All taxicabs are inspected every six months to ensure that they are mechanically sound and safe for the public. If they aren’t, the vehicle is rejected until repaired. We’ve found that some drivers with mechanical issues in between inspections will often let those conditions exist right up to their next inspection before they fix it. And they get away with it unless spotted by an investigator on the street, or a complaint is lodged by an unhappy passenger. This situation is many times compounded with older cars which seem to break down more often. One fine example is that some drivers with broken air conditioners would rather risk a citation than spend the money to fix it. That’s unacceptable in this climate, and a long, hot drive from the airport is enough to have any tourist fuming. Most of those caught have claimed to simply not have the money to get things done. Of course that probably isn’t always true, but for some it probably is. So the question becomes, how do we solve these issues? Enforcement alone won’t do it; if money truly is the issue then expensive citations really don’t help.

It isn’t our business how drivers manage their money, but it is our business to do whatever is in our scope of power to do to help them succeed, especially if the public also benefits. After all, government exists to serve the people. And again, we believe that any decrease in competition should mean an increase in profits for our drivers. But that alone will not ensure newer, more sound vehicles.

In 2004 the administration convened a blue ribbon panel comprised of private citizens, members of the business community, and yes, cab drivers, to study the industry and offer suggestions for improvements (please visit the city’s website, cityofno.com and click on ‘Blue Ribbon Report’). The panel’s report was accepted by the mayor in 2005 and he forwarded it to the city council. After their review the city council contracted with the Bryan-Jupiter Firm to study the recommendations, meet with industry workers to gather more points of view, then present a finalised legislative package for public debate and legislative action. As you may understand, Katrina interrupted the process but they are once again underway with haste.

Without going too deeply into the body of the report, one of the findings is that much of our pre-Katrina fleet was worse than third world in appearance and mechanical functionality, and also was the source of many complaints and bad press. In fact, this public, non-governmental body recommended that cars no older than five years be allowed into the industry, and by the time they’re eight years old they must be retired. The days of 30+ year-old cars would end. As you may assume, some people upon reading the report thought this excessive. But compared to other cities where the vehicle has to be cycled out every three (3) years, others thought this recommendation reasonable. And again, this came from a panel that included cab drivers and Jane Q. Public. In fact, the limousine industry was also represented on the panel and they too, offered recommendations that would drastically change their industry. Obviously self-policing was the dominant theme on the panel.

Keep in mind these are only recommendations and at some point the legislative body will have to accept them into law, or reject them. It is believed by some that the vehicle reforms will hurt some drivers, while many others have said that for too long this issue has been ignored and they fully agree that change is needed. If the vehicle age recommendation becomes law, plus drivers begin making more money as a result of the reduction in competition, then there should no longer be any excuse for not properly maintaining their vehicles. Thus, the public benefits by sitting in newer, safer, more reliable cars. At least that is how the panel saw things.

As for a shortage of taxis as the city is re-populated, I repeat that we had about 900 more than we needed pre-Katrina when there were over 1600 taxis serving a city of nearly 500,000 people. Comparable cities have about 500, but throwing all of our special events into the mix (i.e. Mardi Gras, Sugarbowl, Jazz Fest, Essence, etc.), we estimated our need to be about 800 taxis. Yet post-Katrina we’re at about 200,000 people (less than 50% pre-Katrina numbers) with still an over-abundance of taxis, which number about 1200. Even if the city is completely re-populated we’d be at 400 more than we need. So to your point that people will wait longer for taxis and this would in turn adversely affect the industry, neither the tourist nor local will have trouble getting a taxi now, or in the future.

As for the value of CPNC numbers, it exists because there is a moratorium on the issuance of new numbers. Therefore, since they aren’t available from the city anymore (incidentally, the city first issued these numbers free-of-charge in the 1950s), the only place to obtain one is from another driver or cab company. Because they maintain value and can be used as collateral, we worked with the SBA to make low-interest loans available to persons wanting to obtain one or who may want to borrow money to perhaps buy a car. If the council ever lifts the moratorium it would have devastating results. The value of existing CPNCs would suddenly be reduced to rubbish, the SBA programme would collapse overnight, and lives would be ruined. Additionally, unrestricted access to CPNC numbers would create a climate of unmanageable kaos. Where would the numbers stop? 2000? 20,000 taxis on the street? Certainly in a free-market society, those who could not keep up would simply drop out. But because others would be there to give it a try for themselves, would there ever be a low-enough point in the overall number of taxis that someone–anyone–would see a profit? Hmmmmmm. Somthing to think about, but then I leave that to you, professor, it is more your forte’.

