Seeking Direction: Uber and Lyft Are All the Rage to Some and an Outrage to Others. Can Seattle Broker a Deal?

Ride-hail businesses have disrupted the transportation sector so thoroughly that cities like Seattle are forced to play catch-up — with inadequate information — as they try to regulate the new players while keeping legacy taxi companies viable.

This article appears in print in the April 2018 issue. Click here for a free subscription.

Don Creery is one of more than 14,000 people who drive for Uber in the Seattle area. He drives 40 to 55 hours a week. It’s his only job.

“I was looking for something else to do a few years ago,” he recalls. “I thought I’d give it a try. I did a taxi for a couple of years in the early ’80s. It’s exactly the same thing.”

Creery’s former colleagues in the cab business have come to the same conclusion. The taxi industry competes head to head with ride-hailing services — or TNCs, for transportation network companies — for the same passengers, using a different business model and operating under a separate regulatory scheme. But there is broad consensus — even Uber agrees — that the decades-old regulations governing taxis make it challenging for the industry to compete. City, county and state officials have all taken up the issue and are floating competing proposals to level the playing field, but they are discovering that it’s tricky to do so without discouraging industry innovation or compromising passengers’ interests.

Washington state has largely delegated to Seattle and King County the power to regulate the local taxi industry. Municipal ordinances focus on protecting passengers, both ensuring their safety and guarding against unscrupulous business practices. There are permit requirements for drivers and their vehicles, strict fare structures and a long list of other requirements. In return for working under a highly regulated system, taxi operators are given a protected monopoly where the number of entrants was limited to ensure there was enough business to go around. But the combination of regulatory rigidity and a lack of competition froze the industry in time: The biggest innovation in the past 40 years of the taxi business has been the acceptance of credit cards, a feature that still isn’t universal.

The implicit assumption in the way the taxi industry has been run and regulated is that a very limited number of people are willing to pay for a car ride. For decades, this theory may have been true. But TNCs have exploded that notion by reinventing the way people think about local transportation. They foresaw, and partially enabled, a set of demographic, environmental and economic shifts away from the “car culture” of the mid to late 20th century to a time when, as of 2016, 17 percent of households in the city of Seattle didn’t own a car.

With light-touch regulation, cheap fares and mobile technology that make it convenient to order a ride, TNCs started a virtuous circle that has dramatically grown the number of passengers and drawn thousands of new drivers to the industry. According to the King County Department of Records and Licensing, the county issued 28,000 licenses to for-hire drivers last year. About 1,400 of those went to taxi and flat-rate limousine drivers; the remaining 26,600 licenses were issued to TNC drivers.

Many of these licensees drive for more than one TNC, so it’s not accurate to say there were 26,600 individual TNC drivers in the county last year. If each of them drove for two ride-hailing services, for example, there might be only 13,300 drivers in the county.

Photo by Ben Emale. Illustration by Lori Kelley

So, how many ride-share drivers are there in Seattle? It’s a bit of a rhetorical question because TNCs like Uber and Lyft are loath to share what they consider “proprietary” information they don’t want their competitors to see. In a blog post last September, Brooke Steger, Uber’s general manager for the Pacific Northwest, did reveal that Uber had “more than 14,000 drivers” — and more than 800,000 riders — in “the Seattle area.” What Steger meant by “the Seattle area,” a spokesperson divulges, is King and Snohomish counties. However, the spokesperson would not be more specific about driver numbers in Seattle specifically.

Similarly, a spokesperson for Lyft in Seattle says, “We don’t share market specifics, including driver numbers, but I can say we have thousands of drivers in Seattle and we are excited about our growth in other parts of the state, like Olympia, where we just launched [in January].”

The fuzzy communication can be exasperating. And it may be one of the reasons Seattle City Council President Bruce Harrell, who is championing local efforts to revise ride-hail regulations by midyear, sympathizes with the plight of taxi drivers. “With the onset of innovation,” Harrell says, “those market entrants, the TNCs of the world, didn’t have a lot of appreciation for the hard work a lot of those other drivers did. This is their sole source of income and we’ve regulated them.”

In the end, there are only two possible levers to pull: deregulating taxis and/or regulating TNCs.

Harrell and his counterparts at the county and state level are contemplating a little of both. TNCs, of course, would prefer that policymakers focus on deregulating taxis. Caleb Weaver, who heads up public affairs for Uber in Washington state, argues, “If you’ve got a flat tire, you don’t solve the problem by flattening the other three.”

