Earlier this year we looked at the fate of New York City’s corrupt “medallion” system for taxi drivers and how it was quickly melting down. As the artificially created “medallions” plummeted in value, their owners weren’t the only ones suffering losses. Credit unions supporting the industry were facing extinction and now the people of the Big Apple may be forced to bail them out, thanks to the municipal government.
Now the same scenario is playing out in San Francisco. With the rise of ride-sharing apps offering competition in that market, with lower prices and better service, medallion owners are being left holding the (empty) bag. (CBS San Francisco)
While taxi medallions in San Francisco were once seen as a good investment — literally a license to make money for cab drivers — the popularity of ride-sharing apps has led to a looming financial meltdown for the city’s struggling taxi industry.
The rise of Uber and Lyft as the more common way for people to catch rides around San Francisco has left local cab drivers deep in debt. And San Francisco could be on the hook for the money owed as the taxi medallion market descends into a financial disaster.
Here’s what’s unique about the situation in San Francisco, and it points out exactly how bad this system is. The CBS article goes into some great detail on the history of the scheme, with quotes from some of the municipal officials involved. San Fran had been using medallions since the 70s, but only in limited numbers. Prospective cabbies had to wait for years just for a chance to buy one, but the system was at least somewhat stable.
By the late 2000s, however, the city was facing a shortage of cabs and crippling budget shortfalls. That’s when, by their own admission, they saw all the money that New York City was making off this scheme and decided to get in on the action. (Emphasis added)
“Really the only directions I received from the powers that be at the time were to sell medallions,” said Christiane Hayashi, former Director of the SFMTA Taxi Program. Hayashi, who is now retired, was asked to restructure the medallion system in 2008.
“I think SF was looking at the New York medallion system and seeing that there was a tremendous amount of revenue they were not taking advantage of at the time,” said Hayashi.
So the plan was to turn demand for medallions into a money maker for the city. But the high cost of a taxi medallion at $250,000 — the price of a house in a normal real estate market – meant the city needed a lending partner that could issue medallion loans.
Incredibly, the guy put in charge of the program is at least coming right out and admitting what was going on. There was no problem with regulating taxis or making sure riders were safe. The city needed money and they saw how New York was cleaning up on this scheme and decided to get in on the action. By restricting the supply of these artificially created “medallions” the price was driven up to a quarter million dollars. So then they needed a lender willing to cover such amounts and, just like New York, they found the San Francisco Federal Credit Union willing to get in on the game, making loans bigger than the price of most homes just so a driver could get the city’s blessing to try to make a living.
Then along came Uber and Lyft. Boom! The bottom fell out of the market and now those loans are, as CBS describes them, looking like the troubled mortgages that brought down the banking system in 2008. History is repeating itself, but who is really to blame here? If the city had established a simple method of requiring cab drivers to get a chauffeur’s license, insurance and a vehicle inspection so they could work, the system would have regulated itself. The best cabs would have stayed in business in numbers that satisfied the demand. This phony medallion system made them a lot of money for a while, but now the party is over. The taxpayers should not be expected to bear the cost of this scheme going under.