This article was submitted on behalf of professors Mark Fichman and Stephen Spear of Carnegie Mellon University’s Tepper School of Business, professor Robert Hampshire of CMU’s Heinz School of Public Policy & Management and Tayo Fabusuyi, adjunct faculty member at both the Heinz and Tepper schools.
Over the past 18 months, two of us, Mark Fichman and Stephen Spear, have been conducting a pilot study of “performance parking” around the campus of Carnegie Mellon University. With the assistance of the Pittsburgh Parking Authority and the oversight of Pittsburgh City Council, we have adjusted prices so you can almost always find a place to park. You no longer have to circle the block or double park and wait to get a space.
But this approach has resulted not only in improved parking performance, it also has generated higher parking revenues while lowering average parking costs.
That was not a string of typos in the last sentence! We are in fact generating higher overall revenues from parking with lower average rates.
Here’s how it works …
Using data from the new parking kiosks installed last year by the parking authority, we have fine-tuned prices monthly to reflect demand. We used a set of rules based on other cities’ parking experiences, along with mathematical analyses of those experiences, to guide our pricing decisions. If a street’s parking spaces were on average less than 60 percent full, we reduced the parking rate. If spaces were more than 85 percent to 90 percent occupied, the price was raised to reduce demand to approximately 80 percent of capacity.
When we started the pilot in January 2013, parking rates set by city council were $2 per hour on all streets around CMU, with no distinction between high-demand and low-demand parking locations. We have lowered prices on some blocks to as low as 50 cents in the summer when demand is low and as high as $2.25 when demand is high.
We consistently find that a significant number of spaces (about 80 percent this month) are priced at less than the $2 rate that was in force before the pilot study started. Yet we also are finding new revenues for the city by allowing prices to vary based on demand on a street-by-street basis.
Here is an example …
On Frew Street, a relatively high-demand area, rates were usually $1.75 or $2 per hour. However, we discovered that the 5000 block of Frew Street had far lower demand, since it requires hiking up a hill to get requires hiking up a hill to get back to one’s car from most parts of campus.
In October 2013, this block had a rate of $2. It generated $1,388 in revenue, an amount equivalent to 617 parking hours, or approximately 15 percent occupancy. We lowered the price to $1. In February 2014, the first comparable month since CMU is closed for most of January, the block generated 2,150 hours of parking with revenues of $2,150. This is an occupancy rate of almost 60 percent.
Occupancy grew by 350 percent and revenues increased by about 54 percent. By April of this year, enough people had discovered the cheaper rates on the 5000 block of Frew Street that occupancy rose to 83 percent, and we recently raised the rate from $1 to $1.25 — still less than the original $2.
Over the last year we have found that this pricing method has led to lower average prices and higher average occupancy with consistent space availability and higher revenue. The 5000 block of Frew Street is now generating $500 to $700 more per month, or about $6,000 more per year for the city compared to the revenue obtained before the study. The overall pilot has increased monthly parking revenues by about 19 percent.
A similar performance-parking approach has been implemented in San Francisco where one of us, Robert Hampshire, serves on the advisory board and worked on the evaluation of the program’s impact. We feel very confident in saying that such performance parking could and should be implemented throughout the city of Pittsburgh.
We expect that in many parts of the city where demand for parking is low, rates would be reduced. In other parts of the city where demand is very high, parking rates would rise. We would expect parking revenues to increase, supply and demand to be better matched and business and residential areas to be better served by the parking resources around them.
The value added by this pricing approach could be significant if extended not only to all on-street parking spaces but also to publicly owned off-street parking. A recent study carried out by Tayo Fabusuyi and Mr. Hampshire revealed that only 13 percent of all publicly accessible parking spots are on streets. For performance parking to deliver on the benefits of increased revenue for the city and a more effective parking system for patrons, both on-street and off-street parking rates should be allowed to vary based on demand.
One way to implement this approach would be for city council to allow the parking authority to set rates based on analyses similar to our pilot study. City council could set up an oversight subcommittee and the authority could have an expert advisory group to help it implement the policy. The authority would need to maintain analytic capability to manage parking rates, which we would be happy to assist with.
We think our recommendation could have a significant impact on the city’s financial condition. With the city continuing to try to put its financial house in order, the Act 47 Amended Recovery Plan report of May 30 called for higher parking-meter rates to produce more revenue for the city. That means we can expect higher parking rates. The question is how best to implement them.
We think our approach to performance parking would help the city attain (and possibly exceed) the Act 47 plan’s revenue projections with less disruption and more sensitivity to variation in supply and demand than would result from an across-the-board increase. Just ask those who can now find parking spaces around CMU — and are even willing to park on the 5000 block of Frew Street!