The ailing taxi industry in Orange County will limp along another year thanks to money cities will pay to support the watchdog agency that regulates it.
The meteoric rise of Uber and Lyft has decimated the number of taxicabs in Orange County so substantially that city managers are considering cuts to long-held safety reviews for taxis as the budget runs on empty.
The news is the latest warning that the death of the traditional taxi might be imminent if something doesn’t change soon. There are only 667 drivers registered with the Orange County Taxi Administration Program, down from 1,576 drivers four years ago. Meanwhile, Uber counted more than 8,000 drivers in the county in 2016.
Cab drivers blame their struggles, in part, on the very regulatory program that is threatened by their decline, saying its fees and restrictions have created an unlevel playing field that favors ride-hailing startups.
“It was unfair competition,” said Hossein Nabati, the former owner of A White & Yellow Cab, a Santa Ana taxi company that closed last year after three decades in service. His company, which gave 21,000 rides per week in 2013, was doing less than a quarter of that when it shuttered.
“Everything I have, I lost,” Nabati said. “I worked 40 years in America for this and have to close the doors.”
Cabs vs. Uber
While Uber and Lyft follow statewide rules, taxi companies in Orange County adhere to local standards they say are stricter – requiring cab drivers to take random drug tests, submit to regular vehicle inspections, buy expensive liability insurance and pay for multiple permits for the company, its vehicles and drivers
Nabati sued Uber in 2015 in federal court, contending the company has an unfair, government-created advantage that allows it to act as a “de-facto taxi” company without being regulated like one.
His attorneys blamed the state for choosing in 2013 to assume jurisdiction over ride-hailing companies rather than treating them like taxis. They blamed OCTAP, Anaheim and John Wayne Airport for creating rules they saw as unfriendly to cabs. And they said Uber continues to deliberately undercharge customers specifically with the intent to harm the cab industry.
In March, a federal judge decided Natabi could move forward with his lawsuit if he amended it so it doesn’t blame a state agency for Uber’s success and bolsters allegations of the ride-hailing company’s culpability. In essence, the order has shifted the case’s focus away from the question of what role government might have played in the downfall of the cab industry. Natabi has since filed an amended complaint.
Uber declined to comment on the case or this article, other than saying it has a $1 million insurance policy.
Leveling the field
Several local politicians have said they agree with cab drivers’ assertions that state rules are unfair, and a group of Orange County city managers has been meeting for over a year to brainstorm how to fix the problem.
One plan recently suggested by the Orange County City Managers Association is to reduce local regulations to only “essential services” required to ensure safety – a move that could simultaneously trim costs for taxis and the agency that oversees them.
It’s unclear what services might be cut in the name of cost savings.
State law requires drivers have valid licenses and permits, occasionally be drug tested and follow city-set fare restrictions. But reducing to “essential services” could conceivably cause cuts to numerous, long-held safety reviews, including vehicle inspections, background checks on drivers, checkups on service standards, insurance requirements, and regular searches for DMV violations and unpaid judgments.
Every city and county is required to regulate taxi services. Prior to 1998, each city in Orange County regulated cabs on its own, creating an onerous patchwork of rules for the companies. OCTAP, operated by the Orange County Transportation Authority, was created to solve that problem. Yet, dwindling cab numbers and corresponding revenue shortfalls have caused the self-funded program to spend $638,000 in reserves over the past three years just to stay operational. Those reserves are now exhausted.
In order to continue regulating taxis and adhere to state law, Orange County cities were left with three options: Chip in extra to subsidize the program, raise fees even higher for cabs or go back to enforcing their own local regulations. The latter two choices likely would further burden the struggling industry, so city managers voted to pay to keep the local taxi safety program operational through mid-2018.
Cities voted in May to pay $166,000, or between $312 and nearly $19,000 depending on population, to temporarily prop up OCTAP rather than see it crumble.
But that’s just a stop-gap solution to a long-term problem.
Huntington Beach city manager Fred Wilson, who serves as Orange County City Managers Association president, said he didn’t think the cities should have to pay extra to essentially subsidize a private industry and advocated for lobbying state lawmakers to make regulations more equitable.
“We believe Sacramento has to level the playing field and treat taxis as they do the (ride-hailing companies),” Wilson said.
A bill that would have increased parity between cab and ride-hailing companies – by centralizing control over taxis at the state level and prohibiting local governments from controlling taxi rates – passed the legislature in August, but Gov. Jerry Brown vetoed the measure.
Too little, too late?
Vijay Gurbaxani, a UC Irvine business professor, blamed the declined on taxis in part on cab companies, saying the industry was not meeting consumer needs. But he said taxis still provide a valuable service for people who don’t have smartphones or credit cards, and blamed government regulators for helping kill the cab by giving Uber and Lyft more lenient regulations.
“We give startups an unfair leg up and then others can’t compete. The same is true here,” Gurbaxani said. “They get away with less enforcement and fewer regulations. They had an unfair advantage for many years. Uber was very aggressive about ignoring local regulations and then rallying consumers when cities came down on them.”
The success of Uber and Lyft hasn’t harmed all taxi operators equally. Yellow Cab of Greater Orange County, started in 1945 in Anaheim, has been motivated by the new competition to launch its own app and solidify its customer base. The company has increased its number of drivers by 40 percent since Uber launched, according to company president Larry Slagle.
“We’ve been more aggressive, done more corporate contacts and do work other than casual calls,” Slagle said. “We’ve set up stands at hotels and set up contracts with companies to give regular transportation… Having Uber and Lyft is more complications and is making us provide better service and be more aware of customers concerns.”
But Slagle also echoed accusations in Natabi’s lawsuit, suggesting Uber is undercharging for their service in a deliberate attempt to drive competitors out of business, with the intention of raising its prices once it has done so.
Natabi, the out-of-work cab driver who once oversaw a fleet of 350 vehicles, said he doesn’t have much faith lawmakers will fix the problem.
“Taxi companies aren’t going to be able to come back,” Nabati said. “The competition is unfair.”
As for Nabati’s former drivers? Some bought their cars and are now driving for Uber.