The Municipality of
Metropolitan Toronto

Metropolitan Licensing Commission

939 Eglington Avenue East, Suite 200
Toronto, Ontario M4G 4G2
Telephone: (416) 392-3000

July 8, 1996.

The Chairman and Members
Metropolitan Licensing Commission

The By-law Review Sub-Committee is pleased to submit a discussion paper which proposes a new category of owner/driver taxicab plates to be issued to persons on the Driver/Owner Waiting Lists.

Over the past several months a number of meetings of the By- law Review Sub-Committee have been devoted to discussing the subject of leasing in the taxicab industry. Although the proposed recommendations do not deal with leasing as such, this paper is a result of those discussions.

The By-law Review Sub-Committee recommends that:

  1. the discussion paper be made available to the members of the industry and the general public immediately;

  2. that two public meetings, on July 22, 1996, and August 19, 1996, be held for the purpose of hearing the views of the industry and the general public;

  3. that the Metro Legal Department b~ requested to review and comment on the proposed recommendations prior to the public meetings, if possible.

After the public meetings have been held, the By-law Review Sub-Committee will consider the comments of the industry and the general public and make such changes to the proposed recommendations as are deemed appropriate.

The amended proposed recommendations will be forwarded to the metro Licensing Commission for its consideration and approval.

(signed)

Dorothy Thomas
Chair,
By-law Review Sub-Committee

DISCUSSION PAPER

ON

TAXICAB LEASING AND RELATED ISSUES

Attached is a background paper on taxicab leasing (Appendix I). This paper sets out the current state of leasing in the cab industry in Toronto and other jurisdictions, the related issue of market entry and some previously explored options for regulating leasing.

Simply stated plate leasing is the product of a limit on the number of available plates and an unlimited supply of drivers to meet the demand for taxicab services. This is demonstrated by the fact that plate leasing does not occur in connection with any other category of vehicle licence although the conditions me the same with the exception that the number of available plates is not limited.

The first issue to be resolved when considering leasing from a regulatory point of view is to identify what public policy objective is being served by allowing leasing to continue. The position of the regulator therefore should be to do only what is necessary to ensure public policy objectives are met. The public policy objectives in relation to the taxicab industry are set out in detail in Appendix I (page 1) and may be summarized as "to provide a safe, high quality, equitable taxicab service". It follows that regulations that do not add to, or that diminish this objective should be discontinued.

Applying this principle to leasing, the regulatory question should be: Does leasing add to, have no effect on, or diminish the level of service in the taxicab industry? Before addressing this question it would be useful to review the historical reasons for allowing leasing in the taxi cab industry.

The practice of leasing was first sanctioned under the by-law in 1974 as a result of the recommendations of The Special Committee to Report on the Taxicab Industry under the chairmanship of Mayor Mel Lastman. The Committee reported that two kinds of leasing relationships existed: leasing of a licensed taxicab on a weekly, monthly or yearly basis, and leasing of a plate on a weekly, monthly or yearly basis. Both forms of leasing were prohibited by the then current by-law. The committee recommended that the by-law be amended to allow the leasing of a licensed taxicab for the following reasons:

The committee specifically recommended that plate leasing not be allowed because "he [the owner]would not be accepting any of the responsibilities rightfully imposed upon him as a taxicab owner." The committee made no direct commentary on the cause and effect of leasing on the quality of service in the industry at that time, however the following commentary may be illustrative of the committee's thoughts on the quality issue "The committee supports the concept of the taxicab industry consisting of a high percentage of individual owners, each operating his own enterprise ... There may be some truth in the generalization that the owner driver has more pride in his vehicle, his equipment, and his business and may thus tend to give the public a better service".

Fast forwarding to the present reveals that except for legalizing a practice that could not be prevented through enforcement, none of the other objectives stated in 1974 have been achieved. Plate leasing is now the rule not the exception; owners steadfastly try to pass on responsibility for the cab to the lessee as exhibited constantly in Commission hearings; and several undisputed presentations (to the by-law review committee) from owners and drivers indicate that, except in the case of owner driven independent taxis, the quality of the majority of taxicabs is poor.

Commission records indicate a growth in the number of plates leased or controlled by agents. In 1982, when statistics were first kept, approximately 33% of cabs were leased, in 1986 approximately 45 % of cabs were leased and in 1996 approximately 76% of cabs are leased.

The effects of leasing on the cab industry are as follow:

  1. Plate values increase. As set out in Appendix I, the introduction of leasing in other jurisdictions has led to an increase in plate values due to a guaranteed flow of income in the form of)ease payments. Leasing is viewed as the return on an investment in a taxi license and is directly related to the value of the plate. Usually the increased price puts the ownership of a plate beyond the reach of an average driver and leads to an increase in the number of speculative or absentee owners/buyers.

  2. A new layer of cost, the agent, is introduced in the industry. In legal terms the agent stands in the shoes of the owner. The usual principal/agent relationship is that the agent represents the owner and is compensated by the owner, However in practical terms in the taxicab industry the agent is another form of lessee. The agent rents the plate from the owner and then finds a driver who in turn leases the plate.

    Agents operate in three formats:

    1. The "cash in" format whereby the agent supplies the car and equipment and rents out the taxi on a daily basis. This occurs in a minority of cases and most closely places the agent in the position of an owner.

    2. The "package deal" whereby the agent supplies the plate and insurance and pays the brokerage fees. In this situation the lessee provides the vehicle, which, in many cases, must be purchased from the agent at an over-valued price. This occurs in a significant number of cases.

    3. The "plate lease only" format whereby the agent provides only the plate and the lessee provides the vehicle and pays the insurance and the brokerage fees. This occurs in the majority of cases.

    In the second case, the driver may feel that he can get a better deal if he could get the car and insurance on his own, however he is restricted from doing so because of the high demand for plate leases. In both the second and third cases, the driver stands to lose his investment in the vehicle since to comply with the By-law the vehicle must be placed in the plate owner's name. It has been reported and substantiated that there are cases where leases have been cancelled and the vehicles not returned to the drivers who bought them. It has also been reported that some lessees are required to pay $5000.00 up front to get a "package deal".

    3. The quality of cabs is lowered

    .

    Commission records show that the currently operating taxi fleet has aged when compared to 1982 and 1986. In 1996, 94% of taxicabs are over three model years old, compared with 61 % in 1986 and 41% in 1982. In fact in 1996, 56% of taxicabs are over six model years old.

    An argument can be made that the aging of the fleet is due to the age extension clause in the By-law that allows vehicles to be used beyond six years. While it is true that 6 (model) year old cars would not be in the taxi cab fleet if prohibited by the By-law, this does not mean that the opportunity created by the extension clause in the By-law for using older cars is the cause of the current taxicab fleet being comprised of 56% of cars older than 6 model years. The By-law clause merely permits a vehicle to remain in the fleet beyond six years, it does not require it! The real cause of the ageing, lower quality fleet is financial - specifically the high cost of leasing, Why? In practical terms, there is a limit to the amount a driver can earn. When lease fees consume a high proportion of a driver's gross earnings, vehicle replacement is deferred to the extent allowed by the By-law. In fact, it could be argued that it is in the financial interest of the plate owner/lessor to promote practices that keep operating costs low (even if these practices are counter to the objectives of the Commission) as this permits lease prices to make up a higher portion of a driver's operating costs. Current lobbying in the industry to permit five year old vehicles to be used as first time taxicabs may be seen as evidence to support this argument. 1t should be noted also, that lease income represents net income to the owner/lessor as there are little or no operating costs attached to a "plate onlylease".

    In the final analysis there is no incentive for the driver, lessor or owner to have vehicles replaced since this may lead to a decline in lease fees for the owner or a decline in net income for the driver. Consequently, there is a decline in the quality of vehicles used as taxicabs.

    A second way in which plate leasing contributes to a decline in the quality of taxicabs, is the creation of the middle-man or "agent". Money diverted from the lessee to the agent is money diverted away from investment in equipment and maintenance. More importantly, the owner is now two levels removed from service delivery and by default abrogates his responsibility to put a quality product on the market.

    As previously stated, the By-law sub-committee has heard undisputed deputations that the quality of taxicabs is poor except in the case of owner driven independents. These independents also operate an ageing fleet yet they have managed to maintain a better quality of taxicab. Independents retain a larger portion of their earnings than drivers because they have lower operating expenses in the form of cheaper insurance, no brokerage fees and no lease costs. In theory this cost advantage is offset by the fact that independents are not radio dispatched. This means that they have to wait at stands or cruise - both fairly inefficient methods of getting business. In fairness it should stated that while independents offer a higher quality service, it is often only available during prime hours and in good weather.

Who pays for leasing? Ultimately the public pays - directly through the meter since one of the indicators for a fare increase is lease costs and indirectly through the quality of service it receives.

In the long term, leasing is also detrimental to the financial well being of the industry. Increasing lease prices result in either increased meter rates or poorer quality and potentially unsafe cabs. Both these conditions are bad for business. Increased rates close the gap between livery and taxicabs and given the choice and if the deferential is small enough the higher quality Livery service will be chosen.

