Houston Taxi Study

By

Tennessee Transportation & Logistics Foundation

TTLF

Ray A. Mundy, Ph.D.

Tel. (314) 225-7039

Fax. (314) 516-7272

Email:rmundy@ttlfconsulting.com Website: www.ttlfconsulting.com

January 20, 2014

Table of Contents

Purpose and Scope of Engagement ........................................................................................... 1

Summary, Observations, & Recommendations ....................................................................... 3

Theoretical Background............................................................................................................. 8

Taxi Regulation in Other Major Cities................................................................................... 20

Taxi Regulation In Houston..................................................................................................... 23

Stakeholder Interviews............................................................................................................. 32

Houston Taxi Service Questionnaire ...................................................................................... 58

Secret Shopper Reports............................................................................................................ 72

Public Intercept Survey............................................................................................................ 81

Appendix A: Detailed Explanation of Types of Taxi Companies ........................................... 106

Appendix B: Letters From Mayor .......................................................................................... 111

Appendix C: Houston Secret Shopper SurveyText Responses .......................................... 121

Appendix D: History of Taxicab Regulations ...................................................................... 142

Appendix E The Propose Vehicle and Driver Identification System ................................. 157

TTLF CONSULTING – RAY A. MUNDY, Ph.D.

PURPOSE AND SCOPE OF ENGAGEMENT

The purpose of this report is to relate the findings and recommendations of a study contracted by the City of Houston for the examination of taxi services within the city of Houston. TTLF’s approach included the following project tasks:

Phase I: Determine System Requirements and Current Situation

Meet with officials and staff to clarify project scope, request further data, determine study requirements, and create lists of people and organizations to interview

 Establish an internal taxicab study advisory group.

 Conduct comprehensive customer/hotel surveys/interviews with all stakeholders as deemed necessary

 Conduct Secret Shopper trials of taxi companies serving Houston, Texas

 Conduct on-line and on-street surveys of residents and visitors regarding Houston’s taxi service

 Interview taxi dispatch companies and taxi drivers

 Interview current taxi permit (decal) holders

 Obtain dispatch data, both raw and electronic, from existing taxi operators to perform service level analysis on existing taxi system.

Phase II: System Conceptual Design

Meet with Houston Taxicab Study Advisory Board reviewing current conditions and comparing Houston with other cities of similar size and situation

 Provide several alternatives for discussion and consensus, building an appropriate "best fit" taxi regulatory model for Houston to use in the future.

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Phase III: Implementation Plan and Detailed Design

Prepare detailed recommendations and implementation plan of the chosen alternative for final approval

 Prepare final report

 Be available for public hearings and presentations as necessary

This report will discuss the rationale and necessity of regulating taxi operations within the City of Houston; the current Houston taxi markets and company structures for the provision of taxi services; the current environment for taxicab service, and finally, recommendations for the future. Included within this report will be an analysis of challenges and opportunities for traditional taxicab operations brought about through the introduction of "transportation network providers", new entrants using digital dispatch to serve customers. Examples of transportation network providers include Lyft, Uber, and Sidecar.HOUSTON TAXI STUDY 2 ```

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SUMMARY, OBSERVATIONS, & RECOMMENDATIONS

Analysis from initial data supplied by the taxi companies, frequent user surveys, stakeholder interviews, and secret shopper interviews is detailed herein, and individual survey responses point to several issues. These observations and issues would be:

 There are many positive things to report regarding the Houston taxi system. Most impressive is the response time achieved by the city’s largest self-service taxi company. This company achieved a response time of 77% of calls from a taxi being serviced within 15 minutes and 93% being serviced within 30 minutes. This is among the better level of taxi dispatch service for any city in North America, especially for a large metropolitan city.

 Overall, individual Houston Taxi users are very satisfied with their dispatched taxi services.

While there is a good operational performance of dispatched taxis and good satisfaction with some taxi services, frequent taxicab users such as hotels, restaurants, medical facilities, etc. rated the quality of the vehicle, driver dress, and attitude, quite low when compared to other cities. In addition, secret shoppers found nearly a quarter of Houston taxi drivers to be unfamiliar with Houston streets and constantly talking on their cell phones while driving. These issues need to be addressed.

 There exists substantial frustration among taxi owner/drivers that lease city permits but receive little value in the way of dispatch trips, corporate vouchers, or other demand generation for their lease payments. These owner operators serve primarily the airport(s), downtown taxi stands, hotels, personals, and hails. Should a future administration decide to change the way taxicab services are currently provided at the Houston airports – either by converting current taxi operations into concessions, or staggering staging days, or some other form of change due to the potential for improved vehicles and services, these operators could be forced from the market place. Alternative recommendations to address any future operational changes at the airports

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might include the following options;

1. Recalling all taxi permits from current owners that do not drive their own taxi nor provide value in their management of these permits in the form of dispatch or prearranged demand at a prescribed minimum level, and redistributing them to the owner/drivers. This alternative is being requested by Houston’s AFL organized owner/driver association. However, their alternative does not address the issue of creating demand for these drivers other than continuation of serving the airport as it currently exists.

2. A more responsive recommendation is for all taxi permit holders to be able to generate a minimum number of trips per day per vehicle in order to offer their permits at any lease rate greater than 100% of the sum they pay the city to renew their yearly permit. This could be accomplished by requiring that owner/drivers belong to a taxi dispatch company or an airport taxi concession company should the airport(s) someday decide to institute concession agreements. Such a recommendation would force permit holders to either develop a viable dispatch and marketing plan or lease their permits through a current full service taxi company that already has a viable taxi dispatch and marketing system. In this alternative there is no retaking of permits – only new requirements for leasing a permit.

