Gotham Gazette

The Place for New York Policy and politics


Taxi Fare Hike

After more than two years of start-and-stop debate on the issue of a taxi fare increase, the Taxi and Limousine Commission (TLC) proposal for a 26 percent hike, which would increase the average fare from $6.85 to $8.65, was no surprise. It has been eight years since the last fare increase and news reports indicated that many of the nine taxi commissioners favor a fare increase. Moreover, a fare hike, broadly supported by taxi owners and drivers, has won editorial endorsement in the city’s papers and apparently some combination of acceptance and support from taxi riders.

What is remarkable is the commission’s plan to allocate three-quarters of the fare increase to driver incomes, with the remaining one-quarter allocated to cover increases in taxi owners’ expenses. This 75/25 driver/owner split of the fare increase is an historic change from past practice. Traditionally, taxi fleet owners and the now-defunct Taxi Drivers Union negotiated a 50/50 split of fare increases. Ironically, if the plan is adopted, drivers will have gained a larger portion of this fare increase now, when they have no union to represent them and a Republican mayor is in office, than when the drivers were unionized and Democrats occupied City Hall.

Why The Shift Towards Drivers

The Taxi and Limousine Commission’s proposal partly reflects the emergence of the New York Taxi Workers Alliance as a vocal and effective driver advocacy group. Drivers have not had a strong voice in the industry since the late 1960s, when the dissolution of large fleets weakened the influence of the Taxi Drivers Union.

A second factor in the new 75/25 split is the recognition that both taxi owners and drivers and the public benefits when driver incomes increase. Drivers obviously benefit from higher incomes. To the extent that higher incomes attract a stable and committed driver workforce, the quality of cab service is also likely to improve. My recent report also concluded that higher driver incomes are associated with lower accident rates for taxicabs. And to the extent that higher driver incomes attract more drivers to the industry, taxi owners benefit by getting their cabs leased for more shifts a week and generating greater income from lease fees.

A third factor is simply that government officials and the public sympathize with the needs of hard-working, largely immigrant cab drivers. Although estimates of driver incomes vary from the $22 per shift sometimes claimed by the Taxi Workers Alliance to my estimate of up to $120 a shift on average (with a wide variation from one driver to the next), even $120 for a 10 to 12 hour shift is clearly too low, particularly considering that as independent contractors, drivers do not have an employer paying Social Security, health insurance or pension benefits.

While there is broad public and industry agreement that drivers should receive most of the fare increase, there is sharp disagreement on whether the city’s proposal has struck the right balance. Bhairavi Desai, co-founder and organizer of the Taxi Workers Alliance, says that the city’s proposal is a “good start.” But she believes that the city should give drivers a better deal, ensuring that they can earn a “livable wage” of $14 per hour for 12-hour shifts. After the proposed fare increase, drivers will still make less than $10.10 an hour.

The Metropolitan Taxicab Board of Trade, which represents taxicab fleet owners, believes that the owners' predicament should be taken into account, citing 37 percent increases in operating costs since the 1996 fare increase, and additional costs from the Taxi and Limousine Commission’s proposed service improvements.

Will Cabs Operate Differently?

The debate between drivers and fleet owners is complicated by uncertainty about how the fare increase may lead to changes in the way that cabs are operated. In a traditional fleet operation, fleets pay all the costs of operation except for gasoline, which drivers pay. However, most of the industry (aside from the one-third or so of cabs that are owner-driven) lease by the week rather than by the shift. Weekly leasing reduces owner expenses for operating a garage, checking cabs between shifts and, in some cases, maintaining and repairing the cars. Furthermore, some weekly leases involve the lease of just the medallion license. In these “driver owned vehicle” leases, drivers pay for both the purchase and maintenance of the car. As I discussed in another recent report, some proposed changes by the Taxi and Limousine Commission may prompt some owners to move further in the direction of weekly leasing, thus shifting some operating costs to drivers, and might reduce the availability of cabs.

900 Additional Medallions

Beyond the driver/owner income split, the city’s taxi fare proposal is notable for its timing. The proposal comes in the midst of environmental reviews for issuance of 900 additional taxicab licenses over three years, with the first batch of 300 planned for issuance by the end of the current fiscal year on June 30. Although the fare and new medallions are officially considered in two separate processes, it was widely expected that the city would increase the fare prior to the first medallion auction. One reason for the timing is to ensure that any boost to medallion prices from the fare increase would be captured in auction prices. In addition, unofficially linking the fare to the medallion sale discourages any taxi owners that are inclined to oppose the medallion sale from actively working to stop it.

