Following this report is a collection of news reports and relevant documents associated with this situation.
Upon reaching the end of the report, continue scrolling down to see this information.

See also:

Madison's Current and Proposed Taxi Regulation:
Bad Public Policy and an Open Invitation to Litigation


Toward A 21st Century Taxicab Regulatory Framework:
The Case of Madison

Samuel R. Staley, Ph.D.
Director of Urban Futures Program
Reason Public Policy Institute
3415 S. Sepulveda Blvd., Suite 400
Los Angeles, CA 90034-6064
Tel. 310.391.2245
Fax. 310.391.4395
e-mail: sstaley@reason.org
web site: http://www.urbanfutures.org
June 5, 2000

Samuel R. Staley directs the Urban Futures Program for the Reason Public Policy Institute, a nonprofit, nonpartisan education and research organization based in Los Angeles.

Introduction

The taxi industry is one of the most highly regulated industries on the local level. While many taxicab regulations were instituted as an attempt to improve service quality, the historical legacy has been lower service quality and industry competitiveness. This occurs because local regulations create substantial barriers to entry that protect a small number of established firms (creating an "oligopoly"). Many of these barriers have little impact on service quality and create inefficiencies in the taxicab industry, reducing profitability and competitiveness. Furthermore, regulations that prevent new firms from entering a market severely limit business ownership opportunities in the industry, particularly for low income and minority populations.

Deregulation Impacts and Directions for Reform

Since taxi entrepreneurs need little formal education to be effective and productive, the taxicab business is well suited to the skills and income needs of many in the lower tiers of the economic system. Once Indianapolis deregulated its taxi industry, for example, 32 new companies emerged within the first six months. Three fourths of these companies were owned by minorities and women. Now, seven years after deregulation, Indianapolis remains committed to its deregulation strategy. In Denver, the start-up company Freedom Cab now employs more than 100 drivers that cater to underserved and largely minority markets ignored by a cartel protected by the state public utilities commission for more than 45 years.

Thus, in many cases, taxicab regulations have a double negative effect: consumers suffer because regulations stifle competition to protect existing cab companies, and potential entrepreneurs are prevented from opening their business to create new wealth in the community.

Historically, the relaxation of taxicab regulations results in the following industry and service impacts:

The number of taxicab companies, cars, and drivers increased by 23 percent on average.

Poorer, mainly minority areas received more frequent and often higher quality services.

Minority and women taxicab drivers became empowered by starting their own businesses.

The negative impact of local regulations on economic opportunity is often an artifact of the way local (and state) ordinances are designed and implemented. Taxicab ordinances were written when regulators considered taxicabs (and other transportation services) utilities. As a result, taxicab regulations followed traditional regulatory schemes, often limiting competition and access for new companies, tightly regulating fares and rates, and defining key elements of business operations such as hours of operations and location.

Shifting the regulatory focus from protecting existing companies to monitoring taxicab performance could improve services to consumers as well as create economic opportunities among less educated, poor, and minority populations.

Taxicab regulation in Madison

Taxicab regulations in Madison, Wisconsin are detailed in Section 11.06 of the city code, "Licensing and Regulating Public Passenger Vehicles, for Hire." Several features of this ordinance stand out as unnecessary regulatory burdens on start-up entrepreneurs. If stringent enough, regulations effectively impose a "cap" on the number of taxis and companies by creating significant financial, political, bureaucratic, and administrative barriers that add costs to starting a new business. Economic opportunities are most severely limited for poor and minority groups that typically have the few resources to devote to the maze of red tape, hearings, and approvals. These regulations may be partially responsible for the decline in the number of legal taxicab companies in Madison from seven in 1979 to just three in 2000. In addition, and perhaps more importantly, these regulations limit the ability of the taxi industry to adapt to a dynamic transportation market.

Among the more important regulatory obstacles to creating a taxicab company in Madison are:

Company licensing fees [Sec. 11.06(4)(a)]. The City of Madison has dramatically increased the financial barriers to starting up a new taxicab company in Madison by imposing a $1,500 licensing fee for new companies. Prior to July 1, 1998, city fees of $125 per company were in line with many other cities. A survey of eight Ohio cities, for example, found that the cost of licensing a new company ranged from $25 in Youngstown to $75 in Columbus to $250 in Akron (with a $10 surcharge for each additional vehicle). Only the city of Dayton charged fees that exceeded Madison's current level ($250 per car). Moreover, Madison has instituted a renewal fee of $500. These fees compound the effects of other regulatory barriers and obstacles.

