Tag Archives: City Council

D.C. tries again to protect taxi industry from competition

Last year, the D.C. City Council threatened to impose regulations that would have effectively barred Uber, the popular sedan-hailing car company, from the D.C. market. In a surprising show of candor, the proposed legislation admitted that the goal was to ensure that the politically powerful taxi lobby didn’t lose any business. Public reaction was swift and negative and the council eventually relented, letting Uber into the market.

While many were celebrating, I played the part of the skeptic, noting that Uber’s gain seemed to have come at the expense of other start-up transportation companies. Writing in the Washington Examiner, I noted:

But when you dig into the legislation, it appears that the council earned Uber’s praise by — you guessed it — finding a way to privilege Uber. That’s because the legislation mandates that “public vehicles-for-hire using a digital dispatch service shall be licensed.”

As tech reporter Ryan Lawler points out, the licensing requirement erects a barrier to entry for other businesses. SideCar, for example, is a West Coast service that, according to its website, “instantly connects people with extra space in their cars with those who need to get from one place to another.” It is, they say, “like a quick and hassle-free carpool.” Since these instant carpoolers are obviously not licensed, they’d be illegal in DC. That’s handy for Uber. The company managed to cross the regulatory velvet rope and, alongside taxis, obtain access to a lucrative market. But once inside, Uber put the rope back up.

I’m sorry to say that my skepticism was warranted. This morning, WAMU’s Martin Di Caro reported:

The commission that regulates all vehicle-for-hire services in the District of Columbia once again finds itself at odds with a tech start-up.  After battling the sedan service Uber in 2012 before creating a sedan class license to allow the company to operate legally in the District, the Taxicab Commission has notified SideCar management that its drivers may not pick up passengers in D.C. without the proper licenses and vehicle tags.

“Individuals who join this rideshare operation must be licensed taxicab or limousine drivers in the District of Columbia and must have vehicles that have L tags,” said Commission Chairman Ron Linton.

You can listen to the full story here.

Fort Lauderdale issues a Pension Obligation Bond and adds to its debts

To fully fund its city pensions the City Council of Fort Lauderdale has voted to issue a $340 million pension bond. One problem with this plan is the city’s pension plans are underfunded to a far larger extent than the accounting recognizes. I calculate, using their 2011 CAFR, that while Fort Lauderdale’s two pension systems report an $388 million unfunded liability when using a risk-free discount rate, the total unfunded liability is closer to $1.7 billion.

In that year, both the General Employees’ plan and the Police and Fire Plan used a discount rate of 7.75 percent to calculate their liabilities. Today the 15-year Treasury bond is close to 2 percent. Thus, the source for great difference between the two unfunded liability calculations.

The rationale for issuing the POB is that the city’s pensions will earn better than the 4 percent assumed interest rate on the bond, and thus they will capture the arbitrage benefits. But that is a bet on both the bond market and the stock market, and not a certainty.  The pensions remain valued as though they are risky and now the city has effectively put more risk on the balance sheet, all in the service of lessening the pain of rising annual contributions. The POB does not address the structural reasons for rising costs even if it gives the Council a temporary sense of budgetary relief.

 

D.C. Council Considers Privileges for Taxis

I had an economics professor who once joked that it is a good thing that New York City imposes rent controls. Why? Because it helps economics teachers everywhere explain the folly of price controls.

I suppose that I should thank the D.C. City Council because today they are evidently considering a measure that illustrates an important economic concept: regulations often benefit entrenched interests at the expense of customers and would-be competitors.

In my latest paper I write:

Though business leaders and politicians often speak of regulations as “burdensome” or “crushing”…sometimes it can be a privilege to be regulated, especially if it hobbles one’s competition.

An amendment before the D.C. council today illustrates this point beautifully. First, some background: “Uber” is a San Francisco-based Internet startup. They offer a cell-phone app that allows you to instantly call a luxury sedan to your location (full disclosure: I have never used this service and only recently became aware of its existence). It is, as one might imagine, more expensive than a typical cab service, but apparently a lot of people are willing to pay more for the easy and convenience.