This point was underscored by representatives of the hospitality industry who informed Commission staff that when requested guests are directed to livery vehicles due to the poor quality/service of taxicabs. Hoteliers claim they frequently have to offer guests a free night or other complementary service as a result of poor cab service. Increased rates also make public transit more attractive - the public will put up with greater inconvenience if the differential in cost is large enough.

The taxi industry's response to the above issues is to lobby the Commission to impose an artificially large deferential between taxi and livery rates and to adopt the position that people who use public transit will not use cabs as an alternative. This response does not address the issue of the quality of cabs or explore the potential to co-ordinate/integrate with public transit.

Summary

Based on the deputations heard by the sub-committee, the experience of the Commission, the experience of other jurisdictions, and an examination of Metro Council's direction in regards to leasing, the following observations can be made:

  1. The practice of plate leasing that is the norm in the taxi industry is contrary to the objectives set out in Mayor Lastman's 1974 report and approved by Council, and more recently as set out in the Commission's strategic directions also approved by Council.

  2. Owner operated cabs offer higher quality service with lower regulatory costs.

  3. Lessors and agents are in the leasing business not the taxicab business. Basically they lease a plate. The quality or type of service provided has no direct financial impact on the lessor and therefore are not of concern.

  4. Leasing has contributed to a deterioration in the quality of vehicles.

  5. Lessees bear the brunt of the risk in the industry - they provide the car and equipment and pay the operating expenses. Deputants indicate that these costs can be up to $28,000 per year, not including gasoline. In addition, the lessees take the physical risks, work excessive hours (some drivers indicate up to seventeen hours per day) and have no long term guarantees as leases can be cancelled on 7 days notice. Owners on the other hand, have virtually a lifetime guarantee of plate ownership with a current equity value of $70,000, yielding an annual return of about 13%. This return on investment historically has been about 5% above long term bond rates.

  6. Regulatory action in the past has resulted in giving value to plates, with some expectation that this value will be maintained. The question is, of course, does the Commission have a moral obligation to protect some minimum plate value and if so, what should that value be.

  7. The Commission has the right to regulate a "fair fee" for a lease (By Law 20-85, schedule 8, sec. 39 (3 (e))), however, enforcement would be extremely difficult.

Conclusion

The Commission has heard evidence at hearings and deputations to the By-law sub committee that directly links the high cost of leasing to a lowering in the standards of maintenance and replacement of vehicles. In addition, the claim by some drivers that they work excessive hours raises questions about potential safety and poor customer relations due to stress. In conclusion, it appears that leasing diminishes the quality of the taxi-cab industry as measured by the quality of vehicle and of service provided. This is contrary to the stated objectives of Metro Council and the Commission. In addition the current leasing arrangements, in terms of costs and rewards, does not appear to be an equitable sharing of risks and benefits by all parties. Again, this is contrary to the Commission's (and by extension Council's) objectives,

Based on the premise that regulations that do not achieve regulatory objectives should be removed it would be logical to conclude that leasing should be prohibited, However, past experience has demonstrated that leasing cannot be regulated out of the industry given the existing market conditions for plates. The solution, therefore, is not to directly regulate the price of leases but to modify or eliminate the conditions that lead to high priced leasing. Given that plate leasing is a product of the regulator restricting the number of licenses, it follows that, the only viable option available to modify the effects of plate leasing i.e. the quality of service and vehicles, is to increase the number of plates available and to control the conditions under which these plates can be operated.

Recommendations

Based on the above conclusions the following is recommended:

  1. That the Commission announce its intention to issue a new category of owner driven taxi-cab plates to be issued to drivers/owners on the waiting lists, on a 90;10 basis'. The following conditions are to be attached to these plates.

    1. The plate owner must drive the cab for five shifts every seven days for a minimum of forty-eight weeks a year.

    2. The plate owner must provide a car of the current model year at the time when the plate is issued.

    3. The plate owner shall be subject to all the provisions of the By-law.

    4. The plate owner must provide a high quality of service.

    5. The plate is non-transferable.

  2. That the conditions of the licence shall be subject to review in the fifth year at which time, if it is demonstrated that the licensee has provided a good quality service (complaints, mechanical failures, complements will be taken into account), the license will be allowed to continue.

  3. That initially three hundred plates be issued and the Commission state its intention to keep issuing such plates until the market price for leases allows an acceptable quality of service and the Commissions other objectives as stated in the Strategic Directions, are met.

  4. That the annual license fee should convert to an operating expense of approximately $400 per month.

    A $400 per month fee has been proposed as this level of fee is sufficiently low to be competitive with current lease fees even after factoring in the cost of providing a new vehicle and it signals what the Commission feels to be a "fair" lease fee that would allow for investment in equipment yet is sufficiently high to maintain some value for existing plates. (See Appendix III)

  5. That the Commission should establish a fund to buy back existing plates, to be funded by any surplus after expenses (in taxi cab categories only) generated by revenue from the conditional plate fees. This action would help to maintain a value for existing plates.

  6. That the vehicle age extension clause in the By-law be removed so that taxicabs over six model years should be replaced.

  7. That the By-law be amended to require the greater of 60 days notice or a time equivalent to the payment terms of the lease for the cancellation of a lease. This should be done immediately.

  8. The Commission should take advantage of the provisions of Bill 26 and create a new category of licence for agents, licensing them as agents and not as drivers.

    This is in keeping with the recommendations of the Lastman report and would allow the Commission to tailor its regulations to fit the activities of agents, rather than to fit the regulations intended for drivers to agents. For example, the Commission may require agents to be knowledgeable of the workings of the industry and examine them in this area.

Advantage:

Regulating to achieve the public policy objectives of the Commission through the above recommendations has the following advantages.

  1. The regulator is able to focus its resources on public safety and welfare issues. Owners will be left to run their business as they see fit. For instance, If owners want to use agents or any other innovative management or marketing techniques they should be allowed to do so, provided there is no negative impact on regulatory objectives.

  2. The Commission's primary goal of providing a good quality safe industry to the public is accomplished, with minimal intervention in the market place. Research has indicated that in some cases the regulator stating its intent to increase the supply of plates is enough to bring about the desired effect of improving service through lowering lease costs.

  3. While plate values will be affected (should reduce in value), some value will still be attached to existing plates. In theory, a graduated approach to conditional plate issuing should allow for an orderly adjustment in the market place.

---------------------------------

1. The commission at its meeting held 30th May, 1996 approved a motion to re-open the issue on the issuance of plates and a motion to refer motions 4 and 6 of the annual taxi review to the By-law sub committee. Recommendation 1 above partly addresses these issues. A copy of the relevant minutes are attached as Appendix II.

---------------------------------


Appendix I

BACKGROUND PAPER ON LEASING

Evelyn Simpson
Policy and Research Analyst
Metropolitan Licensing Commission
June 20, 1996

CONTENTS

RATIONALE FOR REVISING TAXICAB LEASING BY-LAW REGULATIONS

CURRENT INDUSTRY CONDITIONS: LEASING
     State of the Industry
     Leasing: Union Concerns
     Leasing: Owners' and Brokers' Concerns

LEASING, OWNERSHIP AND FRANCHISING COMPARISONS
     Leasing Comparisons: New York
     Leasing Comparisons: Pittsburgh
     Leasing Comparisons: Ottawa
     Leasing Comparisons: Orlando
     Vehicle Ownership: Miami
     Franchise Approach: Los Angeles
     Buy-Back Plan: Montreal
          Impact
     Open Entry: London, England

POLICY OPTIONS
     Regulating Lease Prices and Arrangements
     Restrict Number of Licences Individuals Can Own or Control
     Restrict Number of Individuals Controlling, Managing or Operating One Vehicle
     Eliminate Leasing
     Allow Lessee to Own Vehicle
     Modified Entry Restrictions
     Purpose of Entry Restrictions
          Historic Origins
          Goals of Entry Restriction Regulations
          Effects of Regulatory Reform
          Radio-Dispatched Market Sector
          Cab Stand/Cruising Sector
          Summary
          Impact on Plate Holders
     Modified Entry Restrictions: Increasing owner/driver plate holders
     Modified Entry Restrictions: Licences Leased out by the MLC
     Modified Entry Restrictions: Licences Leased out by the MLC - Fitness for Service Entry Control
     Modified Entry Restrictions: Licences Leased out by the MLC - Lease to Own
     Modified Entry Restrictions: Licences Leased out by the MLC - Buy out licences, and reissue in greater numbers
     Modified Entry Restrictions: Licences Leased out by the MLC- Use first-time fees instead of limiting licences
     Auction
     Franchising

APPENDIX ONE

APPENDIX THREE
     Phoenix
     Atlanta
     Indianapolis
     San Diego
     Seattle

APPENDIX FOUR

BIBLIOGRAPHY

RATIONALE FOR REVISING TAXICAB LEASING BY-LAW REGULATIONS

The MLC is addressing the issue of leasing in order to ensure that its By-laws meet community needs and fulfill the MLC objectives, i.e.,


CURRENT INDUSTRY CONDITIONS: LEASING

This section examines the extent of leasing within the taxicab industry of the Municipality of Metropolitan Toronto and describes the concerns expressed by industry and union representatives.

