Traffic Congestion Mitigation Tax
Imposes a tax on rides provided by transportation network companies, private transit services and autonomous vehicles, with a lower tax rate for shared rides and rides in zero-emission vehicles.
What the Measure Would Do
The proposed ordinance would impose a special excise tax1 on the fares charged for rides provided by transportation network companies (TNCs) such as Uber and Lyft, autonomous vehicles and private transit service vehicles like Chariot.
Specifically, the measure would add a 3.25% charge to each individual ride provided by TNCs, private transit vehicles and autonomous vehicles. Shared rides and all rides taken in zero-emission vehicles would be charged 1.5%. Both taxes would only apply to the portions of the ride in San Francisco and would be applied before any other taxes or fees on the fare. For example, an Uber ride from the San Francisco Zoo to Pier 39 would increase by 78 cents as a result of the tax. An Uber Pool ride from the Ferry Building to City Hall would increase by 12 cents as a result of the tax.2 Because Prop. D would be an excise tax, ride-sharing companies would have discretion as to how much of the tax they would pass on to riders. This is different from a sales tax, where the burden is always borne by the end consumer.
The city controller estimates that the tax would generate $30 million to $35 million annually. Half of the revenue would go to the San Francisco Municipal Transportation Agency to fund transportation improvements, including maintaining and expanding the Muni fleet, improving transit frequency and reliability, and increasing access to transit. The other half would go to the San Francisco County Transportation Authority to fund safety-related infrastructural improvements, including mid-block pedestrian crossings, bike lanes and bike boxes, and traffic calming measures. Finally, this measure would also authorize the Board of Supervisors to issue bonds to fund some of these pedestrian and transit projects, paid back by revenue from the tax.
The controller estimates that the combination of the tax and the improved transportation infrastructure would de-incentivize TNC use, or de-incentivize solo TNC use, and therefore decrease traffic congestion. The controller also estimates a $25 million loss in San Francisco’s gross domestic product over 20 years (about $1 million per year) and a reduction of 190 total jobs over 20 years should the measure pass.
The tax would expire on November 5, 2045; however, the 1.5% rate for rides taken in zero-emission vehicles is only fixed until December 31, 2024. As a dedicated tax, Prop. D requires a two-thirds majority to pass.
More than a dozen states and cities have imposed fees or taxes on ride-hailing services or their passengers, sometimes both. The rationale for these fees and taxes includes establishing parity with taxis, covering regulatory costs, sustaining the transportation system by raising money to fund transit infrastructure, addressing the disruptive effects of these services and offsetting the negative effects of congestion caused by these services.
In California, TNC drivers are required to register as a business in the city where they live.3 TNCs fall under the regulatory authority of the California Public Utilities Commission (CPUC) and are currently subject to various fees and charges, which cover the expenses the CPUC incurs regulating them. The fees are paid directly to the CPUC and are not returned to the city where the trip originated. Although these revenues are not reported, the San Francisco County Transportation Authority estimates that the CPUC has netted more than $10 million annually in Uber and Lyft revenue from San Francisco alone.
In 2018, Supervisor Aaron Peskin proposed a ballot measure that would have taxed TNC gross receipts at significantly higher rates. That measure was ultimately withdrawn after negotiations with Uber and Lyft, which produced the compromise Prop. D now on the ballot. The previous iteration of the ordinance was a general tax, which would have directed all revenue into the city’s General Fund; the current ordinance dedicates the funds to transportation operations and infrastructure to mitigate traffic congestion in the city and promote safety.
The Board of Supervisors was authorized to submit the measure to voters after last year’s passage of California Assembly Bill 1184, which explicitly permitted the city to levy the tax in the event of voter approval. Both Uber and Lyft are in support of the proposed measure.
