Bloomberg’s radical proposal to solve New York City’s taxi problem, stalled

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Black car and yellow taxi. (Jason Kuffer, via flickr)
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It may be illegal, but everyone does it: Hailing black livery cars on the street. Everyone, that is, who lives in a part of New York that is not Manhattan or one of the more gentrified precincts of Brooklyn.

While yellow cabs course through Manhattan streets and wait for passengers at airport terminals, the black cars predominate elsewhere, gliding slowly down outer-borough thoroughfares scouting for fares, honking hopefully at would-be passengers, and queuing at locations where they know there will be demand that isn't met by taxis.

The problem with the current system is that there are risks involved, for both the driver and the passenger.

Drivers who pick up street hails risk heavy fines and suspension of their licenses: Between March 2010 and June 2011, the city issued 6,815 summonses for illegal street hails to black-car drivers. Passengers, meanwhile, face other risks. For one thing, livery cars are not insured for street hails, which means that if a passenger gets injured in an accident, that passenger may end up footing the bill.

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And then there are all the inconveniences: having to haggle over price, having to pay only in cash, having to wonder if the driver in question is quite as professional as he purports to be.

Further, this ad hoc arrangement tends to exacerbate the disadvantages that already exist for residents of low-income neighborhoods without ready access to yellow cabs or, often, to good public-transportation options—the places most in need of affordable alternatives.

“There is a major problem with having access to safe, reliable transportation in the outer boroughs in general, and in particular, in communities of color,” said Assemblyman Karim Camara of Brooklyn.

Michael Bloomberg wants to change all that.

In his January State of the City address on Staten Island, the mayor floated a proposal: “Why shouldn’t someone in the Bronx, Brooklyn, Queens, or Staten Island be able to hail a legal cab on the street?...This year, we’ll establish a new category of livery cars that can make on-street pickups outside of Manhattan.”

If it's enacted, his proposal to create so-called “Borough Taxis” would revolutionize the way New Yorkers traverse the city, and fundamentally transform a two-tier system that was put in place in the 1980s, and which evolved into the gray-market, outer-borough livery system in place today. Not incidentially, the proposal would also raise much-needed revenue for the city.

Who would oppose such a thing?

At first, it seemed as if no one would, really.

A bill that was essentially Bloomberg’s proposal passed both the state Assembly and the Senate in June, just as the legislative session was drawing to a close.

The legislation would allow for up to 30,000 livery cars with permits to pick up fares off the street as well as respond to pre-arranged calls sent through dispatchers, as they do now. The permits would last three years and cost $1,500 each. To ensure the yellow taxi industry’s continued monopoly over street hails in Manhattan, permit-holders would be barred from picking up passengers at airports and in Manhattan south of 96th Street on the east side and 110th Street on the west. The new class of livery cars would come equipped with all of the trappings of the modern-day cab: they’d be painted a distinct, still-to-be-determined color, and have lights on top. They would be outfitted with meters (no more haggling), credit card machines (no more stops at the bodega ATM) and GPS units, in part so the city could track their movements and enforce the new geographical boundaries.

“[T]he core purpose of this bill is to legalize and regulate a service that already exists, and upon which City residents currently depend, while minimizing disruption to existing players in the for-hire vehicle business,” wrote Bloomberg in a Sept. 28 letter urging Governor Andrew Cuomo to sign the bill, the only step left before it becomes law.

Crucially, the legislation also calls for expanding the supply of regular yellow cabs by 1,500 to meet rising demand. More than one third of those taxis would be accessible to people in wheelchairs. The city hopes the new medallions will generate roughly $1 billion in tax revenue, assuming, of course, that medallions continue to sell for what is now considered market value: about $700,000.

The change to the way livery transportation works in New York would be pretty radical, all told. And, as it turns out, pretty controversial.

SINCE THE BILL PASSED THE LEGISLATURE IN EARLY summer, a loose coalition of opponents has gone on the offensive, siccing an army of well-compensated lobbyists on Albany to counter the mayor's considerable influence by raising concerns about the bill among legislators and pushing the governor to veto or amend the legislation.

Now the bill is stalled, with legislators trickling over to the anti-side and the governor declaring that he won't sign it into law as is.

But this wasn't simply a case of a unified business lobby defending its perceived financial interests against a populist scheme. It's more complicated than that.

Broadly speaking, the dispute surrounding the bill pit livery company owners, taxi medallion owners, the brokers and lenders who service medallion owners, and some taxi drivers, against ... other livery company owners, other taxi drivers, livery car drivers and the Bloomberg administration. 

In the first half of the year, the Metropolitan Taxicab Board of Trade—which represents about 35 taxi-fleet owners who together own nearly 30 percent, or more than $2 billion worth of all medallions, spent more than $100,000 on lobbyists from Connelly McLaughlin and Woloz, Wilson Elser Moskowitz, and Park Strategies. The Board employed these firms to lobby State Senator Marty Golden, who has since softened his initial support of the bill, as well as Assembly Speaker Sheldon Silver and Assembly members Carl Heastie, Micah Kellner, Aravella Simotas, and the Bloomberg administration. The Committee for Taxi Safety, which represents medallion owners who lease their medallions to drivers who own their own cars—about a third of the industry—paid Bolton-St. John’s $81,000 in the first half of the year to also lobby legislators.

The medallion owners (and lenders and brokers) are motivated by an understandable desire to preserve the value of their investments. Taxi medallions give their owners the right to pick up street hails in New York City. Their value derives from their scarcity. Since 1937, the number of taxi medallions in New York has remained fairly steady, starting at 11,787 and growing in occasional fits and spurts to reach today’s number of 13,237. As such, medallions are more than just permits, they are assets that appreciate in value over time. Owners buy them, sell them, and take out loans against them.

Medallion owners fear that the 30,000 newly empowered livery car drivers will disregard the central business district boundaries and poach their business. Further, they believe that the influx of 30,000 drivers newly empowered to pick up street hails, plus the addition of 1,500 new taxi medallions, will undermine the value of their investments. A July 29 NERA Economic Consulting report, commissioned by a medallion-lenders group, estimated that the legislation as it is now formulated would reduce income for medallion owners by at least  20 percent.

“We’ve lowered the amount of money that we lend, because of this legislation,” said Richard Kay, C.E.O. of the League of Mutual Taxi Owners Federal Credit Union, which underwrites the purchase of medallions. Kay said that until a few months ago, the union would finance up to 90 percent of a medallion’s purchase price. Following the legislation’s passage, it’s now closer to 70 percent.

“We haven’t raised our interest rates, but some lenders in the industry have,” said Kay. “The medallion is only worth as much as somebody wants to pay for it. It’s strictly supply and demand. If people aren’t willing to pay today’s value, the price will go down.”

The bill could theoretically pose a problem not only for the multi-millionaires who own hundreds of taxi medallions, but also for those who own only one medallion, and that is not an insubstantial number. By law, roughly 40 percent of the medallions in circulation must be owned by individuals with no other medallions. Those medallion-owners are essentially very-small-business owners.

It is not only taxi-industry heavyweights who are opposing the bill. Some livery-base owners are also afraid that the legislation will decimate their businesses. If drivers can pick up street hails, why would they bother to respond to those who call and request livery car service?