Public hearings on new cab company applications [Sec. 11.06(4)(b)]. Public hearings should be reserved for deliberating regulatory policy rather than performing routine, administrative functions and micromanaging an industry. Madison's ordinance is unduly open on public hearings, allowing virtually anyone to object to a new applicant irrespective of conflicts of interest and tangible impacts by the proposed business. Criteria granting licenses should be clear and objective, enabling taxicab licenses to be processed administratively. Criteria for approval should be limited to performance issues directly tied to the quality of service provided. This minimizes the likelihood licenses will be approved or rejected for political reasons.

Public convenience and necessity [Sec. 11.06(4)(e)]. This provision has been used in numerous cities to prevent entry into the taxicab industry, from Cincinnati to Atlanta to Denver. For example, in Denver, Colorado, a cartel of three taxicab businesses shut out new competition for more than 45 years by convincing the state utility commission existing companies had the capacity to serve any public need for taxi service.

In Madison, the presumption is against new taxicab businesses since the Transit and Parking Commission must make a positive affirmation that the new business serves the "public welfare, convenience and necessity." This makes entrepreneurship – defined as the discovery of new market opportunities – difficult and in some cases impossible. Small businesses are conceived and started on innate knowledge of the market and expectations about what kinds of services consumers want and are not provided by current providers.

Subjecting new business start-ups to political approval means entrepreneurs must a) reveal the nature of their market opportunity to their competitors and b) articulate a compelling case for their business. These principles operate contrary to the nature of entrepreneurship and the realities of market-based innovation. In market economies, consumers determine what services will be provided, not politically appointed commissions.

Twenty-four hour service requirement [Sec. 11.06(7)(a)]. This provision is neither efficient nor appropriate in a modern era driven by technology. This regulatory obstacle presumes that part-time operations are neither viable nor desirable. In fact, specialized and part-time operations are particularly well suited to meet consumer needs in the personal transportation market. With pagers and mobile cell phones, drivers can be dispatched anywhere in the city conveniently and cost effectively. Owner operators can respond to calls and service requests personally at anytime of the day or night. Some services that specialize in serving bar or student-centered activities might only be viable on a part-time basis or during specific times of the year. Part-time operations have the advantage of filling unmet demand for transportation services while also providing competition to existing services.

Twenty-four hour service requirements also impose substantial up-front costs on new companies, requiring investments in additional cars, drivers, and equipment before a market is well established. A case study of similar regulations in Dayton, Ohio found that a start-up cab company would incur additional costs of at least $15,935 to purchase cars and insurance, and meet licensing requirements as a direct result of a 24-hour service provision. These costs did not include operating costs such as vehicle maintenance and fuel. A full-time service regulation, in effect, requires new companies to "overcapitalize," making their ventures riskier and more difficult to start. Entrepreneurs with low income and education levels but substantial industry experience are particularly hard hit by these regulations.

Citywide service requirement [Sec. 11.06(7)(a)]. This provision limits the ability of the taxicab market to meet targeted, specific needs. More specifically, minority and low-income neighborhoods of traditional cities tend to be the most underserved areas. Taxicab companies can emerge to fill specialized niche services: handicapped transportation, neighborhood transportation, or even business specific transportation services (e.g., contract transportation with local bars or restaurants). Freedom Cab in Denver is a case in point. Requiring citywide service reduces the likelihood these kinds of niche taxi services can evolve.

Driver hours of operation [Sec. 11.06(7)(b)]. This provision also limits the flexibility and adaptability of the local taxi industry. For instance, an owner-operator of a part-time taxi service would technically violate this provision of the ordinance if she had a 24-hour pager but only received a few calls a day.

Similarly, other seemingly less intrusive regulations may negatively impact economic opportunities in the taxicab market. Current regulations, for example, require drivers and companies (Sec. 11.06(9)) to have a interior and exterior markings that permanently identify a car as a cab. The intent of this regulation is to ensure consumers are fully informed about the cab and the fare charged, a laudable and important goal. On the other hand, this regulation inhibits the ability of cab drivers to use personal vehicles as part-time cabs. This regulation could be modified to require exterior markings only when the cab is in service as a taxi, allowing drivers to take their car out of service and use them for non-taxi purposes.

