Taxi deregulation brings only regret
The Following Article from The Anchorage Daily News makes a good case against Deregulation of Taxis. It is written by Ray Mundy, Ph.D.,
Ray Mundy is director of the Center for Transportation Studies at the University of Missouri, St. Louis, and is a consultant to the Anchorage Taxicab Permit Owners Association.
COMPASS: Other points of view
By RAY MUNDY
Published: March 26th, 2008 11:30 PM
Last Modified: March 26th, 2008 11:48 PM
Open-entry taxicab deregulation: It sounds great, doesn’t it? How could anyone not like the idea of more competition, of the free market deciding the level of taxicab service in Anchorage?
And it would be great, of course … except it doesn’t work. It’s a great academic theory, but it fails in the real world.
Time and time again, in cities across the United States, open-entry deregulation has not only failed to meet lofty expectations, it’s been a complete failure.
Instead of cab fares going down, they go up. Instead of service getting better, it gets markedly worse — especially for airport visitors and people who use a taxi infrequently. Believe me, I’ve seen the effects firsthand in many of these cities, and it’s not pretty.
The price issue is really quite easy to understand. If the taxi initiative, Proposition 8, passes next week, Anchorage will see a significant increase in the number of cabs on the street. It could double overnight. Supply will increase.
But what about the demand? Are you going to get a cab more often just because there are more out there? I don’t think so. In fact, demand will stay right where it is now, which means you’ve got more cabs fighting over the same amount of business.
The result? Everyone makes significantly less income, there is upward pressure on cab fares to increase, and good, long-term drivers leave the industry. Often these drivers are replaced by less qualified personnel.
With nearly all cabs making less money, doesn’t it make sense that they’d try and save elsewhere, on things like regular maintenance and cleaning their cabs?
Think you will get a cab if you live a little farther out and need to travel only a few miles to a doctor’s office?
You’ll see dishonest practices in the cab industry such as price gouging and circuitous routes. You’ll see significant problems at the airport and hotels, where a majority of the new cabs will gather, attempting to get business. Fights between cabbies, aggressive solicitations, trip refusals, no-shows and trip cancellations … all these negative service issues would increase with open entry.
Most cities, once they saw the mistake they’d made, hurriedly re-regulated, but the damage was done. Seattle, which deregulated in the early ’80s, is still dealing with lingering negative consequences.
If I haven’t convinced you with the arguments I’ve made so far … try this. Should a court decide that past city administrations intended for the taxi permits to be property, there is legal precedent suggesting that instituting an open-entry system and thus destroying the value of the existing permits amounts to illegal “taking of property.”
We’re talking about $20 million that the property taxpayers in Anchorage may be on the hook for when the city is taken to court. That’s about $200 for every household in Anchorage.
Trust me; taxicab deregulation is a whole lot of trouble … for nothing. It’s not worth messing with.
I was lucky enough to spend some time in Anchorage this winter. I analyzed cab dispatch records in the Anchorage market to evaluate response times, and take it from me, in comparison to many other cities, there are a sufficient number of taxicabs, they are run efficiently, they’re clean and they’re relatively cheap.
I’m not saying Anchorage taxis are perfect and no additions or other improvements could be made — it’s just that open-ended deregulation is exactly the wrong way to go. Learn from the real mistakes of other cities and just don’t do it.
Why would you vote to make your taxicab service more expensive? Why would you vote to make your taxicab service worse? Don’t do it, Anchorage.
Vote NO on Proposition 8.
The Following shows what happened when the City of Seattle in the United States Deregulated Taxis in 1979:
In 1979, the Seattle City Council adopted legislation which eliminated the population ratio as an entry limitation for taxicab licences. Thus, any applicant could obtain a licence if he/she met the licensing requirements, i.e., application fee, insurance, inspected and approved vehicle and taximeter, approved name and color scheme, and approved ownership. At the same time, control on the fare was also removed, so that fares could be set by individual taxi operator only by filing with the City as long as the rate followed the prescribed form and was reflected on the taximeter. The County Council also undertook the deregulation one year later (1980).
As a result of deregulation. the number of licences grew and the rate variables were plentiful. At the same time, however, many problems concerning the level of service occurred, such as rate gouging, short haul refusals, discourteous treatment of passengers, fights at ranks and airport, etc. Some attempts were conducted to solve such problems during 1983-1984, including creation of a short haul line at the airport, iatroduction of a rate ceiling (maximum limit) based on the median rate filed, creation of a Taxi Industry Liaison Group (TILG) to increase and provide industry feedback. and a proposal of zone rate for the trip from the airport to downtown Seattle.