 There is substantial fra gme nta tion in the Houston taxi market and confusion among customers due to the continued proliferation of color schemes of single owner/operator independent contract drivers and long term lease drivers who create the appearance of their own taxi company. A substantial number of Houston’s taxi permits are managed by companies and individuals that permit drivers to lease their permit on a long term (one year) basis with the concept that the permit lessor can then own and operate his/her one car taxi company – painting their car a distinctive color scheme unlike other taxi color schemes within the City of Houston.

1. While the concept of supporting the individual as an entrepreneur is laudable in theory, a one, or even several car taxi company for a City the size of Houston is

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simply not workable unless these operations work the airport and other areas which need no dispatch system. Self-dispatching of these types of small taxi companies is not feasible since calls can come from anywhere in the 624 square mile area of Houston. These types of operations are car services who will negotiate to provide service depending upon where you are and where you plan to go.

2. All Houston taxi owner/drivers should be dispatched from a taxi dispatch company that generates a minimum amount of demand per day per car and all taxis should be painted in the colors and brand name of that dispatch company.

3. Greater enforcement of illegal taxi operations is a constant complaint of current taxi permit holders and licensed taxi drivers. Illegal operations or suspected illegal operations often occur because of all the different rainbow colors currently present in the Houston taxi market. As shown by frequent user surveys, users are also confused by all these taxi color schemes. While the above recommendation to have all taxis be part of a brand name dispatching system will go a long way toward improving the ability of taxi inspectors to manage only a few registered colors, there would still be confusion regarding legal sedan and limousine services. Therefore, a form of distance based bar coding or electronic monitoring is recommended for use on all regulated vehicles so inspectors will instantly know when a vehicle and driver are legal.

 In order to better manage the large number of regulated vehicles on Houston’s streets, better technology is needed to quickly identify and verify the operating permit and driver of these vehicles. The technology recommended for Houston would be a hand held reader that reads a bar code tag indicating to whom the vehicle belongs and who is legitimately permitted to drive this vehicle. The information would be tied to a database of vehicles and drivers and would either find a match or indicate that it was an illegal (unregulated) vehicle and/or non-licensed driver. This system would also include a picture of the driver and the ability to generate violation notices automatically if a violation is found. Contained in Appendix E is a quote for such a system developed

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by GateKeeper Systems that meets and exceeds these operating parameters.

 Requirements for improved driver screening, training, and service conformance must be implemented. Frequent user surveys, secret shopper reports, and stakeholder interviews indicate a general lack of customer service by a small but significant percentage of current Houston taxi drivers. Smoking in their vehicles with passenger present; refusal of credit cards, refusal to provide proper receipt; being rude to customers, fighting with hotel doormen; etc. This is creating considerable ill will and poor images of the entire Houston taxi industry – negatively impacting the many fine and helpful Houston cab drivers through loss of general business activity and opportunities due to this behavior. Recommendations to improve this situations would include, but not be limited to the following;

1. Increasing standards for obtaining a Houston taxi driver’s chauffeur license.

2. A formal training program paid for by drivers

3. Requiring that all taxi mobile dispatch applications contain a customer complaint section that is transmitted electronically to the City of Houston for assembly of a database on driver behaviors. Drivers receiving significant complaints would have their driving license suspended and/or not renewed.

 Taxicab driver safety is an issue that needs to be addressed in Houston. Currently the industry solution to deterring crime is to offer shields for the drivers but often this defeats the quality and level of service of the taxi in favor of car services and other alternatives. Recommended is a comprehensive program of taxicab cameras and rigorous enforcement of violators to reinforce the concept that robbing or harming a taxi driver is a quick way to acquire time in jail or juvenile detention.

 The number of taxi permits appropriate for the City of Houston is a constant issue that needs to have some quantifiable base to it in addition to comparing populations or simple growth in population as the basis for the number of taxi permits to authorize. It would appear that the call or reservation market is being well served for those who run a full service taxi dispatching company but the hotel and airport service is seriously lacking in terms of driver behavior but not availability of taxis. The addition

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of taxi permits to serve either market would have the short run effect of diluting the market and decreasing the earning potential of current drivers. However, if the number of taxi trips per vehicle is increasing and service delivery time begins to diminish, then additional permits will be needed.

In order to maintain a balance between existing service levels and ability of the taxi industry to service increased demand, a formula based on demonstrated need through additional trips per vehicle is recommended as the additional methodology to add additional permits. In this way, additional permits will only be issued when there is demonstrated evidence of increased demand in addition to the traditional measures of deplanements and population. This formula would be a ratio of increased demand in the form of additional taxi trips divided by the current number of taxi trips from dispatched companies, or:

Such a formula can suffice for current operators but would appear to limit the opportunity for new entries into the Houston taxicab market. Of course, anyone can purchase an existing taxi dispatch company and enter the market but in order to overcome the issue of keeping new firms out, it is suggested that when the number of increased trips per vehicle indicate a need for 300 new taxis or 12.1% of the market supply, 150 permits be set aside for another taxi dispatch company to be awarded by competitive proposals to the city.

