AVs influence on revenue for agencies

From the Brookings Institute, 2016, Local government 2035: Strategic trends and implications of new technologies 

Consider the following. This past year, the City of Los Angeles generated $161 million from parking violations.18 Red light violations have a fee of $490.19 Californians caught driving under the influence are fined up to $15,649 for a first-offense misdemeanor DUI conviction and up to $22,492 for an under-21 equivalent.20 Cities in California collect, on average, $40 million annually in towing fees that they divide with towing firms. Simply put, the hundreds of millions of dollars generated from poor driving-related behaviors provide significant funding for transportation infrastructure and maintenance, public schools, judicial salaries, domestic violence advocacy, conservation, and many other public services. Since California legalized driverless vehicles, Google has logged more than 1.7 million miles during the testing phase and been involved in 11 accidents, none of which were the fault of the driverless vehicle.21 Tesla, Mercedes, and others are not far behind. It turns out that automated vehicle technology—unlike humans—abides by the law. And that’s bad news for local government revenues. In other words, once driverless cars become mainstream, deep revenue sources acquired from driving-related violations such as speeding tickets and DUIs will decrease greatly. In fact, Tesla’s CEO, Elon Musk, predicts the tremendous safety record of driverless vehicles will ultimately demand the banning of non-driverless vehicles on public roadways. Such a law would only accelerate an already fast-paced evolution of the way we use local transportation. As the transition to driverless cars becomes the norm in the years to come, this safety record will mean that vehicles can travel faster and closer together on the roadways, which, when combined with alternative fuel technologies, can contribute to efforts to lower emissions and may help lessen the amount of physical space dedicated to roadways.

Currently, vehicles sit unused an average 95 percent of the time.22 Given the early success of the transportation sharing economy led by companies like Uber and Lyft, it may become possible for urban citizens to “share” their cars. If vehicles are busy almost every hour of the day dropping off one traveler to pick up another based on highly predictive algorithms that harness user data to maximize efficient use of resources, then parking, towing, traffic violations, and speeding tickets revenue will significantly decrease. Even changes to the functionality of cars themselves may allow them to move laterally and to adjust their length such that when they are parked they take less space.23 We know that insurance agencies net $180 billion annually across the USA insuring against vehicular accidents and their associated medical costs.24 Once driverless vehicles have a proven track record, local governments will lose a major source of revenue while citizen health and safety increases. In fact, you could say government is essentially left out of the game entirely, aside from still being on the hook for maintaining a transportation infrastructure without revenue sources and regulating an industry that it has virtually no data on (because the private sector will have cut government out of the overwhelming majority of their successful business operations). The challenge will be identifying opportunities within the context of these changes and emerging technologies to insert tax collection mechanisms that generate a revenue offset for the losses created in other areas in order to cover the costs associated with meeting these basic responsibilities. Even more worrisome from a financial standpoint is what happens when these vehicles become truly eco-friendly. Gas and petrol taxes and fees for emissions are contingent on there being adverse ecological impacts or unrenewable energy use. Pedestrian-friendly cities like Vienna and other European cities have removed their car lanes and made cycling often more practical than driving.25 If sustainable urban planning succeeds, then what are the impacts on local government operations? Efforts being made to advance urban transportation problems using new innovations as simple as phone apps in places like Washington D.C. have already accidentally reduced revenue, with a drop from $90,610,266 in 2012 to $84,458,255 in 2013.26 For instance, users can use their smartphones to remotely feed their meters before they expire or submit parking ticket photos and enter violation codes to an app that provides helpful information on getting the ticket dismissed. They can also gain real-time GPS traffic navigation through social traffic apps like Waze that reroute drivers through the least congested traffic routes while keeping their friends informed of their destination time down to the minute (meaning users don’t need to speed to be efficient, and they have less incentive to text while driving because others already know when they’ll arrive).27 Such apps can also utilize crowdsourced input on the location of traffic enforcement officers, helping would be speeders evade detection with an early warning system (though this will be less of a revenue issue once driverless cars end the practice of speeding).28 With citizens needing less transportation infrastructure and support services such as parking lots, police enforcement, and gas in the future, local governments will have to identify alternative mechanisms to supplement lost revenues. Currently, many conversations in local government focus on sustainability. While sustainability is a serious issue today, it will become increasingly irrelevant in the future. Technological innovation will increase sustainability and address many of the challenges we face today. From reducing dependence on fossil fuels to pedestrian friendly cities, communities will be transformed to meet our current aspirations. The real question for local governments is how to ensure their relevance when a significant percentage of their revenue sources dry up due to technological automation. In addition, how do governments help the existing workforce innovate to stay relevant? And further, are local governments prepared to have their role dictated to them when it comes to driverless cars, or are they going to take a proactive role and think through these scenarios and work collaboratively through public-private partnerships? So, local governments are poised to lose out in many ways in terms of these changes. There are alternatives that can be utilized to raise new revenues to offset the loss of old revenues, as has been the case throughout the 20th century with the emergence of then-new practices (e.g., special districts to raise revenues to pay for public subsidies for sports facilities). However, government institutions have typically been slow to react to new technological developments. Recall the protection Congress provided to Internet-based purchases of books in the early days of Amazon. While this was ostensibly to help nurture this new industry of online sales, Congress has been slow to realize that the online sales industry caught up very fast and that while they dawdled, traditional brick-and-mortar bookstores have become rare. But this does not mean governments cannot develop new solutions within existing legal constraints. Such alternatives might include a user fee system for operating a vehicle on the public roadways paid through an app that allows the engine to start or “unlocks” the vehicle and bills on a per mile basis in order to cover costs associated maintenance and operations of the transportation system generally. Regardless, the current political climate is likely to be another barrier to adapting to these changes. Even though taxes are at historically low levels in the U.S., the political climate among state and local leaders is such that additional debt or new taxes for services are not perceived as an option. This includes any new taxes. In Arizona, for instance, efforts were mounted by the state legislature to preempt local governments from collecting taxes from Internet taxes should Congress allow such taxation but requiring local governments to offset such revenues with reductions to income tax revenues.29 The legislature did not want to allow local governments to try tapping this alternative revenue source even though it would represent a means of recapturing lost revenues from sales taxes on transactions in brick-and-mortar businesses. Trapped by the forces of slow institutional rules, rapid technological changes, and recalcitrant legislators motivated by a no-tax doctrine instead of fiscal prudence, local governments are going to have to engage and be creatively innovative in finding the resources needed to fulfill their public purposes.

