The Cleveland Taxi Market:

An Industry Study with Suggested Changes to Improve Service.

 

 

by Jeff Narten

March 1998

 

 

The Cleveland Taxi Market:

An industry study with suggested changes

to improve service.

 

Exit Project submitted in partial
fulfillment for the degree of
Master of Science in Urban Studies.

Maxine Goodman Levin
College of Urban Affairs
Cleveland State University

March 1998

 

by
Jeffrey D. Narten


Table of Contents

Executive Summary……………………….………………………………………….i

Preface………………………………………………..……………………………….vi

Chapter 1: Introduction……………………………….……………………………….1

Chapter 2: Problems in the Industry…………………………………………………..5

Chapter 3: A Study of the Cleveland Taxi Industry……….………………………..10

The Taxi Industry Structure

The Market Segments

Leasing and the Taxi Market

Monopoly, Leasing and the Cleveland Taxi Market

Taxi Driver

Competitors

Chapter 4: Strategies for Improving the Taxi Service in Cleveland…………..…..46

Chapter 5: Concluding Remarks on the Future of the Cleveland Taxi Industry…64

Appendix A: Monopoly Price Setting……………………………………………….69

Appendix B: Draft of Changes to Cleveland City Ordinances………...………….70

Appendix C: Cross-Subsidization in the Taxi Market….…………………………95

Annotated Bibliography……………………………………………………………..98

 

 

 

List of Tables

Table 1: Drivers and Taxicabs in Cleveland 1979-97 22

Table 2: Airport Passengers 1986-93, 1996 26

Table 3: Estimated Occupancy & Rooms for CBD Hotels Cleveland: 1986-97 27

Table 4: Medallion Value for Selected Cities 31

Table 5: Trips and Income for Even Distribution of Orders 95

Table 6: Trips and Income for Uneven Distribution of Orders 96

 

List of Figures

Figure 1: Ratio of Drivers to Change in Taxis (1979-97) 25

Figure 2: Number of Taxicabs & Occupied Hotel Rooms 28

Figure 3: Fare Comparison for Selected Cities (10/97) 29

Figure 4: Twelve Hour Lease Comparison (10/97) 30

Figure 5: Fare and Lease rates for Selected Cities (less ROI for medallion) 32

Figure 6: Driver to Taxi Ratio & Lease Rate Comparison 34

Figure 7: Monopoly and the Taxi-Leasing Market 69

 

Executive Summary

For the past twenty years the Cleveland taxicab market has declined in the areas of service, driver professionalism, and vehicle quality. Business people, local citizens, and visitors have given nearly universal testimony to its decline. This paper analyzes this market for clues as to why this has occurred, and how these failings can be addressed.

The conclusion of this paper is that the failure of the taxi market is a result of the combination of leasing, monopoly pricing of leases, and a lack of adequate regulatory oversight by the City of Cleveland. This conclusion is drawn from analyzing the incentives of the present market and comparing the historical data in Cleveland with relevant data from other cities.

The advent of leasing in Cleveland (late 1970s) brought a significant change in incentives and relationships to the taxi industry:

The taxi-leasing company no longer receives a percentage of the fare that is regulated, but instead collects a flat lease fee that is unregulated. This disengages the company from the passenger service, as long as there are enough drivers paying the lease.

The monopoly pricing structure accentuates the disengagement by placing the maintenance of a high lease price as the best way for the companies to profit from the arrangement. This means that in Cleveland, whether the public was in need of service or not, the taxicab fleets were reduced to the "driver demand" pricing1. As well as putting pressure on the fleet operators to cut other internal costs: radio service, vehicle maintenance, etc.

The driver is faced with a poor communication with the market through this "atomized" structure. Unable to influence the actions of other drivers, the reaction of individual drivers was to proceed in various conflicting activities: capture "regular" customers (through pager or cellular phone) by providing individual service (creaming), continue answering orders over the leasing companies declining radio service, or simply abandon the radio market for the stands and airport. The result was chaotic and conflicting. The drivers abandoning the radio market have reduced service to the community, but they paid their leases (satisfying the company). The drivers "creaming" lessened the regular order takers’ income. The lease pricing by monopoly economics simply accelerated these trends. All of which created a downward spiral in service by eliminating the "cross-subsidization" in the market between the short and long orders.

The City of Cleveland, meanwhile, ceded virtually all training, licensing, and enforcement of regulations to the companies, including the canceling of the City issued "Taxi Driver’s License". The City does not presently have even one employee whose sole job it is to oversee the industry.

The result is that there are now small networks of drivers providing service to a narrow set of customers. The remaining drivers ply an ever lessening market on the radio, or simply sit on stands. The squeeze in income on the drivers from less business, and high leases, force many to leave, to be replaced by increasingly less experienced drivers. All of which simply reinforces the falling service levels.

To change the incentives of the present market there is an easy solution: prohibit leasing. Require all taxicab operators to either be owner operators, or employees of same. Theoretically, this is the easiest solution and the most straightforward. Politically, it is hard to imagine succeeding in doing so, but it is worth bringing it up to measure the alternatives that I suggest here in this paper.

What I propose is to offer alternatives that will put pressure on the current negatives of leasing by making it easier for "owner-operators" and smaller associations to form, creating more competition at the service and "gate fee" levels. The City will have to get more involved at the training, licensing, and enforcement levels in order to ensure levels of professionalism and balance in the market. Though it would be hoped that over time the new taxi industry structure would evolve a more independent professional standard.

The following changes are recommended by this report:

1. Unilateral and Easy Changes (by the Convention and Visitors Bureau or other similar local body)

A. Publicize Stands, Tips for Using Taxis, & Telephone Numbers

B. Publicly note good service in the taxi industry.

C. Communicate upcoming events clearly to industry.

2. Moderate difficulty and some changes in ordinances by City.

A. Separate licensing of taxi drivers from companies. (training, testing, & limits on taxi-leasing companies refusing to lease to qualified drivers).

B. Require annual mechanical certification for vehicles by approved independent garages.

C. Institute inspections for interior and exterior of taxis with clear standards and penalties for both company and drivers.

D. Create new stands downtown and at needed venues elsewhere (Playhouse Square, Flats…).

E. Protect drivers’ ability to call attention to violations by companies, without fear of being "blackballed" by the industry.

F. Create a system of fines and gradated penalties, short of suspension, to guide compliance.

G. Require separate channels on the radio for the passenger and contract business.

H. Require performance standards for dispatch service.

3. Difficult Changes: Ordinances & more fundamental structural changes.

A. Lower requirements for independent "Associations" from 25 to 10 taxis.

B. Allow "affiliation" of owner operators with existing companies, or associations, for radio service.

C. Unified Starter for Taxis Initiated at Hopkins Airport.

D. Enable and fund the "Bureau of Taxicab Regulation" and the "Chief of the Bureau of Taxicab" (ord. 127.39 & 127.40).

E. Establish a review board of taxi regulations and service concerns with an emphasis on the "using public."

F. License Limousines and Livery vehicles operating in the City.

4. The very difficult: a logical change to counter the negative impact of leasing.

A. Unified Dispatch Service for the Taxi Industry in Cleveland: all taxicabs required to use service.

B.  Mandatory Global Positioning System in each taxi for safety and accountability.

These changes are meant to structurally change the landscape to reconnect the taxi industry to the service market. Only by recognizing the disengagement caused by taxi-leasing in the industry, and reforming the regulatory structure to this reality, will service to the public be brought back to the fore. While not mandating an end to leasing, it put pressures on the structure to reform its negative incentives.

Preface

I have driven a taxi in Cleveland for over seven years (or five years longer than I ever thought I would). When I started looking for an "exit project" to finish my degree work in urban studies, I did not come to this topic quickly. In the end, however, I thought that it was fitting to look at this industry and its relationship to its mission: service.

This might be a bit more personal than some projects turned in over the years. I have always felt frustration over the failings of the industry to give consistent service to the community. This project tries to provide some of the reasons why that failure exists, and what can be done to improve it.

I have received a lot of help and encouragement from various people in producing this report. My conversations with drivers over the years, and particularly in the past months, have helped to clarify issues and problems in the industry. I have had a gratifying response from both sides of City Hall. I am, of course, responsible for the following interpretation of the taxi industry, its failings, and its prescription for improvement.

Chapter 1: Introduction.

Ultimately, this report is written with the feeling that the regulations a city uses to shape an industry, like the taxicab, must reflect the needs of the public that it represents. Regulating the taxi industry began in most cities during the late 1920s & 1930s in response to the unstable conditions during the depression1. Then and now, the existing companies have been the main supporters of "economic regulation" of the industry2. It will be obvious that I believe that regulating the industry is necessary, but the question is for whose benefit: the existing companies, or the public?

I might have titled this report: "Taxi Companies: Doing Less/ Making More". Perhaps that sounds a bit too flippant for a study such as this. In any case, that would also put to much emphasis on the taxi companies as being the "bad guys", rather than players in a system that suggests a rational course lined by a set of incentives. When considering changes to improve the responsiveness of the taxi industry, the actual structure of the industry must be understood. My discussions with taxi drivers, owners or management of companies, City officials, and the general public; reveals a wide range of opinions on the problems, but only fragmented focus on the overall structure that produces them.

This report will generate a range of strategies to improve service in the industry. It will focus on three areas: providing service (taxi availability), driver quality, and vehicle quality. All of these "areas" are inter-linked with each other, which will be apparent in the discussions that follow, but each also has unique criteria which are impacted differently by some of the changes suggested. For the purposes of this paper it will be useful to keep in mind the inherent linkages, while suggesting alternatives specifically aimed at one area or another.

It has been fashionable, in some quarters of late, to champion the "deregulation" of the taxi industry to spur competition and increase the number of cabs to service the community3. I will not cover that debate, except to note that the clarion calls for "market freedom" represented by deregulation do not come from those that have studied this industry, but from ideologues and political figures. The former like to recite the "low entry levels" that deregulation would bring about, thereby allowing the very poor to hang a shield on any car and ply the community as a taxi. Atlanta’s experience in the 1970s tends to suggest that this is an invitation to disaster4. The political figures, most recently the Indianapolis mayor, use the term deregulation to describe the lifting of the limits on available licenses allowed and fixed fare levels, but leaving in place a host of other regulations5. The reported entry of a sizable number of new "companies" (usually one cab) and lower fares (slight reduction), in Indianapolis, are attributable to the simple shortage of taxis and comparably high fare rates in effect6. Most of the claims of lower fares, more taxis, and better service are countered by a lack of evidence in those cities trying it, or by the bedlam that followed which called forth re-regulation7.

Concurrently, I have had a lot of drivers tell me that a "medallion" system, allowing individual owner-operators would be best. Generally, the drivers mistake the value of medallions in other cities as being something other than they are… an artificial creation whose value is based on regulated shortages. Where these regulated limits of tradable taxis licenses exist, the debate is primarily about how can they approach any meaningful reforms which are not lessened by this obstructing "medallion value"8. One of the blessings in Cleveland is that this sort of impediment does not stand in our way.

It has been brought up by a number of people that it is odd that the City of Cleveland regulates the taxi industry, rather than the County. Indeed, the ordinances themselves never address how the rules promulgated are to be viewed outside the City limits, nor who would enforce them. I agree that this is a problem that ultimately should be addressed, but this report deals with the existing authority and structure, and the suggestions made to address the present deficiencies are transferable to any future governing body.

A number of studies of the taxi industry have concluded that there are good reasons to regulate portions of the industry. Requirements such as insurance coverage, financial responsibility, vehicle safety standards, maximum fare levels, communication/dispatch minimums, and requirements to serve "any reasonable request for service" are standard9. These are not generally controversial.