Currently, more than two-thirds of the issued 3,400 taxicab owner's licences are leased or managed by a designated agent at average monthly fees of $774.00 and $632.00, respectively. The tables below indicate the allocation of plates, and the average lessee and agent fees. Where a plate has both a designated agent (DA) and a lessee, the lessee pays the DA and the DA subtracts his payment from the money provided to the owner. For example, where the average lease fee is $774.07 and the DA fee is $631.57, the lessee is paying $774.07 to the DA. In turn, the DA is paying $631.57 to the owner, and the DA is receiving, on average, $142.50 a month.

				Plate Allocation 31/01/96

			Designated 	Lease Fee 	Designated 	No
			Agent and 	only 		Agent Fee 	Designated
			Lease Fee 			only 		Agent or
									Lease Fee

All Taxicabs (3410)      1134            685              789            802
Street (272)               49             75               52             96
ICOA (216)                  0              0                0            216

                          Average Rates Filed (31/01/96)
                            ($400.00 < fees < $1,500)

		   Designated Agent	    Lease Fee 	  Designated
                    and Lease Fee             only      Agent Fee only

                  DA fee   Lease fee        Lease fee       DA fee

All Taxicabs    $631.57     $774.29          $746.29       $637.14
(average rate)
(minimum rate)  $460.00     $435.00          $450.00       $425.00
(maximum rate) $1200.00    $1470.00         $1430.00      $1400.00

Source: MLC statistics, 31/01/1996.

State of the Industry

Current data shows that owners are making a significant rate of return on their investment. Plate prices have risen by 42% from 1993 to 1995. Rate of return for a lease rate of $746.29 on a plate valued at $70,632 is 13% per annum (see Appendix One for details). While owners appear to be making a significant return on lease fees and the appreciation of the value of taxicab owner's licences, drivers are complaining of low wages. Drivers are working long hours and driving aggressively to earn a living. Bo th drivers and owners complain of a lack of customers. Livery cabs, out-of-town bandit cabs, private cars and buses are seen as threats to their livelihood.

In addition, the condition of cabs has been criticized. The MLC has heard evidence at hearings that vehicle maintenance has been compromised to cut expenses. The exception appears to be independently owner-operated cabs which are generally maintained in good condition and provide reasonable incomes for the operators. The table below, Vehicle Inspection Failure Rates for 1996, shows that owner operated vehicles have lower inspection failure rates than vehicles with operated through leases or designated agents.

                     Vehicle Inspection Failure Rates for 1996

              Vehicle Inspection (1)             Vehicle Inspection (2)

Vehicle       Failed   Failed   Total        Failed    Failed    Total
Operation     First    Second   Checked      First     Second    Checked
              Check    Check                 Check     Check
              #    %   #    %                #     %   #     %

owner        175  23   17   2    744         69    9   6     1     751
operated

designated   252  33   51   7    756        127   17  26     3     754
agent

lease only   227  36   39   6    631        133   21  22     3     631

designated   484  37  110   8   1315        325   25  66     5    1313
agent and
lease

source: MLC Statistics (June 19, l 996)

Leasing: Union Concerns

At the May 6, 1996 meeting of the By-law Review Committee, union representatives expressed concerns over the current lease prices. The union believes that current lease rates are too high and the price is influenced by the supply and demand for plates and drivers. The current excess supply of drivers relative to plates - the ratio of active drivers to plates is 3:1'- has driven up the price drivers are willing to pay for a lease. The union claims that the ability of owners to demand higher lease prices is reinforced by the inadequate notice of termination of lease agreements that lessors are required to provide under the By-law. According to the union, drivers are willing to pay high lease fees and will work long hours and drive aggressively to compete for fares to cover lease expenses.

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1 As of December 1995, there were 10,553 driver's licences issued, 3,400 owner's licences issued and 1,012 owner-operated cabs. If all drivers are active, then the ratio of drivers to plates for lease is 9,541 drivers: 2,388 plates or 4:1. However, assuming vehicles operate on two shifts per 24 hours, the ratio becomes 2: l. Assuming 70% of all licensed drivers are active, then the ratio is 1.5: l. [6,679 (.7 x 9541): 2,388 plates = 3:1, or assuming two shifts per 24 hours = 1.5:1]

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Leasing: Owners' and Brokers' Concerns

At the May 6, 1996, meeting of the By-law Review Committee, the Taxicab Alliance claimed that lease prices are at the same level as they were in 1985, in the area of $800.00 per month. The fees charged by Designated Agents and Lessors reflect the cost of the services provided. Owners also claim that the price of leases and plates should be dictated by the market place and that the MLC has no role in interfering in this market. Owners at the meeting expressed concern that not all drivers act responsibly.

LEASING, OWNERSHIP AND FRANCHISING COMPARISONS

This section describes the regulations governing leasing, vehicle ownership and franchising in other jurisdictions and are presented as comparisons to the regulations used in the Municipality of Metropolitan Toronto.

Leasing Comparisons: New York

New York issues two types of medallions, one which can be owned only by a licensed cab driver, who must be the primary driver on the car, and the other, referred to as a "fleet medallion", which can be owned by anyone, &om an investor to a large fleet to a small taxi garage. According to a recent New York Times article, there are approximately 3,000 drivers who own and insure their own cabs but lease the medallions &om someone else. 1,154 cabs, or roughly 10 percent of the city's 11,787 cabs, are driven by owner-drivers who own both the car and the medallion. Owner-drivers can lease their cabs and medallions to other drivers for up to 12 hours of each day, but many do not because of the wear it puts on the car (Perez-Pena 1).

Difficulties associated with leasing, similar to those found in Metro Toronto, have been recognized in New York City. The 1993 Taxicab Fact Book reported that taxi owner-drivers provide the most trouble-free service, as shown by rates of summons issuance, a finding that validates the New York City Taxi and Limousine Commission's policy to increase thenumber of cabs that must be owner-driven.

The Commission first allowed leasing in 1979, in response to pressure from fleet owners. Before 1979, drivers and owners checked the meter at the end of the shift and split the proceeds approximately in half. Once leasing was introduced, driver turnover increased substantially. Driver turnover is now at forty percent.

These leasing arrangements resulted in a system where owners no longer bear much responsibility for drivers. Management gets an up-front fee for every shift. The drivers take the risks. With an $80-90 shift fee plus $20 for gas, a driver must make at least $100 per shift to break even, which may be many hours into a shift.

Leasing helped medallion prices soar, because it guaranteed a constant, predictable revenue stream. Under the leasing system, it appears that rate increases can reward owners while sometimes penalizing the driver: by raising the value of a medallion, rate increases contribute to an owner's equity and allow him to collect higher daily lease rates. The lease increases represent as much as half of the driver's extra earnings, and drivers claim that most of the potential earning increase is lost to depressed ridership (Fragin 31-34).

More recently, New York City has begun auctioning plates. Over the next two years, 400 will be auctioned to help close a city budget deficit. This is the first issue of medallions since 1937. On May 10, 1996, 53 owner-driver and 80 fleet medallions were auctioned. Prices bid exceeded market historic highs. A year ago the going rate for an owner-driver medallion was $170,000 and $210,000 for a fleet medallion. In May 1996, the winning bids for owner-driver medallion were $170,000 to $177,000 and $210,000 to $221,000 for fleet medallions (Perez-Pena 1).

Leasing Comparisons: Pittsburgh

Pittsburgh allows leasing. Although the regulations are slightly different from those in Metro Toronto, similar issues arise. They have experienced problems with leasing, such as the certificate holders wanting to shift responsibility to the drivers, and poor vehicle quality and service.

Within Pittsburg all cabs operste through dispatch companies. The largest dispatch company, Yellow Cab, operates more than three hundred vehicles, most of which are leased. The terms of leases are set out by certificate holders (owners): the Commission does not exercise control over the terms of these lease agreements. Under the regulations, certificate holders may lease out their vehicles but are held responsible for the operation of the vehicle, including the insurance. Vehicle ownership must be registered under the owner's name, although a driver can be a secondary name on the registration. Pittsburgh, through enforcement, has been able to hold certificate holders responsible for their vehicles and ensure that they are in control of their cabs (Mahan).

Leasing Comparisons: Ottawa

The regulations for the City of Ottawa allow for the leasing of a vehicle but not an owner's licence. The provisions governing this are attached at Appendix Two.

Leasing Comparisons: Orlando

Third party leasing is prohibited in Orlando. Permit holders are required to be in the taxi business and operate the permit. Taxi permits cannot be sold, or transferred. They belong to the City and are issued to companies that operate in accordance with standards.

Vehicle Ownership: Miami

Miami allows lessee-drivers to own vehicles. However, the city is in the process of changing this to require that permit holders (owners) own the vehicles. Within Miami there are currently 1,827 taxicabs. All are required to operate through management companies and most vehicles are part of a fleet. Very few cabs are operated by the permit holders. Under current regulations, the permit holder does not have to own the vehicle. The vehicle can be owned by the permit holder or a driver. However, vehicle insurance must be under the name of the permit holder and the driver(s) of the vehicle. If a vehicle is part of a fleet, a number of drivers are listed on the insurance.

