advance. Of course if it were a fixed charge you would buy it in one of the ways described above, but would not need to check the price first.

People who live within the cordon would still have to buy one or the other type of licence. That makes everybody equal and reduces the opportunity for avoidance. However property owners within the cordon could receive a discount on their rates. About half the cost of local roads comes from local rates, but Auckland City roads are used by people from throughout the region. Auckland City would get money from the licence fees for roads within the cordon, and this would reduce the amount that needs to come from ratepayers. What about people who pay rents? (I hear you cry). Well if changes in rates are not reflected in rents, renters are not paying for the roads now, so they should not benefit from the reduced cost – you can’t have it both ways. The central Auckland rental market is pretty competitive, so I would expect the cost to be passed on, but if I am wrong, other ways of returning the money could be used. London charges people who live within the cordon less. The advantage of charging everyone the same but giving a refund on rates is that the cost is borne by those who use their cars in the peak, instead of all ratepayers. Those who use public transport, walk, or travel off peak will be better off.

The revenue collected would go three ways:

• To local roads within the cordon (as described above)
• To road improvements
• To reducing the fuel levy.

Some will go on administration, but with generally automated payment options, once the system has been set up the ongoing costs should be relatively modest. None will go on enforcement. Enforcement will be self-funding through the penalty for getting caught (as it is now for tow away parking areas). None need go on public transport (but could if Aucklanders decided to do that instead of the options I propose).

The proposed road pricing mechanism clearly identifies when expansion of the network is justified (and provides the money). If people chose to keep traveling in the peak and the spot price is high, so that the revenue collected is enough to expand capacity, that’s what you should do (and use the money Aucklanders have paid themselves to pay for it, without the need to go back to a national agency) . If the spot price is insufficient to fund a capacity increase, then an increase is not justified. Its that  simple. No longer would we rely on consultants cost benefit analysis and political judgments – the motorists would vote with their wallets. They get what they are prepared to pay for.  That’s what efficient road pricing is about.