The curse of the New York City taxi medallion

A taxi in Sunnyside. (chrisgoldny via flickr)
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Thirteen months ago, Mayor Michael Bloomberg took a taxi to the Bronx to declare victory in his bid to populate the outer boroughs with a new caste of cab called the borough taxi.

Unlike the archetypal yellow one, the borough taxi would be green. Its turf would be limited to all the places yellow cabs don’t typically go, like the outer boroughs and upper Manhattan.

And unlike taxi medallions—tradeable assets that sometimes sell for $1 million, a value derived from state-mandated scarcity—the three-year borough taxi license would be available to drivers for a relatively small fee.

"We were all told the odds against us were high, and that the Albany lobby was too powerful and that the improved taxi service law was dead in the water," said the mayor at the time. "But we refused to believe that that was true. We refused to bow down to the special interests. And when they hired every lobbyist in town we kept fighting, because we had the people on our side. This is the right thing for New York City."

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The mayor may have spoken a bit too soon.

More than a year later, the borough taxi remains a figment of the Bloombergian imagination, trapped in a tangle of lawsuits brought by politically empowered medallion owners.

DURING A RECENT RADIO INTERVIEW, A QUESTION about a different taxi initiative sent the mayor into a fit of pique about the peculiar way in which government-issued aluminum plates could bring such wealth to those lucky enough to own them, with the city cut out of the profit entirely. 

"The cab industry's a funny industry," he said. "I don't know of any other place in the world where the city gives a license and the people that have that license can then trade it and resell it and the city doesn't have any interest and any ability to share in the value going up."

That wasn't his only issue with the way this city runs its taxi and livery system.

"A normal market, you'd say, 'well, just issue more taxi licenses,'" he continued. "Wrong. Because they have bought the legislatures and stopped the ability to do that. It is one of the great ripoffs of the public any place I've ever seen."

The mayor is not alone in this belief.

In 2008, the Organization for Economic Co-operation and Development issued a report on what it calls “entry restrictions” by which governments artifically restrict taxi numbers within their jurisdictions, like, for example, with taxi medallions.

The organization's conclusion?

“The restriction of taxi numbers is a welfare-reducing regulatory intervention."

Also: Entry restrictions “typically lead to an undersupply of services," and, “In general, the value of such entry restrictions is converted into the value of licenses, rather than the earnings of a driver who rents their cab.”

THERE ARE 13,237 YELLOW TAXIS IN NEW YORK CITY.

That is or isn't an adequate number for a thriving city of 8.5 million, depending on who's doing the reckoning.

But the difficulty of finding a cab on a rainy evening in Midtown, and the robust market for medallions, suggests that there is at least some room for growth.

"Now, if the real passenger demand is for 15,000 cabs or 17,000 cabs, we have to go back to the state," Ashwini Chhabra, the city Taxi and Limousine Commission's deputy commissioner for policy and planning, told me. "They have to authorize the sale of additional medallions. It can’t happen in an organic way."

(Whether the city must also get a home rule request from the City Council is one of those legal questions now tied up in all that borough-taxi litigation).

Either way, it's an onerous process, particularly when you consider the medallion owners, who are litigious, politically active, and aggressively disinterested in alterations to a system in which they have flourished.

Back in the day, the idea behind the medallion system was not to create wealth for private parties and hold taxi policy hostage to those parties, but rather to civilize an anarchic ecosystem.

In 1932, 16,732 cabs roamed New York City streets, according to taxi historian Graham Hodges’Taxi! A social history of the New York City cab driver.

The competition “was merciless,” according to Hodges, and “Many cabbies turned to petty crime to help make ends meet.”

There were strikes, and there were fare wars. 

Ultimately, an alderman named Lew Haas decided to do something about it.

In 1937, he proposed a bill that would limit the number of taxis to 13,595, and make medallions automatically renewable, tradeable assets. It was signed that year by Mayor Fiorello LaGuardia.

“After the passage of the Haas Act, no one expected the medallions to ever be worth more than the ten-dollar license fee,” writes Hodges. “One of the drafters of the bill later commented: ‘It was a fluke; no one ever foresaw that these licenses would ever be valuable.’”

In 2011, two medallions sold for $1 million a piece.

With wealth has come political power, which has in turn made it possible for the owners to block improvements to the system that they perceive as a threat to their interests.

Recently, the medallion owners stymied two of Bloomberg's signature efforts to reform the New York City taxi system: the borough taxi plan, and his effort to reduce carbon emmissions by making the entire taxi fleet hybrid

The meteoric rise in medallion value, created by the medallion system that originated in the Haas Act, has accorded medallion owners what Chhabra describes as an “outsized voice, if you will, in taxi policy.”

“The medallion system creating that value has empowered the medallion owners and the medallion-owner lobbies,” he said. 

Meanwhile, because of the way the system is set up, the city doesn't benefit from that value on an ongoing basis, collecting only a five percent transfer tax each time a medallion is sold. 

“If we sold a medallion 30 years ago for $40,000 and that same medallion sells today for $1 million, the city doesn’t see any of that,” said Chhabra. “So that to me is a big negative.”

THIS ISN'T A PROBLEM THAT IS UNIQUE to New York.

"Victoria's taxi industry is dominated by a few major taxi licence owners," wrote a reporter in the Australian newspaper The Age this year.