Nevertheless, Uber and Lyft have read the writing on the wall. They have been negotiating with state legislators on a TNC regulatory framework for Washington based on similar ideas already adopted in more than 40 states. Their compromise bill would put in place consistent rules for drivers, vehicles, enforcement, audits and government fees across the state, creating a level of predictability beneficial to consumers as well as drivers. It would also preempt local jurisdictions from writing their own stricter regulations, with a few carve-outs for Seattle and King County.

Their bill is silent on the hot-button issue of driver compensation, neither regulating it at the state level nor preempting local regulations — a nod to Seattle’s controversial ordinance granting TNC drivers the right to collective bargaining, which is currently tied up in litigation. (See more on that issue here.)

The TNC-sponsored bill has competition. The local branch of the Teamsters, which represents taxi drivers and is trying to organize TNC drivers, has put forth legislation that’s similar to the TNCs’ plan but includes several labor-friendly provisions. Not surprisingly, the city of Seattle has thrown its support behind the Teamsters version.

Assuming one of the two bills passes into law during the current legislative session, Harrell will be forced to curb his ambitions to regulate TNCs in Seattle and will need to settle for deregulating the taxi industry. There is certainly plenty of work to be done there, starting with rationalizing the dual-licensing scheme between Seattle and King County.

Today, taxis licensed in Seattle can pick up passengers in the city and drop them off in Bellevue, but unless they also have King County licenses, they can’t pick up new passengers in Bellevue to take them back to Seattle. This “deadheading” results in wasted time and fuel, inefficiencies in dispatch service and more traffic as empty taxis reposition. Harrell would like to look at a regional standard that reduces deadheading, though with the fragmentation of taxis across multiple dispatchers, it’s unclear that a single countywide license would accomplish his goal.

Harrell would also like to tackle some of the more arcane taxi rules that were put in place to ensure the artificially limited number of taxis is in service most of the time. Today, if taxi drivers don’t drive regularly, they must pay penalties. In some cases, they may lose their licenses. It’s a particularly onerous hardship for immigrant drivers who take long trips back to visit family in their home countries. But with competition from TNCs, this now appears to be a penalty without a purpose.

Harrell isn’t yet willing to concede on regulating TNCs. He has several issues he’d like to address. Regardless of which state bill becomes law, Seattle will retain the right to control traffic flow on city streets and to set rules on where TNC drivers can pick up and drop off passengers. Drivers see this as a potential positive: While taxis have waiting and drop-off areas reserved for them in some locations, Uber and Lyft drivers haven’t enjoyed the same privilege.

Meanwhile, Harrell’s colleague, council member Lorena González, has expressed interest in looking at driver conditions, including the availability of rest areas, so fatigued drivers aren’t putting themselves and their passengers at risk.

The most controversial issue, however, is TNC driver compensation, and Creery hopes the city council steps up. “What they are now paying is not enough to conduct business,” he asserts. “I just had to buy a new tire and I put it on my credit card. It’s going to be on my card for a long time.”

At a meeting in December, council member Mike O’Brien, sponsor of the ordinance authorizing collective bargaining by TNC drivers, expressed frustration that his ordinance has been blocked while litigation proceeds. His impatience has led him to seek other means to ensure that full-time drivers can earn a living wage.

Harrell, for his part, is unsure how to proceed. “I don’t really have a baseline on whether drivers are getting paid fairly now,” he admits. “I get mixed messages there. I hear from TNC drivers that they are way underpaid. But when I talk to other drivers, they say that it’s the best thing since sliced bread. So, I need to know what people are making out there and I’m having trouble getting information.”

Uber says drivers in Seattle typically earn about $20 an hour. Drivers suggest that it’s more of a range between $10 and $20 an hour after factoring in fuel and other costs. This lack of clarity presents another issue Harrell wants to address: access to industry data. Uber and Lyft assiduously resist providing policymakers with direct access to internal data, preferring instead to publish their own reports and to commission their own studies. Their primary concern is confidentiality: Any data they turn over to the city becomes subject to public document requests from any citizen — and from the competition. This stonewalling has frustrated Harrell and others in their attempts to answer a wide range of policy questions related to compensation, rates, geographic coverage, traffic and demographics of drivers and passengers.