What this report will do is suggest actions that City Hall and the community can do; which will improve the taxi market in Cleveland. It is important to keep in mind, throughout this report, that there are "players" (taxi owners, drivers, City regulators, and the public) who are prodded in one direction or the other by incentives in the current structure. The taxi industry is not a singular entity. The "taxi industry" is a combination of people, firms, and institutions that respond to incentives that are produced by both City rules and market forces. The way in which this "combination of incentives" effects the players in the industry must be understood to improve its performance.

It is also true that the "taxi market" is not the same from city to city. Each has its unique markets and history of regulations that modify them. The variations in development patterns, density, tourism activity, and so forth have had impact on the varying structures across the country. While I do recommend some examples of ordinances from other cities to improve our situation, the particulars of the Cleveland market must always be kept in mind. Cleveland has faced a number of changes that effect this industry, but the past several years suggest that the taxi industry is not adjusting well to these changes. This research suggests that this is for structural reasons that are a product of a change in the industry in the late 1970s: leasing.

Chapter 2 discusses the basic problems to be addressed. Chapter 3 will address the industry structure generally, and as it is in Cleveland, with particular emphasis on the relationship with the problems noted above. Chapter 4 will summarize the implications of the taxi industry structure developed in Chapter 3. Chapter 5 will propose solutions, or strategies, based on the structures and incentives understood by this report. Chapter 6 will review the suggested changes and comment on the future of the taxi industry with various scenarios.

The Plain Dealer published a story entitled: The Meter’s Running: Cleveland Wants to be a Tourist Town, But is the Taxicab Industry Up to It?10 This report suggests that it is not up to it; but more importantly, the taxi industry is also failing the local population.

Chapter 2 : Problems in the Industry

The problems in the taxi industry that this paper addresses are service, driver professionalism, and vehicle quality. These three broad areas of concern are further broken down as follows:

Service

  • Stand distribution

  • Radio Response

  • Radio dispatch

  • Cab response

  • Hailing a cab

  • Airport cabs

  • Driver Professionalism

  • Courteousness

  • Knowledge of City

  • Driving skills

  • Vehicle quality

  • Maintenance

  • Appearance: inside & out

  • The "problem" list was developed from conversations with the Convention & Visitors Bureau of Greater Cleveland (CVB), passengers, business people, taxi-drivers, taxi-owners and various hospitality people in Cleveland. It is also a list that is common to many cities, particularly in the last twenty years11. While this paper will point to ordinances in other cities that might help alleviate some of the problems that exist in Cleveland; the solution to the problems in Cleveland require a careful assessment of the market structure that has arisen here.

    Service

    The problems are straightforward enough. Service is the ability to get a cab efficiently. The lack of stands in areas of the city, or during peak times is a constant problem. The following is a list of downtown stands:

  • Ritz-Carlton Hotel (2 cabs)

  • Renaissance Hotel (5)

  • Public Square (5)

  • Marriott (5)

  • Embassy Suite (3)

  • Sheraton (6)

  • North Point (3)

  • Erieview 12th Street (3)

  • Huntington Bldg. (3)

  • Rock & Roll Hall of Fame (3)

  • Burke Airport (2)

  • You will note the areas that are either not served or are under served because of their non-existence during rush hours (highlighted stands). Playhouse Square and the Warehouse District areas are particularly notable for their absence. While the Renaissance, Sheraton, Erieview, and Huntington Building are examples of stands where the taxis are not permitted to sit during rush hours. This is a problem in that the Cleveland taxi market is not a cruising market; so the stands are the meeting place of passengers and drivers. There is poor distribution of and accessibility to taxi stands.

    The radio response system for the market has several components that must be looked at. If you call for a cab at the Levin College of Urban Affairs, why did it not show up? Did the dispatcher take down the information? Could you actually wait for the dispatcher to take you off of hold? Did the dispatcher put your order out of the correct stand? Did it go over the radio at all? Does the driver know where Cleveland State or the Levin College is? Will the police allow the taxi to wait outside the door of your building?12 There are many factors that must come together for your taxi to arrive as desired. In Cleveland it tends to be a frustrating experience, but one that makes sense given the market that I will describe in the next chapter.

    The problem of hailing a cab in Cleveland is not one of finding an empty one; it is finding a cab cruising at all. There is simply not enough street business to warrant many taxis to cruise the office buildings in the central business district (CBD). Most taxis are moving through the CBD simply to find a stand, with a high demand at that time13.

    Service at the Airport is an uneven affair. There are times when there are no taxis; this is particularly true at late hours and the morning rush hour. The problem mentioned most often by passengers is a difficulty in getting a taxi at a particular gate14. Passengers often mention the frustration of being unable to find the taxi queue, or a starter. The starters have also complained of being unable to communicate useful information back to the line of taxicabs.

    Driver Professionalism

    The quality of the drivers is frequently noted as uneven, at best. There will always be drivers of varied skill levels, but in a county with streets laid out in a grid numbering system, there is little excuse for a nearly two hour "lost and found" ride to TRW from the airport15. The requirement that the driver knows the city and its highlights, be courteous with the public, and provide a safe and direct trip for the passenger is certainly an issue in encouraging return visits.

    After the complaint of the difficulty in getting a cab, the most often voiced complaints are that the drivers often do not know how to get from the pick up point to the destination, drive recklessly, refuse short trips, or are rude. It appears to passengers I have talked to, that there are more "new drivers" that lack the experience or desire, to be helpful to visitors requesting insight into the city and its venues. The "professional cabby" seems to most, to be a distinct minority of the current drivers. Reversing this trend, noted by Americab owner Milton Schwartz16, will take more than cajoling, it will require improving the conditions that the taxi driver works in, and receives in remuneration.

    Vehicle Quality and Cleanliness

    The vehicle quality issue has been partially addressed in recent requirements by the city17. However, the vehicles are not inspected by mechanics for the city, nor is there some independent certification required by the city for cars. Only an age requirement seems to be checked annually, unless something is obvious when the meter is checked semi-annually by people from "License and Assessments". A rigorous attention to the current laws would help the mechanical and safety issue18. The cleanliness issue is simply one that requires serious, and continuous, attention by the city. The history is that when special events occur, there is a sweep done, which is forgotten the next day. The drivers are often resentful, for being "hassled", which does not improve their "courteous" service to the public attending the event19.

    To obtain some improvement in the three areas noted above the CVB, or other organizations, could simply act unilaterally to open up communication channels with the companies and the drivers. This paper maintains that one of the chief problems in the taxi industry is lack of communication (or feedback) in the market. However, such unilateral action will have only a limited impact if more serious reforms are not initiated at the city ordinance and enforcement level.

    Rules and regulations, however, that do not recognize the way the market is organized will only repeat past mistakes. The City and other institutions typically go to the taxi leasing companies, rather than the providers (drivers), when querying about needed rules, or noting events that need service. This is understandable because there is no "driver organization" to speak to. However, as I hope to demonstrate, the present industry structure presents a formidable wall between service delivery and the taxi leasing companies. Recognizing this "wall" will be vital in the proposed change effectiveness.

    Chapter 3: A Study of The Cleveland Taxi Industry.

    The Taxi Industry Structure

    To understand the driving forces of the existent market is to appreciate the logical result that the above complaints represent. To correct these failings, therefore, will require changing the incentives and rewards now in place. Americab and United Garage (Yellow/Zone) behave in ways that are clearly rational given the incentives of the taxi market in Cleveland. The monopolistic history of the Cleveland taxi market, coupled with the inadequate ordinances and involvement of the City in regulating the industry, has led to a disengaged and ineffective taxi service. The City’s ignorance of the impact of leasing in the taxi industry it was regulating (during late 1970s), is the most critical factor in the failings noted today. The combination of monopoly economics, leasing, and under-evolved regulation explain a large part of the problem; and will suggest a number of solutions.

    In this chapter I review the markets that the taxicab plies in an urban area, the effects of leasing and monopoly in the industry, and the position of the drivers. It will close with a word on the competitors to the industry, and their relationship to the shaping of the taxicab market.

    Are the policies and ordinances of the City protecting the public or the existing companies? If the delivery of service is dependent on quality drivers, who are we ultimately attracting to the industry under the current structure? If left unchanged, what will be the likely result of the current taxi industry? What will this mean for the local community user, and the "destination" business?

     

    The Market Segments.

    This section of the paper is included to describe the taxi market areas. A standard list is:20

  • Cruising

  • Radio

  • Stands

  • Airport

  • Contract

  • This list, if applied to different cities, would vary with such factors as density of CBD, number of visitors, and the patterns of suburban development. I have touched on some of the issues that have effected these markets. My purpose here is to clarify the distinct qualities of these markets, the way in which they support each other, and how the current taxi industry organization has effected them.

    Cruising… This market hardly exists in Cleveland, with the exception of the "flats". If you drive around the CBD of Cleveland on a typical day, you might estimate that there are 5-6 taxis cruising for every 50 cabs on stands. That figure may be high, though, because those "cruising cabs" are often just searching for an empty stand. A vibrant cruising taxi market describes such cities as New York, Boston, or Chicago; all possess denser and larger CBDs. The entertainment area of the flats is the exception on a typical weekend. This market is busy and well served by the independent contractor, at least in the presence of cabs. There is little need and little demand to address this market directly in improving taxi service in Cleveland because it represents an historically small part of the business.

    Radio… This market is critical to the Cleveland taxi industry, and the one most negatively effected by leasing. Whether it is in the neighborhood, or at the Rock & Roll Hall of Fame, the connection between the public and the taxi goes through the taxi leasing company. The cost savings in the radio room, and the inability of directing driver pick up brought on by leasing, creates uncertainty and uneven response. It has been estimated that in a typical medium mid-west city this market represents 70-80% of the taxi business21. While I have no survey for the past years in Cleveland, my experience in driving from 1990 to the present suggests that this figure described Cleveland in the early 1990s. That experience, and discussions with a number of drivers this year, suggests that the number is more like 50-60% today. Why this shift in the market? Some of it can be explained by increases in the "stand" market downtown, or the airport business; but not all is explained by these increases.

    I have interviewed drivers and passengers to come up with a list of reasons for the deterioration in the radio business. The following list reflects the comments they provided:22 (These are in an approximate order of importance)

    Drivers

  • Perception of other drivers being "fed" the best orders by dispatcher.

  • Orders dispatched out of wrong stand.

  • Order put out late (time orders).

  • Lack of enough orders.

  • Radio business overrun with "school trips", or other company contract work, resulting in lack of attention to the general order.

  • Passengers

  • Takes forever to get through to operator

  • Taxi never comes on time, or at all.

  • Rude telephone operators at company.

  • Driver often does not know area.

  • Dirty cab, and/or driver.

  • If you match up the perceptions of the drivers to those of the passengers, you get the general feeling of abandonment. I hear more frustration than praise from that market. These comments also make sense given the description of the taxi market in the following sections of this report. The radio market takes more investment of time and money for the company23, than the mere loosing of taxis to stands, cruising, or airport markets. The disengagement produced by leasing taxis lessens the potential competition in the radio market. The firm makes no extra revenue from the radio dispatch. Much of the academic literature tends to ignore this structural reality24.

    Stands… This market is the dominant one in downtown Cleveland. This is truer today than five years ago. This increase in business is due, in part to the increase of the "destination market," but also because of the failure of the radio dispatch service. It has been said to me by passengers, that it is quicker to leave the 19th floor of an office building…walk two blocks with luggage to a cab stand… than wait for a phone ordered cab, or a cruising cab to appear.

