Taxicab Board Considers Rates, Drivers

Ann Arbor taxicab board meeting (May 22, 2014): Two topics addressed by the board at its April 23, 2014 meeting received additional conversation this month. First, the board discussed the possibility of deregulating taxicab fares, or setting them at a much higher maximum. The board also continued discussing whether to recommend that the city council enact an ordinance to regulate all drivers for hire – taxicab drivers, limo drivers, as well as those who drive for Uber and Lyft.

Screen of iPhone showing Uber vehicle responding to request for a pickup on May 24. The resulting trip – from Jackson & Maple to Liberty & Main – was calculated by Uber as costing $8.

Both topics will also be considered at the board’s next meeting on June 26.

Consideration of a general driver-for-hire ordinance comes in reaction to the recent entry of Uber and Lyft into the Ann Arbor market. However, taxicab board chair Michael Benson stressed during the meeting that the point of the possible new ordinance was not to “target” Uber and Lyft, but rather to ensure that all drivers for hire are registered with the city. Those two companies, which coordinate drivers and passengers through software applications, have been sent cease-and-desist letters by the Ann Arbor city attorney’s office – for aiding and abetting the violation of a state statute regulating limousines. [.pdf of cease-and-desist sent to Lyft] [.pdf of cease-and-desist sent to Uber]

But the board heard from a University of Michigan student during public commentary time, who reported that the cease-and-desist letters, dated May 14, 2014, were having no impact – as he’d used one of the services three times the previous evening. In the course of his remarks, the UM business undergrad outlined several advantages of Uber and Lyft, including price, convenience and efficiency.

The board had voted at its April 23 meeting to ask the city attorney’s office to draft general driver-for-hire ordinance language for consideration at its May 22 meeting, but that draft was not yet available.

So at its next meeting on June 26, the board is expecting two possible proposals to be ready for consideration: (1) a new rate structure proposal; and (2) a draft ordinance on regulating all drivers for hire. The taxicab board could forward a recommendation to the city council to enact either proposal. A decision on enactment rests with the city council.

Discussion of the driver-for-hire issue at the May 22 meeting included themes familiar from the board’s April 23 conversation, mostly centering on the desire of board members to ensure public safety for patrons of businesses that operate on the public right-of-way. They want to ensure that drivers who are being compensated for their work are registered with the city, that their vehicles are inspected, and that they are adequately insured.

The rate changes to be considered by the board on June 26 come in the context of board interest in seeing the taxicab industry able to compete with limousine services, as well as with services with business models like those of Uber and Lyft. Currently the maximum rate in Ann Arbor is $3 to get in, $2.50 per mile, and 40 cents per minute waiting time.

Those maximum rates were last adjusted upwards three years ago, on May 16, 2011, in response to gas prices that had nudged past $4 per gallon. At that time, the taxicab board indicated it did not anticipate considering another rate change until the gas prices were over $5 for at least two consecutive months.

So the board’s thinking is not being driven by gas prices, which are currently between $3.75 and $4 in the Ann Arbor area. Instead, a possible increase in allowable fares is based on concern that the taxicab industry in Ann Arbor might not be able to survive unless taxis are allowed to charge more. Taxicab board member Robert Goeddel supported setting a significantly higher maximum, saying that if the taxicab industry does not survive, he does not want it to be because the basic costs of doing business can’t be covered.

City CFO Tom Crawford, who sits on the taxicab board as an ex officio member, noted that it’s a challenge to consider changes in rate structures at the same time as new entrants have come into the market – who have a lower cost structure than the taxicab industry. He expressed some concern that the result could be a “race to the bottom” for pricing that could work to destroy the taxicab industry.

In other business, the board elected its officers for the next year – an annual task. Benson and Stephen Kunselman were re-elected as chair and vice chair of the board.  

Public Commentary: Meeting Start

There are two opportunities for public commentary – one at the start of the meeting and another at the end. One person spoke at the start of the meeting.