18 Emily Alpert Reyes (2014). Group wants to revamp how L.A. collects parking ticket revenue. L.A. Times: Local/City Hall. http://www. latimes.com/local/cityhall/la-me-parking-fine-cap-20140613-story.html 19 L.A. Times (2013). Fees, penalties nearly quadruple traffic ticket costs for California drivers. L.A. Times: Local. http://losangeles. cbslocal.com/2013/09/26/fees-penalties-nearly-quadruple-traffic-ticket-costs-for-calif-drivers/ 20 Jerry Hirsch (2013). First drunk-driving conviction can cost nearly $16,000 in California. L.A. Times: Business/Autos http://www.latimes. com/business/autos/la-fi-hy-drunk-driving-conviction-cost-20130314-story.html 21 Eric Jaffe (2015). Google’s self-driving car is about to hit the streets. The Atlantic: Citylab. http://www.citylab.com/tech/2015/05/ googles-new-self-driving-car-is-about-to-hit-the-streets/393323/?utm_source=nl_daily_link1_051515

22 RAC Foundation (2012). Spaced out: Perspectives on parking policy. Royal Automobile Club Foundation. http://www.racfoundation.org/ research/mobility/spaced-out-perspectives-on-parking 23 Desiree (2015). A new car that can shrink and drive sideways. ScienceDump. http://www.sciencedump.com/content/ new-car-can-shrink-and-drive-sideways 24 Alex Davies (2015). Self-driving cars will make us want fewer cars. WIRED. http://www.wired.com/2015/03/ the-economic-impact-of-autonomous-vehicles/ 25 Mike Macias (2015). Why car-free cities aren’t right around the corner. GOVERNING: URBAN http://www.governing.com/topics/urban/ gov-car-free-cities.html 26 Ashley Halsey III (2014). District’s parking ticket revenue drops. The Washington Post. http://www.washingtonpost.com/blogs/ dr-gridlock/wp/2014/04/10/districts-parking-ticket-revenue-drops 27 Alan Reiter (2014). Smart parking: Beware of the unintended consequences. UBM’s Future Cities: The Global Community for 21st Century City Decisions Makers. http://www.ubmfuturecities.com/author.asp?section_id=378&doc_id=526702 28 Dave Smith (2015). Police officers in Miami are intentionally trying to ruin Google’s traffic crowdsourcing app—here’s why. Business Insider. http://www.businessinsider.com/police-officers-vs-waze-google-traffic-crowdsourcing-app-2015-2

