Tuesday, March 25, 2008

Making Sense Of Taxi Deregulation: Unraveling Anchorage Proposition 8 Before The 2008 Municipal Election

On March 24th, 2008, the Anchorage Daily News published a comprehensive and balanced analysis of Proposition 8. This initiative was actually ordered on the ballot by the Alaska Supreme Court back in 2006. It would effectively break the taxi cartel in Anchorage and open it up to more competition. However, the current certification and safety standards would remain in place, which explains why proponents prefer the term "open entry". The Anchorage Press also published an article on this issue on March 19th.

Additional sources of information as follows:

- Click HERE for Anchorage Daily News Compass piece in support of Proposition 8.

- Click HERE for Anchorage Daily News Compass piece opposing Proposition 8.

Two sections would be added to Article 17 of the Anchorage Municipal Code, worded as follows:

Section 17.14 Regulated vehicle permits

The Municipality shall issue a non-transferable general taxicab permit to any qualified applicant. The fees paid for issuance or annual renewal of taxicab, limousine, or vehicle for hire permits shall be uniform. Issuance or annual renewal fees required for any of the aforementioned permits shall be equivalent and set to cover real administrative costs of issuing and filing them only and not set so as to be a substantial barrier to entry.

The exception to this act shall be that no fees shall be levied on taxicab permits for vehicles that are fully wheelchair accessible.

Section 17.15 Regulated vehicle rates and terms of service

The Municipality is hereby prohibited from establishing rates for limousine or executive sedan service. Any vehicle dispatch service licensed by the Municipality shall be allowed to dispatch any vehicle.

To better understand the impact of the proposed changes, we have to understand how the present system works. There are three primary players involved here; permit owners, car owners, and drivers. All interact with dispatchers, who represent various cab companies.

(1). Permit owners: Purchased their permits from the Municipality of Anchorage. As a result of pressure from the permit owners, the number of taxi permits has been frozen at 158 for over 20 years. As a result, the value of a taxi permit has climbed to as much as $125,000. Permit owners can either lease their permits to car owners and take a cut of the profits, or they can buy a cab themselves.

(2). Car owners: If they do not hold a permit, they pay a certain amount to lease a permit from a permit owner, up to $1,200 per month. Car owners are responsible for vehicle maintenance, liability insurance, and the dispatcher's fee. Car owners may also drive themselves, but since the car doesn't make money when it sits idle and they can only drive 12 hours ar a maximum, they will then lease the cars to other drivers.

(3). Drivers: A driver must have a special city license, and pays the car owner to use a cab. The driver is also responsible for gas and a wash during a shift. In some cases, a driver must make more than $120 just to break even for a 12-hour shift.

Dispatchers are hired by the car owners. Paying the dispatch fee gives car owners the right to paint their car with the dispatch company's name and color. So when you call Alaska Cab, the dispatcher sends an independent contractor who has paid a dispatcher's fee for the right to drive a cab with Alaska Cab's logo and color scheme on it. The fares charged by the dispatcher cannot exceed a city-imposed maximum, which is posted on the sides of every cab.

If Proposition 8 is passed, licensing, insurance, and dispatch requirements will NOT change, so at least on paper, safety should not be degraded. However, the Municipality will be able to issue permits to any qualified applicant, and the cost of the permit must be tied to the real administrative costs of issuing and filing the paperwork. Those costs are expected to be a fraction on the current value of a taxi permit, which means the value of existing taxi permits could drop catastrophically. According to the Alaska Politics blog, the new value of a taxi permit could be as low as $1,425. This means a potential 98% drop in value for existing permit holders.

Which is why the Anchorage Taxi Permit Owners Association is leading the charge against Proposition 8. The Owners Association has blitzed local TV with "apocalyptic-style" ads showing stereotypical maverick cab drivers taking people the long way from one point to another, even driving through a fast-food restaurant. They paint a gloomy picture of corruption and chaos.

And this debate has been percolating for quite a while. Back in January 2007, here's a part of what one permit owner posted on Reason.org.

...I do know what cost are occured by the permit owner. I am one. I do pay the renewal fees, police check, and a training fee for each driver. Permit owners in Anchorage make about $900-$1100 a month but pay out around $2000.00 a year in fees and renewal. Also you have to pay around $2500 a year in federal income tax depending on your tax bracket. So lets see... After I collect $12,000 a year in lease fees, I pay out $4500.00 in fees an taxes. Boy, am I really getting rich. I haven't even made back my original purchase price...

But promoting Proposition 8 is the Anchorage Cab Drivers Association, which expects to benefit from more competition and fewer middlemen. Other possible benefits include relieving shortages during peak hours and creating more cab service for the far-flung areas of the Municipality, such as Eagle River, and maybe Girdwood.

One individual who's seen it from both sides is Balthazar Arias, a member of the anti-deregulation group. After immigrating from Mexico in the 1980s, he took a job as a cab driver. It took him 20 years, but he saved $125,000 and bought a cab permit of his own, which meant he no longer had to pay $1,200 a month to rent a permit from a middleman.

Now he is the middleman. He owns three permits, enough to run his own small taxi operation and lease permits to other drivers. He works days at a tire shop he owns on Muldoon, and drives a cab until 2 a.m. But passage of the proposition would mean all of it would disappear. Not only would he lose the money invested in his permit, he'd also lose drivers willing to lease his cab, because they'd all want permits of their own. Maybe the system isn't perfect, but he states that he's played by the rules and shouldn't be punished.

Commentary: And I'm inclined to agree with Arias. While it would be nice to see the market open up, to do so in a way that risks a catastrophic drop in the value of someone's property seems unfair. Not only does the Municipality have no plans to compensate existing permit owners for lost value, but they would fight any lawsuit brought against them by the permit owners. Legally, the Anchorage Assembly must implement any successful propostion for at least two years after passage.

So although I've not made up my mind yet, if I vote against Proposition 8, it will be attributable to the negative impact on permit owners.


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  2. These rules are nice and are in the benefit of both taxi companies and customers. Detroit airport taxi rates are very low as compare with other companies.