Quinn Vetoes Ridesharing Regulations

Update 2: Apparently some Uber supporters are behaving obnoxiously using social media:

Gotta agree with Representative Zalewski. There's no reason for taunting or harassing on this or any other issue. Besides, this issue isn't over, and taunting the sponsor isn't the most intelligent thing to do if you happen to be on the other side of the issue. 

Update: Per the Illinois Observer, Representative Zalewski, a very serious and hard-working legislator, may be looking into an override of the Governor's veto.  

The Illinois taxi industry was expecting an amendatory veto of the legislation proposing state regulations on ridesharing services. They received a full-boat veto instead. Why? The Governor is embracing local control. From the Governor's veto message:

The principle of home rule is an important one. In ratifying the current Illinois Constitution in 1970, the people of our State endorsed home rule for units of local government. This transformational approach to reallocating the balance of power towards local government and away from the State is perhaps the most significant innovation of the Constitution of 1970. Under Article VII, any home rule unit of government is authorized to: “exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.” Illinois Constitution of 1970, Article VII, Section 6 (a).

Notably, the City of Chicago, as a home rule municipality, has already enacted an ordinance, scheduled to take effect on August 26, 2014, that addresses many of the same concerns that this bill is designed to address.
Other units of local government may also wish to adopt consumer protections and other regulations to ensure a level playing field for all market participants. Such other units of local government may – or may not – follow the approach that the City of Chicago will adopt.

Given how new the technology is and that the City of Chicago’s new ordinance has not yet even taken effect, it would be premature – and perhaps counterproductive – to enact a rigid statewide regulatory model at this time. It would be more prudent to carefully monitor the City of Chicago's experience and the success and challenges it faces in enforcing its new ordinance. Similarly, lawmakers and the general public will also benefit from observing the experiences of other units of government that adopt their own innovative approaches to regulating mobile device-enabling ridesharing. 

A statewide regulatory framework should only be considered when it is clear that it is not possible to address the problem at the local level. At this point, there is not yet enough evidence to make a judgment about the effectiveness of local ordinances in dealing with the challenges of ridesharing technologies.

Governor Quinn also expressed concern that the bill would "stifle innovation," but he's all-in with the local control argument here. And he's right. In an earlier post I contended that there certainly is a need for some regulatory supervision of the emerging ridesharing industry. Some of the regulations contained within HB 4075 make sense. But there's no compelling reason why the state needs to be the regulator. Let the locals regulate the the ridesharing services that operate within their boundaries. The state should be attending to other matters.

The total veto removes this issue from the gubernatorial campaign since both candidates share the same position. Bruce Rauner won't be able to hit Quinn on "stifling competition," and it's unlikely that the taxi industry will throw in with Rauner because he supported a veto. That said, it will be interesting to see what the taxi industry does with its campaign war chest. Does the industry start spending in legislative races to attempt an override? The legislation was approved with veto-proof majorities in each chamber, but the bill has become pretty highly politicized. Some of those votes may peel off. 

An Über Battle

As Jerry Seinfield might ask, "So what's the deal with Uber?"

One of the more interesting issues that played out last spring was the emergence in late March of an amendment to regulate commercial ridesharing services. 

I have to admit that, having not lived in a metropolitan area for awhile, I was wholly unfamiliar with companies like Uber and Lyft until the amendment to HB 4075 was introduced. After learning more about how ride-sharing worked, I remember thinking that the ridesharing model seemed like an innovative idea. I intend to try it out. 

But the taxi industry didn't agree with this assessment and put forward the amendment to impose substantial regulations on ridesharing companies.

The taxi industry contends that the regulations are intended to ensure that ridesharing companies offer the same consumer protections as the taxi industry (i.e., commercial liability insurance, criminal background checks, special licenses, special registrations plates, vehicle inspections, etc.).

Detractors believe that the taxi industry's arguments are mostly a canard and view the bill as a gambit to protect the monopoly held by the industry. 

I'm going to split the difference and say that there's some truth to both arguments, although I'm more sympathetic to the arguments made by the ridesharing companies. 

Ridesharing services should be required to adhere to a few basic consumer protections. I would suggest commercial liability insurance and criminal background checks. Even so, I don't believe for a second that the taxi industry has consumer safety as its foremost concern. In this they're being complete and total posers. 