Tyler Hoffman introduced himself as a University Michigan undergraduate. He wanted to give his perspective, having been here for three years now – as he’d seen the way things were before Lyft and Uber were in Ann Arbor and after Lyft and Uber are here. The positive public response has been too great to try now to make Lyft and Uber go away, he contended. “The cease-and-desist letters have done nothing,” he said, and he knew that because he’d used those services many times since the cease-and-desist letters were sent.

“It’s a great service and is something that the public and especially the students want,” Hoffman told the board. Uber and Lyft are also generally cheaper, he said. He was glad that the board was talking about rate deregulation, calling it very proactive. Taxicab medallions are an outdated business model, he said. With a cab, you’re given a window where you have to wait. With Lyft and Uber, he has a 10- or 15-minute wait, and he can see where the car is at any given point in time. So you can see, for example, that the car is nine minutes away.

Instead of making a taxicab wait five or 10 minutes outside, he knows when his ride from Lyft or Uber is coming, he gets a text message when that the car has arrived, and there is no wait involved. Hoffman went on to describe how using Lyft and Uber is very quick and efficient. It is also cashless, he said, as there’s no cash exchanged. Taxicabs might use Square, but the service provided by Lyft and Uber is even simpler than that. They don’t take cash tips and if you try to give cash tips, the drivers don’t take them.

Another advantage cited by Hoffman is that Lyft and Uber have a more modern fleet. As a college student, when he wants to get a ride to Scorekeepers on a given night, he might not care about how modern the car is. But UberBlack has nicer cars with chauffeur-licensed drivers, he said, describing how Uber and Lyft do have requirements on their fleet. Hoffman reported that he asked a Lyft driver what he does when he’s not driving for Lyft, and the driver said he also worked for a taxicab company.

The driver was reckoning with getting fired – but had told Hoffman that he knew this is the direction that innovation was going in the industry. These new services also created competition and Hoffman felt that’s always a good thing: “It’s got everyone shaking in their boots, so to say.” Hoffman characterized the issue of insurance as convoluted, so he didn’t know if he was going to be protected if he gets into an accident. But the difference between having a chauffeur’s license and not having a chauffeur’s license is the difference between spending 45 minutes at the Secretary of State’s office and handing over $25, he said. To him, that procedure did not improve your ability to drive safely. The question of insurance was more of a legitimate issue, he added.

Changing Rate Structure

Stephen Kunselman, who is the city council’s representative on the taxicab board, opened up the May 22 discussion on raising rates, saying it’s been many years since they were last raised. But he really didn’t want to be “guinea pig” community trying to create a rate system that is more complicated. “If we just want to raise the rates to allow the taxicab companies to have a better time trying to compete, then I’m all for that.”

The bigger issue, Kunselman said, is whether the city is going to begin enforcement against “gypsy companies” – by which he meant Uber and Lyft. Kunselman said he appreciated the comments from Tyler Hoffman during public commentary, but the point that Hoffman had skipped over was the insurance requirements that are necessary to operate vehicles for hire. Competition is important, Kunselman said, but when you compete by cheating, that’s not acceptable – and that’s what Uber and Lyft were doing when they use drivers who are using private cars with private insurance. What Kunselman had read is that when an accident occurs, then a passenger is not covered.

A $1 million insurance policy that’s provided by Uber and Lyft is not necessarily a guarantee, Kunselman said: “It’s just a marketing ploy.” It’s a new and dynamic change in the industry, he said, but that’s not to say that Yellow Car, Amazing Blue, and other local taxicab companies will not come out with their own apps and provide that same sort of service. When that competition catches up, Uber and Lyft would be pushed aside, he felt.

Ann Arbor is a hot market that has a lot of peaks and valleys in the demand, Kunselman said, and that led him to another concern he had with the Uber and Lyft business model: “Surge pricing” is more like price gouging, he said. That’s why there are taxicab rates, so that it’s fair to everyone – wealthy, poor and middle class alike. If the industry uses “surge pricing,” he noted, then during peak demand, only the wealthy are going to get ride. “That’s not equitable, and that’s not appropriate, and I don’t think that’s what this community is about. If that’s the kind of elitism that University Michigan students want, then that’s disappointing,” Kunselman said.