At the end, however, the County Council concluded in the late 1984 that deregulation was a failure, and rewrote the proposed ordinance by reinstating an ordained entry restriction and fare control. Though the City did not end deregulation, taxi deregulation over entry and fares has been no more substantial since 1985 due to the introduction of maximum limit on fares and the impact of the County Council’s restriction on licensing.
There are major challenges facing the taxi industry Tommy Gorman President of The National Taxi Drivers Union (NTDU) told the Epoch Times last week. “The recent fuel hike and the amount of new licences being issued is putting increasing pressure on our drivers forcing them to work longer hours.”
Mr Gorman said, “Compare the year 2000 when 2722 licences were applied for, to last year when 13,000 were applied for, there is a huge jump. I would like to see stricter measures put in place before the granting of a licence. ”
But the spokesperson for the Taxi regulator said, “It is not within our remit to say whether or not there should be a curtailment on the issuing of licences, a directive for any change in relation to this would have to come from government.”
Mr Gorman continued, “As well as a written test I feel a practical test should be introduced whereby applicants would be accompanied by an inspector. There is also a need for more wheelchair assisted taxis but because of the high cost involved to drivers there is little interest in this part of the business.
“Other issues like criminals who target drivers who are made vulnerable because of their work, I feel these criminals should be dealt with more quickly through the courts. Ninety-five per cent of our members who have been attacked through the course of their work leave the business”, he said.
“This business has taken more than its fair share of knocks the worst being deregulation in 2000. That year the industry was worth 65 million Euro with each individual licence being worth 100,000 Euro and almost overnight with deregulation these figures were reduced to 5000 Euro for an individual licence and the industry worth reduced to 19.5 million Euro.
“The knock on effect has been catastrophic for our members, many suffered strokes and heart attacks and there were two suicides. One of our members Dom Flanagan went on hunger strike and protested for a month outside St. Luke’s constituency’s offices in Drumcondra.
“At that time they were talking about deregulation in the Dail, upon hearing on the news that deregulation was being introduced he suffered a massive stroke. Taxi people consider their licences their pensions this man was sixty and now without a pension.
“Other people had remortgaged their homes to buy a taxi licence and after deregulation they were left paying huge repayments on a useless asset”, said Mr Gorman.
The government paid 17 million Euro in compassionate payments to taxi drivers after deregulation, this averaged at approximately 11,500 Euro per driver. Taxi drivers families lobby group, Families Advocate Immediate Redress (FAIR) claimed that entrants to the industry before it was liberalised had paid in excess of 100,000 Euro for a taxi licence and that the compensation was not enough.
This November the NTDU will be taking their case to court in relation to the deregulation of the industry.
The Current Situation Re: England & Wales:
1. The Department for Transport wrote to 151 local licensing authorities last year asking them to review their policy of controlling taxis numbers. This paper summarises the responses to that request from those local licensing authorities which decided to maintain quantity controls.
2. In total, 82 final responses were received by the end of August 2005. 35 local authorities have made a decision to remove quantity controls and 47 have decided to retain a limit on the number of taxi licences they are prepared to grant. A number of authorities have sent interim replies indicating that they are still considering the matter
3. The Office of Fair Trading undertook a study of the UK taxi and private hire vehicle (PHV) market in 2002/03; its report was published in November 2003. The principal recommendation was that local licensing authorities’ power to restrict the number of taxi licences they issue should be repealed.
4. The Government’s response was published in March 2004. The Government did not accept this recommendation, taking the view that local authorities should continue to be responsible for making decisions about whether or not to control taxi numbers in their respective areas.
5. However, in its response to the OFT report, the Government conveyed its belief that, in general terms, quantity restrictions were unlikely to be in the best interests of consumers. The response said that those local licensing authorities that imposed quantity controls would be asked to review their policy with particular emphasis on benefits for consumers. A letter duly issued from the Department on 16 June 2004; it asked 151 local licensing authorities to carry out a review of their quantity control policy. Local authorities were asked to publish the results of their review by 31 March 2005 and to send the published outcome to the Department by 30 April 2005.
6. In essence, those licensing authorities who decided to maintain quantity controls were asked for a justification of their policy. In other words, they were asked “why continue to control taxi numbers at all; why not remove the limit altogether?” This paper collates and summarises the responses to that question (the replies from individual authorities should have already been made public by the authority; copies should be available from the authority but can also be obtained on request from the Department).
7. In England and Wales (outside London) local licensing authorities can choose to place a limit on the number of taxi (vehicle) licences which they grant. (This relates solely to vehicle licences; there is no power to control the number of driver licences.) More than half of all licensing authorities choose not to impose a limit.
