Congestion Pricing and the California Budget Deficit

I’m just back from six days in the San Francisco Bay Area. Every car trip, mostly up and down the East Bay and to Napa, took roughly twice as long as it would have without traffic (e.g., Napa to Oakland Airport was just over 2 hours). Going 20 mph on a highway gives a person a lot of time to listen to the news and the news was mostly about California’s $25 billion annual budget deficit.

When a business needs to get more cash it looks at its assets and what they can produce. Perhaps the company has teams of skilled employees who could make something more lucrative than the current product. Perhaps the company has a manufacturing plant that could be leased to a startup in a new industry.

What could the State of California do? The “teams of skilled employees” idea is out, given that state workers are paid vastly higher wages and benefits than their private-sector counterparts. With such high labor costs, it seems very unlikely that a state agency could compete with a private firm on any projects of significance. The state runs a variety of schools. The primary and secondary schools are uncompetitive in performance with startup charter schools, so there would be no way to lure tuition-paying students from other countries or states. The universities could produce some cash from out-of-state tuition, but even Harvard can’t make an annual profit of $25 billion.

What does the state control that has a lot of value? Highways! The State of California owns highways that connect people with their friends and their jobs. The same highways connect manufacturing plants with raw materials and customers. It would seem that the most logical place for the state to try to raise money would be by charging congestion fees for the use of these roads. No private company is going to be in a position to compete with the state, at least not for many decades. Businesses and individuals that pay congestion fees may well feel that they’ve gotten their money’s worth, something that apparently the citizens of California do not feel about their taxes (they recently voted not to pay more).

It struck me as odd that the idea of using congestion fees to close the budget gap was never mentioned once during all of the hours that I listened to Californians discuss their intractable budget woes.

25 thoughts on “Congestion Pricing and the California Budget Deficit

  1. The reason it hasn’t been suggested is because we Californians would probably revolt (which we’re close to doing any way). No one willingly travels when traffic is bad unless they have to, so charging a fee will not reduce traffic. It will just be another tax on people going to work struggling to make ends meet.

    At this point even the most liberal state in the union is tired of taxes. We want our state government to cut back, cut programs, and cut wages, not tax us more.

    Government spending, at state and Federal levels, is beyond wasteful. And people are finally getting tired of it.

  2. Daniel: Being stuck in traffic for 5 extra commuting hours per week isn’t free. The employer will have to pay people more because workers have less leisure time. Communities also suffer as employed people arrive home too late and exhausted to volunteer or participate. With congestion pricing for the highways, employers would have an incentive to adjust working hours, invest in video conferencing systems, etc.

  3. “When a business needs to get more cash it looks at its assets and what they can produce.”

    Oh Philip, I see you’ve been away from big business for too long. The first thing businesses do is to look where they can slash costs and what can be outsourced cheaper. States like Indiana and Illinois are selling their assets like toll roads and bridges to foreign companies. If States truly behaved like businesses, California would be looking to buy a profitable State (are there any?) and eventually run that State into the ground and make it unprofitable too. That’s what big business does.

  4. I’ve enjoyed your work, Phil, ever since someone gave me a copy of Phil and Alex’s Guide to Web Design, or whatever its exact title is. I think your observations are thought-provoking and often entertaining.

    Though it isn’t the main thrust of your argument, your contrast of traditional public schools to public charter schools along performance lines isn’t all that constructive. Public schools need to be criticized and they need to be improved. Charter schools may be part of a solution for improving the situation. BUT… to contrast a charter school (which is essentially a self-selected group, since students or parents add their names to a list) to a traditional public high school as a means for dismissing the traditional public school is dubious. Traditional public high schools HAVE to take everyone: the non-English speakers, the disinterested, the undocumented, etc. Charter schools, simply by selecting at random students who have actually signed (or been signed) up for a particular course of study start out with a much higher percentage of students (and parents!) who likely want to learn. Are there great students at traditional public schools? Absolutely. Are there underperforming students at charter schools? Sure. But it’s pretty likely that the percentage of academically motivated children attending charter schools in areas where the traditional public school is underperforming is going to be high. Also, if you do not perform to the standards of a charter school, the charter school can pretty easily orchestrate your return to the traditional public school. It happens quite often.

