Sharecropping on Wheels

At first glance, few things seem simpler than a taxi ride: call or hail a cab, hop in, declare your destination, and fork over a few bucks when you get there.

But beneath the simple, even romanticized, service model, the process that led to your passage has a host of largely unseen mechanisms – questions of competition, permits, fees, and what's best not just for passengers but for drivers.

These questions were publicly highlighted earlier this year in a report from Texas RioGrande Legal Aid, a nonprofit dedicated to pro bono legal work for the disempowered. TRLA's white paper on the local taxi industry, "Driving Austin, Driving Injustice," resonated with the alarming conclusion that after terminal fees, gas, and lease payments are deducted, local drivers regularly work more than 60 hours a week for less than minimum wage.

The paper, and a new drivers' group advocating on cabbies' behalf, the Taxi Drivers Association of Austin, emerged at the same time the franchises of Austin's two largest cab companies, Yellow Cab and Austin Cab, began winding their way to City Council for renewal. Late last month, the council voted to renew the two companies' franchises for five years; a third cab franchise, Lone Star Cab, whose permit expires in two years, will likely soon have its franchise extended to 2015, meaning all three competitors will be up for renewal simultaneously, creating the potential for a wide-ranging realignment of how permits are awarded and how franchises operate.

But the feeling among the drivers pressing the issue is that change must come sooner to Austin's convoluted taxi system. The drivers are dearly hoping that council action can and will speed that change along.

Money Flows Upward

Taxi Drivers Association of Austin Director Jeffrey Jones (who last week announced his intention to step down, to be replaced by TDAA Secretary Ann Darbonne) traces the strongest impetus for action to conditions at the airport. Due to the likelihood of large fares, it's the crucial and popular staging spot for drivers, and taxis queue in a reserved area nearby before being dispatched one by one, as demand dictates, to pick up customers. But the wait can take hours, and on a slow day there may be little movement – and the only amenity is a shaded area with a few tables and seats and no air conditioning. A site visit by Texas RioGrande Legal Aid provided a catalyst for the drivers' complaints to the city, and last October, council directed the city manager to develop a plan for climate-controlled facilities.

"That's what started it," says Jones, who doesn't currently drive a taxi but did for 13 years. That success, he says, "galvanized the organization. ... We were just like, 'enough is enough.' ... One of the things about our organization, our mission statement, is one of economic living and justice for cab drivers, and it is our belief that the city of Austin has allowed the franchises to develop a business model based on exploitation."

Jones compares the local taxi system, in which drivers pay "terminal fees" – essentially for the privilege of using one of the city's 669 permits, held by the franchise – and several other expenses, often including payments on the car, as a form of sharecropping, a system under which ongoing institutional expenses eat into whatever profit drivers try to make. "It really is exploiting the drivers, and what really bothers us is that the city of Austin is allowing them to do that."

From a thick pile of documents, Jones pulls out a weekly payment receipt for one hack, deeply indebted to Yellow Cab. He points to the lease fee: "This is the fare for the permit. This is per week. $290." The next figure down, $125, is the car note paid each week on the leased vehicle. The balance on the vehicle is the next line over, more than $18,000. Adding a $35 weekly maintenance deposit and other miscellaneous charges, this driver's fees for the week are easily more than $600. "And you still have to pay for gas," Jones says. "The average driver averages about $200 a week on gas. He has to pay around $800 before he makes a dime for himself. So how can you pay what's a week's salary and have money left for yourself?" And although $600 in fees is at the high end of the receipts Jones provided (all from anonymous drivers), it's by no mean the exception, or even the highest. The weekly fees range from the high $200s – for drivers who own their own cars and pay little or nothing more than terminal fees – to several in the $500 range, to one driver behind on payments shelling out more than $700 in one week. "The drivers are not making a good living," says Jones.

Life on the Edge

That, in brief, is the central argument of "Driving Austin, Driving Inequality." Among the report's dismal findings are that the average taxi driver, working 12 hours a day, earns only $200 a week before taxes.

The results came from a survey of 66 drivers, representing, as the study notes, about 10% of the 669 permits issued by the city. "Taking the average from all drivers surveyed, 65% of drivers work seven days a week, 12 hours a day, more than 51 weeks of the year to earn an average of $200 a week, which converts to about $2.00 per hour," reads the study. "A seventy-hour work week yields approximately $784 gross income a week."

The fees cutting into a driver's profit can also vary from franchise to franchise and the type of arrangement each has with the company. The fee to operate a cab, the "terminal fee," varies: Yellow leads the pack at $290, followed by Austin Cab at $235, and Lone Star Cab at $200. But equally important is whether, in the three fields defined by the report, drivers are "renters," "buyers," or "owners" – renting can add hundreds to a driver's weekly tab. The renters, often including part-timers who will rent a cab from a buyer or owner when that person is not driving it, accrue no equity in the vehicle.