Ultimately, where the City’s problems appear to derive from individual cab drivers that may not be dispatched but rather depend upon street hails and stands to generate their business. Houston’s non-dispatch taxi operations, as shown by responses to several surveys and personal interviews, require immediate attention. Therefore, the primary long-run strategy recommended for the City of Houston from this study is to concentrate its efforts on ensuring that 100% of its taxi permits are value added permits, either through dispatch or pre-arranged business, thereby providing a driver with an income opportunity which is greater than their daily or weekly lease rate for the permit itself. HOUSTON TAXI STUDY 7 ```

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THEORETICAL BACKGROUND

Why Regulate Taxis?

The necessity to regulate taxi services within the State of Texas and City of Houston arises from a mandate in Texas law, specifically Section 215.004 of the State of Texas Local Government Code, which provides that cities in Texas "shall license, control and otherwise regulate each private passenger vehicle…hat provides passenger taxicab transportation services… There is no similar requirement for regulation of any other category of passenger transportation at the municipal level However, by statute, cities may license and economically regulate the provision of transportation systems if city officials are so inclined and deem these regulations to be in the public’s interest.

Taxi Deregulation Results in Other Cities

The failure of the U.S. taxicab industry open entries deregulation is well documented. Dr. Sandra Rosenbloom of The University of Texas, and Dr. Roger Teal if The California State University have separately concluded that taxi deregulation has failed to demonstrate any substantial benefits to drivers, taxi firms, or users.12 Dr. Paul Dempsey, in summarizing the empirical data from these researchers' studies and other commissioned studies3, listed the results of taxi deregulation in 21 major U.S. cities prior to 1983. These were:

1 Rosenbloom, Sandra The Taxi in the Urban Transport Systems, The Private Challenge To Public Transportation (Charles Lane, ed., 1984)

2 Teal, Roger & Berglund, Mary, The Impacts of Taxicab Deregulations in the U.S.A., Journal of Transportation Economics of policy, Volume #37, (Jan. 1987)

3 Dempsey, Paul Stephen, " Taxi Industry Regulation, Deregulation & Regulation: The Paradox of Market Failure" Transportation Law Journal, University of Denver, College of Law, Denver, Colorado, Volume 24, #1, Summer 1996, p.102

1. A significant increase in new entry;

2. A decline in operational efficiency and productivity;

3. An increase in highway congestion, energy consumption and environmental pollution;

4. An increase in rates;

5. A decline in driver income;

6. A deterioration in service; and

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7. Little or on improvement in administrative costs.4

4 Dempsey, Op. Lite, p. 102

5 Gentzoglanis, Anastassios, "The Taxicab Industry: Theoretical and Empirical Evidence from (De) Regulation,"

Proceedings; International Conference on Taxi Regulation, Montreal, United States, 1992, p.57

6 Teal, Roger F., "An Overview of the American Experience with Taxi Deregulation" Proceeding IATR, Montreal, United States, 1992, p. 123

Other notable authors having once advocated taxi deregulation by removing the maximum number of cabs authorized to provide service and recognizing a single owner/drivers as a cab company have since changed their minds based on the empirical evidence and the failure of their own recommendations.

"The taxicab industry has undergone significant changes in the last decade or so. It passed from a regulated industry to a deregulated one in many cities and municipalities and back again to the regulated environment. A lot of economists who were arguing that regulation causes perverse effects on taxicab industry performance have changed their minds after having observed this industry operating without entry and fare regulations and have invoked back the regime of regulation."5

An entry proponent of taxicab deregulation, Professor Teal writes:

"By the late 1980's, the returns were in on the taxi deregulation experiences. These took two forms. The first was actual data on the post-deregulation experiences, obtained in part through studies sponsored by the U.S. Department of Transportation (Gelb, 1982; Gelb, 1983a; Gelb, 1983b; Teal et al., 1984). The second involved the responses of the local governments which had initiated the regulatory changes, namely continuation, modification, or abandonment of these policies.

"Both analytically and politically, economic deregulation fared relatively poorly, particularly compared to the expectations of its proponents. The local governments which had adopted the most far-reaching forms of deregulation eventually either completely abandoned this policy or sharply scaled back the most significant features of deregulation. In addition, the only comprehensive empirical study of the deregulation experiences came to the conclusion that the benefits of deregulation were "insubstantial" in most locales (Teal and Berglund,1987). While some economists continue to argue on theoretical grounds for deregulation, apparently not willing to concede to the empirical evidence (Frankena and Pautler, 1984 is an early example; Travers Morgan, 1988 a more recent example), the political debate appears to be largely over. No large American city has deregulated its taxi industry during the past several years, and the issue has essentially disappeared from the active urban transportation policy agenda."6 (Original citing from 1992, but is still viable today.)

The deregulation and then re-regulation of taxicabs in the city of Seattle is indicative of the taxicab deregulation experienced by many major U.S. cities. James J. Buck, Manager of HOUSTON TAXI STUDY 9 ```

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Seattle's King County Division of General Services, writes:

"In 1979, the Seattle City Council adopted legislation which eliminated the population ratio as an entry limitation for taxicab licenses. You could license as many cabs as met the licensing requirements, i.e., application fee, insurance, inspected and approved vehicle and taximeter, approved name and color scheme, and approved ownership. At the same time, rates were whatever the licensee filed with the City, as long as the rate followed the prescribed form and was reflected on the taximeter.

