Intended Consequences of Portland’s Restrictive Taxi Policy

While we here at Portland Transport generally stick to subjects like public transit, bicycling, and walking, the taxicab is another form of transit that can allow people the freedom to travel around at will without the burden of car ownership or the need to personally drive the car.

Taxis fill an important need for those trips that transit does not serve well, especially late at night. It would be very expensive and difficult for a transit agency like TriMet to send out a bunch of buses at 2am to pick up intoxicated people coming out of bars and events who really should not be driving home. Taxis, with their flexibility to respond to areas of demand, are ideally suited to this task and any great city has a fleet of them roaming the streets ready to be hailed or sitting in designated taxi zones.

Taxis can also be valuable for elderly and disable people with mobility problems, since they can deliver people directly from home to store and back again. Transit is ill-suited to this task, and the paratransit service TriMet does offer is extremely expensive to operate. Abundant taxis paired with publicly funded taxi vouchers might be a much more effective way to serve the mobility-impaired.

Unfortunately, taxi policies in most US cities are notoriously restrictive and are designed to protect incumbent taxi businesses by limiting competition and giving them leverage over their workforce. Last year Sightline published an excellent entry on taxis as part of their “Making Sustainability Legal” series. They show that Portland has one of the most restrictive taxi policies in the country, only allowing 382 cabs to operate in the entire city, or only 0.7 cabs per 1000 residents. Washington, DC, by contrast, does not put a cap on permits and they have a much healthier 12 cabs per 1000 residents.

The Portland Revenue Bureau enforces this strict cap and any increase has to be justified by showing that any new permits will not result in “market oversaturation.” City officials are expected to somehow decide how many taxis would be too much, and new taxi companies are required to prove there is a need for more taxis. Even if city officials approve an application for new permits (which almost never happens), any change has to go through a City Council which is put under enormous pressure by existing taxi companies to restrict any new entry by competitors. In practice, it has been almost impossible for new taxi companies to enter the marketplace and get permits. Four of the five taxi companies in Portland have been around since the 1970’s.

All this is prelude to this week’s article in the Portland Mercury that highlights the real human cost to these policies, not only for the public that would benefit from more taxi availability and lower prices, but also for the people who actually drive the taxis. The article describes 50 drivers who are trying to form a new employee-owned company because they are tired of working long hours for low wages that are further reduced because have to pay a big chunk of their earnings back to the company for the right to use the car. Rather than the company simply taking a fixed cut of fares, a driver has pay for the right to drive the car, then hope to get enough fares to pay back the company and still have some left over. This is generally an exploitative business model, usually associated with shady strip clubs (where strippers have to “rent” the stage), prostitution, and sharecropping to name a few.

A recent city study found that taxi drivers in Portland on average work 6 to 7 days a week, 12 to 14 hours per day, and make well below the minimum wage. Interestingly, the study found that at the one employee-owned company, Radio Cab, drivers worked shorter shifts and made a lot more money than at the privately owned companies, bolstering these drivers’ case that they should be allowed to form their own company.

The article makes clear that it will be very difficult for these drivers to form a new company, denying them any real bargaining power with their employers and, I would argue, denying them their basic rights. When a barista at Stumptown decides he or she wants to leave and open a new coffee shop, we don’t require proof that the coffee market isn’t already “saturated.” We don’t put a cap on the number of coffee shops that are allowed to operate in the city, and each increase doesn’t have to go directly before the City Council. If this was the case, there would be huge public outcry. For most types of businesses, the city is expected to issue business permits as long as the rules are followed and there isn’t some overriding reason to deny it.

One quote from the Mercury article really jumped out at me, from the Revenue Bureau’s Kathleen Butler: “An unintended consequence of the cap on permits is that drivers are not in a good bargaining position to find a company to work for.” This quote made me laugh because this is in fact a completely intended consequence of the cap on permits. It is designed to protect existing taxi companies from new competition, including the threat of their own employees going off to form a new company or switch to a different company. I’m not sure there’s a clearer example of government and private business colluding to prevent competition with no clear public benefit.

