Congestion Levy Versus Bus Subsidy
A city council is choosing between two transport policies for a 12-month trial. A congestion levy of RM3 per car entering the central zone would apply to 40,000 daily car commuters. Consultants predict a 12% reduction in car trips and estimate collection and enforcement costs at RM25,000 per day. A bus improvement package would cost RM80,000 per day, raise bus trips by 18% from 10,000, and remove an estimated 1,200 car trips. The council has a balanced-budget rule and cannot fund both. About 15% of car commuters have no direct bus route, and peak buses are already overcrowded. Retailers fear lost customers; health groups want lower emissions. The council asks which policy to adopt, how to present the numbers, and what safeguard should accompany the chosen policy.
1. Calculate the predicted daily net revenue from the congestion levy and the cost per car trip removed for the bus package. Present the figures clearly.
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Levy: car trips after the 12% reduction = 40,000 × 0.88 = 35,200. Gross levy revenue = 35,200 × RM3 = RM105,600 per day. Net revenue = 105,600 - 25,000 = RM80,600 per day. Annualised over 365 days: 80,600 × 365 = RM29,419,000. Bus package: cost per car trip removed = RM80,000/1,200 = RM66.67 per trip. The levy removes 4,800 car trips and raises net revenue, while the bus package spends money to remove fewer trips. They are not like-for-like: the levy's test is acceptability and the availability of alternatives, not just revenue. Present the assumptions beside the figures, because the 12% and 1,200 estimates drive the comparison.
2. Recommend one policy, or a modified version, using efficiency, equity and feasibility. Address the 15% without a direct bus and the overcrowding.
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Use the numbers to test the council's constraint. The levy's net revenue of RM80,600 per day almost exactly covers the bus package's RM80,000 per day, leaving RM600. A sequenced modified package is therefore feasible: introduce the levy, ring-fence its net revenue, and fund the bus package once revenue starts; a short bridge from contingency may be needed. This is not funding both from the existing budget. To protect the 15% with no direct bus, exempt them or give travel credits, and use enforcement savings for feeder services. Bus capacity must be increased before the levy starts, or the policy is unfair and overcrowding worsens. If the balanced-budget rule forbids even sequencing, choose the bus package first because it addresses equity and overcrowding; the levy can follow after alternatives improve. Retailers should be engaged on delivery times and loading bays, not ignored.
3. What sensitivity would most affect your recommendation, and how should it be presented to the council?
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The most important sensitivity is the 12% reduction in car trips. If the reduction is only 5%, gross levy revenue becomes 40,000 × 0.95 × RM3 = RM114,000, net RM89,000, but congestion relief is much smaller; the levy looks financially stronger while achieving less. If the reduction is 20%, gross revenue falls to 40,000 × 0.80 × RM3 = RM96,000, net RM71,000, which no longer covers the bus package. The bus package's cost per trip removed is also sensitive: if only 600 car trips are removed, the cost doubles to RM133.33 per trip. Bus capacity, evasion and exemption uptake should be shown as scenarios, not hidden in a single forecast. The recommendation is robust only if levy revenue covers the bus package and exemptions are practical; otherwise the bus-first option is safer.