Toward performance-based regulations

Policymakers should seriously consider the negative impact local regulations have on innovation and flexibility. Specialized, niche markets (e.g., for students, the elderly, or the disabled) may benefit from having companies enter the market that focus exclusively on their needs, whether on a full- or part-time basis. By limiting entry, local regulations may have the unintended consequence of stifling innovation, encouraging existing firms to focus on the overall market (the "average" consumer) rather than the needs of specific individuals that make up a smaller, potentially less lucrative sector of the market (the "marginal" consumer). Thus, in an attempt to improve the average quality of service, local regulations may in fact discourage the provision of high quality services to specific segments of the market and weaken market accountability.

The combined effect of Madison's local regulations creates a hostile regulatory climate for taxicab entrepreneurs. Economic opportunities are reduced while the dynamic elements of a market economy that ensure consumer needs are met are compromised.

Madison's taxicab ordinance can be reformed to ensure quality services are provided while also expanding economic opportunities for residents. This requires a paradigmatic shift in thinking about taxicab regulation toward a performance-based approach.

Rather than focusing on micromanaging the structure of the industry – service requirements, hours of operations, etc. – the city should focus on whether taxicab companies provide the type and quality of service they advertise to consumers. In essence, this requires the city of Madison to focus on the following aspects of taxicab regulation:

Limiting hearings to complaints from consumers (not competitors) and broad policy questions;

Ensuring accurate and complete consumer information about rates and the past performance of drivers and companies;

Implementing administrative licensing to streamline permit processing and minimize the politicization of business development;

Inspecting cabs for health and safety violations to protect consumers from fraud and unscrupulous fly-by night operations; and

Ensuring cab companies are bonded and insured against liability.

The city of Madison can eliminate unnecessary barriers to entry into the industry by:

Reducing the cab company license fee from $1,500 to a range closer to the industry standard (e.g., $150);

Repealing 24-hour and citywide service requirements;

Transforming licensing into an administrative process with clear, objective criteria;

Explicitly eliminating economic impact on current operators as a justification for denying a license to a new operator;

Eliminating the public convenience and necessity criteria for granting a new license, allowing consumers and markets to determine the number, type, and quality of taxi service provided;

Eliminating mandatory breaks in driver hours to enable part-time, owner-operator companies; and

Eliminating the requirement for permanent exterior markings and require markings only during times when the car is in service as a taxicab.

Taken together, these reforms provide a more entrepreneur friendly regulatory climate for the local taxi industry. They also create a regulatory framework more consistent with the dynamic, technology driven transportation sector that focuses on consumer needs. The experience of other cities suggests that consumers – particularly poor and minority neighborhoods – will benefit from increased access to transportation, and the city will benefit from greater economic opportunity for all citizens.

References

Staley, Sam. "How Cities Put the Brakes on Taxicabs," The Freeman (March, 1998), pp. 147-50.

Styring, Bill. "Taxicab Licensing in Indianapolis: The Situation and Economics," paper prepared for Regulatory Study Commission, City of Indianapolis, January, 1993.

Taxicab Regulation in Ohio's Largest Cities (Dayton, Ohio: The Buckeye Institute for Public Policy Solutions, October, 1996)

Williams, Walter. The State Against Blacks (New York: McGraw-Hill, 1982), pp. 75-88.


Continue scrolling down to see the collection of presentations, news reports
and other relevant documents associated with this situation.


Wisconsin State Journal
(Madison, WI, USA)
October 13, 2000

Editorial

TAXICAB DEREGULATION SHOULD RIDE ON MERITS

Taxicab deregulation in Madison is edging closer to reality, thanks to the work of a few strong-willed advocates and a special subcommittee on cab deregulation.

The subcommittee has settled on a number of recommendations that, on the whole, will make it easier for start-up companies to compete against the city's established taxicab firms. The City Council may want to relax existing regulations even more when it debates the issue next week. It is not productive at this late stage in the game, however, to trash the process.

The city's ad hoc subcommittee on taxicab deregulation met from February through September to consider a mix of ideas for opening up Madison's market. It was a response to the fact that cab rides in Madison are costly and harder to come by than in many American cities, including some cities of comparable size.

Now, after seven months of work, taxi deregulation advocate Mike Roach has questioned whether there should have been voting representatives of the cab companies on the subcommittee.

''It's unfortunate, the power of the cab lobby came through,'' Roach said Tuesday after the city's Transit and Parking Commission endorsed the panel's plan.

The time to have spotlighted that objection was before the subcommittee spent months working on its recommendations, not when the final report is headed to the City Council.

