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Why D.C. is targeting the ride-hail industry

D.C. Mayor Muriel E. Bowser delivers her State of District address at the University of District of Columbia on March 15, 2018.
D.C. Mayor Muriel E. Bowser delivers her State of District address at the University of District of Columbia on March 15, 2018. (Marvin Joseph/The Washington Post)
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When D.C. Mayor Muriel E. Bowser proposed taxing Uber and Lyft to raise money for Metro, she was turning to an increasingly popular approach to pay for public transit improvements.

However, compared with other cities and states that have used the model, Bowser’s 37-cent additional fee on each $10 trip would be among the most radical examples of raising tax revenue for transit through ride hailing.

Bowser’s proposed $14.5 billion budget for the fiscal year that begins Oct. 1, would increase a 1 percent fee on ride-hailing trips to 4.75 percent, tapping into a revenue source known as the “gross receipts tax” to pay for about 10 percent of the $178.5 million in annual funding the city has pledged for its share of the Metro funding package.

In practical terms, that means a rider who now pays a dime in taxes on a $10 ride would pay 47 cents under the mayor’s proposal.

Bowser proposes tax increases, including on Lyft and Uber rides, to pay for Metro

By comparison, Chicago levies a 15-cent fee on Uber and Lyft trips to pay for a Chicago Transit Authority modernization plan — though the total tax on trips is 67 cents; Massachusetts tacks a 20-cent charge onto Uber and Lyft rides, with the revenue going to taxis, regulatory needs and localities for transportation improvements. Other cities, including Seattle and Portland, Ore., charge fees to support regulations of such services and the costs of implementing statewide transportation network company programs, but not for transit- ­specific improvements.

Experts say the District and others have found a new untapped revenue source.

“It’s a potential pot of money that is just sitting there,” said Adie Tomer, a fellow with the Brookings Institution’s Metropolitan Policy Program. “They need revenue for various reasons and here is a service that is relatively undertaxed, probably, in the minds of local government officials.”

But Bowser’s proposal came as a surprise given her previous position on the issue and the extent to which the trips would be taxed. Months earlier, when asked whether the District would consider a similar approach to Chicago, Bowser (D) said Uber wasn’t responsible for Metro’s problems.

“There are a lot of things that are cutting into Metro ridership,” Bowser said at an October 2017 news conference where she unveiled an Uber driver-support center in Northeast. “I would put first among them the year-long SafeTrack [maintenance] program, and also the cutting back of hours at Metro. So I wouldn’t start with Uber; I would start with Metro itself.”

According to officials involved in budget deliberations, Bowser was swayed to support the tax idea by D.C. Council member Jack Evans (D-Ward 2). Evans, who also is Metro’s board chairman, said city officials looked to every possible source to find the $178.5 million to support General Manager Paul J. Wiedefeld’s $500 million annual dedicated funding request — including property and sales tax increases.

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But in an interview Thursday, Evans was blunt in his reasoning for tapping the ride-hail industry to raise an estimated $18 million of the city’s Metro funding.

“Uber and Lyft are part of the transit system here, and so they should help pay to fix Metro because they’re benefiting from Metro’s demise,” Evans said.

Research has indicated that ride hailing is replacing some public transit trips, but the extent to which it is doing so is unclear.

Evans said ride-hail companies have benefited enormously from enabling legislation in the District, and despite their problems with the proposal, they should accept it for the good of the region.

“My advice to their lobbyists when they called me is, what you should say is, ‘We are happy to do our share,’ ” Evans said. “If they’re complaining, tell them they’re lucky I didn’t take them to 6 [percent] — and maybe I will.”

But the companies, all of whom say they support dedicated funding for Metro, say the tax increase could result in them raising fares for their customers.

The additional surcharge on UberPool fares, for example, could be particularly noticeable for users of lower-cost ride-sharing option UberPool.

Ride hailing has become more competitive with public transit as companies have rolled out lower-cost pooling and ride-sharing options enabling passengers to split the price of a ride. In some instances, the costs of rides are lower than the comparable Metro fare.

“Uber has long supported dedicated funding for Metro. However, we’re concerned that the current proposal disproportionately impacts residents who do not have easy access to public transit and inadvertently incentivizes people to drive their own cars rather than sharing their commute,” Uber spokesman Colin Tooze said in a statement.

“We look forward to continuing to work with D.C. leaders on policies that achieve our shared goals of sustainably funding transit and making it easier for people to choose shared modes of transportation,” Tooze said.

Are Uber and Lyft cutting into Metro’s ridership?

Bowser argues that the fee increase will put Uber and Lyft on par with taxis, which have taken a big hit since the services arrived. But the fee increase, up to 47 cents on a $10 trip, is nearly double the city’s taxi surcharge of 25 cents.

Uber supports an alternative: congestion pricing, a type of tolling that charges a fee or higher price for solo drivers as opposed to carpooling or shared rides. The revenue could then be redirected to transit or transportation projects to reduce congestion.

A version of the idea being pitched in New York would charge a fee for passenger trips into a congestion zone in Manhattan, according to media reports, with the funds directed to congestion reduction strategies and the city’s struggling subway system. The proposal, by a state task force assembled by Gov. Andrew M. Cuomo (D) also would institute a $2 to $5 surcharge on ride-hailing and taxi trips.

Tomer, of the Brookings Institution, explained why ride-hailing companies might favor congestion-pricing proposals, as opposed to taxes levied specifically on them.

From their standpoint, “if you’re going to hit us then you need to also hit solo drivers, and there’s a real economic argument that the solo-driver price should be even higher than the ride-hailing one,” he said.

Lyft also is cool to the idea of the tax increase, pointing to the “nearly 400 percent” rate increase and arguing it would hit low-income riders particularly hard. Nearly 4 in 10 of the company’s D.C. trips begin or end in low-income areas, the company said.

At a roundtable with reporters in Washington last week, Lyft President John Zimmer said proposals that discourage people from using ride-hail services, which can operate more cheaply than transit, are a potentially “dangerous” proposition. On a more basic level, he said, taxing ride-hailing services does not address the root cause of the problem.

“I think the fact that there are shortfalls in [the D.C.] budget means that there’s going to continue to be shortfalls in that budget,” he said. “I do think there are ways to tie this to public transportation. I don’t know that charging people more on this one is actually getting at the heart of the issue.”