Peer Review of Seattle Taxi Regulation

SEATTLE TAXICAB REGULATION
3/20/96

by Sandi Avants, Gorman Gilbert, Barbara Lupro

BACKGROUND

On November 15-17, 1995, the authors responded to a request from the City of Seattle and visited the City to conduct a peer review of the City's taxicab regulation. The charge given the review team was a clear one: to review and comment on any aspect of taxicab regulation and enforcement conducted by the City.

Peer Review Team: The authors' qualifications to conduct this peer review stem from their experience in regulating taxicabs and in studying the regulation of taxicabs. This peer review is the third such review conducted by the team. Ms. Avants recently retired after eight years as the regulator of taxicabs in Las Vegas. Ms. Lupro is the current regulator of taxicabs, as well as jitney, charter, nonemergency medical, and sightseeing vehicles in San Diego, a position that she has held for 14 years. Mr. Gilbert is the former Commissioner of taxicabs and limousines in New York City and currently directs the Institute for Transportation Research and Education at North Carolina State University.

We received no compensation for our work. The City paid our travel expenses.

Process: In conducting the peer review we reviewed materials given to us and interviewed individuals concerned with Seattle taxi service. We were sent written materials before arriving in Seattle, such as the City taxi ordinance and the King County taxi ordinance; and were given much written material during our 3 days on-site. During these 3 days, we interviewed more than 25 persons. Each interview was from 30 minutes to over an hour. The interviewees comprised three categories:

*
* public officials, such as City and County taxi regulators and Council personnel;
* industry representatives, both independent taxi operators and fleet operators; and
* affected persons, including representatives from the hospitality industry, the transit system, the Chamber of Commerce, and the riding public.

Our initial agenda (Appendix A attached) was prepared for us in advance, and expanded as we gained a better understanding of the situation.

Scope: It is important to define the scope of this peer review. Given the time constraints of our on-site visit, we limited the scope of the peer review to address a number of policy issues currently demanding the attention of the City with respect to its taxi regulation. We determined it less important to review the detailed

* policy issues, such as the contents of the City taxi ordinance,
* the City's position related to state law on for-hire vehicles,
* interactions among the City, the County, the Port, and with the various segments of the industry, and
* the relationship between taxi services and the business community.

This report does not cover procedures or forms used, or personnel qualifications and training.

Report Organization: The remainder of this report is divided into four sections, as follows:

* Section I presents our findings regarding the problems now facing the Seattle taxi industry and its actual and potential passengers.
* Section II examines why these problems exist and how they are interrelated.
* Section III describes several alternative scenarios for City action to address its taxicab problems.
* Section IV provides our recommendations for the City to respond to its taxicab problems.

I. PROBLEM DESCRIPTION

During our investigations we read and were told about numerous taxi-related concerns, many of them serious. We heard about these taxi service problems from local residents regarding their own personal experiences, from persons in the tourism and hospita

We recognize the need for caution in discussing problems that have been told to us but which we did not have the time or resources to verify. We were not able, for example, to conduct a survey of taxi users to document service problems. While we were to exist. We report them here as just that: commonly perceived taxi service problems.

The taxicab problems told to us came from all three categories of interviewees and can be summarized as follows:

1. Service: unable to hail taxis; poor availability in certain areas, such as West Seattle; not enough cab stands, especially in busy areas; slow response times; fighting over passengers; refusing short trips.
2. Drivers: unable to find landmarks or other common destinations; unable to communicate in English; unclean; poor attitude toward customers and others; unsightly; rude.
3. Fares: inconsistent fares between City and County; inconsistent from one taxi operator to another; inconsistent for repeated trips between the same two points; excessively high wait time/traffic delay charges.
4. Vehicles: poor condition; dirty inside and out; old.
5. Discrimination: cabs pass up black customers.
6. Image: cabs and drivers present poor image to business, convention, and tourist visitors; littering and nontaxi.related activities in front of hotels and at other stand locations.
7. Enforcement: pervasive lack of awareness of enforcement, or enforcement perceived to be inadequate.
8. Executive (black) cars: no regulation of a new and fast-growing transportation industry; a major competitor of taxis.