A better use of time by Roach and other deregulation advocates is to continue pressing home their core argument: Unnecessary regulation that harms competition is bad public policy. Beyond certain public health and safety concerns, City Hall shouldn't have an interest in determining how many cab companies are roaming the streets.

Recommendations to be reviewed by the City Council will require cab companies to continue to provide 24-hour service for the entire city, limiting drivers to 12-hour shifts. In essence, that means one-man operations need not apply. Is it necessary to require all cab companies, regardless of size, to be on call 24 hours a day?

The established cab companies are worried that opening the market to smaller companies that would operate only during peak hours amounts to ''cherry-picking.'' If the rush-hour profit margin is cut, they argue, they won't be able to operate at a loss during off-hours.

Maybe so, but that shouldn't be the city's worry. Some smart cab company will figure out how to provide 24-hour service. The subcommittee has done a reasonable job, but the council should take it one stop farther.


Capital Times
(Madison, WI, USA)
October 11, 2000

'24/7 ' RULE COULD SPUR TAXI LAWSUIT

By Lee Sensenbrenner
The Capital Times

An antitrust suit involving Madison's taxi industry could be around the corner if the city does not drop a requirement for all cab companies to operate continuously.

The Transit and Parking Commission recommended Tuesday that the so-called ''2 4/7 '' rule remain, despite critics' claims that the requirement is anti-competitive and protects established cab companies by walling out potential challengers too small to operate around the clock.

Peter Carstensen, a University of Wisconsin law school professor, said his role in the dispute could soon change from voluntary adviser to hired litigator.

Carstensen has spent much of his career working on antitrust cases and has written a lengthy report detailing why he believes the city taxi ordinance goes against state and federal antitrust laws.

But local officials, including City Attorney Eunice Gibson, say that the policy is just, and the burden of providing 24-hour service is equivalent to other start-up costs.

''For example,'' Gibson wrote, ''restaurants are not permitted to open if they do not have the equipment required to serve food safely.''

Carstensen countered, in a memo Tuesday, that Gibson confuses hours of service with health and safety regulation.

''The 2 4/7 requirement for all taxi companies is similar to imposing a requirement that all restaurants should be open 24 hours a day, seven days a week because the city concluded that it was in the public interest to have food available all day,'' he wrote.

Surrounding the antitrust debate are many issues, including the race of potential start-up taxi entrepreneurs and whether off-hours are still profitable. The most recent addition is the Transit and Parking Commission's concern that the taxi deregulation subcommittee included cab company executives from Madison's three firms.

The commission adopted the subcommittee's recommendations, but acknowledged a possible ''taint.''

''If I learned anything the past year, if there's a perception of conflict of interest, we should stay clear of it,'' said Ald. Mike Staude, a commission member.

The commission's recommendation included doing away with public hearings previously needed to get a taxi license, and dropping the fee from $ 1,500 to $ 1,000.


Wisconsin State Journal
(Madison, WI, USA)
October 11, 2000

TAXI ROLE ON PANEL CALLED 'QUESTIONABLE'

CRITICS SLAM CAB COMPANIES' ROLE
ON THE AD HOC SUBCOMMITTEE ON TAXICAB; DEREGULATION

by Naomi R. Patton
Wisconsin State Journal

The city is letting the fox watch the chicken coop by allowing cab company representatives be voting members of the city's ad hoc subcommittee on taxicab deregulation, taxi deregulation proponents said Tuesday.

''It's unfortunate, the power of the cab lobby came through,'' taxi deregulation advocate Mike Roach said after the Transit and Parking Commission endorsed the subcommittee's proposals. ''The fact that they were voting members of the subcommittee is an affront to good government.''

Ald. Mike Staude, 8th District, said he found it ''questionable'' that the mayor allowed the taxi companies to participate on the subcommittee, which he said was an apparent conflict of interest.

But the commission adopted a proposal by Ald. Ken Golden, 10th District, to accept the subcommittee's recommendations and suggest the City Council do the same at its next meeting.

The recommendations include: requiring cab companies to continue to provide 24-hour service for the entire city, limiting drivers to 12-hour shifts, reducing the licensing fee from $ 1,500 to $ 1,000 and eliminating the public hearing requirement for taxi operating licenses.

Roach said UW-Madison law Professor Peter Carstensen expects to challenge the city's regulations as potential violations of state and federal anti-trust laws.


Wisconsin State Journal
(Madison, WI, USA)
September 30, 2000

MADISON'S MINORITIES BENEFIT
FROM TAXI DEREGULATION

by Mike Roach

Taxi driving has long been recognized as a poor man's gateway to mainstream America, but not in Madison.

