Automobile Costs and Subsidy (A critique of Stanley Hart's

writing)

by David S. Lawyer mailto:dave@lafn.org More transportation articles by David S.Lawyer

Written 1984. Minor wording changes May 1989, June 1998. Oct. 2003 (converted to html, added abstract)
This article, sharply criticizes and disagrees with the paper by Stanley Hart: "An Assessment of the Municipal Cost of Automobile Usage". Mr Hart has grossly overestimated both the costs of automobile transportation and the subsidies provided to automobile transportation by the government. Thus Mr. Hart's justification of a proposed massive modal shift to public transportation is based on false premises.

1. Introduction

2. Local Government Cost and Subsidy

3. Is Subsidy Really Subsidy?

4. Land Rent

5. Conclusions


1. Introduction

This is a critique of a talk (and printed article) entitled "An Assessment of the Municipal Cost of Automobile Usage" presented by Stanley Hart (Stan Hart) on Nov. 30, 1984 at the ITS (Institute of Transportation Studies) Colloquia at the University of California at Irvine. See http://www.flora.org/afo/cc3.html His article is a case study of costs to the City of Pasadena and their economic implications for the U. S.

For the City of Pasadena, California, Mr. Hart has analyzed costs to the city government which are (supposedly) attributable to the automobile (such as police costs, road maintenance, and street lighting). After deducting user charges paid by the motorist to the city, he obtains the alleged subsidy to the automobile by the city. Based on this data he then estimates subsidy for the entire U.S. He also estimates auto costs for the U.S. and speculates on the economic impacts of these costs and subsidies.

Unfortunately, it appears that both costs and subsidies have been significantly overestimated. This has led to an overstatement of their adverse economic impacts. The implication by Mr. Hart is that massive modal shifts to public transit would greatly reduce these costs and impacts.

The question of automobile costs and subsidies is indeed a significant one, especially if externalities such as air pollution, depletion of non-renewable fuel resources, and time costs to auto users for both trips and auto maintenance are included. However, these externalities are not considered in Mr. Hart's article summary. In order to evaluate the impacts of costs and subsidies, one should also know the costs and subsidies to other competing modes of passenger transportation (mainly bus and rail) as well as compare their level of service. It is my opinion that the alternative (public transit) modes are no less costly than the automobile, especially if one considers the disutility of time spent waiting for public transit. Thus the problem is not the particular mode chosen by most people (the automobile) but transportation itself. Very significant savings can be obtained by reducing the need (and amount) of passenger travel but this complex alternative was not mentioned in the talk or printed summary.

It is commonly accepted that auto passenger transportation consists of about 11% of the Gross National Product (GNP) of the U.S. (see the annual "Transportation in America" by Transportation Policy Associates, Wash. D.C.). This is certainly a large figure but Mr. Hart claims that the total "resources used by the automotive sector" are about 25% of the GNP (and this does not include the externalities mentioned above). In response to my verbal question, Mr. Hart explained that this figure includes trucking costs, but since the context of his printed summary only talks about the automobile, most people reading it will interpret the "automotive sector" as the automobile sector. Since truck transportation is about 6% of GNP (see Transportation in America, op cit) it is not insignificant. Mr. Hart estimates the subsidy by local government (both city and county) to the motorist is about 2% of GNP but this critique will show that it is probably under 1/2 % of GNP. It is also claimed that the unpaid land rent for the use of road and parking space by the motorist is "as much as 5 to 7% of GNP". This will be challenged.

2. Local Government Cost and Subsidy

Mr. Hart estimated motorist-related expenses for the City of Pasadena between 1965 and 1983. He included "police, fire, and paramedic services, road construction, maintenance and repair, traffic signals, traffic engineering, drainage, street lights and street trees, and parking facilities". He did this by estimating the percentage of each city-provided service used by the automobile. For example, he estimated that half the cost of street lights and street trees are for the benefit of motorists, but this is open to question. Since autos have their own lights they do not really need street lights. He also estimated that 45% of police department costs serve the automobile although a very crude estimate for the City of Santa Ana obtained by me over the telephone resulted in an estimate of only 25%. Much remains to be done in verifying his estimates including checking them for cities other than Pasadena.