Miami is proposing changes to this vehicle ownership policy to make permit holders more responsible, reduce the number of absentee owners and increase the number of owner-operators. Future permits will be issued only to permit holder-operators. (Oxenhandler)

Franchise Approach: Los Angeles

The majority of taxis in the City of Los Angeles are regulated by a franchise system. The remainder operate under permits. Franchise operators bid to gain permits to provide service in designated service areas. The Department of Transportation regulates cab companies according to rules established by the Board of Transportation Commissioners and ordinances enacted by the City Council. In general, this system works well. For the last re-franchising in 1994, all of the nine franchises had at least satisfactory records and were recommended to the City Council for renewal.

There are some ongoing issues that have arisen recently, i.e., the length of the franchise agreement, vehicle testing standards, illegal cabs and burdensome regulations. Re-franchising occurs every five years to provide the city with a mechanism to keep operators who offer good service while eliminating poor operators. However, operators believe this time period is too short to provide an incentive to invest in quality service. The short renewal term places them in a precarious position when they apply for financing to upgrade their fleets and dispatching systems. The operators recommended ten years as an alternative.

Monthly franchise/operating permit fees were $64 per month per taxi. Under the regulations, fees increase if cabs do not meet quality of service and response time standards. However, this was not enforced because of problems with proving the statistical validity of the tests used.

In response to a large number of illegal cabs, which usually aren't insured and do not meet service standards, the Board examined the option of creating franchises for small fleets servicing ethnic communities. This would be accomplished by adding language diversity as a criteria of "public convenience and necessity" and used as a basis for granting franchises.

One of the unique features of the taxi industry in Los Angeles is that most workers are part owners of their firm. Drivers own their cabs or own shares in the companies. Originally, this arose as a result of rules aimed at preventing the problems associated with leasing. Specifically, the rules were that owner-drivers may not own more than one cab, owner-drivers must drive their cabs at least 40 hours per week, and drivers must go through a two-year lease apprenticeship before they may own.

The Board changed these rules to encourage career drivers. The Board voted to allow drivers to own up to two cabs at companies without special fleet management, and to eliminate the 40-hour rule.

The industry complains of overly burdensome regulations. As a result, e taxi committee reviewed the rules with a view to retreating from overly prescriptive or burdensome rules, while concentrating on providing incentives for quality service (Snyder 104-109).

Buy-Back Plan: Montreal

Since 1973, the Quebec provincial government has held responsibility for taxi transportation throughout the province, including the management of supply, rates, fees, licences and boundaries. Regional governments have the authority to pass regulations regarding quality of service and the certification of drivers. In Montreal, some of the inspections and complaints are handled at the regional level.

Quebec has had a history of freezing the number of plates. The latest freeze to affect Montreal was implemented in 1979. Subsequent to this freeze, in 1984, a taxi permit buy-back plan was implemented. Between 1985 and 1990, the number of permits was reduced from 5,222 to 3,991. This redemption plan was aimed at reducing the number of licences operated in the Montreal conurbation and increasing the productivity and profitability of the taxi industry without diminishing the quality of the service provided.

A trustee was appointed to mange the plan. The trustee redeemed the permits offered on a voluntary basis at their market value. This was set at 510,000 initially, and adjusted to $18,000 in June 1987, then to $30,000 in April 1990. The trustee also collected the annual dues payable by permit holders, and the transfer duties payable by those who bought permits from third parties. The transfer duty, $10,000 at the outset, was increased to $20,000 in April 1987.

When the plan was completed in November 1990, 785 permits had been redeemed at $10,000, 288 at $18,000, and 214 at $20,000. In total 1,287 licences were redeemed, resulting in a reduction of 25% &om the number of taxis initially in service.

To finance the buy-back plan, permit holders invested 21 million dollars. Members made an initial annual contribution of $1,000. This was dropped to $500.00 in 1989 and abolished in 1990. A slight surplus was even distributed to licence holders in the spring of 1991.

Impact (Montreal)

Data was collected in 1984 and 1987 to measure the impact of the withdrawal of taxis on producti~ity, profitability and service quality. Despite a decrease of 7% in the total number of taxi runs by the industry between 1984 and 1987, the number of runs per licence increased by 12% and the number of runs per operating hour rose by 8%. The percentage of fee paying kilometers grew by 10%.

Profitability for each vehicle increased with the drop in the number of permits. Gross revenue per trip increased by 40% between 1984 and 1987; gross hourly income reached $11.13 in 1987, for an increase of 51%; and finally, average annual net income per permit reached $22,000 in 1987 for an 86% increase over 1984, or 59% in constant dollars.

The gross annual revenue of the taxi industry rose by 29%, from 122 million dollars in 1984 to 158 million, despite a drop in the number of trips taken during these years. This improvement in the economic situation in the taxi industry cannot be attributed solely to the buy-back plan. Other important factors are the increase in the average distance of a trip and of the number of hours worked per taxi; the eight-cent increase in the drop rate; the development of new markets; an increase in the waiting time for clients of 6% from 3.3 minutes to 3.5 minutes; and, the economic revival in Montreal. (Rodrigue, 13-16)

Open Entry: London, England

In London, England, the legislation regulating taxicabs goes back to the first half of the last century. The antiquity of the licensing system is seen in the use of the archaic term "hackney carriage" to mean a taxi. The legislation has not been comprehensively revised this century, though many changes have been made and a major revision has been proposed.

There are 16,500 taxis, and an estimated 30,000 - 40,000 minicabs, unlicensed vehicles hired only by prior booking by telephone or at offices, operating in London. The London taxi is a distinctive vehicle known as the black cab, though it is not always black. Since 1934 it has had to comply with special conditions of fitness, prescribing many features, in particular its turning circle, and the partition between the driver's cab and the part of the vehicle in which the passenger sits. A licensed taxi is obtained either by hailing from the street, hiring from a rank or telephoning a rank or one of eleven radio circuits.

There is no quantity control on London taxis and no value in a taxi plate. Entry into the trade is effectively limited by the cost of the vehicle and the time taken to do the "Knowledge". This driver knowledge in London is legendary and takes taxi drivers take 2 or 3 years to acquire. Applicants must submit a medical report. A series of oral examinations is held by the licensing authority before a person can get a licence. Two categories of licences exist, Green and Yellow Badge Drivers. Green Badge Drivers are licensed to drive in all of London. The licence takes over two years to achieve. There are 20,200 of these licensed drivers. Yellow Badge Drivers are restricted to driving in suburban areas. The licence takes over a year to achieve. There are less than 1,800 of these licensed drivers.

POLICY OPTIONS

This section examines the options for revising leasing provisions. The following are described: restricting the number of licences individuals can own or control; restricting the number of individuals controlling, managing or operating one vehicle; eliminating leasing; modifying entry restrictions to the taxicab industry; allowing the Commission to lease plates; and, franchising.

Regulating Lease Prices and Arrangements

Questions regarding the jurisdiction of the Metropolitan Licensing Commission over leasing arrangements have been raised. In the Court of Appeal decision of Christie Taxi Ltd. and Doran, the Municipality of Metro Toronto's jurisdiction over leasing is explained as follows:

In addition, further in the decision it is stated:

It appears from these statements that the MLC has authority over leasing issues as long as they are enacted for the purposes of regulating and governing the manner in which the business is carried on.

1. Restrict Number of Licences Individuals Can Own or Control

A distinction can be made between the "cab leasing" business and the "cab" business. Owners in the cab leasing business are primarily concerned with their client, the lessee or driver. Owners in the cab business serve their client, the public. A number of regulatory options are available to ensure that the industry operates a cab business with a focus on the public. Vehicle ownership can be limited to one vehicle per person, owner-drivers can be required to drive their cabs for at least 40 hours per week, or owners can be required to attend the inspections of their vehicles. The first option directly controls ownership and eliminates multiple plate holders, but not necessarily agents and lease agreements. The latter options will limit the number of vehicles individuals will be able to control and restrict the role of designated agents and lessees, by requiring more hands-on participation from an owner.

2. Restrict Number of Individuals Controlling, Managing or Operating One Vehicle

Other regulatory options for ensuring that the industry operates a cab business with a focus on the public are to limit the number of individuals controlling, managing or operating one vehicle. Options include limiting the number the individuals managing a plate by allowing either a lessee or a designated agent but not both. Alternately, the Commission can create two classes of owner's licences, owner-operator and fleet. Licences of either kind would be issued on demand.

3. Eliminate Leasing

Forbidding the transfer of licences or leasing does not eliminate problems - it simply makes them less visible. Removing leasing provisions from the By-law will create increased enforcement and prosecutorial demands if the activity goes underground.

4. Allow Lessee to Own Vehicle

Allowing drivers to own their own vehicles or at least be jointly named under the vehicle registration is a proposed solution to the issue of drivers who do not own their own vehicles and therefore lack commitment to the industry and will not take responsibility for vehicles they cannot own. However, experience in New York, Pittsburgh and Miami suggests that allowing drivers to own vehicles will not resolve the difficulties of owner's licence holders abrogating their responsibilities nor address vehicle qua lity concerns.

5. Modified Entry Restrictions

A further set of options is to modify entry restrictions on the number of taxicabs by removing entry restrictions, or loosening restrictions through various schemes, such as, the MLC leasing owner's licences.

Purpose of Entry Restrictions

This section examines why entry restrictions to the taxicab and limousine industry were first established and the purpose these regulations are intended to serve. This examination provides insight into the usefulness of entry restrictions. It presents a discussion of the historical origins and present goals of entry restrictions.