During public commentary at the end of the meeting, Rick Clark of Amazing Blue taxicab company was skeptical that software apps were the answer to everything – partly because of the surge pricing. A young college student might think it’s great that he can get a ride like that, Clark said, but during a UM football game, that student is going to get gouged.

Kunselman ventured that there are issues the state of Michigan might need to address. Kunselman characterized the business models used by Lyft and Uber as “basically cheating,” and ventured that they would get caught eventually, citing other states where Uber and Lyft had been accused of racketeering. Uber and Lyft are pushing the envelope, he said, but at some point it only takes one accident and one lawsuit to shut them down. As far as taxicab rate deregulation, Kunselman said he’d just as soon recommend raising the rates at the next meeting, and let the taxicab companies try to compete at that level, then see what happens.

Eric Sturgis followed Kunselman’s comments by stressing that the number one goal is safety. Uber and Lyft use drivers who are not registered with anyone. The city doesn’t know if there’s a felon out there taking people around in a car, he said. Sturgis pointed out that the number of registered taxicabs was decreasing: “We are losing taxicabs.” So that made him want to consider full rate deregulation. Ann Arbor is an intelligent community, Sturgis said, and he didn’t think the board should be telling people that they’re not smart enough to know which taxicab to take based on fares. He said he’d be willing to look at taking small steps to start, but he’d like to see the board head in the direction of deregulation.

Responding to Hoffman’s remarks, board chair Michael Benson said the board has to balance a few competing priorities – first and foremost public safety. The taxi industry is the only industry that solely operates on the public right of ways, he noted. So the city has a responsibility to ensure not just safety, but a level of competitiveness.

About the Uber and Lyft issue, he noted that the cease-and-desist orders are a first step. Benson said he didn’t know what Lyft or Uber do to inspect vehicles. Maybe the standards are different from what the city requires for vehicles for hire. So if someone is offering to drive a vehicle for hire, there should be a common standard, he said. The city needs to be able to address that.

All of these businesses are operating in the public right-of-way, Benson said, and that makes them different from a restaurant or anything else. That’s why the taxicab industry should be regulated at all. Benson felt that some kind of rate increase is necessary. He expressed concern that the current rates don’t take into account the rising cost of insurance for taxi operators. One approach would be to increase the fares beyond a small $0.25 increase. He also supported allowing a surcharge for three or four passengers.

LuAnn Bullington ventured that if the board deregulated taxicabs, then cabs would essentially be providing limousine service. She felt it would be appropriate to increase the maximum rate based on increases in gas prices. She would like to see Uber and Lyft enter the Ann Arbor market, but she also has concerns about public safety. If Uber decides to go to the state and get themselves a limo license and compete like everybody else, she’d have no problem with that. It’s just another business model.

Bullington also felt that taxicab companies would be adopting new technologies as well, and would be able to let customers know when they’re coming in real time. She mentioned that Yellow Car has been working with the Ann Arbor Area Transportation Authority [as the AAATA's paratransit contractor] to notify passengers at home to tell them that the ride is almost there. As far as options available to the riding public, she did not want to see everything “turning into vanilla.” She hoped that Uber starts playing fair and becomes registered as a limo company, like they should be.

Number of taxicabs licensed in Ann Arbor by year. (Data from the city of Ann Arbor, chart by The Chronicle.)

Sturgis came back to the point about the number of registered taxicabs in the city, saying that the decrease is a great concern. That is allowing Uber and Lyft to enter the market, he said, because they’re seizing upon an opportunity. He felt the reason the number of taxicabs is decreasing can be attributed to the cost of insurance. He said he wants the best service possible and the safest service possible, which Uber and Lyft don’t provide. Raising the maximum rate could be a short-term fix, but Sturgis wondered if there were a longer-term vision.

Tom Crawford offered two points of caution. The first is how to interpret the number of taxicabs registered in the city in 2014, which was recorded as 96 in the materials provided to the board. Crawford pointed out that the figure is footnoted because the count had not been completed, calling it an “interim number.”