Tax on Zero-Emission Vehicles (ZEVs)
Uber and Lyft have both taken steps to increase the proportion of their drivers using ZEVs. The Union of Concerned Scientists, the Natural Resources Defense Council, the Coalition for Clean Air and the San Francisco League of Conservation Voters were part of the effort to include the lower tax rate for ZEVs. Their arguments for the lower rate included a need to substantially reduce carbon emissions, as recent city resolutions have called for, while simultaneously raising revenue for transit improvements.
Taxing Autonomous Vehicles (AVs)
Currently, no ride-hailing companies provide AV rides in San Francisco. The ordinance has been written to include AVs, however, in an effort to be proactive in mitigating potential congestion when future AV services begin in San Francisco. It is very possible that AVs could encourage not only more trips but longer trips, thereby exacerbating congestion. (There is also a concern that AVs waiting to pick up their next ride will add miles while driving around empty, although Prop. D does not address this.)
Communicating the Tax to Riders
Excise taxes are often “hidden” in the price of a product instead of appearing as a separate line item in the final bill (the way sales taxes do). But communicating the tax matters for changing behavior. If TNCs choose to simply embed the tax in the final price, Prop. D may fall short of its goal to change behavior (though it’s likely to meet its goal to raise revenue).
- The revenue generated by this tax would be dedicated toward public transportation and safety efforts, uses that are complimentary and appropriate for a tax aimed to ease traffic congestion.
- The tax would contribute needed funds toward the city’s estimated $22 billion transportation funding gap over the next 25 years, and the ability to issue bonds would magnify these benefits.
- By raising fares and de-incentivizing TNC trips, this measure could help ease congestion on city streets.
- The lower tax rate for rides in ZEVs and shared rides could incentivize those kinds of rides, reducing both emissions and congestion.
- The tax might be too small to meaningfully shift behavior away from using TNCs.
- The measure offers no framework for mitigating the impact of the tax on those with low incomes.
- When compared to gas-powered vehicles, ZEVs contribute less to climate change but add the same amount to congestion and declining transit ridership and are no less a safety hazard to people who walk and bike. It’s unclear if the benefits of ZEVs merit taxing these vehicles at less than half the amount of traditional TNC vehicles.
- The advent of AVs could create more trips and longer trips, due to the convenience of using AVs and the possibility that AVs could drive around without occupants between rides. From this perspective, a tax on vehicle miles travelled as opposed to fares would be more effective at mitigating congestion.
Prop. D raises a number of concerns for the members of SPUR’s board. The amount of the tax would probably be too small to have a substantial effect on the behavior it aims to change. It was not designed as a progressive tax and would have a disproportionate impact on people with low incomes. And any future adjustments to correct these issues would need to come back to the ballot. However, we recognize that Prop. D could be a valuable revenue-raising tool for needed improvements to transit and to bike and pedestrian safety in San Francisco. As the effects of climate change and congestion both continue to worsen, cities must start thinking about what they will do to reduce driving and encourage other modes of travel. This measure is not the final answer, but it is one step on a path that San Francisco needs to take — a path that cities like Portland, Seattle, Philadelphia and Washington, D.C. are already on. On balance, we believe this compromise measure is a worthwhile first step toward a more ambitious future congestion pricing system in downtown San Francisco.
1 Excise taxes are based on consumption and are levied on specific goods, services and activities. They can be either a per-unit tax (such as the per-gallon tax on gasoline) or a percentage of price (such as the airline ticket tax). Generally, excise taxes are collected from producers or wholesalers and are embedded in the price paid by final consumers. See: Tax Policy Center Briefing Book, https://www.taxpolicycenter.org/briefing-book/what-are-major-federal-excise-taxes-and-how-muchmoney-do-they-raise
2 Source: Average fares from Uber app between 10:36 and 10:48 a.m. on July 17, 2019; 1:30 and 1:34 p.m. and 4:45 and 4:48 p.m. on July 30, 2019.
3 San Francisco filed a lawsuit against the state over this law, arguing that the majority of TNC drivers in San Francisco live elsewhere and that the law hinders the city’s right to regulate its business environment and streets.