Avoiding a taxicab meltdown

300 medallion holders who are now more than 70 years old will be allowed to sell their permits and pocket the money
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EDITORIAL The pilot program to privatize taxicab permits is a done deal. It's a mistake, and its going to cause serious problems, but at this point, short of a new charter amendment, there's not a lot anyone can do about it. Under the 2007 measure Proposition A, the Municipal Transportation Agency has the authority to revamp the rules for how cabs are regulated, and the MTA board, appointed by Mayor Gavin Newsom, has approved the privatization plan.

But the implementation rules can still be written to prevent some of the worst possible results.

Under the proposal, as many as 300 medallion holders who are now more than 70 years old will be allowed to sell their permits and pocket the money. The city will get 15 percent of the sale price. The idea is to encourage older drivers to retire. Since medallion holders must by law be active drivers — and the medallions are issued to drivers until they retire or die and the medallions are highly lucrative — the city's taxi fleet includes a significant number of people who should no longer be behind the wheel.

But since 1978, the medallions have been issued to drivers for only a token fee — so in essence, the city just handed the older drivers a massive windfall. The permits — public property — are expected to sell for around $200,000, with holders pocketing 85 percent of that cash.

Newsom had much more ambitious plans — he initially wanted to put all the permits on the market and raise as much money for the city as possible. To her credit, Christine Hayashi, MTA's taxi director, has held her ground and stuck to a plan she thinks will slowly address the problems in the current system (too many older drivers, too long a waiting list for permits).

But if this is going to be anything other than an utter disaster for cab drivers and the city, Hayashi needs to make sure that the permits don't become speculative commodities — and that cab companies don't use the new rules as a way to turn medallion buyers into indentured servants.

The rules still require that medallions be held by (and thus sold to) working drivers. But let's face it: not many drivers have $200,000 cash on hand, so the system's only going to work if the city can line up financing. Hayashi says she has several banks interested in making medallion loans (in fact, the banks will be the big winners here — medallions don't depreciate and almost certainly won't lose value over time). But the drivers will have to come up with a downpayment, probably 10 percent — and a lot of prospective buyers won't have that much cash, either. One likely outcome: Cab companies will offer to front the downpayment for drivers who agree to associate their medallions with that company. Hayashi needs to press and enforce a rule that bans any cab company from lending money for permits. If this is going to benefit the average driver, the city ought to mandate low downpayments from participating banks or work with nonprofit microlenders to make those loans. (In fact, the city ought to be reaching out to the nonprofit finance community for advice on how to implement the entire program.)

MTA also needs to set a firm, reasonable cap on prices — at a level that a working driver earning the income possible at today's fares can afford. Medallions can't be allowed to sell at whatever the market will bear — or speculators and unscrupulous companies will be working all sorts of scams to cash in, the drivers will never have a chance, and the whole system will collapse.

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