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Commuter Choice Programs

Where SIP credit is sought, obtain and provide to EPA the information needed to
quantify and confirm the emission reductions allocated to the program, as set forth
in the Check List in Appendix 4.

Similarly administer and audit the performance of programs used for MSRCs or
compliance with emission caps.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

employers to provide cash as an option to free parking, but does not enforce its rules, the
effectiveness of that program will be compromised. As is clear in the EIP guidance, EPA
believes that incentive-based programs require enforcement. Programmatic uncertainty is
a measure of how well the market will respond to the state or agency program. For
example, how much a mandatory program to provide cash instead of parking will affect
commuting behavior. Incentive-based and mandatory Commuter Choice programs have
uncertain emission results, even assuming full compliance with program requirements.
States or agencies must project the emission reductions expected from the program based
on economic modeling. However, the EIP Rules require that estimates of program
effectiveness account for the uncertainty inherent in such modeling. Programmatic
uncertainty bounds can be narrower when high-quality local data is available, compared
to estimates primarily based on aggregate national or regional data.

3.4.2. Audit Procedures and Reconciliation--The EIP Rules require that
states periodically audit programs, report results to EPA, and commit to timely remedies
if the programs are not meeting expectations. Audits must be undertaken at least once
every three years. For market-response programs such as incentive or mandatory
Commuter Choice, the audit procedures must include efforts to reconcile actual emission
reductions with those anticipated for the program. Auditing and reconciliation of key
parameters should be conducted. Key parameters might include, but not be limited to, the
estimated versus actual compliance rate with the state or agency program; the value of
benefits offered in lieu of parking; and the change in SOV mode share. Areas should
consider, in designing their programs, how they will gather the data needed to perform an
audit. The program must include a range of possible actions the area could use in order to
redress an emissions reduction shortfall. It must be possible to implement these actions,
without revising the SIP, upon specification by the state. For example, a SIP-credited
program that granted a state tax credit for employer-provided telecommuting or rideshare
benefits might include a provision that allows the state to increase the value of the credit,
extend it to other commute benefits, or take other actions if expected emission reductions
are not achieved. If the program shortfall does not cause an overall shortfall that threatens
CAA deadlines, the state may redress the shortfall by taking less credit for the program.

Any SIP must still comply with all Clean Air Act requirements, (e.g., attainment of
ambient air quality standards, Reasonable Further Progress requirements, conformity
requirements, and so forth.) It should be noted, also, that the audit and reconciliation
requirements described above are no different than those generally imposed by EPA for
other creditable SIP measures, such as reformulated gasoline and stationary-source
control programs. Routine air program management procedures may be sufficient to meet
the auditing and reconciliation requirements.

3.4.3. Use of Program Revenues--Some incentive or mandatory Commuter
Choice programs will have the side effect of increasing net tax revenues. In general, there

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EPA420-R-98-007

to work: I .
Number of employees commuting in multiple-occupancy vehicles (H minus
I): J :
Number commuting 2 per vehicle: J2 .
Number commuting 3 per vehicle: 53 .
Number commuting 4 per vehicle: J4 .
Number commuting 5 per vehicle: JS
Number commuting in a “commuter highway vehicle”: I6 .
Number commuting by mass transit: J7 :
Number commuting by bicycle or walking: J8 .
Total number of employee days/year telecommuting: J9 .
Total number of employee days/year not commuting under 4/40 program:
uo.

Ratio of multiple- to single-occupancy vehicles (J+): K .
Ratio of multiple-occupancy vehicles to number of employees (J+G):
3. Does the company own or lease parking for its employees? . What

fee or charge, if any, is there for parking?

4, Are there any reasonably firm plans to relocate the business or employees to another
site in the same general commute area?

5. Are there local zoning restrictions on parking in the general vicinity of your work site?
. Any parking meters? .

6. General price for commercial land in the vicinity of the worksite: $/ac :

7. General vacancy rate of commercial buildings in the vicinity of the worksite:

__% .
8. Value of off-street parking in the vicinity of the worksite:__$__.
9. Value of incentives in the program:

. Total wages excluded from employee W2s for transit riders: $ .

. Total wages excluded from employee W2s for commute highway vehicle riders:
—__3__.
Total bonuses/wage supplements excluded from employee W2s for transit riders:

$ .

Total bonuses/wage supplements excluded from employee W2s for commute
highway vehicle riders: $ .
Total tax exclusions, if any, under state income tax for all Clean Commute

alternatives: $

Before-tax value of all wage-related incentives for all types of Clean Commute
alternatives:

Transit: $ :

US EPA OFFICE OF MOBILE SOURCES



EPA420-R-98-007

in-lieu of parking. States may also encourage employers to offer other commute amenities
such as bicycle lockers and showers, or to promote telecommuting or flex time. These
options have shown multiple benefits to employers, employees, and the environment,
compared to parking only.

Employers can offer employees a choice of tax-advantaged commute benefits, responding
to employees’ different needs and wants. Reducing employee demand for parking can
free up parking spaces for customers or remove the need to build expensive new parking.
This space can also be converted for revenue producing purposes. Employees benefit
from a larger menu of subsidized transportation options. The environment benefits
because Commuter Choice programs can reduce air pollution. And Commuter Choice can
improve equity across employees by making commute benefits available to people who
do not commute by car. Because lower-income workers, women, and some ethnic groups
are relatively less likely to commute by car, Commuter Choice can improve
distributional, gender, and racial equity.

The following are examples of commuter benefit options that might be included among
Commuter Choice options offered by employers, and that have been implemented
somewhere in recent years.

Transit or vanpool benefits The Federal tax code allows employers to offer up to
$65/month in tax-exempt transit or vanpool benefits (This amount will increase to
$100/month in 2002). For example, an employer may purchase a $65 monthly
subway or bus pass and give it to the employee. The employee would pay no
payroll or income taxes on benefit. The employer would pay no payroll taxes for
that employee’s benefit and would deduct the $65 expense per month, or $780
annually, from business income taxes. Alternatively, the employee may ask the
employer to set aside $65 per month of existing (pre-tax) salary for a subway or
bus pass. In this case, the employee saves Federal payroll and income taxes on the
$65 per month, and the employer saves Federal payroll taxes on that $65 per
month. The employee may not collect a tax-exempt amount in excess of his or
her actual commuting expenses, however. If an employer provides $100 per
month in transit benefits, for example, but the employee’s expenses are only $40,
then only $40 of the benefit is tax-exempt. The balance of $60 is treated as
ordinary taxable income. About 1% of U.S. commuters are offered transit or
vanpool benefits by their employer.>

Cash In-Lieu-Of Parking (i.e., Parking Cash Out) The Federal tax code provides up to
$175/month of parking at work tax free provided by the employer to employees.
Beginning with tax year 1998, employers may offer employees taxable cash
instead of a tax-exempt parking space without losing the tax exemption for those
who receive parking. Until 1998, the tax code allowed employers to offer only
free parking benefits and did not allow employers to offer a similar cash option to
employees without penalty.

5 Commuter Choice Initiative, Weighted Survey Results, Employer-Provided Transportation
Benefits, prepared by KPMG Peat Marwick LLP for the Association for Commuter Transportation (ACT), November
3, 1995.

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EPA420-R-98-007

Region 3*
Region 3 covers programs in Delaware, the District of Columbia, Maryland,

Pennsylvania, Virginia, and West Virginia. Please contact Paul Wentworth or Larry
Budney for assistance with Commuter Choice Programs in EPA’s Region 3.

Paul T. Wentworth / Larry Budney

Energy, Radiation, and Indoor Environment Division

841 Chestnut Street

Philadelphia, PA 19107

Phone (Wentworth): 215-566-2183 Phone (Budney): 215-566-2184

Fax (Wentworth): 215-566-2124 Fax (Budney): 215-566-2134

Email: wentworth.paul@epamail.epa.gov
budney.larry@epamail.epa.gov

Main phone number: 215-566-2100

*This information will change in June, 1998, because of office relocation.

Region 4

Region 4 covers programs in Alabama, Florida, Georgia, Kentucky, Mississippi, North
Carolina, South Carolina, and Tennessee. Please contact Alan Powell for assistance with
Commuter Choice Programs in EPA’s Region 4.

Alan Powell
Pesticides and Toxics Management Division
Regulatory Planning Section

61 Forsyth St., SW

Atlanta, Georgia 30303

Phone: 404/562-9045

Fax: 404/562-9068

Email: powell.alan@epamail.epa.gov
Pesticides Division Main Phone: 404/562-9077

Region 5

Region 5 covers programs in Illinois, Indiana, Michigan, Minnesota, Ohio, and
Wisconsin. Please contact Patricia Morris for assistance with Commuter Choice
Programs in EPA’s Region 5.

Patricia Morris

Air and Radiation Division

77 W. Jackson Blvd.

Chicago, IL 60604-3590

Phone: (312) 353-8656

Fax: (312) 886-5824

Email: morris.patricia@epamail.epa.gov
Main Phone Number: (312) 353-2211

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EPA420-R-98-007

Tax Law

Apogee Research. “Commuter Benefits Provisions of the Taxpayer Relief Act of 1997.” Available
from the EPA Transportation Partners Web Site: http://www.epa.gov/tp GAO, “Taxpayer
Compliance: Analyzing the Nature of the Income Tax Gap, GAO/GCD-97-35, January 9,
1997.

GAO, “Tax Administration: Alternative Strategies to Obtain Compliance Data,” April 26, 1996,
GAO/GGD-96-89.

Gottsman, Laura. “TRA ’97 Adds Flexibility to Transportation Fringe Benefits,” Journal of
Taxation of Employee Benefits, March/April 1998.

EPA Guidance, Reports and Programs

EPA’s Transportation Air Quality Center http://www.epa.gov/omswww/traq. Put national EPA
resources to work in your community. The TRAQ can help communities integrate air quality
and transportation plans; create new transportation solutions; manage sprawl by providing
tools to assess growth choices; launch and evaluate voluntary programs; meet regulatory
requirements; access helpful information; and enhance public education efforts.

Guidance on Incorporating Voluntary Mobile Source Emissions Reduction Programs in State
Implementation Plans, released on October 24, 1997. Contact: Michael Ball(313-741-7897)
ball. michael@epamail.epa.gov

Economic Incentives Program Rules, published in the Federal Register on April 7, 1994.59 FR 16690 et

seq.
Methodologies for Estimating Emission and Travel Activity Effects of TCMs, US EPA,Office of Mobile

Sources, EPA-420-R-94-002, July, 1994.

Guidance on the Use of Market Mechanisms to Reduce Transportation Emissions, scheduled for release
early 1998. [Document number should be available before we go to press].

Incorporating Feedback in Travel Forecasting: Methods, Pitfalls, and Common Concerns, Travel Model
Improvement Program, US DOT, US EPA, US DOE, March, 1996. Document # DOT-T-96-14.

United States Department of Transportation. Federal Highway Administration. Calibration and Adjustment
of System Planning Models, 1990

Indicators of the Environmental Impacts of Transportation, EPA. 230-R-96-009, October, 1996. Available
from the EPA Transportation Partners Web Site: http://www.epa.gov/tp

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EPA420-R-98-007

and pay taxes, they can benefit by forming a carpool with other employees and share the
cash received from cashing in the parking spots of all but one of the carpoolers who
participate.

These changes in the Federal tax law offer important tax advantages to employers who
provide employees with a choice of commute benefits:' employers may provide commute
benefits with pre-tax dollars. Employers do not pay Federal payroll taxes (e.g. FICA,
medicare, unemployment insurance) on the value of these benefits, and the benefits are
not taxed as income to the employee for Federal income tax purposes.

The new law effectively allows an employer to add commute choice benefits without
giving up tax-exempt parking benefits. In other words, employers can finance commute
choices with money already being spent on compensation and benefits. Employers who
presently spend money to provide tax-exempt parking can now offer employees the
additional choices of taxable cash or tax-exempt (up to the dollar limits described above)
transit or vanpool services. Employers can offer the specified benefits for their
employees’ work commutes Federal tax-free in addition to or in lieu of compensation up
to these Federal limits:

¢ Upto $175 monthly for parking at or near work site and transit facilities

¢ Upto $65 monthly for public transit

+ Upto $65 monthly for vanpool services
(For transit and vanpooling, this amount will increase to $100/month for taxable years
beginning after December 31, 2001.)

Note: Tax breaks on benefits only apply directly to transit, vanpool and parking benefits.
It is important to understand that the more options that are available, the more employees
will utilize the benefit, and the more tax savings will be realized by the company.
Additionally, companies should understand that the cash option from Parking Cash Out
and other monetary incentives (e.g., transportation subsidies excluding subsidized
parking, transit, vanpools) are taxable for that employee. Further, the company must pay
payroll taxes for that employee related to the cashed out parking spot. Subsidized parking
and other transportation benefits do not become taxable if an employer offers them along
with the parking cash out option. Although the tax laws do not specifically relate to
benefits like telecommuting, carpooling, biking, walking, and other commute options,
employers can always offer or encourage these choices. One way to provide an incentive
for these options is through Parking Cash Out, where an employee can choose the cash
benefit and commute by these alternative modes.

