As coffers empty out, some local governments have begun eyeing commercial parking taxes. And unsurprisingly, they are not wildly popular in some quarters. In Seattle, for example, a proposed tax rate increase is opposed by heavyweights like the University of Washington and the Downtown Seattle Association. Yet I think there’s a possible compromise available.

Broadly speaking, there are two reasons why I tend to favor commercial parking taxes: 1) they reduce the appeal of driving; and 2) they raise revenue for transportation projects. So I think they’re groovy.

On the other hand, it’s not hard to see why UW and some DSA members, as major providers and owners of parking, are not eager to pay more. And yet these are fundamentally urban institutions; hardly composed of car fanatics. In fact, both UW and the DSA invest significant resources in alternatives to driving, in large part because downtowns and universities do not easily flourish on a diet of single-occupancy vehicles. All of which means that there could be a middle way for the commercial parking tax.

The idea for a compromise is to make the tax essentially optional by giving firms credit for investing in what transportation geeks call TDM, or Transportation Demand Management. Here’s how it might work.

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  • Let’s say a parking provider like UW were on the hook for $5 million in commercial parking tax payments. They could be given a choice: either remit the $5 million straight up, or qualify for a tax exemption by demonstrating that they had invested, say, $25 million in alternatives to driving. The qualifying alternatives might be bus passes or bike parking or vanpools or whatever solutions seemed most efficient and appropriate.

    It could turn out to be a win-win proposition. Many major institutions like UW are already making sizeable TDM investments—and they’re often pretty good at it — so the policy would give them credit for what they’re doing, even while it could nudge them to do better still. Plus, private-sector investments in TDM provide real public benefits, one of which is that they tend to reduce the burden on transportation systems, thereby easing somewhat the need for transportation revenue. In other words, providing a “TDM tax exemption” on commercial parking taxes could provide choice and flexibility for businesses while still reaping many of the benefits of the tax.

    Of course, there would still be plenty to quibble about. For one thing, we would need to settle on an appropriate level of TDM investment that would trigger the exemption. Is a multiple of 5 times the tax liability the right number? (Or a multiple of 10? Or 2?) And we’d need to sort out the structure of the tax exemption too. Would it be an all-or-nothing full exemption, or some sort of sliding or partial exemption, or what?

    Still, I’m intrigued by the basic premise of the idea. We can let firms avoid taxes they don’t like by monetizing the public benefits they do provide — and we can encourage them to provide more.

    Update: ECB reports that the Seattle City Council just voted to increase the tax with a possible waiver for UW.