April 17, 2015

Blame It On the MTC

Traveling can be stressful. I’m usually comforted when the airplane safely touches down at my final destination, especially when it’s at Lambert International Airport. Unfortunately, Saint Louis cabs can add to the stress and deplete the pocketbook.

This past week, when my flight into Saint Louis was over an hour and a half delayed, I realized I would have to catch a cab home. I usually can persuade my friends to pick me up by offering them Starbucks, but since my flight landed at 1:00 a.m. no one was able to pick me up. With MetroLink stopping service at 12:57 p.m., I was left with no other choice than to get a cab ride back to my apartment in Midtown. After collecting my bags, I went to the taxi stand to find only one company offering cab services. After a 15-mile ride to my apartment, I was stuck with a $44.14 cab fare.

Ride_RequestRidesharing companies like Uber and Lyft operate out of cities like San Francisco and Chicago at much more competitive rates. San Francisco even offers UberPool, which matches you with other riders heading in the same direction with the fare split among several riders.

However, since I live in Saint Louis, a city that is inhospitable to innovative and competitive ridesharing companies, I was unable to seek an affordable option.

The Metropolitan Taxicab Commission (MTC) is a regulatory body meant to protect the consumer. Instead, they protect the cab companies who profit from anti-competitive regulations, while consumers are left without options that are prevalent in a competitive market.

Looking through the ridiculous regulations of the MTC’s code, cab companies picking up customers from the airport must obtain a permit and give one dollar for every fare to the MTC. At this time, the MTC has only granted permits to seven cab companies. With limits on the number of permits made available, cab companies are shielded from meaningful competition and can set prices that would be too high in a market with free entry.

I hope the next time I fly into Saint Louis, UberX or Lyft will be an option because I cannot afford many more $45 cab rides.

March 30, 2015

How Dangerous Is an Unlicensed Music Therapist?

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Legislators will ask themselves this question tomorrow when they consider House Bill 189. Music therapy is a type of treatment that involves creating, singing, moving, or listening to music. It is often used to treat children with developmental disabilities such as Autism. While groups like the American Music Therapy Association seek to elevate the status of music therapists, it is unclear whether or not obtaining a license would actually help a music therapist become more effective.

The Southeast Missourian reported that supporters of music therapy say that untrained music therapists are harming clients. The article did not discuss what kind of harm was being inflicted. It’s difficult to imagine that the creation of music could ever be harmful. Still, Missouri legislators are considering a bill that will make people obtain a special certification to practice music therapy.

As Show-Me Institute analysts have pointed out, certifications create unnecessary barriers to entry, ultimately limiting access for consumers to important services. Studies on occupational licensing have shown that when the government institutes a program like the one House Bill 189 is proposing, the cost of services increases.

March 27, 2015

New Kansas City Rideshare Rules Need a Rethink

Kansas City has proposed new for-hire vehicle regulations that are designed to allow ridesharing companies like Uber and Lyft (also known as Transportation Network Companies [TNCs]) to operate. Uber has cried foul over the new rules and threatened to pull out of the Kansas City area altogether. Lyft has expressed guarded optimism. The city holds that revised regulations are fair and designed to protect the public.

The draft ordinance allows TNCs to apply to operate, free of charge, in Kansas City. Drivers for the TNCs must have insurance, pay a $250 annual permit fee, a $44 inspection fee, and get the medical permission to drive. If the TNC agrees to pay $10,000 to the city, individual drivers need only pay $150 annually, and they do not have to pay an inspection fee if they can provide proof of a state inspection.

Paying $294 to drive for Uber or Lyft may not sound like a lot, but the majority of ridesharing partners drive less than 15 hours a week. The higher the permit costs and ancillary requirements, the fewer drivers will be available. One might ask why, if Kansas City permits the overarching ridesharing company (who is required to perform background checks and carry insurance), the individual drivers need city permits at all? At a hearing on possible state regulation of TNCs, a representative from Kansas City’s Regulated Industries Division gave an answer to that question. The representative stated that even though the city could enforce existing safety laws it could take considerable time and effort. It is more effective for the city to be able to pull a driver permit at will. The representative worried that without the permits, the city “won’t have anything to regulate.”

TNCs aside, the proposed taxi regulatory changes are completely disappointing. Taxi permits are still capped at 500 (applicants must have at least 10 cabs to apply). Prices are still regulated, private bus routes are still illegal, and apparently Kansas City is still protecting customers from drivers wearing jogging suits. How long do Kansas City officials think that highly regulated segment of the market will last in competition with (even hampered) TNCs?

The horror!

The horror!

