Bruce Murphy
Murphy’s Law

Terrible Town for Taxis

How a city permit system enabled a cartel to dominate the taxicab business, stifling competition and providing poor service.

By - Apr 23rd, 2013 12:54 pm
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Cabs

Yellow Cabs  on Jefferson St.

It’s difficult to find a metropolitan area with fewer taxis than Milwaukee. This city has one taxi for every 1,850 residents. That compares to one for every 319 residents in Phoenix, one for 424 Chicago residents and one for every 551 residents in San Francisco.

The libertarian advocacy group, Institute for Justice, represents taxicab drivers in Milwaukee (who want an end to the cap on permits) and commissioned a study which looked at 14 other major cities and found none with so few cabs per population. The closest was San Jose, with one cab for every 1,678 residents.

Why? Milwaukee has a law that has capped the number of taxicab permits at just 321. But the true number may be lower. The Institute’s study noted that “some drivers report that several dozen licensed taxi vehicles are kept off the market in Milwaukee by some owners.” So the number of taxis actually in operation may be even lower, meaning the figure of one cab per 1,850 residents is more like 2,000 or so.

The city didn’t always have a cap on permits. Back in the 1970s, says Anthony Sanders, an attorney for the Institute for Justice, there were around 500 taxicab permits in Milwaukee. But in 1992, a city ordinance championed by then-Alderman Tom Nardelli put a cap into place. At time time, as a Milwaukee Magazine story by Marie Rohde reported, Ald. John Kalwitz opposed the move, suggesting a cap would drive up the price of permits. “I don’t want to see the cost of a license to go up to $10,000,” Kalwitz said.

His estimate was far short of the mark. “Interviews with drivers and vehicle owners revealed that as recently as April 2012, taxi vehicle permits were receiving hard bids in the private market for $165,000 (August 2011) and $175,000 (March 2012),” the Institute study found. “Some permit holders were refusing to sell, hoping that they would get as much as $200,000.”

The average value of those permits is about $150,000, the Institute has estimated. But Michael Sanfelippo, who operates several cab companies that control about 160 permits, claims the value is more like like $80,000. Sanders, however, notes the city didn’t contest its estimate of $150,000 in defending itself against the Institute’s suit, which claimed the city had created a legalized cartel that unjustly controlled the market for taxicabs.

And Circuit Judge Jane Carroll found the Institute’s argument quite compelling, ruling on April 16 that the city ordinance creating the cap on permits violated the state constitution’s equal protection and due process clauses. “The city, in essence, gave permit holders a significant asset,” she ruled. “That is where the problems come in with this law.”

Whereas most cities have a spread of large to medium to small companies that own taxis, Sanders notes, Milwaukee is dominated by one company: American United, which controls the permits for four different cab companies: Joe Sanfelippo Cabs, Inc., GCC, Roy WMS and Frenchy Cab. Those permits are all held in the name of Joseph J. Sanfelippo, the Institute found. Sanfelippo, the Republican state representative from West Allis, has said he holds no ownership in these companies and is merely the registered agent. In Milwaukee Journal Sentinel stories, Joe’s brother’s Michael has been spokesperson for the business, but Rohde’s story reported that Joe told people he handled the books for the company and cabbies said Joe worked there every Monday and Tuesday, taking in cash from cabbies.

Whoever owns those 160 permits, their total value is immense: at $150,000 per permit, they are worth $24 million. Drivers who lease cabs in Milwaukee typically pay an average of $700 a week, the study found, but some pay as much as $1,000. Cabbies told Rohde they paid $1,000 a week to American United. This would mean the Sanfelippo operation collects in the neighborhood of $8.3 million annually in lease payments.

But the Rohde and the Institute both found that cabbies also have to buy their gas from gas stations owned by American United. Rohde requested the net tax corporate tax paid by American United and found it was $102,822 in 2010, the most recent year reported. This would mean the company had profits of at least $1.3 million. Assuming it had an average corporate profit margin, this would mean the company was bringing in revenues of some $23 million.

The city’s cap on permits “enriches the privileged few,” Sanders argues, and assures that permit owners can charge an inflated price. In other cities, he says, this is an “entry-level, immigrant-friendly field” where a hustling entrepreneur might be able to build a business.