Three Ways to Offer Commute Benefits:

1. Additional Benefit / In Addition to Compensation

An employee may receive the benefit in addition to their current wages. Specifically, they
can receive transit, vanpool, and parking benefits completely free of all U.S. payroll and
Federal income taxes up to specified limits. The employer pays for the benefit and
receives a deduction from his Federal business income taxes for the value of the benefit.

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EPA420-R-98-007,

on how the program is enforced. If the program is voluntary, rates will vary according to
how strongly the State markets the program and whether additional incentives are offered
to encourage employers to participate. The specific methodology used to determine the
population of participating employers, and the resultant population of employees offered
Commuter Choice options, will depend significantly on individual program structure and
regional characteristics. In general, a state or agency would need to answer the following
questions about its program.

2.3.1. How Many Employers Does the State or Agency Program
Target?--Program characteristics should be matched to employer demographics. A
program that targets large employers, for example, would not count small employers
among likely participants. Data on employer demographics is available from, among
other sources, The State and Metropolitan Area Data Book (U.S. Department of
Commerce), which includes information about the number of employment establishments
by size class, as well as employment levels by size class, by state and metropolitan area.
Local information should be used whenever possible.

2.3.2, How Many Workers Do Targeted Employers Employ?--The data
to answer this question is also available from the State and Metropolitan Area Data Book
(US Department of Commerce). The number of employees at targeted employers
multiplied by the percentage share of SOV commuters is the total population that could
be offered Commuter Choice options and for whom reductions in vehicle travel might
occur. Local information should be used whenever possible.

2.3.3. Is the Program Mandatory or Voluntary?--The number of workers
that actually will be offered Commuter Choice options depends upon how many of the
targeted employers begin offering options, and this is perhaps the most complicated part
of Step Two. Even a mandatory program will not achieve 100% compliance with the
mandate, and participation in a voluntary program will have to be estimated by reference
to other similar programs. Below we explain a recommended approach to a mandatory
program and to a voluntary program. Some issues discussed below in one section (e.g.
business relocation or parking lease arrangements) may be issues for both types of
programs depending on the program’s design.

2.3.3.1. Mandatory--A mandatory program implemented through the
State tax code, with aggressive education and enforcement, could use as a
Starting point for estimating compliance the rate observed with respect to
general tax liability, or about 80%.'® EPA will review other rationales for
estimating compliance. Whatever the basis for the estimate, States should
explain how the compliance rate they use compares to the reference
rationale of tax compliance or to another reference rationale. A mandatory
program with no education or enforcement, for example, would not

6 Individual taxpayers voluntarily pay about 83% of the income taxes they owe, while corporate

taxpayers pay about 78%, Compliance with employment-related tax provisions is usually higher, above 90%, because
FICA, Medicare, unemployment taxes and so forth are reported in several places and can therefore be more readily
cross-validated than other types of tax provisions. GAO, “Taxpayer Compliance: Analyzing the Nature of the Income
‘Tax Gap,” T-GCD-97-35, Jan. 9, 1997; and GAO, “Tax Administration: Alternative Strategies to Obtain Compliance
Data,” April 26, 1996, GAO/GGD-96-89.

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36 US EPA OFFICE OF MOBILE SOURCES



Commuter Choice Programs

TABLE OF CONTENTS

ACKNOWLEDGMENTS .........- eee e cece cette cert ee eeeetetetererererseeee T

EXECUTIVE SUMMARY ...........++-000ee penne reee
ES-1. Commuter Choice Can Reduce Air Pollution .
ES-2. EPA Issues This Guidance to Encourage Commuter Choice .
ES-3. How This Guidance Is Organized
ES-4. Methodology for Quantifying Emissions Reductions . .

CHAPTER 1: COMMUTER CHOICE PROGRAMS AND COMMUTE BENEFIT OPTIONS 5
1.1. How Commuter Choice Programs Work
1.2. Definitions of Commuter Choice ....
1.3. Commute Benefit Options ... .
1.4. Commuter Choice Programs . . .
1.4.1, Education or Outreach Programs
1.4.2. Transit Pass Programs .
1.4.3. Incentive Programs ...
1.4.4. Mandatory Programs .
1.4.5. Commuter Choice Without State Action .

CHAPTER 2: ESTIMATING EMISSION REDUCTIONS ..
2.1. Four-step Protocol
2.2. Step 1: Estimate the Relevant Population of Vehicles Driven to Work
2.2.1. Labor force .
2.2.2. Adjustment for employees not 1g
2.3. Step 2: Estimate the Proportion of These Vehicles Driven to Employer Work
Sites Where Commuter Choice Options Are or Will Be Available ....... 17

2.3.1. How many employers does the State or agency program target? . . 18
2.3.2. How many workers do targeted employers employ? . . 18
2.3.3. Is the program mandatory or voluntary? .... 18
2.3.4. What if the State or agency has no program? . at

2.4. Step 3a: Estimate the Typical Effectiveness of a Commute Benefit Options
Program .

2.4.1. Average value of benefits other than parking pl . 22
2.4.2. Response of commuters to new commute benefit options . . 23
2.4.3, Estimate emissions offsets . 24

2.5. Step 3b: Incorporate Compliance and Programmatic Uncertainty Factors .. 25

2.5.1. Compliance or participation uncertainty . . 25
2.5.2. Programmatic uncertainty . 26
2.6. Step 4: Estimate Emissions Reduction ........... 0. see e eee eee eee 26

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Commuter Choice Programs

Guidance on the Use of Market Mechanisms to Reduce Transportation Emissions,
scheduled for release in April, 1998. This document is referenced here as the
Market Mechanisms Guidance.

The EIP Rules provide more general guidance on economic incentives such as market-
response strategies that create incentives for individuals to reduce emissions, without
directly prescribing emissions limits or emissions-related parameters. Incentive or
riiandatory Commuter Choice programs may be considered economic incentives of this
type. The VMEP Guidance provides more specific guidance on voluntary measures:
programs that rely largely on voluntary actions of individuals or other parties for
achieving emission reductions. Education and outreach or transit pass Commuter Choice
programs may fall into this category. There may be exceptions to this general distinction
between the EJP Rules and the VMEP Guidance.** The 1994 TCMs guidance is a 10-step
sketch planning tool for estimating the travel and emissions effects of a number of
transportation control measures (TCMs); it includes an example on parking charges that
would be particularly helpful for a Commuter Choice program. The Market Mechanisms
guidance provides more information on transportation and emissions modeling issues that
arise when quantifying the impact of measures that operate by changing prices, or
perceived opportunity costs, as a commute benefits option does.

3.3. Issues for Education and Outreach and Transit Pass Commuter Choice
Programs
This subsection summarizes specific issues addressed in the VMEP Guidance that may be

relevant to an education and outreach or transit pass Commuter Choice program.

3.3.1. Enforceability and Auditing--By definition, education and outreach
and transit pass Commuter Choice programs do not force employers or individuals to do
anything. However, the VMEP Guidance clarifies that a state or agency’s obligations
with respect to a voluntary program must be enforceable. For example, if an area intends
to implement and publicize a coordinated transit pass, it must commit to do so on an
enforceable basis in order to be eligible for SIP credit. If individuals or employers do not
respond to the transit pass program as expected, the state need not enforce the program
against individuals or employers but must remedy any emission reduction shortfall in a
timely manner.*° ‘

In lieu of more stringent enforcement, the VMEP guidance directs states to actively
monitor, evaluate and report on the effectiveness of voluntary measures. To continue with
the transit pass example, the state program might include a commitment to annual
evaluation of transit pass purchase data, to check: are people buying as many passes as
expected? For a Parking Cash Out-type program, the state might examine how the actual
number of employers offering a Parking Cash Out option compares to the number
estimated; the actual versus estimated value of benefits offered instead of parking; and the

Note, for example, that the EIP rule can also be used to take credit for transit pass programs.

MEP Guidance, p. 9.

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Commuter Choice Programs

CHAPTER 2: ESTIMATING EMISSION REDUCTIONS

To receive EPA approval for a State Implementation Plan (SIP) that includes emission
reductions associated with a Commuter Choice program, the SIP submittal must include,
among other requirements, a quantitative estimate of emission reductions, including
technical support documentation for the anticipated emission reductions.'? This section
provides a template that air quality and transportation planners may use to begin to
quantitatively estimate the emissions reduction potential of a particular state or agency’s
Commuter Choice program.

EPA emphasizes that areas should use locally derived data specific to the program region
whenever possible. National average data is used in this guidance for illustrative purposes
only. Use of any data other than locally derived information may require the emission
reduction estimate for which credit is taken to be reduced. The methodology outlined in
this guidance may not be adequate in all instances. EPA will accept variations on the
methodology described in this guidance, and will evaluate any methodology in light of
submitted supporting documentation. The Agency will work cooperatively with any state
or agency that is considering Commuter Choice programs to estimate the effects of such
measures. Regional EPA representatives to contact about Commuter Choice programs are
listed in Appendix 6.

Accurately forecasting the impacts of Commuter Choice programs is challenging for
several reasons. First, Commuter Choice programs work by changing financial incentives,
and traditional transportation modeling techniques rarely include financial variables.
While traditional modeling techniques such as the four-step travel modeling process can
include the financial variables, most do not.'? Second, the success of state Commuter
Choice programs, even mandatory programs, depends on choices by employers and
commuters whose outcome may be difficult to predict.

The following is a basic method for quantifying emission reductions, with suggestions for
refinements that states or agencies may want to employ in particular situations. EPA
recognizes that actual emissions reductions from Commuter Choice programs may differ

v See Chapter 3 for a complete list of requirements that must be met to receive SIP credit for State

programs.

8 ‘The EPA document Guidance on the Use of Market Mechanisms to Reduce Transportation
Emissions discusses modeling upgrades that will improve estimates of travel and emissions impacts from market
mechanisms like Commuter Choice yielded by transportation models.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

percentage of employers that will offer flexible Commuter Choice options is
higher than the percentage that has offered flexible benefits plans, a state should
explain why they expect to achieve greater penetration of commuter benefits
options than has been observed with existing flexible benefits plans.

2.3.3.3. Mandatory Vs. Voluntary Programs--EPA expects that it
will be easier to estimate emissions impacts for mandatory programs, and
that, as discussed in Step 3B, those estimates will have narrower error
bounds than for equivalent voluntary programs.

2.3.4, What If the State or Agency Has No Program?--If a state or agency
has no Commuter Choice program, but still wants to count emission reductions in a SIP
from employers who begin offering Commuter Choice options, it should begin by
developing an estimate as for a voluntary program. The State should then consider what
evidence there is that information about the tax code change will be disseminated in the
state. The tax section of the State Bar Association, for example, may be sponsoring
workshops that will cover the changes to the commuter benefits provisions. Service firms
that specialize in outsourcing human resources functions may be marketing commute
benefit options to their clients as a new way to improve employee satisfaction. Leading
employers may have announced that they direct part of their pre-tax salary to pay for
eligible cafeteria plan items, such as dependent care expenses. By doing so, they lower
their taxable salary. If they do not elect to allocate salary to such items through a cafeteria
plan, they increase their taxable salary. Similarly, an employee who is offered cash in lieu
of parking increases their taxable salary if they take the cash instead of the parking. They
reduce their taxable salary if they take the parking instead of the cash.

This option is unusual in tax law. Ordinarily, the tax principle of “constructive receipt”
means that if employees have the option of taking a taxable item or a tax-exempt item,
they are taxed as if they had accepted the taxable item even if they opt for the tax-exempt
item.

Alternatively, Local city councils may recommend or require employers to offer
Commuter Choice options before approving new parking construction, as has already
occurred in a few areas (see footnote 20). The State should then adjust the estimate for the
voluntary program appropriately, considering evidence that relevant people will be aware
of and motivated to take advantage of the new commuter benefits provisions of the
Federal tax code.

9 For a discussion of constructive receipt, see United States Master Tax Guide 80" Edition, C.C.H.
Inc. 1996, paragraph 1533, which reads in part:

It is not always necessary that money or property representing income actually
be in the taxpayer’s possession before it is considered received. Income that is
constructively received is taxed as though it had been actually received. There is
constructive receipt when income is credited without restriction and made
available to the taxpayer. There must be no substantial limitation or condition on
the taxpayer’s right to bring the funds within his control.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

2.2.1. Labor Force--Estimates of a region’s labor force may be obtained from a
number of local and national sources. Recent and specific estimates of employment,
based on economic growth trends, should be used if available or calculated if reasonably
possible. Business research organizations such as DRI/McGraw Hill or Dun and
Bradstreet produce a variety of employment projection information. Other possible data
sources for economic and employment data specific to the program region include state
economic development agencies and metropolitan planning organizations. Less current
county and state-level employment data are available from sources such as the County
and City Data Book and the State and Metropolitan Data Book, both from the U.S.
Department of Commerce. These sources base their estimates on the results of the latest
census (currently 1990).

