May 21, 2011

LAST YEAR, ANALYSTS for D.C. Chief Financial Officer (CFO) Natwar M. Gandhi undertook a study of how taxicab medallions have worked in other cities. Here’s what they found: windfall profits for a small group of people; an overall decline in service with longer waits and higher fares; and a system open to corruption. The report has been largely overlooked; its harsh findings should serve as a cautionary tale for city officials contemplating bringing a medallion system to the District.

Legislation that would remake the taxi industry by limiting the number of cabs through a medallion system similar to those of New York and other cities is pending before the D.C. Council. Introduced by council members Harry Thomas Jr. (D-Ward 5), Marion Barry (D-Ward 8) and Michael A. Brown (I-At Large), with Yvette M. Alexander (D-Ward 7) later signing on, the bill purports to professionalize cab service by making it easier to implement standards. Initial medallion prices would vary from $250 to $10,000, depending upon the buyer’s years of experience and residence, the type of car, and where it would be driven. D.C. residents with more than 30 years of experience would pay the least.

There are drawbacks to a system that restricts supply and creates barriers to competition. A memo dated Jan. 4, 2010 by Fitzroy Lee, a deputy in the CFO’s Office of Revenue Analysis, detailed the study of medallions in New York, Boston, Chicago, San Francisco and Miami-Dade County. Researchers found consensus among economists that medallions benefit a small group of citizens, namely the first round of recipients, at the expense of consumers and drivers without medallions. “Evidence from other jurisdictions,” Mr. Lee wrote, “suggests that limiting entry into a taxicab market leads to a decline in overall service: consumers pay higher fares, wait longer for an available taxicab, face more service refusals, and receive less service than they would otherwise.”

The memo, carefully footnoted, recounts the plight of drivers forced to work long hours under leases to medallion owners, estimates fares 25 percent higher than in free markets, warns of the dangers of corruption in how medallions are allocated and suggests a loss of opportunity for would-be entrepreneurs, many of whom would be low-income and/or minorities. Neither Mr. Barry nor Mr. Brown offered any argument for medallions; both told us they see the bill simply as a way of starting a discussion on how to improve cab service. Mr. Barry acknowledged to us there were problems with the bill, which he said was written by John Ray, a former council member representing a coalition of cab owners and drivers. That Mr. Thomas — who wouldn’t talk to us about why medallions are a good idea — has personally used Mr. Ray to represent him in the separate matter of still-unresolved questions about his nonprofit should add to the unease. Mr. Ray told us he saw no problem in writing legislation to benefit one group of clients while getting another client to advance it. He said that medallions — which he considers a way to give taxi owners needed equity in their business — are just one part of an effort to modernize the city’s taxi fleet.

No doubt there are issues with cabs in this city. Drivers and vehicles vary, so riders are not always assured of getting a car with air conditioning or a driver who knows the best route. The District trails other cities in the use of energy-efficient vehicles and customer conveniences such as credit cards.

We, though, are not convinced that the best solution lies in upending a system that, by and large, has produced plentiful and reliable cab service. The council’s transportation committee, chaired by Tommy Wells (D-Ward 6), to which the legislation has been referred, has promised a thoughtful review including public hearings this year. It should start with a careful reading of the CFO’s memo.