To be clear, regulation in the form of requirements that taxis be safely operated, clean, identifiable, etc., are perfectly reasonable. Even regulations on the metered rate might have some merit to provide a measure of confidence that taxi drivers or companies won’t suddenly raise the price once you’re in the cab. But the onerous restrictions on the number of permits and companies are indefensible, and we all, drivers and passengers alike, pay the cost.

23 Comments

23 Responses to Intended Consequences of Portland’s Restrictive Taxi Policy

  1. Joel Hoffman
    February 3, 2012 at 10:51 pm Link

    Taxi companies are one beneficiary of this regulation, but to some extent, it seems like Trimet is another.

  2. Alex Reed
    February 4, 2012 at 12:15 am Link

    Agreed! More taxis, please, Portland!

  3. EngineerScotty
    February 4, 2012 at 10:39 am Link

    Generally, taxis and public transit aren’t competitive with each other all that much–they serve different kinds of trips, and have very different cost structures.

    The stated justification for the medallion system is to protect the well-being of drivers; it is argued that if an unlimited supply of drivers is permitted to exist, that none of them will make any money. The shabby way drivers are treated suggests that this argument is full of water.

  4. billb
    February 4, 2012 at 10:53 am Link

    Well written post !
    When I lived in D.C. our Congress Critters required that all cabs charge only 3 bucks inside the District. Everyone took cabs everywhere at that price , keeping thousands of cars of the road.

    That being said I would love it if City Council made me the only legal Home Designer in Portland….

  5. Rob
    February 4, 2012 at 11:19 am Link

    What is our objective?

    More taxis means lower wages for the drivers and has resulted so. The Radio Cab analysis is specious, They are one of the 2-3 known brands, so unionization is not conclusively the explanation. Faulting our current driver, it’s all about the $30+ airport trip, that strands taxis in the queue there for pickups.

    What we need for a healthy transportation system is 24×7 light rail with taxis looping off light rail stops. Also a great disabled service.

    Big shift? Yes.

  6. zefwagner
    February 4, 2012 at 12:26 pm Link

    Taxis and transit are not in conflict because taxis are privately run and unsubsidized. Transit will always be cheaper than taxis for the trips that it serves well. Taxis fill a separate niche that transit does not serve well.

    The common refrain, repeated already in a couple comments, is that if we allow more taxis then drivers won’t be able to make any money. But again, for what other business is this true? If tons of new taxis flooded the market, and suddenly drivers couldn’t get enough fares, the number of taxis would go back down again. This is how free markets work, and it’s how most businesses function.

    If someone opens the tenth coffeeshop in a neighborhood that already has enough coffeeshops, that business will fail and that was because they failed to assess the market accurately. Most business owners are smart enough to tell whether there is an opening for new entry–city bureaucrats are probably not as skillful in determining that.

    To Rob, I would also add that Radio Cab is not unionized–it is employee owned. There is a major difference. I don’t see how the city analysis is specious in any way. It seems clear that employee ownership has resulted in better working conditions. Why should it be the city’s job to deny these cabbies the opportunity to start their own business?

    Another thing to keep in mind. If the point of this policy is to protect the wages of drivers (which I would strongly dispute), what about all the people out there who would like to be taxi drivers but are not able to do so because the supply is restricted? Do they not count?

  7. Jeff F
    February 4, 2012 at 12:48 pm Link

    Not only do we need to end this artificial limit on cabs, we also need to end the stupid no-flagging rule. Part of the real utility of taxis, in cities that take them seriously, is the ability to grab one where you need it, not just where the City has decided you need to go to (or go through the process of phoning for one, and then waiting).

    People in Portland don’t use cabs much because they’re expensive and they’re inconvenient. If their utility was increased, more people would use them and the more trips there are the more cabbies could be working.

  8. EngineerScotty
    February 4, 2012 at 2:05 pm Link

    A few other topics for discussion:

    Assuming taxicabs are to be regulated in some fashion (I’m against medallion systems, but certainly agree that safety ought to be regulated, and am open to things like standard rate schedules and centralized dispatching), at what level of government ought this occur? For safety/vehicle issues, ODOT/DMV is the logical place (and where this regulation occurs already). But for service issues–it seems to me that the government agency that ought to be the primary regulator is Metro, not the various cities.