These problems are more than the typical problems cited in many U.S. cities about taxi service. Tourism is an important economic force in Seattle, and tourism officials uniformly reported to us that taxi service is a serious detriment to tourism. Convention business officials and persons who recruit industries, both domestic and foreign, to relocate to Seattle also uniformly cited taxi service as a detriment to their efforts (reference survey excerpt, Appendix B attached). In all these cases, we were consistently told that taxi service is a critical negative factor in luring tourists, businesses, and conventions to Seattle.

Downtown hotels serve as an illustration. We were told by several hoteliers that taxi drivers routinely litter the public stands in front of their hotels, refuse short trips, argue with each other, hassle passersby, and generally annoy hotel guests.

We were told that these concerns are not addressed, learned that the City taxi enforcement was perceived to be nonexistent and, that Seattle police had more important crimes to confront. The actions of the Westin Hotel to establish its own taxi enforcement mechanism was cited by many interviewees with envy. That is, other hoteliers wished that they, too, had private driveways so that they also could take taxi enforcement into their own hands and not have to rely on inadequate City enforcement.

The case of the Victoria Clipper is a case in point. Taxis pick up both on the public street in front of the Clipper terminal and in a private lot just north of the terminal. Clipper officials cite frequent and serious problems such as soliciting and littering, with the taxi drivers waiting on the public street in front of the terminal. In the adjacent private lot, however, the Clipper allows only one taxi company access, and that taxi company stations a company supervisor there to oversee driver behavior. The result is no taxi problems in the private lot.

The conclusion reached by many in the hospitality and tourism business, and relayed to the peer review team, Is one of cynicism. Businesses are unaware of which department or individuals at the City to call when taxi problems occur, and some are unaware that the City conducts any enforcement at all. Businesses urge their out-of-town visitors to rent cars and to avoid taxis. The Victoria Clipper officials were even rebuffed by the City: when the Clipper printed brochures for its passengers advising them of approximate taxi fares to major destinations to combat fare-gouging, City officials told them that the brochure was illegal.

In view of the service problems described, we were perplexed why more influence has not been directed toward City elected officials from the business community, neighborhood groups, or the hospitality industry. When we asked why, we received interesting answers:

* One local person who has experienced discrimination because of her race never filed a complaint because she is afraid of retaliation in the form of even worse service from taxi drivers.
* Businesses and groups such as the Chamber of Commerce have simply not taken a leadership role to confront this problem.
* Some business persons cite that Seattle is an easy-going community and not accustomed to confrontation over issues such as taxi service.
* Some interviewees cite a lack of leadership in the business or hospitality community.

Whatever the reason or combination of reasons, two facts seem clear. First, the 65 taxi complaints received last year by the City are not in any way representative of the seriousness of the taxi service problems as perceived by local residents and business officials. Second, there is little awareness of, and even less confidence in, City taxicab enforcement.

II. ANALYSIS AND EXPLANATION FOR TAXI PROBLEMS

The taxicab problems in Seattle are not random and unrelated. Rather, they form a pattern that can be explained and remedied.

Structure of the Industry: The first step in understanding the Seattle taxiproblems of today is to recognize that they are partly a legacy of~past public policy, particularly the open entry phase of 1979, which resulted in an extremely fragmented and greatly enlarged industry. Today, 16 years later, Seattle has 637 licensed cabs, of which approximately one-third (210) are one-cab operators, commonly called "independents". The remaining 427 company-operated cabs are grouped Into seven companies, of which only two companies have more than 100 cabs.

On first glance, this atomized industry structure may seem acceptable, perhaps even advantageous. Does it mean that lots of competition leads to a customer-oriented self-regulated industry? From the problems cited in Section II, the answer is "no". There are at least two problems with an atomized industry structure:

* One Is that it is an enforcement nightmare. Seattle has 217 taxi operators: 210 independents and 7 companies. Basic enforcement responsibilities make it necessary to track down operators from time to time, even for such routine matters as recovering passengers' lost items. While the seven companies presumably have business locations, many independent operators do not. Thus, routine enforcement requires city officials and customers to spend Inordinate amounts of time simply finding some operators. Yet, Seattle has only one enforcement person! It is therefore clear why the City's enforcement actions are not perceived by the hospitality industry representatives with whom we talked. In addition, it is a large task to keep track of Insurance coverage, that the filed rates of fare are those actually charged, to schedule and conduct vehicle inspections, investigate and respond to complaints, and perform other fundamental consumer protection duties.

