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Shadow Market For Taxi Permits Lucrative For Some, Hardship For Others

Evening Edition

Aired 6/11/13 on KPBS News.

Many say the underground permit sales for up to six figures each are driving up passenger fares and forcing drivers to work perilously long hours for barely-livable wages.

Fred, who is short, 40ish and East African, makes a lot of money in the taxi business in San Diego. And it’s not just from driving a cab.

Taxi permits are not legally transferable in San Diego. That has not stopped some from using loopholes in the system to make what some consider a more fair wage than they'd earn otherwise.

He’s exploited what Mayor Bob Filner calls the “black market” in taxi permits: buying and selling these coveted licenses several times over. He said he’s made tens of thousands of dollars over the past 10 years from would-be drivers, mostly from immigrants like himself.

"Sometimes, you buy $90,000, you sell it in one month and extra $40,000 profit you make,” Fred said. “I made a lot of money. I didn't pay tax."

Fred refused to be quoted by his full name because he fears retaliation by cab companies and other drivers, but he said he feels bad about taking advantage of people who want to get into the business.

"I was doing wrong,” Fred said. “I realize that. The system is wrong. The system has allowed us to do it."

Local taxi industry insiders say Fred’s story is just one example of a pervasive problem: cab permits are being used to exploit drivers, consumers and even taxpayers. Many say the underground permit sales for up to six figures each are driving up passenger fares and forcing drivers to work perilously long hours for barely-livable wages.

Transportation agency and other government officials are aware of the shadow market, and there doesn’t appear to be a law against the private exchanges. But there are questions about whether these sales violate tax laws because sellers don’t pay sales tax on their transactions.

California Franchise Tax Board spokeswoman Denise Azimi says the state views the gain on the sale of an intangible business asset like a license as taxable. Finding documentation of the transaction would be a problem.

Drivers said the exchanges are all cash.

The taxi permitting is run by Metropolitan Transit System (MTS), the agency that runs the buses and trolleys in San Diego. Some, like Filner, believe the problems could be cleaned up if the permitting process was taken over by the city.

The city is exploring whether to assume control of regulation after receiving scores of complaints from drivers and passengers about the way MTS has run the system.

"I think it's been lax. That's why we're going to take it over,” Filner said. “They've allowed this whole black market situation to develop without any oversight."

Public Property, Private Sales

Taxi permits are considered public property. Officially, they change hands from a seller to a buyer for a $3,000 fee to MTS through what's known as a transfer. But drivers say the big money changes hands privately.

“Once MTS says 'OK, we'll transfer it,' then all the money dealing is done with a handshake and a backroom,” said lawyer Bob Glaser, who represents a group of cab drivers who want to reform the system. “Where the people get the money to buy the license, where they borrow it from, how they earn it, that's all off the record. Nobody knows."

There are a limited number of taxi permits in the county. In the city of San Diego, 993 permits are held by 418 individuals and cab company owners, according to MTS. There are 1,850 licensed cab drivers. Since 1989, 125 new permits have been issued, according to agency documents.

An inewsource analysis of MTS data shows between March of 2009 and April of this year, there were 326 transfers, or about one-third of the total permits. About 83 percent of the permits that transferred changed hands once. Nearly 17 percent were transferred twice.

There is disagreement about whether limiting the number of taxi permits is good or bad. Some say the limited number fuels the private market. But others say unlimited permits would flood the market and create greater hardship for drivers searching for fares.

Industry insiders say poor working conditions, high cab fares and the black market are all illustrative of what industry insiders said are a shortage of permits in San Diego.

MTS is aware of the private sale of taxi permits. A consultant hired by MTS in 2010 concluded that "profit-taking has occurred on a grand scale in San Diego's taxi market."

The report acknowledges that MTS has the authority to stop the practice and require that permits be surrendered to the agency and re-issued through a process with more governmental control.

KPBS attempted to ask MTS why it permits the transfers, but the MTS spokesman refused to grant a recorded interview. In an email, spokesman Rob Schupp said “our board has not considered the specific issue of permit transfers and therefore, has no position on the subject.”

In the 2010 study, the MTS consultant wrote that the sale of these permits encourages taxicab owners to invest in their businesses and cars. The report also credits such transactions with creating an opening for newcomers into the taxi business.

It concluded that "there is no compelling public interest that would be served by disallowing permit transfers."

Cab driver lawyer Glaser said the reverse is true. It’s consumers and cab workers who are suffering because of the high cost of taxi permits, he said.

“If a driver has to pay $150,000 just to get in the business, well they're going to keep their rates just as high as they possibly can."

