Philly Should Copy Pittsburgh’s 40% Parking Tax

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Pittsburgh has a less developed pubic transportation system than Philadelphia and lower population density, but they have a parking tax that, at 40%, is twice as high as Philly’s 20% tax.

Pittsburgh’s parking tax is the highest in the nation, and was even 50% at one point. This, along with the legacy of the land value tax in Pittsburgh, is one reason why Pittsburgh doesn’t look like Detroit, with 40% of its developable land in the city devoted to storing idle vehicles rather than productive economic activity.

Econsult did a study for the Philadelphia Parking Association industry group in which they say pretty directly that parking uses hurt the city tax base:

Because parking facilities are less intensely developed than other uses, and generate less revenue per square foot, but pay taxes on the same land value as other uses, property taxes will usually be greater for parking uses than other uses as well.

The second half of this sentence is word salad. If parking uses generate less revenue per square foot, then parking uses give the city less tax money. Yes they pay taxes on the same land value as other uses, but land value is extremely low in Philly’s property tax mix, creating preferential status for vacant land. I looked at the property tax yield from one intersection in Bella Vista and this is exactly what I found. A property that’s mostly surface parking pays very little in taxes, and a more developed property contributes more.

This is why lowering the parking tax should be off the table in this round of Philadelphia business tax reform.

The shift from the net-income tax to the gross-receipts tax is a good idea, and more generally the city should be looking to shift taxes off of workers and legitimate investors, and onto landlords and speculators, polluters, and exceptionally big spenders. Bill Green’s bill is a step in the right direction, but the parking tax cut has to go.

Don’t be fooled: a parking tax cut is not going to be passed along to motorists, and neither is a parking tax increase. Econsult is very clear about this. Parking companies cannot pass the tax increase along to motorists, they just eat the whole thing. It comes directly out of profits, like a land value tax:

In the short run, a change in the parking tax has no impact on the parking rates paid by the consumer. Consequently, the parking facility operator pays the entire amount of a parking tax increase. Parking facility operators face the same short run problem every day – how to maximize revenue. In other words, parking operators are already charging as much as they can and the price consumers pay is determined by the number of spaces and the demand for parking, not by the level of taxes. The level of taxation and the other costs of operating a facility do not affect the price charged or the number of spaces available unless the costs are so great that the operator shuts down the facility.

This is also an effective way to cut auto dependence in the city. Econsult found that at a 20% tax rate, building new parking facilities is prohibitively expensive (at the current level of demand). Parking companies pay about 20% of their revenue in taxes and can’t afford to expand and build new facilities:

As indicated in Table 2, all measures show that the parking tax, especially the elevated parking tax, harms the potential for future development of parking facilities.
• With a 15 percent parking tax, only the above ground garage is profitable to construct. With a 20
percent tax, none of the facilities is profitable to construct. The increase in the parking tax
decreases profitability by between $0.7m and $2.9m.3
• The parking tax increase decreases the IRR by between 3.9 percent and 6.4 percent.
• The increase in tax decreases the amount a developer can afford to pay for land by between
$0.6m and $2.9m. If parking is the highest and best use for the land, the increase in tax leads to a
decrease in the value of the land.

If your political goal is to increase the share of commuters moving to Philadelphia and walking or biking to work, then this would be good news. Then we really don’t want to see the tax drop below 20%, because it would enable parking companies to gobble up more prime land.

Car ownership in Philly has been shrinking, which is good for our economy and environment, and we should keep pushing things in that direction. Rather than cut the parking tax, we should be copying Pittsburgh’s 40% parking tax rate, and using the money to restore education cuts, or if it must be revenue neutral, lower some other regressive taxes like the sales tax.

This entry was posted in Economy, Land Use.