Now, some on the D.C. council would like people to pay a lot more. An amendment—you can’t make this up—called the “Uber Amendments” actually singles out the company by name and sets a price floor with the explicit aim of limiting competition with traditional cabs. According to the Uber blog, section C) 1) of the amendment reads:

The minimum fare for sedan-class vehicles shall be five times the drop rate for taxicabs, as established by 31 DCMR § 801.3 (a).

In case their intentions were not clear, the “rationale” section of the amendment states:

These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service.

If you can’t win customers on price and quality, you can always go to government and enlist its help in boxing out the competition.

Update: I’ve just learned that language has been introduced to strike the minimum fare part of the amendment. Apparently it isn’t a winning strategy to be so overt when passing out government privileges.

 

Detroit within months of bankruptcy

Over the past several weeks, Detroit Mayor Dave Bing has offered a stark picture of the city’s near-term prospects. By April the government will run out of money. The city faces a shortfall of $45 million, with an accumulated deficit of $180 million.

Detroit’s problems didn’t start yesterday. As The Economist writes the combination of falling property values, shrinking population, the rising cost of public services in a sprawling city, and the effects of the recession, “have provided the trigger for the crisis.”

Mayor Bing’s plan to shore up the city’s budget includes raising revenues with an increase in the C-corporation tax, and collection of past receivables, cutting spending by eliminating furloughs, a 10 percent pay reduction, 1000 layoffs, minor changes to retiree pensions, modified contributions to employee health plans, outsourcing the management of bus services, and a 10 percent reduction in vendor payments. These actions are estimated to save $258 million.

The wild card is what will happen to Detroit’s pension system. Without reform the city’s rising pension costs will continue to batter Detroit’s finances. The city’s pension and health care costs represent 13 percent of Detroit’s budget, or $218.5 annually. Unless Detroit’s 45 unions agree to structural changes, the Mayor warns, Detroit will be taken over by a state-appointed receiver according to Michigan’s emergency manager law.

Mayor Bing’s plan doesn’t have a great deal of support from the City Council with the rhetoric becoming increasingly charged against the Mayor and the notion of a state takeover of the city’s finances. But in order to avoid a takeover the Mayor and Council must come to an agreement. In the meantime, Moody’s is reassessing the city’s general obligation debt and sewer bonds ratings. Standard and Poor’s rates Detroit’s long-term general obligation debt BB, with a stable outlook.

 

 

D.C. City Council votes to raise taxes on the wealthy

Yesterday the D.C. City Council voted to raise taxes on those earning over $350,000 a year, creating a new bracket and raising the top rate from 8.5 percent to 8.95 percent on high earners. The logic of sponsoring members Mendelson and Cheh is that this tax will allow the council to “swap taxes” and delay the imposition of a tax on interest income on other-than-D.C. municipal bonds, now slated to go into effect in December 2011. Though the income tax hike is being presented as temporary, at least one member is advocating it be made permanent. The 7-6 vote reveals, “a philosophical divide” among City Council members. Council member Muriel Browser notes the city’s budget has grown by $1 billion since 2008. The income tax hike is projected to bring in $106 million over four years.

On the heels of the increase, Moody’s issued a negative outlook on D.C. GO bonds due to possible federal spending cuts that would reduce federal aid and entitlements in the district. Moody’s decision is unrelated to the tax hike.

But perhaps even more worrying than Moody’s assessment are the factors that will increasingly put pressure on D.C.’s fast-growing budgets. Currently, the District’s pension plans appear over-funded, except they really aren’t. Using accurate assumptions indicates that both the teachers’ and the police and fire plans are funded in the 65 percent range, with a total unfunded liability of $2.17 billion. I had the opportunity to testify before the council this spring and offer my assessment of their pension systems, a matter of concern for several Council members.

D.C.’s higher tax rate on high-earners may have unintended consequences: driving out residents or discouraging in-migration, eroding the tax base and leaving D.C. with future obligations that will be very difficult to pay. A recent paper by Davies and Pulito finds that higher state income taxes cause a net out-migration of not only high-income residents, but of residents in general. They find net out-migration also holds at the county-level when the change is to income levels to which the tax rates apply; that is, when a “millionaire’s tax” is really a tax on those earning much less than a million.