2.2.2, Adjustment for Employees Not Driving to Work Alone--Some

fraction of the labor force does not drive to work alone, either because they don’t

q commute to work at all, in the traditional sense, or because they already commute by a
non-SOV mode such as carpooling, transit, biking, or walking. Agricultural workers,
people who work at home, and workers in industries such as trucking do not generally
“commute to work” in a way that is relevant to Commuter Choice options. Labor force
estimates should be adjusted downward accordingly. EPA expects that many, if not most,
areas will have locally derived mode share information that is already used in regional
transportation modeling. Where locally derived mode share information is not available,
data from the Nationwide Personal Transportation Survey (NPTS), available from the
U.S. Department of Transportation, can be used to estimate commute mode share.'*

The total labor force less workers that do not commute to work in the traditional sense
should then be divided according to mode share. The percentage that commutes by SOV
is the population of most interest in a Commuter Choice program because this is the
largest group from which emissions reductions can be gained. Commuter Choice
programs may also affect the smaller group of existing car-poolers. Emissions reductions
would result from switching car-poolers to even higher occupancy modes (e.g., two-
person carpools to transit/vanpools) or to walking or bicycling.

2.3. Step 2: Estimate the Proportion of These Vehicles Driven to Employer
Work Sites Where Commuter Choice Options Are or Will Be Available

Whatever the nature of a state’s Commuter Choice program, only a certain fraction of
employers will alter their commute benefits options. If the program is mandatory for
employers, employer participation rates will depend on a program’s specific design, and

is ‘The most recent survey, conducted in 1995, is based on information from telephone interviews of

95,360 persons in 42,033 households. Analysis based on the 1995 data is not yet available, but analysis from the 1990
NPTS is useful for these purposes. As analysis from the 1995 NPTS becomes available, the more recent information
should be used where local data is unavailable. For additional information on the Nationwide Personal Transportation
Survey and using its data, contact Bryant Gross, Data User Support, (202) 366-5026, Bryant.Gross@fhwa.dot.gov, or
see the 1995 NPTS User Services page: http://www-cta.oml.gov/npts/1995/doc/user_services.html-ssi. A variety of
secondary sources based on the 1990 NPTS are available; some of these are listed in the Subject Bibliography.

SIP Protocol Development for Commuter Choice Programs - 17



EPA420-R-98-007

actual versus estimated change in SOV mode share. The state program would further
commit to report to EPA any significant shortfalls from projected emission reductions
from the program and either to correct those shortfalls or make other program
adjustments to achieve overall SIP objectives in a timely manner. The state or agency
should consider, in designing voluntary (or mandatory) measures, how it will gather the
data needed to monitor, evaluate, and report on their effectiveness.

3.3.2. Cap on Total Percent Reduction--In addition, the VMEP Guidance
establishes a cap on the portion of emission reductions available through VMEP to meet a
Clean Air Act standard. In general, no more than 3 percent of emission reductions
required to demonstrate (1) progress towards; (2) attainment of; or (3) maintenance of a
National Ambient Air Quality Standard may come from VMEP measures, including
education and outreach and transit pass Commuter Choice programs.*” The VMEP
Guidance notes that EPA will assist areas to use the EIP Rule if they wish to claim more
than the 3% cap on any given pollutant from voluntary programs.**

3.3.3. Seasonal or Episodic Measures--Seasonal measures are in effect
only during the season in which an area experiences high pollutant concentrations, e.g.,
summer ozone season. Episodic measures are in effect only during those days in which
high pollutant concentrations are projected based on weather conditions, e.g., ozone alert
days. The VMEP Guidance states EPA’s view that such measures may be approved for
SIP reductions under the Clean Air Act in certain cases. Voluntary or transit pass
Commuter Choice programs may be constructed to provide commute benefits only during
these periods. For example, a state might distribute transit passes during the summer
ozone season. Or a program might encourage employers to offer cash in-lieu-of-parking
spaces during the ozone season.

3.4. Issues for Incentive and Mandatory Commuter Choice Programs

This subsection summarizes certain specific issues addressed in the EIP Rules and Market
Mechanisms Guidance that may be of relevance to an incentive or mandatory Commuter
Choice program.

3.4.1. Accounting for Emission Reductions Uncertainty--The EIP rules
require that states incorporate into their technical analysis explicit adjustments, based on
best judgment, for compliance uncertainty and programmatic uncertainty. Compliance
uncertainty is a measure of the likelihood that the program will be implemented and its
specific terms followed. Compliance uncertainty may be affected by state or agency
enforcement efforts. For example, if a state or agency implements a program requiring

VMEP Guidance, p. 6.
MEP Guidance, p. 6.
‘VMEP Guidance, p. 10.

0 All of the requirements discussed in this subsection are contained in paragraph III.D.6 of the EIP
Rules, FR 16699-16700.

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EPA420-R-98-007

approved into a SIP either through the normal SIP guidelines or through the Economic
Incentives Policy.

In 1992, California enacted a mandatory Parking Cash Out program for selected
employers in air quality non-attainment areas. The law requires employers that have 50 or
more employees, that subsidize employee parking, and that can reduce the number of
parking spaces without penalty, to provide employees the option to take cash instead of
parking. The State law specifies that the cash offer must at least equal the parking
subsidy.’ Implementation of the law had been held in abeyance because of a conflict
with the Federal tax code. This conflict was removed by the Taxpayer Relief Act of 1997,
which was further expanded by TEA-21 . In 1998, California may enforce the law as it
was originally intended—as a way of reducing air pollutant emissions from commute
travel without raising employers’ commute benefit expenditures.

The City of Santa Monica, California has incorporated the State’s 1992 Parking Cash Out
Law into its own local ordinance.’ Some states have retained the Employee Commute
Options (ECO) programs that Federal law once required.° For those states, existing ECO
programs can be made more effective if combined with some of the new incentives made
possible by the tax law changes. California employers who experimented with Parking
Cash Out, for example, found it to be much more effective at reducing trips than anything
they had tried under the ECO program.'° Places that have retained their ECO
requirements, like Portland, Oregon, might measure the additional impact of the new
options on their existing requirements, and adjust their SIP projections accordingly."

1.4.5. Commuter Choice Without State Action--Recent changes to the tax
code facilitate actions by state or local governments in all of the above categories. The
recent tax code change will also encourage some employers to begin offering Commuter
Choice options even in the absence of government programs. EPA now allows such
programs to be used in meeting SIP requirements under EPA’s Voluntary Mobile Source
Emission Policy (VMEP). For example, a public-private partnership may undertake a

7 California Health and Safety Code, Section 43845.

8 Santa Monica Ordinance Number 1604.

’ Employee Commute Options (ECO) programs were at one time required by the Clean Air Act in
fourteen metropolitan areas classified as severe or extreme for ozone or carbon monoxide pollution. Under these
programs, States required employers to implement trip reduction plans. The requirement was made flexible in 1995, but
some states continue to require trip reduction efforts by employers.

" Donald Shoup, “Evaluating the Effects of Cashing Out Employer-Paid Parking: Bight Case
Studies,” Transport Policy, Vol. 4, Number 4, 1997.

" Employers in the Portland area with more than 50 employees reporting to a single work site must
provide incentives for alternative commute options. The alternatives, which include options such as transit subsidies,
rideshare programs, bike programs, and telecommuting, must have the potential to reduce the number of employee cars
driven to the work site by approximately 10 percent within three years. Employers are required to survey their
employces to determine current commute methods and then submit a plan to meet the target reduction to the
Department of Environmental Quality. Employers design and implement a program without DEQ’s review and after
three years, compliance status is granted or denied on the basis of whether or not a good faith effort was made to
achieve the target outlined in the plan.

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ES-3. How this Guidance Is Organized

Commuter Choice programs can include any or all of several elements. Chapter 1
describes the many types of Commuter Choice programs. The Commuter Choice concept
is not entirely new in air quality planning, but the recent tax code change makes it
potentially more powerful than ever before. Chapter 2 provides the analytical framework
for quantifying the emission reductions of Commuter Choice programs and provides
examples. The heart of the chapter is a basic four-step methodology for projecting
emission reductions from Commuter Choice programs. Chapter 3 reviews legal and
administrative requirements for using the emission reductions from Commuter Choice
programs in SIPs.

ES-4, Methodology for Quantifying Emission Reductions

This guidance provides a basic four-step methodology for projecting emission reductions
from Commuter Choice programs.

Population of Commute Vehicles:
Estimate the number of passenger vehicles
that are driven to work.

Potentially Affected Population: Estimate
the proportion of these vehicles driven to
employer work sites where Commuter
Choice options are or will be available.

A Participation Rates: Forecast the type
and value of new Commuter Choice benefits
and estimate drivers’ likely response to those
new benefits.

B Uncertainty: Incorporate compliance and
programmatic uncertainty factors.

Emission Reductions: Estimate the total
change in VMT and associated emission
changes.

US EPA OFFICE OF MOBILE SOURCES



Commuter Choice Programs

CHAPTER 3: LEGAL BASIS OF SIP CREDITS FOR, AND >
CLEAN AIR ACT REQUIREMENTS RELATING TO,
COMMUTER CHOICE PROGRAMS

EPA’s legal authority to approve emission reduction estimates in SIPs, and to disapprove
estimates under specific circumstances, is contained in Section 110 of the Clean Air Act.
This document does not stand alone, but rather supports four Guidances issued by EPA
that either discuss inclusion of different types of Commuter Choice programs in the SIP
or describe modeling improvements to better estimate emission reductions from programs
like Commuter Choice. These Guidances are EPA’s Economic Incentives Program (EIP)
Rule, Guidance on Incorporating Voluntary Mobile Source Emission Reduction
Programs in State Implementation Plans (referred to as the VMEP Guidance),
Methodologies for Estimating Emission and Travel Activity Effects of TCMs, and
Guidance on the Use of Market Mechanisms to Reduce Transportation Emissions. In
addition, specific provisions of the Clean Air Act include candidate transportation control

measures and set forth requirements for SIPs including these measures in some cases.*!

This chapter describes minimum requirements typically used by EPA in approving any
SIP program. By reference to published policies, this section goes on to discuss specific
issues that may arise for Commuter Choice programs. Finally, this section briefly :
describes the situations in which credits may be used to satisfy Clean Air Act
requirements for emission

reductions.

3.1. General Requirements of the Clean Air Act for SIP Programs

The basic Clean Air Act framework for any state program may be described as follows.
The State Authority or agency submits to EPA a proposed State Implementation Plan
(SIP) revision that describes the program; contains projections of emission reductions
attributable to the program; and commits to implement and enforce the program. In
general, EPA requires at least the following of any program, including any Commuter
Choice program.

31 See, for example, Clean Air Act sections 108 (f), 182 (d) (1) (A), 187 (a) (2) (A) and (B), and 187

(b) (2). These general requirements are further discussed in EPA’s proposed General Preamble for Implementation of
Title I of the Clean Air Act Amendments of 1990, 57 FR. 13498 (April 16, 1992).

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EPA420-R-98-007

work sites that offered Commuter Choice options would fall by 30% (201% * -0.15).75
Effects of this size on solo mode share from differences in parking prices are consistent
with empirical results. In a matched set of employees, for example, those who received
free parking at work drove 72 cars per 100 employees, while those who paid for parking
at work drove 53 cars per 100 employees, or 26% less.*° The decline in vehicles driven to
work, multiplied by the average commute length, would yield an estimate of the reduction
in vehicle miles traveled (VMT) that would then be used, with some adjustment
described in the next section, to estimate emission reductions in Step Four.

Advanced analysis: Specific information on the value of benefits that will be offered
instead of parking, including not just average values but the distribution of values, will
increase the accuracy and certainty of the estimates in this step. As suggested above,
parking value is one way to tackle the problem, but not the only one. States and agencies
could investigate local sources of data, and incorporate local information where it exists.

2.4.3. Estimate Emissions Offsets--The EPA document Methodologies for
Estimating Emission and Travel Activity Effects of TCMs includes a “sketch planning”
method for estimating emissions offsets for programs, like Commuter Choice, that will
result in some new offsetting trips. For example, an SOV commuter might switch to a
combination of a car trip and a transit trip. Emissions from the shorter car trip to transit
are an upward “offset” to the overall estimate of emission reductions from the aggregate
fall in SOV trips. Similarly, new trips might be generated if a particularly congested
corridor becomes less congested. Downward offsets are also possible, for example for
lunchtime trips that are eliminated when a car is not used to commute to work. The
TCMs guidance provides instruction on how to adjust outputs from the MOBILE model
so that changes in trip-making are reflected in the MOBILE emission factors for hot- and
cold-start exhaust, hot soak, and diurnal emissions which are implicit in MOBILE’s
gram-per-mile emissions factors. A second offset adjustment is also necessary to account
for the effect of VMT changes on hot-stabilized exhaust, running loss, and refueling
emissions. VMT is not itself an input to the MOBILE or EMFAC models. Therefore, the
estimate of VMT reductions must also be produced to derive an estimate of the hot-
stabilized portion of the change in VMT. These two sets of emissions changes are added
together.

