San Diego Cabbies Brace For An Open Taxi Market
Tuesday, March 31, 2015
Special Feature Speak City Heights
Speak City Heights is a media collaborative aimed at amplifying the voices of residents in one of San Diego’s most diverse neighborhoods. (Read more)
The city says Wednesday's change will create opportunity in the taxi industry. But taxicab owners predict financial ruin.
Starting Wednesday, the long-standing cap on the number of taxis allowed in San Diego is history. The city says the change will create opportunity in the taxi industry.
But taxicab owners are bracing for financial ruin.
For the past three decades, only 993 taxicabs were allowed to pick up passengers in the city. Many of the permits for those cabs belonged to people like Tesfom Debas.
Debas came to the United States from Eritrea about 30 years ago. Since then, he's sunk nearly $300,000 into three taxicabs and the permits to operate them. Instead of a house or a brick-and-mortar business, Debas counts his silver Prius and its city permit as his nest egg.
But Debas said the change to an open taxi market makes that investment nearly worthless.
That's because he bought the permits for his cabs on an underground market. Officially, when taxi permits were transferred from one person to another, the recipient paid a $3,000 fee to the city's transit agency, the Metropolitan Transit System.
But the limited supply of permits gave rise to a secondary market where they were going for as much as $150,000 – about double what they were going for in the 1980s.
That unofficial system ends Wednesday, slashing the value of Debas's three permits.
"Of course, business is (a) risk. I know that," Debas said. "But the thing is, I didn't expect (the city) to destroy people like that."
Debas and some 400 taxicab owners said the city's hands-off approach over three decades gave them no indication the underground permit market was unsanctioned. Debas said he would have finished his chemistry degree if he'd known just how risky his investment was.
"My main concern (is) to raise my kids, you know, to be good citizens, to be well educated, to help the country, not to just throw them on the curb," Debas said. "That's what (the city) did."
Debas said the city's decision means his nest egg is gone.
"Well, that was the result of a business model that they created," Councilwoman Marti Emerald countered when told about Debas's concerns. "The city didn't really give them direction one way or another about trading under the table."
Emerald pushed to open the taxi market in an effort to help drivers who lease cabs from permit-holders like Debas. A San Diego State and Center on Policy Initiatives study found many of them were earning less than minimum wage, though Debas said his leases run about $200 less than those cited in the study.
Emerald said she expects those drivers to be the ones who will snap up the new permits.
"I suspect the industry will go through some growing pains. There will be an adjustment of some kind," Emerald said. "But many of the drivers who would be looking to get permits are already driving."
Lessons from Milwaukee
Peter Carstensen studies competition and antitrust law at the University of Wisconsin Law School. He's watched as Milwaukee debated whether to open its taxi market. It began issuing new permits in September.
"You may see excessive entry right away, lots of people thinking, 'Oh, I can make money as a taxi driver even though the world has changed,'" Carstensen said. "And then it shakes out."
Carstensen said "there's been no claim that the world has come to an end in Milwaukee" since the city lifted its cap. The number of permit holders there has doubled, said Milwaukee Alderman Robert Bauman, but many are Uber drivers whom the city had shut out before writing its new regulations.
Lessons from the past
Permit holders here in San Diego say they still worry the market will become oversaturated with new drivers. Just look at history, the say.
Indeed, San Diego has been through this once before. The city opened its taxi market in the early 1980s, only to close it back up a few years later.
Back then, the number of taxis more than doubled, and taxi researcher Roger Teal said the 500 new cabbies headed straight to taxi queues at the airport.
"(The lines) were huge. I mean, they were just so long that they had to have the Port Authority police out there to chase cabs away from the end of the line, because they were basically backing up all the way onto (Harbor Drive)," Teal said. "It was a mess."
And Teal said driver pay plummeted. Demand from customers didn't keep pace with the growing supply of cabs.
Hindsight isn't 20/20
But a few things have changed since then. For one, the airport now has its own cap on the number of taxis allowed to pick up passengers. Spokeswoman Rebecca Bloomfield said the airport has no intention of lifting it, and that could keep history from repeating itself.
The airport is a big moneymaker for cabbies, and a closed market there could dissuade drivers from getting into the taxi business.
And then there are the smartphone-based car services Uber and Lyft. Teal said the real threat to traditional taxi owners is a market shift toward that kind of model. He said the demand for door-to-door service is growing, and if new cabbies can build a loyal customer base, they have a shot at surviving in the new market.
Teal said that also would solve the problem of taxi lines backing up into intersections. Cabbies wouldn't have to wait at hotels and tourist destinations to make money.
"The question," said Teal, "becomes can taxi operators replicate what Uber and Lyft are doing?"
I asked Debas what he's doing to prepare for the new open market.
"Nothing," Debas said. "I'm going to wait and see."
Several cab owners and their representatives have asked the courts for an injunction on efforts to open the taxi market. Meanwhile, more than 700 drivers have told the city they plan to apply for their own permits starting Wednesday.
To view PDF documents, Download Acrobat Reader.