San Diego has among the highest cab fares in the country, according to a 2012 Washington Post survey of 40 U.S. cities.

High Cost Of Leasing

Some cab drivers say the high cost of permits on the private market forces some cabbies to lease permits rather than buy one. And leases are also expensive.

Bob is an East African immigrant, who leases one of six permits owned by a man in East County. Bob would not allow his name to be used because he says the permit owner will fire him if he speaks publicly about their financial arrangement.

He said he paid $7,000 up front to enter the agreement. And each month, he pays $1,200 to lease the permit. He said he spends another $650 on gas and insurance. There are some months, he said, when he only brings home $1,000, despite working 12 hours a day, seven days a week.

The married father of two children holds a second job as a technician.

“You have no option,” Bob said. “Jobs are limited. You have to work. You can't take a day off. No medical benefits. You can't save anything. Rent is going up."

A recent study by San Diego State University and the Center on Policy Initiatives, a nonprofit institute that advocates for workers, found that nearly 90 percent of taxi drivers in the city lease permits from individuals or taxi companies. The study showed drivers earn a median wage of $4.45 an hour including tips. In fact, they would have to work more than 70 hours a week to earn the equivalent of a minimum wage worker during a 40-hour a week.

Alfredo Hueso, a partial owner of USA Cab in San Diego, says the study is overly broad. He believes taxi drivers make significantly above minimum wage and they have been wrongly painted as victims.

“They’re the ones that chose the profession,” Hueso said. “Nobody forces them into bondage.”

Hueso worries that if regulation transfers to the city, there may be too many taxi permits in circulation and not enough work for drivers.

Filner says he’s aware of that concern.

“Most cities have found a balance between the permit numbers,” Filner said. “You need access for the public and you need to assure the drivers that they can make a living. That’s not easy to work out. But that’s what we’re going to be talking about in the next six months.”

Glaser said he’d like to see San Diego’s taxi industry patterned after cities like San Francisco. A San Francisco city agency is trying out a program for buying and selling taxi medallions.

"Why doesn't MTS create a transparent system,” Glaser asked. “There'd be no need to sublease if everybody got a license. There'd be no need to buy or sell licenses on the black market if everybody got a license.”

San Diego City Councilwoman Marti Emerald once headed MTS's taxi advisory committee, which sets policy. She said she’s concerned about the taxi permit sales, but she's cautious about how she characterizes the deals.

"I don't believe they're breaking the law,” she said.

A former taxi driver herself, Emerald believes city oversight would be an improvement.

“If we bring it back the right way,” she said, “I think we can do a better job of protecting the drivers and the public."

inewsource data analyst Ryann Grochowski contributed to this report.

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Avatar for user 'DonWood'

DonWood | June 10, 2013 at 10:01 p.m. ― 3 years, 8 months ago

Thanks to Mayor Filner for shining a light on another shady area of the city's economy. When you flip the switch on the kitchen light, all the cockroaches scurry back under the refrigerator. Turn out there are unethical crooks making money off many cab drivers' misery. What's new in sunny San Diego, where the rich have always gotten richer by exploiting the poor. .

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Avatar for user 'Mmikey'

Mmikey | June 11, 2013 at 8:02 a.m. ― 3 years, 8 months ago

more organized crime not paying taxes on the profit

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Avatar for user 'JeanMarc'

JeanMarc | June 11, 2013 at 2:27 p.m. ― 3 years, 8 months ago

That is horrible. I cannot believe that people are being kidnapped and physically forced to "work perilously long hours for barely-livable wages."

Oh wait, they aren't. They are choosing to do this. Why is there any sympathy? When I see people driving taxis I say to myself "I will never do that job" so I don't do it. Everyone else on earth has the same ability to choose not to be a taxi driver. We don't need to cry about them being forced.

They chose to get into the taxi business, they bought their license with cash, they knew what they were doing and they still chose to do it. Now they want help? That sounds like the people who bought houses they could not afford and wanted the government to help them pay for it. Or people who have children they cannot afford and I give them money to support their bad choices.

Isn't that great?

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Avatar for user 'JCortez'

JCortez | June 11, 2013 at 2:47 p.m. ― 3 years, 8 months ago

What I find most troubling about this whole taxi business is that reputable organizations, such as KPBS, the Union Tribune, and even the Mayor's office, buy into the report put out by SDSU and CPI as if it were gospel. It's embarrassing really.

How does an informal, anonymous survey of a few drivers end up being cited as fact. Don't news organizations and the government have to do a little fact checking...or is that a rhetorical question?