"Did the market regulate entry and rates? NO. Were there problems? YES. Rate gouging. Short haul refusals. Surly and discourteous treatment of passengers. Fights at cab stands at the Airport. Experiential data concerning accidents and safely became very damaging, impacting insurance rates and coverage. Government regulators were constantly barraged by industry complaints that "deregulation" wasn't working, they couldn't make any money, unsafe vehicles on the street, tension and animosity among drivers with the potential for violence, etc. Pleas for reviews were frequent.7

7 Buck, James J., "The Seattle U-Turn" Proceedings, International Conference on Taxicab Regulation, Montreal,

United States, 1992, p.141-142

8 Analysis of Taxicab Deregulation and Re-regulation, Price Waterhouse, Office of Government Services,

Washington, D.C., 1993

By 1984, taxicab deregulation in King County was dead -- completely reversed with fixed limit on taxicab licenses.

By far the most comprehensive analysis of taxicab deregulation and re-regulation was prepared by Price Waterhouse's Office of Government Services.8 Six U.S. cities which had deregulated their taxicab previously through open entry were examined in depth. The executive summary of this Price Waterhouse report concludes:

"Deregulation introduced several immediate changes in taxi supply, price, and service quality in the six cities for which detailed case study information is available (Berkeley, Oakland, Phoenix, Portland, San Diego, and Seattle.) The experience of these cities generally indicates that the benefits of deregulation were devalued by unanticipated and unattractive side effects:

"Although the supply of taxi services expanded dramatically, only marginal service improvement were experienced by consumers. Within a year of deregulation, the supply of taxi services increased an average of 23%. Because most new entrants were independent operators and small fleet owners with limited capability to serve the telephone-based market, most new service was concentrated at already well-served locations -- such as airports and major cabstands. Customer wait times at these locations, already short, were reduced further. Response times in the telephone market were similar to pre-deregulation performance. Trip refusals and no-shows, however, increased significantly.

"Prices rose in every instance. Paradoxically, the influx of new entrants did not HOUSTON TAXI STUDY 10 ```

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invoke the price competition typically experienced in other newly-deregulated industries. Prices rose an average of 29% in the year following deregulation. There appear to be two sources of this unexpected event. First, fare increases prior to deregulation had consistently lagged cost increases. Veteran operators thus corrected prices at the first opportunity. Second, new entrants generally charged higher fares than the veteran operators. The cabstand markets on which these operators focused their services are generally price insensitive and, because of the first-in first-out nature of taxi queues, comparison shopping is discouraged. For these reason, the new entrants had no incentive to introduce price competition.

"Service quality declined. Trips refusals, a decline in vehicles age and condition, and aggressive passenger solicitation associated with an over-supply of taxis are characteristic of a worsening in service quality following deregulation.

"The negative aspects of deregulation were especially evident at airports and major tourist attractions. As a result, deregulation often acquired the enmity of the business

community and adverse media coverage. These effects were most closely associated with cities that implemented an "open entry" policy that enabled influx of independent owner-operators that were unaffiliated with companies or taxi cooperatives.

The airport taxicab system might have an impact on low-income and residential users - the primary market for non-airport taxicabs. Professor Gorman Gilbert, one of the country's foremost writers on taxicabs and former Commissioner of the New York City Limousine and Taxi Authority writes the following:

"The increase in taxicab fares in residential areas produces a particularly bitter impact on low-income persons. A major and increasing proportion of residential taxicab business originates in low-income or minority neighborhood…this is not surprising since residents in these areas are often dependent on taxicab service for mobility. These trips are for essential purposes, such as trips to grocery stores and medical factories. In contrast, the trips from airports and downtown hotel stands are made by persons who are clearly more affluent businesspersons, vacationers, and conventioneers.

"Increasing fares to residential areas means that the impact of more taxicab is borne disproportionately by low-income persons. In other words, those who can least afford to pay would be charged the most…Those who follow the academic argument of 'letting the market decide' taxicab fares are really 'letting the poor pay more.'"9

9 Gilbert, Gorman, Effect of Open Entry and Variable Fares on the Cost of Taxicab Service to Residential areas,1984 HOUSTON TAXI STUDY 11 ```

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This is not to suggest that Houston and other communities should forego the new technologies that are being advocated by digital dispatch companies. Indeed, the use of mobile apps which bring about ease of payment, the security of a digital trail of company, driver, and transaction; plus a record of transportation expenses, should be encouraged by taxi regulatory bodies. Current companies which offer these newer technologies should be encouraged to enter the market. Current operators of taxi companies should be encouraged to utilize these new technologies as ways to improve their services to the public.

Houston is fortunate to have two major taxi companies that have implemented their own mobile apps that provide similar features to those who want to enter the market. One taxicab operators has developed its own digital dispatch application, while the other uses a third party application that directs customers to the company’s computerized dispatch service.

Framework for Analysis

The emergence of new digital dispatch technologies is leading regulators to carefully consider what defines a taxicab company. Taxi companies today can be, and often are, very different – even within the same community. Houston is fortunate that it has two taxi dispatch companies that are used by over 90% of its residents. These large dispatch companies appear to be full-service taxi companies with a long-run view of providing good customer service. However, Houston has over 141 taxi companies that, arguably, do not add value to their permits by having significant dispatch operations. Each company has its own color scheme. There are 122 taxi companies with yellow page advertisements for their phone number, and will accept customers on the condition it is a "good" trip, i.e. a longer trip which is more lucrative. Drivers in these operations are more akin to that of private car services with a meter; their primary markets are the airports, taxi stands, and personals. HOUSTON TAXI STUDY 12 ```

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Figure 1

A thorough knowledge of the Houston taxi market first requires some detailed explanation of the traditional types of taxicab firms found in North American communities in general. The North American taxi industry can be perceived as a continuum ranging from a comprehensive taxi firm to single independent taxi driver(s) acting as a taxi firm. At one end of this continuum, there is a long run orientation toward the taxi company as the provider of service and at the other end is the reliance on the independent owner-operator taxi driver as the provider of service. (Figure 1 below) A detailed explanation of these taxi company categories can be found in Appendix A.

