Chicago pulls regulatory lever with TNC proposal
Mayor Lori Lightfoot's "congestion tax" promotes transit equity
The city of Chicago is moving towards implementing a new ride-hailing fee structure which would make it one of the more progressive ride-hailing tax regimes in the country. The new fee, which would be tacked onto the existing Ground Transportation Tax (GTT), is being billed as a “congestion tax” by Mayor Lori Lightfoot’s office to reduce congestion in the urban core and to incentivize high occupancy trips.
The free structure is proposed as follows:
General trips (excludes downtown trips):
The total fixed fee on Uber Pool/Lyft Line trips (i.e., “shared rides”) across city neighborhoods would drop from $0.72 to $0.65 (~10 percent decrease)
The total fixed fee on a single-occupied trip across city neighborhoods would increase from $0.72 to $1.25 (~74 percent increase)
Downtown trips:
The total fixed fee on shared rides to/from downtown during peak hours (defined as 6 a.m. to 10 p.m. on weekdays) would increase from $0.72 to $1.25 (~74 percent increase); and
The total fixed fee on a single-occupied to/fro downtown trips during peak hours would increase from $0.72 to $3.00 (~317 percent increase).
City officials estimate that the new fee structure will raise an additional $40 million in revenue. A portion of that new revenue stream will be earmarked for “Bus Priority Zones” program, a joint initiative led by the Chicago Transit Authority (CTA) and the Chicago Department of Transportation (CDOT) which is designed to improve bus travel times and increase reliability on seven high-priority bus routes. The proposal is subject to approval by the Chicago City Council on November 26.
Chicago joins a host of other cities which already moved to impose some type of tax or fee on ride-hailing companies. In many ways, the regulatory state is playing catch-up. For example, in 2018 New York City enacted a tiered fee structure with a $2.75 fee on single-use rides and a $0.75 fee on shared rides. Beginning in 2021, New York City will begin implementation of the country’s largest congestion pricing plan. In February, transportation officials in the city of Los Angeles voted unanimously to conduct a comprehensive analysis of congestion pricing as well as the viability of ride-hailing fees.
Whereas many cities have elected a blunt instrument, imposing a flat-fee across all ride-hailing trips without regard to occupancy, Chicago is following in the steps of NYC by taking a more nuanced approach. In its current form, the plan serves as a sort of hybrid between a more comprehensive congestion pricing plan and a progressive tax scheme. Since the plan separates riders into two buckets - downtown-specific trips and non-downtown trips - the plan ostensibly tackles congestion in the city’s core central business district (the “Loop”). At the same time, the fee structure promotes transit equity by targeting riders who can bear additional tax incidence (Near North Side, downtown, and Near West Loop neighborhoods) while reducing fees for people living in the South and West sides who are more dependent on shared rides.
This is in line with Mayor Lightfoot’s “two-step” approach for mitigating traffic congestion downtown. The first step proposes that the city conduct a comprehensive congestion pricing study. Presumably, some of the money raised via a ride-hail tax could help pay for that analysis. Deploying new, targeted fees on ride-hailing companies fits within the second piece of that plan. At the start of her administration, Mayor Lightfoot’s office conducted a study on Transportation Network Providers (TNPs) and their effects on the traffic congestion in Chicago. The study found that half of all ride-hailing trips citywide begin or end in the downtown area, and nearly a third of those trips both start and end in the downtown area. The proposal is designed to get these types of riders to internalize (via a tax) their externalities (congestion) and instead opt for public transit where feasible.
Back in June, several Chicago-based transportation organizations wrote a letter to the Mayor imploring that any plan distinguish between multi-passenger pooled trips and single passenger rides. The signatories argued that the flat fee represents a much higher percentage tax on pooled rides than on private rides of the same length which disproportionately impacts low-to-middle income riders. On the surface, at least, the Mayor’s proposal looks to have addressed those concerns. As the Chicago-based Center for Neighborhood Technology (CNT) notes:
TNC use data show that the city’s proposed new fee structure, which would reduce the cost of shared rides between neighborhoods and increase the cost of solo trips to and from downtown, is a more equitable structure than the current system. The bulk of the money raised by the TNC fee restructuring will come from people using ride hailing services in transit-rich neighborhoods.
Relying on the city’s TNP data, CNT found that 71% of solo rides begin and end in the North Side, Loop, Near West, and Logan Square neighborhoods. That is, most single-occupied rides are happening in relatively transit-rich and more affluent neighborhoods. Notably, these also happen to be some of the more popular entertainment districts. They are also home to large proportions of young professionals which are shown to demonstrate some of the highest utilization rates.
At the same time, CNT found that 63% of shared rides taken in Chicago start or end on the South and West sides. Meanwhile, close to 50 percent of all trips to the downtown zone originate from just 20 census tracts, all but two of which are themselves in the downtown zone. Areas with higher proportions of shared pickups tend to have both lower median household incomes and higher concentrations of people of color. These are also areas where essential services and amenities are more spread out. We can infer that many of these trips are for essential purposes including accessing food, medical care, and jobs. This would suggest that, contrary to Uber’s scare tactics, people on the South and West sides will not be disproportionately impacted by the new fee structure.
Although the plan promotes transit equity, it fails to address Chicago’s transportation issues at a more systemic level. Of the $40 million of anticipated revenues (again, just an estimate) from the new ride-hailing fees, just $2 million is earmarked for public transit projects. For perspective, the entire CTA budget for FY2019 was $1.5 billion. CTA continues to hemorrhage ridership. Ridership fell 12% between 2012 and 2017, with bus ridership falling more than 20% during that period. In some congested areas downtown, taking a bus is only twice as fast as walking, while some buses approximate the speed of walking. While the Mayor has indicated the city will “up their game” in terms of bus lane enforcement, perhaps a better approach would involve creating a dedicated revenue stream - via a ride-hailing fee - to pay for automated bus lane enforcement cameras. These types of cameras are already being deployed in New York City and pay for themselves over the long-run.