8. Those licensing authorities that choose to control taxi numbers cannot just set an arbitrary limit; they must have regard to the question of demand. Section 16 of the Transport Act 1985 provides that:
“the grant of a licence may be refused, for the purpose of limiting the number of hackney carriages in respect of which licences are granted, if, but only if, the person authorised to grant licences is satisfied that there is no significant unmet demand for the services of hackney carriages (within the area to which the licence would apply) which is unmet”.
9. The usual way of assessing demand is by means of a survey. Taxi licence applicants have a right of appeal to the Crown Court against a decision to refuse a licence; if the refusal was on the grounds of limiting numbers, the onus would be on the local authority to demonstrate to the court that there was no significant unmet demand.
10. This issue is restricted to England and Wales (outside London). Different legislation applies in London where quantity controls are not permitted. Different legislation also applies in Scotland and Northern Ireland (and the respective Administrations made separate responses to the OFT report).
11. The Department had, by the end of August 2005, received 82 responses. Of these, 47 were received from local authorities which decided to retain a policy of controlling taxi numbers 35 of the local authorities had abandoned their policy of controlling taxi numbers. (A table listing replies to date is attached)
12. The detail provided in replies varied; some local authorities simply conveyed the fact that they were retaining quantity controls (in which case they were pressed for their reasoning) whilst others went into detail about the positive aspects of controlling taxi numbers.
13. Authorities were asked to make their responses public so that local people could see the decision reached by the local authority and – where quantity controls were being maintained – the justification for that decision.
No reason to change a policy that works
14. The most common response amongst local authorities for retaining quantity controls was that if the limit on taxis was set at the correct level with an adequate level of supply, no change to the policy was warranted. The argument ran if the limit was set at the right level with no significant unmet demand (as evidenced by a recent survey), passengers did not have to wait unreasonable lengths of time to secure a taxi and the status quo could therefore prevail with no ill-effects. In essence, they saw no reason to change a policy that they regarded as satisfactory just for the sake of it.
15. In a few cases, the sole reason given by licensing authorities was that there was no unmet demand for taxis in the area so there was no need to change the status quo. In other cases, the absence of any unmet demand was cited as a contributory factor in the local authority reaching a decision to retain quantity controls.
16. In justifying that their limit was set at an adequate level, some local licensing authorities compared their local provision to the average ratio of taxis per head of population of 1.1 taxis per 1000 population (a generally agreed rate quoted by consultants). One urban area said its level was double the national average – 2.1 per 1000 and another was 2.15 per 1000 which it claimed was similar to derestricted authority 2.15 per 1000 and justified retention of its policy.
17. Local licensing authorities were asked specifically about benefits for consumers. Indeed, the Government’s response to the OFT report urged them to abandon quantity controls unless it could be demonstrated that such a policy was in the best interests of consumers. As a general observation, consumer interests did not feature prominently in responses; some did not mention consumers at all. Those that did can be summarised as follows:
- quantity controls allow for multi-shifting (ie those drivers who cannot acquire a licence must rent a vehicle; the vehicle owner will tend to work through the day and the driver who rents is forced to work at less attractive times – evenings and nights); it is this system which ensures adequate coverage throughout the day and night. Increased numbers of cabs – allowing renting drivers to acquire their own vehicle – could undermine the current structure of taxicab provision and could lead to under provision at night time and weekends.
- where the limit is deliberately fixed above the level of demand identified – issuing more licences than identified by survey of unmet demand – consumers benefit from an excess in supply. More than enough cabs – evidenced by very small passenger delay and long driver wait at ranks.
- wider public benefits to be gained from a good relationship between the trade and the licensing authority – no need to jeopardise that relationship for no real gain.
- quantity controls mean that PHV drivers remain in the PHV trade (rather than shifting to the taxi trade) so consumers benefit from having an adequate supply of PHVs for pre-booked work. Particular benefits for consumers in outer lying areas where pre-booked hirings are more common.
- quantity controls enable the trade to earn enough to afford a high quality and safe vehicle fleet which is beneficial to consumers.
- limitation policy per se does not have any adverse impact on customer safety; received no representations or complaints about the level of taxi service provided in the last 12 months.
- deregulation would mean considerable disruption to the level and quality of supply, at least in the short term. In the longer term the level of turnover of proprietors and drivers is also likely to be higher which may have an adverse effect on the quality of vehicles and drivers.
- quantity control policy helps to develop accessibility policy by supporting substantial investment.
- no complaints from members of the public about difficulties in obtaining taxis or excessive waiting times.
18. A number of local licensing authorities considered that an important part of their role in relation to taxi licensing was to provide a degree of protection for the taxi trade and thought that quantity controls contributed to this objective:
- deregulation might lead to reduction in earnings for drivers (and increased waiting times at ranks) resulting in material hardship.
