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VII. Equity considerations

What about the inevitable equity objections: does road pricing mean "Lexus Lanes" which will "price the poor off the road?" Certainly, no project perceived as unfair is likely to find a popular base of support. The short answer is "no more than $20 close-in parking lots price the poor onto $3 parking lots six blocks away." Few consider such familiar price allocations unfair. Nobody calls them "Lexus Lots."

The longer answer starts from basic principles. There is no one-size-fits-all definition of fairness, but the Task Force invoked five principles of equity:

    (1) beneficiaries pay costs: those who benefit from an action should normally pay their proportional share of the costs the action imposes on others;
    (2) users get to choose: systems where individual users get a variety of choices are normally preferable to systems which do not offer choices;
    (3) inter-regional or inter-group equity: one region or group should not normally be required to pay for another region or group's costs, except to the extent that it caused them;
    (4) take good care of the poorest: where a social burden is imposed, it should not normally be imposed more heavily on the poor than the rich; and
    (5) lighten the biggest, broadest burdens first: mitigating large damages to the many should normally take precedence over mitigating smaller damages to the few.

Despite loose talk about "Lexus Lanes," HOT lanes present few equity problems that are not presented by other things we take for granted, like differentially priced close-in or far-out parking lots or cellular and ordinary phones. People get to choose, use, and pay for the level of service they want; cheaper alternatives are available; nobody loses anything from the new option; and many come out way ahead. A full-scale system of emissions and congestion charges, if we had one, would be more problematical because it would cut back on some existing options -- albeit far less drastically than the gridlock it would prevent. But even a full-scale system would be an improvement over the present system by most of the five equity measures. Under the present system, users and taxpayers pay into general funds and trust funds; resource allocation is political, not economic; regressive cross-subsidization of rich groups by poor is the norm; many peak-hour users get only two choices: slow and slower; and billions of dollars of avoidable time losses continue every year while policy-makers worry about getting much less costly details worked out. Emissions and congestion charges would settle the cost of use much more squarely on users; give them more choice; clear away regressive cross-subsidies; and give people back some of the weeks of time and days of life they now lose, preventably, to crowded roads and bad air.

Table 1, adapted from the REACH Task Force final report, may help illustrate some of these points.

Table 1
Salient Base Case Demographic Variables for Understanding Equity Impacts

Income Quintile
1
2
3
4
5
Median p/c income
$4,108
$7,767
$11,923
$18,167
$37,951
Share of income
5.1%
9.7%
19.9%
22.7%
47.5%
Share of Peak VMT
8.8%
15.5%
18.9%
24.8%
32.0%
Share of delay cost
2.2%
6.5%
11.6%
24.0%
57.1%
Share of p.m. transit%
22.2%
20.2%
19.1%
16.7%
21.8%
Pre-1984 veh. VMT%
13.0%
19.0%
21.0%
24.0%
25.0%

Source: TRIPS, 1991 Origin & Destination Survey
Cited in Cameron (1994), p. I
Wilbur Smith Associates, "Estimated Annual Transportation Costs
and Benefits per Capita," May 22, 1996

The chief lesson of Table 1 is that congestion is not a problem which every class inflicts equally on every other class, far less a problem inflicted on the rich by the poor. It is overwhelmingly a problem inflicted by the nonpoor on each other. The richest quintile is three or four times more likely than the poorest to be on the road at peak hours. It suffers 26 times as much loss from traffic delay, partly from being much heavier users, partly from having higher time values. Surprisingly, the same could also be true for vehicular smog, at least as measured by miles driven in old cars -- only in this case the rich polluters inflict their smog not just other well-to-do road users, but on everybody in the Basin who breathes. The richest two quintiles each drive almost twice as many miles in pre-1984 vehicles as the poorest quintile. Surprisingly also, transit use is almost equally divided among all five quintiles.

The existing system of road financing is triply regressive. Taxpayers generally, a poorer class, support road users generally, a richer class, with municipal services like fire, police, courts, ambulances, and emergency rooms benefiting road users. Road users generally, a poorer class, support peak-hour road users by paying with their fuel taxes for roads generally sized to accommodate peak-hour users. And five out of the six taxes supporting the existing highway system are themselves regressive (Giuliano, 1994, p. 260).

Table 2
Winners and Losers From Full-Scale Congestion Charges.

Poor
Nonpoor
Total
Percentages of adult public
20%
80%
100%
driving congested roads at peak
5%
15%
20%
equal or better off with congestion charges
4%
11%
15%
worse off with congestion charges
1%
4%
5%

Source: calculated from Genevieve Giuliano, "Equity and Fairness Considerations of Congestion Pricing," 1994; see Elliott, 1995

Table 2 begins to summarize, and proper transportation policy should also reflect, a number of points about driving patterns in the South Coast Basin. These are:

    1. Not everybody drives. One household in ten in the Los Angeles Basin does not have a car. Most of this fraction is poor and would benefit, on balance, from anything like congestion charges which gives buses and carpools better access.

    2. Not everybody who drives drives at peak hour. Although nine out of ten households have a car, only three out of five surveyed voters commute to work. The other two are retired, unemployed, homemakers, or students. This 40% would be little affected by congestion charges, which would divert some peak traffic to off-peak hours.

    3. Not everybody who drives at peak hour picks a congested route. Of the three in five surveyed voters who do commute, two say they do not suffer seriously from congestion -- yet. This 40% would be modestly affected by congestion charges, which would divert some traffic from more congested to less congested routes.

    4. Relatively few of the 20% of surveyed voters who do drive crowded routes at peak hours are poor. As we have seen both from Table 1, and from Table 2, peak-hour congestion is overwhelmingly a problem that the non-poor inflict on each other.