The reality is that the industry views the less expensive ridesharing service as a threat to their business model and want to mitigate the threat as soon as possible (and before the more streamlined ridesharing services have a chance to really take-off with large swaths of consumers). Think about how much easier it would have been to impose Internet taxes before everyone was online.

Making the issue about consumer safety provides a more effective public relations argument than making it about the bottom line of the taxi industry. And this consumer safety argument is being used by the taxi industry to thwart ridesharing companies in several states.

The politics created by the emergence of ridesharing services bear watching. The magnitude of the threat has caused the Illinois taxi industry to gird for battle by raising significant cash. Cash that they will throw at legislators and gubernatorial candidates to encourage loyalty to the industry:

The Chicago-based Illinois Transportation Trade Association, a trade group representing the taxicab industry, formed its political action committee at the end of May with a planned annual budget of $1 million to help defend itself politically against the onslaught by rideshare companies, such as Uber.



In May, the taxi PAC put $200,000 in the bank. 

 Now they're ready to spend.

 "We're giving now," a PAC insider said. "The plan is to be a significant player in the November elections and in the 2015 municipal elections."

It doesn't get much more direct than that. And the spending by "Big Taxi" isn't limited to Illinois:

The next time you’re stuck at the airport, stranded by the side of the road or trying to catch a ride home on a Saturday night, consider the following fact: the taxi cab industry has donated at least $3,500 to the political war-chests of state legislators for every $1 that Uber, Lyft and Sidecar gave.

This massive discrepancy in political giving may also explain why, since the start of 2014, at least 12 states and the District of Columbia have introduced new regulations aimed to limit these popular ride-sharing applications, according to a review of legislation from the Sunlight Foundation’s Open States project.

The cash starts to pour into political coffers when special interests or competing companies go to battle over rules, exemptions, and advantages conferred by government. It's all chronicled in the book, "Government's End: Why Washington Stopped Working." 

If the issue is really about consumer protection, then why hasn't Governor Quinn, a noted consumer rights advocate, signed the bill into law yet and taken a victory lap?

The Governor and his staff are most likely trying to figure out the politics of the emerging fight between the taxi industry and the upstart ridesharing companies. On the one hand, "Big Taxi" has gobs of money that it can spread around to political candidates. On the other hand, supporting the additional regulations risks alienating younger urban voters that like the cheaper rides that are available using a smartphone app. I can imagine an entire generation of young people asking "what's a taxi?"

The GOP is already working to use efforts to regulate the emerging ridesharing companies as a wedge issue to curry favor with younger voters. And Bruce Rauner is just waiting to whack the Governor for being "anti-business" if he signs the bill: 

In a statement and a campaign appearance, GOP gubernatorial nominee Bruce Rauner urged Gov. Pat Quinn to veto a pending bill that conventional taxicab firms say would even the regulatory playing field, but which Uber and other ride-sharing firms say is antithetical to their business model.   

"I love Uber," said Mr. Rauner, who, in a Tribune account, then proceeded to get in an Uber car: a Toyota with 200,000 miles on it. "And we need a state that supports job creation — not runs it off. Tweet Pat Quinn — tell him to veto the anti-Uber bill."  

Mr. Rauner went on to describe Uber as "an innovative, growing company . . . that wants to create 425 more (headquarters) jobs right here in Illinois. Yet Gov. Pat Quinn may sign a bill that will hamper this fast-growing company with burdensome regulations."   

The Governor is quite obviously taking his time to carefully assess the political environment before acting. 

My own view is that a better solution might be found by imposing minimal regulations on ride sharing companies (commercial liability insurance and criminal background checks would be essential) and narrowing the regulatory gap by easing the requirements on the taxi industry. For example, why should a taxi driver need a chauffeur's license and a special registration? They're driving a car, not flying a Cessna. 

Ridesharing companies and consumers shouldn't be punished because the taxi industry finds itself operating under an expensive business model. Rather than overly burden the ridesharing companies, why don't we encourage policies that lessen the burden on the taxi industry and then encourage the industry to rethink its business model? This is how consumers win. 

My suspicion is that the rules and regulations in HB 4075 have more to do with obstructing competition within the taxi industry and the desire for ever-expanding control by state regulators. And any regulations should be completely in the hands of the local governments where the ridesharing companies and taxis operate. There's no compelling justification for the General Assembly and Governor to make the rules here. They've got more pressing problems to solve.