The Hermosa Beach City Council new agreements with taxicab companies last week, granting significantly lower franchise rates as a result of the challenges cabs are facing from ride-hailing companies like Uber and Lyft.
The new agreements, which earned unanimous approval, are in effect for one year and give four Southern California companies the exclusive right to operate in Hermosa at a cost of $610 per taxi. The fee represents a significant discount from the previous arrangement, which charged $1,100 per taxi. Staff designed a one-year agreement in part because of uncertainty over how pending state legislation would affect the project.
The diminished rates were a reflection of the struggles facing taxi companies and drivers. Mobile phone-based ride-hailing has cut into their business significantly, with an estimated 70 percent revenue decline in the last five years, according to Daniel Klein, director of business development and government affairs for Bell Cab Co., one of four cab companies to sign a franchise agreement with the city.
“The first request we’d make is that…you take the current number and reduce it by 70 percent, The ultimate goal is for cab drivers to have a living wage,” Klein told the council. The agreed on $610 fee represented a reduction of 44 percent, but was lower than the $750 initially recommended by staff, and in line with what Redondo Beach taxies obtained in a recently renegotiated agreement.
Under the previous agreement, the four companies — All Yellow Taxi, Bell, South Bay Yellow Cab, and United Independent Taxi Drivers, Inc. — had been required to maintain a minimum of 40 taxis available for service in the city, for a total of 160. But thanks to declining customer demand, the companies had been unable to field enough drivers to supply nearly that many in recent years. For the fiscal year ending June 30, the companies offered, or “sealed” in taxi parlance, 92 cabs, according to Ennis Jackson, an administrative services coordinator with the city. The new agreement asks the companies to provide a minimum of 20 within 60 days, but if a company falls short of that number, the new minimum will be set at the level they are then providing.
Although the new agreement was inspired by the challenges facing the taxi industry, City Attorney Michael Jenkins acknowledged the difficulty cities face in negotiating contracts with an industry in upheaval.
“This is a band-aid…to a fluid problem that we still don’t know all the ramifications of, because of ridesharing and how influential that has become in the economy,” Jenkins said. “This agreement and the way it was written has become, in a matter of years, virtually a dinosaur.”
As recently as five years ago, taxicab companies eagerly sought out franchises in Hermosa because its bustling night life made for plentiful fares, and it was unusual for a company not to seal the minimum of 40 cabs, Jenkins said.
“We are now faced with the exact opposite, and [taxicab companies] are reacting to the marketplace,” he said.
The popularity of ride-hailing is driven by both ease of use and, frequently, cheaper fares. Nonetheless, Hermosa and many other cities continue to negotiate franchise agreements with taxicab companies. Taxis serve the diminishing segment of the population that does not rely on a smartphone, and Mayor Justin Massey said taxicab companies provide an “essential service to our residents and businesses.”
Massey noted that unlike ride-hailing apps, the price for which is determined by an algorithm, cabs provide a fixed rate that is displayed in the car and which does not change depending on demand. He also cited the “more thorough background check” that cab drivers must undergo. While state legislation that went into effect Jan. 1 increases the driver vetting that companies like Uber and Lyft must carry out, lobbying by those companies managed to kill a provision that would have required fingerprinting for all drivers, which is standard practice among taxis.
Hermosa and other cities are also eager to partner with the taxi industry because of the revenue that the companies provide through the franchise agreements. Cities often designate corridors adjacent to clusters of bars and restaurants, like the west side of Hermosa Avenue just north of Pier Plaza, for the exclusive use of taxis. At various times of the last year, the city has deployed signs and code enforcement officers to ensure that drivers for ride-hailing apps do not use that space for dropoffs and pickups.
Efforts to create similar partnerships with ride-hailing companies have fizzled. Councilmember Hany Fangary recalled a past meeting of the South Bay Council of Governments, at which he said a representative from Uber indicated an unwillingness to work with municipalities.
“One of the things I got out of that is that Uber and Lyft are not willing to put any investment in infrastructure or pay any fees, whereas the cab companies obviously do,” Fangary said.
The effort to corral the rapid changes wrought by the rise of the “gig economy” recalls Hermosa’s efforts to regulate short-term vacation rentals in the city. The city passed a prohibition on the rentals in residential areas last year, but companies like Airbnb and VRBO ignored outreach efforts by the city to obtain their cooperation.
With ride-hailing companies, councilmembers have expressed concern that the lack of regulation of drivers for ride-hailing companies has led to traffic hazards. Last year, the council voted to erect more metal gates along Beach Drive after several Uber and Lyft drivers, relying on a mobile phone-based mapping service, inadvertently drove onto The Strand while attempting to pick up passengers.