    Consequently, taxis continue to gather at the stands scattered around downtown. Taxis are dispatched from these stands to other buildings, but that has declined steadily over the past few years. The accessibility of taxi stands becomes a major issue. If the stands are the main meeting place for passengers and taxis, then the distribution (and visibility) of these stands to the passenger’s location becomes vital. There are no stands close to Playhouse Square, the Wyndham Hotel, the warehouse district , or many other spots being developed downtown. Half the stands which are downtown, cease to exist during the hours of 7-9:30am and 4-6:30pm. While there are certainly traffic issues during rush hour, there is also a need for taxi users (many of them from other cities) to have access to service. At a glance, it would seem that this should be part of the planning, much like attending to adequate parking.

    As the past year proved, if you continue to develop the venues downtown, the idea of reducing traffic congestion becomes necessary. The concept of developing an efficient taxi service for the public, as a "paratransit" service to feed hotels and RTA, seems only to make sense25. You need a place for passengers and taxis to find each other.

    Airport… The City has been discussing a number of issues at the airport:26

  • Rules for starters calling taxis from the queue.

  • Dress standards for the starters.

  • Restrictions on starters loading any vehicles but taxis.

  • Trying to eliminate the exchange of money between drivers and starters.

  • These areas of improvement are aimed at complaints of drivers and the public. The dress requirement is helpful for identifying a taxi "starter" for the passenger, as well as presenting a better "Cleveland Image." The last two are aimed at limiting "solicitations" by the starters for "good" trips to taxi drivers, or limousine drivers. While payoffs to starters will always be a part of the "action", there has been a notable decline in this activity27. The change from a whistle to a light at gate 4, for calling taxis from the queue, is less effective. This was criticized in the taxi drivers’ newsletter, Fare-ly Speaking, as being poorly thought out and ineffective, along with other procedures produced by the authorities.28

    Overall, however, these are improvements aimed at a critical area of service to the visiting public. The problem is that the solutions are only reactive to complaints, not well thought out moves to address the underlying realities of the airport taxi market. The company hired starter is fine when you have one company servicing the airport (as was true here before 1986, and still is true in Baltimore and Providence), but not when you have three companies of varying sizes. The City wants all three represented, but what if a fourth enters the market? Does this address the needs at the airport? Is it fair to require two shifts of starters (seven days a week) from a cab company, no matter whether they have 25, or 250 leased taxis to support the starter? Does this encourage a competing taxi service to enter the market?

    The lack of taxicabs at the airport, was once a problem, but that is less so since the arrival of Ace Taxi. This is primarily because a new taxi company has less business elsewhere in the city (radio & contract markets), and the taxis will tend to congregate on stands like the airport.29

    Contracts… This market is less of a factor directly for the visitor, or "destination" market. However, the contract market should be understood for the effect it has on the fleet deployment in the other areas. This market is developed by contracts with the County, school systems, and other institutions; in order to provide transportation for the client of the institution (school kids, mentally handicapped, welfare clients, etc.). The oddity of this market is that the contract is with a leasing company, not a transportation company. All of the business is essentially sub-contracted out to the drivers, with the companies trying to profit as much as possible from the arrangement. There is a direct conflict of interest that arises immediately. Where leasing separates the fare-paying passenger from the company interests30, the contract business is tied resolutely to maintaining the contract for its direct share of the contract money.

    While I generally agree that the five segments of the taxi markets I have been talking about are a stronger mix that should be encouraged, there is a problem for service in the contract market. It is not uncommon for the dispatcher to come over the radio and declare that "no more orders will be dispatched until someone takes this school trip."31 Beyond any questionable ethical standards, or laws being broken, the truth is that such conduct simply hurts service standards. It delays, or eliminates dispatching of orders; while it commonly occupies a number of personnel who might otherwise be taking orders over the phone. Where are the market incentives for the company?

    But there is an important value to this "contract" market. It allows the firm to field more taxis to the overall market, possibly preserving a firm’s presence32. There is also evidence that the taxi industry can do this at a lower price than other services33. This is certainly supported by the expansion of contracts within all the existing taxi companies in Cleveland. The issue for the City is whether conflicts between servicing contract business and the general taxi user is in need of some additional guidelines.

    Leasing and the Taxi Market

    Taxi drivers in Cleveland began the 1970s as employees of the taxi-company; by the end of the 1970s the taxi driver was an "independent contractor." This was a common change for many cities in the United States and Canada.34 This change in industry structure was a monumental change for the industry. It had two dramatic effects: it "atomized" the business by withdrawing the company control it had over "employee" drivers35, and it disengaged the linkage of the fare a passenger paid to the collections of the cab company. If you call one taxi company office, to obtain a taxi, you will be told quite clearly that they cannot guarantee a taxi; that they do not control the driver36. The taxi companies are, in fact, taxi "leasing" companies.

    Why was the change made? There were a number of factors. Increased competition from newly subsidized transit systems, fuel price increases, and increases in second car ownership were some of the factors involved in generating financial pressures on the industry.37 All of these factors took place under a system that required going to the City for any fare changes. United Garage reported declining revenue and income for several years leading up to 1975.38 Leasing was a sensible way for taxi companies to obtain operational flexibility to improve their bottom line:

    Eliminate drivers from employee roles.

    No withholding of taxes

    No workman’s compensation

    No unemployment insurance

    No FICA contributions

    No paid vacations

    No health benefits

    No union representation

    Fewer "road men" to oversee conduct of taxi drivers

    Fuel costs are shifted to driver

    Separate fare ceilings (set by City) from revenue collection of unregulated leases.

    Shift customer base from passenger to driver.

    Factors for production are cars, not car and driver.

    Ratio of willing drivers to cars becomes the market.

    Drivers have less ability to secure customers’ future business.

    For a company struggling to make a profit, this must have seemed like an ideal solution. For the companies it was a boon, both here in Cleveland, and across the country. Industry profits had gone from 16% nationally in the 1970s, to 4% in 1975; by the 1986 it had returned to 11-12%39. The United Garage40 went from discussing a failing business41 to an apparently profitable business 22 years later. Success for the company, but is there a successful taxi system for the Cleveland market?

    I talked to a number of taxi drivers who either drove through the period of 1975 to the 1980s, or who started in 1980 (at the beginning of the leasing era). They described a "driver’s market" in the 1980s where you drove for 7-8 hours (as opposed to 12 hours now) and went home with a very good "take" for the day. There were orders everywhere you dropped off. They also described a waiting room at the company where drivers lined up for hours waiting to drive, often being unable to get a cab that day. It had always struck me as curious that the business had been that good, but the Yellow/Zone had not expanded the fleet.

    After looking at several factors it seems to make sense…Yellow/Zone was in the process of adjusting to its change in market incentives, moving drivers from being employees to being independent contractors. It had reduced its fleet of taxis from 393 in 197542, to 230 in 197943. In 1975 they had complained that they were having difficulty finding enough drivers (761)44, while in 1979 there were 1066 registered with the city45. That works out to 1.94 drivers for every taxi in 1975 and 4.63 drivers in 1979. These factors explain the experience of drivers during that period, and also give weight to the falling levels of service in the City. The company’s retrenchment consisted of reducing vehicles, non-driver personnel (phone operators, mechanics, supervisors, etc.), and office and garage locations (6 in 1975: 3 in 1990).

    The centerpiece to these moves was leasing. If the need of the taxi passenger was so great (deduced by the accounts of drivers), why did the company not move to increase its fleet significantly? The answer will be explored more deeply in the section on monopoly and the taxi market, but I believe that the answer is two-fold: the company was in the midst of adjusting to its direct revenue source, the leasing driver; and the indirect source of passenger fares was less easy to react to. Leasing introduced a different set of incentives for the companies. The taxi company, having been partially freed from the direct fare limits, was setting lease rates based on the number of buyers (drivers) and the supply (taxis). This was all effected by the demand of passengers (business per taxi), but as the company was not getting a percentage of the fare, the impact was more along the lines of the taxi leasing company being able to raise the lease rates. It is important to note that Yellow/Zone was the only taxi company in Cleveland at this time.

    The impact of leasing in the City of Cleveland was to separate the taxi company from the passenger. From 1975 to 1979 there was a 41.5% reduction in the number of taxis, but a 40% increase in the number of drivers. While the company busily remade itself into a leasing company service levels dropped for passengers. There were fewer cabs, the company could direct none once leased, and the company had no particular monetary interest in any particular fare getting picked up (as long as the lease was paid). None of these changes prompted the City to adjust their ordinances to the incentives generated by leasing. Also, the effects leasing was having on the market wasn’t considered. Nearly twenty years later structure is still the case; in 1997 there appeared the first real mention that leasing existed, in the form of a temporary freeze on lease rates when the City raised the fare for the first time in 9 years46. This is only a temporary freeze that does not address the effects of leasing on the industry market.

    Monopoly, Leasing, and the Cleveland Taxi Market.

    The separating of responsibility for service to the passenger by the company, that leasing represents,47 is further accentuated in Cleveland by the historical monopoly of the industry by the United Garage & Service Corporation. From 1934 to 1986, United Garage (Yellow/Zone) was the only taxi company licensed in the City of Cleveland. As long as the passenger-company relationship held, it might be said that the company would respond to increased demand for better service because fares were limited by the city. However, with the separation that occurred with leasing to drivers, that connection was broken. The lease rates and patterns of operation were all set under this monopoly. The relationship of the company to the driver and to the passenger was greatly effected by this state of affairs.

    While one firm has dominated the Cleveland taxi market since 193448, it might be properly argued that it was a regulated monopoly that reasonably served the public interest until the late 1970s. What I hope to show is that the issues raised in this paper (service, driver quality, and vehicle quality) were adversely effected by a combination of leasing, monopoly, and lack of adequate regulations from the city. It is at this point that the issue of monopoly comes to the forefront. Before leasing occurred, the fare limit set by the city was a direct limit on what the company could charge. After leasing, the fare (still regulated by the City) was the limit on what the driver could charge. The company charges are the now the unregulated lease fees charged to the driver. Understanding this separation in the market is crucial to understanding the declining service levels and lack of market response in the City.

    Table 1 : Drivers & Taxicabs in Cleveland 1979-97

    Year

    Drivers

    Taxi-cabs

    Number of Drivers to Taxis

    Events in Taxi Market

    Change from previous year: Drivers

    Change from previous year: Taxicabs

    Industry reaction to changes in ratio of drivers to taxis

    1979

    1066

    230

    4.63

    Leasing

       

    Lease Price Setting

    1980

    1031

    246

    4.19

     

    -35

    +16

    Lease Price Setting

    1981

    782

    232

    3.37

     

    -249

    -14

     

    1982

    677

    240

    2.82

     

    -5

    +8

     

    1983

    683

    260

    2.63

     

    +6

    +20

     

    1984

    686

    269

    2.55

     

    +3

    +9

     

    1985

    764

    248

    3.08

     

    +78

    -20

    Reduce Taxicabs

    1986

    1044

    305

    3.42

    Americab: employees

    +280

    +57

     

    1987

    1205

    345

    3.49

     

    +161

    +40

     

    1988

    1148

    428

    2.68

    Americab:

    Leasing & fare raise

    -57

    +83

     

    1989

    1504

    404

    3.72

     

    +356

    -24

    Reduce taxicabs

    1990

    1314

    398

    3.30

     

    -190

    -6

     

    1991

    970

    390

    2.50

     

    -344

    -8

     

    1992

    1293

    379

    3.41

     

    +323

    -11

    reduce taxicabs

    1993

    1159

    350

    3.31

     

    -134

    -29

    reduce taxicabs

    1994

    1219

    386

    3.16

     

    +60

    +36

     

    1995

    1101

    389

    2.83

     

    -118

    +3

     

    1996

    1255

    369

    3.40

     

    +154

    -20

    reduce taxicabs

    1997

    1255

    426

    2.95

    Ace Taxi

    0

    +57

     

    Source: Letter from Robert Schneider, Commissioner of Assessments & Licenses.
    Dated September 29, 1997.