    Again, this is way off topic for your post, so I’m dropping it, but for all the (often deserved!) bashing public school teachers and teacher unions get, people should not forget that the mandate handed to traditional public school teachers (especially those serving inner-city schools) is nearly impossible. You cannot say “teach everyone whether they want to learn or not,” “make everyone feel good about themselves at all times,” and “don’t let anyone drop out,” and “don’t put anyone on ability tracks,” and “you can’t fire any teacher who is licensed and has been teaching for three years in a district,” and then point to a group of people and say, “why aren’t your students scoring better on tests, chasing careers in mathematics, or keeping up with the Chinese (who do NOT educate ALL of their children btw…).” Charter schools have a legitimate place and they are often excellent, but unless everyone attends a charter school, contrasting academic performance between charter schools and traditional public schools is apples to oranges and an unnecessary kick to groin.

    End rant.

  5. Andy: I’m glad that you are a fan of California’s schools, some of the most expensive in the world. Someone should be getting some value out of them, even if it isn’t the students!

    Check out (New Yorker article from May 11). This article describes Green Dot, a startup charter school company that took over a public high school in Los Angeles. They are serving 100 percent of the students in the neighborhood and doing much better than the public school system did.

    Overall, the charter school company, which started with no capital, is greatly outperforming the public school systems in 18 of the poorest neighborhoods in Los Angeles. What does the founder and CEO of Green Dot get paid for running 18 schools? $188,000 per year according to Charity Navigator. How does this compare to what California taxpayers pay? See for a description of how the superintendent of St. Helena public schools earns $254,000 per year. It is unclear why St. Helena, whose high school has only 500 students, needs a full-time superintendent. You would think the principals of its tiny schools in a rich little village could organize most things for themselves.

    Note that I did not argue that charter schools were always better, only that California’s public schools are not cost-effective enough to be regarded as an asset.

  6. The first thing to do is cut costs. They can immediately stop providing welfare and other services to anyone who is an illegal alien. This alone will save them an estimated $10-12 billion a year, which is just about half of the deficit.

    Fuel taxes are supposed to be there to pay for road construction and maintenance; assuming CA is like most other states, only a fraction of fuel taxes collected actually go to that, and instead it is a giant slush fund that pols use to reward their politically connected friends.

  7. @Brian – If you think that is what business is, then it might benefit you to rethink your position.

    Indiana and Illinois are states run by politicians, not businesses. Their motives are different. The essence of business is to take “things” and rearrange them into something new that has a higher value than its parts. That is the goal–to create a profit.

    I think Philip has an interesting point and has made an excellent observation.

  8. @Andy – your “defense” of public schools is actually an excellent explanation of why they are such a bad idea.

    Public schools have worse academic outcomes simply because they choose to have lower academic standards, and focus instead on socialization and not education.

    I find that when you attribute part of the failure of public schools academically to the fact that they “HAVE to take” “foreigners” to be particularly lame.

  9. Whoa… you two seem to have missed the part where I said that “public schools need to be criticized and they need to be improved.” You also have stretched my “traditional public high schools HAVE to take everyone: the non-English speakers, the disinterested, the undocumented, etc.” into an attack on foreigners. “Foreigners” often speak better English than natives and are often much more motivated to learn, so I think your criticism is off-base. Also, specifically Phil, you don’t refute my point that comparing performance between traditional high schools and charter schools is off-base, because you don’t touch the point that charter schools are “self selected” and tend to attract highly-motivated students and parents. You may very well be right that California’s schools are inefficient, overly expensive, and low performing. I offered no defense of the public schools other than to say that contrasting performance between traditional public schools and charter schools is dubious. Do some charter schools do a better job than traditional public schools and for less money? YES! And I said as much! The other side of this coin, however, is that charter schools educate a tiny minority of America’s youth, they don’t have to deal with entrenched unions, and they don’t have to educate all students. Does that mean I’m a champion of the traditional public school? Nope. What it means is that I think it’s “dubious” to compare the performance of the two when they don’t educate the same students under the same conditions. The statement “public schools have worse academic outcomes simply because they choose to have lower academic standards, and focus on socialization and not education” ignores the fact that you can’t educate students who don’t come to school. If you raise standards, you also raise the dropout rate. Before you accuse me of endorsing the “socialization” solution, let me launch an advance defense by saying that I am merely pointing out how things are, not how things should be.

