An Assessment of the Expected Impacts of City-Level Parking Cash-Out and Commuter Benefits Ordinances

Chapter 1. Background

The USDOT recognizes the importance of parking pricing and commuter benefits to achieving congestion reduction goals and helping localities to meet driver expectations about parking availability. As part of its effort to reduce congestion and other driving-related externalities, the USDOT FHWA developed Contemporary Approaches to Parking Pricing: A Primer, which discussed innovative parking pricing programs.⁶ The agency subsequently held 11 regional parking pricing and management workshops throughout the country to document and share lessons learned from a number of innovative parking pricing initiatives it had funded. As part of these broader efforts, parking cash-out was identified as a key strategy with the potential to relieve peak-period congestion and reduce parking demand through the reduction of employee vehicle trips. This study analyzes how citywide cash-out and related policies could impact travel behavior and transportation systems.

Parking Cash-Out

Parking cash-out is an option that provides employees with a more balanced set of benefits across all modes of transportation. Employees who choose to give up their employer-provided or employer-subsidized parking benefit are offered a payment that can be used to purchase transit or vanpool services or be kept as taxable cash. Cash-out programs can be offered on a monthly basis, in which employees decide to give up parking for the month, or on a daily basis, in which employees receive a set amount of money for each day that they choose to not drive to work.

The vast majority of employers nationwide provide their employees free parking at work, while only 9 percent of private sector employees are offered other transportation commute benefits (U.S. BLS 2021a). Parking cash-out holds promise to substantially reduce congestion because it applies a value to a commodity that is often perceived as free. Furthermore, both employers and employees can benefit from parking cash-out. Employees who accept a cash-out offer and utilize lower-cost travel modes, such as carpooling, transit, bicycling, or walking, can save the additional cash income or use it for non-travel purposes. Employers can benefit by reducing the expense of purchasing, maintaining, or expanding parking, and parking cash-out can be seen as an employee benefit that supports employee recruitment and retention.

Because, as noted above, employers reduce their parking expenses when their employees who had been driving accept a parking cash-out offer, the policy would on its face appear to be revenue neutral to employers. Changes in benefits, though, can add to employer costs. In the case of parking cash-out, parking benefits taken as a wage increase impose a small payroll tax burden on employers (and employees). Similarly, some employees accepting a cash-out offer may have previously declined a parking benefit prior to cash-out having been offered. In such instances, employers could not use parking cost savings to fund the cash-out payments. However, as employers retain complete control over the level of commuter benefits that they offer, and can change such level at any time of their choosing, they can thus make changes to their programs after a parking cash-out requirement is imposed—such as by levying a very small charge on employee parking—to ensure that their commuter benefits related expenditures do not rise.

California, Rhode Island, and Washington, D.C., have laws that require some employers to offer parking cash-out. In California and Rhode Island, the laws apply to employers with 50 or more employees that subsidize parking and are able to reduce, without penalty, the number of paid parking spaces they maintain. California’s law applies to employers in an air basin designated nonattainment for any State air quality standard (California EPA Air Resources Board, 2021). Rhode Island’s law applies only to employers that are located within one-quarter mile of a Rhode Island public transit service. Unlike California, Rhode Island employers are not required to provide a cash payment, but must instead provide monthly transit passes (Rhode Island, 2014). The District of Columbia’s law applies to employers with 20 or more employees in Washington, D.C., but excludes most companies that own versus lease their parking. Companies that opt not to offer the benefit (in an amount equal to or greater than the monthly market value of the parking benefit) can instead pay a Clean Air Compliance fee of $100 a month for each eligible employee to the District Department of Transportation (DDOT) or create and implement a transportation demand management (TDM) plan certified by DDOT as likely to achieve or speedily move toward achieving an employee drive-alone mode split of 25 percent or less⁷ (Wilson 2022).

Other States use their tax codes to encourage employers to implement parking cash-out programs. Maryland offers a 50 percent tax credit, up to $100 per individual employee per month, to employers that implement parking cash-out programs (MDOT, 2021). The credit covers costs associated with providing the cash-out. In 2022, Colorado’s State legislature passed HB22-1026, the Alternative Transportation Options Tax Credit, which offers a 50 percent refundable income tax credit for employers for expenses incurred when providing alternative transportation options to employees.⁸ The bill defines alternative transportation options as “free or partially subsidized, generally accepted TDM strategies, including but not limited to ridesharing arrangements, provision of ridesharing vans or low-speed conveyances such as human-powered or electric bicycles, shared micromobility options such as bikesharing and electric scooter sharing programs, carsharing programs, and guaranteed ride home programs” (Liston et al., 2022). Delaware, Connecticut, Oregon, and New Jersey offer tax credits to companies that implement TDM programs, which can include parking cash-out (U.S. EPA, 2005).

Employer-Paid Commuter Benefits

As a qualified transportation fringe benefit under the Tax Cuts and Jobs Act, Pub. L. No. 115-97, employers may pay up to $280 per month (as of 2022) for their employees’ transit or vanpool commuting (as is also the case for employee parking expenses⁹) without any payroll tax or employee income tax obligation being incurred¹⁰. Employer-provided transit benefits have been demonstrated to result in an increase in the number of employees using transit. A 2005 Transit Cooperative Research Program analysis of 21 surveys conducted in 12 regions from 1989 to 2004 found that employer-paid transit passes generally increase transit ridership 10 percent or more at participating worksites (ICF and CUTR 2005).