The thing I find missing most from all this falderal is the customer service aspect. The report never touched on the fact that drivers are not required to take any type of customer service training. MTS or whoever ends up being in charge, should require that each and every driver should have to learn some standards that might improve their business and result in them making more money.

The Union and the CPI which seem to be in lockstep, only seem to want to make their point regardless of the truth. I don't think very many people buy into this $5/hr bologna....I think it only serves to make their story less believable.

BTW....this whole KPBS report sounds like a big set up by the union. All I can say is look at the case of All Nations Cab. They were awarded 5 permits from MTS for free and now I hear that company is for sale for $800,000. Talk about hypocritical. KPBS, you left that out of your story.

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Avatar for user 'Mmikey'

Mmikey | June 11, 2013 at 2:51 p.m. ― 3 years, 8 months ago

from what I have seen of the majority of taxi cab permit seekers they are from places ( 3 rd world( that they expect to have some corruption and payoffs to do business.

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Avatar for user 'axeman'

axeman | June 11, 2013 at 3:36 p.m. ― 3 years, 8 months ago

and those "legal" lease users are then "renting" the leased vehicles out to persons who illegally park on public streets. running taxi buisness out non permitted, non licenced homes. parking on residential streets where the "taxi renters" dont even live within a square block.

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Avatar for user 'Tgris'

Tgris | June 11, 2013 at 4:32 p.m. ― 3 years, 8 months ago

Are we really still talking about this? It seems to me that the "owners" are playing by the rules that are set forth. If the conditions of leasing the cab are so terrible, there would not be such an overwhelming demand from drivers and the rates would not be what they are, right? Is that not one of the basic premises of capitalism?

The tax issue is legitimate, but is that not the domain of the IRS and the tax board? I agree with JCortez about the weight being put on the SDSU “study.” I would love to see how they arrived at the $4.45/hr. figure.

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Avatar for user 'Freemarket'

Freemarket | June 11, 2013 at 5:21 p.m. ― 3 years, 8 months ago

Thank you KPBS for this beautiful coverage of the taxi industry. As a taxi driver for the last seven years I am subjected daily to the issues that have been so wonderfully covered by KBPS. I chose this profession because I love to serve the consumers of San Diego. There is nothing better than driving across America’s Finest City greeting people from all across the globe. I love my job, but I hate the circumstances I have to work under. I’m a slave in an industry regulated for my slave masters. If we live in a free market society, then why do I have to buy a permit for $150K in the black market?? Let me serve the City of San Diego responsibly and let me earn a fair wage at the same time. Is that so bad?? It’s about time the public is made aware of all the problems created by bad policies at the hands of MTS.

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Avatar for user 'JeanMarc'

JeanMarc | June 11, 2013 at 8:33 p.m. ― 3 years, 8 months ago

Freemarket I am sorry but you are supposed to choose a profession to earn money. If you choose to work a low paying job because you want to serve people in san diego that is your mistake and your problem. If you are making slave wages then quit your job and find a better one. If you paid 150k for a permit you must have already been wealthy because normally people do not have that much money sitting around.

Paying 150k to work a job that pays slave wages is as stupid as paying for an expensive liberal arts degree. Both are useless investments. Either every taxi driver is financially inept or they are lying, because it does not take much thought to realize that spending 150k in order to work for slave wages is a bad idea.

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Avatar for user 'stacy314'

stacy314 | June 12, 2013 at 9:38 a.m. ― 3 years, 8 months ago

JeanMarc, you seem a bit misinformed. A. Taxi permits are public property (your property) and they can't be sold and bought in the black market. The mere existence of a black market is outrageous in the first place. B. Your missing the point. If you removed the middle man (current permit holder) drivers could actually make a decent living. Thousands of dollars are exchanged in the black market without a single penny going to the City of San Diego or to the Franchise Tax Board. Now I'm sure you have a chosen profession and I'm sure you're familiar with FICA. Well, the taxi industry have no clue who these organizations are. You have permit holders living on public assistance and yet making a healthy living. I say that because I have friends who do. Drivers pay up to $800 a week in lease without being given a receipt. Is that even legal???

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Avatar for user 'JCortez'

JCortez | June 12, 2013 at 11:56 a.m. ― 3 years, 8 months ago

stacy314, you are obviously associated with the group who produced that ridiculous report. If you want to help drivers earn a better living, then quit trying to redistribute wealth. Have them improve their customer service and the rest will follow.

Not everyone is equipped to be a business owner, and owning and running taxi cabs is a business. The Somalians, who are behind this entire public display of pity are the ones who are largely responsible for the bad state of the business. They had their chance to own permits (All Nations Cab) and ran it into the ground, then are trying to sell their permits for $800,000 in the very "Shadow Market" they claim to despair about. A bit hypocritical isn't it???