- deregulation would generate an influx beyond just PHV drivers shifting over to taxi work, leading to oversupply and an unviable business.
- in areas of highly seasonal work (eg. seaside town), low level of activity during the winter months, drivers’ incomes should be protected.
- restriction in name only; there are unallocated plates, but formally removing limit would be unnecessary and confrontational – dissent within trade for no real reason.
- taxis no longer able to work from the station which mean that there are surplus cabs in the area; quantity controls protect income and value of owners’ investment.
- quantity controls enable the quality of the fleet to be maintained whilst also recognising the substantial investment in such vehicles by the trade.
- quantity controls protect the taxi trade; it means reduced competition; in a small town. Income can be insufficient to cover operating costs so protection is justified.
- deregulation might encourage “cherry pickers” to the detriment of full time workers.
- deregulation would mean reduced custom for existing licence holders.
- a quantity control policy provides stability within the trade.
19. Some local licensing authorities which decided to retain quantity control expressed concern about the provision of adequate rank space if they were to deregulate.
- if quantity controls were removed, there would be insufficient rank space available to cater for the increased number of cabs.
- there would be a need to manage the ratio of ranks to taxis.
- some cities do not readily lend themselves to additional rank space eg shortage of adequate kerb space.
- the unpredictability of deregulation would exacerbate lack of sufficient taxi ranks in appropriate locations.
20. A number of local licensing authorities feared the potential impact that removing quantity controls might have on local congestion:
- if quantity controls were removed, there would be a risk of oversupply; additional vehicles cruising the streets would give rise to traffic management concerns.
- potentially adverse impact on the environment, particularly air pollution, especially where low emission zones are being considered.
- any increase would have a detrimental effect on traffic flow; it would place increased pressure on enforcement resources designed to ensure through flow of traffic within the city centre.
- already a problem with drivers parking up illegally because of shortage of rank space; additional cabs would exacerbate the problem.
Wider transport/social policy
21. A policy of controlling taxi numbers was cited by a number of local licensing authorities as being an integral part of a wider transport/social policies:
- a policy of controlling taxi numbers meets the aims of the area’s Local Transport Plan.
- considering taxi provision in the context of a pedestrianised town centre means that deregulation would not be appropriate -only small increments should be made to the existing fleet depending on the evidence for demand.
- policy supports town’s transportation policy and existing transport infrastructure.
- potential environmental consequences of change in terms of infrastructure requirements and the impact on the historic city means that the absence of disbenefit is adequate reason to maintain quantity controls.
- small sized city and low density suburban areas do not provide market conditions that lend themselves to traditional taxi activity; PHVs are more geared up to serving this type of market.
- local authority is best placed to determine local needs and those needs must be determined in the context of the long standing and consistent traffic and transport policies in the area. Taxis allowed into certain controlled areas where private cars are prohibited – control of taxis is therefore paramount importance to city council.
- local solutions to local problems.
- deregulation would exacerbate local traffic problems to no apparent benefit given that regular surveys do not indicate unmet demand.
- monitoring major town centre redevelopment before reviewing policy.
- size and geographical nature of the area.
22. Where quantity controls are imposed, it is usual for the licences which are in circulation to acquire an intrinsic value; they can be sold for a premium often reaching many thousands of pounds. Some local licensing authorities referred to these – unofficial – premiums in their responses:
- there is an obligation on local authorities to protect licence holders’ investment.
- a relatively low level of premium compared to neighbouring areas suggests that little unmet demand, thereby justifying retention of quantity controls.
- the existence of a premium is not necessarily an indicator of unmet demand. The premium may reflect low cab waiting time associated with under supply, and hence passenger delay. It might be due to fares level which is higher than break even level for a given supply. It may simply be a reflection of the absence of alternative means of gaining employment. In an area with low level of passenger delays, it is likely that the high premium is resulting from fare levels having risen above the equilibrium for the given number of vehicles. So, removing the limit would simply remove the premium whilst providing very little measurable benefit to customers. If, on the other hand, fare levels were addressed the disbenefit to the trade would at least be balanced by benefit to customers.
23 Some local licensing authorities put forward other arguments in favour of retaining quantity control policies:
- deregulation would increase the resources required to enforce taxi standards.
- deregulation would introduce uncertainty as to the speed with which licences would be taken up and this could have consequential impact upon matters such as the general management of transport provision and the administration processes within the taxi and PHV licensing section.
- fluctuating staff levels to administer licensing system might lead to redundancies.
- could cost LA £20,000 to defend a judicial review.