While this board is talking about the taxicab industry, Crawford continued, it may be that the city’s perspective is to have a variety of ways to meet transportation needs – taxicabs being one of them. So the board should be cautious about concluding that there is some “right number” of taxicabs. The city may need more taxicabs or fewer, in light of other transportation options that are available, Crawford concluded.

In support of Crawford’s observation, Kunselman noted that voters had just approved a new transit millage that’s going to increase service in the evenings and weekends. That’s going to change the dynamic as well – because bus transportation would be a lot cheaper than a limo or a taxi.

Crawford pointed out that the board was discussing two things going on at once: Rate deregulation and a new entrant in the market. The new entrants actually have a business model, as he understood it, where they potentially have a lower cost of doing business than the taxicab industry. So that would drive rates down. When you have a new entrant that is competing with a different cost structure, that could work out economically to lead to the destruction of the taxicab industry. So now might be exactly the time when you do not want to deregulate, he said.

Instead, it might be more important to make a very clear distinction about what is a taxicab and what is not a taxicab. Crawford understood the excitement of the new business model, but it is not a model that is delivering the same product that a taxicab is delivering, he said. A differentiation of those business models might be healthier for the industry, he said. Crawford ventured that deregulation at this time might result in a race to the bottom of the lowest rate. And that could lead to riskier, less secure businesses, he cautioned.

Responding to Crawford, Robert Goeddel said the current rate structure – which set a maximum rate – did not prevent a race to the bottom. Rates can already go as low as they need to go, he ventured. So we’re already in a situation where a race to the bottom is a risk. But he did not want to see a scenario where people are not using taxicabs because taxicabs are going out of business – because they cannot afford to be in business. If the taxicab industry going to change because of the dynamic in the market, he wanted that to be because there’s a better service out there – not because it’s impossible to do business. And right now, he continued, it seems like it’s not possible to do business and be competitive.

Goeddel agreed with a comment that Kunselman had made at the board’s previous meeting, that more options might not lead to better price – citing the example of increased downtown housing units. After building all those new apartments downtown, many people thought it would drive rents down – but that is exactly the opposite of what has happened, he said. He was paying more to live in Ann Arbor than ever before, reporting that his rent rose by 10% last year. He was amenable to raising the rates, but felt that $0.25 would not be sufficient. He said he might be interested in “pseudo regulation,” where rates are raised beyond the point of reason, which would give the appearance of deregulated rates without taking the full leap.

Bullington contended that Ann Arbor has some of the highest gas rates in the country, so she was interested in raising the maximum rate for that reason. Crawford pointed out that the last time the board had recommended raising the maximum rate, the board had also concluded that if gas prices moved out of a certain range for a certain period, then the maximum rate could be revisited. But gas prices have been lower than that since that time, Crawford said. So he thought that insurance has been more of a cost issue than the price of gas.

Benson noted that the option being considered is not to deregulate the taxicab industry: “We’re still going to inspect vehicles. We’re still going to license the drivers.” The point of discussion was the fare structure, he said. Even if the fares were deregulated, the city would still have interest in compliance on vehicle inspection and licensing the drivers.

Benson said he was pleased that the board was considering either a potential rate hike or deregulation – to allow the industry to be able to compete, but also perhaps distinguish itself in the service it was offering. He pointed out that there are multiple models in which a taxicab can operate. For example, a taxi can be hailed on the street – and that’s the only vehicle that can legally do that. But you can also call a taxicab dispatcher and if a company does have an iPhone app or something similar, you can request a cab and away you go, much like a limo service, he said.

Benson thought it was critically important to educate people about the difference in the modalities – and the city had actually tried that. An ordinance change was approved by the city council a few years ago that tried to help make that distinction, he said. He wondered how effective the educational campaign was. Some people are aware of the difference between a taxicab and a limo, but a lot of people just aren’t, he said. So the educational component is critically important.

Benson asked AAPD officer Jamie Adkins, as she was on the front lines, what could be done to educate folks that taxis are taxis and limos and limos, and there is a difference. Adkins told Benson that part of the problem is getting police officers to understand the difference – because they think that all for-hire drivers are the same.