The City of Chicago has been a leader in aggressively privatizing their infrastructure. The city regularly receives criticism for their privatization because it has resulted in rate hikes, equipment malfunctions, and reasonable questions about their fair market value. For instance, the city privatized 36,000 parking meters to a private Morgan Stanley-led consortium in exchange for $1.2 billion in up-front revenue on a 75-year lease. The inspector general found that the city took $974 million less than the meters were worth.99 In addition to the bad deal that was made, it became too expensive for most citizens to park. Mass privatization of local government can also give way to political action committees, or PACs, that dominate services. PACs are groups that pool campaign contributions for or against candidates, ballot initiatives, or legislation. In essence, they offer contributions to drive a particular agenda, meaning

the more money a candidate has at their disposal, the more they can promote their cause. PACs could win contracts from the government and drive a partisan agenda in how and to whom it delivers services. In the past, we have seen income inequality hurt the world’s most vulnerable while governments provide services such as Medicare and Medicaid to soften the effects. Today, we know that a combination of income inequalities and structural dysfunctions in government spark greater challenges for all involved. However, something is different. Before, the voice of the middle or lower class would go unheard. Now, these groups are able to rally and more easily challenge the status quo, which can a challenge to a local government. Recall that the Occupy Wall Street movement whose slogan, “We are the 99 percent,” was aimed at challenging U.S. economic inequality. Protestors utilized occupation, civil disobedience, picketing, and Internet activism to emphasize their issue. The movement resulted in scrutiny of local government’s (particularly law enforcement’s) abuse of peaceful protestors and several propositions for economic development that largely did not include government. The impact of Occupy Wall Street was felt nationally and replicated at college campuses and in other cities. Over the last couple of years, intense riots have broken out in major cities across Europe from Madrid to Paris and Athens to Lisbon on the issue of income inequality. Most local governments in the U.S. have not engaged with the reality of these kinds of disruptions breaking out in their own communities even when the conditions of economic decline are nearly similar. Local and state governments have not found a sustainable or consistently successful means of addressing the income gap problem, beyond law enforcement responses when disturbances arise in response to the inequalities. The most promising option that many have turned to in recent decades has been to encourage higher education for more citizens in order to spur the creative class and provide people the means for climbing higher on the income ladder. However, when examining the effects of college education on those coming from the lower quartile of income groups, the evidence is not encouraging.100 They face the lowest likelihood of escaping and remaining outside the lowest income quartile compared to college graduates from other income groups.101 Local governments are in a difficult position in this regard given the fragmented nature of metropolitan areas and the general inability of local governments to be preventative of this inequality. They are commonly simply reacting to the effects of the gap. But many of our most innovative solutions to intractable public problems come from local governments, and this is another challenge that needs their attention as the increase in that gap and the decline of the middle class continues.

96 Michael Kumhof & Romain Rancière (2010). Inequality, leverage and crises. IMF Working Paper: Research Department. http://www. imf.org/external/pubs/ft/wp/2010/wp10268.pdf 97 Richard Fry & Rakesh Kochhar (2014). America’s ealth gap between middle-income and upper-income families is widest on record. PewRearchCenter: FACTANK: NEWS IN THE NUMBERS. http://www.pewresearch.org/fact-tank/2014/12/17/ wealth-gap-upper-middle-income/ 98 Larry Summer (2015). Persistent jobless growth. WORLD ECONOMIC FORUM: Outlook on the Global Agenda. http://reports.weforum. org/outlook-global-agenda-2015/top-10-trends-of-2015/2-persistent-jobless-growth/ 99 Molly Ball (2014). The privatization backlash. The Atlantic: Politics. http://www.theatlantic.com/politics/archive/2014/04/ city-state-governments-privatization-contracting-backlash/361016/

CONCLUSION As speculative novelist William Gibson famously noted, “The future is already here – it’s just not very evenly distributed.” Technological change is rapid, disruptive, and destabilizing. In order to govern effectively, public sector entities must increasingly take a proactive stance and act in anticipation of impending technological innovations. This necessitates the creation of lean, nimble, responsive, and adaptable government entities. In order to create a local government that can respond and adapt to these challenges, leaders must first take stock of their internal and external realities.

