Shaping ride-hailing for a better transportation system, Part 2: A new menu for local government

This is the second of a two-part series. The first, on the link between ride-hailing and our multiple goals for local transportation systems, is here.

So let’s say you’ve decided you’re willing to regulate ride-hailing companies, and you’ve gotten clear about the potential impacts of ride-hailing on the local transportation system. What interventions are on the menu?

Many jurisdictions have struggled with Uber and Lyft. Sometimes they’ve kicked these companies out. Sometimes they’ve put restrictions on them. In a few places they levy special taxes. But there hasn’t been a consistent framework with clear rationale. Often, policymakers have obsessed about a narrow set of tools, such as background checks and outright bans.

Yet we have options that most communities aren’t considering. To get to those options, let’s first walk through the basic ingredients generically, and then consider series of specific menu items, each with a targeted goal for improving the overall transportation system in clearly identified ways. I’ll wrap up with a suggested recipe for one community.

The basic ingredients: tax, restrict, partner

Setting aside jurisdictional authority, let’s look at the potential tools. You may see others, but I’m grouping them in this way in order to get at the policy options that really matter. (Some of these are happening, and some aren’t. Yet.)

Ingredient #1: tax

First, you can tax ride-hailing. Taxation serves two basic functions: it raises revenue, and it discourages the taxed activity by making it more expensive.

Usually, we have one of those in mind and not the other. we tax property to fund local government (it’s typically a large share of municipal revenue), not to discourage investment in property – even though a tax on property does mean that, when you improve a property, you will usually have to pay a higher tax. On the other hand, we tax cigarettes to discourage their use, not primarily to fund government – even though we enjoy using tobacco taxes as a general revenue source and often for public health purposes that countervail tobacco use.

We can take the same view of ride-hailing. A percent or per-ride tax could be a source of revenue for local government, or perhaps specifically to fund some aspect of the transportation system that has no other funding source. Local and state governments often pass general bond measures or other taxes for transit investments, safety improvements, additional capacity (i.e., new or larger roads), or to help particular users, such as transit-dependent individuals. A ride-hailing tax could be in one or more of these categories.

A few jurisdictions are already doing this. According to a recent review of current and proposed taxes and fees, there are many, and with a big range – Chicago charges 15 cents per ride, while a New York State task force has suggested a per-ride fee of $2-5.

Ingredient #2: restrict

Second, one can restrict the activities of ride-hailing firms in one way or another. The extreme version of this is a ban, and some communities have done that – for example, London has banned Uber, New York has capped the number of ride-hailing vehicles, and Denmark, Austin, and Eugene have all, currently or at one time, imposed rules that led ride-hailing firms to close up shop in those jurisdictions.

Fortunately, there are many other versions of restricting or channeling ride-hailing activity, and I encourage everyone to consider a much broader palette. Consider the following dimensions:

• Time: Policy could treat ride-hailing differently at different times of day, week, or year in different ways. In short, we could shape when we use ride-hailing.
• Space: Policy could treat ride-hailing differently in different areas of a metropolitan area. In short, we could shape where we use ride-hailing.
• Drivers: Policy could restrict who drives or how many drivers there are, i.e., the supply of drivers for ride-hailing.
• The nature of use: Policy could provide preference for shared use, such as Lyft Line and Uber Pool.
• Users: Policy could provide preferences for certain groups of users – low-income individuals, the elderly, the disabled, etc.

The permutations and combinations are endless, so we’ll punt on the details until we get to some concrete scenarios below.

Also, clearly this list overlaps with taxation, as a tax restricts an activity by making it more expensive and potentially pricing it out of reach for certain customers. We’ll come to that overlap shortly as well.

Ingredient #3: partner

Finally, public-sector entities can partner with ride-hailing firms in one way or another to achieve particular goals.

Most cities already run certain transportation services that serve a variety of social, economic, and environmental goals – namely, public transit systems. But those systems are actually more diverse than we typically acknowledge, providing not just bus, bus rapid transit (BRT), light rail, and heavy rail, but also services targeting diverse populations and needs, from suburban commuters and young people to the elderly and the disabled. One or more of these services might fit well with ride-hailing.