According to Mr. Hart, the auto-related city expenses not paid for by the motorist (subsidy) amount to about $12 million for 1980 (see Fig.3 of his Summary). Now by consulting population tables one finds that in 1980 the U.S. population was 1876 times the population of Pasadena and that the U.S. had 1753 times as many households. Thus to convert Pasadena figures to obtain a national estimate one may multiply by about 1800. Making this multiplication and then dividing it by the 2.63 trillion GNP for the U.S. in 1980 results in a subsidy of 0.82% of GNP, not 2% as claimed by Mr. Hart. Note that two questionable assumptions are involved in obtaining the 0.82% figure: 1. That Mr. Hart's calculations are correct for Pasadena (They are possibly too high.). 2. That the average person in the U.S. has roughly the same level (and cost) of city-furnished auto-related services as does Pasadena (Pasadena may have higher than average per-capita costs.).

How does Mr. Hart obtain a 2% figure when it should be about 0.82% ? Mr. Hart claimed that he doubled the City of Pasadena costs to roughly estimate county costs. This is obvious double counting. Residents of Pasadena make relatively little use of county-provided auto related services. One might accept a small increase of the Pasadena costs to account for this but certainly not a doubling. This double counting only explains part of the apparent error in Mr. Hart's 2% figure.

There is another way to obtain estimates for local government subsidy to the automobile. One may simply use statistics compiled for the entire U.S. as found in the U.S. Dept. of Commerce's annual: "Statistical Abstracts of the United States". In the section on "State and Local Government Finances ..." one may for example obtain the sum of city and county police costs and then assume a certain percent of this amount is auto related (see the table "City Government - Summary of Finances", and similarly for county government). Fire department costs may be obtained from the same tables.

The calculation of the subsidy for road construction and maintenance costs is much easier to determine. Using the table in the "Transportation - Land section" of the Abstracts one may read the subsidy directly from the table: "Receipts and Disbursements for Highways, by Type". The subsidy is labeled "Other taxes and fees".

For 1980, about $11 billion (or about 1/4) of road costs were obtained from non-user taxes and fees. If one assumes (using Mr. Hart's figures) that 45% of police costs are auto-related and that 17% of fire department cost are also auto-related, then the subsidy increases by about $5 1/2 billion. The total amounts to almost 2/3% of GNP. This is probably too high. What is significant is that it is not too far away from the 0.82% figure which can be derived from Mr. Hart's calculations if double counting etc. is eliminated. If I were forced to guess the true figure, I would guess 1/2% of GNP. This is a subsidy equal to about 5% of automobile costs. However, it is not at all clear that this is really subsidy to the automobile.

3. Is Subsidy Really Subsidy?

Is what has been called subsidy above really subsidy? There is no definite answer to this question. Local streets have traditionally been paid for by local non-user taxes long before automobiles existed. One justification for this is alleged to be that land is of almost no utility unless there is access to it and that local roads are required for access. Even though one doesn't use an automobile, access is still needed to maintain the property (deliver heavy furniture and appliances etc.) and also to construct buildings on the property.

An FHA report (see "Final Report of the Federal Highway Cost Allocation Study", U.S. DOT, FHA, 1982. p.I-5 and Appendix F) estimates that if non-users are to pay for access costs, they should pay nearly 39% of road costs while they actually only pay about 25%. If one accepts these estimates, then the subsidy for road cost is flowing in the reverse direction: from the motorist to the non-user. The same report estimates that even if road users are assigned such access road cost, the non-users should still pay about 7% of road costs due to their benefits obtained from such items as street lighting, sidewalks, storm drains, etc.

Another point of view would argue as follows: Users of local residential streets should be charged full user charges but since the gasoline tax is insufficient to cover these costs (due to low usage of such streets), the shortfall should be made up for by property taxes. Thus property tax revenues are supposedly only a temporary expedient until the practical technology is developed to charge motorists differential user charges (on different roads). On low traffic roads (such as in residential neighborhoods) motorists would pay higher usage fees (replacing taxes on gasoline).