    One problem with city-based regulation is it makes cross-city-limits trips undesirable for the cab operator. Generally, a cab can only pick up a fare in the jurisdiction in which it is licensed (though the passenger may be driven to anywhere); but cabs which have to leave their service territories then have to deadhead back, wasting time, money, and energy. Also, consumers are limited in the agencies they can call in, to those that are licensed where they happen to be starting their journey. If the agency of regulation and licensing were Metro, then it would improve service region-wide, and potentially eliminate a lot of headaches.

    A second question: To what does the taxi industry exhibit induced demand? It’s a long-documented phenomenon on road-building–if you build more roads, you get more traffic to use up the capacity. It works with transit as well: if you provide lousy last-resort service for the transit-dependent, you get low ridership. If you provide good, regular service, you get more people on the busses and trains. But does it work with taxis? Those cities with extensive taxi fleets are often presumed to be “good taxi markets”, due to circumstances such as high density, expensive parking, limited highway penetration, or a large number of visitors. I don’t expect that an unregulated taxi market would make Portland look like Manhattan or DC. But were the supply (and availability) of taxis to be increased in town, how would that affect demand?

    Regarding the relationship between taxis and transit: I’d go further than to say that they are not competitive–I’d say that the relationship is symbiotic. Persons who use transit to work may find themselves in need of a taxi, should they have to make a trip (especially an unscheduled one) which is inconvenient on transit; thus greater transit use has the potential to increase taxi demand. Transit stops, especially TCs, are good places for taxis to pick up fares (especially if the stupid no-hailing rule is abolished). On the other hand, the availability of a taxi ride as an alternative to transit makes transit more attractive: a common objection to transit is “I may have to work late and miss the last bus/train home”. (Not all routes run in the late evening). If one can get a cab home instead, it makes transit a more attractive alternative.

    In short, the combination of good transit and good taxi service is a better alternative to the SOV than either of these things on their own: using taxis for everything is expensive, and using transit for everything may be inconvenient, especially if you live in the ‘burbs.

  9. EngineerScotty
    February 4, 2012 at 2:13 pm Link

    A word to the wise, BTW–the word “penetration” apparently results in the post going to the moderation queue. :)

  10. Rob Durchola
    February 4, 2012 at 4:47 pm Link

    @zefw – Re your coffee shop analysis where the neighborhood can support 9 shops. If a 10th shop enters the market, it fails – not necessarily so.

    Let’s assume that each of the 9 shops sells 1000 cups of coffee a day (9000 cups total). Each has a break even point of 950 cups a day, making a small profit.

    Now let’s assume the 10th shop enters the market and each shop now sells 900 cups a day. All ten shops lose money if the 10th shop does not generate new volume.

    One or more of the shops will eventually fail. In the extreme, all ten shops could decide independently to close on the same day, leaving the neighborhood with no coffee shops.

    The same is true of any non-regulated business. Thus, if there were unlimited entry into the taxi market, eventually some of the operators would fail. And, if operators are regularly entering and leaving the market, it becomes difficult for those who wish to use taxi service to determine how to obtain the taxi service they need.

    (The separate issue of medallion holders not properly treating their operators could be addressed through regulation – minimum wage, maximum hours behind the wheel, maximum use charge, etc.)

  11. zefw
    February 4, 2012 at 5:01 pm Link

    That’s all well and good, but what you are describing is what we call “competition.” If coffeeshop number 10 succeeds and number 1 fails, that is because they failed to adapt to new competition. Why are taxi companies protected from this? Your scenario of all the businesses failing at once is very far-fetched.

    Keep in mind that I am not suggesting we completely deregulate and allow anyone with a car to be an independent taxi driver. That would indeed be disruptive, confusing, and unsafe. It makes sense to only grant permits to taxi companies that follow certain rules. The analogy would be that we don’t allow people to sell coffee on the sidewalk without a business license and permits. I just don’t think we should limit the supply.