That's not to say, however, that buyers come by equity very easily. For those purchasing a car from the cab franchise, the report reads, "This is hardly a purchase in the true sense of the word as failure to pay even one week or one late payment may result in forfeiture of the automobile and the loss of any equity." Jones says: "I don't get any equity back out of this. This is why we are saying it's an exploitation system." Lastly, owners purchase their cabs outright.

Yellow Cab responded to the TRLA report with an article in an in-house newsletter, titled "Let's shed light on misinformation." The company notes that in 2009, "the average cab in the Yellow Cab fleet grossed $61,254.58, with the top cab generating $105,337.05. The top 25% of cabs in our fleet gross an average of $80,938.09 annually; the top 50% gross an average of $73,134,46; and the top 75% gross an average of $67,281.44" – impressive numbers, but as gross figures, more indicative of how the franchise did rather than the individual drivers. The company also points to services that come along with their lease fees: indemnification from on-the-job damage to the car, GPS dispatch, and more, including the "second driver" program for drivers who sublease their cars on nights they're not working (a likely factor in some of the higher cab grosses, which then must be split at least two ways).

Additional fees and charges can eat into the bottom line: a weekly $15 charge for drivers who don't wish to display advertisements on the back of their cars, a weekly driver deposit paid along with maintenance deposits for new drivers, credit card fees, and more. And while insurance covers damage to the car, health insurance for the driver is extra – raising the likelihood that while working in what Jones calls "one of the most dangerous professions in the United States," a driver could be one bad accident or prolonged illness away from losing it all. The same worry attaches to dismissals. "There isn't even an appeal process in the city of Austin if the cab company cuts you off of your license," says TRLA attorney D'Ann Johnson. "Drivers don't have unemployment benefits because they are 'independent contractors.' So they have no recourse anywhere, they don't make enough to get traditional financing easily, and they can lose their job at any time. They don't have any predictability."

"What I find amazing," Jones adds, "is that Yellow Cab is fighting so hard for a five-year franchise renewal, but cab drivers drive day to day not knowing if they are going to have a job next week."

Is This a System?

It's not much of a stretch to say the local cab franchise system, haphazard as it is, could have been randomly pulled from a hat. In fact, part of it almost was.

Unlike other cities, Austin's always had a small number of franchises. Historically, there have been three: In the Seventies, they were Roy's Taxi, American Yellow Checker Cab, and Harlem Cab. Over the years, Harlem morphed into Austin Cab; Roy's went out of business and was purchased, along with the lion's share of its 155 permits, by what is now simply Yellow Cab. (The purchase price wasn't publicly disclosed, but it's widely believed to have cost Yellow Cab somewhere between $4 million and $5 million.)

When City Council approval for the deal came up in 2006, council decided to borrow from future permits, allocated based on population growth and demand at the airport, so that a third competitor could get in the business. When it came time, the winner of the new franchise, to be chosen from three applicants deemed acceptable by city staff, was initially set to be selected by literally drawing a name out of a hat. Ultimately, a more analytical mood gripped council, and by a split vote, Lone Star Cab was awarded the new franchise and a scant 55 permits.

When the five-year franchise terms of both Yellow Cab and Austin Cab came up for renewal this spring, it looked as though little would change, as the city's process for awarding franchises is essentially "that's the way we've always done it" institutionalized. And while nothing did change in the allocation of permits, the city is now taking a closer look at terminal fees, performance measures, and more, in theory, as a way to assist both drivers and customers.

"The franchise agreements we're talking about are a good indication of what we've been doing," says Council Member Bill Spel­man. "Yellow's getting the same permits they had last year, and Austin Cab is getting the same permits they had last year. We don't have a sensible basis for altering the number of permits that a company gets, even for watching whether or not the franchise holder is adhering to basic standards of customer service. I think we need to install that."

At the same meeting last month that re­allo­cated 159 permits to Austin Cab and 455 to Yellow Cab, council also passed a proposal from Spelman directing staff to work with the Urban Transportation Commission and additional stakeholders in developing "key performance indicators" for the franchises; new, performance-based methodology for awarding franchises in the future; and caps on terminal fees for drivers.

The current reporting system – or rather lack thereof – was on embarrassing display at a council meeting in April. Spelman asked Transportation Regulatory Manager Morris Poe whether the Transportation Department had ever collected data on on-time performance from the cab companies. Poe replied it hasn't, "because we just don't have the staff to do that. ... Occasionally we would try to do some just impromptu tests, make a call from a location and see how long it took them to arrive, but we've not done that in the past several years." Instead, Poe said, the only data the department collects is "limited information as to the number of complaints the customers may be providing," along with whether companies are complying to basic standards of safety and cleanliness.

Spelman instead envisions a taxi service index, similar to the system in place in Los Angeles, in which franchises and permits are awarded on merit. "A lot of this stuff comes from Los Angeles, where I think they've done a better job of regulating franchise holders for taxicabs than any other place I've seen," he says. "L.A. really has figured out how to do this." In the L.A. system, Spelman says, the city regularly issues requests for proposals for cab companies to bid on. "Some of them get selected; some of them don't. Sometimes companies that have been driving cabs in a particular part of Los Angeles for a particular number of years no longer get the bid to continue driving in that part of the city because their proposal wasn't that good. They also reserve the right in those agreements to cancel an agreement if the performance indicators aren't good, if the customers are dissatisfied, or they can get put on probation. ... More importantly, they're watching a lot more closely than we've ever watched before what actually happens to the customers, whether the customers are actually getting good service."