No Increase In Wait-Time Charges

While the overall size of the proposed fare increase, 26 percent, is widely accepted, some have questioned the structure of the proposed new fare. The proposed fare increases the mileage charge from $1.50 per mile to $2.00 a mile, a 33 percent increase, but leaves the wait time charge of $12 an hour unchanged, just as it was not changed in the 1996 fare increase. This means that drivers will make the same money waiting in traffic in 2004 and beyond as they did in 1990, while they will make 60 percent more when moving at any reasonable speed. Drivers will thus be encouraged to avoid congested Midtown traffic if they can find passengers elsewhere in Manhattan. This may be good from a traffic standpoint (potentially fewer cabs in Midtown) but would not help increase taxi availability for passengers.

Taxi and Limousine Commission Chairman Matthew Daus said that the wait time issue is likely to draw comment at the commission's March public hearing on the fare proposal and that the commission will “deal with drivers’ concerns” after the hearing.

Drivers will also be encouraged to serve Kennedy Airport since the flat rate from JFK to Manhattan is proposed to increase from $35 to $45, a 29 percent increase. Press complaints of a lack of cabs at JFK may thus be alleviated.

Rush Hour Surcharge

The city’s proposal abolishes the 50 cent night surcharge, instituted in the early 1980s when it was difficult to attract drivers to work at night. The night surcharge would be replaced with a $1 rush hour surcharge in effect between 4 p.m. and 8 p.m. The rush hour surcharge is intended to increase cab availability during this peak-demand period by encouraging drivers and owners to move shift change times out of the traditional 4-5 p.m. period. Whether this will happen remains to be seen. The surcharge may also increase cab availability because the higher fare will somewhat depress demand, thus following the tenets of “congestion pricing.” In this respect the $1 surcharge makes sense and might also be applied to the morning rush hour.

Paying By Credit Card And Other Improvements

The city also announced four other service improvement proposals along with the fare increase. Two of the proposals are much-needed improvements: mandating acceptance of credit and debit cards for payment of the fare, and mandating scratch-free partitions so that passengers can see out the front window and can see the driver and cab licenses, which are mounted on the driver’s side of the partition.

The city also proposes to establish a group ride program at various as-yet unannounced locations. Group riding promises to give passengers a break on the fares they pay. Unfortunately, most group ride experiments have failed due to the difficulty of matching up passengers with similar destinations and because the process of grouping passengers compromises a main benefit of taking a cab, which is speedily getting to one’s destination.

Mapping Technology

The city proposes to mandate GPS (global positioning system) technology in each cab. The idea is to bring cabs up to speed with current technology, a sensible idea that fits nicely with the mayor’s background and goals. The announced specifics of the program, however, are weak – in-car mapping capabilities and automated data collection. A much better idea would be to use GPS to track the location of occupied and unoccupied cabs in real time and immediately feed this information back to drivers on a map that shows their immediate geographic area. Drivers could use the map to drive toward areas of high demand for cabs, benefiting both themselves by getting more fares, and benefiting customers by getting cabs to the areas they are most needed.

More Income For Drivers; More Availability For Riders

Overall, the implications of the fare increase, which is likely to take effect in the late spring, are most significant for driver incomes and taxi availability. Driver incomes would increase by as much as 40 percent. Their cash take-home incomes would reach record levels in inflation-adjusted dollars.

For taxi users, the fare in inflation-adjusted dollars will be in the upper end of the range that the fare has occupied over the past two decades, and significantly below the fare in the 1970s.

More significantly for taxi riders, the fare increase combined with the proposed sale of 900 new medallion licenses will increase cab availability as the number of cabs expands and the higher fare somewhat reduces demand. Using economic growth and inflation estimates in the city’s January budget plans, I estimate that cab availability will increase by six percent from 2003 to 2007. This is a significant increase, particularly in the face of a growing economy, and will bring availability back to the relatively healthy level experienced in 1992.

Once the fare increase and medallion issuance are completed, the Taxi and Limousine Commission will need to decide whether it wants to continue treating these essential policy issues like the flu -- once it's over, it simply goes away. A better course of action, once current controversies are resolved, would be to evaluate industry finances and taxi service availability on a regular basis and place decisions on fares and new medallions in the context of providing the city with good quality, readily available cab service.

Bruce Schaller is principal of Schaller Consulting, providing research into transportation. He is also a visiting scholar at the Center for Transportation Policy and Management at New York University.

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