At the end of the meeting during public commentary, Bill Chinchen, owner of the AirTran taxicab company, addressed the issue of limos acting as taxicabs. He told the board that he’d done a count in the area of South University and Church on Thursday, Friday and Saturday nights. There were 32 unlicensed cabs sporting top lights and picking up passengers off the curb. He’s talked to talked to the police officers, he said, but not gotten any satisfaction.

Chinchen reminded the board that in October 2012, there was a big crackdown on the “fake cabs,” and that lasted about a week. Then they all started filtering back. Chinchen said it’s not that officers don’t know who is who – they just don’t want to be bothered with it. “They have other better things to do than chase around all these guys taking away our business,” he said.

Benson summarized the option that the board had discussed: full deregulation of rates; a fare increase to cover cost of business, including insurance; or a fare increase beyond the cost of doing business to allow some play in the market. Benson also mentioned the possibility of allowing for a passenger surcharge to allow a higher rate for three or four passengers.

Kunselman then suggested that the board ask Crawford to prepare a change in taxicab rates for discussion at the next meeting.

Crawford told Kunselman that he didn’t have a problem with the rates and the publication structure that had been suggested by one of the taxicab companies. Crawford then checked his understanding of the kind of rate structure the board wanted him to draft. Crawford said he got the message that the board wanted to see a substantially higher maximum fare set. He also understood that rates would be published on the rear vehicle doors.

Benson added that the rates should be published so that passengers would see the rates as they entered, and also as they’re sitting, riding in the cab. Crawford noted that a meter should be revalidated if a fare is changed. Considerable back-and-forth ensued between board members and Crawford on this point, with the basic conclusion that the ordinance should state that a penalty would be incurred if the meter was set to a rate that was higher than the published rate, but not if it was lower. But in any case, the meter would need to be revalidated if the company changed its published rates.

Kunselman also wanted to allow for flat rates. If a taxicab drops the flag on the meter and goes out to the airport, the meter might say $60, but they should be able to charge $40 for the trip. Kunselman summarized his view by saying he wanted to give taxicab companies the ability to charge a higher rate, but to compete by offering cheaper rates.

Regulating Drivers for Hire

Benson led of the discussion of the general drivers-for-hire ordinance by saying he understood that the assistant city attorney did not have a draft ordinance ready for review that day – but it was in the works. Later in the meeting, Sturgis asked if the city attorney’s office was confused about what the taxicab board was asking them to do. No, Crawford, said, they’re not confused. Kunselman added: “Government just doesn’t work that fast.”

Kunselman stated that he didn’t think the ordinance should be about registering vehicles, but rather about registering drivers for hire. He noted that vehicles are registered by the state under the limousine act, or by the city as taxicabs. He wanted to focus on drivers: Taxi drivers are licensed by the city but limousine drivers are not.

He continued by saying that drivers for Uber and Lyft are not registered anywhere. About the Uber and Lyft business models, Kunselman said he didn’t know of any private sector business that self-regulates for public safety – and that’s the problem with the Uber and Lyft business model, he said. Uber and Lyft are cheating by not requiring proper insurance, Kunselman said. He ventured that the new ordinance might need to be separate from the taxicab ordinance.

The basic issue, Kunselman continued, goes back to using the public right-of-way to pick up the public and make a profit using public resources – our public roads. That’s very different from regulating restaurants, he said. The taxicab board has a responsibility to protect the unsuspecting public, he said. Education of the public could be talked about all day long.

But based on the remarks of Hoffmann during public commentary, University of Michigan students are just interested in the cheapest ride, Kunselman said – until they end up in a hospital and are hit with a bill of millions of dollars for head injuries. He thought people had forgotten one of the reasons the state’s limousine law was tightened up years ago. It happened when one of the Detroit Red Wings players [Vladimir Konstantinov], following the Stanley Cup win back in the 1990s, had ended up in the back of a limo – which Kunselman believed was improperly regulated – and was paralyzed when he went flying from one end of the limo to the other. That resulted in a tightening up of the limo industry, Kunselman said. When that happens with an Uber driver and their uninsured car, we’ll end up with the same problem, Kunselman ventured.

