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How Big Car Services Use Legislation to Drive Over Competition

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NASHVILLE, Tenn.-- In June 2010 the Nashville Metropolitan City Council passed legislation raising the city's minimum fee for limo and sedan rentals, bumping it from $25 to $45. Drivers were prohibited by law from charging less. Other new regulations forbid limo companies from using leased vehicles, require cars to be dispatched only from the place of business, compel companies to wait 15 minutes before picking up a client, and ban parking in front of hotels and bars to wait for customers. More laws that take effect in January 2012 would also require companies to replace all sedans and SUVs over seven-years-old, and all limos 10-years-old and older. Vehicles older than five years cannot enter into service.

Passed under the guise of consumer protection, the net effect is to give large, existing car companies (also known as livery services) a huge advantage over smaller companies, and to effectively prevent any new companies from entering the market. Prior to the new laws, Tennesseans could purchase transportation from downtown Nashville to the airport in a limo or sedan for the same price as an average taxi ride. Nashville residents and visitors will now pay almost double for the same service.

Nashville folks in need of an affordable ride, and drivers looking to earn an independent living in a sagging economy, join a long line of people caught on the wrong end of a nationwide effort by big car services to squeeze extra profit by regulating competitors out of business. It's a case of regulations actually costing jobs and driving up costs, just as Republicans charge they always do. But this time, the regulations are being pushed by the GOP's so-called "job creators," the new name given to big business.

A transportation battle currently playing out across the country pits large, established car service companies against their smaller and independent competitors. State or local governments in Arkansas, Florida, Georgia, Louisiana, Texas and Oregon, have all passed minimum fare regulations. The fight over new laws in Nashville, where a group of smaller car service owners have filed suit in federal court, belies the black-and-white approach the both Democrats and Republicans take to regulation.

Wesley Hottot, an attorney for the Texas Chapter of Institute for Justice, a non-profit libertarian law firm, says the Tennessee Livery Association (TLA), a coalition of expensive limousine companies, pushed the bill through with a number of provisions that benefit only its members. “There is no point in this regulation. It has nothing to do with public safety. It has everything to do with economic protectionism,” Hottot says. Hottot and his team have litigated similar cases involving economic liberty and property rights in federal and state courts across the country.

Such minimum charges for non-taxi car services are common all over the country. In Austin, Texas for example, the minimum fare of livery vehicles is $45, in Houston it's $75, and in Portland, Oregon, the fares must be 35 percent higher than the prevailing taxi cab rate. Little Rock, Arkansas companies can charge no less than $50 for limousines, no matter how long the ride, and no less than $30 for SUVs and sedans.

Back in Nashville, the Tennessee Livery Association not only supported the legislation, the organization actually took credit for writing it. In the October 2009 issue of Limousine Digest, Matthew Yorke, president of the organization and owner of Signature Transportation, claimed he actually wrote the legislation, along with the Metro Nashville Transportation Licensing Commission (TLA). "Not many organizations get to contribute and steer the actual content and wording of pending legislation," York wrote. "It’s a win-win.”

According to Yorke, the TLA was organized in 2009 to form a collective voice against the lack of livery vehicle regulation in Tennessee. Yorke writes in the article that stringent regulations on taxis inspired spurned taxi drivers to illegally operate limousine services outside compliance with state and federal law. This lack of regulation, he claims, allows illegal livery operators to “fly under the radar.” Yorke argues that the legislation is necessary to deter off-the-books drivers. “It was hundreds of hours, but we were able to create a livery category that encompassed all of the vehicles used in our industry... Now there are ways to differentiate between limousines and cabs, and if you don’t fall into one of the two [categories], then you’ll be ticketed.”

But critics say that under the guise of public safety, the TLA was able to convince the Metro City Council to eliminate the main way smaller companies could compete with its members: lower prices. Small and independent limousine and sedan companies are now required by law to charge the same high rates as their competition.

Ali Bakhari, owner of Metro Livery, says the new regulations have driven down revenue for his business by 45%. In addition to the price spike, he says the requirement to replace the older vehicles within his company will destroy his business model. “The age requirement affects 70% of my fleet. If I have to put out new cars, I will not be able to offer the prices I am offering now. If I have to start using brand new vehicles, I have to raise my prices because of the depreciation of the vehicles and everything. My business model is 5 year and older models. But we maintain our vehicles, we have all service records and we never have any problems with the customers or vehicles.” Before the law, Bakhari's company charged an average of $25 per ride in metro Nashville. He now has no choice but to charge $45.

Mr. Bakhari and other smaller livery owners also say their businesses have specifically been targeted by Nashville’s Transportation Licensing Commission (TLC), the agency that worked with the TLA to create these new regulations. “That was so frustrating. I worked so hard; I earned this company. I built this business model that fits my customers needs and I created so many jobs in a slow economy and they were treating me like I’m a criminal because I was a big threat for their government planted taxi monopoly that tried to protect taxis.”

