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In a surprise move that outraged city cabdrivers, the powerful rates panel of the D.C. Taxicab Commission last night passed a flat increase of 40 cents per ride, rejecting an industry-sponsored proposal to raise fares 23 percent for each zone.

Cabdrivers, union representatives and taxi company owners who attended the 1 1/2-hour meeting angrily predicted that the move would hurt service to the city's outlying zones, saying the limited increase will make short rides in the center of town far more profitable.

"It is illegal what they have done," said Dan Smith, the owner of nine cab companies and the architect of the industry proposal."It is the most arbitrary and capricious act I have ever seen by a public body."

Smith's proposal would have raised fares by 40 to $1.85 cents a zone. Other proposals had called for higher increases.

Commission Chairman Arrington Dixon called the panel's action "legal but outrageous."

He said he may challenge the increase by seeking a vote from the full 12-member taxi commission next week.

However, the full commission has not involved itself in setting rates and Dixon's authority to appeal yesterday's action is unclear.

The taxi commission was formed last May to improve taxi service, which has been plagued by poorly trained and unlicensed drivers, deteriorating cabs and decreasing numbers of vehicles.

Drivers and company representatives had said a large rate increase was needed to pump money into the cab industry to reverse the decline.

There have been no rate increases for almost three years, and the city's 10,000 drivers an annual insurance rate increase of $572 in June.

The fare increase is meant to financially assist drivers until the commission has time to complete a thorough study of the industry and can then vote on a permanent and probably higher rate increase.

It may be as long as a year before the commission is ready to vote on a permanent increase.

Dixon had predicted that the five-member rates panel -- which thus far has had sole authority to revamp the rate structure and other cab regulations -- would vote for the 23 percent increase.

The measure had been strongly endorsed by an accounting firm hired by the commission.

Instead, the direction of the meeting changed swiftly when a three-member faction that has feuded for months with Dixon offered a substitute motion to raise per-ride fares 40 cents, regardless of the distance of the ride.

The measure passed 3 to 2 after a brief but bitter debate. When it became clear the 40-cent increase would win, Dixon angrily said, "We have not been ordained as gods. This is not our will. We are here to carry out the will of the public."

Panel members Lucille Johnson, Joseph Becker and John Jessamy voted for the substitute measure, while Dixon was joined in opposition by Yale P. Lewis.

The vote followed a long deadlock in which Dixon's opponents on the panel refused to consider any increase because they believed they did not have enough information.

In November, when Dixon was unable to persuade the rates panel to consider any fare increase proposals, he suspended the panel and called a meeting of the full commission, saying it had the final authority to set rates.

However, the full commission resisted his efforts in return for a promise from the rates panel to vote on an increase.

After the rates panel introduced the 40-cent-a-ride increase, a public hearing was set and four proposals -- all calling for significantly higher increases -- were submitted.

Stephen Hern, an organizer for the Communications Workers of America, which represents about 400 cabdrivers, said, "We will do everything we can to see that this is not the final action . . . . This will only serve to increase the number of cabs working in downtown."

Lewis, the only working cabdriver on the commission, was even harsher in his assessment: "That vote tonight was garbage. Those people who voted yes are experts on nothing."

--------------- PROPOSED TAXI RATE INCREASES ---------------------

---------------- REVIEW OF ALTERNATIVE FARES ---------------------

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------------------------------------------- Panel on Rates & Rules

Zone---------------- Current ------------------- Proposal A ------

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Subzone ..............$1.80........................$2.20..........

1 .....................2.10.........................2.50..........

2 .....................3.00.........................3.40..........

3 .....................3.90.........................4.30..........

4 .....................4.75.........................5.15..........

5 .....................5.50.........................5.90..........

6 .....................6.35.........................6.75..........

7 .....................7.20.........................7.60..........

8 .....................8.05.........................8.45..........

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-------------- Industry Joint Proposal --- Washington Taxicab Assn

Zone-------------- Proposal B -------------- Proposal C ----------

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Subzone..............$2.20.........................$2.25..........

1.....................2.60..........................2.60..........

2.....................3.70..........................3.75..........

3.....................4.80..........................4.90..........

4.....................5.85..........................6.05..........

5.....................6.75..........................7.20..........

6.....................7.80..........................8.35..........

7.....................8.85..........................9.50..........

8.....................9.90.........................10.65..........

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------------------- Vance Gay --------------- CWA Local 2336 -----

Zone--------------- Proposal D ---------------- Proposal E -------

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Subzone..............$2.10.........................$2.10..........

1.....................2.50..........................2.40..........

2.....................3.50..........................3.60..........

3.....................4.50..........................4.80..........

4.....................5.50..........................5.95..........

5.....................6.50..........................7.00..........

6.....................7.50..........................8.15..........

7.....................8.50..........................9.30..........

8.....................9.50.........................10.45..........

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SOURCE: Compiled by District of Columbia Taxicab Commission.