Madison's taxi regulations don't allow for any single-owner operator cab companies. These regulations that prevent single-owner firms from entering the market severely limit business ownership opportunities in the cab industry, particularly for low-income and minority populations.

The effect of these regulations is to require individuals to work for one of the three cab companies on the companies' terms and at their will. This situation relegates the drivers to the status of employees, denying individuals equity ownership, the main source of wealth creation in America.

Taxi deregulation in Madison would empower minority and women taxicab drivers by giving them the opportunity to start their own businesses while increasing competition in the industry and putting pressure on existing cabs to reduce fares for everyone.

In his book ''The State Against Blacks,'' Walter Williams says taxi regulations block minority entrepreneurship: ''The laws are not discriminatory in the sense that they are aimed specifically at blacks. But they are discriminatory in the sense that they deny full opportunity for the most disadvantaged Americans, among whom blacks are disproportionately represented.''

In Madison, cab drivers have become urban sharecroppers. The taxicab industry has used regulation to create a modern-day plantation system for taxi drivers; the regulatory hurdles are so high that the same three companies have had a virtual lock on the taxicab industry in Madison for 22 years. For example:

Since taxi entrepreneurs need little formal education to be effective and productive, the taxi business is well suited to the skills and income needs of many in the lower end of the economic system. But if the first rung of the economic ladder is broken off by regulations that deny individuals the right to own their own cab companies, how are individuals going to climb out of poverty?

The minority population loses out with the regulatory apparatus in other ways. Citywide taxicab fares are higher than they would be in a competitive, open-entry market system. Minority populations lacking cars also spend a greater percentage of their income on taxicab fares than do other populations. Minorities pay higher fares, wait longer for a cab and get poorer service than they would with a truly open market.

When Indianapolis deregulated its taxi industry, for example, 32 companies emerged within the first six months. Minorities and women owned three-fourths of these new companies. Now, seven years later, Indianapolis remains committed to taxi deregulation.

The best hope for Madison's minority population is a free and unfettered taxi industry, in terms of getting licensed so they can own their own business and in terms of receiving better service at lower prices.

The government does and should have a role in the taxi trade, but it should be strictly limited to health and safety, consumer information, driver background checks and insurance verification issues.

When government goes beyond these limits, it becomes an instrument of the existing companies whose only interest is to maintain the status quo and keep others out at the expense of taxi consumers. Madison deserves better.

NOTES: Roach, a former Madison cab driver, is a member of the city's Ad Hoc Committee on Taxicab Deregulation.


Capital Times
(Madison, WI, USA)
September 12, 2000

Editorial

TAXI PROPOSALS DESERVE TEST

by LaMarr Billups

The city Ad Hoc Committee on Taxicab Deregulation recently approved a report that will soon be considered by the Madison Transit and Parking Commission and later the City Council. The report concludes several months of review and analysis of the city ordinances governing taxicabs in order to study the merits of taxi deregulation. The committee's work responds in part to a recommendation of the Task Force on Race Relations.

The task force viewed taxi deregulation as a step toward increasing economic opportunity for would-be entrepreneurs who have little access to capital for business start-ups. The task force believed that if the taxi industry could accommodate independent drivers and smaller niche market companies, the doors to new business ownership would open to people of color and others who have low to moderate incomes.

The ad hoc committee report, however, takes a very conservative stance, and virtually ignores the progressive spirit of the task force recommendation. In reviewing the report, I'm not sure at all that the committee even examined ''the merits of taxi deregulation,'' as the task force recommends. It's hard to believe that the committee did anything other than look for ways to streamline the regulations for the benefit of Madison's taxi companies.

Many key recommendations of some committee members that would have removed operating barriers to independent taxi drivers and small companies -- such as 24-hour, seven-days-a-week availability, citywide service availability and unnecessarily high licensing fees -- were rejected without consideration for their value as economic stimulants to new business. The view of committee members representing the local taxi industry was quite naturally to protect and conserve business, and not to explore opportunity for new business creation.

Well, the committee missed the point -- almost entirely. The idea is to find a way to make deregulation work for new entrepreneurs, and maintain or improve taxi service throughout Madison. If that had been the goal, the committee might have sought resolution through innovation and experimentation. Instead, the committee dodged its responsibility, and used the opportunity to restrict citizens' right to share in the economic benefits of an open market.