Finally, a public body spoke, and the public at large will have an opportunity to debate these and other issues at future council meetings. But don’t shoot the piano player. We do not write the laws, we simply enforce those handed to us by the city council. And I agree, professor, that this may very well be a very interesting topic for one of your graduate students to explore.

I’m looking forward to reading more in the future; what a fine class of bright students you must have, professor. For them to take interest in what for some is an obscured little piece of insignificant balderdash is refreshing.

Take care.

Sid Bournes
Deputy Director
Dept. of Safety and Permits
City of New Orleans

I am glad to see that our reading audience extends outside of our classrooms. Thanks for taking the time to write a thought-provoking response. I think we agree about the majority of issues; however, there are a couple points on which I think we may disagree.

Thanks for pointing out that rates are set by law. In my post, I claimed that taxi fares would increase because of reducing the number of licenses – I should have been more careful. While consumers will not see an increase in taxi fares from a reduction in the number of licenses (unless the regulators increase fares in the future), often the costs of taking an action include non-monetary aspects. With a reduction in the number of taxis, consumers will wait longer, on average, for a taxi. Thus, holding everything else constant, the full cost of using a taxi (including time) will increase if the number of taxis declines.

If licenses are changing hands for substantial sums, this clearly indicates that the number of licenses is smaller than the number of people who wish to operate taxicabs. Of course, no one can fault the cabbies that chose not to renew their licenses after Katrina. The widespread non-renewal is a clear indication that the number of people who want to be in business today is less than the number of licenses.

What I have concerns about is what will happen in the future when the city grows, and with it the demand for taxi cabs. I think operators are looking ahead.

The vehicle quality issue that you bring up is a difficult one. In most industries, products are available in varying qualities. I may purchase a Honda Civic or a BMW 325. I can get my hair cut at Supercuts or at a fancy salon. Higher quality goods come with higher prices. I think everyone would agree that BMW would have little incentive to produce higher quality cars if they can only charge low quality prices. Regulation makes it difficult for the taxi market to offer services of varying qualities; the fare is the same by law, regardless of the quality. Tips and more frequent fares may help, but the incentive to invest in quality vehicles is muted by the very nature of the price regulation in the industry. It is not too surprising that the fleet is full of old rickety cars.

It is also not clear to me that if operator a taxicab becomes more lucrative that operators will improve the quality of their cabs. I agree that a reduction in licenses will indeed improve the financial situation of holders of these licenses as you suggest, but I think we disagree with what will happen to the quality of the fleet. As I often tell my students, the beauty of economics is that hypotheses are testable. If we were to collect data on, say, the average age of the taxi fleet (a crude proxy for quality), we could see how this average age evolves over time. You seem to be agnostic, while I would suggest strongly the quality will deteriorate. If this data were publicly available, it would make a fine research project for an undergraduate student. Is this something that my students could check on over the next couple of years?

Again, thank you for pointing out the semantics of medallions versus licenses, but for the economics at hand, this distinction seems artificial to me. Whether we call it a license or call it a medallion, whether owned or leased, the operative point is that the number of people who can legally operate a taxicab is restricted by something other than the workings of markets.

I do not think the fact the cab operators did not have to pay for the licenses takes the politics out of the decision – in fact, this may exacerbate it. Consider if this award were to occur during a period where licenses are valuable, say pre-Katrina. Licenses were awarded to some people, and some people who wanted them did were not awarded licenses. The fact that government is giving away something valuable for “free” creates at least the opportunity for politicians involved to reward certain individuals. Of course, it also creates incentives for individuals to lobby politicians. If we must have a number of licenses below the efficient number, why not have the city publicly auction off the licenses? If so, the city would retain the value and could spend it on schools or roads instead of it ending up in the pockets of the lucky recipients.

However, these are all minor issues. The two things I find most interesting are below.

It is interesting to me that you suggest that limiting the licenses will level the playing field for those who are in business for “the right reasons”. I assume that by “right reasons” you mean people who are actually single license holders / operators as opposed to “absentee owners”. If I understand your argument, then you would be in favor of having more licenses held by single operators. If reducing the number of licenses was to improve this situation, you would have to contend that a disproportionate number of people that did not renew their licenses were those “absentee” license holders.

If these records are public, once could break down the number of licenses not renewed by folks who owned only one license and those not renewed by folks who owned more than one license. My guess is that more non-renewed licenses come from the single operators. Are the records public? Again, this would make another research project for an undergraduate student.

Finally, to my last, and I think most important point.

I do not agree with our respondent that you should be fired. However, I assure you that the student who suggested that is not a cab operator. The nature of any regulation of any type is that it creates winners and losers. If I walk in the shoes of a taxicab operator, I would very much applaud these efforts. From the eyes of a consumer of taxicab services, these efforts are less desirable. As an economist, I can wear a third hat and attempt to add up the effect on everyone in society. With this hat on, I would rather the number of licenses not be restricted.