But in Milwaukee, the study found the average cabbie makes about $30,000 per year. To buy a taxicab permit costing $150,000 or more, “nearly half of a driver’s income would have to be dedicated toward financing a 15-year loan” at the prevailing interest rates.

Beyond this, “the artificial scarcity of cabs harms Milwaukee citizens and visitors through limiting competition in the taxicab industry and creating inferior customer service – including longer wait times for cabs and a lack of available cabs in modest and minority neighborhoods,” the Institute’s lawsuit asserts.

As a result of Carroll’s ruling, Sanders asserts, the cartel is dead. But that’s not how city officials seem to see it.

In reaction to the ruling, the city’s Public Safety Committee held hearings where dozens of taxi drivers called for an end to the cap, while others in the industry took a different view.

“Testimony was offered that the Milwaukee market cannot support a significant increase in cab permits,” notes Ald. Bob Bauman, a member of the committee.  Too many permits would mean “cabs will not earn sufficient income to maintain their investments in the safety, cleanliness and comfort of the vehicles and the operation of modern dispatch systems” and “service could very easily decline,” he adds.

Bauman therefore offered a compromise which would repeal the current cap and authorize 50 new taxicab permits before Nov. 1, 2014, and 10 additional permits per year for five years after that.  After the first year, he adds, “we can assess the state of taxi service” and perhaps allow a bigger increase than 10 additional per year.

Sanders, however, says this won’t open up the marketplace and won’t fly legally. “Unless the city wins on appeal, it’s not like they get a ‘do over’ with a ‘new’ ordinance, which is what it seems they believe.  It still has to conform to Judge Carroll’s ruling.”

In short, the battle over Milwaukee’s taxis is far from over.

Categories: Murphy's Law

30 thoughts on “Murphy’s Law: Terrible Town for Taxis”

  1. Great article. Do you have a link to the IJ report?

  2. John G. says:

    The one thing to note about the cabs per capita of the cities you mentioned in the opening paragraph is the fact those cities see a much much much higher influx of tourists. While we may have less than many cities, I personally have never had an issue getting a cab when required unless it was on New Years Eve.

    Additionally, parking in Chicago and San Fran is a nightmare, so driving some place is far less preferable.

  3. Duke says:

    No offense to The previous commenter, but we need more cabs on a daily basis and the parking around Milwaukee is terrible. When I have guests in from other metro areas, the cabs are always a point of discussion.

  4. Bill Sweeney says:

    Alderman Bauman should consider adding a “rider” to his proposed compromise plan whereby current County Board Supervisors are allowed to have first dibs on the new taxi permits. If their salaries are going to be cut in half as a result of Mr Sanfelippo’s efforts, they are going to need some way to supplement their incomes.

  5. Jesse H. says:

    I don’t care how many tourists another city has, let the market set the proper amount of taxis operating. The city’s place is to ensure the operating cabs aren’t poorly maintained, unsafe or a nuisance. Anything more or less is purely cab owners/drivers meddling, so they can drive up their profit.

  6. Bruce Thompson says:

    This helps explain why there were no cabs at Mitchell Airport when our flight arrived just before midnight last month. After waiting about 15 minutes, MCTS came to the rescue with its Green Line.

  7. Dave Reid says:

    @Bruce Actually there’s a little more to the story at the airport. Milwaukee County issues permits for cabs to be able to pickup at the airport. That number? About 50 cabs.

  8. George Mitchell says:

    By Alderman Bauman’s logic, the city should determine how many restaurants, barber shops, grocery stores, etc. etc.,, the city can support and set caps accordingly.

  9. Angela Quigley says:

    This is infuriating! Great job bringing the issue to the forefront. Feel a little helpless though. What’s the answer?

  10. George Mitchell says:

    Matt: if you want more on the study contact Sanders (ASanders@IJ.org). Hi to Abby.

    Angela: don’t feel frustrated; Judge Carroll’s excellent ruling will lead to an open market. Contact your alderman and tell him/her to follow the law.

