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Chapter 4 | Congestion charging and community attitudes

use of benefit–cost analysis in the absence of congestion charging assumes roaduser

charging that reflects average rather than marginal costs. The result is that the

‘… value of an investment when the existing network is not subject to congestion

pricing will generally be greater than if the existing network is tolled’ (Starkie 2002).

Ultimately, however, there are major practical problems relating to indivisibilities

when pursuing a goal of expanding infrastructure to the point where the marginal

cost of expansion equals the marginal cost of congestion.

If infrastructure can only be incremented in lumps, expanding capacity whenever

short-run marginal cost is greater than long-run marginal cost may result in overinvestment.

On the other hand, the Verhoef rule, which guarantees that the last unit

of investment is valued precisely at cost (and that all preceding increments are valued

at greater than or equal to their cost), may result in under-investment if the total

willingness to pay exceeds the cost of the additional capacity (MOT (NZ) 2005, p. 27).

Furthermore, in most cities where congestion charging is under consideration, there

may still be limited scope to improve infrastructure capacity. Notwithstanding the

developments in tunnelling technology, the technique remains costly and complex.

Finally, as with public transport, the use of congestion charging revenues to fund

infrastructure expansion needs to be rigorously evaluated.

Conclusions on strategic use of revenue

Congestion charging is politically difficult to sell to the community. It is understandable

that there is a temptation to gain community acceptance by applying scheme revenue

to high profile projects.

Should congestion charging be earmarked for specific purposes or should it simply

become part of consolidated revenue, allowing general increases in spending or an

offsetting reduction in other, more distorting sources of revenue Lee warns against

earmarking revenues for specific purposes, noting that such an approach:

… can be dangerous economically and misleading politically. Spending toll revenues

to increase highway capacity, subsidise transit, or support the freight rail system may

be inefficient if those sectors receive more funds than they can use efficiently—that is,

apply in ways that generate positive net benefits (Lee 2003, p. 50).

Singapore, in particular, learnt this lesson the hard way after earmarking a share of

revenue from their Area Licensing Scheme for ‘park-and-ride’ car parks at the edge

of the city. Poor patronage led these to be abandoned and all revenues now go into

consolidated revenue:

Congestion revenues are not earmarked for transport related projects. All transport

projects need separate economic justification or financial allocation from a central

pool of development funds (Menon 2003, p. 136).

Application of this principle would not exclude any particular area, such as public

transport, from benefiting from the funding. Rather, it would mean that all claimants

would need to compete for the funding on merit. While the introduction of congestion

charging would generally strengthen that case for the expansion of public transport,

the discipline of actually competing for those funds is necessary for sound corporate

governance.

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