Taken for a Ride
The taxi medallion system in New York and other cities raises fares, impoverishes drivers, and hurts passengers. So why can’t we get rid of it?
Posted Wednesday, June 6, 2012, at 6:30 AM
There’s no good public policy reason why medallion owners should get any of the extra fare money, of course. But the power politics of the taxi business ensures that owners' dominance over drivers will continue, without any benefit to passengers.
The TLC has a long history of being in the bag for the medallion owners, but lately it's pushed for reform. Under its current chairman, David Yassky, it has challenged the owners by backing expansions to the city's taxi fleet, like the pending plan to let "green cabs" pick up fares.
Unfortunately, there’s not much to show for those good intentions. While medallion owners have dexterously used the courts to block policies contrary to their interest, no one is seriously proposing to overhaul the system that gives them so much power. Even Yassky has reassured investors that change is not on the way. "Nobody would do anything that disrupts the function of the taxi marketplace," he announced in a Bloomberg TV interview.
Such inertia is an inherent trait of the medallion system, it appears. In 2009, Washington D.C., considered legislation to implement a medallion system and asked its finance office to study how it worked in other jurisdictions. Three months later, the finance office issued a report that helped killed the medallion proposal. In every city D.C. looked at with medallions, the quality of service went down and owners earned windfall profits at the expense of drivers and passengers.
Yet despite the system’s obvious failure, D.C. found that no cities were seeking to change it.
“A taxi medallion system is nearly impossible to end even if it proves to be providing unfairly high gains to a limited number of original medallion owners,” the report concluded. “Medallion owners fiercely resist any possible threat that may challenge their advantage.”
There is a structural explanation for this, too, and it’s especially bad news for New York. While the costs of medallion ownership are spread over an entire city, the benefits accrue to a single-issue constituency that fights in proportion to how much their medallions are worth.
In New York, the owners have put in an effort worthy of a seven-figure asset, from fundraising for New York Gov. Andrew Cuomo to courting borough politicians. Medallion owners may not contribute to a better taxi industry, but when it comes to politics, they work harder than the rest of us do.
Jeff Horwitz is an editor for American Banker.
Chris Cumming is a financial reporter in New York.