BITRE | Working paper 74 well as mass transit options in Brooklyn and Queens also addresses the equity issues raised by these pricing schemes’ (Hsu et al. 2004, p. 7). The Economist advocated allocating revenue to public transport to provide benefits for the less well-off, offsetting any regressivity that may be associated with congestion charging: Those who argue that road pricing is unfair because it discriminates against the poor ignore the fact that people too poor to own a vehicle, together with the young and the very old, suffer the ill-effects of congestion without the benefits of personal mobility. Moreover, if the revenues were used to improve public transport, the poor would benefit disproportionately (The Economist 1997, pp. 16). The second rationale for applying scheme revenues to public transport relates to encouraging a greater response to the charge by improving transport alternatives. To the extent that responsiveness to the charge increases, it produces a greater efficiency gain. The higher the efficiency gain relative to the revenue take, the higher the Acceptability Index (see Box 4.2). The London scheme illustrates the earmarking of revenues for public transport, with net revenues dedicated to the funding of transport improvements in London for the first 10 years of the operation of the scheme. 70 Prior to and after the introduction of the scheme, London’s public transport system was significantly enhanced by modernising and enlarging the bus fleet, and expanding bus priority. Button estimated that in the five years to 2005, about £500 million has been used to enhance the bus network, and has included doubling traffic lanes exclusively for bus use (Button 2006, p. 236). The use of revenues for funding public transport has also gained support in Norway. The revenue from the cordon charges around Norwegian cities were originally earmarked for specific road improvements. However, the second generation of packages dedicated a small share of revenues for the environment and public transport. The third generation of packages (with a greater focus on congestion charging) will fund large-scale public transport improvements (Bekken and Osland 2005). The earmarking is now set out in law. Under an amendment to the national road laws, approved in June 2002, proceeds from congestion charging schemes must be used for local road and public transport purposes (Ramjerdi 2003, p. 49). Analysis There is no doubt that persons affected by congestion charging expect to have practical alternatives to paying the charge. The policy danger is that the scheme revenue is regarded as a ‘Magic Pudding’ and, accordingly, not subject to rigorous scrutiny in its disbursement. While enhancing public transport is rarely questioned as a use of congestion charging revenue, not all investments in public transport are equally beneficial. Some produce a higher return for the community than others. Some produce a negative return. Button queried whether the (then) £500 million spent on enhancing London’s bus network was subjected to rigorous scrutiny: 88 ‘… there is no way of knowing if this money, including that taken from the congestion charge, is being spent efficiently, and even if public transport is a good investment’ (Transportation Research Board 2005, p. 237). 70. This earmarking also applies for other congestion charging schemes that are implemented under the Transport Act 2000 (UK). However, this commitment appears to apply for only the first ten years of the project.
Chapter 4 | Congestion charging and community attitudes Prud’homme and Bocarejo were also critical of the unquestioned allocation of the London revenue to public transport. They argued that this is a negative feature of the scheme, since the bus system is already heavily loss making and that further funding increases the losses and has more than doubled the subsidy per passenger (Prud’homme and Bocarejo 2005). There are two issues here: equity and efficiency. While public transport clearly provides a community service, it does not necessarily follow that subsidising public transport is the most effective way of pursuing equity objectives; indeed, whether it contributes to equity objectives at all. In many cities, the most heavily subsidised public transport services are in the older and generally wealthier areas. Low-income earners often live in more remote areas where housing is more affordable. 71 Also, low-income earners may be less likely to be engaged in the type of regular employment (in terms of both hours and location) that readily lends itself to public transport use. Hence, increasing public transport subsidies may not contribute to vertical equity. While little research has been done in this area, a review of urban transport in Australia tentatively concluded that public transport subsidies are neither regressive nor progressive in that they generally ‘boost the income of the more affluent by virtually the same proportion as those who are less well off’ (Industry Commission 1994, p. 195). The International Transport Forum (ITF) has highlighted the potential for misdirection of subsidies underlying public transport funding, arguing for a ‘need for greater clarity in the setting of fares, with subsidies focused on those people in particular need’. Further, it argued that ‘pricing needs to be consistent across transport modes, with charges approaching the marginal costs of travel’ (ECMT 2005, p. 13). For public transport, this could imply significantly higher charges (congestion charging) during peak periods. The supply of strong alternatives to driving in congested areas is critical to both scheme success and acceptance, nonetheless the non-empirical earmarking of congestion charging revenue to public transport can seriously undermine the economic credentials of the scheme. Community acceptance of congestion charging may be won through applying funds to public transport but an indiscriminate application can leave the community relatively worse off. Thus, to the extent that the scheme funds public transport projects, it requires the same rigorous evaluation that is applied to funds raised from other sources. These Scheme revenue has an opportunity cost and the community is best off when the allocation of revenue is rigorously scrutinised. For a scheme to be successful, behavioural change is necessary. This requires strong alternatives. However, such a link does not obviate the need for rigorous assessment of revenue use. funds have an opportunity cost and the community benefit is maximised if they are allocated to their highest value use, which may or may not be public transport. 71. Ironically, housing is more affordable partly because of the limited access to public transport. 89