    What is distinctive about the Cleveland taxi market over most others is that it was served by only one company. Lease prices were set under unregulated monopoly conditions. The passenger demand did not directly effect the price, but the supply of cars to the demand represented by the drivers set the price. This can be shown by looking at the number of taxis in service from 1979 to 1997.

    There are certainly limits to an analysis that focuses on a narrow data set. However, I believe a few points can be made by looking at the figures in the table 1. While the first six years can be described as an adjustment period for the company and the drivers, United Garage (then the only taxi company) reduced its taxicab fleet in 1985 (7.8%) as the ratio of drivers to taxis dropped to 2.55 (1984). This meant that the ratio, even with nearly eighty additional drivers, increased to 3.08 for the 1985 year. The largest increase in taxicabs (23%) came with the entry of a new company in 1986, Americab. This new competition also stimulated new demand (more drivers). Americab attracted new drivers to the market by the use of a job training program, leading to an employee status with the company (This meant that a new demand was created in the leasing market when Americab went to leasing in 1988). With a competing company trying to capture a segment of the taxi market, the number of taxis rose from 248 in 1985 to 428 in 1988 (+73%).

    The problem for the new company was that it had opened with employee drivers supplied from non-taxi drivers, trained under a job's program.49 Competing for business using inexperienced drivers and saddled with all the weight of employee drivers, proved to be too difficult against the better-known Yellow/Zone fleet. Faced with a dropping ratio of drivers to taxis (2.68) changes were introduced to the market. Milton Schwartz, a taxi company owner from Las Vegas, bought out Americab. His first act was to reorganize the company as a leasing company. He reduced the number of taxis, which helped raise the ratio of drivers in the market back up to 3.72. His next move was to supply his company with inexpensive vehicles from the used fleet market.50 While Americab had a reputation for poorly maintained vehicles and inexperienced drivers, the drivers leased the taxis, paying a lease comparable to Yellow/Zone.

    Two things are clear in this time period. The monopoly position held by the United Garage (Yellow/Zone) operation in the taxi industry through 1985 led to a shortage of taxis in Cleveland.51 The lowered industry costs of operating as a leasing company made it difficult for an employee based company to compete successfully.

    The other important feature to be noted from the table is that the companies react to the "driver to taxi ratios," not directly to the number of passenger serviced. The adjustments to their fleets following the underlined figures in 1984, 1988, 1991, and 1995 were reactions to driver to taxi ratios near or below 2.80. Why would this trigger reduction? Irrespective of the passenger demand, the companies were reacting to driver demand for their vehicles. If you have two shifts per day and seven days a week, you need to fill 14 shifts. That is: 2.8 drivers working 5 shifts each. While some drivers are part-time, some short term, and some work seven days, it is reasonable to assume that some sort of average demand would fall close to that figure.52 The companies are artificially controlling the price they can charge by limiting the supply of cabs to drivers (see figure 1. below). Notice the arrows that point from the low ratios to the following year drop in taxi supply.

    Source: Table I & the letter from Commissioner Schneider, detailing taxi and taxi drivers 1979-97.

    This argument is strengthened by looking at figures that suggest an increasing demand for the passenger service market, which seems to have carried little weight in an increase in the number of cabs. Leasing isolated the passenger market from the taxi companies. Below in Tables 2 and 3, it is noted that both the airport markets and the hotel business expanded with little relationship to the number of taxis. It had an affect on the market, however, it concentrated cab drivers in queues at hotels and the Airport. The lack of the companies’ ability to direct cab drivers in the radio market, coupled with the reduction of radio room staff,53 had left a less certain radio market for the taxi driver to ply. During the early years (1980s) of leasing experienced dispatchers and drivers operating similarly to the "old days", the drop in the emphasis on control and training produced increasing negatives to the public perception of "calling a cab." The increase in hotel and airport markets filled the void for the taxi driver.

    Table 2. Airport Passengers 1986-93

    Year

    Passengers

    1986

    6,589,587

    1987

    6,617,960

    1988

    7,616,994

    1989

    8,178,599

    1990

    8,723,361

    1991

    8,142,644

    1992

    8,935,779

    1993

    9,413,851

    1996

    11,500,000 (approx.)

    Source: http:www.cleveland.o.us/newcle/business/airport.htm
    Department of Port Control - City of Cleveland.

    The airport figures reflect a great increase in the visitor market, particularly in the 1990s. This view is reinforced in the following table showing the increase in the number of hotel rooms occupied. How did the existing taxi companies respond to this increasing potential in the passenger market? Did they increase their fleets? Did they provide innovative strategies to capture this new market opportunity? How did they react?

    Table 3. 1986-1997 Estimated Occupancy & Rooms for CBD Hotels: Cleveland.

    Year

    Rooms (approx.)

    Occupancy

    Occupied Room Days

    1986

    1800

    57.65%

    378,482

    1989

    1995

    59.5%

    432,255

    1993

    2450

    61%

    545,310

    1996

    2995

    70%

    765,040

    Room increase 1986-1996

    66.4%

    Occupied room increase 1986 --1996

    102.03%

    Sources: Plain Dealer: 11/7/87 A1, 11/8/87 A1, 2/20/88, 4/11/89 B1, 4/16/89 A1, 6/16/90 B1, 8/21/94 H1;
    Crain’s 3/6/95 p.3; Hotel Occupancy Rates supplied by Convention & Visitor’s Bureau (1993-1996).

    Between 1986 and the present we saw a 102% increase in the number of hotel rooms occupied, a 67% increase in passenger traffic at the airport, and a 40% increase in cabs. But while hotels and the airport volumes have steadily risen, the number of taxis actually peaked in 1988 at 428 (while the hotel and airport businesses were still flat). Since that time, the number of taxis actually fell, and only now approaches a similar number of 426 for 1997. Seventy-nine percent (79%) of the increase in the past year was the result of a new taxi company entering the market. Over the past twenty years the three largest increases in the number of cabs were the result of a new company trying to establish a market share.54 The existing companies did not provide the expansion in either in 1986 or 1997.

    Source: Table 1 & 3 from above.

    When I have discussed this disengagement of the taxi industry, I have often been asked why the taxi companies would not expand to the market? After all, they would have more taxis to lease to drivers. The explanation comes from simply comparing Cleveland with other cities and their taxi markets. Figures 3 and 4, on the following pages, compare both the lease and fare levels of Cleveland and other cities. I include both to show that, while there is a certain amount of parity on the fare, there are a lot of questions about the pricing of leases in Cleveland’s market.

    Figure 3: Fare Comparison for Selected Cities 10/97.

    Source: Municipal Public Passenger Vehicle Survey, Department of Consumer Services,
    City of Chicago, October 1997.

    Figure 3 shows the "average" position of the fare vis-à-vis other cities. This includes the August 1,1997 fare increase granted by City Council in July of this year. Prior to that increase our fare would have been approximately $8.02 for a comparable 5-mile trip. The increase simply put us into the middle of the "pack".

    The lease story is altogether different. Figure 4 shows a comparison between several cities and their lease rates for a 12-hour period. A number of factors are not shown here, which dramatically alter the picture. One factor is that a higher fare and a consistently high demand ratio of drivers-to-taxis support the high lease price in New York.55

    Figure 4: Twelve Hour Lease Comparison 10/97.

    Source: Municipal Public Passenger Vehicle Survey, Department of Consumer Services,
    City of Chicago, Oct. 1997.

    Other major areas not revealed are regulatory costs imposed (safety equipment, higher levels of insurance, etc.) and the cost of medallions. While it would be difficult to calculate, or even compare, the costs of the former, it is fairly simple to account for the latter. Table 4 shows the known values of medallions in several cities. In Figure 5, I compare lease fees, adjusted for the return on investment for the cost of the medallion. This leaves an approximate taxicab company "operation cost" comparison between Cleveland and these cities.

    Table 4. Medallion Value For Selected Cities.

    City

    Medallion Value

    Annual ROI

    Chicago

    $65,000.

    $5,200.00

    Boston

    $85,000.

    $6,800.00

    San Francisco

    xxxxxx56

    $20,400.00

    New York

    $200,000.

    $16,000.00

    Source: In These Times, "Driven Mad" by Christopher Cook 4/14/97.
    New York Taxi Fact Book, by Bruce Schaller.

    A medallion is simply the permit issued by the city regulating cabs, which gives the owner of the medallion permission to put a taxi on the road. In Cleveland, this is a "hack license". In the past, I understand that a company could purchase a number of the "hack licenses" in Cleveland in order to keep other companies from entering the market. Presently, every license must be assigned to an inspected vehicle, or returned to the City. The "medallion" or "plate" in many cities has become a tradable commodity. In the cities charted below, all the available licenses have been taken, and the prices of the medallions have escalated. Owners of medallions do not necessarily own any taxis, but can simply lease the use of the "permission" to field a taxi (this varies from city to city). Therefore, the return on investment (ROI) for the medallion must be considered when comparing the operating costs of those cities and Cleveland, who doesn’t have this tradable product in the industry organization.

    Source: Cleveland Fare prior to August 1, 1997;
    Municipal Public Passenger Vehicle Survey; & estimated ROI for Medallion.

    The chart featured above uses the fare for Cleveland, prior to the last price increase (August 1997), as well as the present one. I believe this is an important point; the lease cost was developed under the old fare level. Milton Schwartz, owner of Americab, has said that because of a lack income from present fare levels "it is nearly impossible to hold quality drivers on the job."59 The squeeze is real enough, but the question is whether it is the fare or the lease doing the squeezing.

    Figure 5 suggests that the lease in Cleveland is high compared to the other cities, all of which are considered stronger taxi markets (which would favor the drivers’ daily business and income). There appears to be a phantom medallion yielding a ROI equal to 13% - 39% of the lease price in Cleveland. Which strongly suggests that a profitable level of operation can exist at a much lower lease price level. Each of the other markets has had more firms historically, or allows individual owner/operators. The lowest of those compared in the chart, Chicago, does have a temporary lease cap, but the medallion is still worth $65,000. There is a strong possibility that competition at the lease level would lead to lower prices in Cleveland. Note that no other mid-west city has a lease cost as high as Cleveland (Figure 4).

    So why is our lease so high? The lease level in Cleveland was set during the monopoly days of Yellow/Zone. If you adjust the 1980 cost for lease and fuel, approximately $50.00, to 1996 using the CPI, the figure becomes $102.00.60 This compares with the present cost for lease and fuel of $94.00 to $96.00.61 It also makes sense when you look at the driver to taxi ratio in Table 1. The price was set during the highest levels of driver to taxi numbers (4.63 & 4.19), and the companies reduced their fleets whenever the number edged below the 2.8 number. They don’t compete on the lease price as much as they have in other cities. Each of the companies that have existed over the past 10 years, Americab and Yellow/Zone, have found separate niche markets. Yellow/Zone is stronger in the radio market; while Americab has sought the contract market aggressively. There is little incentive for either to lower their lease costs.

    Another way to look at this issue is to compare the cities in the survey listed earlier.62 Figure 6 presents an interesting picture of the lease rates in these cities, compared to their driver-to-taxicab ratios. You will note that the ratios for the two highest lease rates are above 3.5 (drivers to cabs). There is a distinct pattern to this market. It is not the taxi service market, but the taxi driver market that is being displayed. In a time where the taxi service is falling in Cleveland, the taxi leasing companies are commanding ever higher lease rates. The key to profits in the taxi leasing market is finding a niche service level, and then maintaining a shortage in the supply of taxicabs, to keep the ratio higher than 2.8 ratio of drivers to cabs. In most of these "high priced" cities this is caused by caps on the number of taxicabs allowed by ordinance, which creates a shortage. In Cleveland this is caused by the companies simply reducing their fleets, abandoning the radio market in cost cutting moves, and leaving the drivers to search out the passengers on the stands and at the airport.