* The other problem with an atomized taxi Industry is that competition works in a negative way. In an ideal situation various components of a taxi industry would compete for existing passengers and to add new ones by upgrading their vehicles, acquiring computer dispatching equipment, training and supervising their drivers, marketing their services, make a rational pricing determination, and responding effectively to customer complaints and suggestions. To pay for these customer improvements the taxi operators would reinvest some of their profits in the expectation that such investments would in turn produce even higher profits.

In Seattle, however, something very different is seemingly the case. While we are not in the position to state that no taxi operators fit this ideally competitive mold, we were given no indication that the industry functions this way in Seattle. On the contrary, the taxi service problems we heard indicate that taxi companies compete with 210 independents who do not bear similar organizational investment costs and thus do not appear to be In a situation to generate the profits necessary to reinvest in customer improvements.

The taxi service problems, created to a great extent by unaffiliated drivers who are not supervised by either a company nor the City, are examples of how the entire industry is harmed by the actions of some operators in front of hotels and other visible locations. We are not necessarily able to say whether or not, in the existing situation, companies' drivers are adequately supervised. The overall result, however, is the many reports that taxi service is poor and that visitors are urged to rent cars.

Fares: The concept of allowing the operators to set their own rates of fare and thus hoping that the marketplace would induce competitive pricing has not been successful in Seattle. There is in fact very little substantive price variation from operator to operator, yet this freedom has resulted in a variety of minor variations which are confusing and therefore not easily "shopped." And, generally the rates are on the high end, out of line with the poor service.

The extraordinarily high per-hour waiting time/traffic delay rates in use are a deceptive charge, as most passengers do not realize that the hourly rate is activated at slow speeds and not just when the vehicle is stopped. It may also account for the perception of having been cheated when the fare varies noticeably when the identical route is used at different times.

Drivers: The lack of driver supervision is in part due to the atomized industry structure. The other factor is the common industry practice of utilizing independent contractors to the virtual exclusion of employee drivers. This practice results in a lack of training and the absence of supervision. Las Vegas is an example of a city that does not allow independent contractor taxi drivers.

The taxi business throughout North America draws recent immigrants from numerous other countries whose cultures and customs vary greatly. This, in part, has prompted most major U.S. cities to implement mandatory driver training to decrease the gap between taxi customer expectations and the service otherwise delivered.

Executive Cars: Another service problem is also explainable. We were told of executive car companies (or "black cars" as they are called in other areas) entering the market and competing unfairly with taxis. This phenomenon is not unique to Seattle and is a natural response to a situation in which there are too few taxicabs or when taxi service is poor or taxi rates are out of line or a combination of these factors exists. Understandably, hotels and other businesses using taxi service would be quick to consider a new operator with the potential of providing improved service.

There is an irony in this situation. Seattle went from open entry to setting a moratorium on the issuance of new taxi licenses, thereby going from one extreme to the other. Taxi licenses are transferable and reportedly sell for about $12,000, and other nontaxi operators are entering the taxi services market. Seattle has already demonstrated the ill effects of open entry combined with lack of enforcement; now it is encountering the problems resulting in part from keeping the number of taxis too low.

Airport: It is also worth noting that a very different picture of taxi service exists at the Seattle-Tacoma Airport (SeaTac). SeaTac officials have issued a franchise to only one taxi organization to pick up passengers at the airport. By all accounts, the taxi service there is good, and no one reported to us any problems with taxi service. This positive situation is a result of establishing clear accountability for taxi service. Unlike the City, which must oversee 217 taxi companies, SeaTac needs only to deal with one. Furthermore, since that company has something very valuable at stake--its airport franchise--it self-enforces driver behavior and service quality.

Lessons: In summary, there are several lessons learned from Seattle and from other cities' experiences that are instructive in determining how to improve taxi service in Seattle:

* The current atomized industry structure does not provide incentives for operators to reinvest profits, to be self- enforcing, and to grow. The large number of independents provides an incentive, instead, to minimize investment and cut operating costs.

It also appears that many owners' profit strategy is to transfer a permit and collect approximately $12,000 from the transferee, which is due to the unavailability of new permits rather than any "going concern" value.

* Self-enforcement is encouraged when operators perceive that they have much to lose by not complying with regulations and not working hard to serve the customer.