Furthermore, there may be certain transportation needs that traditional transit services don’t do well at serving. In fact, the classic challenge faced by transit that doesn’t reach the door, or even the street, of every user is the first-mile / last-mile problem: getting people to and from transit in order to assemble complete trips. Again, perhaps ride-hailing is a candidate. Sure enough, partnerships between ride-hailing and transit have already sprung into existence in at least 29 communities in the U.S.

And this partnership opportunity goes beyond transit. Transit is, in essence, a shared use mode, where one uses bits of a vehicle at certain times rather than owning a vehicle. We now have hundreds of bikeshare systems in North America, and increasingly shared systems of scooters as well. It is then no coincidence that the country’s two largest ride-hailing firms have acquired major bikeshare providers, with Lyft purchasing Motivate and Uber buying JUMP, with some initial evidence of this complementary in San Francisco. But we’ll focus here on the core of the ride-hailing business model, i.e., the part involving cars.

A quick aside on the problem to date: a focus on consumer choice and incumbent services

We’ve suffered from a variety of dueling frames, each somewhat valid but both missing the larger point. I’ll quickly review two: consumers vs. taxis and ride-hailing vs. transit.

On the one hand, we have self-described advocates of consumer choice. “We deserve this new option!” they say. They point to the generally much better service of the ride-hailing firms. They invoke as-yet-only-flimsily-supported claims of decreased drunk driving. But most of all, they want it because they want it. In this narrative, it’s about consumers.

On the other hand, the taxis point out all of the problems with ride-hailing. The firms don’t do sufficient background checks. The drivers don’t get paid enough.Uber is corrupt.

Compounding the conflict, many policymakers and users see transit and ride-hailing as being at odds with each other. This framing is legitimate: there’s some early evidence that, where ride-hailing has become a major mode, it is cannabalizing transit.

Honestly, that’s all part of the picture, but it’s noisy. We must return the conversation to the bigger question: What do we want from our transportation system and how can we shape ride-hailing to get what we want?

Ride-hailing as part of a transportation ecosystem: a menu for your consideration

So what is the menu for how we shape these services in our communities? The ingredients above can be combined in endless ways, but it’s helpful to consider the following clear options.

Scenario 1: shape ride-hailing to minimize competition with transit

There is evidence that ride-hailing lures some riders away from public transportation systems, at least for certain types of trips. This shift is a problem if we want to keep using transit to achieve certain benefits: transit serves some users better than ride-hailing can (transit is much less expensive); transit also has superior environmental performance; and transit reduces the economic and environmental externalities associated with congestion.

On the other hand, ride-hailing has advantages for users who can afford it – given its time flexibility and ubiquity, it’s more convenient. Furthermore, ride-hailing is simply better at covering more area. The classic challenge with trade-off is balancing coverage (reaching more area and more people) with productivity (have fewer, higher-frequency routes that more cost effective because they attract more riders). Ride-hailing is, in essence, a way of achieving coverage, albeit at a much higher unit cost.

So perhaps this isn’t all about competition. Another way of thinking about it: we could deliberately shape ride-hailing to be a complement to transit, rather than a substitute for transit.

How might we do this? How can we preserve the viability and advantages of transit while still fostering a variety of good transportation options? Consider a few strategies:

• Tax ride-hailing on key transit corridors. Where transit is already providing a certain level of service, a tax on ride-hailing would, at the margin, push riders onto transit, thereby avoiding competition in the situations where transit works best. The tax might also push drivers to look for rides elsewhere, which could be helpful because those areas would, by definition, be less served with other (transit) options – again, ride-hailing and transit would complement each other.
• Tax ride-hailing at times of day with little or no transit coverage. Few transit systems run around the clock, yet some Lyft and Uber drivers have highly flexible work hours. It’s easy to imagine a ride-hailing tax only for those times of day when transit service takes place or is most frequent. As Jarrett Walker said to me a couple of years ago, “If your ride-hailing trips are happening at 1 AM, that’s fine. If they’re happening at rush hour, that’s a problem.” In Eugene, where I live, transit service drops off in the mid-late evening, and there’s none between midnight and 5 AM – perfect times for untaxed ride-hailing.
• Partner with, and perhaps subsidize, ride-hailing for first mile / last mile trips that connect to transit. Transit works best when it focuses on fewer corridors with higher-frequency service – but people still need to get to those corridors, and ride-hailing could help. Again, there are endless variations at our disposal; perhaps it would make sense to focus on the populations that are most transit-dependent, such as low-income individuals and households, elderly riders who can no longer drive, and children who are too young to drive. In all of those cases, a transit/ride-hailing hybrid solution could be convenient and cost-effective.