An alternate way to ensure that offsetting emissions are adequately estimated is to
upgrade travel models along the lines described in the Market-Based Guidance,
particularly with respect to incorporating feedback loops in travel models.?” Modeling
upgrades described in this guidance can improve estimates of the inputs to MOBILE or

25 See the Subject Bibliography for a list of literature that has examined the impact of changes in the
price of parking on driving.

26 Donald Shoup, “An Opportunity to Reduce Minimum Parking Requirements,” Journal of the
American Planning Association, Winter 1995, pp. 14-28.

2 In addition to the Market Based Guidance, documents discussing specific modeling issues will be
helpful. See, for example, Incorporating Feedback in Travel Forecasting: Methods, Pitfalls, and Common Concerns,
Travel Model Improvement Program, US DOT, US EPA, US DOE, March, 1996. Document # DOT-T-96-14.

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Commuter Choice Programs

ACKNOWLEDGMENTS

The Office of Mobile Sources (OMS) in the EPA Office of Air and Radiation
issues this guidance and wishes to acknowledge the contributions of key EPA staff in the
Office of Policy, the EPA Regions, the Office of General Counsel, and the Office of Air
Quality Planning and Standards. In particular, OMS is grateful to Ms. Laura Gottsman of
the Office of Policy. Ms. Gottsman made significant contributions to the development of
this guidance based upon her in depth knowledge of the Commute Benefits Provisions of
the Taxpayer Relief Act of 1997 and its policy implications.

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EPA420-R-98-007

CHAPTER 3: LEGAL BASIS OF SIP CREDITS FOR AND CLEAN AIR ACT REQUIREMENTS
RELATING TO COMMUTER CHOICE PROGRAMS 29
3.1. General Requirements of the Clean Air Act for Sip Programs . . . 29
3.2. EPA Policies with Specific Guidance for Commuter Choice Programs .... 30
3.3. Issues for Education and Outreach and Transit Pass Commuter Choice
Programs . 31
3.3.1. Enforcement and auditir
3.3.2. Cap on total percent reduction .
3.3. 3 Seasonal or episodic measures
3.4, Issues For Incentive And Mandatory Commuter Choice Programs
3.4.1. Accounting for emission reductions uncertainty
3.4.2, Audit procedures and reconciliation .
3.4.3, Use of program revenues
3.5. Use of Emission Reductions From Commuter Choice For Clean Air Act
Requirements

APPENDIX 1: Blueprint for a Voluntary Commuter Choice Program

APPENDIX 2: Alternatives to Commuting by Personal Vehicle and the Associated
Benefits of Those Alternatives

APPENDIX 3: Example Employer’s Annual Program Information Form. .

APPENDIX 4: Air Pollution Control! Agency Check List for Obtaining SIP Credit for
Voluntary Alternative Commute Programs

APPENDIX 5: Commuter Benefits in Federal Tax Law and How Benefits Are Offered 45
APPENDIX 6: EPA Contact People
SUBJECT BIBLIOGRAPHY

Notes Page

US EPA OFFICE OF MOBILE SOURCES



Gommuter Choice Programs

region-wide Commuter Choice initiative and work with employers in offering commute
benefits. A state or agency can now use the emission reductions from such a voluntary
program, according to VMEP guidance, in meeting SIP requirements. Most SIPs
submitted before the 1998 tax changes will not have included the effects of expanded
employer-provided Commuter Choice options in their baselines. In most cases, emission
reductions that result from employers offering expanded commuter benefit options in the
absence of state action should be approvable in a SIP, even if those reductions do not
directly result from a government Commuter Choice program.

The tax changes make it far more appealing for employers to offer a menu of commute
benefits by allowing them to finance commute choices with money already being spent on
compensation and benefits. Because commute benefit options can increase employee
satisfaction and retention, and help employers and employees manage transportation-
related costs, it is likely that some employers will begin offering commute benefits
options even in the absence of government programs that encourage or require them to do

qj so. Because SIPs submitted before the passage of the 1998 tax changes will not have
included the effects of these autonomous employer actions, states should in most cases be
able either to take credit for the expected emission reductions, or adjust their baseline
emissions projections in response. EPA emphasizes, however, that States are responsible
for quantifying Commuter Choice activity and demonstrating associated emission
reductions in order to include these reductions in the SIP. (Detailed requirements for
using Commuter Choice related emission reductions to meet SIP requirements are
reviewed in Chapter 3.)

SIP Protocol Development for Commuter Choice Programs 13



Commuter Choice Programs

Executive Summary

ES-1. Commuter Choice Can Reduce Air Pollution

The vast majority of American workers are offered only one commute benefit: free or
substantially subsidized parking at work. Recent changes to the Federal tax treatment of
employer-provided commute benefits make it attractive for employers to offer more
benefit choices to their employees. Through Commuter Choice programs, employers offer
one or a mix of commute benefits alternatives to parking that encourage employees to
commute by modes that are less polluting than driving to work, especially driving alone.
In particular, Commuter Choice programs can substantially reduce the number of
employees that drive alone to work, and increase the number of employees choosing cash
or other compensation instead of parking, and using transit, vanpool, and other options.
Commuter Choice programs can thus help reduce air pollution, congestion, and other
negative environmental effects from commuting.

ES-2. EPA Issues This Guidance to Encourage Commuter Choice

EPA issues this guidance to help states or agencies! calculate the emission benefits of
Commuter Choice programs and take credit for them in State Implementation Plans
(SIPs). However, other entities will find this guidance beneficial as well. For example,
public-private partnerships which implement and run a Commuter Choice program
should use this basic methodology to evaluate behavior change and program
effectiveness. Commuter Choice programs can be implemented as a mandatory measure,
an Economic Incentive Program, or as a Voluntary Measure. For each of these options, a
different entity may administer and evaluate the Commuter Choice program. In any case,
this document should be referenced when calculating the impact of Commuter Choice
programs on mode shift and emissions. For example, a Voluntary Measure program may
be entirely administered by individual employers. EPA encourages communities and
companies to learn about Commuter Choice programs and will work with any area that
wants to evaluate the potential of Commuter Choice programs to improve human health
and environmental quality.

' This document uses “state or agency” to refer to anyone who has authority to submit a State

Implementation Plan (SIP), such as a local government, regional transit authority, or regional air quality agency, that
takes action to reduce mobile source emissions through a Commuter Choice program.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

support the use of the compliance rate associated with tax measures
generally. Conversely, a mandatory program with extensive education and
enforcement might support a rate higher than 80%. In either case, States
should expect to measure the actual compliance rate as part of their
general program audit, discussed in Chapter 3 below.

2.3.3.2. Voluntary--For a voluntary program, the State will have to
estimate the fluidity of the market for employer-provided parking. How
easy will it be for an employer to convert a parking benefit into other
benefits? The most common distinction made about employer-provided
parking is whether the parking is leased or owned by the employer. The
general presumption is that a firm can more easily shed leased parking
than owned parking, so it will be easier for firms that lease parking to
convert free parking into other benefits. Other sources of information on
this point include the rate of business relocation, since relocation offers an
opportunity to reallocate all parking benefits in one step; and overall
growth in employment, since adding employees or work sites are also
opportunities to fully exchange a parking benefit for another benefit.”
Local zoning policies about parking will also affect fluidity—employers in
an area that waives minimum parking requirements for sites where parking
demand is managed with a Commuter Choice program, for example, can
convert that parking into other uses.'* Conversion of parking is particularly
attractive when the parking is located in areas with high land values and
low commercial vacancy rates—owned parking in these areas is probably

more likely to be converted than owned parking in areas with low land
values or high commercial vacancy rates.

Data on whether parking is leased or owned are available from two national
surveys listed in the Subject Bibliography, but the data are not particularly reliable
for anything other than national estimates. However, both surveys show that small
employers are much more likely than large employers to lease the parking they
ptovide to employees, suggesting the importance of including smaller employers
in Commuter Choice programs. Table 1 summarizes the information from these
surveys on leased parking by employer size. The rate of business relocation and
overall growth in employment are better understood and more readily available at
the local or state level.

EPA suggests that states or agencies assemble information on fluidity, and
use that to help estimate employer participation in a voluntary program.

" ‘A local council in New Jersey recently suggested that before they approved a new parking garage,

they wanted the employer to first offer expanded commuter benefit options to see if that would reduce the need for
parking such that the garage was unnecessary. In Somers, New York, the Town Planning Board recently instructed
IBM to consider offering expanded commuter benefit options to its employees as a way of managing parking demand
instead of placing blacktop over a portion of a watershed to create 700 new parking spaces for 800 new employees.

18 At one point when office space was scarce, EPA located offices in a former underground parking
garage (without removing the speed bumps).

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EPA420-R-98-007

42 US EPA OFFICE OF MOBILE SOURCES.



EPA420-R-98-007

emissions budgets for conformity purposes.

However, Commuter Choice programs may be initiated without involving a SIP
submittal. Commuter Choice programs make sense for a variety of reasons other than
improvement of air quality. Commuter Choice programs make it easier and more
economical for people to get to work. Commuter Choice programs reduce congestion.
These programs also have been shown to increase employee satisfaction. Furthermore,
Commuter Choice programs improve employee retention rates and make the employer
more competitive in a tight labor market. Commuter Choice programs are an employee
benefit that doesn’t need to increase employer costs and are popular with employees. A
company that offers a Commuter Choice program meets its own needs and its employee’s
needs. EPA intends to recognize the air quality benefits of Commuter Choice programs
in conjunction with necessary requirements, but companies can offer Commuter Choice
programs regardless of whether their local area will be preparing a SIP submittal.

1.1. How Commuter Choice Programs Work

Reducing the frequency that commuters drive alone generates air quality benefits.
Commuter Choice programs may include one, all, or a combination of the following
individual benefits:

© Free or reduced cost passes for public transportation (such as subway cards,
bus tokens, or train tickets),

e@ Transit and vanpool vouchers and subsidies,

© Services to facilitate vanpools and carpools (such as providing vans,
ridematching, and guaranteed ride home services),

@ Park and Ride subsidies,

© Telecommuting options (so employees can work at home more often),

@ Proximate Commuting: a program that matches employees of multi-site
employers (such as banks or chain stores) to the branch office nearest their
home,

@ Incentives to bike and walk, and

@ Parking Cash Out: employees can trade employer-paid parking space for cash
or other benefits.

With more options, commuters can be expected to use single-occupant vehicles less
often.

Air quality improves due to the mode shifts
which should reduce vehicle miles traveled,
and thus emissions.

Commuter Choice program
means an organized program to
encourage employers to offer
flexible commute benefit options to
employees.

1.2. Definitions of Commuter Choice

As already mentioned, Commuter Choice is a

blanket term to describe a variety of commute
benefit-related measures. In this guidance, the
phrase “Commuter Choice program” refers to
a state-run, agency-run, or public-private
partnership program to encourage or require
employers to offer certain commute benefit-

Commute benefit options are any
of a number of flexible commute
benefits offered by employers.
Basic Commuter Choice
alternatives include transit benefits,
vanpool benefits, cash, or parking.

US EPA OFFICE OF MOBILE SOURCES



Commuter Choice Programs

CHAPTER 1: COMMUTER CHOICE PROGRAMS AND
COMMUTE BENEFIT OPTIONS

Many cities and states today are facing increasing problems with air pollution and traffic
congestion, especially those experiencing significant growth. Commuter Choice offers
several possibilities for these areas to work towards reducing air pollution and meeting air
quality standards. Different forms of Commuter Choice programs allow states, local
areas, public- private partnerships, and even employers to play lead roles in helping to
improve air quality. In addition, recent changes in Federal tax law enhance the programs’
appeal, inviting more cooperation from key players.

Commuter Choice is an important strategy to reduce emissions from passenger vehicles
and improve air quality. Through Commuter Choice programs, employers offer one or
more options from a diverse menu of commute benefits encouraging employees to
commute by modes which are less polluting than driving alone. Recognizing the air
quality benefits of a reduction in solo-commuting, Congress has established incentives
giving employers and employees new ways to get tax savings in association with
specified work commute benefits. These provisions, amended by the Transportation
Equity Act for the 21* Century (title 9 section 910, PL 105-178), are contained in the
Internal Revenue Code Section 132(f). The new tax law provides direct benefits for
transit, vanpooling, and parking commute options. Under current law, qualified parking,
transit, and vanpool benefits offered by employers are not subject to certain Federal taxes
(up to specified limits). Employers may also offer Parking Cash Out as an option, where
employees can trade employer-paid parking spaces for cash or other benefits. Appendix 5
summarizes the results of the recent changes in the tax laws and discusses some measures
that can be considered for different types of Commuter Choice programs.