    Source: Municipal Public Passenger Survey, City of Chicago:
    Department of Consumer Services, 10/97
    .

    While Cleveland’s taxi market, like most, is not perfectly monopolistic, nor perfectly competitive; the data suggests that the taxi-leasing market in Cleveland is closer to the monopoly model. If the leasing price was set under monopoly conditions, what would be the result and why?

    Once the taxi company establishes a position of "adequate" market share, there is a less of an incentive to increase production (add taxis). If the taxi company increases the available number of taxis, the "next" driver will have to be lured at a lower price (downward sloping demand curve), which will be reflected back to all previous leases. Furthermore, the traditional taxi market amenable to advertising expansion, the radio market63, requires an internal expense for the company for which it profits only indirectly (through leasing, not a percentage of the fare). In addition, it can not direct the leasing drivers to pick up the passenger, which further clouds the value of such an effort.

    What is important to note, is the effect on the market for "taxi service." When the taxi company is separated from the passenger in the "leasing market", it responds to the driver availability, not the passenger needs. The cost reductions also proceed along those

    same lines of response internally, notably in the radio room. Remember, the only sustained taxicab expansions in the past ten years have been from new companies, not existing ones; despite ever increasing "destination" business. Once Americab found its own market it

    settled into the same stasis as Yellow/Zone has maintained in its availability of taxicabs: no significant increase. The profitability of the "taxi business" then centers on getting the maximum lease, which squeezes the driver's income, driving the long-term "professional" driver out. The result is fewer taxis, less radio response, and lowered quality of driver for the given fare price.

    While the City regulates the fare, which might have been enough before leasing, the disconnected market that leasing produces, leaves an unregulated market (leasing), that drives down the quality of the regulated one (taxi service). The question is whether the two can be reconnected? Does it require regulation of lease rates, radio standards, and so forth? Are there competitive market solutions? It at least requires the recognition of a problem by the City.

    Inattentive Regulators: The City.

    It seems fair to say that the City has shown little interest in, or understanding of, the taxi market it was regulating. It has been twenty years since the chapter on "Taxicabs" (443) was, in large measure, formulated. There is virtually no mention of leasing even existing64, or of independent contractors working for the taxi companies. The attitude is best summed up by the previous Commissioner of Assessments and Licenses (Mr. Hunt), who told me to take any complaints I had to "my company" (meaning Yellow Cab). The suggestion that I was an independent contractor, not an employee, was met with: "I don’t care what you think you are…drivers don’t call me, they talk to their company." Upon returning to the garage that evening, I was yelled at by Yellow Cab for daring to talk to the Commissioner.65 In relating this story to other drivers I got universal agreement from others as to this attitude of the City’s regulator. Leasing and the independent contractor has been a non-factor in the view of the City.

    As long as the taxi companies took care of its "own", the city did not have to be bothered. All of which was a fine deal for the taxi companies who then had great power over the "independent contractor" drivers. Every leasing contract that the drivers sign, states clearly that the taxi company can cancel your lease (refuse to rent you a car) for any reason whatsoever. There is no protection, unlike Chicago, in the City ordinances if a driver complains to the City about conditions at, or actions of, the taxi company.66

    As I mentioned above, the city licenses the drivers through the companies. There is no independent training or testing, beyond the companies vouching for the drivers’ "knowledge of the provisions of this chapter ("Taxicab" ordinances), the City Traffic Code, and the geography of the City."67 If a taxicab driver does not possess the skills suggested above, but is willing to pay the lease anyway, what action do you think the incentives of ordinances and market suggest for the leasing company? If the City does find a driver so ill prepared that it suspends the driver, that will be after a number of lease payments. The mere fact that the driver couldn’t find an order has little immediate impact on the company bottom line. There is also another driver in the queue, waiting to lease a taxi.

    This is no small element in the production of quality taxi service. The taxi driver is the often the first and last impression of the City that the visitor sees. If the City simply cedes the training and testing of the driver to the company, already disengaged from the passenger market, what level of quality would you expect? If the companies tell you that they cannot force the drivers to take an order because they are independent contractors; then perhaps relying solely on their correcting the problem is a failure of the City’s responsibility to the public it is regulating for.

    There are a number of areas that further suggest the disengagement of the City from "getting involved" with the conduct, appearance, or ability of the "independent" taxi driver. There are no fines that can be levied by the City on the driver to encourage correct behavior, only suspension.68 There are no clear rules of attire beyond being "clean in dress and person."69 There is not one person in the City whose sole job it is to keep an eye on the taxi market.70 All of which speaks to the sentiment of letting the "company" handle it.

    The City demands few standards from the company. It requires radio service for the drivers71, but sets no standards for dispatchers, time taken in answering phone, or time to dispatch order. This allows the companies to frequently prioritize the radio for their own "contract business" over that of the ordinary calls, or to cut staff to save money (but adversely effect service). The City has not demanded any increase in "surety bond", or "liability insurance", since 1978.72

    Other notes to the inattention of the City in regulating the industry comes with the realization that the City waited 9 years to adjust the fare levels, forcing a high 16% raise all at once. The fees for drivers licenses and taxicabs remain the same after twenty years.73 The City licenses vans as coaches each year (as opposed to taxis), but they have meters (and are therefore defined by ordinance as taxis) and are told that they are governed by the metered rates. The fact that the City has been told that they do not properly license these vehicles is simply ignored (or at least not corrected).

    There are a lot of other examples that could be pointed to, but the simple point is that the City has not understood, nor reacted responsibly to the market it regulates. It shares a lot of the blame for the decline of the industry. Whether it is an out of town guest, or the City resident, the ability to get a taxi has been harmed by this inattention.

    Taxi Driver

    Much of the attention to improving taxi service in Cleveland comes down to affecting change on the driver. The driver is the visible contact, day-to-day, that the industry provides the public. There has been good analysis of the elements that produce a quality driver. Research in New York points to the presence of experienced drivers in reducing accidents (safe driving), and reductions in the violations of ordinances.74 What does the current system present to the driver? What does the market structure present as incentives for action?

    Income for the driver is his receipts less his expenses. The principle expenses are lease and fuel. The receipts are a matter of the number and quality of the fares the driver can pick up in the shift. I noted earlier that my conversations with drivers from the early days of leasing revealed a once "busy" market. It was also noted that this occurred after a 41% drop in the number of taxis, over 4 to 5 years. From the point of view of the driver, a hefty lease price was acceptable because the demand for services at that time was high. It is important to keep in mind that this was a price setting period for leases. It is also important to emphasize that the "busy market" was at least partly a result of the company shorting the passenger market of taxis as it pared its fleet down to the "drivers market."

    I am not going to go into the minutiae of details in individual companies, or for every type of lease arrangement. The 12-hour lease and its consequent affect on the driver will be sufficient. The basic problem for the driver, and consequently for the industry will be apparent.

    The taxi driver enters the company offices to request a taxicab to lease for the 12-hour period. There is an upfront rental cost of $77 to $83 for that period.75 The driver is also responsible for fuel, or mileage charges. The total expense for the twelve hours will typically vary from $94 to $115. Before the driver earns a dime, this amount must be made.

    If business is slow that day, the driver might only make a bit over costs. Drivers have (I have) lost money, failed to earn the lease and expenses for the day. Regardless of the day being "good" or "bad" for the driver, the company is due its lease amount. This is not a question of being fair; it is a question of how this impacts one of the "players" in the market.

    The driver is constrained to a twelve-hour lease. Time is essential. Whatever market segment the driver is working, or segments the driver is working between; his continuing to ply that segment is determined by the perceived ability to service enough business to keep ahead of that lease agreement. A perceived failure in a market segment will produce its quick abandonment to avoid an immediate loss for the day. Remember that the driver does not get a fixed percentage (as in the employee arrangement), which might allow for a more extended look (lower money, but something), but must get over a "hump" that the lease represents.

    Complicating this is that the driver is alone in a cab trying to ferret out "where the business is." If the driver believes that another neighborhood is busy, the airport is "moving", or there is "action" downtown, then he must take the valuable time to go there. All of which may be gone by the time the driver gets there, or it may have been a mistaken perception to begin with. The source of information is usually the "disengaged" company radio, or other drivers (who are also competitors). Experience and "feel" for the market counts for a lot here. The decision as to whether to continue to serve one market segment, or another, is based on a combination of perceptions and results over time. Generally, there are two elements to working an area: keeping busy with orders and having enough quality orders. When I worked the neighborhoods in the early 1990s I took every order close by, knowing that I would "pop" the long one (profitable on dollars-to-time basis).

    There has always been a "mix" of short and long orders that created a "cross-subsidized" market.76 Briefly, this subsidy amounts to the longer trip, being of more value (less time per dollar earned), allowing a lesser fare price to be charged for the shorter, more time consuming "grocery" or "medical" trip, than would otherwise be necessary. This is very important to the health of the industry.77

    "Creaming"78 of the market results in the decline of service to the "lesser" trips. This creaming can arise in several ways: drivers favored by dispatchers, "cell phone" taxi drivers luring the "good trips", people simply being attracted to "park-and-fly" operations, or market penetration by the livery driver. The result is the same: a decline in drivers to respond to the "average" order in the area. The decline of traditional taxi service for the lesser order opens the way for the unauthorized jitney to ply the market. This further reduces business, which makes it difficult to attract enough taxis into the area to service any business, resulting in more of the better trips getting picked up by outside competitors. The downward spiral is self-reinforcing.

    Because of the lease rate and time constraints there is pressure in the system to abandon market segments quickly. It also explains why there are so few taxis out on a day where the "action" is perceived to be low. The driver simply abandons the taxicab altogether (doesn’t lease), because the risk of loss is believed to be too great. In the long run, the reduction of income causes a loss of quality drivers as their potential income drops. This is what the owner of Americab was referring to in his request for a fare increase in July of 1997. The problem is that a fare increase does not ultimately solve the destructive influence of the leasing system in the taxi industry.

    Now compare this with the "good old days" of employee drivers to the lease arrangement. Yellow Cab employee drivers based their income on a percentage of the fare, as did the company. The average full time driver worked 50 hours (versus 60+ today), and had health benefits, paid vacation, pension plans, union representation, and received awards for safe driving.79 The company and the driver had their incomes resolutely tied to the regulated fare and the servicing of the passenger. Increases in the income of the company meant increasing the number of fares and taxis. This also meant that the companies had a direct interest in the experienced and well-trained drivers to maintain service levels that would keep the customer calling. If there was an increase in the radio market on the east side of town, the cabs were simply re-directed there.

    The driver in the employee arrangement above, requires good driving, good image (representing the company), and professional skills. He did not need to know the market lay-out necessarily; the company was directing fleet deployment. Now, however, the individual taxi driver is being asked to respond to the taxi passenger market. Yet with each new company the market information is isolated more and more from the provider of service (taxi driver), and each company (taxi-leasing) is less interested in the service itself, further isolating the driver from the market.

    Competitors.

    Not surprisingly, if the taxi industry offers less service to a portion of the transportation market, there are other players willing to fill the void. The reductions in radio service, and the inability to direct "independent" drivers, opens the door for private car services. Whether it is the "unofficial" (and unlicensed jitney) or the legitimate livery driver80, the passenger finds a ride. These substitutes have negative impacts that must be understood. The jitney service is unregulated as to vehicle safety, insurance coverage, driver qualifications, or fees charged. These are all areas that inform the rationale for licensing taxis.

