By Ryan Ekvall | Wisconsin Reporter
MADISON — Twenty years ago, a would-be cabbie in Milwaukee could get a permit from City Hall for less than $100.
Those days are long gone.
Today, a taxicab permit in Milwaukee can cost as much as $150,000 on the open market — the price of a decent three-bedroom, ranch-style home on Milwaukee's
North 86th Street,
or in the immediate suburbs.
The price to operate a cab soared after the city stopped issuing new taxicab permits in 1992, capping operational cabs at 321. It wasn’t that potential entrepreneurs quit filling out applications, the city just didn’t want to deal each year with holding time-intensive renewal hearings for potential taxicab operators.
At the time, some aldermen feared the price of permits would increase.
“I don’t want to see the cost of a license go up to $10,000," said then-Milwaukee Alderman John Kalwitz during a Utilities and Licensing Committee Hearing in 1991.
The long-serving public official perhaps had no idea just how high the prices would climb.
In 2009, the city owned up to the mistake it made 18 years before.
“This limitation upon entry into the Milwaukee taxicab market has created a high private value and demand, resulting in private agreements for transfer of permits, which reportedly are worth in excess of $100,000 for transfer of a single permit. This private market is not regulated,” states analysis from a piece of Milwaukee
legislation.
There arguably is some irony in the declaration about the unregulated private market; the city has 21 pages of regulations for public passenger vehicles, while creating — unintended consequences or not — the artificially high prices.
To regulate that private market, the city crafted legislation that seeks to enact a medallion — or public auction — system to issue new taxicab licenses.
Under law, the city doesn’t have the right to create a medallion system, “so the
legislation is directed to seek the development introduction and passage of state legislation … specifically authorizing the city to auction taxicab permits for payments exceeding the costs related to licensing," according to the city document.
Pending approval
Fast forward to Tuesday, when the state Assembly passed Assembly Bill 529 that would grant any first-class city in Wisconsin — Milwaukee is the only city in that category in the state — the ability to create a medallion system to issue taxi permits.
First-class cities must have populations exceeding 150,000 people, and such designations generally involve greater financial responsibility for services. Madison fits that designation, but has opted not to seek that classification.
Specifically, the bill allows the city to charge current permit holders up to a $500 transfer fee for a medallion license. Milwaukee also may increase the number of medallion licenses, by about six per year, to sell at public auction.
Medallion license owners then could sell their medallions on the private market, as they do now, except the city would collect a transfer fee of up to 10 percent of the highest price paid for a new medallion at the most recent public auction.
The city now collects nothing.
Using a conservative estimate of a $50,000 price tag for a new medallion, the city could easily rake in more than $200,000 in revenue the first year of the medallion system. The city could collect $500 for each cab permit currently in existence at $160,500, $30,000 on new licenses issued, and an additional $5,000 on any transfer made in the secondary market.
Cabbie security
The push for the medallion system has been a tandem effort between cab owners and the city since 2009, said
Jeremy Shepherd, an attorney from
Martin Schreiber & Associates, a government relations and public affairs consulting group in Milwaukee. Shepherd represents the cab companies from Milwaukee.
Current taxi permit holders, nearly all of them, according to state testimony, support the medallion system.
That support seems a break from tradition. Business owners typically oppose new fees. In this case, licensees say the city does not have the resources to inspect their cabs effectively. More importantly, the medallion system would protect their previous investment, they said.
“If I have a medallion, I can go to a bank or a dealer and get a new car,” said Abdulkadir Omar, a taxicab permit holder and board member of Yellow Cab and the Public Review Transportation Board in Milwaukee. “A medallion can be used as collateral.”
Medallion Financial Group, a publicly traded company, has lent nearly $1 billion for taxi medallions since 1979. The market doesn’t exist under Milwaukee’s system, because the permits formerly issued by the city have no real value and can be revoked, whereas medallions can be protected.
If Milwaukee simply lifted its cap on issuing taxi permits, taxi owners would lose the investment they made while the cap was in place.
“Now they just want to get (a taxi permit) for free, and my value goes down. If someone can go to the city of Milwaukee for a free cab, there’s no point to buy mine,” said Omar, adding that he bought a permit on the private market in the mid-90s for some $20,000.
A medallion system would allow the cab driver to lease or sell his medallion, when he’s ready to retire, something he said he is worried about.
“We give a service to the public and those who need it. We deserve to have some kind of retirement," Omar said. "I work 30 years, some of them work 50 years, (and) don’t have retirement coming up.”
The bill is supposed to change what established drivers like Omar see as an unfortunate situation.
“The elected officials in Milwaukee, the cab owners, they know what’s best for the city,” Shepherd said, describing a Wild West period in the 1970s and 1980s, when taxicab permits were not limited.
More than 800 permits were issued, and cab drivers fought each other for fares.
“It was bad times, and it was bad because of the behavior it created … it was a mess,” he said.
The law of supply and demand dictates when a market becomes oversaturated with supply; prices of the product drop until operators decide the margins aren’t worth their time anymore. As competitors leave the market, a balance is found and prices level out at what the market supports.
Drivers, however, say there was no money to be made in Milwaukee’s taxi industry during the open permit days. The medallion system, Shepherd said, “creates a measured approach to allow people in.”
Drivers 'shut out'
A look at other cities casts doubt on the medallion system easing prices of entry into the taxicab industry in Milwaukee.
"I personally don’t think medallions are going to give people what they think they’re going to get," said John McNamara, general manager of Union Cab in Madison. "It’s going to increase the price of entry for cab drivers in Milwaukee. What you’ll really see is drivers will get shut out of the system like in New York."
Today, the nearly 3,000 cab drivers without a taxi permit in Milwaukee pay between $400 and $1,000 per week to rent a cab to drive. Typically, banks require a 20-percent down payment as collateral for a medallion loan. An industry without many natural costs now requires a driver-owner to take on as much debt as a homeowner or graduate student.
Supporters of the medallion system say demand for taxicabs is low in Milwaukee. Michael Sanfellipo, brother of Milwaukee County Supervisor Joe Sanfellipo, and owner of half of Milwaukee’s taxi permits, told the Milwaukee Journal Sentinel that Milwaukee "is not a cab town."
That statement, however, doesn't seem to match up with the number of taxi drivers in the city or the legislation passed in 1996, which renumbered the permits with the intent of making permitted cabs more easily identifiable — the idea to “restrict the ability of operators of unlicensed taxicabs to operate.”
An underground market cannot exist without a demand.
On Sept. 27, 2011, the Institute for Justice, a libertarian law center, filed lawsuit against the City of Milwaukee on behalf of three plaintiffs wanting to enter the taxi cab industry.
"The law is unconstitutional. You can’t say the lucky few will be protected. These are basic constitutional rights being trampled on,” Katelynn McBride, staff attorney at the institute, told Wisconsin Reporter.
Shepherd, though, disagrees.
“If you’re opposed to (AB) 529, you’re in favor of a closed system,” he said.
He said there is no alternative on the table in Milwaukee, and the question comes back to local control. Shepherd also expressed concern for the drivers who poured money and time into building a business in the closed-market system created by the city.
“Creating the medallion system would be a boon to the existing owners," McBride said. "It makes a terrible system worse. The solution is easy; open the markets, let entrepreneurs have entrance to the market.”
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