It's funny how some in private industry celebrate the virtue of competition and free markets until new entities want to expand into previously exclusive industry clubs; or until new entrepreneurs discover opportunities for expanding a market that the members of the existing oligarchy have yet to exploit. The oligarchy in this case claims their interests are focused on quality of service for the consumer.

And while the current city ordinance also claims to protect citizens, it in fact does more to protect the economic interests of the taxi oligarchy than in creating equitable opportunity for all of its citizens.

But even accepting as legitimate the city's interest in regulating an industry providing transportation services on city streets for hire, there's a greater duty of fairness owed to its citizens than a mere streamlining of ordinances regulating taxis. The duty owed is for a genuine examination of the merits, impacts and problems that may be associated with deregulation of the taxi industry by allowing independent drivers and small companies an opportunity to serve the city and earn a living wage.

The city owes its citizens a response to the ad hoc committee that directs it to develop a plan to implement a three- to five- year pilot or demonstration project. Such a plan would include a rigorous evaluation and impact analysis. Consider the recommendations included in a minority report to the committee of alternatives such as retaining the citywide service requirement, but eliminating the 24-hour/seven-day requirements. A test of these innovations is what's needed. Mere discussion without evaluating the service and economic impacts in real time is a gross disservice to our community. We can do better.

LaMarr Billups is a special assistant to the chancellor at UW-Madison. He is active in civil rights concerns in Madison. His column will appear every other Tuesday in The Capital Times.


AP NewsWire 9 Sep 2000

Civic leaders: Too few cab companies in Madison

MADISON, Wis. (AP) -- Some civic leaders in Madison say there are too few taxi companies in the city and they are too expensive.

The group is urging the City Council to break up what they called a " taxi company cartel, " which they said charges riders too much and shuts out competition.

They' ve submitted a petition calling for deregulating the city' s taxi ordinances to make it easier for small-time operators and independent drivers to get licenses.

" Madison' s tax regulations have created a highly sheltered environment for three taxi companies that collectively operate as a tight oligopoly or cartel, " the petition says.

The group behind the petition includes two dozen University of Wisconsin-Madison professors.

But city officials say the taxi system ensures 24-hour service to all parts of the city.

The city' s Transit and Parking Commission is scheduled to meet Tuesday to discuss changes to the city' s taxi ordinance, including lowering license application fees from $1, 500 to $1, 000.

But the group says those changes don' t go far enough.

They want the commission to drop additional rules such as requirements that taxi companies operate 24 hours a day, seven days a week. The petitioners say those rules shut out independents. But Mayor Sue Bauman defended the round-the-clock rule.

" If someone needs a cab at any particular point in the night or day, they can call any existing cab company, " she said. " They' re not going to be floundering around making a bunch of calls when perhaps they' re feeling vulnerable."


September 2, 2000

TO: Madison Common Council

Ref: An Open Petition Letter:

Introduction

Taxi service in Madison is over-regulated to the detriment of our community. The regulations, which require twenty-four pages of text, establish a control system that costs Madison and its visitors a lot but provides little benefit. The principal problem with the regulations is that they choke-off entry to a business that could and should be highly competitive. The last taxi license was granted sixteen years ago. Madison's taxi regulations have created a highly sheltered environment for three taxi companies that collectively operate as a tight oligopoly or cartel. As a result taxi rates are too high1 and service is too low. The regulations allow taxi company owners to reap large profits, but deny access to an avenue of economic advancement to those in the most need of economic advancement- minorities and those with little income. In short, Madison's taxi regulation raises fares, lowers service quality and variety, and denies economic advancement to those in most need of it. These results are not simply theoretical; comparison of Madison's taxi service with the service provided in the many cities that have opened their communities to competitive taxi service shows that the these costly effects of taxi regulation are real.2

We find no economic or social reason to continue comprehensive over-regulation of Madison's taxi industry. Madison's entry regulations make sense for public utilities (electricity, natural gas, telephone, water) but not for the taxi industry. The taxi industry has none of the characteristics that warranted public utility regulation (highly capital intensive, natural monopoly or oligopoly, highly essential service for all or most of the population). Besides that, even the entry regulations to public utility markets are being eliminated or significantly reduced. Twenty years ago, the federal government deregulated other transportation businesses that could be competitive (airlines in 1978 & trucking in 1980) leading to major reductions in fares and improvements in service.