    The livery driver, or private car service (PCS), has a different, less obvious negative impact on the industry. This has to do with the "cross-subsidization" factor in the taxi market. The two competitors (livery & jitney) can be seen as complimentary substitutes in the ceded "taxi radio market." That is, their respective expansion in the market helps the other’s further expansion. They both reinforce the declining use of taxis.

    In one case, I talked to a livery service provider with 17 cars that does grocery order calls for as little as $5.00. The owner operates under the philosophy that he is keeping his drivers busy, and that he is also exposing his service to a wider audience. With the exception of sitting on stands, this company has assumed the role of an upscale taxi company, but not a licensed one.

    The basic mechanics of this spiral is also aggravated by the declining dispatch service that the leasing system tends to generate. The order of events may change, but the result is the same: loss of revenue in the market segment and a shift to the non-radio market by the taxis. This has serious consequences for the long-term viability of the taxi industry. As the taxi becomes more dependent on stands, or the airport, they are less able to weather the downturns in those service areas. 1997 was a great year for visitors (hotel stands and airport), but what about 1998? The flexibility the industry needs to sustain itself is severely hampered by this trend. If the 1998 visitors market is significantly down from 1997, the result will be a drop in drivers. The table showing the ratio of drivers to taxis (Table 1), already down to 2.95 for 1997 suggests that the companies will act quickly to reduce their fleets. Will there be enough taxis in 1999? Will there be adequate taxis to service the "destination" radio market?

    There is competition in other areas as well: Hopkins Airport Limousine, the RTA neighborhood services, chartered busses for conventions, and transportation services vying for the contract business. The convention busses and Hopkins Limousine present competition at an area where the taxis are fleeing to from the declining neighborhood business. One of the recent conventions in January 1998 saw the use of busses from arrival to departure. I often witnessed the busses waiting around, two sometimes, just so they could pick up one or two people to go back out to the airport. This while 5 or 6 taxis stood idle on the stand, often blocked from even leaving by the busses. It was not too awfully surprising then, as I confirmed with a number of other drivers, that the taxi drivers were having one of our worse January’s in memory.

    The point is that the organization of the taxi industry is stronger if it has the flexibility to deploy its taxis from one market segment to the other, and serious damage to this flexibility threatens its future health. The radio market’s growing vulnerability to the "leasing malaise" is the industry’s biggest threat, because it represents the largest market segment for taxis in Cleveland. The added competition at the downtown stands simply reinforces that weakness. While increasing contract business can replace some of this volume, off-setting some of the decline in taxicab market segments, it is inherently a less "flexible" element because of its contractual obligations.

    This report maintains that the present industry structure inhibits creative responses to competitors. In Chicago they have instituted such responses as shared rides to combat the shuttle services, "short trip" lines at the airport to compensate drivers for passengers who use the taxi queue to finish their train commute, and legalized "jitney routes" (by taxicab drivers) to supplement under-served bus routes.81

    The leasing structure of the taxi industry comes down particularly hard on the Cleveland taxi market because of its monopolistic origin and poor oversight by the City. The results may be summarized as:

    Inhibiting the passenger market response

    Lack of incentive for company (flat lease arrangement & monopoly pricing)

    Poor quality of market knowledge for "atomized" service provider (driver)

    Reducing vehicle quality (sans regulatory intervention)

    Reducing radio/telephone response

    Lack of ability to direct driver

    Cost cutting of lowered priority internal cost

    Shifting of incentives to Contract Market

    Lowers quality of driver attracted

    Lower income

    Less emphasis on training

    Shortage of taxis needed to keep lease price up

    Lessening of attire standards (image for self and public)

     

    Chapter 4: Strategies for Improving the Taxi Service in Cleveland

    This chapter begins with the assumption that there are a number of players and therefore agendas to be contended with in making changes in the current taxi industry. The range of options presented reflect this reality. My presentation will detail these changes more concretely, offering more body to the important elements that are addressed by this paper. While some of these suggestions will seem controversial, perhaps improbable, I believe they all are reasonable in light of the taxi industry structure and desired results.

    The examples of legislation I use to guide many of my suggested changes are from Chicago and Seattle. Both are recent (1990 & 1996) and address some similar issues that I presented in this paper. The varieties of influences that effect the structure of the taxi industry from city-to-city are diverse. This makes it difficult to simply lift a whole set of ordinances from another city and apply it to Cleveland. However, the City of Chicago’s ordinances arose from a similar market domination of one or two firms.82 The City of Seattle, faced a very different market, but gives a fresh look at the issues of "association", enforcement, and other areas that are useful to look at.

    The following section presents a list of suggestions and changes. I have included a sample of the Taxicab Ordinance (443) in Appendix B which incorporates these changes in a manner which might lend itself to better understanding the logic of these proposals.

    Change in the Taxi Industry: Logic and Purpose

    It seems appropriate to immediately engage a suggested change that is radical in its probable perception, and easily misunderstood by those reading the bare outline above: "Unified Dispatch." Following this discussion will be changes loosely grouped to the type of change: structural, service, driver quality, and vehicle quality.

    Unified Taxicab Dispatch and Global Positioning System (Service)83

    The feasibility of this approach to improving service came late in the process of this research. I had heard of the concept in various guises over the past year, but had discounted the idea as being too intrusive to private enterprise. Late in December 1997, I came back to the concept after discussing ideas of dispatching with several people. It is offered here as a way to approach the debilitating effect of leasing on the taxi market. The main body of this paper has dwelt on the disengagement of the taxi-leasing company from the passenger service market. This disengagement seems addressable from two avenues: one would be to mandate employee-driver only taxi companies; two would be to reconnect the driver and his cab to the passenger through another means… unified dispatch. I do not believe that the industry is at all amenable to the first, but I think that the second has advantages that address service issues and industry concerns across the board.

    A simplistic approach to understanding the logic of requiring this dispatch system is to equate the airwaves to the public roadways. A potential passenger, whether on the curb or calling on a phone, simply is hailing a taxi. In either case the desire for a taxi might be tempered by a desire for a particular company, or not. The technology for such distribution exists on the shelf today.84 This approach would also separate the "dispatch" service from the growing contract work of the leasing companies. The coordination of such contract work should be mandated as separate from this system in any case to conform to FCC and some contractual agreements.

    A central dispatch could easily allow for separate telephone numbers to be advertised for any company, but would allow for only one number to be called by visitors, or the general public, to access the full spectrum of taxis available in the area. Unified dispatch would be cost effective in that it would require only one central dispatch, erasing the duplication of service by competing companies. Any incoming order could be tailored to the requirements of the passenger, with an entire taxi fleet at its disposal. Do you want a particular company, credit card, sedan, van, wheel-chair accessible, or whatever? A combination of computerized and global positioning system (GPS) would accommodate any request with accurate information and efficient routing.

    How would this approach the problems highlighted in this paper? The dispatch systems only reason for existence would be to connect passenger and taxi. This would avoid the disengaged leasing company and its conflicting contractual agreements. It would mean that any visitor would require only one telephone number to call for a taxi, thereby eliminating the question of the distribution of a particular fleet in the area. If no particular taxi is required, only the nearest one, then all taxis are available.

    I realize that some will accuse me of a unjustified euphoria on this subject, but the following is a list of the advantages to various "players" in the taxi market:

    Companies

    Reduction or elimination of dispatching staff.

    Continued ability to advertise for business with a dedicated telephone number (that yields a particular company’s taxi response).

    A simple "pass through" of a dispatch cost to the drivers.

    Concentration on the true market of leasing, and contractual arrangements with various institutions.

    Drivers

    Potential access to any order in a given area, reducing tendency to abandon markets.

    Opens up the whole County to small fleets, or potentially single "owner-operators".

    Offers potential of reports on taxi market to be distributed by dispatch service to better inform the drivers where orders are, and are not being answered.

    Problems on highways can be efficiently dispatched to all drivers, serving customers as well.

    Creates possibility of safety systems using silent alarms with location confirmed by GPS.

    City Regulators

    This service would be a gold mine as a source of information on the effectiveness of the taxi industry in the city. Mandated reports could easily be generated on the number of orders, problem areas for pick ups, analysis of distribution, and so forth.

    It would also allow for the locating and communication with any taxi in the area.

    Logging on to the system could require driver identification, which would also mean that some potential abuses could be averted (multiple sequential shift driving).

    GPS system could record events such as accidents reported, and provide some details about taxi: speed, route approaching scene, etc.

    Passengers

    For visitors, the access to the entire registered fleet in Cleveland would require knowing only one number.

    Hotels would alert all taxis of passengers waiting, instead of one company (which may, or may not have taxis locally).

    The dispatch service could give reasonable information as to available taxis in any area (GPS).

    Lost items could be located by use of recorded movements by the GPS system. Time and location of drop off, or pick up, would be sufficient to locate and identify taxi involved.

    There is going to be a hew and cry about loss of control, but the taxi-leasing companies have gone to great lengths to deny control over "independent contractor" drivers. Further, the history of the past twenty years has demonstrated the inability of the leasing companies from maintaining high standards in this area. For a mid-west city, the radio dispatch service is fundamental for a healthy taxi market. A market that must be balanced between the grocery and the airport run, in order to remain viable. Strengthening this vital area allows for the flexibility of re-deployment to the other areas. It further allows for a dissemination of information to companies, drivers, City, and the interested public as to what the market actually is.

    The added bonus is that while it opens up the market for acquiring a taxi, it also allows for greater competition at the leasing level. Smaller associations, or individual owner-operators, can effectively service the radio market, which means that companies must compete for drivers who might more easily "go it alone." Are the leases out of line? Do the companies offer services that are advantageous to the driver? If the taxi companies are more leasing companies than passenger service companies, then the structure of the industry should reflect this reality. The failure of the taxi market in Cleveland since the onset of leasing demands a response by the City, this is potentially a strong and logical response. While the particulars of such a system would require further study, the existing technology, logic, and past failure suggests a hard look. The obvious cost and time involved in this proposal seems daunting, but I believe that if the idea were pursued the City could find the financing to help bridge the up front cost to implement the system (Port Authority?).

    The other aspect of this systematic change would be to add a player whose profitability would depend on servicing the passenger. Do we need more taxis? Is there an area not being served? Contrary to the recent past performance of the taxi-leasing companies, these would be vital questions to the dispatching service in terms of growth (more taxis paying a fee). A further inducement to performance might be had by presenting a dual method of payment to the dispatch service provider. Perhaps a base cost for the driver and a percentage of trip-fare cost levied against the driver could be implemented. Then any driver registered in Cleveland would pay some of the cost (as an opportunity cost), while actual gain from using the service would also be covered. The dispatch service would thereby be encouraged to work to fill orders and connect passengers to drivers in order to increase revenues. This system would help reconnect the frayed loop between the driver and the passenger.

    Require the use of separate channels for contract business and the normal passenger business, with particular standards for call answering and dispatching over the radio.

    This must be done to lessen the "conflict of interest" that arises out of a company’s "personal" business. There is at least an ethical violation of the licensing as a taxicab dispatch, to favor the company’s own contract orders to the dispatching of orders for the general public. This has been a routine occurrence with all of the companies. The further recommendation that some sort of standards be met to answer the orders, or dispatch said orders in a specified time, is merely the extension of the reasoning that the City requires a radio in the first place.

    Bureau of Taxicab Regulation & Chief.

    This office and its chief was called for by the legislation enacted in 1978. Perhaps it was found not to be needed as the company was seen as "taking care of its own." With the entry of new taxi companies (3 rather than one), and the hoped for increase in competition of more entries, it seems necessary for the City to have a dedicated officer to oversee the industry. I have made some note of the poor results of the City’s past performance in this area. The Commissioner of License and Assessments simply does not have the time to adequately oversee this market. Seattle’s "Peer Review" of its taxi industry disparaged the single full-time employee to regulate the industry, Cleveland has less than that. The ordinance is on the books85, it is time to hire a Chief of the Taxi Bureau. Not only for the day-to-day business of tracking and overseeing the industry, but to address the issues such as we are facing today. The current position of decline in radio service and driver standards might have been ameliorated if the City had had a more attentive eye on the subject, one that such an officer might now provide.