  12. Jason McHuff
    February 4, 2012 at 6:38 pm Link

    The best taxi system, I think, would be to dispense with the companies and have the individual drivers work on their own. There would be centralized dispatch/customer service/etc and calls would be distributed based on seniority and customer service, as well as closeness to the pickup point for immediate requests. A board composed of driver representatives as well as representatives of the public would oversee the system.

  13. EngineerScotty
    February 4, 2012 at 7:13 pm Link

    While still I think medallion systems are a bad idea, there’s several big differences between the retail coffee industry and the taxi industry.

    * Coffee shops are generally freer to differentiate their products or services. They may serve different blends, offer different prices, vary in their amenities, speed of style and service, and offer different menus. There is far less room for variation among taxis–the main degrees of freedom are price and ride quality, one or both of which may be constrained by regulations.

    * When you go buy a cup of coffee, you get to choose what shop you patronize. When you summon a taxicab, whether over the phone or from the street, you have little control over who responds–and most of the time, you don’t care what taxi you hire.

    In short, the food service industry is fairly good at weeding out lesser competitors. The taxi industry, not so much.

  14. ws
    February 4, 2012 at 7:37 pm Link

    “When you go buy a cup of coffee, you get to choose what shop you patronize.”

    Disagree completely. People generally use phones to call taxis in Portland (choose), not sit outside on the sidewalk and hail a random cab.

    If we finally let technology get into the game, people could use apps that choose which company they prefer.

    I think the coffee shop analogy is spot on perfect (especially for Portland).

    We don’t need a government arm regulating taxis to the degree we do (like most cities, Portland is not really an anomaly in regard to how much is regulated).

    Regulation of taxis needs to show that taxi drivers are competent and companies are committed towards safety of its passengers.

    Market manipulations with dictatorial arms like Portland’s plain stink and need to change.

  15. Joel Hoffman
    February 4, 2012 at 8:11 pm Link

    Obviously few people will want to commute downtown every day by taxi, but nevertheless, taxis and Tri-Met are alternatives for some trips, particularly to the airport. If taxis were more convenient, fewer public transit trips would be made. For example most people don’t take public transit to airports in NYC even though the subway/AirTrain costs a lot less than a taxi or a shuttle. It takes longer and you have to haul your bags around.

    Currently in my experience, Trimet is a better option for trips between anywhere near the Red Line and PDX. That’s *only* because taxis are so unreliable*. If taxis here were more convenient and less expensive, that might not be the case. And how about legalizing private bus service like the NYC airport shuttles?

    I live 5 blocks from the 82nd MAX station, I’m a regular max commuter, but even from here I think it’s an inconvenient train trip with luggage and schedules, especially early mornings and Sundays.

    *The last time I called a taxi to meet me at the 82nd avenue max station, they called back saying they were at mumble mumble in Beaverton, where was I?

  16. EngineerScotty
    February 4, 2012 at 10:20 pm Link

    ws,

    You can select a specific cab company, by calling its dispatch (or using an online tool), but it’s hard to select a specific cab or driver. And even if you could, that driver may be taking a fare across town.

    Again, I’m not supporting the medallion system, just pointing out that the market for taxis is less competitive (in economic terms) than the market for coffee.

  17. ws
    February 5, 2012 at 10:54 am Link

    “You can select a specific cab company, by calling its dispatch (or using an online tool), but it’s hard to select a specific cab or driver. And even if you could, that driver may be taking a fare across town.

    I won’t beat a dead horse too much, but you can’t often choose your own barista to make your coffee at a coffee shop (the likely analogy you’re going for in regards to choosing a specific taxi driver — same thing applied here).

    I really do feel that the coffee analogy is pertinent to this discussion, and spot on in describing the situation at hand, and it doesn’t need too much micro-analyzing.

  18. Rob Durchola
    February 5, 2012 at 4:12 pm Link

    If the supply of taxis increase and they are allowed to cruise for passengers along Trimet’s busier routes, they will start stealing passengers from Trimet, especially if taxis are allowed to set their own fares or serve multiple rides or are allowed to operate van type vehicles.

