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A Taxi Fare Increase?

by Bruce Schaller, Sep 16, 2003
 Â What a difference being in the private sector makes, at least for transportation providers in New York City.

Before last November’s election, Governor George Pataki and his appointees on the Board of the Metropolitan Transportation Authority (MTA) said that no fare increase was under contemplation. As every straphanger knows, the base fare increased by 33 percent, from $1.50 to $2.00, just six months later.

By contrast, taxicab owners, who represent the city’s largest privately operated transportation sector, formally petitioned the Taxi and Limousine Commission (TLC) for a 23.3 percent fare increase in November 2001. The commission held a hearing at the end of December 2001 but took no further action, even though soon after his inauguration Mayor Michael Bloomberg endorsed a taxi fare increase. The taxi industry resubmitted the petition this summer. To date, however, no hearing has been scheduled nor has Taxi and Limousine Commission announced a timeline for consideration of the industry’s request.

Thus, while the MTA was able to raise fares in a mere six months, the city has taken two years without deciding yea or nay on a taxi fare increase and the clock continues to tick.

Although the transit fare increase was controversial, the MTA’s reasoning was not particularly complex. MTA officials based the fare increase on the need to balance the authority’s budget and avoid major service cuts. There was a simplicity to the authority’s logic – higher costs mean higher fares.

The Taxi and Limousine Commission, on the other hand, is instructed by the City Charter to consider “all facts which in its judgment have a bearing on a proper determination” of whether to grant a fare increase. These range from fare revenues to “the return upon capital actually expended.” Thus, the commission has looked into a range of issues including changes in taxi operating costs, changes in ridership, the availability of drivers and fares in other cities. Unlike the Metropolitan Transportation Authority, the Taxi and Limousine Commission lacks a clear focus for deciding whether to adopt or reject a fare increase.

It is particularly ironic that the commission itself was behind much of the increase in taxi operating expenses in recent years. The commission mandated that only new vehicles can be put into service as taxicabs, required the more-expensive stretch version of the Ford Crown Victoria, and insisted on expanded insurance coverage for the vehicles. These actions were long overdue and benefited the riding public. Yet when it comes time to underwrite the costs, the Taxi and Limousine Commission hesitates.

Not so at the Metropolitan Transportation Authority. The MTA has also increased service (largely in response to rising ridership) and bought fleets of new rail cars and new buses. The MTA invested billions of dollars in the process, much of it paid for through fare-backed borrowing. No one questioned whether this spending needs to be paid for, either through fares or government subsidies.

One area where the private and public sectors both experience problems is with tracking of expenses and revenues. The MTA came under blistering criticism for hiding the true state of its finances, first painting an overly rosy pre-election picture of its finances and then drawing what auditors viewed as an artificially gloomy picture after the 2002 election.

The finances of taxi owners have often been fairly opaque, the picture complicated by the diversity of operations within the industry. But at least the MTA keeps records, however open to criticism. The Taxi and Limousine Commission, on the other hand, has not conducted its own analysis of taxi expenses or the need for a fare increase in nearly a decade. Until recently, TLC pointed to the city charter’s provision that the burden of proof for showing that current rates are “unreasonable” lies with the taxi industry. That is fair enough and industry figures submitted financial information to justify their fare request. But recently, the city decided to use a consulting firm to conduct an independent analysis of taxi industry finances. That step may be long overdue but it will further stretch out the process.

This sort of contrast between public and private transportation providers is evident not only with the fare issue but also with another big issue affecting both taxicabs and transit: the supply of service. The MTA has a well-developed methodology for assessing whether more buses or trains are needed on each route. MTA staff regularly observe levels of crowding on trains and buses; this information is feed into periodic reviews of service levels. Thus, when fare incentives, service improvements and other forces produced record-fast growth in subway and bus patronage, the MTA expanded service. Not enough, said critics, and not quickly enough, but at least someone was keeping track and taking some action.

Not so with taxicabs. The only recent systematic studies of taxicab availability were one sponsored by a taxi industry group two years ago and another conducted by yours truly in 2000. Both of these studies showed a need for more cabs. (Both studies are on my website.) The city lacks a methodology for determining whether more cabs are needed, not to mention a regular process for considering the issue. As a result, over the past 60 years only 400 new licenses have been issued (in the mid-1990s) despite rapid growth in the demand for cab service.

Mayor Michael Bloomberg has proposed issuance of up to 900 new taxi medallion licenses. The mayor wasn’t motivated by a sudden realization that the city needs more cabs, however. He was motivated by the city’s desperate need for new revenues. The new medallions would be auctioned to the highest bidder, which would bring a total of $220 million to city coffers at current medallion prices.

Despite the riding public’s need for more cabs and the city’s need for revenues, the process to issue additional licenses has moved at about the same pace as the fare increase.

Bloomberg proposed the 900 new cabs in the spring of 2002. The city is just now conducting the required environmental reviews. Any additional licenses will be issued in stages over three years, probably starting sometime in 2004. Meanwhile, would-be taxicab passengers are left to respond to the friendly honk of the car service or black car illegally picking up street hails.

Taxicab fares and service levels are important because cabs are an important transportation provider in New York City. According to the NYC Taxicab Fact Book, cabs carried 11 percent of riders using taxis, subways, buses, car services or black cars in 2002, and 25 percent of passengers using these modes within Manhattan. Looking at fares paid instead of ridership raises the profile of cabs even further. Taxi fares (including tips) totaled $1.4 billion in 2002. As a comparison, this is two-thirds the total of $2.1 billion that riders paid in MTA subway and bus fares in 2002.

Whether taxi fares should be increased and whether additional medallion licenses are needed are issues that can be discussed and debated. Even though the MTA’s method of addressing its fare and service issues has been subject to criticism, the contrast between taxicabs and transit shows that the city could do a much better job addressing taxi fare and supply issues. The city’s shortcomings in these areas demonstrate the perils of being a private sector transportation provider, even in Mayor Bloomberg’s business-friendly New York.

Bruce Schaller is Principal of Schaller Consulting, which provides research and analysis to government, business and non-profit groups seeking to identify and meet customer needs in the transportation sector. He is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University.

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