Adding a bunch more cabs to the city will do nothing to improve their state. Until they do more to address their customer service such as being courteous to the elderly and women, acting and dressing more professionally, and knowing where they are location wise, then they will never improve their lot.

They opened the door to this discussion...then they should be prepared to hear everything.

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Avatar for user 'Freemarket'

Freemarket | June 12, 2013 at 12:48 p.m. ― 3 years, 8 months ago

JCortez, I appreciate your feedback about improving customer service and as a driver I take that to heart. As I explained I love my job. I'm not a Somalian or East African. I'm a proud American and I love my country for the rights I enjoy on every day basis. Improvings service starts with proper training. Unfortunately MTS does not provide adequate training. The test that all drivers are required to take in order to be a licensed driver is a complete joke. My 5 year old son can pass that test. When the City of San Diego distributes permits, they should expect the best. They should expect clean and safe vehicles; they should expect professional drivers who can communicate and know their www around. Do we have problems from a driver's perspective? Absolutely! But for every unqualified driver, there's a greedy permit holder who cares less about the things you just mentioned. It's all about the bottom line as it usually is in this business. The renewal fee for taxi permits are a measly $500 a year! It's not redistribution when the permits belong to the public. Lastly, did you know that there are 18 taxi radio service providers of which only 6 or 7 provide calls??? What are the rest doing? Sitting in hotel taxi stands waiting on fares. The City is not adequately served. That's why the rise in towncar limos and shuttles. Taxicab companies are not advertsing. When was the last time you saw or heard advertising for taxi? The majority of current permit holders know very little about business. It's a monkey see, monkey do business (no offense intended). They buy these permits for $150K, buy a salvaged title Crown Victoria and simple stick a couple of drivers in the car from some foreign country to pay them lease. What's so hard about that???

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Avatar for user 'JeanMarc'

JeanMarc | June 12, 2013 at 1:39 p.m. ― 3 years, 8 months ago

Stacy314 did you read your comment before you posted it? First, you said permits cannot be bought and sold. Then you described the black market where they ARE bought and sold. Obviously they can be bought and sold, because they are bought and sold.

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Avatar for user 'Freemarket'

Freemarket | June 12, 2013 at 3:32 p.m. ― 3 years, 8 months ago

JeanMarc, taxi permits are public property and cannot be bought or sold without public vote. Did you see how many times these permits have been transferred? Do the math and you will see how much money we're actually talking about. Fred is right when he says that the #1 victim is the consumer because the consumer has no clue about the underground economy that cause the rapid increases in meter rates. San Diego is #1 in the nation with meter rates of $3.30/mile. MTS Board is even considering yet another meter increase soon. How much is enough?? Who's interests are they serving??

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Avatar for user 'JeanMarc'

JeanMarc | June 12, 2013 at 11:20 p.m. ― 3 years, 8 months ago

Freemarket - I understand that permits cannot be LEGALLY bought and sold. But they can be bought and sold on the black market, and they ARE bought and sold on the black market. That is what I am talking about. It seems like everyone knows they have to illegally purchase a permit if they want to be a driver, and that is what I was talking about when I said it is a poor career choice.

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Avatar for user 'TJworker'

TJworker | June 13, 2013 at 9:26 a.m. ― 3 years, 8 months ago

Why is this business different from others? What makes MTS or Filner think it is OK for them to limit the number of qualified people who can have a cab business in SD?
I am often disturbed by the ignorance of politicians and bureaucrats, but this story has me incensed!
Not one of the people in power that are quoted here know anything about this problem that they have caused, and they can very easily fix.
How about Glaser saying the high cost to get into the business will cause them to "keep their rates just as high as they possibly can". No Mr. Glaser, they will keep their rates as high as they possibly can, because that's what people do, and should do! At least he is an attorney, so hopefully he was just play acting utter ignorance.
Bob, MTS, inspect the cabs for safety, qualify drivers. That is your role. Do not limit the number of hard working folks that can start businesses in San Diego. And don't fix prices they can charge! Those of us that drive cabs, and those of us that employ cab services can come to a mutually beneficial arrangement without your help.
Thanks anyway.

