Number of Uber & Lyft vehicles vs medallion prices
On August 14, 2018, New York City hit the pause button on the entire For-hire Vehicle (FHV) industry. In what many saw as a major blow to Uber and Lyft, the first-in-the nation legislation halted the Taxi and Limousine Commission (TLC) from issuing any new FHV licenses – a category that includes luxury limousines, black cars and liveries – for one year while the City studies the effects FHV services have on traffic congestion and livable wages for the drivers. Pitched as a way to raise driver earnings, reduce congestion and bring parity and relief to the yellow taxi industry, the new regulations give the TLC the power to reign in the ride-hailing giants.
In 2015, NYC Mayor Bill de Blasio attempted unsuccessfully to put a cap on the number of Uber vehicles in New York City. With celebrity endorsements, Uber claimed that the City needed its services because yellow taxis were unable or unwilling to meet demand; a claim highly disputed by the taxi industry. In 2018, spurred by a spate of taxi driver suicides and crippling traffic congestion, the City Council was able to push through a series of reforms over the loud objections of the ride-hailing industry leaders. NYC Mayor Bill de Blasio wasted no time in signing the package of bills into law, setting forth an unquestionable and unusual display of progressive political solidarity in local government, with the primary aim of protecting drivers.
Of course, like many laws, there are loopholes and many questions and next steps to be decided by the administrative regulatory agency (the TLC), as well as well-financed studies to be conducted over the next year. This article will explain the package of laws in detail, as well as outline the next steps government and private industry are likely to take. Then, insight will be offered on: what might happen in the future; the legislative intent or supposed reasons why these laws were passed; whether litigation may ensue; some unintended consequences or issues that the laws may have missed; and what other government regulators might do around the country and the world in response to this landmark legislation.
No New For-hire Vehicle Licenses for One Year
By the end of 2015, there were 30,559 vehicles driving for Uber and Lyft. Today, the number stands at 94,356 – a 200% growth rate in just over three years. These ride-hailing services complete over 18 million trips in the City every month, which is double the number of yellow taxi trips.
The clamp-down on Uber’s growth officially started at the stroke of 5:00 p.m. on August 14, 2018, when the TLC began implementing the 12-month moratorium on issuing new FHV licenses.
Under the new law (Int. No. 144-B), anyone hoping to obtain a new FHV license and use a vehicle that is not wheelchair-accessible is now out of luck, unless the FHV license applicant already had a TLC driver’s license before the ban went into effect, and had already entered into a two-year lease for an FHV. The law also allows the TLC to issue new FHV licenses if it determines that doing so would increase the availability of for-hire services in underserved areas of the City, as long as the licenses would not substantially contribute to congestion.
Unsurprisingly, in the days leading up to the moratorium, the TLC was inundated with last-minute applications for new FHV licenses. According to reports, in the first nine days of August, the TLC received 3,152 applications, or 560 more than it received during the entire month of August last year.
While the TLC will not be issuing new FHV licenses for one year, the new law requires it to conduct a study on driver income, traffic congestion, vehicle utilization rates and access to services in different parts of the city. Based on these studies, the law allows TLC to choose to set rates of fare and minimum driver payments for FHV services. Once the moratorium is lifted, under the new laws, the TLC could decide to cap the number of FHV licenses. It may also set vehicle utilization standards for the efficient use of FHVs dispatched by high-volume for-hire services. Both the number of FHV licenses and the vehicle utilization standards could vary based on the area of the City, time of day, day of the week, or any other factors that TLC believes would address traffic congestion, vehicle emissions and ridership.
A New License Class for High Volume Service and Minimum Wage Standards for Drivers
Under the new law, starting December 12, 2018, companies like app-based companies that dispatch more than 10,000 trips per day will now be required to obtain a “high volume for-hire service” license from the TLC to operate (Int. No. 838-C). The application process will require a business plan, detailed trip and revenue data, and disclosure of all commissions and fees the company charges drivers along with estimates of gross hourly driver earnings. TLC will also assess the impact the service will have on the environment before ultimately granting the license. Anyone who operates a high-volume for-hire service without a valid TLC license could face a fine of $10,000 per day.
The package of bills also included a requirement that High Volume Services pay their drivers a minimum amount for trips that the drivers make (Int. No. 890-B). The City has directed the TLC to set a minimum “floor” on the amount drivers must be compensated for their time spent picking-up and driving passengers. Prompted by low driver earnings, the TLC recently commissioned a study and released a report on app-driver earnings titled “An Earnings Standard for New York City’s App-based Drivers: Economic Analysis and Policy Assessment” (the “Earnings Standard”).
