Friday, February 1, 2013

The TLC should do more: lift the industry's artificial permit cap

by Joey Garrison, The Tennessean, Jan 31, 2013 - ...A Metro commission that regulates the city’s cab industry voted to increase Nashville’s taxi fleet by 17 percent Thursday after authorizing the formation of three new taxi companies, including one launched by Somali-American immigrants, which will become Nashville’s second driver-owned taxi business.
TENN-CAB will join Volunteer Taxi, an Ethiopian-led company — approved in August — as Nashville’s lone driver-owned companies. The commission Thursday agreed to allow Volunteer Taxi to operate 15 more vehicles on top of the 30 it has today. It denied additional permits ..... (Read more)

Commentary by Daniel Horwitz

The TLC should lift the industry's artificial permit cap
Daniel Horwitz

I've attended almost every single TLC hearing since November of 2010, and today was the first time that I can recall the Commissioners contemplating what I consider to be the proper result on this matter: granting all qualified taxi companies whatever number of permits they request, and then letting the market work itself out to determine who wins and who loses.  

If you take them at their word, the TLC Commissioners have thus far been unwilling to lift the artificial cap on taxi permits because they fear that doing so will effectively dilute the profits of Nashville's existing taxicab drivers.  Since our city's cab drivers are among the lowest paid workers in the entire United States, the thinking goes, reducing their income even further would be extremely undesirable.  
What the Commission has consistently failed to understand, of course, is the fact that opening up the market and maximizing competition in the taxi industry would actually increase drivers' profits dramatically, since doing so would force companies to compete with one another on the price of "licks" and driver benefits.  (Licks, for those who aren't familiar with the quirks of the industry, are the weekly lease payments that taxi drivers have to pay their parent companies in exchange for access to a taxi permit.)  Since licks represent drivers' single largest business expense by far, the effect that a free market would have on the average cab driver's bottom line would be extraordinary.  

Due to the absence of free competition in the taxi industry, Taxi USA owner Michael Solomon, for example, is able to force his drivers to pay him $225 per week (almost $12,000/year) for the mere privilege of being able to drive a taxi in Nashville.  In exchange for this borderline usurious fee, however, the drivers themselves get almost nothing, as they still have to pick up the full costs of car ownership, car maintenance, gasoline and other expenses themselves.  In contrast, Volunteer Taxi -- the new driver-owned taxi coop approved last August -- is currently able to charge its members just $130 per week in lick fees despite the huge upfront costs that the company has incurred as a result of having to hire new management staff, set up a dispatch service, and repaint and reequip its cars.  Notably, Volunteer Taxi's lick price also comes with an employee benefits package, which unscrupulous companies like Taxi USA would never offer their drivers under any circumstances.  

To be clear, the one and only reason why Volunteer Taxi's drivers are comparatively well-off today is that they own their own taxi permits.  As noted above, however, the total number of taxi permits allowed in Nashville has been and continues to be artificially restricted by the Transportation Licensing Commission, so most drivers aren't so lucky.  If this artificial permit cap were set aside, however, the benefit of a greatly reduced lick price would immediately accrue to all of Nashville's taxi drivers, with some estimating that the average lick price would fall between 50% and 80% industry-wide overnight.  Though opposed by some due to the moderate increase in competition for customers that would also result from opening the industry, this is probably the single best thing that could happen to Nashville's cab drivers other than seeing the IRS and Department of Labor crack down on companies like Taxi USA for improperly designating its employees as independent contractors in an effort to avoid paying FICA taxes and provide health insurance, minimum wage and overtime benefits.  

Finally, left completely out of the discussion so far (and appropriately so, since the TLC never appears to care about us) is the effect that an open taxi industry would have on consumers, who would immediately be able to enjoy more cabs on the streets, improved competition with respect to quality of service, and potentially even reduced prices.  Indeed, this alone is all the justification that the TLC should need to lift the industry's artificial permit cap forever (something which, as I've argued repeatedly, is actually constitutionally compelled by Article I Section 8 of the Constitution of Tennessee pursuant to cases like this one).  A recent $172,810 study commissioned by Mayor Dean that concluded that taxi service in Nashville was God-awful obviously wasn't considered compelling enough, but perhaps if Nashville had a DUI problem, somebody in the Metro Council or the Mayor's Office might be motivated to care about the fact that it's legitimately impossible to hail a cab downtown every Saturday night.  I won't hold my breath, though, and expect that I'll have to express my frustration at the ballot box instead.  

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