Medallions & State-Mandated Scarcity
By Ilene
Why is your NYC taxi fare is so expensive?
The price is high due to NYC's limited supply of Medallions.
The taxicabs of New York City, with their distinctive yellow paint, are a widely recognized icon of the city. Taxicabs are operated by private companies and licensed by the New York City Taxi and Limousine Commission (TLC). It also oversees over 40,000 other for-hire vehicles, including "black cars", commuter vans and ambulettes. "Medallion taxis," the familiar yellow cabs, are the only vehicles in the city permitted to pick up passengers in response to a street hail. Wikipedia.
Paul Price made a video discussing the Medallion situation sometime last year:
The price Medallions has skyrocketed over the last 30 years.
Taxi medallions have become tradable assets that have been selling for around $1 million due to their financialization and the state-mandated scarcity. In an effort to relieve the monopoly-like grip on the taxi industry, good for neither the taxi driver or the consumer, Mayor Michael Bloomberg made a bid to service the outer boroughs with a new "borough taxi."
This would alleviate the tight supply of Medallions, while setting the stage for a repeat, someday, with the borough taxi system. In the meantime, a three-year borough taxi license would be available to drivers for a relatively small fee.
Currently, however, the borough taxi remains "a figment of the Bloombergian imagination." It's entangled in lawsuits brought by the powerful medallion owners.
Dana Rubinstein writes, in The Curse of the NYC Taxi Medallion:
DURING A RECENT RADIO INTERVIEW, A QUESTION about a different taxi initiative sent the mayor into a fit of pique about the peculiar way in which government-issued aluminum plates could bring such wealth to those lucky enough to own them, with the city cut out of the profit entirely.
"The cab industry's a funny industry," he said. "I don't know of any other place in the world where the city gives a license and the people that have that license can then trade it and resell it and the city doesn't have any interest and any ability to share in the value going up."
That wasn't his only issue with the way this city runs its taxi and livery system.
"A normal market, you'd say, 'well, just issue more taxi licenses,'" he continued. "Wrong. Because they have bought the legislatures and stopped the ability to do that. It is one of the great ripoffs of the public any place I've ever seen."…
THERE ARE 13,237 YELLOW TAXIS IN NEW YORK CITY…
Back in the day, the idea behind the medallion system was not to create wealth for private parties and hold taxi policy hostage to those parties, but rather to civilize an anarchic ecosystem.
In 1932, 16,732 cabs roamed New York City streets, according to taxi historian Graham Hodges’Taxi! A social history of the New York City cab driver.
The competition “was merciless,” according to Hodges, and “Many cabbies turned to petty crime to help make ends meet.”
There were strikes, and there were fare wars.
Ultimately, an alderman named Lew Haas decided to do something about it.
In 1937, he proposed a bill that would limit the number of taxis to 13,595, and make medallions automatically renewable, tradeable assets. It was signed that year by Mayor Fiorello LaGuardia.
“After the passage of the Haas Act, no one expected the medallions to ever be worth more than the ten-dollar license fee,” writes Hodges. “One of the drafters of the bill later commented: ‘It was a fluke; no one ever foresaw that these licenses would ever be valuable.’”
In 2011, two medallions sold for $1 million a piece.
With wealth has come political power, which has in turn made it possible for the owners to block improvements to the system that they perceive as a threat to their interests.
Recently, the medallion owners stymied two of Bloomberg's signature efforts to reform the New York City taxi system: the borough taxi plan, and his effort to reduce carbon emmissions by making the entire taxi fleet hybrid.
The meteoric rise in medallion value, created by the medallion system that originated in the Haas Act, has accorded medallion owners what Chhabra describes as an “outsized voice, if you will, in taxi policy.”
“The medallion system creating that value has empowered the medallion owners and the medallion-owner lobbies,” he said…
”If we knew then what we know now, I’m going to go out on a limb here and say … we would not have issued medallions that create a property interest, because we know that the market for taxis is solid, we know that New York has been a runaway success story," he told me. "And so if you got a license back then that was good for three years, or four years or five years, you would have made your money back and then some … and we would have realized the revenue from those repeated license sales. And today we would be selling New York yellow taxi licenses for God knows how much.”
Of course, the likelihood of abolishing medallions in New York City is effectively zero…
Chhabra argues that the borough taxi program is actually something of a workaround to to the medallion problem.
"You know what, the reason we have to create borough taxis is because, turns out 13,237 is just about enough for the Manhattan core, and at rush hour, that’s not even enough," said Chhabra. "And so we can’t have 80 percent of the city without taxi service."
Get into a taxi in NYC and it won't take you to 80 percent of the city. The borough taxi plan would address this problem now, but it could become another Medallion problem later. The number of borough licenses is capped at 18,000. If the demand eventually exceeds supply, NYC will have to return to the state legislature and ask for more licenses.
Yesterday, Mayor Bloomberg, seething about the disgraceful situation and the Medallion owner's political power, lashed out at taxi kingpin Gene Friedman at a Knicks game.
Report: Bloomberg Fires Off F-Bomb Tirade Against NYC Taxi Kingpin
NEW YORK (CBSNewYork) — New York City’s billionaire mayor is normally a pretty cool customer. But a fellow rich businessman says Michael Bloomberg recently went all hot head, unloading on him, with a profanity-filled taxi tirade.
It’s a “hail” of a claim from the New York taxi king Gene Freidman, who controls a billion dollars’ worth of medallions.
He told the New York Post that last week at a Knicks game Mayor Bloomberg got in his face, saying “Come Jan. 1, when I am out of office, I am going to destroy your (expletive) industry. I am going to destroy all you (expletive) guys,” CBS 2’s Tony Aiello reported Wednesday.
Freidman told the paper, [Bloomberg] was very angry, very scary … He was grinding his teeth. He was spitting. He was red and he was in my face.”
It was a memorable encounter, right? Well, not according to the mayor.
“The Knicks won, it was a great game and I had a great time. That’s what I remember from that night,” Bloomberg said Wednesday.
Bloomberg has clashed in court with Freidman over implementation of the mayor’s “Taxi of Tomorrow” initiative, and his efforts to expand taxi service into the boroughs…
The mayor also stuck it to Freidman last year, making sure the 17-percent taxi fare hike went completely to the drivers, and not to the corporate owners, like Freidman… Keep reading >
This is an example of how state involvement to help solve one problem can lead to unintended consequences and a host of other problems. Regulations were necessary in the early days, but what might have looked like a reasonable regulatory scheme in the 1930s has long outlived its usefulness and has turned into a monster.