We concur with the United States Federal Trade Commission study that found “no persuasive economic rational” to justify entry regulations for the taxi industry. As the FTC reported “a number of Cities have achieved favorable results by deregulating entry3. A different Federal DOT study said,”If the taxi industry were deregulated nationwide, it would result in $800 million in saved fares and 38,000 new jobs for cabbies.4

Taxicab regulation in Madison is detailed in the Madison General Ordinance city code 5 Section 11.06. The features of the ordinance that effectively preclude beneficial competition are those that require:

  1. a political approval process, & public hearings, where the other cab companies testify against the new applicant, [sec.11.06(4)(b)]
  2. a necessity to “prove the need” for a new cab company. [sec. 11.06(4)(e)]
  3. a 24-hr., 7-day service requirement for every company. [sec.11.06(7)(a)]
  4. a citywide service requirement for every company. [sec.11.06(7)(a)]
  5. a … color scheme with permanent markings on all cars. [sec.11.06(9)(i)]
  6. a $1,500.00, application fee for any “potential” new company. [sec.11.06]
  7. a minimum of three cars to start a cab company. [per CDOT staff]

Recommendations

We recommend that the Madison Common Council adopt an “open entry” system for taxicab service by revoking Madison General Ordinance sections 4e, 7a, 9i, and the 3-car minimum. Market entry should be allowed for all companies, including single owner operator cab companies, which provide reliable vehicles and qualified drivers.

Increasing competition through open entry will benefit Madison in several ways; competitive taxi service will:

  1. lower average fares,
  2. yield innovations and expansion in service,
  3. reduce passengers wait time,
  4. provide new economic opportunities for women and minorities, low-income individuals, and long-time taxi cab drivers,6
  5. provide a more equitable distribution of income between drivers and the taxicab owners,
  6. eliminate the “plantation system” under which those who want to drive cabs are required to work for one of the three cab companies.

Our recommendations pertain to market entry constraints. We do not recommend any reduction in the enforcement of safety standards for equipment and qualification standards for drivers.

Persons who have signed in person or by email:

  1. Jon G. Udell, Irwin Maier Chair of Business, UW-Madison
  2. Professor Rodney Stevenson, Faculty Director, WI Public Utility Institute
  3. Steven N. Durlauf, Professor of Economics, UW-Madison
  4. Peter C. Carstensen, Professor of Law
  5. Robert Haveman, Professor of Economics & Public Affairs
  6. John F. Witte, Director, Robert La Follette Institute of Public Affairs
  7. Professor Glen G. Cain, Labor Economist (Emeritus), UW-Madison
  8. Ralph L. Andreano, Professor of Economics (Emeritus), UW-Madison
  9. William H. Sandholm, Assistant Professor of Economics, UW-Madison
  10. Dongchul Cho, Professor of Economics, UW-Madison
  11. Arthur F. McEvoy, Professor of Law, UW-Madison
  12. Gerald J. Thain, Professor of Consumer Law, UW-Madison
  13. Judith Bartfield, Assistant Professor of Human Ecology, UW-Madison
  14. Barton Lipman, Professor of Economics, UW-Madison
  15. Donald D. Hestor, Professor of Economics (Emeritus), UW-Madison
  16. Ruth Roberts, Associate Lecturer Law, UW-Law School
  17. Howard S. Erlanger, Voss-Bascom Professor of Law, UW-Law School
  18. Donald A. Downs, Professor of Political Science, UW-Madison
  19. Karen C. Holden, Professor of Public Affairs & Consumer Sciences
  20. Jeff Bernstein, Assistant Prof. of Public Affairs & Applied Economics
  21. Mike Subkoviak, Associate Dean School of Education, UW-Madison
  22. Peter Norman, Assistant Professor Economics, UW-Madison
  23. Donald J. Harmatuck, Professor School of Business, UW-Madison
  24. Barbara L. Wolfe, Professor of Economics, UW-Madison
  25. Nino Amato, Chair Madison's Race Relations Task Force
  26. Warren Somerfeld, former Secretary Department of Transportation
  27. Governor Anthony S. Earl, Partner, Quarles & Brady Law firm

Additional information can be found at:
www.taxi-library.org/madison.htm

Please email your authorization statement to Mike Roach to be included on the petition for economic liberty at
maroach@facstaff.wisc.edu


1 Cascade Policy Institute, An Economic Analysis of Taxicab Regulation in Portland Oregon, 4-98 Madison's metered rates were the highest in a 28 City comparison chart of cab fares, column B.

