Balancing the books with paid parking: not a solution for every municipality

Arjen Schep, Professor by special appointment of Local Government Taxes at the Erasmus School of Law, told EenVandaag that increasing parking charges can be a means of balancing the budget for policy initiatives, but added that not every municipality has this possibility. In this article, he examines the plans to extend parking charges in Rotterdam in further detail.  

A gap in the budget  

Despite the resulting commotion, Schep makes it clear that a municipality is allowed to do this. "To generate more revenue, the municipality only has a few levers it can pull. It has several possible taxes to choose from: property tax (OZB) on owners and tenants of immovable property, tourist tax, commuter tax on second homes and parking tax. The revenue from these taxes can be spent at the municipality's discretion. Charges such as the waste collection levy and the sewerage charge are intended to cover the costs of statutory waste management and sewerage duties. For Rotterdam, therefore, the choice is between tourists, drivers or homeowners. And that is why the parking charge looks so attractive."  

Schep adds that the municipality is being tasked with an increasing number of responsibilities, whilst at the same time being required to make cuts. "Municipality receive the majority of their income from central government via the municipal fund. This fund is distributed among all municipality based on local costs and their capacity to generate revenue. With the expansion of municipalities' responsibilities, the financial risks for municipalities have also increased, for example, in youth care. If deficits then actually arise, it is increasingly necessary to implement larger increases in existing tax rates or, as in Rotterdam, to introduce new taxes.  

Rotterdam's Choice  

Balancing the budget is always a puzzle that needs to be solved, and Rotterdam is no exception. The municipal committee of Rotterdam has ambitious plans for the city: a greener, more sustainable city, the construction of new homes, and investment in facilities for Rotterdam's youth.   

The charge makes a substantial contribution to Rotterdam's budget: €276 million over four years. "Extending the area within which people have to pay for parking is a fairly simple way of increasing revenue without having to raise rates", says Schep.  

The enforcement of parking charges is, in fact, cost-effective thanks to the use of camera-equipped vehicles and automated digital penalty notices. The revenue from parking charges can then be spent as the local authority sees fit and does not have to be allocated to improving parking facilities or to investments in the part of the city where these charges are levied. "However, for the extension of parking charges to be acceptable, it is important that the municipality explains honestly why this is necessary. In the neighbourhoods involved, parking pressure is not the primary reason for the introduction. Simply explain the reason for the introduction. If I have understood correctly, this is, on the one hand, the investments mentioned above and, on the other hand, a matter of fairness, because paid parking has already been introduced in other areas outside the city centre, such as in Rotterdam South", said Schep.  

Not an option for every municipality

Earlier this year, Schep, in collaboration with Robert Kastelein, linked the increase in revenue from parking charges in Dutch municipalities to a broader trend. Municipalities that have a central function, for example, because they are home to a theatre or cinema, are better placed to generate more revenue from parking charges than other municipalities. Furthermore, municipalities with tourist accommodation, holiday parks, campsites, or places of interest have the opportunity to generate additional revenue through the tourist and commuter taxes. Non-residents largely pay these taxes. Municipalities that do not fall into either of these two categories can, in the face of looming budget deficits, only resort to increasing property tax rates for their own residents (homeowners) and businesses (owners and tenants). "This creates inequality between municipalities with a central function and tourist municipalities on the one hand, and other municipalities on the other", said Schep.  

According to Schep, that conclusion needs to be nuanced: "The extension of parking charges to areas where there is no immediate parking problem, as the City of Rotterdam is currently doing, provides a more nuanced picture. In particular, parking charges in the city centre are also paid by non-residents. In residential areas, it is mainly residents and (employees of) businesses who bear the cost of parking charges."  

Compared with smaller neighbouring municipalities, a city such as Rotterdam has more opportunities to increase its own tax revenue. One example is the tourist tax on cruise passengers, which the municipality of Rotterdam introduced a few years ago. A municipality such as Capelle aan den IJssel does not have that possibility.  

Various solutions are conceivable to address the unequal starting positions of municipalities, according to Schep. "You can distribute the funds from the general grant more fairly amongst municpalities by also taking into account potential revenue from parking and tourism. Another option is to aim for a review of the composition of the municipal tax base, guided by principles that apply more or less across all municipalities. For example, a resident tax."