    To pay for this actualization I propose raising the annual fees on hack licenses (cars) and drivers licenses. The taxicab license is currently renewed at $55 per year. I propose that this be raised to at least $250. The drivers license is renewed at $3. I suggest that this be raised to at least $15 (some have suggested $50). These two changes would raise approximately $100,000. This, in combination with airport taxes mentioned later, would raise more than $250,000 for suggested changes. The increase on the drivers license is modest. The cost to the companies is not out of line with other cities, here in Ohio, or across the country.86 It is also offset by the elimination of the costs of hiring an airport starter by the companies, if that is also enacted.

    Establish a review board of taxi regulations and service concerns, with an emphasis on the "using public.."

    This committee should be made up of concerned citizen groups: business, convention & hospitality, neighborhood, elderly, etc. Perhaps meeting annually to reflect on the effectiveness of changes in the industry or to note problems arising. While being an advisory group, the Commissioner of License and Assessments would be required to respond to the group’s concerns and suggested changes. This would help to avoid the past failure of addressing the falling levels of service.87

    The City should license and regulate "private car" services & limousines.

    This comes under the heading of a competing segment of the same industry. There has been a lot of confusion at hotels and other venues as to the rules and regulations. Bringing this service under the "taxi bureau" would allow for a clarity of rules and enforcement in the industry. Currently the State of Ohio licenses the livery vehicles, and the drivers. I believe that both the driver and the livery vehicles should be licensed and regulated by the City to better enable it to oversee the local market of transportation.

    The City already licenses Sightseeing vehicles and Carriage operations.88 It seems logical that the livery trade should be brought under similar scrutiny. The examples noted earlier as to the similarity of markets and potential conflicts, suggest inclusion. It also is a good reason to have a separate Bureau to coordinate the management of these regulatory responsibilities.

    I have spent little time looking into this issue, and I believe that it deserves an investigation as to its viability as it grows in importance. In other cities, such as New York, Columbus, and Chicago, it is a major element of the market place, and it is regulated. One prominent concern for taxi driver’s is the hotel stand business downtown. There has been an increasing number of drivers of livery vehicles plying the "stand" business by hanging around the hotels. This is illegal according to the ordinances of the City, but because the liveries are not formally under the regulations of the City, there is only spotty enforcement. That this industry is so integral and competitive with the taxi industry, suggests a hard look as to whether it should be similarly regulated.

    A system of fines as an initial warning, before suspensions, should be allowed to help enforce rules and conduct.

    Currently, the Commissioner of Assessments and Licenses, has only the power to punish by taxi driver suspension. This is extreme for minor offenses, yet he is left only with this tool to prod conformity with the rules. By allowing a range of fines to be levied for offenses, the City would have a greater range of weapons to combat the drivers who are slow to respond, but not totally cut off their livelihood for two weeks, or more. Remember, these are generally not a group that is well heeled, or in a position to weather a long "vacation".

    This might also be used to encourage companies to conform, without suspending their licenses (and removing taxis from the streets). Violations of conduct by companies would then allow immediate and appropriate action by the City. By having only a choice of warning or suspension the City is left toothless for all but the most severe violations. If you suspend the company you suspend the cars that a driver might lease.

    Both Chicago and Seattle have a series of penalties designated for infractions. Seattle put the exact specifications into their ordinance; while Chicago specified some offenses, and then permits the Commissioner of Consumer Affairs to specify a more detailed list.89 I believe that Cleveland should institute such a system. That is, Cleveland City Council should mandate a range of penalties for offenses by companies and drivers; and the particular classification and penalties should be read into the City Record by the Commissioner of License and Assessments.90 This would allow for changes to be made if it were discovered that adjustments were needed to better serve regulating the industry.

    The other main difference between Chicago and Seattle is the use of a point system in Seattle to "pass through" penalties to the companies or associations for the actions of its drivers. This is meant to pressure companies and associations to police their own drivers. The intent is to reduce the need for enforcement by the City. This might have some validity if the drivers are not able to transfer easily, but the elements of competition introduced above (lower association requirements, separate licensing, and protecting drivers) may come in conflict with this idea. The basic concept of having associations or companies being responsible for "paying attention" to the actions of its drivers, however, seems a worthy goal that might be aided by this concept.

    Reduce "Association" requirements for entry into market to 10 taxis.

    The exact reduction would depend on a number of circumstances surrounding this issue. There are several reasons for a minimum required number of taxis to be in an association, or company fleet. The City might find it easier to have a single point to contact a driver, or from which to collect information. In a City that recognizes the need to cover a radio market, there is a need to have some viable minimum number to meet the demand for taxis on the road to answer calls. If a unified dispatch service is in place, much of these needs can be met without an association. However, without such a service these issues are real concerns. Seattle recently required its independent owner-operators to form associations with a minimum of 15 taxis91, to make it easier to regulate the industry. They had had a very open system that required no association which had resulted in 207 "taxi companies", of which only seven had more than one taxi.92 Trying to find the lone taxi driver proved daunting.

    The need for associations as a responsible contact point for regulation and record keeping purposes, as well as a vehicle for distribution of radio calls seems reasonable (without unified dispatch). The number for entry is the question. The currently required 25 has not spawned any takers, contrary to the stated City Council desire at the time of its passage in 1978.93 It is worth looking at whether a lower entry figure of 10 might allow for easier entry. A further suggestion is that current technology has changed, and might allow for cell phones to be acceptable substitutes for radio dispatch. Merely allowing a lower entry level for such an organization might pressure the existing companies to compete, because once established, a driver would have an easier time meeting the other requirements of acquiring "owner-operator" status. The only significant increases in the number of taxis has been by new entries trying to acquire a market niche, this seems a reasonable way to shake up a lethargic industry.

    "Affiliation" status for independent taxi owner-operators with existing taxi companies.

    This program would allow an owner-operator to purchase radio service, passenger billing, and other services from existing taxi-leasing companies. While "flying the colors" of the company, the cab and hack license would be owned by the driver. There should be a requirement that the owner be the principle driver of the taxi, but allowance for leasing to a qualified driver, like the other "owners" would also be allowed. This would reinforce the competition at the lease level, and create an incentive to companies to clarify, and improve, the attraction of doing business with them.

    This change is one that is allowed in Chicago94, Savannah, and other cities. One company owner expressed an interest in such an arrangement, and just one would pressure other companies to consider it, in order to compete.

    Unified Starter at Cleveland Hopkins Airport.

    This seems to be a simple necessity brought on by multiple taxi companies. The main purpose of having a starter is to match an arriving public with a desired taxi. Currently, there are three taxi companies ranging from 45 to 250 taxis in their fleets. It seems silly to have each required to equally staff the airport stand. Furthermore, it does not make sense if another company arrives to require it to staff as well. The point is serving public needs at the airport. The currently atomized starter structure leaves the starter of one company unable to enforce order on another company’s taxi driver. It leaves the City with a difficulty in regulating the relationship of starters to drivers, or the standards of conduct for the employee-starter of the taxi company.

    The City should simply do away with company starters and substitute either City employees (Taxi and Livery Bureau), or contract-out the service to another, independent company. Clear regulations could be enacted, with clear authority over the drivers conduct that would span all companies, and/or associations.

    To pay for this service the City could simply tax the taxi passenger an amount sufficient to pay for the service. I believe $1.00 per taxi ride would generate more than $150,000 per year to pay for this service. The mechanism would simply be an entering charge of $1.00 per taxi entering the airport queue, followed by the driver levying a tax on the passenger to recoup the amount.95 This would have the egalitarian effect of reducing the burden of small companies participation at the airport, as well as further lowering the "entry bar" for new companies, or associations.

    The other bonus of this system at the airport would be cooperation among starters, with a consequent lessening of the complaint that one company’s starters favors its own drivers. It may not solve all the problems at the airport, but it would make it possible to address such problems from a "team" concept. One that is aimed at the passenger customer, not at a particular taxi company. It would allow for the starters using radios to discreetly, but accurately, call for taxis at any gate that passengers need assistance. Such service improvements would be possible under a unified system that aimed at service to the customer, rather than the present system of company divisiveness.

    Create new stands at needed venues and review current "rush hour" stands.

    The need for these actions would be lessened in a "unified dispatch" system. However, the present system has left a lot of people, particularly visitors, at a loss as to where to catch a taxi. Two of the taxi companies use physical "stands" to order their taxis for a number of areas. Using the stand at University Circle, at the Wade Oval, could provide a venue-oriented location to find a taxi, and to disperse taxis to nearby locations. This stand would have to be preserved for the taxis though, currently it is taken over anytime school busses are present at the Art Museum.

    In areas downtown there is a need for a stand in Playhouse Square, or at the Wyndham Hotel. There is also a need to go over the stands that are eliminated during rush hour. The list earlier in the report indicated a shortage of stands that were permitted during rush hour. If the current signs were enforced fully, there would be only about 17 taxis allowed on downtown stands during the 4- 6:30pm rush hour. Either they have to leave, or they would join the rush hour traffic jam. Many of the forbidden stands (Sheraton, Erieview on 12th Street, etc.) seem to reflect some past traffic history, not the current realities.

    This concern does not necessarily need any legislation, though some sort of annual review might be helpful in focusing attention. A mandated review of the need of a taxi stand for any new hotel, or similar venue, might be useful to keep imbalances from occurring in the future.

    Publicize and Communicate.

    Publicize stands, Tips for using a taxi, and telephone number.

    Publicly note good service in the taxi industry.

    Communicate and try to include industry with upcoming events.

    The CVB and the City can add to the ease of finding a taxi by just doing more to publicize their stand locations and telephone numbers. Communicating with the public, through signs and brochures about cost and availability would help. This addresses the service issue by simply allowing the customer to understand the access points.

    Rewarding drivers and companies for service related performance would encourage desired performances to obtain the free publicity, or use the award in advertising. The taxi driver tends to feel ignored, it would help to reverse that. This could strike at all levels of desired improvements: service, driver professionalism, and vehicle quality.

    Working with the industry to better serve events in the City will combat the atomization caused by leasing. The problem is: who do you talk to? The company seems a logical place to start, but that really is not the provider. The taxi drivers have no "affiliation" or "association" of drivers to sit down with either. Working with the City to develop a solid training program, including the hospitality and service aspects, which would be mandatory for taxi drivers would help. Tying such a program into the above incentives would aid in providing improved service for visitors.

    It would also help to keep in mind that the indiscriminate use of busses to service conventions weakens the taxi industry in a similar fashion as the illegal jitney or livery vehicle. The drivers resent the overuse of the busses, and feel cheated out of the visitor/destination business, and by the CVB itself. Repairing this line of communication will require sincere effort, and would be cost effective for those planning conventions, or large meetings here.

    Separate licensing of drivers from the taxi companies.

    This covers a wide area of actions by the city to effect changes on the driver. I have gone through two programs of training (Ace & Yellow). Neither covered the requirements set out by the City ordinances in full. I have witnessed drivers being put on the road with virtually no training as to map reading, ordinances, or even the most basic instructions as to procedures. The City requires no testing results beyond physicals, in order to be a taxi driver. It is not surprising that we have drivers unable to find streets and addresses. The City should require a test be administered to every driver applying for a license that includes: geography of the City, important venues and buildings, ordinances effecting his occupation, and conduct expected.

