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Fun With Parking Numbers Downtown: Actual Costs vs Opportunity Costs

Posted on 3 April 2012

***CORRECTION: This post incorrectly assumes that ‘uncollected debt’ has never been counted as revenue by the city, whereas in reality it has previously been calculated as profit and therefore must be taken out later as a loss. Originally, I added those corrections to this post so it would be seen. Those corrections are now struck out, and a more detailed version of the corrections are available here. Otherwise, I have preserved this post in its original form**)

Note: This post should be taken with a grain of salt, because I don’t have it verified by anyone. It’s just my read of some of the numbers. Corrections, to my math or my grasp of economics, are encouraged. Read carefully and if you see errors, please let me know– information at the bottom of the post.

I’m delving a bit further into the staff report to Prince George mayor and council regarding the on-street parking pilot project (you can, too– it’s right here). For the last two years parking downtown has been free for up to two hours, after which you get a fine for overstaying. At the last council meeting, Prince George councilors voted to return to a system where everyone parking downtown has to pay an upfront fee, such as parking metres.

One of the primary reasons councilors cited for this move was the costs. The report compares revenues and expenses for each year from 2007 to 2011 but notes “[t]he best comparison of revenue and expenses of Pay Parking versus Free Parking occurs when the 2007 figures are compared with the 2011 figures, as these figure are likely most representative of the true revenues and costs of each respective system”

So we can look to 2007 (paid parking)and see downtown parking generated $80,054.  We then look to 2011 (free parking) and see a net loss of $81,193. On the surface, pay parking downtown makes the city close to $80,000 a year, free parking costs it $80,000 a year. Council members definitely read it this way.

Brian Skakun:

“This is not free parking. It’s costing the city.”

Cameron Stolz:

“By switching to free parking it cost the city between $160,000 to $190,000.”

But here’s where my first-year economics courses come in handy. There’s two types of costs being talked about here- actual costs and opportunity costs. “Actual costs” refer to real costs– ie actual money spent on something. And then there’s “opportunity costs”– which refers not to actual money spent, but benefits that are sacrificed when you choose one option over another. Take a look at the revenue and expense table used here.

In the “expenses” column of the free vs paid parking downtown there are two items: labour and benefits, and bad debt. Labour and benefits refers to actual costs. Real money is spent on having city staff walk around downtown, monitor parking, and hand out tickets. This is money the city has and could spend elsewhere, but needs to spend on having staff ticket people. Bad debt refers to tickets that have been issued but not paid. This is not money the city had and then spent. Instead, it is money the city could have but doesn’t because people aren’t paying their tickets. I would argue that this is an opportunity cost, rather than an actual cost.

So let’s get rid of money that never falls into city hands and talk only about real money. This would be the money that the city spends on downtown parking, and the money that the city makes from downtown parking. People who don’t pay their tickets are not a real cost, but an opportunity cost, and so are not factored in here.

After doing this, the net revenue of downtown parking in 2007 rises from $80,054 to $139,011 ($80,054 + $58,967). But perhaps more significantly, the net revenue of the downtown parking program in 2011 changes from a loss of $81,193 to a profit of $23,232 ([-$81,193] + $104,425). Free parking is still not generating as much money as paid parking, but it’s no longer costing the city money– at least not real money, just money that it could be making that it isn’t otherwise. When Brian Skakun says “it’s costing the city,” he doesn’t mean the city is spending more money on parking enforcement than it’s generating from tickets, he means the city isn’t making as much money as it could be. When Cameron Stolz says free parking cost the city up to $190,000, he means there’s up to $190,000 the city could be making that it isn’t, not that free parking actually forced the city to spend $190,000 extra dollars.1 When you start putting things in those terms, you can say that by not charging people an extra dollar a year to live here, it costs the city $80,000 annually or that it costs the city money not to have toll roads.

There’s a lot of other factors at play when it comes to charging for parking. Is there a shortage of parking spots downtown that needs to be managed somehow? Are there too many cars driving through the city core and pay parking is a way to encourage biking and transit? Any of these can be legitimate reasons to introduce pay parking. Heck, simply looking for a way to generate more money for the city is legitimate, as long as you’re willing to go ahead and say that’s what you’re doing.

But I wonder if the conversation shifts from “free parking downtown is costing the city money” to “we’re already making money off of downtown parking through ticketing people who stay for more than two hours, but we’d like to make more money by charging everyone who parks there for any length of time” if we’d see a change of heart.

For a full correction, see here.

EDIT(April 4):  In the comments, KrisB adds the following insight:

 

“I think you’re missing something by taking out the “bad debts”.

