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Representatives from the taxi and for-hire industries speak with Councilmember Bruce Harrell after Friday's meeting.
Representatives of the taxi and for-hire industries speak with Councilmember Bruce Harrell after Friday’s meeting.

Last Friday, a Seattle City Council committee met to discuss how to regulate ride-sharing services that have emerged in the last few years as alternatives to taxis and other for hire vehicle services.  Companies like Lyft, Sidecar and Uber/Uber-X are being targeted as “unregulated” services.

Lew McMurran

This 57-page draft ordinance was the centerpiece of the Dec. 13 hearing. This issue has been percolating for months and action has been taken in other jurisdictions, notably California.

While it is plainly obvious the public has taken to these services as a reliable form of hired transportation, technically these services are out of compliance with various laws. Any type of ride-for-hire arrangement is regulated under either state law or local ordinances.

Underneath some of the legitimate safety and licensing concerns, however, is a classic “turf battle” between the current group of ride providers (taxis, for-hires, limos) and new market entrants that are nimble, use technology effectively and provide flexibility for both drivers and passengers. The fact that unions are involved adds another political dimension to the issue that the new entrants need to be wary of. This is because the elected officials listen closely to the unions because of their political clout, not necessarily because of their arguments.

Taxi and for-hire vehicle regulation is underpinned by limiting supply. By limiting the number of taxi and for-hire licenses, the market becomes skewed toward suppliers, as opposed to buyers. The reason for this limitation of supply makes sense if the goal is to maintain a certain level of revenue for ride providers. Jurisdictions then limit the price that can be charged so that consumers are not gouged, presumably leading to a balanced market between riders and drivers.

The size of “trade dress” such as the pink Lyft mustache would be among the practices regulated under Seattle’s draft ordinance.

What the new ride-sharing companies have done is to use technology to balance the demand between those needing and willing to pay for rides with drivers who want to provide rides for income, either part time or full time. In other words, a classic disintermediation play. The driver/passenger rating systems that some of the ride-sharing service employ adds another layer of customer service that one doesn’t get with taxis and for hire vehicles.

Any time a regulated industry is threatened by unregulated entities, the regulated industry stiffens its back and employs the “good ol’ boy network” to limit the new players. In the case of ride sharing, it means getting the unions involved since that is a well-known tactic to scare politicians in this region from doing anything that the unions perceive might hurt them. The unions are well known for exacting political retribution on those that are not with them 100%.

The union taxi drivers and others who are currently regulated came out in force at the Friday public meeting to express their desire for a “level playing field”, i.e. one that regulates the currently unregulated ride-sharing companies. There are some legitimate issues of safety and liability that need to be addressed. What was missing from the testimony at the Friday meeting was any complaints from riders who have used the unregulated ride-sharing services. The majority of complaints are about taxis that don’t show up on time and lack of availability at certain times in certain neighborhoods.

An interesting angle on this topic was given by Flywheel Software, a company that sells software to for-hire and other regulated transportation providers in both Seattle and San Francisco. They have developed a dispatch system that is more effective at matching riders with for-hire drivers. They state that their system has improved efficiency and has helped both riders and drivers within the current regulatory system.

The City of Seattle has to tread carefully as they must balance all the various interests involved — regulated entities, new market entrants, the riding public and the need to regulate the city’s transportation system.

The proposed ordinance itself is lengthy and complicated.  It creates a two-year pilot program of regulation of “transportation network companies” (TNCs, i.e. the ride-sharing companies) that must pay $50,000 annually for administration of the ride-sharing regulations.  Ride-share drivers must have adequate insurance and vehicles must have safety inspections.

Another feature of the proposed ordinance is an increase in taxicab licenses up to 1000, from the current level of 850, thereby recognizing that the demand for rides is outpacing the supply of those providing them. The City commissioned a study of taxis, for hire vehicles and limousines to get better information on this subject. That study is here.

California’s Public Utilities Commission (CPUC) spent a great deal of time on this topic as these new ride sharing services have disrupted the taxi and for hire industries in San Francisco. You can review proceedings from earlier this year here.

The Seattle City Council committee considering the regulation is made up of Council President Sally Clark, Councilmembers Bruce Harrell and Mike O’Brien. They are not going to act immediately on this topic but they will act relatively soon as this issue does need resolution before an injunction is filed to shut down the ride-sharing services and so that the riding public and transportation providers understand what regulations they must comply with.

Under any circumstance, it seems inevitable that Lyft, Sidecar, Uber/Uber-X and others will have to step up to a higher level of regulation.  The question is: Will that regulation allow for continued innovation in ride-sharing/matching or will consumers still have to wonder if the cab they called to get to the airport will show up in time?

Lew McMurran has been lobbying for various companies, local government and trade associations for the last 24 years, the last 13 of which were spent with WSA/WTIA, representing the tech industry in Olympia. He is now an independent government relations consultant working with tech companies on issues related to state and local government. He doesn’t represent any of the companies involved in this issue. Follow him on Twitter @lewismcmurran.

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