Another problem is that of separation of automobile and truck costs. Neither Mr. Hart nor I have done this. It is often claimed that heavy trucks do the lion's share of damage to highways and are in part subsidized by automobiles. How much this amounts to is a debatable point, but even more difficult is the problem of allocating "residual" road costs between autos and trucks. "Residual" costs are the costs which the auto and truck share and are not attributable to the truck alone (for example the costs of excavation of earth when building the road, the costs for the thickness of pavement needed to only support automobiles, etc.)

The method used for allocating these so called "residual" costs by the above mentioned FHA Cost Allocation Study is to charge the same for an auto-mile as for a truck-mile. This is probably biased in favor of trucks. The above biased study then reports that only roughly 10% of auto user charges go to pay for road costs due to trucks (see p.I-13) but the actual amount is likely higher.

Now we will consider non-road costs such as police and fire department costs. Does the entire amount spent for auto-related police costs really represent a subsidy? Consider for example, the case of a Mr. Auto who drives 2 hours each day and Mr. NonAuto who never uses an automobile. If one assumes that these two persons use about the same amount of services provided by local government in the 22 hours per day in which neither uses an auto, then Mr. NonAuto has two additional hours per day to avail himself of police (or other local government services). For example, Mr. NonAuto may spend part of this two hour period walking down the sidewalk which is kept (hopefully) safe by the police. The sidewalk may be kept clean and free from plant overgrowth (or fallen branches) by other government agencies directly or indirectly (by requiring property owners to do it). Thus the amount of subsidy to the police for auto-related services should not be the total cost of such services but only the costs due to the activity of motoring requiring an above average amount of cost to the government as compared with other activities

For the case of fire department services one should note that Mr. Hart reports that in Pasadena, 17% of fire department responses are for automobile fires. He the assigns 17% of fire department costs to the auto. One should question if the cost of a response to an auto fire is actually as costly as a response to a typical fire. Another point is that since the existence of auto fires probably would not be sufficient justification to maintain a fire department, perhaps the fire department should be only charged the marginal cost of such auto fire responses. This marginal cost would be considerably less than the average cost. Another question is: Is it really necessary for the fire department to put out such fires or would it be more efficient for the police (or any person nearby with access to a fire extinguisher or garden hose (unless gasoline is burning)) to attempt to put them out? Since gasoline burns very rapidly, time is of the essence in extinguishing such a blaze and it may well have done most of the damage that it is going to do before the fire department can arrive on the scene. Thus, instead of subsidy, one might characterize part of these auto fire costs as charges paid by the taxpayer for unneeded services.

Much of the cost of police, fire and ambulance services relates to auto accidents. A large percentage of these accidents are due to drunk driving or to driving while under the influence of other drugs (both illegal and legal). One may argue that the costs of these accidents should be allocated to the alcoholic beverage and drug industries rather than to the automobile.

4. Land Rent

Should the motorist be charged land rent for his use of roads and parking lots? Mr. Hart claims that "the unreimbursed use of real estate may contribute as much as 5 to 7% of GNP." This is referring to land rents and there are various ways to debate this contention. In the world literature on the land rent question (including Marxist and leftist writings) there are various points of view. There seems to be a lack of dialogue on the question since the leftist economic journals are apparently not read much by more conventional economists who might disagree with the various leftist points of view. The land rent question raised by Mr. Hart. is a normative one (i.e. What should land rent be?) and most economists in the United States deal only with positive (as opposed to normative) economics.

A basic question is: Does land have any utility? If "utility" means per capita utility then perhaps additional land has little or no utility. The reason is that the additional land available engenders an equivalent amount of population growth so that the resulting population density remains unchanged. If the world were twice as large it would likely contain about twice as many people and perhaps have even more problems of conflict per capita than the existing world does. While primitive populations expanded to fill all available land until famine or pestilence held their numbers in check, an analogous situation may exist for modern man. As population and crowding increases, people and/or governments of contemporary nations tend to take action to limit population growth. They may restrict immigration (which tends to reduce birth rates in the source regions of immigration) and/or sponsor birth control programs (Mainland China, for example). Due to a scarcity of low cost housing, people tend to have less children. Thus making auto-space available for other uses has the adverse impact of engendering population growth. In the extreme case, this would result in no increase in per capita utility.