As shown, this continuum of taxicab firms ranges from the total taxi firm which adds significant economic value to the city's taxicab permit, down to a simple decal holder who drives their own taxi or leases their decal to the highest bidder who may provide a vehicle that they or others drive. At the upper end of this continuum, the total taxi firm, stages one and two, are adding significant value to the community permit using their own employees or owner-operator drivers. Similar to most U.S. cities, except Las Vegas and Reno, Nevada, there are no stage one taxi firms Houston. These firms typically take a long term view of their marketplace – using resources to develop additional markets so more taxis can be added. They attempt to serve their entire geographic market through modern dispatching technologies such as GPS tracking and computerized dispatching the closest cab, and now have developed their own mobile apps or are working through a third party operator that provides them that HOUSTON TAXI STUDY 13 ```

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capability.

As we move toward the concept of the independent driver who owns his/her own vehicle and/or license (permit) or drives for one who leases him/her their permit, just the opposite view may be taken. The orientation is typically short run – that day to make the lease cost of the vehicle first and then to contribute to their income. Drivers work public stands and the airport, if it is open, foregoing the cost of belonging to a dispatch system or feeling the cost of dispatch outweighs the value of the calls they receive. If they do belong to a dispatch system, they will often make the economic decision not to service the short trip which requires them to dead head away from the stand they are on or they know the address is one who typically makes a short trip such as a grocery trip. When this occurs, such as in an open entry or deregulated taxi system, there is no taxi company to manage taxi service levels and the community inherits a much greater role in the management of these taxi drivers on a day-to-day basis.

Unfortunately, most city taxi licensing or regulatory systems are set up as if we still had either Category 1 or Category 2 full service taxi firms. As such, traditionally, cities assume very little management role of the taxi drivers. Some taxi companies have changed a part of their methods of operation; first, by changing the employee-employer driver relationship to that of an independent contractor driver – thereby eliminating many government mandated employee costs. This, in and of itself, does not necessarily change the long run service view of the full service taxi company.

Furthermore, it should be noted that the shift from employee drivers to independent contract drivers has been the prevailing trend within the taxi industry for the past several decades. Today, there are only a few major cities, such as Las Vegas, Nevada where taxi drivers are employees rather than independent contractors. It is also noteworthy to point out that this move to independent contractors, in and of itself, does not have to lessen the amount of management oversight of the drivers. While a taxi company management firm cannot exercise traditional employee control over a driver’s activity, such as having a disciplinary procedure, or otherwise doing things which various branches of both Federal and State governments determine to be elements of driver control, they can manage the city requirements for driver behavior, dress, and requests for service duties if these are part of the city code or ordinance. Unfortunately, many local regulatory authorities have been slow to modernize their taxi codes to reflect the changes from employee to independent contractor HOUSTON TAXI STUDY 14 ```

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driver. An important result of this shift is that the management of day to day operations policy formulation and compliance has effectively shifted from the taxi companies themselves to the regulatory bodies. Consequently, the regulatory bodies and the elected officials to which they report are responsible for using their ordinances and regulations as company operating documents, and attempting to make appropriate updates to such documents as either business practices change or public safety dictates. Regulatory modifications are, by design, less responsive than modifications that could otherwise be made by the private sector operators themselves.

Full service taxi firms may also find it less costly to not own and maintain all their own vehicles; preferring to let others, including drivers assume the responsibility for their vehicles. However, the clear difference between a full-service taxi company with a long-run view and the taxi companies of a driver association is when these entities all but abandon their marketing and dispatch functions. Thus, over time, cities and airports, through their responsibility for issuance of driver’s permits, vehicle inspections, daily citations for violations of city/airport taxi ordinances, etc., have become the day-to-day management for the non-dispatched taxi operations within their city. This framework is an appropriate template upon which Houston's taxi firms can be placed.

Extension of the Framework to Houston

Fortunately, two of the 143 taxi companies permitted by the City of Houston would fall into Categories 2, and 3, being full service taxi companies, Greater Houston Transportation Company and Houston Transportation Services, respectively. These companies have separate business facilities, provide computerized dispatch services, and attempt to assist most of their drivers in the marketing of their service through service contracts, school and corporate vouchers. A complete roster of the current taxi companies operating in Houston in the time of this writing is provided below. However, one of these two taxi companies, Houston Transportation Services, has chosen to allow up to 100 of their permits to be leased long-term in which the lessor can and does form their own taxi "company" with a single or few vehicles. This taxi company is then registered with the city and is required to be painted a different color from all other taxi companies. Over time, identifying a taxi company by it HOUSTON TAXI STUDY 15 ```

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color has become exceeding difficult.

Unfortunately many of these long term permit lessees do not also sign up for dispatch services, thereby making them a category 4 provider – operating someone else’s permit without dispatch or marketing. Even if this operator does purchase dispatch services it is confusing to the Houston taxi user when he or she calls a taxi company and another company’s vehicle shows up to pick them up.