A possible compromise is in the works: Researchers at the University of Washington have created the Transportation Data Collaborative, a neutral third-party repository for these kinds of data. Harrell and other policymakers wouldn’t have direct access but could pose questions to the collaborative’s researchers and receive answers in return.

Since the UW is a public university, there is some question whether the collaborative might still be subject to the state’s open records law. But if the issue is sorted out, Uber’s Weaver supports the idea. “We have reason to be optimistic,” he says, “that it would be a way to get questions answered without making proprietary data available that would cause other problems.”

Beside the question of whether regulatory reform can save the taxi industry sits a more difficult query: Should the taxi industry be saved at all? In just a few years, TNCs have evolved to offer a superior product: lower fares, better response time, better geographic coverage, 24/7/365 service, support in multiple languages, and overall a better passenger experience driven by the ability to provide ratings and feedback on drivers.

It’s not a perfect or complete service. For example, a passenger who requests a wheelchair-accessible ride from Uber is referred to a local taxi service. TNCs also are responsible for background checks on all drivers, but last November, Colorado fined Uber $8.9 million for deficiencies in its background-check system. Uber’s finances have also been scrutinized recently, as it appears the company continues to operate at a loss, keeping fares below its own costs and subsidizing the loss with investors’ cash. Is this a predatory business model intended to drive out competitors, including taxis? And what happens when the money runs out? Will the product quality drop or the fares increase? Consumers may find a deeper appreciation for taxis when that day arrives — if taxis still exist.

The dominance of TNCs raises another issue: When the smoke clears, will there be any full-time driver jobs left? For many, TNC driving is a part-time job with incredibly flexible hours. According to a 2015 study conducted by Uber and Princeton University, only 15 percent of Uber drivers nationally were driving full time (35 or more hours per week), versus 81 percent of taxi drivers. Harrell cites this statistic as one reason behind his desire to sustain the taxi business. “A lot of the people who migrated to being taxi drivers were low income — a highly immigrant population. But they kept the industry going.”

Lynn Reed, a part-time Uber driver who has several friends driving taxis, emphasizes their vulnerability: “There is a high percentage of immigrant taxi drivers, and they are afraid to make mistakes on anything. … They are afraid of doing anything wrong and getting kicked out of the country.”

Worse, many have personally invested in buying taxi vehicle licenses only to discover the investments losing value as TNCs circumvent the taxi monopoly. Still, driving is one of the few jobs available to new immigrants lacking specialized skills. As the “gig economy” moves workers from single full-time jobs to a collection of part-time “independent contractor” jobs, the strain on those trying to make a living and support families increases.

That tension flared up when the Seattle City Council was writing its collective-bargaining ordinance, and it continues within the TNC driver community as the large supply of drivers raises questions whether there is enough work to go around.

Illustration by Lori Kelley

Furthermore, the TNC companies are now discovering there is emerging competition for drivers, both among themselves as well as with the growing number of delivery companies that have embraced the “gig economy” model for deploying delivery vehicles. Waking up to the realization that their drivers are not a disposable asset, TNCs have begun to pay attention to their needs. After a sustained push by its drivers, for example, Uber recently relented and added tipping to its app. (Previously, passengers could only tip with cash.) Company-provided auto insurance coverage has improved, and other goodies such as peer mentoring and even a plan for portable benefits are in the works.

“I think Uber’s done a good job of pulling back from being a super pro-rider company and [is now] saying, ‘Oh, we’ve overlooked all these issues for drivers,’” says Reed.

And while the TNCs have been effective at disrupting the taxi industry, neither the TNCs nor their drivers are immune from disruption in this rapidly evolving landscape. TNC drivers discovered this recently when Sea-Tac Airport decided that only fuel-efficient cars could pick up passengers on airport property. Many drivers bought new hybrid cars to meet the requirement, but the airport quickly reversed itself when it discovered that the expected-fuel efficiency gains were being offset by deadheading gas guzzlers that needed to venture farther to find their next ride. Any car can now pick up at the airport again, so an expensive new Prius is no longer a competitive advantage.

Perhaps the bigger threat to TNC and taxi drivers lies in autonomous vehicles. If they do catch on, even part-time drivers may be out of jobs. Uber has already signaled its intention: It has its own internal R&D group developing autonomous cars. This development, of course, would require a whole new chapter of regulations — and a new level of hand-wringing by politicians concerned about passenger safety and drivers’ jobs.

“Is that in the future?” Reed asks. “Yeah, it’s in the future. How long, I don’t know.”

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