While Kansas City may be changing the name of its taxi code to “for hire vehicle code,” they are a long way from a holistic, safety-driven approach to transportation regulation. Control is still paramount for city officials, and balkanized market controls pervade the code. If officials go forward with changes as they are, they will likely cause instability and a need for further changes in the future.

March 26, 2015

Low Alcohol Regulations Benefit Missouri Business

photo by Caitlin Hartsell

photo by Caitlin Hartsell

Over the weekend, I visited a whiskey distillery, StilL 630, in downtown Saint Louis. The owner and operator of the company talked about why he chose to set up in the city. Missouri’s reasonable alcohol regulations were one factor that made his business possible. In Missouri, unlike many other states, a brewer or distiller of any size can produce, sell, and distribute their own product.

The ability of a company to sell and distribute its own product seems like common sense, but that right is under attack in neighboring states. For example, just last Friday, Kentucky enacted a law that bans breweries from distributing their own products. This law, which legally protects three-tiered beer sales, was a blatant attempt to protect independent alcohol distributors and may force companies like Anheuser-Busch to sell its Kentucky distributors. Missouri has flirted with these types of regulations in the last couple years. As Director of Development (and former Policy Analyst) David Stokes wrote in 2013 regarding SB 412:

I recognize that the rules for alcohol distribution have been in place for a long time, but that is not a justification in 2013 for new rules that prevent a maker of alcohol from simply having an ownership interest in a distributor of alcohol. . . . I can imagine no market failure or public good problem that this proposed law would address. The point here seems to be the preservation of existing distributorships and the limiting of competition. . . . Simply put, the government should not mandate the use of a middleman.

Missouri’s reasonable alcohol regulations promote small-business creation, helps large companies operate efficiently, and can ultimately benefit the consumer. Missouri should hold onto that advantage and resist any temptation to move in the direction of Kentucky’s legally enforced three-tiered system.

March 3, 2015

Uber, Education, and Barriers to Entry

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What do taxicab cartels and traditional education groups have in common? This is a question I contemplated on a car ride from my hotel to the Association for Education Finance and Policy’s annual conference in Washington, D.C., last week. Instead of taking the Metro, I decided to use Uber. Joe Miller has written a bunch on Show-Me Daily about Uber and Saint Louis’ and Kansas City’s taxicab commissions’ fight against the ridesharing service. On my short ride, I realized that many education groups are a lot like the taxicab cartels—they have attempted to place incredible barriers to entering the profession/industry.

My driver, Majid, was an English teacher in his home country. Majid moved to the United States for a better life and would like to begin teaching here. To do so, he has to obtain certification, which means he has to pass a licensure exam. Of course, to take the exam he has to pay for the exam. Majid recently took the necessary tests and passed the math exam but failed the language arts exam. He now has to pick up more Uber fares to pay for another test, which he may or may not pass.

Like the regulations that have blocked Uber from entering the market in many cities, licensure exams are a barrier to entry. Barriers to entry are not a problem if they perfectly block the people/problems that we don’t want in a profession. That is, if a barrier screened out every potentially bad teacher, it would be a good barrier. Unfortunately, licensure exams are very loosely related to teacher quality. This means many bad teachers pass the exam and become teachers, while individuals who may be great teachers fail the exam and do not enter the profession.

When we look at the success that Uber is having and how it is revolutionizing the industry, it is easy to see why we need to be wary of unnecessary regulations that have nothing to do with quality. Education would be wise to follow suit and remove unnecessary barriers to entry.

February 19, 2015

Change On the Way for Rideshare Regulation in Missouri?

The Mardi Gras celebrations that took place last week in Soulard were met with extremely cold weather, with temperatures dropping into the teens after nightfall. I was driving through the area later that night, directly behind an empty cab. As we neared an intersection, a woman came forward to hail the cab. It drove right by and left her in the cold.

Maybe that cab driver had someplace to go or was simply done driving that day. I do not know. But what I do know is that woman could have used a convenient, inexpensive ride home. The same is true of the 60 drivers who were cited with DWIs before 8 p.m. Unfortunately, the supply of taxis in Saint Louis is strictly controlled by a regulatory body that thinks it knows how many cabs Saint Louis should have and how those cabs should serve customers.
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That body is known as the St. Louis Metropolitan Taxicab Commission (MTC), and they have decided that new ridesharing services like Uber and Lyft should not be able to provide needed transportation to Saint Louisans on nights like February 14. Instead, they tightly control the supply and business practices of for-hire vehicles, as we have detailed in previous blog posts. That includes UberBlack (Uber’s expensive black car service), which can only partner with a limited supply of MTC-licensed premium sedans.