  10. Andy: Regarding “you don’t refute my point that comparing performance between traditional high schools and charter schools is off-base, because you don’t touch the point that charter schools are “self selected” and tend to attract highly-motivated students and parents” … I hope that you’re not a graduate of California public schools and holding yourself out as an example of reading comprehension. In my comment I note that Green Dot has in fact taken over a local public high school in LA. The high school is gone. The students at the Green Dot school are not “self-selected”. They are everyone who went to the old public high school (plus a few more local kids because the dropout rate has been reduced). There is no longer anywhere else for them to go other than the Green Dot schools. You could also figure this out from reading the New Yorker magazine article…

    The “American schools perform so badly because they are stuck with American kids” argument only makes sense if you believe that the average IQ in the U.S. is much lower than in other countries.

  11. lol… Phil, you seem more inclined to attack me than the issue. It’s true that I only skimmed the article. Mea culpe. I thought I had gleaned enough information to defend my comments. It’s always a slippery slope carrying on a discussion with blog comments, as you have to be careful not to wait too long, lest everyone move on to a new and more exciting topic.

    You gave an example of one school that was reduced to widespread rioting and that was subsequently completely taken over. It might be a swell success story, but it’s hardly a typical charter school situation! The article goes on to note that “data like test scores, graduation rates, and student retention won’t be available until later this year,” so let’s hold off on doling out too much praise for the hostile takeover just yet. If we’re being honest, doesn’t that lack of data make the whole set of evidence premature for this argument? And once again, reducing my argument to “American schools perform so badly because they are stuck with American kids,” is inaccurate and dismissive. That’s not what I said, not what I attempted to imply, and certainly not what I believe.

    Differences aside, it does look like Green Dot has had some success in its other charter endeavors and I hope they continue their efforts. I hope Barr does not wear down under the strain, as school reform is an exhausting endeavor. Also, for the record, my experience has been with MA schools, so I was basing my discussion on MA. We’re not bankrupt… yet.

  12. Outside of San Francisco proper, no Californian really has an urban mindset. I cannot explain it, but, for me, somehow the idea of a toll road provokes revulsion. (I’ve wondered even if that’s why all our forbears really left New Jersey) Paying for parking gets my goat as well.
    I know that traffic causes lots of hidden costs, but I just don’t think Californians are ready to pay to drive. That said, I will say that it was much nicer around here when gas went up to 4.00/gallon, so maybe that’s part of the solution.
    The real problem is that this state has so many well paid public employees, as well as the inability to increase property tax revenue.

  13. Paying congestion fees would increase the price of maintaining the existing roads to match the increase in revenue. You’re just increasing the amount of money chasing the same amount of product. You need to get employers to use those fiber optic cables lying under the roads instead of requiring everyone to warm the seats in Silicon Valley all day.

  14. Every time I see someone talking about how our public schools are not doing well, why our teachers are not up to the task, how much money we are spending, et. al. I have to stop them and ask: how much are you, as a parent, doing for your children? Do you follow up with them everyday when they come back from school? Do you review there homework and spend 1 hours with them to re-enforce what they are learning? Do you make the time to meet with the teachers? et. al.

    Schooling is a service, by the government for the public, but it’s the parent’s responsibility to see that there children are getting the best out of it by being involved rather then waist their time in front of their big-flat-screen-TV..

    The same applies to every other service offered by our government. However, over time, those services have grown to be viewed as expected services with no regards to real cost or self responsibility. That is, we are off-loading our responsibility to others, the government, and we are taking less responsibility onto ourself. Sadly, many see the government as a life time welfare vs. a short term service provider and a law enforcer. In my opinion, this is one key reason why CA, every other state, and the nation is in such budget deficit.

    “And so, my fellow Americans: ask not what your country can do for you-ask what you can do for your country”. John F. Kennedy.

  15. As you saw, freeways have failed in California’s urban centers. To deal with the problems, we’re expanding them, at great cost, and with uncertain consequences. Here in L.A., adding a single lane to the 405 freeway, over a (roughly) ten-mile distance, is projected at around $1 billion. It’s not really clear that adding this lane will reduce congestion, improve travel times, etc.

    How do we solve the problem? I think we need to make driving costly, but it’s not really clear how we can do it. Efforts at raising gasoline taxes have failed, and congestion pricing works only where there are real alternatives to driving. In California, there are few, frankly. In NYC, where there are alternatives, congestion pricing failed anyway.

    As such, I would propose that we tax our time, which seems the only commodity that politicians can tax without too much hue and cry. We should make driving so unbearably slow that any other alternative would be be welcome. We should REMOVE freeway lanes and REPLACE them with light rail. When a commuter stuck for hours in two lanes of southbound 405 traffic sees the many 405 trains whooshing by on their way from Santa Clarita to Long Beach — that’s a commuter who is going to take the train next time. Eventually, I think, the train will become the transport mode of choice.