Additionally, the measure asks for recommendations on capping terminal fees. Part of the reason for that lies in the council's February action raising taxi rates 12.7% over the next three years. By adding a cap, Spelman says, "the franchise holder would not be soaking up the entire balance of an increase in rates," so more money can be left in drivers' pockets. "If we raise rates and it goes right out the door to the terminal fees, we're not doing the cab drivers any good. We can prevent that from happening." The resolution also encourages a broader look at several other issues, including the process by which franchises are awarded generally, the potential for green fleets powered by hybrid cars, upping the percentage of driver-owners in a franchise, and more (see "Hailing the Cabs").

That's not to say the changes will be easy: For instance, gauging on-time performance for companies can't currently be accomplished across the board, as only Yellow Cab and Lone Star Cab utilize computerized dispatch systems.

The Meter Is Running

At the May meeting, Spelman had one more trick up his sleeve, one that demonstrated the volatility of the cab industry as well as the city's curious approach to regulation. He proposed, per Yellow Cab's franchise renewal application before the council that day, that the city simultaneously remove 54 permits from Yellow Cab's franchise.

A 2006 ordinance passed by the council stipulates that no franchise control more than 60% of the permits on the market. Excepting wheelchair-accessible vans, which don't count toward the 60% limit, Yellow Cab, with 455 of 669 permits, currently holds about 70%. And while Lone Star Cab, whose permits have held at 55 in the three years the company has been franchised, would desperately like to get more, the city doesn't seem ready to issue any new ones, considering it borrowed against future permits to create Lone Star Cab's new franchise in the first place and fearing that issuing additional permits would simply mean more drivers competing for the same number of customers. With a possible surplus of permits on the market, competition from other services such as SuperShuttle, and a future rate hike perhaps driving demand even lower, Spelman said, "I believe that if we are serious about 60 percent and preventing any franchise holder from having the kind of market power that a monopolist would have ... then the only way we can do that without rather dramatically reducing the income of the drivers is to remove cabs from the Yellow franchise."

Spelman had to leave the dais on unrelated business before the vote took place, and judging from the surprise his proposal received from other members, it wouldn't have passed had he been there. And Mayor Pro Tem Mike Martinez pointed out that when the council passed the 60% rule in 2006, they were cognizant Yellow was already over the limit, and "they voted for the amount of permits that Yellow has in their hands right now."

So what accounts for the lightly regulated, non-merit-based growth of Austin's taxi industry? Part of the problem seems to be Austin's persistent official and cultural reluctance to stand up and be counted as a major metropolitan city with robust transportation needs. Part of it may be council's uncertain grasp of its own regulatory authority; during the franchise debate, Transportation Department Director Robert Spillar informed council members that they have broad regulatory power over the franchises, including the ability to make changes throughout the duration of the agreement, not just when franchises are up for renewal, as some had originally thought (which may have made it easier to pass the franchise renewal, and which means this problem is not going away). And it would be foolish to discount the money and influence of a firm like Yellow Cab, which, according to an in-house document, dispatched 1.2 million trips last year, producing, by the company's math, $16.7 million worth of business for its "independent contractors." As the franchise discussion reached council, the Chamber of Commerce rented a billboard on Congress Avenue congratulating Yellow on its decades of service; it served as a not-so-subtle reminder to city officials of the industry's most prominent customers.

While creating a merit-based paradigm for awarding permits is a necessary first step, other policy changes may be considered as well. For instance, it's strange that the city, now facing yet another budget shortfall, charges only $400 a year for permits when the terminal fees charged to drivers to use those permits top that amount in less than two weeks. It's a question reflected in the multimillion-dollar sale of Roy's – and essentially Roy's permits – to Yellow, from which the city saw essentially no return. "They didn't sell the cars," says Jones. "They didn't sell the building. The building belongs to Roy, so what did they sell? They sold the drivers. That's what they sold. They sold the drivers. So we're viewed as some type of commodity that can be sold and traded."

Further out on the horizon is a discussion of whether the franchise system is tenable or whether a form of "portable" permits – whereby driver-/owner-operators possess the permits themselves and can drive for the company of their choice – should be tried. Spelman, again citing the Los Angeles model, says that discussion is far from resolved: "Although I started off wanting portability, I realized Los Angeles has been working on this for a couple years, and they haven't figured out what it looks like yet. ... So the thing to do, I think, is think of this as a longer-term project. Watch what happens to other cities where they're working on portability – see what happens. Will they try it?"

The city manager's recommendations on revamping data collection and the permit award process are due at the end of September. Until then, Jones and the taxi drivers association will keep agitating for what they see as a fair shake. "We're not asking to be the wealthiest people on Earth. The taxi drivers aren't asking that. They just want a fair, equitable arrangement."