Can congestion pricing revenue defuse the political mines?

Political will is all that stands between the Washington region and greatly reduced traffic congestion. One of the largest political questions around such a program is what to do with the money it raises. Can the two political issues dovetail in a way that clears the way for congestion pricing?

The Federal Highway Administration, of course, would prefer to spend such money on highways. Their report suggests using the revenue “to improve HOV alternatives as well as maintain the roadways, address choke points and bottlenecks, and improve alternate routes.” That mainly means HOT lanes, which are the wrong answer. More roads, especially more toll roads, only exacerbate the already-great economic inequalities that come from having expensive housing near jobs and transit and cheaper housing far away.

Many argue that congestion money should go to transit. The dollars car commuters pay could increase the alternatives to car commuting. Logically, that would help further drive down congestion, enabling those car commuters to face even lower traffic. Mayor Bloomberg proposed this, dedicating the money to a new authority that would develop new subway and BRT service in New York City.

Bloomberg believed that this would blunt the arguments that congestion pricing hurts poor drivers, by giving the residents of car-dependent parts of the city new, fast alternatives to driving. Unfortunately, the state legislators who scuttled the plan themselves drive, their friends drive, and their campaign contributors drive, even though most of their constituents take transit.

Is there an alternative? On FiveThirtyEight.com, Robert Frank points out a very similar issue in recent memory: free directory assistance. Until the mid-1970s, all calls to directory assistance were free. Of course, many people called directory assistance, using up operator time and costing telephone companies money, even when they could just check the phone book. The Public Service Commission wanted to charge ten cents per directory call, but according to Frank, “Social scientists appeared before the commission to testify, preposterously, that charging for directory assistance would disrupt vital networks of communication in the community.”

The Commission then hit on a simple solution. Every telephone subscriber got a 30-cent monthly credit, regardless of how often he or she used directory assistance. People who called three times a month saw no net effect, while anyone who called less often saved money. Frank writes, “Political opposition vanished instantly, and today no one questions that the new policy makes perfect sense.”

Frank suggests extending the same concept to congestion pricing:

The burden [on low-income workers who have to drive] could eaily be eliminated by giving every low-income worker in Manhattan an annual allotment of transferable congestion vouchers. On the rare occasions when these workers needed to drive into the city, they could do so free of charge. And they could earn some extra money by selling any vouchers they didn’t need on Craigslist.

Could this model work in DC? We could give everyone a tax credit who pays payroll taxes in the congestion zone. That tax credit could equal the total revenues from the congestion system. We could also give everyone “vouchers” against E-ZPass charges, but it’d be important to give something to every worker, not just every driver. After all, the system gains the most congestion savings when as many of people switch to transit as possible.

This resembles some carbon pricing proposals, which would impose a carbon tax but then give all the revenue away as tax credits to everyone. Either way, it creates an economic incentive against doing something that produces externalities, without increasing or decreasing the size of government. It’s worth exploring, at least.