The 2015 Edelman Trust Barometer surveyed 27,000 people in an international survey of trust in government, business, and NGOs. Their finding stated that government is largely distrusted in 19 out of 27 countries. Internationally, only 40% of individuals trust elected officials.113 This is easy to understand: the United States and European countries had resounding debt crises caused by poorly managed and poorly regulated industries.114 In the wake of those crises, little has been done to prevent this from happening again. Faced with this type of reality, citizens are bound to lose trust in government and potentially look for better stewards of their resources outside of government. The World Economic Forum’s report The Future of Government: Lessons Learned from Around the World states that, “To be efficient and effective in today’s complex, interlinked and fast-changing environment, governments need to redesign their structures and processes to capitalize on a new set of actors and tools.”115 If this is not done, efforts to manage the inevitable uprising of people and new technologies are likely fail. We are seeing warning signs of clear and present danger. The case has been made that government should prepare for a significant change to enter the future. Recent events such as the “youthquakes” and “keystroke revolutions” in the Middle East and North Africa illustrate how young people have coordinated across regions and countries on technologies such as Facebook and Twitter to literally fight for change. They have proven the power of technology to shift government behavior. For the first time in 50 years, the interests of the people within these affected countries are being addressed. These megatrends are already reshaping government. The reshaping of government is not just a Middle East “thing.” Growing unrest in several U.S. cities often triggered by police actions and fueled by racial justice and income inequality concerns, have highlighted the role of youth and technology that is bringing pressure to bear on local governments that have not responded well to these developments. The challenge is significant at the community level. Local governments are busy providing the services demanded by their citizens while state legislatures and a vocal minority strangle public funding for these same services. Local leaders are trying to grow their economies to provide more jobs to more citizens and attract the creative class while 113 2015 Edelman Trust Barometer. http://www.edelman.com/insights/intellectual-property/2015-edelman-trust-barometer/ trust-around-world/ 114 Pan Pylas (2014). Distrust in government growing, survey finds. USA TODAY. http://www.usatoday.com/story/news/world/2014/01/20/ distrust-in-government-growing/4655111/ 115 World Economic Forum (2011). The Future of Government: Lessons Learned from around the World. World Economic Forum. http:// www3.weforum.org/docs/EU11/WEF_EU11_FutureofGovernment_Report.pdf

wrestling with aging populations that often resist the very diversity desired by the creative class and fostered by healthy and balanced immigration. These fears are magnified by concerns with growing technological prowess of international terrorist organizations that can reach into cities to create mayhem combined with a lack of faith in government to stop it. Local governments are further hamstrung by the reality that they have no control over the flow of capital in their jurisdictions. This means that those who are able will join with other like-minded and resource-rich individuals to press for establishing new municipalities separate from others, which will exacerbate the coordination problems of highly fragmented metropolitan regions. This allows groups to retrench and isolate themselves (and their resources) through defensive municipal incorporations, much as we have seen for decades that helped create the very tensions over inequality that are motivating so much unrest. Combining these dynamics with the rapid evolution of technology will lead to continued calls for greater innovation from governments because citizens and the private sector will confront the challenges of tomorrow faster than government will. Reassessing the core services of local government in a manner that recognizes how some are “public goods” and some are not, will help discern a path towards tomorrow’s version of local government that adapts to this new reality, identifies alternative revenue mechanisms that incorporate new technologies, and works as a partner with numerous private sector partners for the delivery of those services that are not purely public goods. Instead of retreating to 20th century thinking and trying to hinder this evolution, local leaders should figure out methods for embracing and integrating new technologies into their standard operating procedures. For instance, cities could take the logic of the NeighborGoods app, but instead of neighbors owning the items to be shared, perhaps the ownership is a city function. The local government could take the responsibility for owning certain “public” assets and distribute them across various communities within their jurisdiction. Residents in these neighborhoods could use a P2P app to check out these assets so no one needs to own them individually. Local governments already do this for certain public assets, such as when citizens go to city hall to fill out a form to reserve a picnic area or ball field at a public park. Local governments can maintain their role to provide public assets (on an even wider scale) but adapt emerging technologies to facilitate the usage of such assets with user fees to help offset some of the operational costs of the asset and information infrastructure.