Portland and other cities are considering future policies for a world of autonomous vehicles:  We have some advice:  Use this opportunity to dynamically price roads.

Like many cities, Portland is considering what policies it should adopt to accomodate autonomous vehicles. Mayor Ted Wheeler has expressed his support for opening the city to self-driving cars and the city is holding hearings on what those policies should entail.  Here’s what City Observatory’s Joe Cortright had to say in his testimony. We think these same issues are likely to apply in other cities as well.

As the city considers a policy for the likely advent of autonomous vehicles, I strongly urge you to use this as an opportunity to fundamentally re-think our policy for pricing and paying for city streets and roadways.

Just as Oregon had to innovate radically when the automobile came on the scene a century ago, we will have to innovate again. It’s important to remember that prior to the automobile, roads were not financed by a tax on the hay consumed by horses, and wagons and buggies and their operators did not have to be licensed. We took the dramatic step of taxing fuel and licensing vehicles and drivers as a means to pay for the much expanded, and more expensive roadway system, and to assure that vehicle owners and operators were accountable for their use of the system.

The same principle applies today. With modern electronics, and especially with autonomous vehicles, position and speed is monitored with great precision. There is no reason why they should not pay for exactly the amount of roadway that they use. And we know that the cost of the city’s roadway varies substantially across space and over time. Use of road capacity in less dense neighborhoods at off-peak hours imposes nominal costs on the city’s road budget. In contrast, peak hour use of city streets and arterials, particularly in and near the city center, imposes huge costs on the city and its residents. Those who use the system at peak hours in congested locations should pay the costs associated with creating, maintaining, and where necessary expanding that infrastructure.

Ride-hailing companies like Lyft and Uber are already applying this principal through surge pricing. This enables them to capture the value (what economists call “economic rents”) associated with the highly valuable roadway capacity they are using. The city should insist that a portion of these rents be shared with the city to cover the costs of the scarce and expensive infrastructure they are using. Representatives of both Uber and Lyft have already expressed support for real-time, dynamic road pricing. The same principle should be applied to fleets of autonomous vehicles, and eventually to all road users.

There is a high likelihood that fleets of autonomous vehicles could dramatically exacerbate urban traffic congestion, especially if roads are not priced appropriately. Studies of ride-hailing services in both New York and San Francisco have shown that these services disproportionately concentrate their vehicles in dense urban settings. Ride-hailed vehicles now account for 25 percent of traffic in downtown San Francisco. The growth of ride-hailed vehicles in New York has caused greater congestion and slower travel speeds. Autonomous vehicles, which would have lower operating costs would be likely to flood high demand locations, and could easily worsen city traffic congestion.

I strongly urge you to make real-time dynamic road-pricing a core component of the city’s strategy for dealing with autonomous vehicles.

This technological transition represents a roughly once-in-a century opportunity to fundamentally change the way we pay for and price roads. Just as we innovated our road finance system to accommodate the automobile 100 years ago, we should innovate our road finance system to incorporate this new technology today.