Don’t tax ride-hailing – and perhaps even subsidize it – in the circumstances where transit is least effective.

The tax options above focus on a tax as a way to channel behavior, but it’s important to point out that the revenue could bolster transportation options for people who need help. A ride-hailing tax would be borne overwhelmingly by people with options, so the revenue would most logically go to expand transportation options (transit and more) for low-income individuals and households for whom transportation is a major expense.

Scenario 2: shape ride-hailing to avoid congestion

Some cities have experienced congestion as ride-hailing have taken off. New York City is the caricature of this problem, where Uber and Lyft have simultaneously eroded the taxi business and added to total rides. We have a few options for addressing congestion:

• Tax ride-hailing for single riders, but not for shared rides. The two market leaders already offer a shared-ride option (Lyft Line and Uber Pool) in which a rider might get another rider with a different but overlapping itinerary. It costs a little less, can take a little longer, but otherwise feels like ride-hailing. A tax to nudge riders from unshared to shared rides would result in more shared rides, and thus the same transportation services but with fewer cars on the road. (I acknowledge that pooling people in rides is complex, as Lyft Engineering worked hard to explain. But this pooling is a potential strength of a digital platform, so it should be on the table as a preferred outcome.)
• Tax ride-hailing where congestion is worst. Consistent with the transit-centric options above, one might tax ride-hailing only on those corridors with the most severe congestion, or where congestion is above a certain threshold. (In this age of real-time transportation data, one can even imagine dynamic pricing for this purpose – a tax only when congestion is above a certain level. But a simple version, specifying particular areas, might be enough.)
• Cap the number of vehicles. New York City is again the example here, as its city council implemented a cap on vehicles in mid-2018, in large part due to congestion concerns.

Scenario 3: shape ride-hailing to minimize environmental impact

Ride-hailing involves cars, so it’s worth considering its environmental impact. I’ll focus here on the greenhouse gas emissions, but one could look at air pollution as well. (I consider both in the companion piece.) I see four areas one could aim to address through policy, even if not all of these are in any policies yet:

First, occupancy. Ride-hailing usually means carrying a single paying rider. In this sense, it is indistinguishable from a single-occupancy car, and one might even suggest that a Lyft or Uber en route to pick-up is in fact a zero-occupancy vehicle since it isn’t carrying a passenger yet. (There’s even a phrase for this in the freight and transit worlds: deadheading is when you’re en route to or from a destination with no passengers or cargo.) So we might have incentives to ensure higher occupancy in ride-hailing rides.

Second, emissions per mile. Lyft and Uber offer in-app selection among vehicles of different classes, and every vehicle type is known (to the ride-hailing firms). Therefore, one might reasonably imagine ways to shift rides toward lower-emissions vehicles.

Third, contributions to congestion. In addition to the direct emissions from a vehicle, congestion adds to emissions, thereby constituting an indirect effect. This concern overlaps entirely with Scenario 2 above: addressing ride-hailing impacts on congestion will address that aspect of the environmental impact, too.

This is an exciting are because we already have measures in place to address congestion and emissions, and we can imagine a few others. Here’s a quick list.

• Tax single-occupancy rides. Imagine a tax on regular Lyft and Uber rides – but no tax on Lyft Line and Uber Pool. The result is to foster a shift for price-sensitive riders to the more environmentally friendly option. (Ideally, we could nudge Lyft and Uber to price based on occupancy, but the rumor is that the functionality for in-vehicle passenger counts doesn’t yet exist.)
• Create other preferences for Lyft Line and Uber Pool, but not for unshared Lyft and Uber rides. We already do this for regular cars, with HOV lanes, and toll bridges that are free for cars with at least two or three riders. We could go farther to designate convenient drop-off zones for Lyft Line and Uber Pool, and other such perks. Again, the result: shift people toward shared rides, thereby reducing emissions (and congestion).
• Tax ride-hailing vehicles based on emissions. Sometimes we tax something because we want less of  it, and we could certainly do that here. We know vehicle types and miles, so figuring out greenhouse gas emissions is easy (trust me, this math isn’t hard – I’ve been doing carbon accounting for a living for 15 years). Now there are already factors in place that encourage this sort of thinking: drivers have to pay for fuel, there are already state and federal gas taxes, and a few places (such as California and British Columbia) already have a price on carbon emissions. But that all just says that we have to keep the rest of the policy environment in mind.