* Enforcement is currently woefully inadequate for an industry of 217 companies and hundreds of vehicles and drivers. In addition to too few staff, enforcement is further weakened by the split responsibilities between the City and the County.

* The City faces a tradeoff in fixing its taxi problems: improved regulations or a dramatic increase in its enforcement efforts.

If it chooses to avoid making difficult decisions about regulations, then it can expect to continue to face enormous lack of compliance with acceptable operating practices. If, on the other the other hand, it restructures its regulations in a positive way, it can expect to improve service without the now- needed significant Increase in Its enforcement.

* A too-low limit on taxicab permits is problematic. specifically, the artificial value of a transferable permit inflates the cost of doing business and forces fares upward. Operators' complacency is at least in part attributable to the protection from additional taxi operators.

III. DISCUSSION OF OPTIONAL REGULATORY STRATEGIES

There are many possible actions that the City might adopt in attempting to fix its taxi service problems. For the sake of clarity, we group these into four strategies, recognizing that there is some overlap among these strategies and that specific actions in a given strategy might also be included in another strategy.

Strategy #1: Status Quo

The do-nothing strategy Is a possible course of action. Maintaining the status quo means keeping the current regulatory structure, and it also assumes that no significant increases in funding for enforcement personnel will be forthcoming.

It is relatively easy to predict the future for this strategy:

# The continuation of the moratorium will lead to increasing numbers of nontaxis--for example executive cars, shuttles, and hotel courtesy vans--operating in the city.

# Continued escalation of taxi license sale prices.

# Service problems will continue, and taxi operators will increasingly press for the City to control the nontaxis competing with them.

# Moreover, worsened taxi service levels could very well substantially undermine the taxis' existing market share and lead to a nonviable Seattle taxicab industry.

These pressures might lead the City to adopt a second regulatory structure for the nontaxi operators, much as has happened in New York City, thus increasing its enforcement burdens.

In short, it can be expected that the current service problems will continue and probably worsen.

Strategy #2: Significant Increase in Enforcement

This strategy would entail dedicating a fulltime staff of from 5 to 15 employees under one agency, establishing rigorous vehicle standards and inspections, developing a progressive discipline system and internal adjudication process for drivers and owners, investigating complaints and taking remedial action, and consistently deploying field enforcement around the clock.

The City of San Diego took this course of action beginning In 1990, in part to remedy the negative impact of its laissez faire approach begun in the late 1970s. Modest enforcement efforts begun in 1984 had been insufficient.

Permit fees would increase substantially to implement this strategy, assuming the City would not want to utilize general fund revenues for taxi enforcement.

Strategy #3: Significant Modifications to Status Quo

This strategy entails making substantial modifications to the current regulatory situation without scuttling the current regulatory scheme. There are many possible actions that might be included in this strategy. Examples of these possible actions or combination of actions, are as follows:

# Adopt a uniform fare structure to replace the maximum fare now in place.

# Outlaw sales of taxi licenses by requiring all licenses to be returned to the City when no longer used.

# Join forces with the County to a greater extent than currently by extending the terms of the current memorandum of understanding between the City and the County

# Perhaps the most important modification would be In modifying the number of taxi licenses or in licensing nontaxi executive cars. It Is possible to increase the number of taxi licenses without altering the structure of the industry. One way Is simply to raise the limit on the number of licenses with new licenses being issued in a variety of ways, including a lottery or some determination of fitness among applicants. In either method some of the new licenses would likely go to independents and others to companies, meaning that the structure of the industry as a hybrid company/independent industry would be unchanged. The number of new licenses could be based on an objective measure, or set of measures such as population, number of hotel rooms, and other pertinent data.

An optional method would be a public convenience and necessity clause placed in the City taxi ordinance. This clause would place the burden of proof on applicants to show that there is a need for additional taxi licenses. It is a commonly used method by cities to allow the supply of taxis to increase gradually with demand. A drawback to this method would be the variety of subjective definitions of "demand," depending on the parties' support or opposition to the proposed increase, that would be debated in public hearings.

