Big changes for cab industry

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By Tim Redmond

The San Francisco taxi industry may be headed for a major shakeup that could change the way the city distributes the medallions that allow driver to legally operate cabs.

There’s no formal proposal on the table right now, but over the past few months, the director of the Municipal Transportation Agency’s taxi division, Christine Hayashi, has been meeting with drivers, cab companies and other stakeholders to discuss what could be sweeping changes in Proposition K, the 1978 measure that set the rules for cab permits in San Francisco.

She plans to issue a report on her proposals to the MTA Jan. 5th, but she’s been presenting talking points that give a suggestion of where the proposals might go -- and it involves the sticky issue of allowing some medallion holders to sell their city permits for cash.

Prop. K, authored by then-Sup Quentin Kopp, was based on the premise that cab permits are valuable, belong to the city and should only be issued to people who are actually driving taxis. Under the current rules, only active drivers can hold permits, for which they pay a nominal annual fee. The only way to get a permit is to put your name on a list and wait for one of the 1,500 medallions to become available, which happens when a permit holder retires from driving or dies.

The wait is now more than 10 years.

Permits are worth a lot. You not only get to drive a cab, you can least the permit to other drivers when you’re off duty -- and since cabs are in use 24 hours a day, the lease revenue alone amounts to about $30,000 a year.
Prop. K put an end to the concentration of ownership in the industry, taking control of the lucrative permits away from the few big companies that dominated the business in the early 1970s. And it ensured that working drivers got the benefits of permits.

It’s also created a complex industry system: Most drivers are independent contractors who lease both vehicles and medallions from cab companies. They pay more than $100 a shift in lease fees -- known as “gates” -- then pay for their own gas and try to bring in enough fare revenue over the course of a 12-hour shift to cover costs, and keep whatever is left over as their income.

They get no health insurance from the cab companies, no retirement plans, and no disability. The medallion holders do a little better -- they get the best shifts, pay lower gates and keep the outside lease income -- but they lack benefits, too.

A lot of the drivers like the independent contractor system -- the harder they hustle, the more money they make. But once drivers get the valuable medallions, they don’t ever want to relinquish them.

That’s left a potentially dangerous situation: A significant percentage of medallion holders -- perhaps as many as a third, by preliminary city estimates -- are more than 60 years old, and quite a few are over 70. Some have vision problems. At a certain point, it’s not safe to have them carrying passengers in cabs; that’s not ageism, it’s a basic medical fact. Most transportation systems have mandatory retirement ages; airline pilots typically have to get out of the cockpit at 60.

But the aging medallion holders have gotten used to that $30,000 a year in income, and refuse to retire -- because once they stop driving, they have to turn the permit back to the city.

In some places -- New York City, for example -- cab medallions are sold on the open market, and go for anywhere from $250,000 to more than $500,000. Drivers take out bank loans similar to mortgages to buy the permits, then sell them when they get out of the business. Speculators also buy and sell them, like pork belly futures.
Mayor Gavin Newsom last year suggested a similar system
for San Francisco.

That’s not what Hayashi is suggesting. Both she and MTA spokesperson Judson True told me that it’s too early to talk about a specific set of proposals. But in a taxi town hall meeting she held Dec. 15th, Hayashi put out some talking points that show what could be the outlines of a plan to overhaul the industry.

The goals she outlined are pretty basic -- and laudable. Driver quality of life (the better things are for drivers, the better drivers we’ll get), public service and safety, “entry strategy” -- that is, who gets medallions and how do you encourage good drivers to stay in the business -- and “exit strategy” -- how do you deal with drivers who want to, and ought to, retire.

But then it gets tricky.

Hayashi suggested that some percentage of the permits -- say, 40 percent, which would be 600 medallions -- would be designated as “retirement eligible.” Those medallions could be sold when a driver retires, and the driver could keep most of the money (after a sizable cut goes to the city). Instead of auctions, though, Hayashi wants the city to set the sale price -- at a level that drivers could afford. That price would depend in part on what sort of loans local banks and credit unions would be willing to make, and at what rates.

The people currently on the waiting list would have first shot at buying the medallions.

The other thing she talked about was winnowing down the current seniority list. It’s no secret that a lot of the people on the list have been out of the industry for years. Her presentation jokingly talked about getting rid of the “pets and unborn children” on the list, and I think a serious review would probably knock out a third of the names.

The whole idea of selling medallions -- any medallions -- or allowing drivers to keep them and earn income from them after they retire run directly counter to what Kopp had in mind with Prop. K. And while I couldn’t reach him today, he’s told me in the past that he will put his formidable political capital on the line to block any attempt to change one of his signature pieces of legislation.

And the United Taxicab Workers union doesn’t like the idea of selling medallions, either. Union president Mark Gruberg told me that he sees this as the first step toward allowing all permits to be bought and sold on the market.

“Once you can sell some medallions, the people who hold them will put enormous pressure on the city to expand that program,” he said.

On the other end, Newsom has made no secret of his desire to tap into the potential gold mine that would be opened up if the city simply put the permits up for sale at auction. Sell all 1,500 permits at $200,000 and the city picks up a cool $300 million -- enough to make this year’s budget deficit nearly vanish.

So Hayashi’s walking a fine line here, between Kopp and the UTW, which wants no sales at all, and Newsom and his money people, who want to cash out today.

I recognize the problems of the older drivers, but I’m still dubious about the idea that San Francisco somehow owes retirement to people who have insisted their entire careers that they want to be independent contractors, not employed by or managed by anyone. No other small business person who works under those conditions (including, for example, freelance writers, freelance web designers and self-employed accountants) gets to sell a city-owned permit and retire on the proceeds.

And I’m really nervous any time anyone talks about changing Prop. K -- because the cab companies would just love to get their hands on those permits, and it will take a mighty effort to keep the drivers in control.

But the ideas floating around now have come a long way from the idea of treating cab medallions like mortgage-backed securities. I’ll keep you posted.