  16. @Andy- No, I didn’t miss your point that “public schools need to be criticized and they need to be improved,” – -I am disagreeing with it.

    As an example, if you had said, “the war in Viet Nam needs to be criticized and needs to be improved,” I would say no, it needs to be stopped.

    And as far as “You also have stretched my “traditional public high schools HAVE to take everyone: the non-English speakers, the disinterested, the undocumented, etc.” into an attack on foreigners” Really? How? My point isn’t that you were attacking foreigners, but that you were using their forced inclusion as a reason for poor public school performance. (read your own post)

    And now you say “Foreigners” often speak better English than natives and are often much more motivated to learn.” So now that is the problem with public school performance? That they HAVE to take students who are better at English and more motivated than students at charter schools???

  17. @Daniel Taylor – you nailed this one exactly right. It’s flat out -wrong- to tax people for using roadways that they have already paid for and are already being massively taxed (gas taxes, etc) to maintain.

    CA does not have a revenue problem – we have a spending problem. As Phil has written about extensively, special interests own the government and have robbed us blind. Any new money will simply feed the beast and be immediately wasted. Until we deal with the structural issues: out-of-control spending and unsustainable pay packages for unions, we cannot afford to provide any new fodder for state government.

  18. Mike: Congestion pricing is not “taxing people to use roadways”. It is charging people so that they don’t get in someone else’s way and eat up their time. Suppose that the roads were installed for free by a benevolent god. Now suppose that 10 percent of the vehicles are SUVs filled with teenagers going to the mall because they can’t think of another activity to pursue. Traffic would proceed 20 percent faster with this load on the system reduced. Even though nobody had to pay for road construction, it would be well worth the other drivers’ money to pay to get those aimless teenagers off the road and out of their way.

    Everyone else: I’ve deleted all of the discussion about public versus charter schools because it is off-topic. A posting of the form “The public schools in California are so great that they could become a huge source of revenue and here’s how” would be on-topic (and contradict my original post), but nothing like that has emerged.

  19. Oh my. I’ll stay on topic and say a couple of things. In London there is a congestion charge for part of the city center. I would not know how much of the city budget is raised that way but it’s obvious that to implement such scheme you first need to spend money to get a system to 1) enforce the toll and 2) collect it. You also spend money to 3) keep the system running. As you can see ( the money accumulated is not a lot, surely not enough to run the city on. As for congestion the results are not pant wettingly exciting ( The present mayor of London has also scrapped an extension of the area where congestion charges would apply because it was politically contentious. Making people pay for road use might be a reasonable idea, but it’s political suicide.

    Another place where a toll applies is motorways in Italy (not the South though). While digging out the revenue for that scheme ain’t as easy, I *do* doubt that the revenue is massive. What is well known is that the toll boxes cause massive congestion anytime people move around at one (public holidays). A toll scheme that works should ideally not involve any stop to collect fees or whatever advantage of reducing traffic would be made null.

  20. How do you keep congestion pricing from being regressive?

    Two people are driving side-by-side on the road. One is going to his $15/hr job and the next one is earning $150/hr.

    Furthermore, it’s much more likely that the person earning $150/hr has more opportunity to work remotely.

  21. Rob: Charging for the real costs of congestion is regressive, like any other charge. A rich person will find paying for the costs of clogging the highway easier than would a poor person. But note that a rich person can already buy his or her way out of congestion to some extent. The rich person can keep a second car with two seats, e.g., a Ferrari, and use the carpool lanes with only two people on board rather than three. The rich person can hire a sycophant to occupy that second seat. The rich person can pay a big premium for a Prius with a carpool lane sticker.

    Right now everyone is getting a break on the costs that they impose on others by clogging the highways. Eliminating that break and eliminating the congestion would have some benefits for rich and poor alike. Companies would be able to charge lower prices for some products as transportation time and costs fell (keeping a $200,000 truck and professional driver stuck in traffic is expensive).

    Emissions controls are also regressive. Should we eliminate emissions tests and standards because it makes cars more expensive? A rich person doesn’t mind paying a few hundred dollars extra for a car with a catastrophic converter (as they say down south); that extra money is painful for a poor person. A rich person can afford to trade in a car that fails emissions testing. A poor person might be forced off the highway if his car needs a $1000 engine repair to meet emissions standards. Breathing filthy air and dying of lung cancer is a small price to pay to ensure that everyone in the U.S. has equal access to transportation, no?