Alternatively, the City could license the executive cars, as discussed under Strategy #1 and which has been done in New York City. New York has for 58 years maintained a moratorium on the issuance of new taxicab licenses, and in 1987 the City adopted a second-tier licensing program for its black (executive) cars and other nontaxi vehicles, called "for-hire-vehicles". Seattle might likewise increase the supply of licensed vehicles by bringing its executive cars within the regulatory framework without changing its taxi moratorium.

The essence of the entry control element of this strategy is to increase the supply of vehicles without changing the structure of the industry and without over-supplying or fragmenting the industry as was done In 1979. Either of the above methods would achieve these two objectives. If the supply of taxicabs were to be increased properly, it is likely that the executive cars would either vanish or at least not increase in number. Thus, this strategy might solve the question of what to do about the executive cars.

This strategy has the advantage of perhaps being relatively easy to implement politically. The adoption of a public convenience and necessity clause is a traditional form of entry control and might not meet too much opposition from the taxi industry. The prohibition of taxi license transfer, however, would likely be very strongly opposed by the industry; nevertheless, it is important to close-off entering the industry via the "back door."

The future impacts of Strategy #3, are difficult to predict because there are so many possible combinations of actions that might be implemented under this strategy. It is appropriate, though, to focus on Its entry control aspect. It should be emphasized, however, that this strategy will not noticeably impact the quality of service. It will not change the structure of the industry and will not, therefore, remedy the enforcement problems faced with such an atomized industry. Complaints about cab service will likely continue from the hospitality and tourism industries.

Strategy #4: Restructuring

The final strategy is the most ambitious. It is to restructure the industry in such a way as to meet two objectives:

# to make the industry competitively focused on the needs of taxi users; and

# to maximize the extent to which the industry is self-enforcing.

These objectives describe an industry that maximizes service quality and takes care of its customers with little or no City enforcement.

The key to this strategy is to alter how the industry is structured. It means changing the industry from being highly dispersed or atomized to being organized in companies, associations, or cooperatives. By having multiple such organizations, the City would ensure competition. By also providing a mechanism for any such organization to grow in size, the City would provide an incentive for taxi organizations to become more customer-focused. This strategy also prohibits transfers of licenses, in order for the City to retain overall control of the industry.

There are two preferable mechanisms for accomplishing the above objectives. One is a franchise. The other is a minimum standards approach.

Franchise: The franchise is commonly used outside the taxi industry and occasionally within the industry. In issuing a franchise, a city sells the right to pick up passengers within a defined geographical area, and stipulates certain service standards to be net. In return, the franchisee receives exclusive rights to serve the area, and the ability to increase its fleet size according to the demand. The city not only receives revenue from the franchisee, but only has to deal with one responsible party. A franchise is the method used by the Port to supply taxi service at the Seattle-Tacoma Airport.

A good example of a city with taxi franchises is Los Angeles, where the city has defined service areas and awarded franchises to operators within each area. Each franchisee must agree to abide by city rules for service, including picking up 75 percent of the passengers within 15 minutes. Franchisees who violate city standards are subject to fines and possible revocations. Each franchisee must be an operating organization, either a company, a cooperative, or an association.

Minimum Standards: The alternative is to adopt a minimum standards approach, which means that every organization that wants to enter the taxi market can do so if it meets certain standards. Typically, these standards involve such items as a minimum number of vehicles per operator, 24-hour telephone and taxi service, vehicles with a common color scheme per operator, maximum age of vehicle, a place of business, and insurance provided for all vehicles by the operator. These standards are intended to provide a level playing field for all operators and to make the minimum quality of service sufficiently high. This approach would require some additional enforcement activities and resources.

Either approach--franchise or minimum standards--accomplishes the above two objectives. Operators will be able to grow according to how successful they are in the market place. Further, their growth is based on how well they provide service and market themselves. They provide incentives, therefore, for operators to invest in better vehicles, computer dispatching, marketing, and other customer improvements.

Drawback: The drawback to this strategy is the opposition likely to arise from segments of the industry, particularly the independents who will likely view this strategy as a threat. Los Angeles faced the same opposition and forced independents into one of two associations that were awarded franchises. In addition, there are now two other franchisees that are cooperatives. These four franchisees, one for each area, have retained their internal structures as driver-controlled organizations, yet still have been held accountable by the city for adhering to the franchise conditions.

The same result could occur in Seattle, meaning that the independents could form driver-controlled organizations that could win franchises.