  11. Robert Bauman says:

    Bruce,

    Your story left out the fact that the original legislation I introduced in January (well before the court ruling) proposed eliminating the cap. The Public Transportation Review Board held a long hearing on February 8, 2013 at which there was a lot of testimony for and against removing the cap. Based on that testimony a modified version of the legislation was introduced that proposed to remove the cap over a number of years so the process of expanding cab licenses could be monitored in terms of any adverse impact on public service. We had another hearing on this revised legislation on March 8, 2013 and we heard from about 50 witnesses.

    The Public Safety Committee hearing last week was the third hearing on this topic. Despite well publicized hearings, the council has received very little testimony from actual consumers. We have heard from well over 120 witnesses however only three were consumers. If the consumers believe we need more taxis, my colleagues and I need to hear from you. So far the only information we are receiving is from the lease drivers and the cab owners. Both groups have an economic self interest which is not necessarily consistent with in the public interest. The council needs input from taxi users.

    Most of my colleagues believe there are enough taxis in Milwaukee. I happen to believe we need more taxis, but I am in the minority at this point.

  12. George Mitchell says:

    Alderman Bauman says he favors and proposed “eliminating” the cap. He should be happy with Judge Carroll, whose ruling does that. It remains to be seen how relevant it is what a minority or majority of the Common Council even thinks. The Council should not make the mistake of adopting a new system that remains vulnerable to the key aspects of Judge Carroll’s ruling.

  13. Robert Bauman says:

    I should add that caps on business licenses is not limited to taxis. State law imposes a cap on liquor licenses in municipalities in Wisconsin. In Milwaukee we have never approached this cap so it has never been an issue. However, in smaller cities it has been an issue.

    Caps on business licenses are not automatically illegal or unconstitutional. It depends on the legislative record and the basis or reason the government entity imposed the cap. Taxi license caps in other cities have been upheld. In Milwaukee the legal problem was the reason (or lack of reason) for the cap imposed in 1991.

  14. John G. says:

    @Duke, I am not sure where you are trying to park on a daily basis, but compared to most City metros, Milwaukee parking is an absolute breeze and incredibly cheap in comparison.

    @Jesse H, I was merely pointing out that using those cities as comparisons isn’t necessarily a fair one as they are tourist destinations. Let’s compare between Kansas City, Cleveland, St. Louis, Twin Cities, and Columbus for a better perspective.

    And I didn’t think it even needed to be said that having a cap seems fairly ridiculous.

    In response to the Alderman, I would guess the fact that you do not have many consumers speaking up is that the majority of people don’t have to many issues finding a cab. I would hazard a guess that the majority of cab use is by locals on the weekends to get to and from local watering holes.

  15. Robert Bauman says:

    In response to Mr. Mitchell, I am “happy” with Judge Carroll’s ruling. Absent that ruling my proposed reforms would have gone nowhere and the council would not have increased the number of licenses. But her ruling did not remove the city’s power to legislate in this arena. I would prefer to develop legislation based on extensive citizen testimony and input from various stakeholders.

  16. Bruce Murphy says:

    John G, the data also showed these cities had lower number of residents per taxicab: Houston, Philadelphia, San Antonio, San Diego, Dallas, San Jose, Detroit, Indianapolis and Jacksonville.

  17. Kyle says:

    You could assume that the lack of consumers indicates that everything is okay. You could also assume that some people have just abandoned the idea of getting around Milwaukee in a taxi. After a few times of waiting for hours for a cab that never showed up (despite repeated reassurances from the dispatcher) I stopped relying on them unless absolutely necessary. I have nothing good to say about getting a cab in Milwaukee, but I’ve reached the point where I no longer care.

  18. Marty from West Allis says:

    Chicken or the egg? Or taxis vs. bar shuttle buses. Milwaukee is apparently the only market with a fleet of free shuttle buses operated by dozens of bars, ferrying 1000′s (10′s of thousands?) of patrons back and forth to every major sporting event, Summerfest, concert and more. How many cab rides are not being taken in our community..food for thought.

  19. Tim says:

    Excellent article. Free market needs to determine how many taxis there should be in Milwaukee. This system only enriches American United Taxicab Company, which owns vast majority of permits. Joe Sanfelippo goes around pretending to be a free market reform minded conservative Republican. However, he and his brother profit from a monopoly protected by government. Joe Sanfellipo benefits from free gov’t rides for inner city residents and gov’t protection for his monopoly and yet calls himself a Republican. This is the reason he always hides his ties to American United taxicab company.