There are over 50 additional Houston taxi companies which have multiple taxi permits, 2 to 116 vehicles respectively but offer no dispatch and little or no marketing of their taxi brand or services. These would also be considered category 4 taxi companies. Finally there are large numbers of individual permit owners that drive their own vehicle or lease it out – each identifying themselves as a distinctly different taxi company. Depending upon who owns the vehicle, these would be category 4 or 5 taxi firms with a daily individual orientation.

With so many single permit taxi companies, one concludes that the City of Houston already has a traditional taxi medallion system for non-dispatched taxis. As depicted, the City of Houston, due to the presence of one large, well-managed full service taxi company occupying slightly over 58.3% of the licensed taxicabs in the city, has not experienced the problems associated with such widespread devolution of the taxi industry where cities and airports are required to assume an extensive managerial role over taxi drivers. However, service levels exhibited by the non-dispatched market sector providers, indicate there is a community desire for something to be done to improve driver attitudes, vehicles, and services to their establishments.

Typical taxi regulatory agencies are left to screen the driver applicants, issue driver permits, fine violators for not following the operating rules of trip refusals, operating hours of service, etc., set the meter rates, vehicle ages and condition, inspect the vehicles, and ultimately determine the economic conditions within which the taxi drivers operate. Houston taxi regulators have done a better job of managing local taxi dispatch services than most other large cities, through their emphasis on full service taxi companies. However, Houston’s non-dispatch taxi operations, as shown by responses to several surveys and personal interviews, require immediate attention.

This segment of Houston’s taxi industry could become even less responsive to institutional users unless appropriate measures are taken to remove customer confusion; HOUSTON TAXI STUDY 16 ```

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improve regulation of service levels through greater training; and provision of regulatory language which forces taxi permit holders to provide enforcement of ordinances addressing driver behavior and duties. Through greater utilization of new technologies which measure the quality of taxi operations and drivers, much improvement of Houston’s non-dispatch taxi services can be achieved.

Another, even more serious driver morale problem arises when drivers realize they are receiving no real benefits from the lease fees they are paying taxi firms for permits to operate a taxicab. Lower insurance costs may be deemed as the only value of associating with a cab company if an owner-driver works primarily the airport and public cab stands.

Forms of Taxicab Regulation in the U.S.

U.S. cities have developed several different approaches to regulating their local taxi services. The most common forms of taxi regulations are (1) medallion systems; (2) managed competition; and (3) franchised concessions. Each of these will be discussed below.

Medallion Systems

A few cities, like New York City and Boston, have preferred to regulate their taxi services through individual taxi medallions and a system of taxi garages which provide a variety of services including but not limited to insurance, a vehicle, and, in some cases, a taxi medallion for the individual independent contract driver to utilize. All these services are included in a daily lease for the vehicle and associated services. While taxi garages provide some 25% of the vehicles, the remaining three fourths are groups or individual medallion owners who lease their permits to individual drivers either themselves or through intermediaries. Some of these individual medallion owners drive their car with permit or lease permit to a second shift and/or as a weekend driver. This system of regulation is known as a "medallion city" where the management of the driver falls primarily on the City of New York and NYC Taxi & Limousine Commission. Thus, a large number of taxi inspectors are constantly on the streets of New York to enforce the city’s taxi operating rules and regulations.

For a large city like New York, this may be an appropriate regulatory form since the vast majority of their traditional taxi trips are flag (street hail) trips which require no dispatch. In HOUSTON TAXI STUDY 17 ```

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fact, New York Yellow Cabs have no radios for dispatch in their vehicles. These taxis can make over 66 pickups per day, dropping off one customer as another gets into the car.

Outside of a few major cities in the Northeast with similar taxi trips however, the medallion type form of regulation is not the predominant form of taxi regulations. As taxis serve more of the call and dispatch market of most U.S. cities, greater attention is paid to the service levels for these customer trips that are not street hails. More commonly these cities utilize the economic concept of managed competition. This strategy of taxi regulations centers on the economic theory that competition is good and the competing companies, all charging the same metered rate, will compete through service to bring about improved customer services – that like restaurants, the good will drive out the bad. Thus, many city officials will argue whether two, three, or more taxi companies provide the best level of service to the community.

Still others feel that the number of taxi companies should be unlimited within the total number of permits available so that a large number of taxi companies can be found in many cities, such as 39 taxi companies in Miami-Dade County or 122 cab companies listed in the Houston Yellow Pages – some consisting of only one or a few vehicles. The primary thrust is that the strategy is to set standards for all cab companies whether they be a single car company or a company with several hundred vehicles and to use city personnel (taxi inspectors) to determine if these companies are meeting these standards.

Franchised Systems

Several U.S. cities have adopted a franchise approach to their regulation of taxicabs. Cities like Los Angeles, Palm Springs, and Anaheim California, Austin, Texas and more recently Salt Lake City, Utah, have adopted this approach. In this approach, the city decides how many total taxicabs they need to serve their community and the number of competing companies. Depending upon the size of the city, this can be as few as two or three operating taxi companies or, in the case of Los Angeles, nine separate franchise agreements – each assigned to a primary geographic area.

The major aspect of the franchise approach is that it allows the city to review the concession at set intervals, usually 5 year intervals, to determine if it wants to rebid those concessions or extend existing agreements. It also removes the city from established regulatory HOUSTON TAXI STUDY 18 ```

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laws and precedents and moves their taxi legal issues to that of contract law, thereby, some feel, strengthening the city’s ability to deal with taxicab service levels and compliance.