Historic Origins

Entry restrictions on taxicabs were originally introduced in response to political pressure from competing transportation providers and the restrictions were further supported by economic theory in fashion at the time.

In the 1920's when the use of taxis as a means of public transport first grew, regulations followed shortly thereafter. Entry restrictions of taxis were introduced in the US and Canada between 1929 and 1937 following a drop in taxi drivers' wages and car prices, and pressure from transit associations, public transit officials, taxi owners' associations, and established taxi fleets who were interested in protecting their industries and profits.

The established entry restrictions were based on the economic theories in fashion at the time. Congestion and low drivers' incomes were believed to be caused by excessive competition. Competition, it was argued, forced operators to turn to illegal activities, and led to owners' inability to assume financial responsibility for their vehicles.

In addition, the assumption that taxi service is a public service has influenced and continues to influence the decision to regulate this sector. As early as 1935, Manitoba officials were limiting the number of taxis, arguing that taxi transit is a public service similar to electricity, telephone, and mass transit services (Papillon 18-21).

Goals of Entry Restriction Regulations

The rationale behind the historic origin of entry restrictions does not appear to provide sufficient justification for maintaining these regulations. However, there are other purposes entry restrictions may fulfil. It is worthwhile exploring these to determine if continued entry restrictions can serve the public good.

There is an ongoing debate as to whether or not there should be restrictions on entry to the taxi industry. This issue will not be quickly resolved. The lack of reliable factual data makes it difficult to substantiate claims from either side of the debate. Discussion based on economic analysis and limited anecdotal evidence is used to examine the arguments for and against entry regulation.

Economic theory suggests that regulation, in general, should be used to compensate for the failure of the market to attain certain ends, such as, to redistribute income, or to achieve certain cultural and social goals. The regulation of the taxicab industry occurs within this broad spectrum of purposes. The specific policy reasons behind regulating the taxicab industry can be classified into three general goals: to reduce congestion and pollution, to provide consumer welfare and maintain order, and to ensure equity among drivers and plate holders (Coe and Jackson 2-3).

Discussed in the tables below is an examination of entry restrictions as a potential means of reducing congestion and pollution, providing consumer welfare and maintaining order, or ensuring equity among drivers and plate holders.

ARGUMENTS FOR ENTRY                        COUNTER ARGUMENTS
CONTROLS

Reduce Congestion and Pollution

to minimize the pollution and traffic      -experience in London, England a
congestion caused by an excessive          city without entry control,
number of taxis;                           refutes the argument that                                      							 free entry leads to  									 congestion;

                                           -integrated transit                                                                     strategies, and pollution
                                           control measures are
                                           alternative solutions.

to eliminate the excessive number of       -fare schedules reflecting
taxis competing for fares in peak          peak and non-peak time
hours or at popular stands, with the       operating costs may ease
associated waste in gas and driver         the problems of surplus
time, downtown con estion or illegal       taxis.
parking;

Provide Consumer Welfare and
Maintain Order

to protect the consumer from unsafe        -in the absence of entry
drivers, criminal drivers, or poor         restrictions there may be
quality service;                           times when there is an
                                           excess supply of cabs.
                                           During these periods some                                                               cabs may compromise service
                                           and safety. However, these
                                           problems are more effectively
                                           dealt with through service                                                              and safety regulations;

to ensure compliance with taxicab          -the threat of revoking a
regulations;                               valuable plate to ensure
                                           compliance is not essential.
                                           This is evidenced in Chicago
                                           where high value plates are
                                           not revoked for regulation
                                           violations;

                                           -a requirement to post a
                                           bond is an alternative
                                           solution.

Ensure Service

to ensure adequate service especially      -restrictive entry controls
to the financially or physically           can lead to long waiting
disadvantaged;                             periods for customers and a
                                           lack of taxicab availability
                                           especially outside of peak
                                           hours and in less profitable
                                           areas.

Ensuring Equity

to ensure adequate income for drivers;     -entry controls restrict the
                                           number of jobs available for
                                           drivers;

                                           - late values influence                                                                 driver income.

to ensure a reasonable rate of return on   -entry controls create plate
the plate holders' investment.             values. This benefits plate 
                                           holders who received plates
                                           from the Commission but
                                           creates entry barriers for
                                           new entrants into the                                                                   industry.

It appears from the counter-arguments in the tables above that the proposed arguments for maintaining entry restrictions are not necessarily the most effective policy instrument for achieving regulatory goals.

Effects of Regulatory Reform

Rather, it is proposed that open entry into the taxicab industry may produce social benefits. Service would be more frequent; the supply of taxicabs would be more flexible and respond more frequently to changes in market conditions; members of the industry would face lower barriers to entry and exit, making resource mobility easier; and the cost of administering entry restrictions would disappear. This next section attempts to validate these arguments by providing data on the effects of regulatory reform in other jurisdictions.

The experiences of Phoenix, Atlanta, Indianapolis, San Diego, and Seattle, cities that have undertaken regulatory reforms, including the removal of restrictions on taxicab numbers, are presented in the tables in Appendix Three. The impact of these reforms are summarized into two segments: radio dispatch cabs, and cabs that cruise or pick up passengers at stands, primarily at airports as these sector's characteristics and the impact of reform on them differ (Frankena and Pautler 113-136). These are presented in the following tables.

In attempting to use this data to transfer lessons from other cities, it should be noted that reform in some of these cities included reducing restrictions on fares and service, in addition to restrictions on entry, and, unlike Metropolitan Toronto, none of these cities has a significant cruising market, nor are they very large cities. Prior to reform, plates in most of these cities did not have a high value.

Radio-Dispatched Market Sector

                       RESULT OF REGULATORY REFORM

Industrial Structure    Open entry resulted in a decrease in industry 					concentration.   The number of firms increased, 				Sometimes new fleets entered. The majority of 					new entrants were independent plate holders-
                        operators.

Fare Level              Open entry accompanied by deregulation of fares                                 led to fare increases in cities where it had                                    been some time since the regulatory body had                                    increased fares. Fare gouging did not appear to                                 be a significant problem.

Number of Cab Hours     Open entry led to an increase in the number
of Service              of cabs and the number of cab hours of service.                                 The wide range of increases reflected how                                       binding previous restrictions were in the                                       various cities.

Waiting Times 		As the number of cab hours of service increased 				the waiting time decreased.

Number of Trips		There is inconclusive evidence as to whether 					ridership increased or decreased as a result of 				reform.

Quality of Service	There is inconclusive evidence regarding the 					impact of reform on the quality of service.

Cost of Administering 	Reform led to increased costs of enforcement
Cab Regulations         and inspection, and decreased time in                                           administering entry and fare regulations.

Allocation of Cabs	There is inconclusive evidence regarding the 					impact of reform on taxis responding to phone 					calls and servicing various neighbourhoods.

Congestion              No reports confirm an increase in congestion.

General Reactions to 	In most cases reform was supported when
Regulatory Reform       it arose from problems created under regulation.                                The reaction to reform was generally favourable.                                Problems that were reported dealt with driver                                   qualifications and vehicle safety requirements.

Cab Stand/Cruising Sector

                         RESULT OF REGULATORY REFORM

Industrial Structure	The majority of new entrants to the cab stand 					sector was independent plate holders/operators.

Fare Level              Open entry accompanied by deregulation of fares                                 led to fare increases and wide dispersed fares.

Number of Cab Hours 	Open entry led to an increase in the number
of Service              of cabs and the number of cab hours of service.                                 The wide range of increases reflected how                                       binding previous restrictions were.   A                                                 proportionally larger increase in the number of                                 cab hours of service at cab stands occurred in                                  the stand than the radio-dispatched market

Waiting Times		As the number of cab hours of service increased 				the waiting time decreased.

Number of Trips		There is inconclusive evidence as to whether 					ridership increased or decreased as a result of 				reform.

Quality of Service	There is inconclusive evidence regarding the 					impact of reform on the quality of service.

Cost of Administering   Reform led to increased costs of enforcement
Cab Regulations         and inspection, and decreased time in
                        administering entry and fare regulations.                                       Administrative costs for airport authorities
                        increased.

Allocation of Cabs	Cab drivers at airports refused short-haul 					trips.

Congestion              Congestion increased at the airport. Cab lines                                  lengthened at stands.

General Reactions to 	Consumers complained about vehicle quality,
Regulatory Reform       driver behaviour, high fares, short-haul                                                refusal. Several cities reintroduced
                        regulations at airports.

Summary

Experience in other jurisdictions shows that deregulation had a more positive impact in the radio-dispatch sector where the market is more competitive than in the cab stand/cruising sector. In this latter sector, where customers are likely to choose the first available cab, deregulation led to widely varying fares, stand congestion and short-haul trip refusal.

Impact on Plate Holders

While experience and theory suggest that modifications to entry restrictions are valid options, a key policy concern is the impact these modifications would have on plate holders. Current holders of plates will suffer enormous capital losses when the lifting of entry restrictions eliminates the value of plates, and compensation should be considered. Under the established restricted entry system, the capital value of the monopoly profit has been fully taken into account in the industry. Owner's licence holders who received a grant and later sold it benefited from monopoly profits. New entrants who enter by purchasing a plate receive only normal profit. Further, surviving original owners have opportunity costs equivalent to the value of the owner's licence upon which they receive normal profit. The customers are worse off because they pay through fares for the licences (Tullock 672).