But change may be in the air for Missouri cities, including Saint Louis. Other cities, like Kansas City and Columbia, have or are in the process of changing their taxi codes to allow ridesharing. However, Columbia’s changes ask for insurance that is reportedly 20 times the dollar amount they require for cabs, perhaps to make Uber too expensive to operate.

At the state level, two bills in the Missouri Legislature, SB 351 and HR 792, would set a statewide standard for the regulation of Uber, Lyft, and other ridesharing companies (officially transportation network companies) given certain license payments and insurance coverage. If these state standards pass, it would be a dagger to the heart of the MTC, as it would preclude that body from regulating ridesharing companies in any way. The MTC’s significant barriers to entry and management of ridesharing company driver supply would be eliminated. That would open the door for cheaper, more plentiful transportation in Saint Louis.

In the many states where ridesharing companies are allowed to operate, thousands, and sometimes tens of thousands, of for-hire vehicle drivers have entered the market. Even during peak hours, they pick up passengers quickly and offer the ease of app-based payment, all for prices competitive with regular cabs.

Just think, next time it might be you on the street corner in the freezing cold after a big event. Would you want to rely on a few passing cabs to decide whether your fare was worth the trouble? Or would you rather rely on a competitive market that includes cheap, responsive ridesharing services at the touch of a button? Not a hard choice, unless of course you’re a taxi regulator.

February 17, 2015

Don’t Ban Tesla to Protect Middlemen

Missouri auto dealers, through the Missouri Automobile Dealers Association (MADA), is on the offensive. Their target is Tesla, the luxury electric car manufacturer, and their goal is to prevent the company from selling cars in Missouri. They backed a bill in 2014 which would have banned Tesla, and now that that effort has failed, they have filed a lawsuit against the state of Missouri.

The essence of the dispute is that Tesla, uniquely among U.S. car companies, does not use middlemen (dealerships) to sell its cars. MADA, which represents those middlemen, wants it to be illegal for a car company to directly sell its vehicles to consumers. They claim it already is illegal, under the Missouri Motor Vehicle Franchise laws. But the Missouri Department of Revenue disagrees, claiming the laws are only applicable to manufacturers that have dealerships in the state and are not designed to enshrine dealerships as the only method of selling cars.

Along with their legal and legislature maneuvering, MADA is publicizing why Missouri should create more regulations to enshrine the dealership model as the only way to sell cars. They argue that without car dealerships the state’s economy would suffer and that consumers need the type of long-term car care that only they, and not the manufacturer, can provide.

Without a doubt, using car dealerships as a sales and maintenance unit has many advantages for manufacturers and consumers. After all, it became the dominant mode of selling cars for a reason. However, it is not an intrinsically superior way to buy and sell a car and certainly should not be afforded new legal protection.

For example, according to a report from the Department of Justice, dealerships can raise the costs of selling cars. Experiences from General Motors sales internationally have shown that manufacturer-direct sales can lower the cost of a car by 8.6 percent. Furthermore, consumers may prefer manufacturer-direct sales over the uncertainty of haggling with car dealers, if they are given the choice. One poll conducted in the United States found that half of respondents would prefer to buy from the manufacturer even if they were not offered a lower price.

MADA’s efforts would take that choice away. They claim that buying a car is an important financial decision and that dealers provide the long-term care customers need. But there is no shortage of ways consumers could choose to service their vehicles if they buy directly from Tesla, including agreements with auto-repair shops. Car buyers are no less capable of looking after their assets than homebuyers, who somehow manage to purchase and maintain houses without house dealerships.

As for the economy as a whole, protecting a certain way of selling cars is no way to increase jobs or increase competitiveness. Business models change constantly and create new opportunities and products even as they replace older ones. That sentiment underlined the Federal Trade Commission’s (FTC) criticism of Missouri’s legally entrenched franchise system. They stated, “[C]onsumers are the ones best situated to choose for themselves both the cars they want to buy and how they want to buy them.” That may not always be to the benefit of car dealers, but it’s good economics and good for the state.

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February 2, 2015

Don’t Ban Tesla, Let It Compete

We wrote last year about the attempt of Missouri Car Dealers and their lobbyists to prohibit Tesla from directly selling its vehicles to consumers. The Missouri Department of Revenue granted Tesla a dealership license in 2013, and the company now has stores in University City and Kansas City. But according to the Missouri Auto Dealers Association (MADA), Tesla is breaking Missouri’s Motor Vehicle Franchise Law and creating unfair competition through its manufacturer-direct sales. Legislative action to shut down Tesla failed last year, so MADA has sued the Department of Revenue.

