Ride-Hailing Apps Chip Away at a Once Reliable Source of City Revenue

Officials are adjusting expectations by postponing auctions of taxi medallions

There’s a McDonald’s on 125th and Broadway where Jaques Jules stops his yellow cab around midnight for a few minutes to stretch his legs, use the restroom, and eat a meal of chicken nuggets in the driver’s seat. Jules is tall, and looks a little cramped in the car. When he started driving a cab 27 years ago, the cars were bigger and more comfortable. Driving one used to be a lot more profitable too, he said, before ride-hailing apps like Uber really hit the market.

Jaques Jules in his taxi

New York City taxi driver Jaques Jules in his yellow car

“Now it’s dead,” Jules said of the taxi business. “The business is down, and it’s a hard to make the lease.” Taxis used to be a reliable source of income for the city too, but that’s changing.

Taxi medallions, the small pieces of metal nailed to the hoods of all New York City cabs, could once be counted on to contribute hundreds of millions of dollars to the city budget. Medallions were valuable because the city tightly controls the supply– there are only 13,000 in circulation now. To get one, drivers and cab owners have to win an auction, typically held once or twice a year. But there has not been an auction since 2014, when 350 medallions were sold for over $1 million each.

In February of 2015, the city announced there would be no medallion sales until 2017. But the city’s preliminary budget for fiscal year 2018 delays the auction until 2019.

Taxi driver Hulisi Dönmez has a simple explanation for this. “No one would buy them!” he said, referring to medallions. Driving a taxi has become much less lucrative, he said, and fewer people want to take the financial risk of buying a medallion. Dönmez guessed a medallion could only fetch around $200,000 in an auction today.

Would-be drivers don’t even need a medallion to drive a car for hire any more. Many drivers are choosing to drive for a ride-hailing app, like Lyft or Uber, instead, rather than buy a medallion from the city and drive a taxi. Data from the New York City Taxi and Limousine Commission shows the number of black cars in New York City, a broad category that includes both app-based cars and the more traditional limousines and chauffeured cars, has increased sharply since 2014. By the end of 2016, according to the New York City Taxi and Limousine Commission, there were 58,647 black cars in the city.

And their market shares are growing. In 2015, the most recent year of data available, the apps accounted for 17 percent of all trips in the city, according to the Taxi and Limousine Commission.

According to Freddi Goldstein of the Taxi and Limousine Commission, it is not unusual for the city to not hold medallion auctions. For example, there was no auction in 2011, she wrote in an email. What is more unusual is the length of time between auctions: it will have been four years since the last auction if the city does hold one in 2019.

Maria Doulis of the Citizens Budget Commission wonders if the long delay between medallion auctions could turn out to give Uber and Lyft a greater market share—and produce even less revenue for the city. 

The city projects medallion sales from 2019 will bring in $107 million, according to its financial plan documents. Between 2019 and 2023, the city expects medallion sales will bring in a cumulative $1.2 billion.

But Doulis thinks these estimates are unrealistic. “They’re not changing their assumptions of what the price for medallion would be at an auction,” said Doulis. She added that city’s estimates– that independent medallions could draw bids of $550,000 and corporate medallions as much as $850,000–are unfounded.

In the scheme of the city’s nearly $85 billion budget, $107 million is almost negligible in the short term. But over the next five years, Doulis said, the city will feel the pinch if medallions bring in a lot less than the estimated $1.2 billion.

“At a minimum you have to make your assumptions more realistic,” she said. “You might want to go a step further, just take this revenue out. And don’t sell any medallions until you think the market has stabilized.”

Taxi driver Dönmez fears this wait. He believes a long-term halt in medallion sales will be the end of his industry. If taxis become hard to find, more and more passengers will turn to the apps, he said. “People take Uber because they can’t find taxis,” Dönmez said.

There are already more Uber and Lyft cars on the road than taxis–58,647 to 13,000 medallion cabs, according to the Taxi and Limousine Commission–so they are easier for customers to find. Another year without medallion sales could increase the disparity.

 

Share

One Response to "Ride-Hailing Apps Chip Away at a Once Reliable Source of City Revenue"

  1. chrissy  March 24, 2017 at 3:12 pm

    Taxi drivers need to realize that people like convenience and apps. I use the taxi app E-HAIL (www.goehail.com) same concept but real a real taxi not an Uber. They should download it to compete with the other apps.

    Reply

Leave a Reply

Your email address will not be published.