According to the report, two-thirds of drivers for app-based ride-hail companies in New York City rely exclusively on driving for their income. Approximately 40% of app drivers have income so low they qualify for Medicaid, and 18% qualify for food stamps. Additionally, 16% of drivers do not have any health insurance coverage at all. To remedy the situation, the study proposed a minimum rate for independent contractor-drivers of $17.22 per hour, which is equivalent to the New York State minimum wage in New York City that will take effect on December 31, 2018, plus 90 cents for paid time off and the employee’s $1.32 share of payroll tax. The report recommends a per-minute and per-hour earnings formula, by which drivers’ compensation for each trip rises in proportion to the app company’s average idle time in the prior three months. Given the comments from the Mayor and Council Speaker at the bill signing ceremony, it would not be a surprise if this is the wage standard that TLC sets for the High-Volume Services.
Because the method for determining the driver wage standard is subject to TLC rulemaking – which includes notice periods and public hearings – drivers will not be seeing the boost to their paychecks for several months, or likely longer. The new laws also vest the TLC with the power, by regulation, to not only set the minimum wage for High Volume Services, but for all other licensed FHVs.
Wheelchair Accessible FHVs and Taxicabs
When Mayor de Blasio attempted to cap the number of Uber vehicles in New York City three years ago by pushing a bill in the NYC Council, the ride-hailing giant won the day. This time around, the only clear winners might be wheelchair-accessible vehicles (WAVs). Not only are WAVs exempt from the 12-month vehicle licensing moratorium, but the TLC is now waiving the annual licensing fee for any wheelchair-accessible taxicab or for-hire vehicle.
The license freeze may help the City meet its accessibility mandates. WAVs cost more than the typical vehicles used in the ride-hail industry, making them less attractive to vehicle owners. The fee waiver combined with the lack of other options might result in more WAVs being added to the FHV side of the industry.
The City’s support for wheelchair-accessible taxis and FHVs is the result of both public policy considerations and agreements to settle legal disputes. In December 2013, the TLC agreed that 50% of the City’s taxi fleet would be wheelchair-accessible by 2020 pursuant to a settlement of federal class action litigation in Manhattan brought by the Taxis for All Campaign and a group of disability advocates.
In December, 2017, the TLC passed rules to require that WAVs be dispatched by FHV bases for a portion of all the FHV base dispatches. The WAV dispatch requirements were to begin in 2018, with 5% of the FHV dispatches needing to be made by WAVs, and to increase each year to reach a goal of 25% of FHV dispatches by 2022. At the same hearing the WAV dispatch mandates were passed, the TLC also approved a pilot proposal as an alternative to the WAV dispatch mandate, which would allow FHV bases to sign up with approved accessible vehicle dispatchers to provide WAV services. A group of app companies challenged the TLC’s WAV mandates in state court, and the parties settled the action in June 2018, with the TLC proposing rules that would codify the pilot proposal as TLC rules that provide an alternate to the WAV dispatch mandate.
By waiving the TLC licensing fees for wheelchair-accessible taxicabs and FHVs, the City Council is taking another step to facilitate the expansion of WAV taxicabs and FHVs.
The Impact on the For-Hire and Taxicab Industry
The one-year cap on new licenses is unlikely to immediately ease congestion or cure the economic conditions of drivers right away. Halting the issuance of new FHV licenses while allowing the number of TLC driver licenses to continue to grow, may encourage vehicle license-holders to rent their vehicles to other drivers. The vehicles may be used more efficiently, but the number of vehicles still remains the same.
In the past, the large ride-hailing companies struggled with driver turnover, making new vehicle licenses a necessity to maintain levels of service. Over 25% of new drivers for ride-hail apps leave within their first year, rising to 35% by the end of two years. Now, with the prospect of wage standards and increased monetary incentives from ride-hail companies, it is possible that more drivers will stay in the game, lowering the need to license new vehicles.
The drivers hold all the cards. During the 12-month freeze, drivers who own their vehicles will be able to transfer between bases or work for multiple companies. This is nothing new, but now the stakes are higher. Bases might see their fleets shrink in the face of higher signing bonuses and greater incentives that will likely be offered up by the industry power players. For bases, the loss of a driver means the loss of a vehicle. While that might seem scary enough for some base owners, congestion pricing is lurking in the not-to-distant future.