It’s unfortunate that the younger generation has forgotten the experiences of the older generation with respect to public safety, Kunselman said. So Kunselman wanted the board to consider a totally separate ordinance that regulates drivers who are offering their vehicles for hire. The ordinance should allow the city to require that drivers provide proof of insurance, that the vehicles they’re driving for their business are safe. That way, the city could do its part as a public entity to ensure public safety.

Benson responded to Kunselman’s focus on registering drivers as opposed to vehicles, saying that the city should have a way of registering vehicles other than taxicabs, which it currently licenses. The idea would be to ensure that a vehicle used to provide rides for hire meets minimal standards. Those standards might be the same as what the state requires for limousines. Or maybe the standards would be more like the standards for taxicabs. But Benson felt that all vehicles for hire in the city needed to be registered.

Kunselman agreed with Benson’s remarks – if the city has the ability to enact those requirements under state law.

Sturgis disagreed with the idea that young people don’t care about public safety: “I think they do care about public safety. I think they may be not educated about Uber and Lyft.” Sturgis ventured that students are price conscious because of the high cost of tuition.

Bullington wanted police officers to have the ability to pull over a driver for hire and ask if they are registered with the city. It’s about putting more teeth in the law, she said.

Crawford offered a word of caution about lumping Uber and Lyft into the same category, saying that based on his very cursory research on Uber and Lyft, they appear to have different business models. It might turn out that one or the other of those business models is more amenable to the way the taxicab industry wants to proceed.

A brief discussion among board members – on the point of putting some additional teeth in the existing taxicab ordinance as well – resulted in an approved motion to add that to the board’s request of Crawford and the city attorney’s office.

Public Commentary: Meeting End

Public commentary not already included in the report above included remarks from Stadium Taxi and SelectRide representatives.

During public commentary at the conclusion of the meeting, Mark Newman, owner of Stadium Taxi, told the board he thought the taxicab board needed to get the word out to the students that services like Uber and Lyft are illegal. He suggested that the president of the University of Michigan should send a mass email out to the students telling them that Uber and Lyft. Newman raised the specter of a students getting into an accident and suing the city of Ann Arbor. He’s talked to several different police officers in the evenings, he said, and they’re not doing anything. His business has gone down 30% because of Uber and Lyft, he said.

Newman called on the city to put a cease-and-desist order on the software application itself, so that it could not be used. When he concluded his remarks, board chair Michael Benson got clarification that Newman’s company is not at taxicab company, but rather a limo company. Kunselman responded: “But we are the taxicab board!”

Newman replied that the taxicab board works with the city – and they know the city staff – whereas he does not.

Mark LaSarge with SelectRide objected to the board “stomping on” Newman for not being a taxicab company, pointing out that public commentary is for the public. At the end of all the public commentary, Benson extended his apologies to Newman for any implication that he didn’t have a right to speak.

LaSarge complimented Kunselman for his remarks about price gouging, possible racketeering issues associated with Uber and Lyft. Many of the concerns are based on fear and doubt, he said. Fear and doubt are “twin thieves” that steal from you the ability to do what you would otherwise do right, he said. A business model is the business of that business, not the city, he said.

The city’s business is making sure that everybody is conducting business safely according to the appropriate regulations, and providing a basic standard uniform service. Is the driver a safe driver? Are the vehicles appropriate? Is the insurance appropriate? About those questions, LaSarge told the board: “That’s your job. How I price my ride is irrelevant to you.” Whether the application is called Uber or Lyft or TaxiMagic, “so we can get a cute little dot on the screen coming toward you – that’s not your business. That is ours.”

Present: Tom Crawford, Jamie Adkins, Eric Sturgis, Stephen Kunselman, LuAnne Bullington, Michael Benson, Robert Goeddel.

Next taxicab board meeting: June 26, 2014 at 8:30 a.m. at city hall at 301 E. Huron. [Check Chronicle event listings to confirm date]

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