On the stacking of the political deck for taxi-medallion owners

stacking-political-deck-taxi-medallion-owners
A taxi in Sunnyside. (chrisgoldny via flickr)
Tweet Share on Facebook Share on Tumblr Print

In recent weeks, taxi politics have colored the 2013 mayoral primary and prompted the Bloomberg administration to warn of a $1 billion hole in next year's budget.

In a forthcoming article in the Yale Journal on Regulation called "Problematic Private Property: The case of New York taxicab medallions,” N.Y.U. law professor Katrina Wyman argues that New York City's medallion system is rife with politically driven inefficiencies that make life easier for medallion owners and harder for the taxi-riding public.

For the good part of a century, taxi operation has required a medallion. In 1937, when the medallion system was created, there were 13,585 of them. Today, though the city's population has grown by more than a million, there are 13,237.

In a 1981 sale of 18 medallions, they ranged in price from $21,000 to $23,000. In today's money, that's a range of about $159,000 to $174,000. In the modern-day medallion industry, some can cost upward of $1 million each.

MORE ON CAPITAL

ADVERTISEMENT

But Wyman argues that the medallion industry's impact on the riding public, an impact amplified by the industry's political influence, is high, too. 

Wyman traces that political influence back decades.

In the '80s and '90s, the city succeeded in acquiring more regulatory control over so-called gypsy cabs, a class of taxis that had come to service often minority communities in the outer boroughs and upper Manhattan, where then, as now, regular yellow cab service was scarce.

That regulation was accomplished on terms that Wyman describes as, "very favorable to the medallion taxi industry.” Basically, medallion owners retained their monopoly on taxi stands and street hails.

The industry's might was further reflected in in the 1980s, when Mayor Ed Koch tried to reform the taxi industry six times. He proposed a new class of taxis for the outer boroughs, a proposal quite similar to the one that Michael Bloomberg pushed through Albany last year and is now in litigation. And he failed. He also sought to increase the overally supply of medallions various times. And failed again.

The medallion industry, which then, as now, feared the dilution of their medallion assets, overruled him.

“Medallion owners successfully resisted all of Koch’s efforts to increase the number of taxis relying in large part on their allies in city council," writes Wyman. "The campaign contributions that medallion owners made to city politicians likely contributed to some degree to the willingness of council members to speak out for medallion interests.”

Wyman gives most of the credit for medallion owners' political success in that era to Stanley Friedman, a former Bronx Democratic leader and a former deputy mayor in the Abe Beam administration. In the latter role, he helped name Jay Turoff ascend to the chairmanship of the Taxi and Limousine Commission, a position he occupied during  much of Koch's term.

During the Koch era, Friedman acted as a lobbyist for the Metropolitan Taxicab Board of Trade, the same wealthy group of fleet owners that's now trying to stymie the mayor's borough taxi plan.

“In 1986, investigations into municipal corruption revealed that as chair Turoff secretly invested in 'a taxi and limousine service in Yonkers,' took 'a $30,000 bribe' to favor a particular taximeter company, and granted '123 free taxi medallions' to a large fleet owner for a bogus experiment that probably allowed the fleet owner’s companies to earn 'about $20 million … over five years,'" writes Wyman.

Similarly, Mayor Bloomberg’s borough taxi plan, which is a comparative success and would create a new class of 18,000 lime-green taxis to service the outer boroughs, bares the mark of the medallion lobby.

The mayor wasn't able to get City Council approval for the plan, largely due to medallion owner influence, Wyman argues.

When the mayor instead sought approval from the state, medallion owners and lenders, "quickly deployed lobbyists and campaign contributions to Albany.”

“While the medallion interests ultimately were unable to block the Bloomberg reforms, it took months for Governor Cuomo to agree to the reforms," notes Wyman.

And the mayor's original plan was substantially changed, with the size of the borough taxi fleet reduced from 30,000 to 18,000.

All in all, Wyman argues, “The most obvious beneficiaries of the persistence of medallions are medallion owners."

Fewer medallions means less competition, and more fares per medallion.

Medallion owners now use their right to operate taxis in New York City in a manner akin to real estate ownership. They lease them, borrow against them, and then, after they accrue in value, sell them.

So profitable is the medallion industry that entire sub-industries—lenders, brokers, etc—exist to service it. The NASDAQ-traded Medallion Financial, on whose board former Governor Mario Cuomo sits, controls some $1 billion in assets.

Those benefits are not passed on to the riding public,  or to taxi drivers, whom the Times recently described as subsisting in a "feudal" state.

The limited number of taxis, the high cost of medallions, all put upward pressure on fares.

“One of the most common consequences of limits on the number of taxis is inadequate service, as numeric caps prevent the supply of taxis from expanding to meet growing demand for service,” writes Wyman.

She also suspects that the whole system stifles innovation, pointing out that recent customer-friendly reforms, like the introduction of credit-card payments or, for that matter, the borough taxi plan, have all emanated from the city, rather than the owners.

"It is almost as if the taxi industry, yellow medallion taxis as well for-hire vehicles, has become too content with the status quo to push for change even when change might be in its own economic interest, as credit cards have proven to be for yellow taxis, and the hail licenses may be for the for-hire sector," she writes.

Medallion owners also benefit from a largely apathetic customer base, one that is, among other things, too diffuse to form a coherent interest group (in stark contrast to the medallion owners).

The result, says Wyman, is that taxis congregate in high-traffic areas like airports and midtown, and ignore the rest of the city, and the medallion owners, and the politicians who heed them, prevent meaningful reform.

“There is no necessary correspondence between what is cost-beneficial for society as a whole and the outcomes of political decision-making processes," she writes.