However, MADA’s claims hold little merit. The Motor Vehicle Franchise Law bans manufacturer-direct sales for franchisors (meaning those with franchises in the state). Tesla does not use the franchise model to sell its cars, and hence is not banned from direct sales. And this is not a loophole. The Franchise Law was designed as a series of protections to prevent large car companies from undercutting their own franchisees. It was not written to enshrine the independent car dealerships as the only method to sell cars in the state.

That is an important distinction, because whether or not Missourians believe car companies need to be legally prohibited from cannibalizing their own marketing and sales outlets, there is no economic justification banning a manufacturer-direct car sales model. As I wrote in a recent op-ed:

. . . vehicle distribution through dealerships can be costly to the consumer. The 2009 Department of Justice paper “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers” reported that as much as 30 percent of the cost of a new car is due to auto distribution. Enshrining the car dealership model in law has limited the ability of car manufacturers to both reduce inventory costs and increase customization, practices common in other markets. In Brazil, where GM can engage in direct sales, cost savings from order to delivery averaged 8.6 percent through direct sales.

Car buyers . . . might prefer directly buying from manufacturers for lower prices, customization, or simply to avoid bargaining at a dealership. A J.D. Power and Associates poll found that half of Americans profess a desire to buy manufacturer-direct, even if the prices are equivalent.

While that does not mean the dealership model would or should disappear, the government should not stop Tesla or any other car company from trying something different. That freedom to innovate is essential for a competitive market.

January 22, 2015

Saint Louis Ridesharing Update: MTC Still Dragging Its Feet

Ridesharing has had a bumpy ride in the Saint Louis area. The Metropolitan Taxicab Commission (MTC) strictly regulates the number of cabs, the prices they can charge, and even minutiae like the color scheme of taxis. It is a regulatory system marked by parochial, top-down control. So when Lyft began operating in the metropolitan area without the permission of the MTC last year, the official response was hostile. Police ticketed Lyft drivers, and the company was forced to cease its Saint Louis operations.

The bright spot for residents hoping to use ridesharing was Uber’s entry into the Saint Louis market. By negotiating with regional power brokers, such as Mayor Slay and the MTC, Uber was able to secure regulatory changes that would allow it to operate its expensive black car service, which launched last October.

Unfortunately, the relaxation in regulation was only very slight, and the MTC still firmly regulates taxi operations in the Saint Louis area. For example, the MTC only allows Uber to act as a dispatch service for MTC-licensed premium sedans, the number of which the commission has limited (initially the MTC added only 26 new vehicles to accommodate Uber). The MTC also passed restrictions to ensure that Uber Black uses only premium sedans and charges premium prices, lest they compete with normal cabs.

Notwithstanding the subsequent undersupply of Uber vehicles, Uber claims significant demand and wishes to expand its black car service and begin operating UberX, the company’s true low-price ridesharing service. But unlike cities across the country (including Kansas City and Chicago) the MTC has not shown the inclination to make the large-scale regulatory changes that would open the way for innovative ridesharing companies or create a more robust taxi market.

In a city where officials ceaselessly talk about attracting businesses and innovators downtown, it is shocking that they are unwilling to reduce regulations in order to make the city an easier place to work and play. If Saint Louis is going to experience sustained revitalization, it is going to come from being a leader in fostering new businesses, like ridesharing companies, that residents choose to patronize. It will not come from splashy, taxpayer-funded development schemes that regional leaders repeatedly propose.

January 21, 2015

Level the Playing Field for Uber and Taxi Companies Through Deregulation

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Kansas City, Mo., heavily regulates its taxicab industry. As we detailed before, the city limits supply (to 500 cabs), manages pricing, and even stipulates what drivers may wear. These types of limitations have resulted in a stagnant and oligopolistic cab industry, ill-prepared to deal with well-capitalized and innovative competition.

Enter Uber, Lyft, and other app-based ridesharing companies. Kansas City’s stringent taxi regulations are not well designed for new technology or the use of personal vehicles for transportation on which these companies rely. When Lyft entered the Kansas City market without receiving city hall’s permission, officials filed injunctions and accused Lyft of endangering public safety.

Since that time ridesharing has made some progress in the City of Fountains. Uber, with the blessings of city hall, launched its black car service and UberX in the second half of 2014. While the process has encountered a few problems (some UberX drivers are still being ticketed over regulatory issues), the city has shown flexibility. Lyft was even allowed to operate until it voluntarily suspended operations on October 24, 2014, to await possible regulatory changes.

Those changes might be close at hand. The city is in the process of reviewing all of its taxicab policies, and proposed changes include modernizing regulations, removing some barriers to entry, relaxing requirements for vehicle inspections, and easing requirements for vehicles’ commercial insurance. That Uber and Lyft drivers do not carry primary commercial vehicle insurance has often been a cudgel used to attack these ridesharing companies, despite evidence that suggest over-extensive insurance does not protect public safety.