 

A proposal for one small town (the one where I live)

So how do we put this together in a particular place? Let’s consider Eugene, Oregon, where I happen to live. Context matters, and I encourage you to think about how the generic menu above could be relevant in a given community.

So what’s the context? We have a good transit system, but it doesn’t run much at night and on weekends. We have an excellent new bikeshare system, but it covers only the downtown core and areas around the University of Oregon. We don’t have big-city traffic, but we have a “rush hour” (usually less than an hour) on a few corridors during weekday commute times. We have strong environmental goals as a community. We have some affluent parts of town, but we have – like much of the urban West Coast – a sizable population of people living at or near the poverty line, and roughly a third of the population is “housing cost burdened,” i.e., spending at least 30% (and often much more) of their income on housing.

So here’s my recipe – just six pieces (really four, plus an exemption and a suggestion):

1. Tax unshared rides. The economic, environmental, and congestion impacts of ride-hailing all improve when rides are shared. Policy should have a clear preference for shared rides, and a tax is clear. Given the magnitudes suggested elsewhere, I would start with something like $2-3 – large enough to be a disincentive for price-sensitive buyers, but barely noticeable or downright invisible for the affluent.
2. Tax all rides when transit is running. We have a good transit system – and for a town our size, a great transit system. But if you need a ride at 1 AM, transit isn’t an option and you shouldn’t be penalized.
3. Tax all rides on a few major corridors during peak weekday times. Lyft and Uber will, without question, exacerbate congestion if their rides happen during our few periods of congestion. Banning ride-hailing at those times would be extreme, but a tax will put the incentive in the right place.
4. Use the revenue to fund transit access and reduced fares for transit-dependent populations. Just as we have people who can painlessly pay for an Uber ride, we have plenty of folks who struggle to pay for the bus and have few transportation options generally. One specific candidate group: We’re currently discussing the possible reinstatement of our youth pass program that lost its outside funding back in 2011.
5. No taxes or restrictions for the disabled or for the elderly who lack drivers licenses. Lyft and Uber can be a genuine boon to the people who need it most and have the fewest transportation options, and policy shouldn’t stand in the way in those cases. Notably, New York City’s cap on ride-hailing vehicles includes an exemption for wheelchair-accessible vehicles.
6. Consider a first-mile/last-mile partnership. Our crazy housing market has pushed a lot of people to the edges of the community, and we should help those people use our transit system (in addition to addressing the housing crisis, of course). It’s easy to imagine a partnership between Lane Transit District and ride-hailing firms for hybrid rides that get a passenger to and from LTD’s network. That’s another possible use of the tax revenue.

So what net effect of these measures do I envision? Not a huge change for ride-hailing riders or drivers, but enough to nudge us in the right direction. More transportation while minimizing congestion, preservation of inherently more affordable modes such as transit and bikeshare, better integration across modes, and some help for people who struggle most to meet their transportation needs due to income, disability, or age. That sounds like the right way to bring ride-hailing into our transportation system as one piece of the puzzle.

A few other notes are in order. First and foremost, these rides should apply to taxis. I’m not sure that taxi companies are in a position to administer such rules without burdensome paperwork, but that isn’t the point. We should have a level playing field.

Also, some of the concerns underlying my recipe are future-looking. Researchers have noted that the coming of widespread autonomous vehicles could pose enormous congestion problems, and that the only way out is to . In the words of Vox’s David Roberts, “Unless we share them, self-driving vehicles will just make traffic worse.” It is not clear how soon such concerns will be pressing, but we’re headed that way.

But before we get distracted by the future, we should focus on the present. When it comes to shaping ride-hailing to further our community values, communities everywhere have viable items on the menu. Instead of settling for the status quo, let’s look at that menu and order something.