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Avatar for user 'Tom Fudge'

Tom Fudge, KPBS Staff | June 13, 2013 at 11:09 a.m. ― 3 years, 8 months ago

We’ve had a tremendous amount of response to our story on the underground market for taxi permits. We’re very grateful for that, and we feel a need to respond to some of the comments made. There have been suggestions that our story was informed and, in fact, motivated by the “taxi union.” In fact, the UTWSD spoke with us only reluctantly and did nothing more than confirm what we’d heard from other sources. They were not a source for our story and none of their officials were quoted. We were criticized for reporting on the findings of the CPI and San Diego State that taxi drivers face low pay and poor working conditions. We consider those groups to be credible sources and their findings were more or less confirmed by the many individual interviews we did with taxi drivers. Some people point out that taxi drivers chose their profession and they argue those drivers, therefore, shouldn’t complain. Obviously these folks are entitled to their opinions. But let me make it clear that KPBS’s primary reason for doing this story is the very questionable practice of allowing people in the industry to take a public resource, a taxi permit, and trade it on a free market as if it were their own property. If some people question that as a legitimate news story, we must disagree. ----Tom Fudge, KPBS editor.

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Avatar for user 'JeanMarc'

JeanMarc | June 13, 2013 at 11:20 a.m. ― 3 years, 8 months ago

Don't worry Mr. Fudge I think this is a very legitimate news story. All the other bullcorn aside, it is true, this public property should not be sold on the black market. Maybe they should not limit the amount of taxi permits so that they become a less precious item. More people would start driving taxis, competition would lower fares for us and force taxi drivers to improve their service.

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Avatar for user 'sddialedin'

sddialedin | June 15, 2013 at 9:19 p.m. ― 3 years, 8 months ago

Thanks for the clarification, Tom. I'm really glad that KPBS is covering this subject. The thinly veiled racism in the comment thread aside, being a taxi driver was once a lucrative job and drivers could earn a living wage. I can't imagine the people they have to deal with on a daily/nightly basis and to so often be treated like servants by the public. I don't know that the black market will ever go away, but it would be great if more drivers could carry their own medallions. Most drivers don't, so they pay a lease, they pay dispatch services, they pay their fuel, and they are held responsible for all vehicle upkeep and maintenance (which is super strict by MTS, contrary to some of the comments above). I really hope this is one of the many things Bob Filner can tackle while in office.

Fun fact: I bet I can just look at this comment thread and tell you who always finds some reason to *not* tip their drivers.

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Avatar for user 'ninotrovato'

ninotrovato | June 19, 2013 at 2:57 a.m. ― 3 years, 8 months ago

I am a permit holder of 1 taxicab in San Diego. I purchased it nearly 2 years ago for $130,000 and I bought a nice car and prepared it for the road for approximately $10,000. I had a grand total of $117,000 to my name. This was all the money for my family. I borrowed the rest, $23,000, to complete the purchase and have my car on the road working. My net return is $500 per week. Approximately $25,000 per year. I also manage 10 taxicabs. In all I manage around 40 people because most of these cabs have 3 to 5 drivers. EACH AND EVERYONE OF THEM MAKE MORE THAN $500 PER WEEK ON AVERAGE. I purchase, repair, replace, register, and pay ALL fees for the cars. My brother bought a permit last week. His driver made $450 on Friday night alone. The taxi union should teach its drivers to make more than $4.5o per hour instead of teaching them to stick their hands out for free housing allowance ($1,100 per person), free welfare, and now they want to receive a taxicab permit from the city for $3,000. A study, which cost taxpayers $100,000 just two short years ago, was independent, and it concluded that there were too many taxicabs on the road. Now, two years later, Mr. Filner and the San Diego City Council just approved another $100,000 study for the purpose of releasing more permits. There is less work now than there was two years ago, isn't there? Drivers are "supposedly" making $4.50 per hour, right? What do you think more taxicabs will do to the earnings of cabbies?

STOP LYING AND CHEATING AND LEARN HOW TO MAKE A LIVING. Create repeat customers. Stay off of your phones while driving passengers around! Stop taking tourists the wrong way to their destinations! My drivers tell me every day about customers complaining about these issues.


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Avatar for user 'ninotrovato'

ninotrovato | June 19, 2013 at 3:14 a.m. ― 3 years, 8 months ago

I thought that the law of supply and demand comes from what the market will bare. I offer names and phone numbers of successful cabbies to KPBS. Please take me up on my offer. I know they would like to make more money. Everyone wants to make more money. More taxis on the road will not help. We should come to some REAL solutions. Let's get together to discuss the LEGITIMATE problems. Such as, the fact that many taxi drivers are turning to UBER RIDE as a way to make money. This industry is running wild in the streets with so many illegal operators picking up customers flagging them down in the streets. They are parking in the taxi stands and they refuse to move. The police are doing NOTHING about it. MTS, which has been given little authority, is issuing citations which the city is not prosecuting. More and more shuttle buses are taking customers for next to nothing. These are sponsored by the Harbor Authority and Ace Parking.

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