The question of which type of taxicab regulation or variation is best for any city depends upon the need for taxi and taxi-type trips of the city and the current state of existing taxicab companies and existing regulations. A medallion system would not work well in a city that required a large number of dispatched calls. A franchise model may be appropriate if the current taxicab service providers are failing in the delivery of the desired level of service. Finally, an open entry approach with variable rate making by all market participants has proven over the years to lead to higher fares, poorer service for some, and a need to reregulate in later years.

Managed Competition Systems

Therefore, for many communities, some form of managed competition appears to be an approach that achieves the aims of the city for this vital public transportation alternative without requiring large amounts of personnel to manage independent contract medallion drivers and achieving service to all elements of their community.

As demonstrated in this report, the City of Houston, given its existing taxi service demand, and service levels, is not primarily a hail market. Therefore, a medallion approach would not be feasible without a significant boost of manpower on the street to monitor the drivers. Given the geographic areas served and the markets surveyed, all indications are that the City of Houston enjoys very good taxi dispatch service but needs to work on vehicle and driver appearances for the visitor. The same service level benefits of the franchise approach can be achieved over time with a strategy of requiring all taxi permits to be value added permits through providing a full range of dispatch, contracted, stand, and hail services. Driver knowledge and service compliance can be achieved through improved screening and training.HOUSTON TAXI STUDY 19 ```

TTLF CONSULTING – RAY A. MUNDY, Ph.D.

TAXI REGULATION IN OTHER MAJOR CITIES

Every city is somewhat unique and its taxi situation is also more different from most other communities making direct comparison difficult. However, TTLF has worked with a number of medium and large cities with taxi fleets and companies similar in size to that of Houston. Specifically, there are some similarities and significant differences among the communities of Houston and Denver, Colorado; Miami, Florida; Salt Lake City, Utah; and sister cities within Texas such as San Antonio, Dallas, and Austin; all of which have previously engaged TTLF for similar taxi studies. Taxicabs are extensively used in each city. Some have a large number of taxi companies such as Miami, but most have one or two primary full service taxi companies that serve the prearranged and dispatch market rather than airport walkup; hail; stand or hotel taxi markets.

Of these cities, Denver would be the closest comparison and would offer the most comparative lessons for Houston. Two taxi firms had dominated the taxi market there – each with more than 400 vehicles in their respective fleets; most of which they could double shift when the demand arises. A third taxi firm, envisioned originally as a co-op, petitioned to enter into the market and after much debate, the state’s Public Service Corporation ordered that a third firm be entitled to enter the market with 150 permits. Being undercapitalized and lacking professional management, the new entrant has never been able to develop dispatch or call business but rather, its taxicabs ply the airport, taxi stands, and street hails. More recently, the state’s PUC has permitted another co-op group to add another taxi company with 150 vehicles with the same result of deteriorating non-dispatch service and an oversupply of taxicabs thereby depressing driver incomes.

The Texas sister cities of San Antonio, Austin, and Dallas also have some comparative lessons for Houston. Both San Antonio and Austin have at least one if not two full service taxi companies that take a long run view of their market place and offer good dispatch services. However, both cities have smaller taxi companies that, while required to have 24-7 taxi dispatch, have never been able to generate significant call business and drivers work primarily the airport. However, there are continuous complaints of poor service and drivers desiring more and higher flat fares from the airport to compensate them for their long waits at the airport for a fare. HOUSTON TAXI STUDY 20 ```

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The City of Dallas and the large Dallas-Ft-Worth (DFW) airport complex have continuously studied the problems associated with their taxicab services. Numerous problems have occurred with poor services, short trip refusals, overcharging customers, and long-tripping to name only a few. While the City of Dallas has attempted to solve some of their problems with regulatory patches such as a five year limitation on vehicle ages (now increased to six years) and a ten percent reduction in the number of taxi permits, the industry is still oversupplied and faces fare and vehicle competition from sedan and limousine operations which are not regulated for entry and minimum fare. Currently the Cities of Dallas, Ft. Worth, and other cities surrounding DFW are attempting to develop a regional approach to taxicab and limousine regulations.

Miami, Florida is an example of a large metropolitan area that has experienced the fragmentation of taxi service through the issuance of individual permits as taxi medallions. While there are only two or three functioning taxi dispatch companies, there are 39 or more separate taxi companies with no dispatch or marketing to speak of. It is one of the few cities where a taxi driver may have two radios in his taxi – one from his taxi firm and one from Yellow Cab since it is by far the largest taxi dispatch company in the metropolitan area. Yellow Cab is unable to get its drivers to serve all their customers so it has opened up their radio system to any other cab driver who wishes to buy their dispatch service. You may call Yellow and have a Green taxi come to pick you up. Needless to say, supervising taxi service in this type of chaotic situation is very difficult for regulators. As will be discussed below in the Houston-specific taxi analysis, the industry in Houston has similar color scheme issues that have become one of the largest sources of customer dissatisfaction with the local industry.