Commuter Choice programs are designed to meet local needs, preferences, and available
options. They may be developed by an individual business or as part of a wider regional
strategy. A state or agency may be interested in taking credit in a State Implementation
Plan (SIP) for state- or agency-run Commuter Choice programs, for laws requiring private
employers to offer commute benefits, and/or for other measures to encourage commuter
benefits to be offered voluntarily by individual employers. Such encouragement includes
public-private partnerships that provide employers with the means to easily implement
Commuter Choice programs and provides the state or agency with adequate information
upon which to base a SIP submittal. This guidance specifically serves the purpose of
assisting states or agencies in preparing SIP submittals, particularly in meeting the
quantification and legal requirements. Alternatively, Commuter Choice Programs can be
used in Transportation Improvement Plans (TIPs) to help areas stay within their

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EPA420-R-98-007

parking facilities. These alternatives may be subject to favorable treatment under
State income tax. Examples of these types of payments are as follows:

w A monthly cash payment of $75 to employees who use a carpool;

we A monthly cash payment of $100 to employees who agree not to use
company-provided parking; or

w A supplemental, taxable payment of $25 per month to transit riders, on
top of the $65 tax-free portion of their wages paid out to cover transit costs
or on top of the $65 per month pass given in addition to wages.

Another way to set up supplemental payments is to scale them
according to their effectiveness in reducing emissions. For
example, bicycling and walking could receive the greatest amount,
followed by mass transit, then carpools.

Support for Telecommuters - Where it fits into business objectives,
telecommuting (even if it does not occur every day of the week) is a highly
effective alternative to driving to and from work. Employers can support
telecommuting by providing employees with a computer/communications system
for home use that is compatible with and ties directly into the company or agency
system, at no cost to the employee. If the employer retains ownership of the
system, there should be no taxable income to the employee.

Charge for Parking - Employers who own or lease free parking and provide it free

to employees can impose a fee that fully or partially recovers the actual cost of the
parking. This would allow clean commute participants to benefit from avoidance
of parking fees. Alternatively, employers can decline to take the steps needed to
allow employees to exclude parking benefits from taxable income, while doing so
only for commute alternatives, thus giving the alternatives a favored tax status
within the company or agency. To avoid inequities, commute alternatives under
this approach should be available for most, if not all, employees.

Special Accommodations for Participants - Where consistent with business

prerogatives, employees who participate in a clean commute program can be
granted personal accommodations such as flexible hours; 4/40 work-weeks;
secure bike storage facilities; showers for bicyclists and walkers; accurate and
regularly updated carpool/vanpool information; free participation (or reduced
fees) for employees who organize a new carpool or vanpool, or who volunteer to
drive a group commute vehicle or carpool, etc.

Special Recognition for Participants - Experience with commute alternatives

during the energy crisis era in the late 70s and early 80s indicates that establishing
Sroup spirit and recognition is highly effective in expanding and maintaining
alternative commute programs. Employers should select features that fit their
own company or agency culture. Examples include an annual picnic or dinner, a
private dinner session with top management, special symbols for office doors or
desks, outside speakers, trips to special events or points of interest, etc.

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EPA420-R-98-007

This procedure is performed by estimating the effects of vehicle travel reductions on the
average emissions of vehicles in a local fleet using an approved emissions factor model
(MOBILE in 49 states or EMFAC in California). These models take information on
vehicle trips, speeds, and the distribution of vehicle miles across vehicle categories,
combine it with information on the composition of the local vehicle fleet and its
emissions characteristics, and generate estimates of emission factors (usually expressed in
grams per mile) by type of pollutant. MOBILE is used to estimate VOC, CO and NOx
emission factors, while a similar model, PART 5S, is used to estimate PMio. EMFAC
includes CO, NOx, VOC and PMho for tail pipe, brake wear, and tire wear emissions.
Future EMFAC versions may incorporate re-entrained dust emissions. Analysis using an
EPA-approved emissions model is required for SIP approval for any emissions control
strategy. The modeling is designed to capture changes in driving or trip characteristics
that might result from Commuter Choice programs and would in turn affect emissions
factors, such as a change in vehicle speeds or in the ratio of cold start to running
emissions per trip. Estimates of emission reductions for each pollutant are the difference
between the product of the previously estimated VMT and emission factor, and the
revised VMT and emission factor, for each pollutant.” While EPA requires use of an
approved emissions model for SIP credit, more basic preliminary analyses can be very
informative as a community explores the potential of Commuter Choice programs to
improve air quality and produce other environmental and economic benefits. Using a
simple per-mile emissions factor, for example, multiplied by the VMT decrease from
employees taking advantage of Commuter Choice options, will give a rough indication of
reductions in air pollutant emissions from the program. Commuter Choice programs may
also reduce traffic congestion, decrease emissions of greenhouse gases that contribute to
global climate change, and reduce stormwater runoff pollution, among other benefits.”

29 (VMTold * EFold) - (VMTnew * EFnew) = Estimate of emissions reduction

30 For more information, see the EPA report Indicators of the Environmental Impacts of
Transportation, EPA 230-R-96-009, October, 1996. The document is available electronically from the EPA web site:
www.epa.gov/tp.

26 US EPA OFFICE OF MOBILE SOURCES



Commuter Choice Programs

Appendix 4:
Air Pollution Control Agency
Check List for Obtaining SIP Credit
for Voluntary Alternative Commute Programs

Under EPA guidance, voluntary programs are subject to the same requirements as
mandatory programs. The relevant agency must assemble the following information (as
estimates for new programs and as actual survey data for annual audits thereafter). EPA
has prepared an “Employer’s Annual Program Information Report” that outlines the
types of information that will typically be needed.

1. Quantification of emission reductions.

. Determine potentially affected population of vehicles driven to work by
employees of all participating companies and agencies. Use survey data, or
preferably, actual data from participating companies and agencies.

Determine population of vehicles participating in the programs, along with type or
mode of alternative commute. Again, survey data is acceptable, but actual
participant data is preferable.

Determine program effectiveness as the number of private commute vehicles
displaced by alternative commute forms. This can be done by using accepted
elasticity factors, or preferably, by combining actual data from participating
companies and agencies.

Develop a “fluidity” factor, if actual program data are not exclusively used, to
adjust the program based on such matters as ease of employees’ ability to switch
to alternative commute forms, availability of free parking, local zoning
requirements, growth of employment, opportunities for expansion and relocating,
etc.

Apply “uncertainty” factors (error bounds), if actual participant data are not being
used, to adjust for programmatic and compliance uncertainty, using techniques in
planning literature. Information such as the value and scope of program
incentives is useful in developing these factors.

Estimate actual emissions reductions using an EPA-approved model (MOBILE in
49 states, EMFAC in California), and the reduced number of vehicles used for
commuting as a result of the program.

2. Legally binding, enforceable commitment by the agency.

Voluntary Clean Commute programs obviously do not require participation by any
employer, but the responsible agency must make an enforceable commitment at the state

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

EMFAC and of VMT at once, and would produce more reliable estimates than the sketch
planning method can. Modeling improvements such as these are preferred to offline
analysis.

2.5. Step 3B: Incorporate compliance and programmatic uncertainty factors
EPA guidance generally provides that emissions estimates of control programs need to be
tempered with explicit factors accounting for compliance and programmatic uncertainty.
Compliance uncertainty is a measure of the likelihood that the program will be
implemented and its terms followed. Compliance uncertainty means something different
for voluntary and mandatory programs. For mandatory programs, “compliance” concerns
uncertainly about compliance and enforcement. For voluntary programs, “compliance”
refers to the number of targeted employers that begin to offer Commuter Choice options,
and is probably better referred to as “participation.” For both types of programs,
programmatic uncertainty is a measure of how well participants will respond to the
program. It concerns the program’s effects on participants, such as how much cash in lieu
of free parking will affect commute mode choice.

2.5.1. Compliance or Participation Uncertainty--Perfect enforcement of
mandatory programs would produce 100% compliance by affected employers. But 100%
compliance is of course improbable. In voluntary programs, the best education and
outreach efforts would not produce 100% participation by targeted employers, since some
employers would probably decide that offering Commuter Choice options did not fit with
their overall benefits plan. The extent to which mandated employers will comply with or
targeted employers will participate in these programs should have already been explicitly
considered in Step Two of the analysis. EPA expects that compliance error bounds (for
mandatory programs) can be narrower than participation error bounds for otherwise
equivalent voluntary programs.

2.5.2. Programmatic Uncertainty--Programmatic uncertainty should be
estimated for both voluntary and mandatory programs. Because no comparisons have
been made between the projected and actual impacts of Commuter Choice programs,
programmatic uncertainty is difficult to estimate. Users of this document are encouraged
to make their own upper and lower bound estimates by varying the assumptions relevant
to programmatic uncertainty used in earlier steps in the analysis. A range of consumer
response to new incentives, for example, should be modeled under both types of
programs. Other variables that should be modeled over an appropriate range include but
are not limited to the average value of benefits offered instead of parking, and the
“fluidity” of the employer-provided parking market. Error bounds for various aspects of
transportation models are suggested in the transportation planning literature.” The
appropriate error range will also vary with the SIP planning horizon, with shorter
horizons ordinarily allowing narrower error bounds than longer horizons.

2.6. Step 4: Estimate Emissions Reduction

See, e.g., Calibration and Adjustment of System Planning Models, FAWA, 1990.

SIP Protocol Development for Commuter Choice Programs



EPA420-R-98-007 Commuter Choice Programs

US EPA OFFICE OF MOBILE SOURCES



EPA420-R-98-007

from predicted reductions, and will work with states to audit programs and reconcile
actual reductions with SIP-credited reductions.

2.1. Four-step Protocol

This section describes a four-step protocol for estimating the emissions impacts of
Commuter Choice programs.

1 Population of Commute Vehicles:
Estimate the number of passenger vehicles
that are driven to work.

2 Potentially Affected Population: Estimate
the proportion of these vehicles driven to
employer work sites where Commuter
Choice options are or will be available.

3 A Participation Rates: Forecast the type
and value of new Commuter Choice benefits
and estimate drivers’ likely response to those
new benefits.

B Uncertainty: Incorporate compliance and
programmatic uncertainty factors.

4 Emission Reductions: Estimate the total
change in VMT and associated emission
changes.

2.2. Step 1: Estimate the Relevant Population of Vehicles Driven to Work

Estimating the potential emissions reduction of a Commuter Choice program will usually
begin with an estimate of the total number of single-occupant vehicles driven to work by
employees in the program region.'* The program region may be an entire metropolitan.
area or a sub-region (e.g., a downtown area) for more targeted programs. The number of
single-occupant vehicles that are driven to work is the difference of two numbers: (1) the
total labor force, less (2) the number of employees who do not commute to work in
SOVs. If the percentage of SOV drivers has already been derived for other purposes for
the program region, areas may use that information, describe its derivation, and skip the
method described in this section.

POTENTIALLY AFFECTED POPULATION = ( LABOR FORCE) - (non-SOV commuters)

‘4 While the predominant effect of Commuter Choice options will be to shift SOV drivers to other
modes, another effect will be to shift commuters who now rideshare to even higher occupancy modes (e.g., a 2-person
carpool to transit). An analysis similar to the one outlined in this section could estimate how many existing car-poolers
would switch to higher occupancy modes.

16 US EPA OFFICE OF MOBILE SOURCES



Commuter Choice Programs

Subject Bibliography

Parking and Commuting

American Automobile Association. Your Driving Cost, 1996. Heathrow, Florida

KPMG Peat Marwick, LLP. Commuter Choice Initiative, Weighted Survey Results: Employer-
Provided Transportation Benefits. November 3, 1995.

Pisarski, Alan E. “Commuting in America II: The Second National Report on Commuting Patterns
andTrends”. ENO Transportation Foundation, Inc. Lansdowne, VA: 1996

Shoup, Donald C. “The High Cost of Free Parking.” Journal of Planning Education and Research,
Vol. 17, No. 1, Fall 1997, pp. 3-20.

Shoup, Donald C. and Mary Jane Breinholt. “Employer-Paid Parking: A Nationwide Survey of
Employers’ParkingSubsidy Policies.” The Full Costs and Benefits of Transportation. Eds.
David L. Greene. Donald W. Jones. Mark A. Delucchi. Heidelberg: Springer 1997, 371-385

ULI-the Urban Land Institute and NPA-The National Parking Association. The Dimensions of
Parking. Third Edition. Washington, D.C.: ULI-The Urban Land Institute, 1993.

U.S. Department of Labor. Bureau of Labor Statistics. Employee Benefits in Small Private
Establishments, 1994, Bulletin 2475. Washington: GPO, April 1996.

U. S. Department of Labor. Bureau of Labor Statistics. Employee Benefits in Medium and Large
Private Establishment, 1993 Bulletin 2456. Washington: GPO, November 1994.

Weant, Robert A. and Levinson, Herbert S. Parking. ENO Transportation Foundation, Inc.
Lansdowne: 1990

Response to price changes

Dahl, Carol. “A Survey of Energy Demand Elasticities in Support of the Development of theNEMS,” US
DOE, Contract De-APO1-93E123499, October, 1993.