2 Once Indianapolis deregulated its taxicab industry, 32 companies emerged within the first month. Women and minorities owned three quarters of those companies. The Indianapolis News Editorial, August 4th 1994. Bill Strying, Taxicab Licensing in Indianapolis: Situation and Economics, “ paper Prepared for the Regulatory Study Commission, City of Indianapolis, Jan. 1993

3 Mark Franka and Paul Pautler An Economic Analysis of Taxicab Regulation, Federal Trade Commission, Bureau of Economics Staff Report, May 1984

4 United States Department of Transportation study, Regulatory Impediments to Private Sector Urban Mass Transit 85 (1984), also found in Wall Street Journal, February 1st 1993

5 Madison General Ordinance, (MGO), 1999, 11.06, Public Utilities, Public Passenger Vehicles for Higher, Taxicab Regulations.

6 The State Against Blacks, McGraw-Hill, page 75, by Professor Walter Williams nationally syndicated Columnist Heritage Features, & Chairman, Economics Department, George Mason University.


Wisconsin State Journal
Madison, WI, USA
Aug 22, 2000

TAXI PLAN STILL BANS ONE-PERSON OPERATIONS

by Heather Morgan and Dean Mosiman
Wisconsin State Journal

Minorities without considerable financial means will still find it next to impossible to start taxi businesses in Madison under rule changes recommended Monday by a special city committee, taxi deregulation advocates said.

The changes, proposed by the ad-hoc subcommittee on taxicab deregulation, would preserve the city's de-facto ban on one-person taxi operations.

A review of taxi rules was suggested last year by Mayor Sue Bauman's Task Force on Race Relations, which said rules may create barriers to poor and minority entrepreneurs.

Supporters said the proposed changes would streamline the process and make it cheaper and easier for entrepreneurs to offer service.

But Mike Roach, a committee member and advocate for taxi deregulation, said, "Minorities aren't going to come out well on this, unfortunately."

The regulations would also limit the potential for competition, keeping cab fares high, said Peter Carstensen, a UW-Madison professor of anti-trust laws.

He declared the rules are "a conspiracy" between cab companies and the city.

The subcommittee has been exploring options for seven months. Its recommendations are expected to be considered by the Transit and Parking Commission Sept. 12 and the City Council Sept. 19.

Under the subcommittee's recommendations, the city would still require cab companies to provide 24-hour service seven days per week.

That, combined with a safety regulation limiting drivers to 12 hours of continuous driving, would make it impossible for an individual to start a cab business.

The subcommittee said the 24-hour requirement is important because there is no bus service after 11:30 p.m.

But Roach said that is a "bogus argument" because the market would dictate that the city's three cab companies keep 24-hour service regardless of the requirement.

"It's only a pretext to keep out independent cab drivers," he said. No new cab company has been launched in Madison in 16 years, Roach said.

The subcommittee, however, did recommend the city lower the fee for licenses from $1,500 to $1,000.

But Roach said, "A thousand dollars is still a lot of money for a poor minority."

In other recommendations, the subcommittee said the city should:

*Continue requiring service coverage for the entire city. The requirement minimizes the possibility companies "redline," or avoid, troubled neighborhoods, the subcommittee said.

*Eliminate the public hearing requirement for taxi operating licenses. That would save money and allow the reduction in licensing fees, Knobeloch said.


Taxi Regulation in Wisconsin–Law and Policy

Presentation to the Madison Parking and Transit Commission

Peter Carstensen
Professor of Law
University of Wisconsin Law School
3 April 2000

The following outline presents the basic points that I wish to make in discussing the question of taxi regulation with the subcommittee. I have not, except for key state statutes and one state Supreme Court decision, cited to specific legal materials. If the subcommittee would find it helpful, I can provide such citations.

 

I. Basic Policy: Competition is socially and economically desirable

A. Benefits of competition

B. Excessive fears of competition

C. Not all regulation is impermissible–focus on public safety and other authorized areas of legitimate concern

It is clear that there are important roles for regulation in the field of taxi service. Moreover, to some degree any such regulation will increase the costs of entry and competing in the market. However, all such constraints need to be focused on legitimate goals: public safety, insurance, as well as the definition of the territory, hours, and price of service. Moreover, these are the only goals that the state laws allow Madison to seek through its regulation of taxis.

II. Legal Constraints on Local Regulation

A. Competition is the fundamental policy of the state of Wisconsin in general and with respect to public transportation.

B. This Subcommittee and the Transportation and Parking Commission have an institutional conflict of interest in recommending or enforcing restrictions on competition from an alternative, non-city owned mode of transportation.