The Institute for Justice is now representing several smaller driver services in Nashville, and has filed a federal lawsuit seeking an injunction against the $45 minimum fare. “[The Council] has said they just have to distinguish between taxi cabs and livery vehicles. Why? Why must there be a distinction in the marketplace on the price between taxi cabs and livery vehicles?" Hottot says. "If my clients can, and they can, provide affordable service in a luxury vehicle for the same price that it costs to take a taxi cab, then that’s great! That’s the customer’s business. It’s not the city’s right to come in and say that customers cannot have the benefit of affordable limousine service.”

Two Nashville Councilmen, Eric Crafton and Sean McGuire, tried repeal the minimum charge in July 2011, but withdrew when it was clear the bills couldn't pass. McGuire says limos should not be differentiated from taxis. “There is the argument that the upkeep of these nicer vehicles and the insurance of these vehicles cannot operate on this taxi rate. But in my opinion, if the company wants to do that, that should be their right if they can make that business model work. By all means, go for it. Assuming that everything else is above board with permitting and insurance and the drivers are properly documented and licensing is the same, then absolutely I think that people should be able to utilize those services.”

Vanderbilt University Economics Professor Malcolm Getz says government intervention in these operations shrinks taxes and fees from revenue and allows monopolies to form. It can also affect the economy in less obvious ways. “Restrictions on operations that drive up rates and reduce the quantity of service make a city a less attractive place to live and visit,” Getz says. “In the highly competitive convention business, higher rates for taxis, as with higher hotel/motel taxes, tend to reduce a city’s ability to compete for convention business.” Other effects follow. Restrictions on operations drive prices higher and reduce the number of service operators.

Sausage Making

The new Nashville livery regulations also show how other big players often manipulate the legislative process to protect their interests. According to McGuire, the entertainment giant Gaylord Opryland also actively opposed his bill to repeal the $45 minimum fee. “They’re in an interesting situation and they monitored my bill pretty closely. They actually own their own car service that serves their guests at the Opryland Hotel so they have a particular interest in the legislation as well.”

Opryland Hotel provides shuttle and limousine services to the Nashville airport about 10 minutes away. For the shuttle, a round-trip fare is $40; a single fare is $30. The limousine service costs $270 round-trip and $135 for a single fare. Gaylord Opryland and other big hotels that operate their own shuttle services were given exemptions from the new legislation. With the major hotels excluded, and expensive livery companies already charging similar fees, the only parties hurt by the legislation are smaller companies, independent drivers, and customers. (Gaylord Opryland did not respond to HuffPost requests for comment.)

According to the Institute for Justice's Hottot, the Nashville Conventions and Visitors Bureau, known for the Visit Music City campaign, also lobbied against McGuire’s bill. The NCVB, which receives 80-85 percent of its funding from the Metro Council, and acts as the administrator of the Metro Event and Marketing Fund, is a non-profit set up to promote Nashville tourism. Which raises the question: Why would an organization set up to promote tourism and Nashville support a policy that requires visitors to pay more for car services?

NCVB President Butch Spyridon says he opposed McGuire’s bill because he wanted a more comprehensive review of the problems with the city's livery law. “Calmer, cooler, intelligent heads need to get around the table. You don’t just legislate by whim. If every company that didn’t like something wanted to amend a law, we’d be in a world of hurt,” Spyridon says.

Protectionist Laws All Over the Country

The car service and taxi battle in Nashville has played out in other cities across the country as well. In June 2010, Prince George’s County, Maryland passed a bill to increase the number of taxi medallions, allowing for more competition. The medallion system created monopoly for a handful of major taxi companies, which then charged taxi drivers exorbitant fees. Some drivers pay almost half their weekly salary to rent cabs from the businesses. Increasing the number of medallions would make them less expensive, enabling more drivers to work for themselves.

That, critics say, is why the big companies and their allies opposed it. The three major taxi companies that control most of the medallions in Prince George’s County initially filed a lawsuit to stop the law. They later withdrew it, but in March 2011, Councilman William Campos sponsored a bill that would essentially repeal this new medallion law. Under Campos' legislation, the county would immediately stop issuing new medallions. It would also permit individuals to sell their medallions to taxi companies. Campos' bill would allow the larger businesses to own up to 75% of the medallions in the Prince George’s County, according to Mary Lehman, a Prince George’s Councilwoman.

The Institute for Justice has filed suit against similar legislation restricting ownership of taxicabs and livery services in Denver, Milwaukee, Las Vegas, and Minneapolis. Washington, D.C. has twice in the last five years considered a medallion system that would favor large taxi companies over independent drivers. The first attempt was abandoned after federal officials uncovered massive corruption and bribery scheme that included the former chief of staff of a city council member. The second attempt appears to have been defeated after the city's taxicab commission, which is subject to the city's open meetings laws, had two journalists arrested for making video recordings during one of its sessions.

Hottot says it's a curious time to be seeing these types of laws that make it more difficult for independent drivers to start up their own businesses---and that impose higher charges on customers and tourists. “That doesn’t make sense in any economy, but it certainly doesn’t make sense in a down economy."