Starting January 1, 2019, congestion surcharges on taxis and street hail liveries ($2.50 per trip), FHVs ($2.75 per trip), and shared-ride services ($0.75 per person) might make things worse before they get better. Historically, taxicab fare increases have produced immediate ridership dips after enactment, and the recovery period can vary.
TLC Reform History: New Leadership for the NYC Council & More TLC Power
The new set of laws passed by the NYC Council is the first time a series of widespread reforms have been commandeered in NYC history since the Haas Act of 1937, which aimed to quell taxi riots in the Great Depression, establishing a cap on the number of taxicabs and a medallion system where taxi licenses are treated as property and traded on the open market.
Over time, a patchwork of regulations carved out industry turf and protected various new industries that were regulated, including the creation of the black car industry in the 1970s, which catered in large part to the corporate community, following the removal of radios from yellow taxicabs. Thereafter, the community car service or livery system followed, allowing unlicensed vehicles outside of Manhattans central business district to be licensed as the street hail system for taxis caused most cabs to primarily service densely populated parts of Manhattan.
Until now, the NYC Council had served more as a check-and-balance providing oversight, mostly holding the TLC Commission accountable and sometimes evening reverse, overruling or preempting TLC regulations. A prime example of the former approach was when the NYC Council passed laws (known collectively as the “Reform Package”) in the late 1990s that caused a 1998 taxi strike, rolling back strict taxi driver accountability rules (e.g., including a driver point system for repeat traffic convictions) the TLC passed under the leadership of former NYC Mayor Rudy Giuliani.
Most initiatives over the last several decades started with TLC and Mayoral initiatives on the other side of City Hall, with the NYC Council sometimes fighting, partnering or tweaking strong TLC regulatory leadership. Here, this progressive and pro-labor NYC Council, under the leadership of NYC Council Speaker Corey Johnson, worked with the Mayor to respond to a growing crisis created by a combination of unfortunate deaths and suicides, App company political influence and the failure or inability of the TLC to solve many of the major problems due mostly to the regulatory paradigm and legal constrictions.
The NYC Council has acted in a big way, and now it is up to the TLC to implement these many new pieces of legislation. This legislative package confers unprecedented power to the TLC, with future NYC Council oversight looming large.
The Impact of the New Laws on the NYC Taxicab Medallion System
The entry of Uber and Lyft to New York City’s for-hire transportation market decimated the values of NYC taxi medallions. Before the moratorium went into effect, ride-hail vehicles in NYC outnumbered taxicabs six to one. The pause on Uber may help stabilize prices or slowly reverse the trend.
On August 8, 2018, Council Members introduced various pieces of legislation directly aimed at providing financial education and assistance to drivers. Among these bills is one that would require the TLC to study the problem of medallion owners with excessive debt due to the decline in medallion values, and then determine how to address the problem (Intro. 1068).
Another bill aimed at helping all drivers – taxi and for-hire alike – would create driver assistance centers that would provide financial counseling, mental health counseling and referrals to non-profit organizations for additional assistance (Intro. 1081).
A bill that was introduced earlier this year would establish a City task force to study taxicab medallion values and then recommend changes to laws, rules, regulations and policies related to taxicabs designed to increase the value of medallions (Intro. 304).
It is too early to say whether these bills will gain any traction, but it is clear that these proposals are viewed as positive indicators for investors and stakeholders in the medallion market.
Will the FHV Cap Stay or Go?
It appears that this law, which does not presuppose a cap in theory, seems to have carved out exemptions to promote the policy objections of the NYC Council and Mayor, including more wheelchair-accessible service and enhanced service to underserved communities. Based on the public policy considerations for the exemptions, one could imagine the study might simply conclude that these policy objectives have been met over the next year, and there is nothing to be done except to make the moratorium a permanent law.
In January 2016, City Hall released a report titled “For-Hire Vehicle Transportation Study” based on a $2 million study that the City commissioned from the management consulting firm McKinsey & Company, which found that Uber did not play a major role in traffic congestion. In contrast, the Earnings Standard report was prepared under a procurement with the TLC in 2017 for just slightly less than $100,000.
There was not a competitive RFP for the Earnings Standard and it is unclear how and when this new study during the moratorium period will happen. Regardless, the City is already using its conclusions to support a pay minimum for certain drivers. Just like the McKinsey report concluded in early 2016 that there is no data to support a cap on FHVs, after the former NYC Council leadership decided to not cap FHVs, this new study could once again be a self-fulfilling prophesy – but with a very different result.
