According to Reuters, more than 40 states have considered ride sharing legislation that would offer clarity on their policy. However, no consistent and predictable statewide regulation of this industry exists in Texas. This has resulted in an inefficient and confusing patchwork of rules across local jurisdictions. These myriad regulations are often arbitrary and onerous, and can negatively impact innovation. Thankfully, the Texas legislature has stepped up this session and proposed three bills related to the regulation of ride-sharing companies: SB 176, SB 113 and HB 3931. We commend the authors for making an effort to prohibit local governments from banning innovative technology that enables ride-sharing in cities. SB 113 and HB 3931 would specifically limit all local governments’ ability to ban ride-sharing companies, while SB 176 is over-regulatory in nature, and in turn would stifle the evolution of this industry.
The Rise of Transportation Network Companies
Ride-sharing companies that arrange services through apps are known as Transportation Network Companies or TNCs. TNCs have solved what was evidently a problem for people all over the world: a lack of reliable, affordable, and transparent for-hire transportation. TNCs have provided more transparency with apps that show users a photo and rating for drivers, their exact location, expected journey length, wait time, and a predictable cost of service. People have struggled for years with the unpredictable, and high cost of taxi services, and the burden of hunting down a cab.
Additionally, TNCs help people make money in a gig economy. They help retirees, students, and even moonlighters make an extra buck when they need it. They also contribute to tourism and overall job growth. For obvious reasons, TNCs have grown like wildfire. They fill several needs through innovative ideas and solutions.
Economic Protectionism & Political Battles
Before TNCs, passengers had to rely on the taxis. Taxi companies operate on a medallion system. Medallions are permits taxi companies must obtain from local governments to be able to legally operate within specific municipalities. They are also prohibitively expensive. At one time, a medallion for New York City cost $1 million. Competition from Uber and other TNCs have caused this fee to drop to $500,000.
Understandably, cities are upset about their loss of funds. Taxi companies and drivers are unhappy because companies like Uber do not have to pay these medallion fees. They are also upset about the surge of competition, where there was none before.
“We will send this message to every country, every government, that Uber is not welcome,” said Mac Urata, the London-based head of surface transportation for the International Transport Workers Federation to the Washington Post. “They have no place to hide. Everywhere they go, we will fight them, shame them, and get them out of business.”
These outbursts have been heard from taxi unions around the U.S. and around the world, and local politicians have heeded the cries of taxi unions to stifle the competition. Under the guise of public safety, the city of Austin successfully campaigned against TNCs Uber and Lyft in 2016 and passed strict requirements that would force the companies out of town. One such requirement was that every driver be fingerprinted, when obtaining a Texas drivers’ license already requires the driver’s fingerprint to be on file. Redundant and costly demands such as these are designed to retain market share for taxi unions.
Forcing TNCs to operate like taxi companies is not a solution. It stifles innovation and forces these companies to operate under a failing bureaucratic system. The truth is, the medallion system has been failing the public for decades. Due to private interests, taxi medallions are strictly limited in most cities and the number provided is often not enough to meet the public’s demand for taxi services.
Medallions and high-cost permits pose a barrier to entry to new companies to protect existing interests from competition. They also impose a burden on taxi drivers who start out owing money to medallion holders, which is one reason many taxi drivers have abandoned the cab and now drive for Uber.
Letting Innovation & Capitalism Run Its Course
SB 113 and HB 3931 is the policy response to a political fight at the local level. These bills simply prohibit local governments from banning TNC’s like Uber and Lyft. Cities like Austin enacted policies that were designed to remove Uber and Lyft under the guise of protecting riders, but the actual reason was to insulate an industry (Taxi’s and unions) that has either refused or failed to adopt policies that served the public good, or effectively fill a market demand. On the other hand, SB 176 would have TNCs apply for permits costing up to $125,000 that must be renewed every two years, and the author does not include any limits on these fees. Furthermore, SB 176 imposes costly data retention requirements on TNCs, stating that a TNC must retain records of individual rides for at least two years and drivers’ records for at least two years after they stop providing service for the company. It also prohibits TNC drivers from accepting street hails.
The worst thing the state government could do for innovation in the industry would be to impose taxi-like regulations on TNCs. Some of the regulations in SB 176 are even harsher than those imposed on taxi companies. After all, more than half of Uber drivers are not full-time professionals. If taxi companies want to compete, they should embrace innovative technologies, and fight to reduce permit fees for their industry. They will also have to improve their services, rather than calling on local politicians to force people to use an inferior service and pay more for it. Some are doing just that. Ultimately, their fight against innovation will likely go the way of portable cassette players, and their legislative acolytes. The Taxi Workers Alliance is at least working to develop an app that would work with licensed drivers, but will only focus on current paying members. Letting innovation and free market competition run its course will result in a better service for all, and allow more revenue to enter cities through tourism and job growth.
Go to our Texas Policy Scorecards page to see how we rate other bills. Scorecards and Policy Spotlights are written based on the most current publicly available information. We update our scorecards based on that information.