While it can be argued that investing in a plate is a business venture with inherent risks and therefore should not be a concern of the regulatory body, it is only fair to consider compensating holders for the effects of reducing or eliminating the value of a plate through changes in entry restrictions. This is the view taken by the Winnipeg Taxicab Board.

Similarly, the Economic Council of Canada, in its major report Reforming Regulation (1981), even after finding little merit in the case for entry restrictions, asserted:

Developing a scheme to compensate plate holders, and even those on the waiting list, is extremely costly and is difficult to design in a manner that would compensate all fairly. An option is to allow open entry and compensate plate holders with payments financed through tax revenue or bond issue.

5. a. Modified Entry Restrictions: Increasing owner/driver plate holders

The 1990 report prepared for the Regional Municipality of Ottawa-Carleton (RMOC) by the Hickling Corporation examines options for reaching a long-run goal of zero' plate value, creating greater competition in the taxi industry, and encouraging and enabling individual drivers to acquire their own plates and become owner/drivers (47-67). The RMOC report also outlines numerous key considerations for setting policy, which included options such as reducing the value of plates gradually, compensating plate holder s for reduced plate values, and redeeming plates.

----------------

' It may not be feasible to create zero plate value if meters are set for the same rates for peak and off-peak periods. "If rates are set high to cover off-peak periods operating costs, then there will be excess profit during the peak period. The excess profit will drive up the value of a taxi plate. Since taxi regulators are usually concerned about adequate service as a first priority, the tendency is to approve the higher rates which will ensure adequate service in the off' peak period. This will create above zero plate values...." (Hickling Corporation 29).

------------------

The RMOC report outlines two options for expanding the number of taxis in response to demand. These options provide existing plate holders with a grace period during which time they would be able to recoup some of the value of their investment and plan for an adjustment from a non-competitive to a competitive market (Verkuil 695). During this transition the speculative component of the plate value is reduced. Portions of this report are reproduced in Appendix Four.

A similar option is valid for the Municipality of Metropolitan Toronto, since the demand model suggests that up to 3,781 owner's licences should be issued, approximately three hundred more than are currently issued.

5. b. Modified Entry Restrictions: Licences Leased out by the MLC

Another option is for the Commission to lease licences annually for some value approximating their current market rental value with due allowance for the increased liquidity and resource flexibility provided by such a scheme.

The application of this option for the Municipality of Metropolitan Toronto is limited by the long waiting list for owner's licences.

5. c. Modified Entry Restrictions: Licences Leased out by the MLC - Fitness for Service Entry Control

Entry controls which emphasize specifically the quality of a car a new entrant would provide, is a recent proposal considered in Winnipeg. This scheme is aimed at protecting the incumbent owner while increasing the number of vehicles on the road.

Under this scheme, new entrants would pay the market monthly leasing fee to the Commission. New entrants will be required to meet vehicle and service quality requirements. Because the standards would be high, these new vehicles would service a new market segment, create new demand and not interfere with the established market share and plate value of incumbent owners.

This enhanced fitness for service entry proposal can be combined with a range of driver qualification requirements which should maintain or improve driver's incomes (Chapman 50-52).

5. d. Modified Entry Restrictions: Licences Leased out by the MLC - Lease to Own

A further variation on the leasing option is for the Commission to announce its intention to stop granting licences and begin issuing new licences in accordance with a formula. All new plates would be issued on a lease-to-own program. The value of a plate for each participant would be set at the market value of plates on the day first leased. Money received from the leases would be invested in a fund and annually apportioned as a credit towards the equity of each participant. At the end of the lease period, the ownership of the licence would be transferred to the lessee, and the fund would pay the value of the licence to the Commission.

The Commission would then be required to return 50% of the money to either the equity fund, to shorten the purchase time for all licences, or into a benefit fund for participants or some combination thereof. As the fund grew, the length of time to ownership would diminish. The benefit fund would be used to provide basic benefits packages to drivers (Moscoe 1-12).

5. e. Modified Entry Restrictions: Licences Leased out by the MLC - Buy out licences, and reissue in greater numbers

If the regulator desires to lower meter rates and expand licences without causing excessive resistance in the industry, it may buy out licences at a fixed price. It is usually possible to finance this over a five year period, without changing meter rates or using tax dollars. This idea is to increase annual renewal fees by an amount equivalent to current industry lease rates at the same time as buying out and re-issuing the same number of plates. In effect the regulator has reclaimed all the plates and is now the lessor. The ratio of lease rates to market value usually permits a financing of the buy out over five years. Once the money has been reclaimed, licences may be expanded and the annual fees lowered (Hara 79).

5. f. Modified Entry Restrictions: Licences Leased out by the MLC- Use first-time fees instead of limiting licences

If the first time processing fee is set right, it can limit the number of cabs in the same way as an explicit limit. However, offering unlimited licences at the cost of a one-time extra fee has these advantages:

For political feasibility, a first-time fee, set at the current market value of a taxi licence, will effectively protect the current number of taxis and current industry profitability, while keeping the above two advantages (Hara 79).

6. Auction

Another option is to auction additional plates and distribute the proceeds to prior plate holders in partial compensation for the drop in the value of their investment. As long as the proceeds realized through the auction exceed the aggregate drop in the value of existing plates, then the public benefits from increased service and the existing plate holders are compensated from the funds from the auction (Verkuil 691).

The difficulty becomes one of determining the appropriate number to auction, compensating those on the waiting list and determining the appropriate amount of compensation. Compensation could be based on how long an individual has held a plate at a rate equivalent to an investment such as the average on shareholder's equity. The amount of compensation would be reduced by this rate multiplied by the number of years they held the plate to account for benefits reaped through monopoly profits.

7. Franchising

Finally, the option of franchising is worth considering. A system similar to that employed in Los Angeles would provide a mechanism to keep operators who offer good service while e]iminating poor operators. Operators would bid to gain permits to provide service in designated service areas. Regulations would be aimed at ensuring that most workers are part owners of their firm, either by owning their own cab or owning shares of the companies.


APPENDIX ONE

Plate Values and Monthly Lease Fees
(Update of statistics from Chapman Report, page 21)

CPl (Canada)			134.4

Nominal prices ($)

Monthly Lease Price		$746

Plate Value 			$70,632
(1995 annual average)'

Inflation Adjusted prices (1986 dollars)

Monthly Lease Price 		$555.78

Plate Value 			$52,554
(1995 annual average)

Gross Annual Return 1		2.7%

Short Term Bond Rate
(March 16, 1996)                6.7%

Long Term Bond Rate
(March 16, 1996)                8.2%

-----------------

' Prices of sales recorded from January 19, 1995 to February 2, 1996.

-----------------

APPENDIX TWO

EXTRACT FROM OTTAWA REGULATIONS

(b) the premises from which it is proposed to carry on the business,
(i) comply w1th the zoning, bullding and property standards requirements of the Corporatlon, and
(c) the Chief of Police has reported in writing as to the good character of the applicant.

ONE LICENCE PER TAXICAB

3. A separate taxicab owner's license shall be obtained in respect of each taxicab to be provided pursuant to the by-law.

MAXIMUM NUMBER OF LICENCES

4. The maximum number of taxicab owner's licenses shall not, at any time, exceed one (1) license for every five hundred and 40 (540) persons resident in the City.

LEASING AGREEMENTS

5. A taxicab owner may, in lieu of purchasing a motor vehicle for use as a taxicab, obtain a motor vehicle by a leasing agreement provided that the leasing agreement for the motor vehicle is to be used with the taxicab owner's license:

(a) is with the holder of the current motor vehicle permit issued pursuant to the said Highway Traffic Act,
(b) specifies as a minimum requirement,
(i) the date of execution of leasing agreement,
(ii) the name and address of the lessee and lessor,
(iii) the make, model, serial number and year of vehicle,
(iv) the motor vehicle permit plate number issued pursuant to the said Highway Traffic Act,
(v) the Ottawa taxi plate number and year,
(vi) the term and expiry date of the leasing agreement,
(vii) the lessee has the right to possession and control of the vehicle, under specified terms and conditions,
(viii)the consideration, and
(ix) the signature of the lessee, lessor, and the witness thereto, and
(c) is filed with the Chief Licence Inspector.

TAXI OWNER'S LIST

6.(1) An applicant for a taxicab owner's license shall complete the application form and pay the processing fee therefor.

(2) The applicant's name shall be added to the list of persons desiring a taxicab owner's license, in order of receipt.

(3) All licenses shall be issued in accordance with the priority established by the list provided that the applicant is in compliance with the provisions of subsection (2) of Section (2) hereof.

(4) No person whose name is on the list mentioned in Subsection (2) hereof shall apply to the Chief Licence Inspector to have his or her name placed on the same list.

(5) Upon the transfer of a licence being approved pursuant to Section 16, the names of the transferor and the transferee shall be struck off the priority list.

ISSUANCE OF LICENCES

7 (1) Upon issuance of a taxicab driver's license, the Chief Licence Inspector shall:

(a) indicate on the licence,
(i) a statement as to the person who will be the business affiliate or employer of the taxicab driver, and
(ii) the taxicab driver's number.