    5. Only a small fraction of the few poor who do drive crowded routes would lose from congestion charges. Harvey calculates, as one would expect, that the poor are more likely to be priced out of their single-occupancy car than the rich (Harvey, 1994, p. 109). But Giuliano finds, perhaps to some people's surprise, that, when the value of their time is considered, average-distance (10-mile each way) drivers, both poor and middle-income, who pay the charge and keep driving, come out slightly ahead of where they would have been without the charge. Anyone who switches to transit or short-distance carpool likewise comes out ahead, even if the carpool has to pay full congestion charges. Poor people whose long-distance (25-mile) carpool commute becomes fully charged come out slightly behind -- which, however, is easily fixable by exempting 3-person carpools from some or all congestion charges.

    The only Giuliano category that loses heavily from congestion charges, and whose losses cannot be easily fixed, are long-distance middle-income (and presumably low-income, though these are not calculated separately) commuters who do not switch to bus or carpool, but persist in driving a crowded 25-mile peak-hour route, twice a day, every mile of it fully charged. These would come up a stiff $854 a year poorer with congestion charges than without. However, they are a very small percentage of commuters -- probably less than five percent of a.m.-peak direct-to-work commuters (computed from Peter Gordon 1990 NPTS summary). Less than a quarter of them -- that is, less than one percent of a.m.-peak direct commuters -- could be considered poor. This tiny, overwhelmingly nonpoor five percent imposes much more than its share of delay (and smog) costs on other drivers -- and gets to do it free under the present system. Not everyone would be shocked to see such people strongly incentivized to carpool, bus, move closer to work -- or pay something for their choice to do none of these things. Giuliano's calculations cover about two-thirds of peak-hour drivers: the half that drive ten miles or less, and the 15 percent or so who drive 25 miles or more each way. That leaves out a third of peak-hour drivers who drive between ten and 25 miles. Wherever Giuliano shows short-distance commuters to gain, and long-distance commuters to lose, Table 2 assumes that half of the middle third will be winners, half losers.

    These back-of-the-envelope calculations will not be the last word on the subject, but the evidence at hand overwhelmingly suggests that the list of likely losers from congestion charges will be surprisingly short and nonpoor -- and justly chargeable for their own social costs -- compared to the list of losers from not having congestion charges. Are we better off with one or two percent of the public losing $850 a year for their own wasteful behavior, or with every household in the Basin losing $900 a year mostly because of other people's wasteful behavior?

    6. Pay for what you get is well accepted for other necessities. It is true that congestion charges would be regressive, in the sense of charging the poor a higher fraction of their wealth than the rich for the same benefits. But this is no more true of congestion charges than it is of anything where you get what you pay for -- water, gas, electricity, and groceries, for example. Most people, poor people included, would be horrified if we charged the same artificially low prices for these as we do for roads at peak hour, correctly guessing that people would waste them, just as we now waste our time, our roads, and our health.

    7. Congestion charges are much less regressive than the existing system. The system now in use, as we have seen, is triply regressive. Taxpayers generally, a poorer class, now subsidize road users, a richer class. Road users generally, a poorer class, subsidize peak-hour commuters, a richer class. Five out of the six taxes supporting the existing highway system are themselves regressive (Giuliano, 1994, p. 260). Asking people to pay for what they get would be not only more efficient, but also less regressive than any of these foundations of the existing system.

    8. If necessary, losers can be compensated. If necessary, where all else fails, the tiny fraction of the poorest or most deserving losers could be compensated with cash or a lifeline access permit. Such compensation, if used at all, should be used sparingly, because its effect would be to expand the compensated class and to undermine somewhat the benefits going to the three-quarters of poor and nonpoor who would come out equal or ahead. But the compensable class, even if it triples, would still be small, and the cash or lifeline subsidy to the few would be far preferable to what we have now -- a universal, open-ended license for everybody to inflict upwards of $900 worth of delay and pollution on everyone else. This delay, by the way, hurts the poor not only directly by health damage and traffic delay, but also indirectly by stifling productivity in the Basin and driving investment and jobs to other less gridlocked areas.

    9. Even the poor need a fast lane now and then. Poor people have to meet deadlines, and they don't consider their time worthless. Sometimes, when they are rushing to get to work, catch a bus, pick up a child, or get to the hospital, they value their time very highly and would pay a lot to get into a fast lane. Usage of the SR91 toll lanes is only weakly correlated to income. The present system denies poor people the time-saving choice, and the denial can be just as hard on them as it is on the rich. Bottom line: congestion charges are perfectly in keeping with most people's sense of fairness, more so than the system we have now. They do not require a revolution of moral consciousness.

    10. At the rate we are going, we don't have to cross most of the bridges till we get to them. There are many uncertainties involved in a move toward the fast lane, most of them outweighed by the growing certainty that we are losing our shirts while stuck in the slow lane, and many of them resolvable only by actual experience with congestion charges. It has taken us twenty years longer than Singapore to think seriously about making the move. It will take more years, perhaps many more years, of phase-in to make the actual move. At our deliberate pace there is room for trial and error; not every question has to be fully answered in advance.

    11. Dithering over little equity questions postpones coping with big ones. What is true on average is not true in every individual case. Some poor people are bound to suffer from changes in incentive structures, even changes that make most poor people better off. It would not be unreasonable to look for ways to ease the impacts of new incentives on such people, nor to start with the least regressive available strategies, such as add-a-lane HOT lanes. What would be unreasonable, once you realize that the average household, which is neither rich nor poor, suffers thousands of dollars of direct damage a year from smog and congestion, is to delay getting it fixed till you can guarantee that every last dollar of cost to every last person harmed by the change will be fully recompensed. Equity says that if there is a pound of cost from changing to a new system, and a ton of cost from not changing to the new system, it's fair and prudent to consider the pound, but not fair or prudent to ignore the ton.

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