To this end, the part of your comment I find most interesting is this one:

“The holders of CPNC numbers who chose not to renew them did so for their own reasons, not as a result of any policy, condition, or stance that the city took. In effect the numbers simply died on the vine, no legislation involved.”

I could not agree with you more. As you note, people are welcome not to renew their licenses for their own reasons. Presumably, they do so because alternative employment elsewhere is more lucrative. Thus your stance, as is mine, is that people should be free to exit the industry when conditions warrant.

So my question, then, is this: Why should people not be allowed to enter the market as circumstances warrant?

Thanks again for the comment,

–CT

A Nicholls State colleague suggested I read your editorial response to the Times-Pic taxicab article you quoted. Very interesting. Just thought I’d take a few minutes to add clarity to a much mis-understood industry.

Rates for taxi rides are set by law, therefore the consumer will not see an increase in taxi fares simply because the number of taxis is reduced. Only the city council can raise rates, not individual drivers or the Taxicab Bureau.

New Orleans pre-Katrina had approximately 1200 more taxicabs than other, comparable sized cities. The market here truly was over-saturated and drivers weren’t making the money they truly deserved for all the hours they put into their trades. With that in mind, we still have approximately 1100 to 1200 taxis remaining, therefore this city will not see a shortage of taxis anytime in the foreseeable future. Further, in addition to taxis registered in Orleans Parish, the metro area (Jefferson and St.Charles Parish) contribute hundreds more taxis to the airport and surrounding area.

As for sub-standard vehicles, don’t we all deserve to ride in something safe and not something our grandfathers purchased new? One reason quoted by industry drivers for not having newer vehicles is that they simply could not afford them. This, presumably, because the market was so over-saturated they could not make enough money. This I quite understand. In a city that should have perhaps 400 to 500 taxicabs maximum, how does one make a living when the competition is four times what it should be? We shall soon all see if a reduction in CPNC numbers will make a difference for the drivers financially, and to the appearance of our taxi fleet. I for one believe it will, and if it does, would this not benefit the persons that use taxis?

As for ‘medallions’, there is no such thing in New Orleans. The medallion system exists in other cities such as New York and San Francisco where they are sold by those cities directly to the operator. The New Orleans CPNC, conversely, is merely a licence to operate. From its inception they were awarded free-of-charge and were never sold by the city (which retains ownership rights). The city in fact only makes $150 per year from the ‘holder’ of such a licence, regardless of how much revenue is generated annually for the licence holder. That works out to 41 cents per day for the use of the licence. The taxi meter (by law) will register $2.50 before the car is even placed in gear to take a passenger anywhere. Therefore, with the first passenger of the day, the cabby’s pittance to the city is more than covered.

The transfer of a licence from one holder to another is where those higher ’sales’ prices you spoke of come into play, but that is strictly a business deal between two parties, not the city. It is also the source of very shady dealings in some cases. For example, over a thirty (30) year period the city will collect only $4500 from annual renewal fees for that licence. However, the holder of such a licence who rents it out to a driver will typically charge $350 (or more) per week, or $1400 per month. In that same thirty (30) year period that the city collects only $4500, the CPNC holder makes over half a million by renting the number out. Now, imagine having control of 10, 20, 100 of these licences and renting them out. Do the math and you’ll begin to understand why some in the industry (especially some we have discovered aren’t drivers, do not live in this city or in some cases the country, and do not care about the drivers), strongly resist our efforts to level the playing field for the common person who is in it for the right reasons.

Finally, I’m sorry your one respondent felt I should be fired, and that you would suggest I am ’sneaking’ through legislation while people presumably are preoccupied. The holders of CPNC numbers who chose not to renew them did so for their own reasons, not as a result of any policy, condition, or stance that the city took. In effect the numbers simply died on the vine, no legislation involved. And our decision to not re-issue those same CPNC numbers came at the very strong request of numerous Orleans drivers who beseeched this office to give them an opportunity to finally make a decent living. And you know what….they’re right. We have an obligation to do what we can to help them, especially in a post-Katrina world. Besides, it makes perfect sense. At least it does to me and the guy who has to shell out $350 each week before he sees a single penny to put gas in the tank, buy a needed tire, fix a mechanical problem, pay the $300 to $600 monthly insurance, or see a dollar’s profit to take home.

Hey, it was fun but I have to get back to it. I hope this helps, if there is something further I can do to shed light on any of this business, drop me a line. Keep up the good work, go Colonels!

Sid Bournes
Deputy Director
Dept. of Safety and Permits
City of New Orleans