Classical economists such as Ricardo and Marx wrote about the land rent situation but they dealt almost entirely with agricultural land and not with urban land. Since urban land today sells for much higher prices than rural land, the question of rents for auto-space relates mainly to urban land. In the past decade the question of urban land rents has been reexamined [see Bandyopadhyay P., "Marxist Urban Analysis and the Economic Theory of Rent", Science & Society, 46:162-96, Summer l982] but the question is still far from being clearly understood. The leftist normative viewpoint is that land rents represent unjustified and unearned income even though land is almost universally recognized as a factor of production. The non-leftist point of view is hard to find in the scholarly literature since most conventional economists avoid the question of what land rents ought to be by confining themselves only to "positive" economics. If charging land rents are unjustified (as some claim it to be) should the government also charge them to its citizens?

Urban land represent somewhat of a monopoly. Each parcel of land is somewhat different than the others. Certain locations (for example, car rental facilities at airports) have definite locational advantages for certain activities and monopoly rents may be exacted. A firm that owns a large amount of contiguous land may also charge monopoly rents for its use (for example a shopping center or the Irvine Co.). These monopoly rents are often considerably higher than any possible intrinsic land rent value. Zoning laws also contribute to the monopoly aspect of land rents by restricting the use of land, even where land ownership is widely dispersed.

Land rent in the U.S. is not directly a part of GNP. The land rent charged for rental of a residence represents a transfer payment and does not enter GNP statistics. Land rent for firms is included indirectly in GNP inasmuch as it increases the price of the goods and/or services produced by the firm. If auto-space were used for other purposes, it is hard to see how such a change in land use could increase GNP (the output of goods and services) by anywhere near 5 to 7%

One may claim that much of auto-space represents open space in cities and this social benefit would be lost if it were built upon. Of course converting it to a park would provide an even higher quality of open space.

There is also the access argument. Property is of little or no value without access to it and some of the road space is necessary for this access. This road space value is allocated to the value of the property which it serves so that it would be double charging to exact land rent for it. Even without the automobile, access would still be required to deliver construction materials to build a building, to deliver furniture and appliances, etc.

Throughout most of history, primitive people never paid land rent. Even in Russia, long before the revolution, the village "Mir" periodically reallocated land to those who supposedly needed it. Today in all sectors of socialist economies and in the government sector of capitalist countries, land rent is seldom charged. In the U.S. today many persons pay land rent to landlords, but the landlords are not elected by their tenants as the government is elected by the road users. If tenants elected landlords they would likely elect those who would not charge them any land rent. Thus as a practical matter, motorists will probably not permit their government to exact land rents from them.

The point that auto-space may have some utility in alternate uses is a point well taken but the figure of 5 to 7% of GNP seems far too high. Much more study is needed on this question in particular and the land rent question in general.

5. Conclusions

Since Mr. Hart has, in my opinion, greatly overestimated the amount of subsidy given to the automobile, the conclusions (regarding economic impacts) based on this faulty premise are likewise doubtful. Subsidy made only a small contribution to the demise of the ubiquitous mass transit in American cities. The major reasons for this demise was the superior and more flexible level of service provided by the automobile coupled with income levels high enough to afford one. A less significant reason was the inefficient operation of streetcars by two or more men instead of one and the failure to give them priority at traffic signals. Certainly the snob appeal aspect (keeping up with the Jones) was also important as Mr. Hart points out ("hedonistic self-satisfaction" he calls it).

Mr. Hart claims that the automobile "is more costly than similar rides on the high capacity public transit commonly found in less automobile-dependent societies." Such low cost are not possible for busses in the U.S. due to the high labor costs which result from a high standard of living. Low costs may be possible for rail transit which is already in place, but new construction is terribly expensive. In poorer countries, mass transit is more feasible due both to the low cost of labor and to the low rate of automobile ownership.

What should be concluded is that the amount of passenger travel in the U.S. is very costly, and is generally recognized as constituting a whopping 11-12% of GNP. Great savings are possible by reducing the amount of travel and these savings could be used for various worthwhile purposes including greater savings and additional leisure time. Unfortunately, this is not the topic of Mr. Hart's report and it is too vast of a topic to even begin to discuss here.