Adopting a “trust but verify” system toward ridesharing companies is a step forward for Kansas City, but that spirit should also include traditional taxis. When Kansas City allowed UberX, a direct competitor to taxi service, to offer services under “livery vehicle” regulations (designed for limousines and premium sedans), it essentially created a two-tiered market: the highly regulated traditional taxis vs. the less regulated Uber. That puts cabs at a distinct disadvantage and may mean they are driven out of the market. Putting cabs out of business through overregulation is not progress, any more than regulating ridesharing out of Kansas City would be.

Instead, Kansas City officials should use this opportunity to stop micromanaging the taxi business and limit itself to requiring taxis to carry adequate insurance, perform background checks, and pass vehicle inspections. A truly open for-hire vehicle market could accommodate both high-quality traditional taxis alongside innovative business models; and that would provide the greatest benefit to the residents of Kansas City.

December 11, 2014

What Is the Right Level of Regulation in Public Education?

Back in September the Show-Me Institute released my paper, “Decentralization Through Centralization,” in which I examined the development of the nation’s first all-charter school district in New Orleans. Though a mouthful, the title was my way of highlighting the tension that exists in the decentralized New Orleans system, which has been created with greater centralized control. In the paper, my co-authors and I highlight several potential pitfalls that might occur because of the power vested in a centralized entity. This week, Reason released a video highlighting another potential pitfall of the New Orleans Recovery School District model—regulatory creep.

As Rick Hess, director of education policy studies at the American Enterprise Institute, notes in the video:

People like autonomy in the abstract, but they get real nervous about it. If any one of a hundred or a thousand schools does something goofy, there’s always a natural temptation to say, “Well, we’re for autonomy, but let’s have a rule that doesn’t let you do X.”

Over time, Hess suggests that these regulations mount. If not checked, the decentralized charter market could become a bureaucratic morass. So what is the right level of regulation? And is it possible for a decentralized school system to resist what Neerav Kingsland, former CEO of New Schools for New Orleans, calls “death by a thousand regulatory cuts”?

If you have seven minutes, you should check out the video.

December 2, 2014

Highway Funding in Missouri: The Fuel Tax Option

The failure of Amendment 7, the proposed transportation sales tax, in August has left the Missouri Department of Transportation (MoDOT) in a financial bind. In the next few years, the department will no longer have the funds necessary to maintain the quality of the state highway system, much less improve it.

Former proponents of Amendment 7 claim that sales taxes are the best solution for MoDOT’s problems because they are the most politically feasible method of raising large amounts of money. Raising the state gasoline tax (currently 17 cents per gallon)—MoDOT’s principle revenue stream, they say—is not good policy because it is a declining source of funds and it does not poll well. But as we have shown before, fuel consumption has been declining very slowly, and it actually increased in the last year. The erosion in the gas tax’s purchasing power is mostly the result of inflation; Missouri last increased its fuel taxes in 1996, since which time prices have increased an average of 34 percent.

Far from being politically unfeasible, raising the gas tax is actually the simplest method for the state legislature to raise more money for MoDOT. That is because the provision that forces tax increases to go to the voters, the Hancock Amendment, has exceptions for small increases of existing revenue streams. Under the amendment, the legislature can increase revenue in any given year as long as new revenue does not exceed $106 million ($50 million in 1980 indexed to personal income growth) or 1 percent of state revenue looking back two years ($84.2 million for last year), whichever is lower.

Using 1 percent of previous state revenue as a cap, the legislature can collect around an additional $84 million in fuel taxes next year. Missouri currently generates about $29 million per cent from fuel taxes, meaning the state could raise fuel taxes by more than two cents without triggering Hancock requirements. Or, if Missouri followed the example of the federal government and many other states in charging diesel at a higher rate than regular gasoline, the state could raise the diesel fuel tax rate by five cents and the regular fuel tax by one cent and remain under the cap. That would generate an addition $78 million for MoDOT next year.

What’s more, because state revenue has been growing and per-cent fuel receipts have been declining recently, the state legislature could raise the fuel tax in successive years, which could give MoDOT the needed funds to maintain and make necessary improvements to state highways. In fact, this is precisely how Missouri last increased its fuel taxes in the 1990s.

Fuel taxes, as indirect user fees, are a preferable and possible way of funding highways in Missouri. If more money truly is required, the legislature has the option to raise fuel taxes without sending the issue to a ballot and without resorting to new, inappropriate funding mechanisms.

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