Glenn, Peggy. “Employer-Provided Parking Subsidies in Baltimore: Too Free or Not Too Free?”’Master’s
Thesis. Georgetown University, 1994.

Higgins, Thomas J. “Parking Taxes: Effectiveness, Legality and Implementation, Some General
Considerations”. Transportation 19 (1992): 221-230. Netherlands

Husick, Tanya. “A Case Study of an Employer Trip Reduction Program: Commuter Transportation
Services, Inc.” The Costs and Benefits of Parking Pricing and a Transportation Allowance.
April (1993).

Shoup, Donald C. “An Opportunity to Reduce Minimum Parking Requirements”. Journal of the
American Planning Association. 61.1 14-25 (1995).

Shoup, Donald C. “Evaluating the Effects of Cashing Out Employer-Paid Parking: Eight Case
Studies. Transport Policy, 4.4 (1997)

United States. Department of Transportation. Office of Technical Assistance and Safety. Suburban
Parking Economics and Policy: Case Studies of Office Worksites in Southern California.
Washington: GPO, September 1992

Willson, Richard W. “Estimating the travel and parking demand effects of employer-paid parking”.
Regional Science and Urban Economics 22 (1992) 133-145. North-Holland

SIP Protocol Development for Commuter Choice Programs 53



Commuter Choice Programs

Appendix 1: Blueprint for a Voluntary
Commuter Choice Program

Why Undertake Voluntary Measures? Most emission control measures in SIPs are
mandatory, such as regulations that impose strict limits on vehicle and industrial
emissions, and permitting requirements for new or modified sources. In fact, some states
and local communities have already adopted regulations or ordinances requiring certain
employers to reduce employee commuting in single-occupancy vehicles. In the last few
years, EPA has recognized that voluntary measures, as long as their benefits can be
reasonably assured and quantified, also have a place in SIPs. Voluntary measures can
help provide additional emissions reductions that cannot be mandated due to technical,
cost, or political constraints. Voluntary plans are most effective where private firms or
government agencies, and their employees, can benefit individually. Reducing
employees’ reliance on commuting in personal vehicles is one of the areas identified by
EPA as most promising for voluntary measures. The individual benefits from voluntary
programs to reduce emissions from commute vehicles include the following:

For state and local agencies: Emission reduction credits that can be officially
recognized by EPA for the purpose of meeting the state’s SIP obligations;
elimination of the need to adopt or mandate alternative measures that may be
more costly, difficult, or unpopular.

For private and government employers: An incentive to attract new employees
and retain existing personnel; a means to control or reduce seemingly ever-
expanding employee parking requirements, especially where the company or
agency is growing; cost saving using the new pre-tax option for transit and
vanpooling; generation of marketable business “Good Will” from company- or
agency-sponsored participation and leadership in achieving clean air objectives;
generation of Mobile Source Reduction Credits (MSRCs) that can be banked,
traded, or sold (where permissible) under state or local regulations; generation of
emission reduction credits that can be applied to meeting a facility emissions cap,
or traded to other entities for the same purpose; avoidance of more onerous
mandated emission control measures.

For private and government employees: In certain cases, a way to convert wages
or bonuses to tax-free status under Federal and/or state tax laws, or obtain extra
compensation to cover commute costs that is not available if a personal vehicle is

SIP Protocol Development for Commuter Choice Programs



EPA420-R-98-007

used to drive to and from work; a way to simplify one’s personal commute, and
eliminate the hassle of driving every day in a personal vehicle; a way to meet

fellow employees and participate more in the activities of the firm or agency; a
sense of personal satisfaction in contributing to the improvement of air quality.

What Employers Need To Do. Employers who wish to participate in a voluntary
commute reduction program should take the following steps:

. Contact their state or local air pollution control agency for information about any

requirements imposed or recommended by those entities, and about the
availability of any funding, recommended strategies, or other support.

. Draw up a concise plan for their organization that includes the types of alternative
commute modes available under the program and a list of the benefits to
employees who participate (please refer to Appendix 2 for an outline of possible
clean commute strategies), and identify a means for advertising and promoting the
plan to all employees. Involvement of top management is highly preferable, both
in promoting the program and as participants.

° Identify a manager or committee to administer the program and respond to
employee inquiries, and to serve as liaison with the local or state agency.

. Cooperate in providing information about their program at least annually so that
the company or agency can take advantage of any emission reduction credits or

other benefits generated under the program. Appendix 3 is a brief information
form that should be filled out by the program manager annually, and then
provided to the relevant air pollution control agency so that program effectiveness
can be monitored.

Role of State and Local Air Pollution Control Agencies or Public/Private
Partnerships. The relevant air pollution control agency or implementing organization
must identify, quantify the benefits of, administer, and audit voluntary commute reduction
programs in its area just as it would any other SIP measure. EPA cannot give credit to
voluntary measures that do not meet Clean Air Act requirements as set forth in its
guidance documents. Following are the principal agency responsibilities:

. Develop and implement a program for promoting alternatives to personal vehicle
commuting for employers. The program can be carried out by a private or non-
profit organization as long as the program is coordinated with the State and Local
Agency. Elements of the program should include the identification of specific
emission reduction goals; the level of community-wide participation that would be
meaningful for SIP or emissions trading purposes; and dissemination of letters
and other forms of communication to companies, business associations, and
government agencies asking for their participation.

. Provide technical and administrative support to employers who participate either
directly or through the support of the implementing organization.

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Commuter Choice Programs

Appendix 6: EPA Contact People

Region 1

Region 1 covers programs in Connecticut, Maine, Massachusetts, New Hampshire,
Rhode Island, and Vermont. Please contact Jeff Butensky for assistance with Commuter
Choice Programs in EPA’s Region 1.

Jeff Butensky

Air Quality Planning Unit

Office of Ecosystem Protection

JFK Federal Building

Boston, MA 02203

Phone: (617) 565-3583

Fax: (617) 565-4940

Email: butensky.jeff@epamail.epa.gov

Region 2

Region 2 covers programs in New Jersey, New York, Puerto Rico, and the US Virgin
Islands. Please contact Linda Kareff for assistance with Commuter Choice Programs in
EPA’s Region 2.

Linda Kareff

Air Programs Branch

Environmental Planning and Protection Division
290 Broadway, 25th Floor

New York, NY 10007-1866

Phone: 212-637-3741

Fax: 212-637-3901

Email: kareff.linda@epamail.epa.gov

Air Program Main Phone: 212-637-4249

SIP Protocol Development for Commuter Choice Programs



EPA420-R-98-007

Advanced Analysis: A region could generate local information by conducting employer
surveys of all of the relevant parameters described above, and of employer intentions in
the area of commute benefit options. Local surveys are not required, but EPA encourages
them whenever feasible because they can reduce uncertainty surrounding emissions
estimates, and therefore potentially support the award of more SIP credit. EPA
recommends that areas consult with EPA staff before conducting such a survey.

2.4, Step 3a: Estimate the Typical Effectiveness of a Commute Benefit
Options Program.

The effectiveness of a Commuter Choice program—its impact on commuting—is largely
determined by the magnitude of the incentives the program creates for commuters and the
travel options available to them. Commuter Choice programs and the commute benefits
options they encourage are typically effective because they change a powerful incentive to
drive alone—free parking—into a powerful incentive not to drive alone—cash or other
benefits. Since parking can be very expensive, the incentive may be significant. And, of
course, program effectiveness increases with the number and attractiveness of alternatives
to driving alone.

Suppose, for éxample, that employers begin to offer $80 per month in taxable cash to
employees who give up their $80 parking space. How have the financial incentives
offered the employee changed? Before parking cash out, the employee spent $0 on
parking; her only costs for commuting to work were the variable costs of using her car,
like gas, oil, and tires. Now, because the employee must forego $80 in taxable cash, the
parking space “costs” her $80, less about $24 she would pay in income taxes, or $56. So
driving alone to work has just become $56 per month more expensive. The response of
commuters, in the aggregate, to a $56 per month increase in the cost of driving to work
alone can be estimated using empirically derived estimates of consumer responses to
price changes, called “elasticities” by economists.

2.4.1. Average Value of Benefits Other than Parking Offered in the
Program Region--The value of incentives that Commuter Choice options create for
employees will differ with each employer. Employers may offer transit passes, other
benefits, or may exchange parking spaces for a cash payment of equivalent, greater, or
lesser value. On average, EPA suggests that states assume that employers will seek to
offer their employees more choice in benefits without reducing the overall value of the
benefits. Even though individual employers will sometimes offer more or less, a regional
analysis could use the average value of employer provided parking as the basis for the
estimated average value of commute benefit alternatives offered instead of parking.” The
Subject Bibliography includes a list of sources of information on parking value. EPA
emphasizes, however, that the value of parking is just one way to attempt to get at the true
variable of interest: the value of benefits offered instead of parking. Suppose, for
example, that an option like parking cash out is being considered as an alternative to new
parking construction. It is entirely possible that the cost of building new parking would be

2» Ina study of eight California firms that have complied with that state’s Parking Cash Out law,
seven firms offered more benefits after cash out, one offered fewer; overall spending on commute benefits increased by
an average of $2 per employee per month at the eight case study firms.

22

US EPA OFFICE OF MOBILE SOURCES



EPA420-R-98-007.

Region 9
Region 9 covers programs in Arizona, California, Hawaii, Nevada, American Samoa, and

Guam.. Please contact Mark Brucker for assistance with Commuter Choice Programs in
EPA’s Region 9.

Mark Brucker

Air Division

(AIR 2) 75 Hawthorne St.

San Francisco, CA 94105

Phone: 415.744.1231

Fax: 415.744.1076

Email: Brucker.Mark@epamail.epa.gov
Air Division Main Phone: 415.744.1264

Region 10

Region 10 covers programs in Alaska, Idaho, Oregon, and Washington Please contact
Charlie Donovan for assistance with Commuter Choice Programs in EPA’s Region 10.

Charlie Donovan

U.S. EPA, OAQ-107

Office of Air Quality

1200 6th Ave

Seattle, WA 98101

Phone: 206/553-1463

Fax: 206/553-0110

Email: elson.wayne@epamail.epa.gov
Main Phone Number: 206/553-0218

EPA Headquarters
EPA headquarters assists the Regions with policy and technical assistance. Please

contact Deanne Upson for assistance with Commuter Choice Programs in any area.

Office of Air and Radiation

Office of Mobile Sources

National Vehicle and Fuel Emissions Laboratory
Deanne Upson

Regional and State Programs Division

2000 Traverwood

Ann Arbor, MI 48105

phone: 734-214-4283

fax: 734-214-4906

email: upson.deanne@epa.gov

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Commuter Choice Programs

Commuter highway vehicles: $ :

Carpools: $ .

Payments for not using company/agency parking: $ :

Telecommuting: $ .

4/40 Workweek:__$

Computer or communications equipment and/or services for
telecommuters: $ :

Facilities or equipment for bicyclists or walkers (e.g., showers, bike stalls,
walking shoes): $ .

Program emoluments (e.g., special events, trips, entertainment):

Other incentives (list type and amount):

TOTAL: $ .
Program administration: $ .

Total value of any free parking benefits given to employees:__$ _.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

Appendix 3:
Example Employer’s Annual Program Information Form

(To Be Provided to Relevant Air Pollution Control Agency)

1. At the time just prior to institution of the Commuter Choice program:

Total number of employees: A .
Total number of employee vehicles driven to work: B
Total number of employee single-occupancy vehicles driven

to work:
Number of employees commuting in multiple-occupancy vehicles (B minus C):__
D.. Number commuting 2 per vehicle: D2 .

Number commuting 3 per vehicle: D3 .

Number commuting 4 per vehicle: D4 .

Number commuting 5 per vehicle: DS

Number commuting in a “commuter highway vehicle” *(vanpool):

D6 .

Number commuting by mass transit: D7 .

Number commuting by bicycle or walking: D8

Total number of employee days/year telecommuting: D9

Total number of employee days/year not commuting under 4/40 program:

D10 .

Ratio of multiple- to single-occupancy vehicles (D+C): E
Ratio of multiple-occupancy vehicles to number of employees (D=A):
F_.

2. At the time of this report:
Total number of employees: G

Total number of employee vehicles driven to work: H
Total number of employee single-occupancy vehicles driven

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

Direct agreements with transit providers In addition to offering free or reduced cost
passes to employees who commute by transit, some employers have made
arrangements with transit agencies who offer special programs that allow any
employee to use the transit services for a flat fee per employee, regardless of how
much each employee uses the system.

Telecommuting Enabling employees to telecommute part-time or full-time can eliminate
commute trips altogether.

Services for ridesharers Policies like guaranteed ride home and car pool locator services
help employees establish viable rideshare arrangements and cope with unexpected
circumstances, making ridesharing and transit more attractive.