The “cost” of bad debts (in most accounting procedures) accounts for money that was recorded as revenue, but will never be received.  While it may not be *this* year’s revenue that is now a “bad debt”, it was, at some point, recorded as money that had been earned (revenue), but will not be showing up in the bank account.

Therefore, in order for the books to balance, it must be “removed” from the system as an expense.”

 

That is an important point, and one that pretty much deflates everything I’ve said. If the bad debt has been recorded as revenue already, it has to be removed if the tickets are unpaid. That said– and again I may be wrong– if there was no bad debt (ie if there was a more effective system of forcing people to pay their tickets), the city would be running a profit? So maybe instead of going after everyone parking downtown, there should be a more effective means of going after those who don’t pay? Which may of course just cost more money than it’s worth.


1. I’m not suggesting councilors are deliberately being misleading here. Just that the language changes when “costs” is converted to “opportunity cost.”

2. If anyone would like to correct my math– ie. if I’m not properly calculating something– leave a comment, email, or tweet me and I will amend my post with a note.

Filed under: Prince George

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6 Comments

Andrew: without taking a fine look at the books, I can say that you’re probably slightly confused with your math (accounting) process.

While I think council is misguided by bringing back metered parking (certainly other gains could have been found — is the same level of enforcement REALLY necessary when they’re not having to check meters and empty the coins?), I think you’re missing something by taking out the “bad debts”.

The “cost” of bad debts (in most accounting procedures) accounts for money that was recorded as revenue, but will never be received.  While it may not be *this* year’s revenue that is now a “bad debt”, it was, at some point, recorded as money that had been earned (revenue), but will not be showing up in the bank account.

Therefore, in order for the books to balance, it must be “removed” from the system as an expense.

Posted by KrisB on 4 April 2012 @ 1pm

Thanks for the correction. I will have to contact the city for more information on this. A quick question– if there was no bad debt (ie if
there was a more effective system of forcing people to pay their
tickets), the city would be running a profit? Based on what you see.

Posted by Andrew on 4 April 2012 @ 1pm

 Yes.  If the City could ensure all infraction tickets were paid, that would eliminate the bad debt, resulting in a net profit for this division.

It would be close (the revenue from the collection agency would be the city’s “cut” from the bad debt that was sold to a collection agency), so you’d have to also take that revenue stream out… a net profit of $32,864 (in the case of 2011).

Of course, you run into other issues.  Like how much would your proposed “more effective system” cost to implement and run?

I’m curious as to what transpired that resulted in the annual “bad debt” line item grow in 2010 to more than double the 2007 number — especially when the revenue was less than 2/3rds.  Did the City change their accounting procedure and start writing debt off sooner?  Or did people just start deciding that they’d let the City try and catch up with them, because the tickets had gotten outrageously expensive?

Interestingly, the removal of meters hasn’t necessarily solved the parking problem — it just changed it.  You now have office workers in some areas (e.g. 2nd/3rd & Victoria) that collude to evade the system.  They’ll all park in the “maximum 2 hour” slots, and every 110 minutes go do a unified synchronised driving excursion to change blocks (but just trade spots).

So there’s no additional patron parking for businesses (actually, it’s reduced) and the City’s parking-lot revenue is down because these people no longer need the spot in the City-run lot.

I’d suggest the City needs to come up with some better ways of enforcement.  Maybe The Boot would help — have an outstanding ticket from more than a week ago? Come back to a yellow piece of metal on your front tire… costs double the ticket price to have it removed.

*shrug*  It’s a bigger issue than I think the current council (especially with its current leader) is up to tackling.

Posted by KrisB on 4 April 2012 @ 2pm

Interesting. I’ve emailed city staff (who have been very responsive to my questions) for more clarification about each of the items, and when unpaid fines become “bad debt.” I will, of course, share their response.

It will definitely be interesting to see how this story develops.

Posted by Andrew on 4 April 2012 @ 2pm

I think an important part of the conversation needs to be why Council feels that it’s necessary to make money on parking downtown.

If they’re that tight on cash, they should consider other revenue streams…

Perhaps they should start making money on parking in residential areas?  You know, for those people that park on the street from 9am-5pm?

Or maybe park benches could be rented out to the less fortunate that would like to sleep on them…

It’s ridiculous, really.

Posted by KrisB on 4 April 2012 @ 11pm

[…] was wrong. As pointed out in the comments section: “The “cost” of bad debts (in most accounting procedures) accounts for money that was […]

Posted by Correction: Downtown Parking | AndrewKurjata.ca on 6 April 2012 @ 1pm

No more than once a week, promise.


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