Friday, February 5, 2010

Two-tiered parking fees at the Coliseum?

Tony Wilkins blogs about a proposal he made to the Coliseum Commission to study discounting parking fees for local residents. The proposal was turned down, and we should be grateful that it was. While lower parking fees sound great, they actually cause a number of problems.

The first problem is that lower parking fees are likely to lead to a loss in revenue to the Coliseum. Clearly, revenue per car (at least revenue per local car) will go down. Tony correctly argues that the lower prices would likely induce some additional local residents to attend Coliseum events, which would mitigate some of these losses. However, we have to ask how large this response will be. Unless demand for Coliseum parking by local residents was unusually responsive, the losses associated with lower per-unit revenues would offset the gains associated with increased demand. In economic terms the demand for parking by local residents would have to be price elastic; there is no reason to believe that this is the case.

Even if demand were elastic (and again there isn't any reason to think that it is), parking capacity at many events is limited. Revenues from local attendees can't increase unless there are empty spots for them to fill. If the Coliseum's parking lots are already full (i.e., if demand already exceeds supply), there's no scope for increased parking utilization. Along the same lines, there would also be losses to the extent that lower-paying local attendees crowded out any higher paying non-local attendees. There may be other behavior on the margin that leads to losses (if a local and non-local person are going to a Coliseum event together, they now have an incentive to go in the local person's car--the term "designated driver" takes on a whole new meaning). For a variety of reasons, the plan will likely hurt revenues.

The second problem is that checking an attendee's "local" status complicates the process of collecting a parking fee. Let's assume that parking attendants will determine a driver's status by checking his or her license. This interaction will add a small amount (no more than a minute) to each parking entry. Although the time cost to a single parking entry is minuscule, the large number of such transactions would cumulate into a tremendous time loss. If there were no adjustments in the number of parking attendants, congestion entering the parking lots and backing out onto the roads would increase. The extra time spent waiting and the congestion on the roads present real costs in terms of convenience and safety. Alternatively, more parking lot attendants could be hired, but that would raise money costs. Either way, Coliseum parking, which is already a frustrating and time-consuming process, would become even less efficient.

A third issue is that the scheme is likely to shift the incidence of paying for Coliseum events away from those who actually use the facility and toward other local residents. As mentioned, the scheme is likely to cause revenues to drop. The Coliseum already operates at a loss and requires subsidization from local residents. Lower revenues mean that a greater subsidy will be needed. The incidence of the subsidy is distributed across all local taxpayers; the incidence of parking fees is not. Tony describes his proposal as a major "thank you" for taxpayers; the non-attending taxpayers who would have to pony up more money are not likely to say "you're welcome" to this.

To sum up, Tony's proposal would likely reduce parking revenues; add to congestion, waiting times, and traffic problems (or alternatively increase parking attendant costs); and result in greater transfers of wealth from residents who don't attend Coliseum to residents who do. Put another way, it's costly and socially inefficient.

8 comments:

Don Moore said...

I don't know a lot of locals who go to the coliseum since the Generals folded. Not many locals even talk about the coliseum (in my circle of friends).

I liked the Free Parking Pass in the water bill. That shows some effort without any expense.

triadwatch said...

plenty of locals park on the side streets off of patterson and plenty of other places for free, maybe with the discount they will go inside to park and add revenue which they didn't do before.

Dave Ribar said...

Keith:

You're absolutely right that there is a possibility for a demand response. It's really a question of competing magnitudes.

For a concrete example with completely made up numbers, suppose that a given event currently draws 1,000 local cars at $20 per car; that is, that it generates $20,000 in parking revenue. Suppose now that the Coliseum cuts the parking fee for locals in half for such an event.

The Coliseum will lose $10,000 on all of the local cars that would parked in its lots at the original $20 price, so we start down $10,000.

However, as you and Tony have pointed out, there will be a demand response. The question is how big will this have to be? To cover the $10,000 loss, the price cut would have to attract at least twice as many local cars (and more if any of the new local cars crowd out non-local cars). You are right that there are several sources for this demand response. For a number of reasons, however, it seems doubtful that the demand response will be elastic (i.e., that a 50 percent cut in prices will lead to more than a doubling in parking lot usage).

Without a tremendous demand response, the Coliseum loses money on the deal.

Roch101 said...

Nice analysis. I would take minor exception with one of your minor points, the delay of verifying city residency. Citizens can already acquire a Parks & Rec card that validates their residency for discounts at parks and marinas. With the discussion that maybe out-of-town residents should pay more for city amenities (see libraries), maybe it's time for a City card anyway, and presenting it with parking payment would not slow things down.

Regardless, I'm curious how your analysis changes, if at all, if instead of offering City residents a parking discount, we decide to raise the parking rates on out-of-towners?

Dave Ribar said...

Roch:

A city card, like the free pass that Don describes, may reduce the transactions costs a small amount. Presumably, the parking attendants would have to check the city card (e.g., is it valid/up-to-date, does it cover the person who is presenting it). Even if the city card had someone's picture on it and was color-coded each year so that you could easily tell when it was valid, the act of checking adds to the parking transaction time.

To get really creative, there are other technologies, like swipe cards or transponders, that could speed the parking transaction process. These technologies have relatively high fixed costs but could be explored.

With respect to charging non-residents more, this would presumably increase revenues and reduce the amount of the subsidy that is required. Thus, the policy has its advantages when considered in isolation. However, we might be concerned about the longer-term repercussions. The policy is not likely to engender much good will among visitors who will feel discriminated against. If other communities followed our example, we'd also end up paying more at non-local events.

We already impose some differential taxes on visitors (e.g., the hotel taxes).

At one point, conservatives were all gaga over tax simplification. This principle tends to be cast aside, however, when they see an opportunity for a tax break.

Tony Wilkins said...

Thanks for your time on this Dave.
Your thoughts about this?:
http://www.busybeingbornblog.com/?p=453

Tony Wilkins said...

DR: "To get really creative, there are other technologies, like swipe cards or transponders, that could speed the parking transaction process."

At a cost of about $300K to put into service.

Dave Ribar said...

Tony:

I was trying to be as creative as possible in favor of the idea.

Your idea would have been more practical where I used to live in Virginia, because counties in Virginia issue their own registration stickers. An attendant could just look at the sticker and immediately tell whether a car was owned by a local resident who had paid his or her taxes for that year. Similarly, transponders were common there for the some local toll roads. These ideas might not be practical for Greensboro now but might be at some later date.