  22. Given one billion dollars to add one new lane to the 409 freeway in LA, this is yet another reason to reduce immigration, both legal and illegal. If legal immigration was cut back and 1-3+ million illegal aliens were removed from California through employment enforcement and attrition there would be no need for extra freeway lanes and all the other massive costs imposed on native citizens to subsidize our colonization.

    Another desperately needed reform is to make the elite and business classes pay the full costs associated with immigration instead of privatizing profits while socializing costs. These include education, health care, justice system, torts against natives (e.g. when illegals kill them in crime, drunk driving, etc), EITC, all future excess governmental obligations like welfare, etc. Robert Rector of the Heritage Foundation has demonstrated how most of our current immigrants cost natives much more than they contribute.

    California is the quintessential example of how our elites lust for profits and cheap, exploitable labor has dramatically lowered the quality of life for the native citizens.

    It will only get much worse if we don’t change our trajectory.

  23. I think this is kind of an ingenious idea. Why? I live here in the Bay Area and have watched our voters repeatedly approve bridge-toll increases over the past 10 years, to the point where it now costs $4 to cross most area bridges, $6 for Golden Gate (up from $1/2 when I first moved here in 94 and $2/3 as recently as, oh, 2000?).

    If the voters are actually *insisting* they pay more for crumbling bridges that will fail in an earthquake — sunk costs — why wouldn’t they pay for the privileged of driving on highways, generally? The bridge toll is already a defacto driving fee for many trips.

    Bay Area voters are overwhelmingly liberal, particularly as you get close to the “core” roadways going into in SF and Oakland (less so near San Jose/Silicon Valley). The ones in SF and the East Bay have access to California’s best commuter rail system. Many are young and don’t own cars. The older ones up in Marin lack good transit but are so rich and environmental they would scarcely complain.

    A congestion plan would not only drive greater use of public transit, it would — critically — free up highway space for industrial cargo. Oakland/Hayward/San Leandro/Emeryville have lost industrial jobs, some of the last ways for blue collar workers to make good money, because companies can’t ship their goods out, due to highway and railway congestion. So you could get some business support for this.

    However it would still be a tough sell, since the pain would be local yet the money would be dispersed statewide. And good luck selling it in LA to even out the impact.

  24. With congestion pricing for the highways, employers would have an incentive to adjust working hours, invest in video conferencing systems, etc.

    The cost will, for the most part, fall on individuals who will simply bear a new tax with no benefit. The incentive is not tied directly to the desired behavior, and companies can just say “forget it” and cut wages if they’re taxed directly. If individuals are taxed, companies will completely ignore it.

    Compliance costs will be a nightmare. Either reams of forms or expensive GPS trackers employees have to carry in their cars. If the tax isn’t high enough, it won’t cover the cost of the program to generate the tax.

    A better option would be to offer tax incentives to employers who implement telecommuting and flex time. It has low compliance costs, it directly ties the incentive to the desired benefit, and it doesn’t give the CA government more money to blow on wasteful programs.

    California’s budget problems have nothing to do with low tax revenues, and everything to do with billions in waste.

  25. California’s problem began when Enron manipulated energy prices and robbed CA’s 17 billion dollar surplus earned in the dot com boom. When Davis and Bustamante filed a 9 billion dollar lawsuit against Enron to recover the stolen money, Republicans decided to fund a recall. Enter the body builder governor who dropped the Enron lawsuit and cut the vehicle license fee, a move that costs CA 6 billion dollars a year. He also borrowed 15 billion dollars that the state is still paying off.

    California has an incompetent Governor. A state that takes in as much money as CA should not have one of the worst bond ratings in the country. Of course the worse the bond rating, the higher the interest rate and the more money taxpayers must send to Wall St. An accident? I think not.

    Because it takes a 2/3 majority to pass a budget, a number Democrats do not have, a small group of Republican legislators are able to stop the budget process every year and impose their ideology on the majority. They and Arnold will not agree to a budget that does not make deep cuts in education and health care spending. They don’t care if these cuts will have devastating consequences on our standard of life.

    In addition, for every dollar that CA sends to the federal government it receives back only 78 cents in services. In other words, CA is subsidizing the rest of the country.

    The media, however, choose to spin this as a spending problem. They love their Schwartzenidiot. I view Arnold as a disaster much like an earthquake, or a fire. When he is gone, we will rebuild.

Comments are closed.