The case for levying a road user fee on ride-hailing companies.
Like parents with different ideas for how to deal with a gifted but willful child, cities around the world continue to struggle to accommodate Uber in their midst.
London’s recent smackdown preserved, for the time being, the hegemony of the black taxicab—and emboldened other blockades of all ride-hailing services, in the Netherlands and France. In Buenos Aires, Argentina, Uber is available only for those willing to work hard to find it (and customers can’t charge rides to their credit cards). Brazil threatened to establish tough national guidelines on ride-hailing services, before softening the stance earlier this month with lighter new regulations.
But there’s another way, and it could change how cities do business: having the company pay for the use of city streets.
The policy journey of São Paulo, Brazil, a vast metropolitan region of 20 million people, has been telling. The city council initially banned all ride-hailing services via apps, spurred on by allies of the taxi industry. Other parties, recognizing the inevitable popularity of Uber as well as two more homegrown companies, 99 and Easy Taxi, pushed back. The compromise allows the companies to operate, but charges them for the use of streets per mile. A sliding scale was established—more if in the city center during peak hours with only one passenger; less for more passengers, cars in underserved areas, electric vehicles, women drivers, and accessible vehicles. A standing committee meets regularly on whether the charge needs to be modified. In the process, the city gets some raw data that can help with mobility policy.
The charges—for the privilege of using a public asset, the roadways, for commercial purposes—are estimated to bring in $50 million per year. Nearly a year after the policy was set, the experiment is going well, said Ciro Biderman, who recently left his position as chief innovation officer for São Paulo, where he led the design and rollout of the charges on transportation network companies.
The policy is interesting for reasons beyond the money. Few cities even think to charge for the use of streets built with taxpayer dollars, though streets can be between one-quarter and one-third—conservatively—of the urban public realm. In the U.S., charges for the use of streets typically come in slightly sideways—the gas tax, for example, plus licensing fees, tolls, and parking. Congestion pricing—charging drivers for vehicles in the city center—has been successfully instituted in London and Singapore, and New York City is said to be mulling another try; lawmakers have proposed a system of electronic tolling for Boston’s roadways as well.
But the notion that users should pay for the roads they use isn’t as novel as it may appear: It’s a form of “Vickrey taxation,” named for the economist and Nobel laureate William Vickrey (1914-1996). “In no other major area,” he observed in 1963, “are pricing practices so irrational, so out of date, and so conducive to waste as in urban transportation.”
Vickrey, influenced by the 19th-century political economist Henry George, argued that cities should pay more attention to the details of the use of roads and other services—the mode of transportation, for example, or the time of day, such as rush hour—and charge accordingly. The approach also echoes the work of Elinor Ostrom, who became the only woman to win the Nobel Prize in economics in 2009. Ostrom hypothesized that humans could act collectively to overcome the “tragedy of the commons”—the overuse or exploitation of a publicly available resource, whether a farm field or fisheries, by self-interested individuals or groups.
São Paulo is an example of how a commons tragedy can be averted through a policy intervention. The commons is the public space of the roadways, and congestion is the result of its overuse. Think of Uber as too many grass-munching cows, or a fleet of fishing boats going after the last cod.
Looking at the world this way raises some interesting practical questions. Should a city, for example, charge all commercial vehicles on urban roads—and make certain heavy vehicles, like armored cars or private buses, pay more? Is the tracking required for congestion-pricing schemes so intrusive that it violates privacy? Are municipalities still under-charging for metered parking, and are all those parking tickets draped on FedEx and UPS delivery trucks a form of charging for the use of streets, too?
But the underlying concept—charging for the use of public assets that have been given away virtually for free—may be part of larger paradigm shift, as cities all over the world re-assess how they interact with the private sector. It’s no coincidence that São Paulo for many years has also been experimenting with land value capture, also known as land value recovery—collecting revenue for infrastructure and amenities from landowners and developers, based on how much those public works enhance real-estate values. More than $1 billion has been generated in the urban development zones of Faria Lima, which has been plowed back into parks, sidewalks, and upgrades for informal settlements. This kind of land-based financing—also inspired by the theories of Henry George—is a recognition that landowners and developers reap great benefits, in the form of increased land value, as a result of public investment in infrastructure, or from other government actions, such as a zoning change.
In terms of Uber and other ride-hailing services, the São Paulo approach is being replicated. Recently, the city of Curitiba adopted a similar policy. There, what’s called a “public price” is assessed for all infrastructure used by private companies. The price varies according to the distance of the trip. Payments come in monthly, and it’s the only way private companies can legally operate in the city.
American cities have been more free-market oriented, though many have begun to regulate ride-hailing services, or have given taxis a logistical edge, for example, at airports. See also: Chicago’s new tax on ride-hailing companies, which is used to help fund public transit. The most progressive cities could rewrite the narrative to keep up with the times. Arguably, the decades-old taxi medallion is a form of charging for the privilege of making money using the city’s infrastructure.
Just to make sure things stay interesting, any transportation pricing schemes will have to take into account automated and autonomous vehicles in the future, and other technology-enabled transit arrangements the future may hold. All told, cities across the globe seem to be on the verge of a dramatic rethinking of urban transportation systems and how they are paid for. They are going to have to be more efficient, innovative, and nimble.
The new coins of the realm are algorithms, artificial intelligence, and hand-held computers. But as technology and the sharing economy utterly transform the 21st century city, planners and policymakers can look for help from big thinkers of the past. Henry George and William Vickrey might not have seen Uber coming, but their principles provide a pretty good foundation for running a more equitable city.