Will “High Volume For-Hire Services” or Others Sue the City?
It is not likely that lawsuits will be commenced this time around for a variety of reasons. First of all, the law on the moratorium was carefully crafted, but on the minimum wage law, there could be a challenge.
Over the past few years, the City of Seattle has been trying to use local laws to boost driver earnings. In December 2015, the Seattle City Council passed Ordinance 124968, giving collective bargaining opportunities to taxicab, for-hire vehicle and transportation network company drivers. Although the law technically went into effect in January 17, 2017, the ordinance has been tied up in various lawsuits that have put it on hold while the appeal process plays out.
In April 2018, the Seattle City Council passed a non-binding resolution to explore setting a minimum base fare rate for ride-hail companies. Supporters of the measure hope a higher base fare will increase drivers’ wages and help level the market for taxi drivers. However, Seattle’s union ordinance and minimum rate of fare resolution are both quite different from the New York City’s minimum driver earnings law. Challenges to the City law would need to be based on different legal theories entirely. Even with viable theories to commence litigation, the app-based companies may not bring the lawsuit because it could cause negative public relations issues, given the sympathy from the public for the plight of drivers and the recent suicides.
Issues the New Law Missed or Inequities Created
On August 8, 2018, City Council Member Francisco P. Moya sponsored Intro. No. 1070, a local law seeking to amend the administrative code of the city of New York, in relation to leasing, rental and conditional purchase of for-hire vehicles. This bill would require the TLC to make rules regarding certain financial agreements (leasing, rental, lease-to-own, and conditional purchase agreements) that drivers enter to obtain for-hire vehicles to use in New York City. In promulgating such rules, the TLC would be required to consider, among other factors, disclosure requirements, consumer protection practices and caps on the amounts payable under such arrangements (e.g., limits on deposits and other charges).
This type of law is not a surprise. The City Council partially attributed the steep increase in app-based companies’ vehicle lease programs, alleging some dealers offer vehicle financing to drivers with low credit scores and payment plans that end up costing drivers more than the actual sticker price of the vehicle.
While Int. 1070, may intend to put an end to usurious lending practices, in reality, it may further limit the FHV market and restrict drivers. There are likely few bad actors in the leasing community (if any), and many actually may have helped drivers by affording them sustainable income. Moreover, this bill lumps rental companies that offer drivers a short-term option in with companies that are financing vehicle sales.
Though this proposal has just been introduced, to allow it to go forward in its current form could limit free commerce. Many companies operate across numerous states, and this law could impact those business deals. The drivers that the City of New York is so eager to protect could lose their jobs as the leasing companies change their operating structure to comply with such regulations. As such, the question remains, has regulation gone too far, and is this the next wave of laws to follow on the heels of the momentum of the NYC Council’s Driver Reforms?
Do the New Driver Reform Laws in NYC have National and International Legs?
Activists, as well as users, rallied against the cap on for-hire vehicles (including the Rev. Al Sharpton). However, it was insufficient to halt the Council from passing the legislative package this time around. The tide had turned politically, and the breaking point had been reached where old strategies no longer worked for Uber and its progeny.
Given the attention to New York City as a regulatory leader and the “media capital” of the world, it is natural to wonder what cities will follow New York City’s lead. Many speculate that opposition to the cap was not waged to protect the New York City market (since it is already oversaturated), as much as it was a strategy to avert any copycat plans for other cities to follow New York’s lead. How individual cities have handled the regulation of Uber in the past, may dictate what cities will adopt a cap in the future.
Starting in the 1990s, NYC’s taxi and for-hire regulation and the TLC has been the regulatory model most often cited as engaging in best practices, and many cities simply adopt or even replicate its laws and rules verbatim. This started well before the 1998 reforms, and happened more frequently after that time, including the introduction of taxi lease caps for drivers; T-PEP (Taxicab Passenger Enhancement Program) technology involving credit cards and GPS-based taxi data; medallion sales and systems; the introduction and mandate of hybrid-electric taxicabs and many other initiatives. With the introduction of Transportation Network Company (TNC) laws in 48 states over the last several years, establishing a bifurcated system of regulation, and with almost a decade of new initiatives that were NOT replicated in other cities (e.g., WAV programs, the Taxi of Tomorrow and Green Livery Cabs), NYC and the TLC may be back on a path to influencing other cities, not just on the FHV cap and minimum wages, but also on the issue of congestion pricing. Only time will tell, but the regulatory stage is now set!