<

H3>APPENDIX THREE

Phoenix

Deregulatory Activities: 1982

Fares                   deregulated

Entry                   deregulated

Quality			continue to regulate

Service			deregulated

Industry Profile:  prior to deregulation

low density housing; high personal auto-use city; mass transit represents only 5% of all work trips.

Industry Profile:  after deregulation 1983

number of cabs		increased

patterns of ownership	less concentration of ownership: increase in 					number of independents and small firms; largest 				company lost a share of the market.

rate dispersion		increased

airport sector		increase in number of independents and small 					firms at the airport; largest oompany stopped 					pick-up at the airport due to long queues.

innovation              none

ridership               decreased

intensity of use of cab decreased

Atlanta

Deregulation Activities:   late 1960's

Fares                     regulated

Entry                     open

Quality			  -

Service			  -

Industry Profile:   prior to deregulation

deregulation occurred in response to a court order banning segregation barriers; large convention business; predominately non-radio business.

Industry Profile:   after deregulation

number of cabs		doubled

number of drivers       decreased

driver income		decreased

patterns of ownership	decreased industry concentration; from 5 						companies each with 100+ cars to 55 companies; 					predominance of independent owner/operators.

complaints              especially at airport; overcharging and                                                 discourteous behaviour.

airport sector		increased activity

stand sector		increased activity

Service			decrease in service to minority neighbourhoods 					and other parts of city

Indianapolis

Deregulation Activities:   1973-1974

Fares                   -

Entry                   open

Quality			-

Service			-

Indusry Profile:   prior to deregulation

Medallion priced at $400.00 to $500.00; large company went bankrupt in 1973-1974; reissued 300 plates.

Industry Profile:  after deregulation

number of drivers       shortage

complaints              tripled

vehicle quality		maintenance and repair decline (perhaps due to 					lack of enforcement; increased insurance 						cancellations

innovation              dial-a-drug?

San Diego

Deregulation Activities:    1979-1984

Fares                   fare ceilings introduced

Entry                   reduced restrictions; issued 6 new permits for 6                                months then 15 per month.

Quality			-

Service			-

Industry Profile:   prior to deregulation

medallion prices at $8,000.00-$15,000.00; size of cruising/stand sector not significant.

Industry Profile:   after deregulation

patterns of ownership	reduced industry concentration; most permits 					went to medium sized companies; largest company 				did not increase number of licences; share of 					business of largest company decreased; number of 				cab companies increase; size of second and third 				largest fleet increased.

fares                   increased

rate dispersion		increased

airport sector		largest fare increases occurred in airport 					sector; large number of cars and long queues at 				airport; increased number of disputes; refusal 					of short-haul fares

stand sector		the most active became crowded.

availability/		decreased
waitin times


administration costs	administrative costs increased but cost per cab 				decreased and time spent in setting fares 					decreased.

intensity of use of cab decreased

Seattle

Deregulation Activities:  1979-1981

Fares                   reduced restrictions

Entry                   reduced restrictions

Quality			tightened regulations

Service			reduced restrictions

Industry Profile:    prior to deregulation

Medallion price up to $12,000.00; size of cruising/stand sector not significant; three firms held 70% of licences.

Industry Profile:  after deregulation

number of cabs		increased 421 to 527

patterns of ownership	decreased concentration of ownership; growth in 				number of moderate sized firms (57 to 85); 					increase in number of independents.

medallion prices        reduced to zero

rate dispersion		increased

airport sector		higher fares; increased rate dispersion; 						increase in number of taxis in queues; increased 				refusal of short-haul fares; increased threats 					and minor violence.

stand sector		higher fares.

radio sector		three quarters of new licences issued to radio-					dispatch sector; decrease in waiting time for 					customers; lower fares than if regulation 					continued.

administration costs	small increase

vehicle quality		increase in median age of vehicles

intensity of use of cab decreased

APPENDIX FOUR

RMOC Report

Key Points to be Considered

The following are key points to be considered in setting initial Regional policy for taxi meter and numbers of taxis....

* A policy of gradual reduction of plate values will lower plate values immediately.

If the Region should choose to lower plate values gradually by moderating annual rate increase, then plate values will fall significantly immediately.. "Because current plate values are based on the present value of the expected future income over many years, the long-run reduction of future earnings caused by the policy would create an immediate reduction in the present value of the licence....

* Any guarantee of plate values is vulnerable to large scale redemption of plates.

A policy [of setting a redeemable value for plates during an interim period] is vulnerable to massive redemptions. First, the potential for large scale drops in the "street" value of a plate may cause large scale redemptions. Second, redeemability makes the taxi plate a liquid asset...causing plate holders to cash in their plates....

* The Region should avoid validating or endorsing specific plate values.

Any endorsement of specific plate values during an interim period will restrict the Region's options when finally considering how to deal with existing plate holders' financial stake in current plate values. In addition, endorsement of specific plate values, even minimum values, would increase the street value of a plate by reducing its riskiness as a capital asset.

* The way the Region announces its intentions is as important as the actual rates and numbers of taxis.

Plate values depend more on future expectations than on current returns. The Region must firmly announce its future intentions in order for changes in plate values to be clearly interpreted. The same adjustment to meter rates will have a different impact on plate values depending on whether it is perceived as a one-time phenomenon, or a policy that will continue over several years (Hickling Corporation, 48-50).

Options

Two options have been developed: a "conservative" option and a "strong "option. The conservative option begins with a status quo approach to meter rates, and a clear policy rule to expand the numbers of taxis in response to increases in demand. Action to reduce plate values ... is postponed for one to two years to allow the plate value situation to clarify itself. The strong option involves immediate adjustment of both meter rates and numbers of taxis in order to reduce plate values....

The Conservative Option

The conservative option is designed to allow the identification of the speculative portion of plate values before any decisions are made on whether or not to undertake compensation. The conservative option is defined by these steps:

------------------

2. [1990] rate policy [was] to increase rates with the general level of inflation, while taxi costs will tend to increase at a slower rate. In addition, the number of taxi plates has remained frozen for a number of years due to stable population, even though business activity and taxi demand have tended to expand. The result has been growing profitability for the taxi industry, which has in turn been reflected in high and rising plate values (21).

3 The Taxi Cost Index includes both direct and indirect costs. It includes a return for the owner/driver time spent managing the accounting and other business requirements. Allowance for a rate of return on investment in taxi and equipment is included.

-----------------------

The passive adjustment of meter rates will preserve current high levels of profitability in the industry, but aggressive demonstration of the Region's intent to expand the number of taxis with demand will remove expectations of further increases in that profitability. If the Region is able to convince the industry of the seriousness of its intent, then the speculative premium on plate values should be eliminated, and plate values will fall to the level reflected by the current profitability of the industry. At that time, the Region can consider its alternatives for respecting the financial commitment of current plate holders without the handicap of plate values inflated by speculation....

The disadvantage of this approach is that the relatively weak immediate action on meter rates may not convince the industry of the longevity of the policy. If the industry is not convinced, the speculative premium on plate values may not fall and the high plate values may become further entrenched over time by new purchasers....

The Strong Option

The Region may desire to immediately demonstrate its intent on meter rates as well as numbers of licences by increasing meter rates at 1% less than the measured increase in Taxi Costs.

The advantage of an immediate paring back of rate adjustments is to give a clear and unmistakable message of the rules of the new policy regime. This will remove any uncertainty and confusion about potential Regional vacillation in dealing with the problem of accumulated plate values. Such uncertainty can manifest itself in the speculative trading of plates as some holders bail out and others buy in to gamble on the Regions's future intent. Strong immediate action will also shorten the amount of time invested in regulatory debate by both the Region and industry stakeholders.

The disadvantage of a strong immediate adjustment of rates is that it may cause a much larger immediate reduction in plate values. The reduction will be a combination of a loss of the speculative premium, and a reduction in the current profitability of the industry. If there is an interest in separating the speculative portion of licence value from the total value, it will be more difficult to achieve under this option.

If the strong option is pursued, an incremental approach is still recommended. A phased process of bringing meter rates into line with costs will reduce the financial impact on plate holders while methods of addressing their concerns are considered.... An incremental approach to reductions would guard against inaccuracies in these estimates, and permit the industry a chance to provide local financial information.

The strong option consists of these steps:

Comparing the Two Options

Both options delay a decision regarding current plate holder interests until after the Region ... has a chance to demonstrate its commitment to the principles of "fair and reasonable" rates and expanding taxi plates in proportion to demand.

The delay will provide a chance for plate values to lose some or all of their speculative premium....

The difference between the two options rests on the strength of the message that the Region wishes to send, and the importance it places on distinguishing between speculative value and the remainder of plate value.... Otherwise the speculative premium in plate values will continue to be entrenched over time. the strong option is more likely to make this point, but carries with it the possibility of causing an excessive drop in plate values.

A significant drop in plate values is possible in both cases, but in the conservative case any drop in plate values will be clearly attributable to a drop in the speculative premium (Hickling Corporation 52-54).


BIBLIOGRAPHY

Bosson, John and Makuch, S.A. "Municipal Licensing: regulation in search of a rationale." in Regulation by Municigal Licensing. Introd. Peter Quance. Ontario Economic Council. Toronto, Ontario: University of Toronto Press, 1984, 23-76.