    The licensing itself should only be done directly with the City. Applications to lease from the companies should occur only after the license is obtained.96 Licensed taxi drivers should have the option of leasing from any company where taxis are available. Currently drivers are licensed with the taxi company name on it, thereby disallowing a driver from working for anybody else at the same time. Either the driver is an independent contractor, or he is not. This policy by the city makes it hard to see how IRS would find anything else but an employee status. Further, this would help bring competition in at the leasing level by making it easier to leave the crowded room at one company if a taxi was available elsewhere.

    The purpose of these changes is to upgrade the professionalism of the taxi driver. By providing standards that must be tested out, separate licensing, and portability of taxi license, the City would be raising the driver up from under the company, yet assuring the public that the driver had certain minimum abilities. It would take additional effort and expense by the City, but the companies have demonstrated that they are not willing, or able, to fulfill this role properly. Testing and training has been the subject of fees in other cities, so there is the reasonable probability that the financial problems could be surmounted.97

    Protect drivers from being refused leases for reasons of discrimination, or for calling attention to company violations of municipal, state, or federal laws.

    This is needed to help create a more professional driver. Part of the problem of the Cleveland taxi industry is the imbalance of power ceded to the companies and the position that this left the driver in. Knowing that something is wrong, but being unable to voice opposition because of fear of losing the means to ply his or her trade, has left the driver in a position of weakness towards being a source of correcting the ills of the industry. Granting protection at this level will help build up the driver as an active participant.

    Require annual mechanical certification for vehicles by approved independent garages

    This is to assure better enforcement of the City’s own ordinances. As pointed out earlier, the ordinances require a five year limit on the age of taxis, but also an annual certification of the safety of the taxis after the two years. The semi-annual meter check does not include a mechanical and safety check, except at a cursory level. There are a lot of taxis with several hundred thousand miles I would simply not drive. An independent, certified garage, okaying the taxis annually would force companies to keep up with maintenance.98

    The City could raise some money here by putting up this certification for contract bids. The fees paid by the vehicle owners could also be taxed by the City.

    Institute inspections for interior and exterior of taxis: with clear standards and penalties for both drivers and companies.

    It should be the responsibility of the driver to make sure the taxi is clean. It should also be reflected back on the company in some sort of fine for a large number of violations by its drivers (who would be fined initially). These inspections should be randomly done by the Taxicab Bureau, not just when we have special events.99

     

    Chapter 5:
    Concluding Remarks on Future of the Cleveland Taxi Industry

    Some might believe that the changes proposed represent an unwarranted intrusion of government in business. As noted in the introduction, I believe that the taxi industry is a reasonable area for certain types of regulation. More, I believe that the structural changes introduced by leasing mandate additional involvement.

    The changes suggested are aimed at introducing a competitive element at the service level, and at the lease level. The reasoning for the latter is that this promotes innovation and attracts a more enterprising spirit to the industry. The current disengaged companies and City regulators have brought the taxi industry to the brink of chaos.

    The independent-contractor driver by himself is unable to innovate, beyond "creaming" the market, which is destructive to the industry. There is an increasing sense of lawlessness, as known rules are simply ignored by drivers, companies, and the City.100 All of which accentuates the downward spiral in service. The squeeze on drivers between the lease rate levels and the regulated fare has forced quality drivers out… replaced by a continuing stream of newer, less qualified drivers. This further downgrades service and professional driver standards.

    The recommendation for an independent taxi driver license, with training and testing performed directly by the City instead of through the companies, is aimed at countering some of the negatives introduced by leasing. Combining this element with suggestions to increase competition at the leasing and service levels: lowering the "association" level to 10 taxicabs, allowing "affiliations", easing the restrictions on drivers from switching from company to company, and so on, would force companies to compete in lease price, or services offered to drivers. This would encourage greater income for the drivers in the differential of fares received and lease cost, or other features (credit card usage, accounts, advertising, innovations in leasing arrangements, etc.). The point is to provide the basis of attracting quality drivers.

    The change in dispatch offered by a unified dispatch is a larger leap, and demands more study, but opens the door to a great deal more innovations (e.g. single owner-operators) with accountability and enforcement enhancements. This is aimed primarily at the service and market information areas. A successful taxicab industry structure should be one that promotes innovation and adaptability in servicing the public as the final measure of success. The main criticisms of this report have been of the non-performance of the City regulators, the failure of the leasing industry structure, and the resulting atomization of the service provider (driver). The suggestions of this report are meant to attack these failings.

    What if we do nothing? I do not like to predict the future, but the trends of service decline are likely to continue. Without providing for a service competitive environment, the taxi-leasing companies will probably result to retrenchment, or abandonment of the industry. This will further amplify the growing split between rich and poor (livery and illegal jitney) services. The resulting reductions in service to the community will ultimately be felt by the tourist industry in fewer taxis and less qualified drivers; very possibly at a higher price as efficiencies of the re-deploying between the taxi markets is undermined. The ubiquitous presence of the taxicab to service the community at all levels is threatened, as is the health of the industries they service.

    I believe that the "big leap" to a unified dispatch would be an effective means of allowing for a truly service based taxi-leasing structure. The implementation of such a system is obviously difficult, both politically and financially. While it creates a superstructure at the top, it allows for a lot of flexibility at the ownership and leasing level. It does not disallow the networking of drivers to service particular customers (creaming), but it reduces the value by providing greater resources through the County wide dispatch and information base. While it would necessitate an increase in regulatory oversight, it returns an information flow on orders, drivers, and industry performance which enhances that oversight.

    So what happens if we enact changes short of the unified dispatch? This would leave us with a system of controls much like other cities, Chicago for instance. By encouraging competition at the lease and service levels (including radio service), we are left with an atomized service, but one which is rewarded by performance. However, such an industry structure will require a more active and committed City regulator than witnessed over the past twenty years. If, as this report has stated, the effect of leasing in a monopolistic (or oligopolistic) market leads to high leases and poor service; then the encouraging of new entrants to increase service will necessitate more "eyes" from the City to watch over the increased companies. The complexities of relationships between leasing, owner operators, associations, and affiliations will require both clear rules and clear enforcement standards.

    Is it worth the effort? This paper has detailed a failing industry. Is that a problem? Perhaps we should just allow the industry to fall to its competitors because it has outlived its usefulness. It might be argued that its failure to evolve and adjust to the market changes are simply an indication of its being inherently obsolete. I believe that I have answered that in this report by noting that the current failures are due to structural and regulatory failings which have inhibited the responsiveness of the industry.

    I personally believe that the taxi industry can be an important player in reconciling the mid-west city sprawl with concentrated regional centers and mass transit systems. As I was finishing this report, I read a book by Moshe Safdie which related transportation to the North American realities of sprawl and concentrated commerce centers.101 His solution was a "U-Car", which is a vehicle that can be rented for a trip, and left at convenient spots for the next user, reducing the need for separately owned and separately garaged personal cars. The idea was to link personal use with mass transit. The taxi is the U-Car of today. It provides a connecting service to mass transit, or door-to-door service. It subsidizes the grocery order, or medical office visit with the longer runs to the airport. It is already used by welfare agencies to transport the indigent with coupons. By concentrating on rectifying the past mistakes in regulation, the taxicab can be a meaningful part of the transportation puzzle in the region. A vibrant and competitive taxi industry can service the community in reducing auto traffic, parking requirements, and increase the use of mass transit. In so doing we can provide the basis for an industry that will service the visitors to our City and region, no matter where they will want to visit.

    The regulations promulgated in other cities recently, are more in tune to the various changes that leasing and competitors have engendered on the taxi industry. Despite differences in the urban markets, the problems faced by these other cities (Seattle and Chicago) have lessons for us in Cleveland. From Chicago the relationship between drivers and taxicab owners, taxicabs and livery vehicles, and the City and the regulated are clearly stated. From Seattle we can learn from their providing a continual check on the industry (TAG) and a more usable penalty system to encourage compliance. As long as we keep the differences of the Cleveland Market firmly in mind we can use these lessons to bring the Cleveland taxi market to a competitive and service oriented business, for the betterment of the City as a whole. While I see these lessons from other cities as valuable, I also believe that changes suggested, like the unified dispatch, are examples that we can creatively use to move to an even better level of service and regional coordination.

    Appendix A: Monopoly Price Setting

    Below is a graph that will help explain monopoly price setting. The key to understanding the dynamics are the "marginal revenue" line and where it crosses the "marginal cost". In a monopoly the production level is set by the firm producing (taxis available) at a point where marginal revenue crosses the marginal cost. In a perfectly competitive market the production is fixed at the point where marginal cost crosses the demand curve (X). The difference can be seen in the monopoly production and pricing (P** and Q**) and competitive production and pricing (P* and Q*), which is noted below in the graph. The result is higher leases and less production (fewer taxis offered to the market).

    Figure 7: Monopoly and the taxi market

    Source: Graph drawn from examples and commentary from
    "Micro Economic Theory" by Walter Nicholson, Dryden Press, 1978.

    Appendix B: Draft of suggested changes for: Ordinance 443: Taxicabs and Public Hacks.

    The following material reflects the changes proposed in this paper, and adapted to the ordinances of the City of Cleveland. The original draft copy of the ordinance was supplied by the City of Cleveland to make changes easier to make.

    Keys to document:

    Additions and/or changes are highlighted.

    Portions removed from the original Chapter are crossed out.

    Chapter 443

    TAXICABS & PUBLIC HACKS

     

    443.01.1 Jurisdiction

    The licensing and inspection of public hacks, the inspecting and selling of taximeters, the examining of applicants for a license to drive such public hacks, and the licensing of drivers, as hereinafter provided, and the enforcing of the provisions of this chapter shall be under the control of the Commissioner of Assessments and Licenses.

    443.011 Definitions

    As used in this chapter, certain terms are defined as follows:

    (a)  "Bureau Of Taxicab and Livery" and "Chief of the Bureau of Taxicab and Livery" (127.39 & 127.40 amended) means the agency and official whose purpose is to oversee the day to day taxicab regulations, and other related duties such as oversight of other public hacks. Operating under the Commissioner of Assessments and Licenses, this office’s primary duties are:

    Maintaining public hack and drivers records,

    Inspecting vehicles for compliance to this chapter,

    Overseeing CHIA public hack operations,

    Overseeing the operations of dispatch at companies and associations,

    Reviewing complaints of drivers, companies and the public,

    other duties such as the Commissioner shall proscribe.

    (b)  "Taxicab" means any public hack equipped with a taximeter, approved and inspected by the Commissioner of Assessments and Licenses.

    (c)  "Public hack" or "Hack" means any public vehicle (including taxicabs, limousines and coaches) whose owner or driver secures or accepts passengers for hire on the public streets, in public or quasi-public places, or at private residences within the City103, except carriages as defined in division (a) of Section 447.01 and vehicle operated by the Cleveland Regional Transit Authority.

    (d)  "Limousine" means an unmetered public hack: livery, sedan, extended or otherwise, that offers to transport passengers in the City for payment of any kind, except as noted above in 443.11(d).

    (e)  "Coach" means an unmetered public hack: van, mini-van, bus, or similar vehicle that offers to transport passengers in the City for payment of any kind, except as noted above in 443.11(d).

    (f)  "Taxicab Association" means a society, whether incorporated or not, organized for the purpose of benefiting a group of not less than 10 owners of taxicabs by providing for its members, dispatching services, a uniform and distinctive color scheme, and collection and maintenance of operating records.

    (g)  "Taxicab Company" means any person, partnership or corporation owning 10 or more taxicabs having a distinctive color scheme and providing dispatch service.

    (h)  "Owner" means any natural person, partnership or corporation having legal or equitable title to a public hack and includes lessors.

    (i)  "Affiliated operator" means an operator of a taxicab who, while having legal claim to a licensed taxicab, pairs