Pre-Tax Commuter Benefits

Rather than pay for employee commute expenses, an employer can allow employees to set aside their own income on a pre-tax basis to pay for qualified transit or vanpool expenses. As with employer-paid commuter benefits, the pre-tax benefit is also limited to $280 (as of 2022) per month for transit and vanpool costs. Employees save money by reducing their transit and vanpool costs by an amount equal to their marginal tax rate, often 15 percent to 35 percent when accounting for State and Federal income taxes and payroll taxes.

Employers that implement these programs save costs on payroll taxes. By reducing out-of-pocket costs for riding transit or vanpools to work, pre-tax commuter benefits can increase the use of these travel modes. Additionally, employers and employees may benefit from transit- or vanpool-based commuting compared to solo driving, as employees are able to use commute time riding these modes more productively. Results from the MWCOGs’ State of the Commute survey (2020) showed that more than half of commuters surveyed who traveled to work via carpool/vanpool or transit (bus and train) performed work-related tasks during their commute. The rate was highest for transit commuters (58 percent) compared to carpoolers/vanpoolers (38 percent). As suggested in the MWCOG report, employers may benefit from additional productive time employees are able to spend during a transit commute, while employees may benefit from having additional time to catch up on work tasks, making actual time spent at the workplace less stressful.

In California, the cities of San Francisco, Richmond, and Berkeley have laws that require employers to offer employees the option to set aside pre-tax dollars for the purchase of transit passes or to pay vanpool expenses. The San Francisco law impacts all businesses, including nonprofit organizations. Employers must offer their employees one of the following: 1) a pre-tax benefit up to $280 per month to pay transit or vanpool expenses, 2) a monthly subsidy for transit or vanpool expenses equivalent to the price of a San Francisco Muni Fast Pass, 3) a company-funded bus or van service to and from the workplace, or 4) any combination of the previous items (San Francisco Department of the Environment, 2022). The Berkeley and Richmond laws apply to employers with 10 or more employees (City of Richmond 2022; City of Berkeley 2022). Further, businesses in the Bay Area with 50 or more employees must offer employees one option between pre-tax transit benefits, subsidized transit or vanpool costs, provision of low-cost transit service, or an alternative benefit suited for reducing SOV commuting (MTC 2021). New York and Washington, D.C., also have pre-tax transit benefit laws, and both apply to employers with 20 or more employees (Huff 2020; NYC Consumer and Worker Protection 2020).

Policy Scenarios Introduction

This report analyzes the impact that city-level parking cash-out, commuter benefit, and related ordinances can have on vehicle travel, as well as congestion, emissions, crashes, and equity. Five core policy scenarios were analyzed for nine cities, with the goal of providing a resource for municipalities considering enacting parking cash-out and related policies. This report provides information that can guide the creation of policies that encourage changes in travel behavior that decrease the incidence of solo driving in urban areas and provides methodologies to help policy makers estimate the likely impact of the congestion reduction strategies that are examined.

The report includes a literature review, which summarizes study results that were used to analyze the five core policy scenarios. This is followed by a discussion of the various scenarios, a description of the methodology used to analyze the scenarios, and a summary of the analysis results.

A Note on Implementation

The analysis presented in this document is, as mentioned, focused on impacts of city-level parking cash-out, commuter benefits, and related ordinances impacting vehicle travel, congestion, emissions, crashes, and equity. This report does not provide strategies for implementation and enforcement related to the modeled scenarios. In recognition of the importance these topics will carry for parties considering implementation, however, Appendix A. Implementation Resources, summarizes some external resources on this topic that may be of interest to some readers.

Peer Review Group

A peer review group consisting of parking practitioners and researchers from government and academic institutions assisted FHWA in developing this study. Individuals were recruited to participate in the group based on their background related to cash-out, their organization’s experience or interest in testing and studying cash-out policies, and their knowledge of data and research applicable to the study. Five meetings were held with the group at key points during the study process in order to obtain input on matters such as what cities to include in the analysis, policy scenarios to analyze, best practices information, data sources, analysis methodology, and the presentation of results. The peer review group included:

• John Attanucci, Massachusetts Institute of Technology
• Lindsay Bayley, Chicago Metropolitan Agency for Planning (CMAP)
• Chris Hagelin, City of Boulder
• Andrea Hamre, Western Transportation Institute
• Donald Shoup, University of California, Los Angeles
• Colleen Stoll, City of Santa Monica
• Don Pickrell, Volpe National Transportation Systems Center
• Todd Litman, Victoria Transport Policy Institute
• Rachel Weinberger, Regional Plan Association
• Adam Millard-Ball, University of California, Los Angeles
• Brett Wood, Wood Solutions Group
• Phil Winters, CUTR
• James Choe, Metropolitan Transportation Commission

These individuals were instrumental to this study; however, FHWA staff was responsible for all final decisions regarding the analysis and the presentation of results. The participation of individuals in the peer review group should not be construed as an endorsement of the study results by those individuals nor their agencies or organizations.