Chapman, Bruce. Taxicab Regulation in Metrogo]itan Toronto, Toronto, February 8, 1994.

Coe,.G.A. and 1ackson, R.L. "Sonie New Evidence Relating to Quantity Control in the Taxi Industry". Transport and Road Research Laboratory, Crowthorne, England. Department of Environment. Department of Transport. TRRL Sugglementary Report 797. 1983.

Court of Appeal decision. Re Christie Taxi Let. and Doran (1976), 10 O.R. (2d) 313 C.A.

Doxsey, Lawrence, "Interpreting the Results of Regulatory Revisions in Seattle and San Diego". Transportation Research Board. National Research Council, Washington, D.C. Transgortation Research Record. 1103, 1986, 6-8.

Finder, Allan. "Dinkins Plan would alter Taxi Industry: market in Medallions would be eliminated", The New York Times, January 27, 1992, Bl-B4.

Finder, Alan. "Dinkins Urges Revisions in Taxi Plans: Mixed Response Shows a Consensus is Elusive", The New York Times, October 14, 1992, B 1-B2.

Fragin, Sheryl. "Taxi!". Atlantic Monthly, May 1994, 30-42.

Frankena, Mark W. and Paulter, Paul A. An Economic Analysis qf Taxicab Regulation. Bureau of Economics of the Federal Trade Commissian, May 1984.

Hara, Dan. "The Political Economy of Taxi Regulation Reconciling Public Welfare with Political Process". Proceeding of the International Conference on Taxi Regulation, Montreal, Quebec, 1992, 71-80.

Hickling Corporation. Evaluation of Taxi and Limousine Service Demand and Economic Model for Taxi Rate Structure. 1990.

LaGasse, Alfred B. II. "An Industry Comment on Regulatory Change". Transportation Research Board. National Research Council, Washington, D.C. Transgortation Research Record, 1103, 1986, 19-23.

Lane, S.H. and Brinkman, G.L. A Study of Milk Quota Prices in Ontario. 1988. Mahan, George. Personal Interview. May 17, 1996.

Manitoba Taxicab Board. Winnigeg Taxicab Service and Regulation: Regort and Recommendations. 1990. 1990.

Metropolitan Licensing Commission. Strategic Directions. August 1993.

Moscoe, Howard. Taxi licensing and By-law 20-85. Toronto, September 11, 1989.

Mysak, Joe. "Traffiking in Taxi: The market for Medallions Is a Two-Way Street", Barron's, February 23, 1981, 12.

Oxenhandler, Stephen. Personal Interview. May 22, 1996.

Palmer, John. "Municipal Transportation Regulation:cartage and taxicabs" in Regulation by Municigal Licensing. Introd. Peier Quance. Ontario Economic Council. Toronto, Ontario: University of Toronto Press, 1984, 77-111.

Papillon, Benoit-Mario. The Taxi Industry and its Regulation in Canada. Economic Council of Canada, Ottawa, Ontario, 1982.

Perez-Pena, Richard. "For 53 Cabbies, American Dream Fits on a Hood", New York Times May 11, 1996, 1.

Rodrigue, Claude. The Taxi Indushy and Deregulation. Ministere des Transports du Quebec, 1990.

Rosenbloom, Sandra. "Taxis, Jitney & Poverty", Transaction, February 1970, 47-54.

"The Drive is on to Deregulate Taxicabs". Business Week, July 2, 1984, 92-93.

Snyder, Ryan. "Modifications to the Franchise Approach of Taxi Regulation in Los Angeles". Proceeding of the International Conference on Taxi Regulation, Nassau, Bahamas, 1994, 104-111.

Teal, Roger F. "Impacts of Comprehensive Transportation Deregulation in Arizona". Transportation Research Board. National Research Council, Washington, D.C. Transgortation Research Record, 1103, 1986, 11-14.

Teal, Roger F. "Impacts of Comprehensive Transportation Deregulation in Arizona". Transportation Research Board. National Research Council, Washington, D.C, Transgortation Research Record, 1103, 1986, 11-14.

Tullock, Gordon. "The Transitional Gains Trap", The Bell Journal of Economics, Autumn 1975, 671-678.

Verkuil, Paul R. "The Economic Regulation of Taxicabs", Rutgers Law Review 24, 1970, 672-711.


APPENDIX II

(to main paper)

EXTRACT FROM THE DRAFT MINUTES OF A MEETING
OF THE METROPOLITAN LICENISNG COMMISSION HELD ON
THE 26TH DAY OF APRIL, 1996
(ANNUAL TAXICAB REVIEW)

4. Taxicab Owners' Licences for 1996

[A] COUNCILLOR KINAHAN MOVED that 80 new plates be issued, subject to Report No. 6 before the Comnission today {Approved Owners' List) being implemented; seconded by Ms. Shan.

MOTION CARRIED.

[B) COUNCILLOR KINAHAN FURTHER MOVED that 20 of those 80 plates be issued in accordance with a new class of plates for wheelchair-accessible taxicabs, and that staff and the Legal Department report back to the Commission on an appropriate By- law amendment to create that class for wheelchair-accessible cabs, including an implementation plan as to how to allocate those 20 plates, seconded by Ms. Shan.

MOTION CARRIED.

[C] COUNCILLOR KINAHAN ALSO MOVED that staff prepare a report, with legal opinion, for the By-law Review Sub-committee, on the issues of whether the Commission should lease new plates and whether a time limit should be set on the lifetime of a plate, with the Commission receiving this report simultaneously; seconded by Ms. Shan.

MOTION CARRIED.


APPENDIX III

(to main paper)

Vehicle Operating Expenses

Source: Ontario Taxi Union Local 1688 submission, June 18, 1995

Operating costs.1

Weekly package:				$525
Monthly cost (4 weeks)			$1,100
Annual cost (52 weeks)			$27,300


-------------------------------------
Source: Brokerage (Don Souter, Feb. 1996)

1. Package deals                        $24,000 to $28,600
($470 to $550 /month)

2. Beck

Lease fee (month)                       $800
Insurance (month)                       $460
Radio Dues(month)                       $275
Radio Rental (month)			$30

Total monthly expense			$1,565

Annual Expense				$18,780

-----------------
1 Operating costs, including maintenance and fuel
Weekly package:				$525
Maintenance(weekly)			$58
Fuel costs(weekly)			$120

Total weekly expenses			$703

Monthly expenses (4 weeks)		$2,812

Annual expenses (52 weeks)		$36,556

VEHICLES

Chrysler Intrepid, Eagle Vision

Base price:                             $20,300
Taxes, freight:                         $900
pst/gst(15%):                           $3,180

Total:					$24,380



Mercury Sable

Base price: 				$21,800
Taxes, freight:                         $900
pst/gst(15%): 				$3,405

Total:					$26,105

Financing available at 8.0% to 15% (depending on credit rating). Minimum down payment of $2,000. Average down payment of $4,000.   Leasing option usually only available to vehicles driven less than 24,000 km per year

Source:  Mills & Hadwin Leasing Limited and Bay Lincoln Mercury Sales Ltd., June 11, 1996

Vehicle purchase price from multies:

vehicle price				$10,000
$5,000 down payment required

Source:  Ontario Taxi Union Local 1688 submission, June 18, l995

Loan Repayment Costs

                                  Monthly Lease Paments for 3 year Loan

Principal                     8% Interest     10% Interest    12% Interest

$5,000.00			$156.72		$160.88		$166.06
($10,000 vehicle
with $5,000 down)

$19,300.00			$604.92		$620.98		$640.98
($24,300 vehicle
with $5,000 down)

$20,300.00			$636.26		$653.15		$674.19
($24,300 vehicle
with $4,000 down)

$22,300.00			$698.95		$717.50		$740.62
($24,300 vehicle
with $2,000 down)

Monthly Lease Payments for 5 year Loan

Principal                     8% Interest     10% Interest    12% Interest

$5,000.00			$101.38		$105.82		$111.21
($10,000 vehicle
with $5,000 down)

$19,300.00			$391.32		$408.47		$429.27
($24,300 vehicle
with $5,000 down)

$20,300.00			$411.76		$429.63		$451.51
($24,300 vehicle
with $4,000 down)

$22,300.00			$452.15		$471.96		$496.27
($24,300 vehicle
with $2,000 down)

Differences in Monthly Loan Payments for New and Used Vehicles

                                 Monthly Lease Paments for 3 year Loan

Principal                     8% Interest     10% Interest    12% Interest

$5,000,00			$156.72		$160.88		$166.06
($10,000 vehicle
with 35,000 down)

$19,300.00			$604.92		$620.98		$640.98
($24,300 vehicle
with $5 000 down)

Difference in                   $448.20         $460.10         $474.92
monthly payments
($10,000 vs.
$24,300 vehicle)

Monthly Lease Payments for 5 year Loan

Principal                     8% Interest     10% Interest    12% Interest

$5,000.00			$101.38		$105.82		$111.21
($10,000 vehicle
with $5,000 down)

$19,300.00			$391.32		$408.47		$429.27
($24,300 vehicle
with $5,000 down)

Difference in                   $289.94         $302.65         $318.06
rnonthly payments
($10,000 vs.
$24,300 vehicle)

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