Monetary incentives to walk, bike, and rideshare Although the Federal tax code only
provides direct tax advantages for parking, transit and vanpool benefits,
employers have been creative about extending Commuter Choice to walkers,
bikers, and car-poolers. For example, some employers provide a larger tax-
exempt parking benefit to car-poolers (say, a subsidy of $75/month towards a
parking space worth $150/month) than to drivers of single occupant vehicles (who
only receive a subsidy of $50/month), while walkers receive a taxable allowance
of $75/month. In addition, Parking Cash Out, described above, financially rewards
commuting by modes other than single occupant vehicles even though the tax
code does not mention benefits for walking, biking, or carpooling.

1.4. Commuter Choice Programs

There can be many types of Commuter Choice program. This document gives general
guidance support for different types of programs that have been implemented or
contemplated in recent years. These are not exclusive and state or agency programs may
combine elements of several program types or limit their calculation only to a subset of
elements.

1.4.1. Education or Outreach Programs--States ,agencies, and public-
private partnerships may take steps to inform employers and employees of the potential
benefits of Commuter Choice and encourage employers to implement Commuter Choice
options on a voluntary basis. Outreach programs could highlight the benefits to the
employer of providing Commuter Choice options:

1. Commuter Choice options expand benefit choices, meeting diverse
employee desires and improving employee satisfaction. Benefit options
help attract and retain a quality workforce.

2. Because of changes to the Federal tax treatment of commute benefits in
1998, more benefit options can be provided without increasing employer
costs. It may even reduce costs.

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

Region 6

Region 6 covers programs in Arkansas, Louisiana, New Mexico, Oklahoma, and Texas.
Please contact John Behnam for assistance with Commuter Choice Programs in EPA’s
Region 6.

John Behnam

Air Planning Section (6PDL)

Multimedia Planning and Permitting Division
1445 Ross Avenue

Dallas, Texas 75202

Phone: (214) 665-7247

Fax: (214) 665-7263

E-mail: behnam.jahanbakhsh@epa.gov

Main Phone Number: (214) 665-7214

Region 7
Region 7 covers programs in Iowa, Kansas, Missouri, and Nebraska. Please contact
Christopher Hess for assistance with Commuter Choice Programs in EPA’s Region 7.

Christopher D. Hess

Air Planning and Development Branch
Air, RCRA and Toxics Division

726 Minnesota Avenue

Kansas City, KS 66101

Phone: (913) 551-7213

Fax: (913) 551-7844
hess.christopher@epamail.epa.gov
Main Phone Number: (913) 551-7020

Region 8

Region 8 covers programs in Colorado, Montana, North Dakota, South Dakota, Utah, and
Wyoming. Please contact Jeff Houk for assistance with Commuter Choice Programs in
EPA’s Region 8.

Jeff Houk

Air Program

999 18th Street, Suite 500 (mail code 8P2-A)
Denver, Colorado 80202

Phone: (303) 312-6446

Fax: (303) 312-6064

Email: houk.jeff@epamail.epa.gov

Air Program Main Phone: (303) 312-6470

SIP Protocol Development for Commuter Choice Programs 51



Commuter Choice Programs

program to employers. The TransitChek Program serves over 7,000 employers
with over 150,000 employees. Because the program reduces the cost of commuting
significantly, employees tend to use transit more than they otherwise would.

In 1997, the TransitChek program generated 3.2 million additional transit

tides, many of these trips would have been taken in single occupant cars. As

a voluntary program, TransitChek has attracted employers because of its ease

of administration and tax savings to both employers and employees.

Similar programs may be implemented for regional vanpool services. A Washington,
D.C. program called Commuter Connections, for example, aims to help businesses
voluntarily reduce employee driving to work. Its services include promoting and
organizing ridesharing. Using a Geographic Information System software program,
Commuter Connections matches commuters for ridesharing. The program has also
launched a regional Guaranteed Ride Home program to “take the worries out of
ridesharing.”®

Employers may also work directly with transit agencies, when they offer special
programs, to establish “fare-free” transit deals for staff. In a program in place at the
University of California at San Diego since 1969, for example, San Diego Transit has
provided unlimited access to anyone with student, faculty, or staff identification for a flat
rate per year. From July 1997 through June 1998, the cost is $178,000, or about $5 for
each of UC San Diego’s 35,200 faculty, students and staff. The program avoids the
transaction cost of purchasing individual transit passes, instead buying one pass for the
entire campus community. Private employers in Silicon Valley in California have similar
arrangements with the local transit agency. Transit pass programs could be a component
of a broader educational program as described above.

1.4.3. Incentive Programs--A state or agency uses incentives (e.g., taxes,
subsidies) or market-based programs to encourage employers to offer Commuter Choice
options. Such programs may receive approval for using the associated emission
reductions to meet SIP requirements through the Economic Incentive Policy. Incentive
programs may be non-regulatory or may increase incentives for regulatory programs.
Incentives may be financial (e.g., “parking cash out,” tax breaks, subsidies) or non-
financial (e.g., convenience, information, greater choice, waiver of regulatory
requirements). Incentives are not requirements, but measures that make offering certain
options more attractive. California offers two interesting examples. Section 65089 (d) of
the California Government Code requires local zoning authorities to grant exemptions
from minimum parking requirements to work sites that offer the option of cash in-lieu-of
free parking. Section 17090 of the California Revenue and Taxation Code exempts from
state income tax employee expenditures on carpooling and other alternative commute
modes where employers offer Commuter Choice.

1.4.4. Mandatory programs--States may require certain employers to
implement some form of commuter benefit options. These mandatory programs can take
different forms and be implemented at different levels. Mandatory programs can be

See the Washington Metropolitan Transit Authority Web site: http://www.wmta.com.

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1998



EPA420-R-98-007

is no constraint on the use of such revenues.”' As noted its Market Mechanisms

Guidance, EPA believes that reinvestment of some or all of the revenues, e.g., in
improved transit service, walking or biking enhancements, or program publicity,
strengthens program effectiveness.

3.5. Use of Emission Reductions from Commuter Choice for Clean Air Act
Requirements

Emission reductions generated through Commuter Choice programs may be used to meet
many Clean Air Act obligations, including SIPs for any criteria pollutant in both non-
attainment and maintenance areas. They may be used to meet Reasonable Further
Progress (RFP) requirements, baseline determinations, redesignation and maintenance
demonstration requirements.*4s However, the use of emission reductions generated by
Commuter Choice programs is restricted through a variety of EPA policies and rules
based on the requirements of the Act. For example, current policy forbids the use of such
credits to replace source-specific Clean Air Act requirements (e.g., Best Available
Control Technology (BACT) requirements for stationary sources), or other control
measures specifically required by the Act in certain areas (such as motor vehicle
inspection and maintenance (I/M) programs).”

a ‘The exception is to revenues generated from measures implemented to meet Clean Air Act
mandates for market-based transportation control measures under Sections 182(g)(3), 182(g)(5), 187(d)(3), and 187(g)
of the Clean Air Act. The Act (section 182(g)(4)(b) restricts the use of revenues generated through such measures.
Revenues may be used to provide incentives for emission reduction, to assist in the development of clean technologies,
or to fund administrative costs of State Clean Air Act programs. Unless Commuter Choice programs are used to fulfill
the requirements of the above sections in areas subject to those requirements, EPA does not believe that program
revenues would be restricted by Section 182 (g)(4)(b).

a However, areas that are required to submit a mandatory TCM SIP under Section 182 (4) (1) (A) of
the Clean Air Act could not use voluntary TCM measures, under the auspices of the VMEP, to meet those TCM
tequirements. Areas subject to these provisions may, in addition to incorporating specific mandatory TCMs to comply
with Section 182 (d) (1) (A) requirements, use voluntary TCMs under VMEP in the same or another SIP for other
purposes of the Act. Areas that are covered by Section 182 (d) (1) (A) requirements include all severe ozone areas,
serious CO areas, and Denver, Colorado.

8 For a more complete discussion, see paragraph III.D.2 of the EIP Rules, 59FR16695.

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Employees that will relocate or be newly hired during the program period are
more likely to be offered Commuter Choice options by their employers. To
support the estimate of employer participation, the state or agency program
must be adequate to reach decision-makers at targeted employers. Similarly,
other factors that affect employer participation include whether areas remove
zoning barriers to converting parking to other uses, and whether states offer
additional tax or regulatory incentives to make Commuter Choice options
more attractive. In addition, information about industry types of the targeted
employers, support for cleaner air or reduced regional traffic congestion on
the part of employers, or availability of commute alternatives such as transit
at targeted employers could all be relevant to an estimate of employer
propensity to offer Commuter Choice options.

Table 1: Summary Statistics on Leased Parking by Employer Size

———oo —
Commuter Choice Initiative Survey Shoup, Breinholt Survey
Firm Size Percent that lease Firm Size Percent that lease

parking* parking

Up to 4 employees 40% 19 or fewer employees 32%
5 to 25 employees 41% 20 io 49 employees 26%
26 to 99 employees 38% 50 or more employees 21%
100 to 499 employees 27% Size unreported 31%
500+ employees 31%

“This column includes some employers who reimburse employees for parking expenses.

The extent to which employers have adopted other flexible employee
benefits plans enabled by the Federal tax code provides a reference point
for estimates of employer adoption of the more flexible commuter benefits
options newly enabled in the Federal tax code. Other flexible employee
benefit plans include flexible spending and flexible savings accounts such
as cafeteria plans and medical savings accounts. (Commute benefit options
are like cafeteria plans and medical savings accounts in that they offer
employees choice between taxable salary and tax-exempt benefits,
although the tax-exempt benefits offered by each type of plan differ). EPA
suggests that the estimated percentage of employers who adopt commuter
benefits options be compared to the percentage of employers who already
offer these other flexible employee benefits plans.

In 1993, for example, 52% of large employers offered either flexible spending or
flexible savings accounts, while in 1994, 19% of small employers did. Updated
information can be obtained from the most recent Department of Labor
publications “Employee Benefits in Small and Medium Private Establishments,”
and “Employee Benefits in Large Private Establishments.” If the estimate for the

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level, through the adoption of regulations governing the program and/or a binding
appropriation of funds. If regulations are adopted, it is critical that they not be
burdensome or restrictive, or they may act as a deterrent to participation.

3. Permanent nature of emission reductions.

The agency must commit to emission reductions from the program for at least the time
period they are relied upon in the SIP.

4. Surplus nature of emission reductions.

The emissions reductions from Clean Commute programs must be in addition to those
already in the SIP or baseline inventories.

5. Adequate personnel and other program resources.

The agency submittal must demonstrate a commitment of persons and funding sufficient
to provide needed support to program participants; this is especially important for
voluntary programs, where participants cannot be expected to tolerate heavy
administrative burdens.

6. Timetables and Schedules.

Emission reductions should be projected to account for program start-up, expansion, and
possible future economic and employment growth in the area.

7. Monitoring, evaluation, and reporting.

Auditing of the actual-vs-predicted performance is required for voluntary programs, just
as for mandated programs, and must be performed on at least an annual basis. The
emissions reductions estimate for the program must be adjusted annually based on audit
information. EPA must be given an annual report. If performance is significantly
different than projected, SIP credits must be adjusted appropriately, or other measures
implemented.

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Expected emission reductions must be estimated in quantitative terms (e.g.,
following the protocols described in Chapter 2 of this document) and uncertainties
surrounding those estimates must be quantified as well.

The state’s commitments with respect to the program must be legally and
practically enforceable at the state level and, through EPA approval of the SIP
submission, at the Federal level.

Emission reductions must be permanent for at least the time period in which they
are used for applicable SIP demonstrations. However, TCMs listed in Section 108
(f) that are seasonal or episodic in nature, e.g., those that operate during ozone
season or on ozone alert days, are also permitted.”

Emission reductions must be surplus, i.e., they must be at a minimum in addition
to those already included in SIP demonstrations, to any reductions used in any
control strategies or programs (e.g., emissions trading programs), and to any
reductions assumed in existing or projected baseline inventories.

The state must commit adequate personnel and program resources to
implement its responsibilities under the program, and demonstrate that full
authority exists for the parties which are to implement strategies to do so.

The state must include schedules and timetables for implementation of the
proposed strategies.

In addition, for SIP submittals under the EIP Rules or the VMEP Guidance (described in

the next section), the following requirement applies:

. The state must commit to regular monitoring, evaluation and reporting on
program effectiveness relative to expected emission reductions, and to remedying
any emissions shortfall in a timely manner.

3.2. EPA Policies with Specific Guidance for Commuter Choice Programs
No existing EPA policy references Commuter Choice programs by name. However, four
existing agency documents, listed here in chronological order of publication, may provide
more guidance on credit for Commuter Choice programs.
. Economic Incentives Program Rules, published in the Federal Register on April 7,
1994.** This document is referenced here as the EIP Rules.
Methodologies for Estimating Emission and Travel Activity Effects of TCMs,
published by EPA in July, 1994, This document is referenced here as the 1994
TCMs Guidance.
Guidance on Incorporating Voluntary Mobile Source Emissions Reduction
Programs in State Implementation Plans, released on October 24, 1997. This
document is referenced here as the VMEP Guidance.