IV. RECOMMENDATIONS

Given our understanding of the conditions in Seattle and our stated understanding of what the City would like to achieve, we recommend the following actions by the City.

1. State clearly its objectives for taxi regulation. We suggest City adopt the following objectives:

* Encourage taxi operators to be competitive in meeting the needs of taxi users.

* Maximize self-enforcement.

* Enable operators to grow according to how well they serve the public.

2. Adopt Strategy #4. We recommend either the franchise method or the minimum standards approach, with preference to the franchise method because it can be expected to avoid further City involvement in order to accomplish desirable service levels. We believe that either one will transform the Seattle taxi industry into a customer-focused, competitive industry that will encourage the growth of tourism and will better meet the needs of the taxi-riding public.

3. Adopt a uniform fare. We recognize that in doing so the City will be forgoing the benefits of allowing the industry to compete on price. In practice, however, there is little price competition, and we believe the benefits of having a consistent fare outweigh forgoing the theoretical price competition. We also recommend that the fare be set the same as that in the County. Further, we recommend establishment of an objective and prescheduled rate adjustment process, such as an annual review of the Consumer Price Index.

We also recommend that the City take notice of the unusual and excessively high wait time charges now charged by some taxi operators.

4. Eliminate transfers of licenses. This recommendation is moot if the City adopts Recommendation 2. If not, then this recommendation is very Important. It prevents licenses from being viewed as more than what they are: the right to make money by serving passengers, not in speculating on the price of licenses.

5. Eliminate vehicles in poor condition: or set maximum age of taxis. We recommend that the City implement a set of strict standards for the mechanical condition and appearance of taxicab vehicles, and take vehicles out of service that do not meet those standards. An alternative is to place a maximum age on vehicles, suggested at six model years. This requirement would not place an unreasonable financial impact on taxi operators, but would greatly improve the quality and image of the taxi fleet.

6. Taxi Advisory Work Group. We heartily endorse the establishment of this group. We recommend that It be continued and made more formal with a regular ongoing schedule, minutes, voting, regular members, and formal rules of order. It should continue to include representatives of the business and hospitality communities, taxi operators, and key City officials.

7. Nontaxi regulation. We understand the current discussions about how to license limousines, executive cars, and other nontaxi vehicles; we recommend that the City work closely with the County and the Port to regulate these vehicles. We also recommend that the City seek authority from the state for the City to regulate these vehicles directly in so far as they pick up passengers in the City, and their operations affect the City's well being.

8. Establish a focal point within the City for taxicab matters. We recommend designating a person who can both focus on all taxicab policy, administration, and enforcement matters, who becomes known as the focal point for receiving and responding to the industry's concerns, and who maintains two-way communication with the community- related to taxi service. To be effective, efforts should be undertaken to ensure that this person becomes and remains visible and available.

9. Require comprehensive driver training. All drivers should receive mandatory driver training before they are licensed and periodically thereafter. It should cover professional and courteous conduct, safe driving, landmarks, street system, map reading, personal safety, disability awareness, pertinent regulations and record keeping, and how to increase tip income.

10. Other recommendations. Based on a brief review of a 1993 set of recommendations, it appears to the peer review team that those proposed ordinance modifications are generally sound, and address some of the current gaps. We recommend that the City consider adopting those that relate to eligibility and operating regulations.

We also strongly urge the City to conduct local, state and national criminal background investigations of owners and drivers, and to eliminate any individuals whose history deems them unfit for the public trust required to conduct taxicab services. It is highly unusual to omit this practice.

In addition, radio dispatch capability in all taxicabs would enhance customer convenience, especially in light of the scarcity of taxi stands.

Finally, in the event the City chooses to implement major modifications and is not able to completely accomplish that quickly, we recommend a continuing process of smaller or more-readily adoptable improvements, or phased implementation of the major one(s). Otherwise, the individual and collective problems will further deteriorate and become even more difficult to solve.

CONCLUSION

We appreciate the opportunity to offer our analysis and recommendations to the City of Seattle. Our Intention is that our work is useful to the City, the community, and the taxicab industry, and is offered in the interest of assisting with improving taxicab services and their viability.

BLL:ky
SEATTLEl .BLL
3/20/96

Attachments:

A. Agenda for Taxi Peer Review Group
B. Page 6, Trade Development Alliance of Greater San Diego Survey