By Michael Farren
The Everett City Council is weighing major changes to the city’s for-hire vehicle regulations, the rules for which govern taxis and transportation network companies (or “TNCs”) such as Uber and Lyft.
The proposal includes some of the best reforms to historically onerous taxi laws currently under consideration by any American city. However, several aspects could inadvertently protect businesses from competition, which harms entrepreneurs and customers.
The proposal seeks to level the playing field between two competing business models by repealing the city’s outdated taxi regulations, and replacing them with one set of rules for all drivers. This is exactly the right approach, but the ordinance as written creates other problems.
First, the new annual $1,000 licensing fee actually increases the cost to start a taxi company by $745. This is what economists call a significant “barrier to entry” because it makes it harder — and sometimes even unprofitable — for new drivers or businesses to challenge the status quo.
Second, requiring every independent taxi or TNC driver to have a city-specific business license creates a multitude of bureaucratic hoops to jump through. Before a driver can even apply for an Everett business license she must have a state business license, which itself takes a minimum of two weeks to process. Furthermore, if every municipality in Snohomish County were to require a business license, then a driver would have to obtain 20 different licenses — each costing $50 to $100 — to provide service in just one county.
Since many TNC drivers work part-time and generally have a short tenure, multi-week delays in granting a license are more than an inconvenience. Each additional hurdle pushes the job — often a bridge between other jobs — and a much-needed paycheck farther out of reach. The result is fewer drivers on the road, and fewer options for city residents who need transportation.
Such barriers to entry, whether intentional or not, protect existing companies from competition from upstart entrepreneurs, giving them a measure of monopoly power. Furthermore, drivers who work for a company rather than for themselves don’t have to apply for a city-specific business license, meaning that the ordinance favors one kind of driver over another.
The proposed ordinance even violates its own intent by creating an arbitrary and unneeded distinction between taxicabs and TNC vehicles. If there is no difference in the requirements to be a taxi or TNC driver, then there is no reason to prevent TNC drivers from accepting street hails, or taxicabs from connecting with customers via TNC apps.
In fact, allowing for-hire drivers to provide service through both methods would be more efficient. Drivers would have less downtime in-between rides and customers would have more flexibility in finding transportation, both of which would seem to be in the city’s best interest.
The city council deserves credit as an early-adopter in the effort to clean up our national taxi regulatory quagmire. However, the proposed ordinance, as currently written, needs revision in order to truly put transportation businesses on even footing, whether they are large, small, corporate or independent.
Michael Farren is a research fellow at the Mercatus Center at George Mason University and coauthor of the study “Rethinking Taxi Regulations.”