32
Section 123.

See VMEP Guidance, pp. 7-8, for a discussion of Section 108 (f) episodic measures in light of

8 Under VMEP, third parties may assume responsibility for implementation, and resources and

personnel for the program may originate with third parties. In such a case, the state need only commit resources and
personnel adequate to fulfill its own responsibility.

4 59 FR 16690 et seq.

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Commuter Choice Programs

Appendix 2:
Alternatives to Commuting by Personal Vehicle
and
The Associated Benefits of Those Alternatives

Listed below are a number of possible strategies and the associated benefits that
employers can include in their Clean Air Commute programs. Generally, the strategies
involve getting employees to switch from driving to and from work in personal vehicles,
particularly single occupancy vehicles (SOVs), to some other form of less-polluting
commute. In consultation with the relevant state or local air pollution control agency,
employers should choose those strategies that best suit their particular situation.

. Tax-free Transit Passes - Providing mass-transit passes or vouchers for work
commute is eligible for treatment as a tax-free fringe benefit to employees under
IRS Code sec. 132(f), up to a maximum value of $65/month in 1998 (cap is
adjusted annually for inflation after 1999). Passes or vouchers may be provided
out of regular wages, or as a tax free bonus.

Tax-free Commute Highway Vehicles - Also as a tax-free fringe benefit,
employers may provide tax-free options for employees to ride to and from work
on “commute highway vehicles” (i.e., vans or buses with places for seven or more
riders, including the driver), up to a maximum of $65/month, out of regular wages
or as a tax free bonus in addition to existing salary.

Taxable Direct Payments to Employees for Commute Alternatives - Employers
can offer direct cash payments, transportation allowance, or incentives, on top of
regular wages, to employees who agree to use other forms of clean commuting,
such as carpools, bicycling, and walking, that are not listed as tax-free fringe
benefits under the tax code. Supplemental taxable payments can also be offered
to commuters who use transit or commute highway vehicles, in excess of the IRS-
allowed monthly cap, to provide a stronger incentive. Payments of these types are
not excludable fringe benefits under the Federal tax code, but should still be
considered for inclusion in the program. Even without special tax treatment, these
other types of clean commute can benefit employees by offering a more pleasant
mode of commuting. Employers can benefit as well; offering these other
alternatives would be especially useful for employers who want to reduce the cost
of off-site parking provided to employees, or avoid costly expansion of existing

SIP Protocol Development for Commuter Choice Programs



Commuter Choice Programs

only peripherally related to benefits that an employer would be willing to offer to obviate
the need for the new parking facility. The employer may be able to manage parking
demand by offering employees less than the amortized cost of building and maintaining
new parking facilities, and might be willing to offer more than that cost in order to avoid
the time and regulatory uncertainties associated with new construction. EPA invites other
means of estimating the average value of benefits offered instead of parking in the
program region.

2.4.2, Response of Commuters to New Commute Benefit Options--
Note: The values used in this section are included only to illustrate an example. EPA does not believe they are
generally appropriate, and expects to see an explanation and justification of each parameter used in a SIP submission
for a Commuter Choice program.

The elasticity of demand for driving measures how the amount of driving changes as the
price of driving changes. Before and after case studies of areas that increased parking
costs found the average elasticity of demand for automobile travel with respect to parking
price to be -0.15."1 This means that on average, a 10 percent increase in the price of
parking would decrease the number of solo commuters by 1.5 percent. This elasticity that
is specific to changes in the cost of parking is consistent with the much larger literature
that measures changes in travel in response to price changes generally, such as from
changes in gasoline price. In that literature, the range of the elasticity of demand for VMT
with respect to the price of driving ranges from -0.1 to -0.3.” In choosing an elasticity
estimate, areas should consider unusual characteristics of the program region that affect
how readily people might reduce use of motor vehicles for commuting in response to
price changes. Areas should also consider the duration of the program that would be
approved in the SIP. In general, the more alternatives that are available to an item for
which the price has changed, the more consumers will respond to the price change.
Similarly, consumer response is more flexible over longer time periods than shorter time
periods.

In our example, the cost of driving to work rose by $56 per month. The national average
cost of driving, counting gas, tires, and oil, and vehicle maintenance, is 10.8 cents per
mile, and the national average round trip commute length is 23.2 miles.% The total cost

~ of the average commute before Parking Cash Out is $55.12 per month (assuming a typical
22 commute days a month), and $111.12 after Parking Cash Out. From a price increase
of 201%, using the -0.15 elasticity above we would estimate that solo driving to those

2 Donald Shoup, “An Opportunity to Reduce Minimum Parking Requirements,” Journal of the

American Planning Association, Winter 1995, pp. 14-28.

2 Carol Dahl, “A Survey of Energy Demand Elasticities in Support of the Development of the
NEMS,” US DOE, Contract De-APO1-93E123499, October, 1993.

% American Automobile Association, 1996.

National Personal Transportation Survey, 1995.

SIP Protocol Development for Commuter Choice Programs 23



Commuter Choice Programs

related options to their employees. The phrase “commute benefit options” refers to an
assortment of commute benefits offered by individual employers.

An employer’s Commuter Choice program provides the employee with access to one or
more commute choices. The employee makes an economic decision about the commute
alternatives. Specifically, the new tax laws apply to transit commute benefits, vanpool
commute benefits, cash in-lieu-of parking, or parking. If an employee chooses cash in-
lieu-of parking (also known as “parking cash out”) the employee receives additional pay
that can be used, after taxes, as the employee wishes.” This cash could finance
carpooling, bicycling, or walking. Cash could be pocketed if the employee telecommutes.

There is no “one size fits all” Commuter Choice program because commute alternatives,
preferences, and flexibilities vary among areas, employers, and employees. This
guidance is designed to assist states or agencies in designing and evaluating Commuter
Choice programs in order to facilitate SIP submittals, recognizing that there is necessary
variation in individual programs. Also, this guidance does not preclude unique and
innovative programs not specifically mentioned here.

However, SIP submittals will be more expedient when the data elements are standardized
and the methodology for calculating emission impacts are consistent across individual
employer programs in an area. In order to facilitate expedient SIP submittals and
approvals, Appendices 1 through 4 provide a blueprint for the principal elements of a
voluntary Commuter Choice program. This Appendix is intended to be used as an
example for specific voluntary programs that are designed to meet local needs. This
example blueprint could be used with appropriate modification for other types of
Commuter Choice programs, such as education and outreach programs, transit pass
programs, mandatory programs, and others mentioned in this document.

1.3. Commute Benefit Options

Commute benefits, defined as “qualified transportation fringes,”? include free or
subsidized parking spaces, transit passes, and vanpool subsidies. Historically, over 81%
of employers have offered their employees only free or subsidized parking. The choice of
other commute benefits (such as transit or vanpool benefits) or cash salary instead of
parking was rarely offered. Recent changes in the law governing commute benefits make
it more attractive for employers to offer a menu of commute benefits.*

With the new flexibility permitted under Federal tax law, employers may offer tax
incentives for transit or vanpooling; or, offer a menu of commute choices including cash-

2 See Appendix 5 outlining how the benefits are offered under Commuter Choice: Commuter
Benefits in Federal Tax Law and How Benefits Are Offered.

3 Please refer to Section 132(f) of the Internal Revenue Code, as amended Section 9010 of the
Transportation Efficiency Act for the 21st Century (TEA-21).

4 ‘The recent tax law changes are described in Appendix 5: Commuter Benefits in Federal Tax Law
and How the Benefits Are Offered.

SIP Protocol Development for Commuter Choice Programs 7



Commuter Choice Programs

Appendix 5: Commuter Benefits
in Federal Tax Law and How the Benefits Are Offered

Note: The following summary is for informational purposes only.
Taxpayers should consult the Internal Revenue Service or tax
professionals for specific guidance on matters related to Federal tax law
including compliance with tax codes and filing requirements, especially as
they relate to your particular industry and jurisdiction (state).

The Transportation Equity Act for the 21“ Centuty (TEA 21), signed into law on June
9,1998, amended the Federal tax code, Internal Revenue Code Section 132(f),“ as it
relates to the entire spectrum of commuting benefits, and has significantly improved the
environment for employer sponsored commute incentive programs. As a result,
employers are now able to offer employees more flexible programs, known as Commuter
Choice programs. Commuter Choice programs incorporate a range of transportation
benefits, many on a pre-tax basis, which allow for a more equitable treatment of
employees with diverse commuting patterns.

The “Commuter Choice” provisions (TEA 21, Title IX, Section 9010), effective January
1, 1998, allow employers to let their employees set aside up to $65 a month ($780 a year)
of their salary before taxes to pay for transit and vanpool commuting, and qualified
parking expenses up to $175 a month ($2,100 a year). Employers can exclude qualified
transportation fringe benefits from the gross income of employees, up to these limits.

TEA 21 also amends the tax law to allow qualified parking to be “cashed out” without
penalty. This option provides an additional financial incentive for employees to use
commute alternatives. Under parking cash out, an employer may offer employees an
option to give up their parking and receive the value as taxable cash, a tax-free fringe
benefit for transit or vanpools, or a combination of taxable cash and a tax free fringe
benefit. Parking Cash Out provides an incentive for employees to try other commute
alternatives. Thus, even in the case where an employee wants to receive the cash option

“ Federal tax law related to commute benefits is contained in Section 132(f) of the Internal Revenue

Code, which is Title 26 of the United States Code. Federal laws (relating to Federal income and other taxes) are
generally incorporated by reference into State law (relating to State taxes). The changes discussed here will generally
have similar impacts with respect to State and local income taxes where these exist.

6 The dollar limits on all of the commute behefits are indexed to inflation. They will rise over time in
proportion to cost of living indicators.

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Commuter Choice Programs

Neither the employer nor employee pays payroll taxes or other related payroll costs on
the benefit.

2. Pre-Tax Benefit

An employer may permit employees to set aside some of their income, before Federal
taxes, to pay for qualified commutes. Employees may use this pre-tax income to pay for
transit, vanpools, or parking. Employees would not pay Federal income taxes or payroll
taxes on the amount they elect to set aside for the commute option, and employers would
not pay U.S. payroll taxes since the amount is treated as a benefit rather than as taxable
salary.

3. Cost Sharing
An employer may share the cost of commuting to and from work with their employees.
They could do this through a combination of numbers (1) and (2) above.

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EPA420-R-98-007

3. Reducing employee parking needs can free up spaces for customers,
reduce the need to build and/or maintain parking spaces, untie space which
can be converted for revenue producing purposes, and/or the space can be
intended for other use.

Outreach programs could also target employees, in the manner of some current, more
limited Commuter Choice promotions. Although the employer must ultimately take the
desired action, employees can be effective advocates when they realize that an employer
can actually reduce their taxes or, in some cases, offer them more new benefits choice
with money already spent on parking. Empirical data from employers offering Commuter
Choice show that a significant proportion of employees are pleased to have, and will
choose to exercise, their new choice (see Chapter 2).

Some of the benefits of providing employees with commute choices have been well-
established in the literature; others are only now becoming better understood as more
firms begin to offer commuter benefit options. However, many employers were slow to
adopt these programs, and there was little point in promoting these advantages while the
tax code penalized most commute benefits options compared to parking. The tax law
now provides a strong incentive for states to promote commute benefits options as good
for employers, employees, and the community.

States, agencies, and public-private partnerships can encourage employers to provide
Commuter Choice options by running informational advertisements directed at employers
and employees, by instituting commute benefits options in their own offices, and/or by
rewarding or recognizing employers who implement successful programs. Educational
efforts can also be targeted at appropriate professional groups in the State, including, for
example, tax attorneys and human resources professionals. These groups are often the
leaders in taking advantage of new tax incentives. Some governments around the country
already promote Commuter Choice through advocacy, technical assistance, and funding.

1.4.2. Transit Pass Programs--A state, agency, or public-private partnership
takes steps to make transit passes more accessible to employers, such as marketing transit
pass programs to employers. Similar programs may be implemented for region-wide
vanpool subsidies. Programs which promote the use of transit and vanpooling by making
it
financially attractive for employers to provide tax savings to employees for
their commute can be very effective. For example, in the New York
metropolitan area, the TransitChek Program operated by TransitCenter is
utilizing the Federal tax code to encourage employers to provide their
employees with savings on their transit or vanpool commute. TransitCenter
sells TransitChek vouchers and TransitChek MetroCards (a form of the fare
media most used in New York City) to employers as a simple and cost effective
way to provide the monthly $65 transit and vanpool tax benefit to employees.

The vouchers are accepted by all transit operators in the New Jersey, New York
and Connecticut metro area in and around New York City for the purchase of
fare media. TransitChek MetroCards are used directly on several services
including the NYC subway and buses. TransitCenter, a public-private
organization, representing all the transit operators, markets and sells the

10

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