Salt Lake City is offered as an unlikely comparison city due to its size but because of its situation some time ago of having too many taxis on the streets and a severely deteriorated taxi system, it does represent the lengths that a Mayor and City Council may go to in order to clean up their communities’ poor taxi services. Salt Lake City had 220 taxis that were being offered by three taxi companies – one large and two small. Taxi service, age of vehicles, and rude behavior of drivers had become an embarrassment to the Salt Lake City hotel industry. These factors, coupled with the taxicab industry’s reluctance to add any wheelchair accessible equipment led City Council to recall all taxi permits and competitively contract their taxi operations utilizing a taxi franchise approach developed for the California cities of Los Angeles, Anaheim, Coachella Valley, and now Santa Monica. HOUSTON TAXI STUDY 21 ```

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It required several years to rewrite the city’s ground transportation ordinance and prepare the RFP for taxi services, as well as clear the legal objections posed by the existing taxi companies. The City of Salt Lake, Utah let an RFP which requested that there be two, three or four taxi companies each with a minimum of 50 taxis in order to support the technology, reporting, and vehicle requirements of the RFP. Vehicles were to be newer, greener, and service was to be improved in several ways. Seven comprehensive proposals were received and five were selected for further review. Finally two taxi companies were chosen – one with 150 vehicles and other with 50 vehicles. Both bidders proposed to utilize completely new alternative fueled vehicles with modern dispatch and electronic reporting to the City. Currently some last minute court ordered delays are holding up the introduction of these new service providers in Salt Lake City.

It has been the experience of TTLF researchers in conducting similar taxi studies in North American cities of all sizes that whatever level the bar is set in these competitive bids for taxi services, either for cities or airports, taxi companies have no problem in rising to these standards. Rarely do they bid above the requirements of a taxi RFP, but somehow they find the ability to meet these community or airport requirements.HOUSTON TAXI STUDY 22 ```

TTLF CONSULTING – RAY A. MUNDY, Ph.D.

TAXI REGULATION IN HOUSTON

Like other cities, the City of Houston consistently asserts that it regulates vehicles-for-hire for the health and safety of the riding public. There are eight categories of vehicles regulated under the City of Houston’s applicable ordinances (Chapters 9 and 46 of the Houston Code of Ordinances): taxicabs, limousines, private school buses, charter and sightseeing buses, jitneys, pedicabs, low speed shuttles and scheduled ground transportation vehicles (SGTs). With the exception of SGTs, these vehicles-for-hire regulations are administered primarily by the Transportation Section of the Administration & Regulatory Affairs Department (ARA).

As stated previously, Houston currently has 2,480 taxicab permits administered through 143 companies. However, 75% of these permits are held by two large, full service taxicab companies. Below is a detailed analysis of the existing taxicab market in Houston, as well as the proficiencies and deficiencies of this market.

Houston Taxi Markets

Every community has distinct taxicab market generators. A few of these trip generators would be the presence of a busy airport or urban residents who use taxis on a regular basis. Or local residents who depend upon taxi services for emergency and occasional trips not easily made on public transit. The presence of a large elderly, retirement, and/or a tourist population who use taxi service for medical, social, and entertainment (dining out) activities also affects overall taxi market demand. Thus, each community is somewhat unique in its various market demands for taxi services.

Within Houston, taxi services are extremely important to the local users of all income levels for school trips, airport trips, grocery shopping, medical appointments, entertainment/eating out, and generally getting around when an automobile is not the preferred option or inconvenient. Taxi services are important and frequently used options for visitors, tourists, and residents alike.

Houston taxis have several demand points which generate a significant percentage of their daily demand. Two of these sources would be its airports – Hobby and Bush HOUSTON TAXI STUDY 23 ```

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Intercontinental. Traditionally, Hobby Airport has serviced domestic flights, while Bush Intercontinental Airport is Houston’s international connection (although this dynamic will start to change as international terminals are built at Houston Hobby). Other taxi demand points would be public taxi and hotel stands where individuals can obtain taxi services without making a reservation. However, the vast majority of dispatched taxi trips are provided through two taxi dispatch systems –The Greater Houston Transportation Company and Houston Transportation Services, LLC . Thus, taxi dispatch companies are essential in the scheme of taxi services for Houston since it is the taxi company that arranges all of these trips either through their call/dispatch center or contracts with school, individual company accounts, medical facilities, ADA provided trips, and simply their brand name.

As will be shown later in this report, Houston taxi trips are a mixture of long (typically airport) trips and short trips of a few miles. The resulting average fare is around $20. However, these short trips, in the relatively dense areas of Houston, represent a large number of trips per day per vehicle which are easily served with a minimum of deadhead mileage if coordinated through modern GPS taxi dispatch systems. Houston also has a special taxi flat fare that offers customers a trip anywhere within the downtown area for only $6.00 or their Six in the City program.

General Houston Taxi Industry Statistics

The Houston taxi industry is composed of more than 3500 drivers and 2480 vehicles. In October 2013, 143 authorized taxicab companies were operating in Houston. Combined these companies hold 2,480 taxicab permits for the operation of taxicabs within the City. The majority of the companies hold one permit – 70. Another two hold 58 permits, followed by 3 with 36 permits. Houston’s largest taxi operator holds 1,446 permits — Greater Houston Airport Taxi, followed by Houston Transportation Services, LLC with 404 permits and Central Cab with 116. This number will vary from month to month as individual permits are traded with old companies going out of business and new ones emerging. The Table below summarizes the permit distribution: HOUSTON TAXI STUDY 24 ```

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Figure 2

Number of Permits Held

Number of Companies

1

70

2

29

3

12

4

4

5

4

6

2

7

5

8

6

10

1

13

1

16

1

23

1

36

2

39

1

46

1

116

1

404

1

1446

1