When employers offer free parking at the office or a parking stipend, they're incentivizing workers to commute by driving. If workers could instead use that money to get to work in other ways, like by bike or by foot, fewer people would drive and roads would be less congested.
Here’s how transit benefits work
When employers provide a commuting subsidy, workers can receive up to $255 a month tax-free for parking or for taking transit. Workers can also be reimbursed up to $20 a month tax free for bike commuting, to pay for things like a lock or helmet. The way commuter benefits work today, workers can combine parking and transit benefits but not bike benefits.
But the way commuter benefits work today, workers must choose a single mode, whether it's driving (a parking stipend or parking space), transit (a transit subsidy), or biking.
Employers can either pay for this benefit themselves or let employees take it out of their paychecks before taxes. Employer-paid benefits leave employees with more money in their pockets and are cheaper for the employer than a salary increase. Giving employees the option to set aside money from their paycheck before taxes is also cheaper for the employer and means fewer taxes come out of the employee’s final paycheck.
Employer-provided commuting stipends aren't the only way workers can save money on their commutes. DC, San Francisco, and New York City have all passed laws requiring employers of a certain size to let employees spend their own money tax-free to buy transit fares. goDCgo, the District Department of Transportation's Transportation Demand Management program, collected information about commuter benefits offerings from 191 employers in 2016. According to that sample of 191 employers, 78 percent of employers started offering pre-tax transit benefits because of the law.
According to DDOT, 78% of employers in DC started offering pre-tax transit benefits because of the law.
Nonetheless, employers who offer to pay for part or all of their workers' parking can be a lot more attractive than those who just allow employees to buy pre-tax transit fares.
In DC According to the same survey, 34 percent of employers offer free parking, and an additional 18 percent offer an employer-paid parking subsidy.
The current tax code pays employees to sit in traffic
If you work somewhere where parking is free and abundant, a parking benefit doesn't really affect you. But if you’re commuting in a place where parking costs money—for example, downtown DC—this benefit is very real, as it makes driving cheaper, but transit still costs the same.
Parking benefits, you likely won’t be surprised to hear, also drive up congestion. And beyond that, they leave governments with even less money to repair roads and keep up public transit systems: As of 2014, the parking benefit translated into about $7 billion a year in lost tax revenue (because the money used toward the benefit is not taxed). To put that in perspective, the Federal Transit Administration’s total appropriations in 2016 came to just over $11 billion.
A solution: Don't tie commuting benefits to a single mode of transportation
One solution that might work to reduce congestion and encourage employees to trade their car in for a better form of transit: letting them give up their parking space in exchange for cold, hard cash.
This solution, known as “parking cash-out,” lets employees choose between a taking an employer-paid parking benefit or exchanging the parking benefit for extra income. This creates an “opportunity cost” for what would otherwise be a no brainer decision—why give up free or cheap parking if you're not getting anything in return?
Crowded city centers are particularly suited to benefit from these kinds of programs, because it's relatively easy to determine the value of a parking space because garages have daily and monthly rates. Free parking is a powerful incentive to drive, even when traffic congestion is frustrating, and transit, walking or bicycling might be good commute options. So if an employer pays $200 a month to reserve a parking space for an employee, parking cash-out could let someone simply pocket the $200.
In some cases, workers are already doing this, commuting by walking or biking, but now they’d get the value of the parking space, and instead of it sitting empty, it can be leased to someone else.
Other parts of the country have already started to try cash-out programs in an attempt to reduce congestion and improve air quality. For example, California requires employers with 50 or more workers to provide a cash-out option if they also provide parking subsidies. In Southern California, employers offering this benefit saw lone occupant driving go down by 13% and also saw a 12% reduction in miles traveled by car.
MoveDC, DC’s plan to rethink how people get from place to place in and around the city, aims for 75% of trips in the District to be on transit, by foot, or by bike. A parking cash-out program could be a big step toward achieving that.
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The original version of this post said that parking and transit benefits cannot be combined, but they can. Also, the post was not entirely clear that the data provided by DDOT came from a sample of employers, not all employers. The post has been corrected accordingly.