    Even a small diversion of riders from Trimet will weaken the agency and require either frequency cuts/and or fare increases.

    There are ways taxis might be beneficial. For example, many of those who currently use paratransit service could use taxis (at reduced public cost over conventional paratransit) providing a base revenue for taxis and making them more available for others who cannot easily use public transit because of span of service or distance from service issues.

  19. zefwagner
    February 5, 2012 at 4:20 pm Link

    Thanks, ws, I was about to make the same point. I would add that in a world of abundant taxis, some people would be picky and others wouldn’t, just like with coffee. Some people just want coffee, and are not discerning, but others will only go to the ones they like. I think taxis would work the same way. I know people who have had a bad experience with a taxi company and they never call that company again. Most people also only put one taxi company’s number into their phones. Right now, there is not much competition, but if there was I think we would see more differentiation, with some companies trying harder to offer better service.

    Rob, I still don’t see how taxis could compete on price with subsidized transit. TriMet will always be cheaper on the routes it runs on. Taxis would just give people the option to pay more to get a faster trip when buses aren’t running often enough, like at night. If this led to worse ridership during night hours, TriMet could justifiably cut night service and reinvest in day service or corridors that do better at night. I think that would be a perfectly fine outcome, as opposed to the current practice of running empty buses during the evening hours just to provide basic service.

  20. Chris Smith
    February 5, 2012 at 8:44 pm Link

    This article suggests that taxis are complementary to transit.

  21. Rob Durchola
    February 6, 2012 at 6:12 pm Link

    Taxis can enhance/complement transit service or can compete with it.

    Enhance/complement:

    1. Extend transit service into areas that might otherwise not support transit service.

    The Portland area has seen some municipalities withdraw from Trimet. Trimet could pay taxis to operate fixed, flexible, or on demand routes into these areas that connect with the larger system.

    Users would pay the appropriate transit fare. Trimet would subside the taxi company given the territory for the difference. If ridership grew, the route could become conventional bus. While there is clearly a cost to Trimet, the outlying municipalities would see the benefit of being part of (and contributing to) the Trimet network.

    2. Replacing lightly used line segments.

    If at certain times of day, ridership on certain line segments (ends of routes) is at four or fewer passengers per trip consistently, Trimet could contract with a taxi company to handle the segment, scheduled to connect with the regular bus. This has been done elsewhere. Again, the passenger pays the regular fare or offers a transfer/pass. Trimet negotiates a fixed rate with the taxi company. The major problem is working out the labor issues with the existing bus operators.

    How taxis can hurt:

    1. If taxis are allowed to cruise for passengers, they can cruise popular bus routes and skim off riders, especially in rain, cold, heat, or when passengers have packages.

    2. If taxis are free to set their own fares and are allowed to cruise, a taxi operator might try to match or beat bus fares when picking up passengers along a bus route if the operator is heading in the direction of the bus anyway.

    3. If taxi operators are allowed to pick up multiple fares on the same trip (and especially of they are allowed to operate larger vans instead of traditional cabs), they can pick up enough fares to undercut bus service severely. (This happened in Hudson County, New Jersey where these van operators registered as interstate bus operators; even if they never operated across state borders into New York City. Vans similarly undercut bus service in Brooklyn and Queens, boroughs of New York City.)

  22. Aaron G
    February 6, 2012 at 6:35 pm Link

    I think it would be cool if TriMet had a fleet of short buses and ran single MAX trains all night at reduced frequency. Charge a $10 night fare.

    (Sorry, I accidentally posted this to the wrong thread a moment ago.)

  23. JN
    February 9, 2012 at 5:17 pm Link

    If you want taxi subsity, look at Ben-Franklin Transit (located in Tri-Cities, WA), the bus company contract with taxi service for certain areas where bus service is underserved. Plus Night Service from 6PM-2AM for $3 flat fare. Must call in advance for a ride. M-SAT only. No sun/holiday service.

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