Congestion-pricing debate continues

Business owners consider the costs and benefits of government plans to charge drivers more for entering major commercial districts during peak hours.

By Alex Taylor, III, FSB Contributor

(FSB Magazine) -- Every weekday morning at 6:10, Dominic Valente, owner of Valente Yeast in Queens, N.Y., dispatches five trucks filled with baking ingredients to Manhattan, where they make deliveries to wholesale and retail bakeries and bagel shops. For years their biggest worries were potholes and daredevil bike messengers. But now Valente finds himself in the middle of a rising national debate among small-business owners about the clotted traffic that is choking dozens of cities, and the hefty tolls that are being touted as a cure.

Under a proposal by New York City Mayor Michael Bloomberg, each truck would have to pay $21 every weekday to enter the central business district between the hours of 6 A.M. and 6 P.M. (Existing bridge and tunnel tolls for trucks, which can run as much as $6 an axle, would be deducted from the new $21 toll.) Proceeds from the new tolls would go toward improving mass transit. Bloomberg calls it a plan to loosen the knot of traffic that is slowly strangling the city - including its small businesses. Valente, whose grandfather founded the company in 1908, says it's a burden entrepreneurs can't bear. Given the number of times his trucks enter the city, he figures that the new tolls would add upwards of $30,000 a year to his costs. "Taxes are a necessary evil, but this one is going over the edge," he says.

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Valente has joined forces with business owners in the Queens Chamber of Commerce, one of many groups that has raised a truckload of objections about the cost, fairness, and effectiveness of Bloomberg's plan. Among their complaints: The rules don't differentiate between trucks owned by small businesses and those of major corporations. In response, New York State legislators have applied the brakes to congestion pricing by assigning a commission to study the issue.

But congestion pricing isn't going away. U.S. municipalities including Dallas, Miami, Minneapolis, San Diego, and Seattle are expressing interest in the idea. Groups such as the AARP and the National Supermarkets Association back it. Advocates are studying the results of congestion-pricing programs in London, Singapore, and Stockholm.

Recent studies estimate that traffic jams cost the U.S. economy a whopping $65 billion annually - and the figure is rising. Among the industries hardest hit: trucking, service and repair, wholesale trades, and construction. Gridlock costs New York City $4.6 billion in lost business revenue, estimates the Partnership for New York City, a group of 200 CEOs who support congestion pricing.

The traffic crisis is spreading beyond the largest areas. According to a 2006 report by the libertarian Reason Foundation (reason.org/ps346.pdf), traffic in Utah, which has about a third of the population of New York City, will double by 2030 unless the state's road system improves. Adam Madetzke, the owner of Salt City Couriers (saltcitycouriers.com), says that northbound congestion on I-15 - Utah's most clogged highway - has hampered his delivery business: "During rush hour the heavy traffic drops our profits by 20% to 30%." While it debates congestion pricing, Utah hopes that a new commuter rail system set to open next spring will alleviate the problem.

Congestion pricing treats access to the roadways like any other scarce commodity: When demand is highest, so are prices, just as they are for cellphone service and (in more and more states) electricity. San Diego has been charging commuters a toll on an eight-mile stretch of I-15 since 1998, which lets those who pay use special lanes during peak hours. The charge varies from 50 cents to $8, depending on demand. Since the toll was imposed, usage of express lanes has nearly doubled, and the number of carpools has gone up more than 70%. Denver, Houston, and Minneapolis have similar toll highways.

Comment on congestion pricing

New technologies, such as videocameras and E-Z Pass electronic toll collectors, can make congestion pricing easier to enforce and the fees cheaper to collect. In London, which instituted congestion pricing in 2003, about 5% of trips into the central business district over a 12-hour peak period were eliminated. Trip speed across central London has increased by 19%. Businesses in the affected areas say that while they haven't noticed a loss in revenues, they did see a significant change in business patterns. At a garden center in Chelsea, for instance, most of the customers from outside London now drive in on the weekend, when tolls are lower.

In the U.S., small businesses face not only higher costs from congestion pricing but also the potential for outsized gains, according to an analysis by the Drum Major Institute for Public Policy (drummajorinstitute.org), a New York City think tank. Unlike CEOs of big corporations, entrepreneurs are usually deeply involved in operations and sales. They don't just have workers caught in traffic - they're often mired in it themselves, losing valuable time and opportunity. Even with a daily fee as high as the $21 proposed in New York, "the extra productivity will more than make up for the charge," the Drum Major report concludes. The Reason Foundation study figures that if rush-hour speed on Atlanta's highways could be raised by just six miles an hour, nearly $5 billion a year would be saved.

Some small-business owners in New York City are persuaded by these arguments. "It will benefit virtually all businesses throughout the five boroughs," says Joe Ithier, an economic development consultant who represents the 500-member New York City Hispanic Chamber of Commerce. Real estate executive Justin Yu, who belongs to the Chinese Chamber of Commerce, which has 150 members, says his group also supports the plan: "It will certainly speed deliveries throughout the city." Proponents argue that time savings would outweigh the costs even for entrepreneurs such as Valente who make heavy use of delivery trucks.

Despite opposition, congestion pricing may have legs politically. It's a cheap alternative to building new roads, and it can help cities reduce pollution. That makes it a natural for Democrats, with their base among big-city voters. The Bush administration is onboard too, asking for $130 million in grants to help metro areas plan electronic toll systems for congestion pricing. But tolls are like taxes, and business owners such as Valente will lend their support only when they're shown, in dollars and cents, that their savings in time will outweigh the new costs.

Google Maps now factor in drive times

Gridlock has become so costly to business that the U.S. Department of Transportation recently awarded $848 million in grants to New York City, Miami, Minneapolis, San Francisco, and Seattle to improve traffic flow. Each of the five plans, chosen from 26 proposals, involves a form of congestion pricing.

Seattle plans to charge $2 to travel the heavily used SR-520 bridge, which crosses Lake Washington into the city. Ben Kaufman, the owner of GreenWorks Realty (greenworksrealty.com), says the toll would encourage more commuters to use public transportation and would help create a "walkable community."

Kevin Westlye, director of the Golden Gate Restaurant Association (ggra.org), says that San Francisco's plans to impose higher tolls on the Golden Gate Bridge during rush hour "will hurt local businesses" if the city doesn't improve the Muni, its public transit system.

Minneapolis, which has suffered from heavy gridlock since the I-35W bridge collapsed in August, will raise tolls and partner with companies located along the interstate to encourage telecommuting.

Mina Kimes contributed to this package. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.