    I really support Alderman Bauman on this issue. Why do some aldermen think that it is their job to determine the number of taxicabs? Do we determine the number of lawyers, plumbers, and barbers that is sufficient to serve the public? American United taxicab company is extremely rude to both the customers and the drivers because they know that they own vast majority of the taxicab permits and city has a limit on the number of permits. If American United knew that anyone can get a permit, they would be forced to be courteous to the drivers and the public. They would be forced to provide the best service since they will have to compete with others for business.

    Mike Sanfelippo lives in a beachfront mansion in Fort Lauderdale while the cab drivers have to work more than 100 hours a week in order to pay the rent. They are also forced to buy expensive gas from Mike Sanfelippo’s gas station. This whole system of having taxicab permits is un American and leads to the abuse of cab drivers especially since they are usually new immigrants. Please eliminate the cap. Most people in the general public don’t know much about the cab industry and this is the reason people such as Joe and Mike Sanfelippo continue to lie about the industry.

    I know a great deal about this industry since I was a former driver for American United. I am glad that I don’t have to work anymore for this company. It was just a terrible experience. The job is difficult but the system of having cap on permit allows the American United company to function as a plantation where the drivers are the slaves. The drivers have no choice other than to work like slaves because of the cap. Please eliminate this cap and allow people to fulfill their American Dream. Most drivers will not speak up because they are either afraid of retaliation or don’t know their rights since they are new immigrants whereas American Untied has people such as Red Christensen misrepresent the facts.

  20. Tim says:

    Let the free market work. Get rid of American United monopoly over taxicab industry.

  21. Lisa Smith says:

    I am a consumer, and the cab system could use some improvement. We use them frequently when we enjoy nights on the town. I rarely have trouble getting a cab to pick us up from our house in Milwaukee. However, if we are already out, we wait forever for a cab to pick us up. If we leave the city (out to Greenfield or Franklin), getting a cab home is nearly impossible every single time. Maybe they have to farm out the cabs to another companies b/c we are no longer in the city of Milwaukee; I don’t know. We waited until 3:15 a.m. before a cab picked us up in Bayview last year. Our car was around the corner, but we knew we all had too much to drink so we waited for the cab. I don’t know how many other people in this city would elect to wait over an hour for a cab in freezing temps. Based on the amount of people I know that drink and drive, I would say not many. We should be making it super easy to hop in a cab and get home safely. The cab companies could make more money and less people would be behind the wheel while intoxicated. Isn’t that a win/win?

  22. Dave Reid says:

    @Lisa Thanks for sharing this story. The drunk driving angle, to me, is key. We need to be giving people as many options as possible to avoid drunk driving, and clearly more cabs is part of that solution.

  23. Bill Sweeney says:

    Lisa does make an excellent point. I know that my young adult children as well as their friends seem to be much more conscious, thank God, about not driving after drinking alcohol. They will often follow the practice of taking a bus, or having someone give them a ride to the downtown area, or Brady St or North Ave, or wherever they are going, and then at the end of the evening, taking a taxi home. Obviously, this works better in some areas than in others as Lisa points out.

  24. The Danimal says:

    I wonder why public safety is not brought up as a larger issue in all this. More taxi’s rolling around Water/Brady/Cathedral/etc. on weekends would almost certainly lower incidents of OWI’s, especially in the winter. There is obvious collusion going on with the taxi companies to drive prices up. A simply trip from my home on the lower east side to Water street, for two people, is over $10.00. I recently took a taxi a similar distance in Chicago, with 5 passengers, and the total was just over $10.00. More competition would likely mean lower fares and and increase in taxi use city wide.

    As to Mr. Bauman’s assertion that there was not enough people speaking in favor of removing the cap, perhaps looking at the internet comments would add some clarity. Not everyone can come and wait at a public hearing to speak for 30 seconds, especially younger people whom I would guess are the majority of taxi users. I think this website even compiled reader comments specifically for this purpose.

  25. John G. says:

    @Danimal,

    Great point, couldn’t the commentary here or say a public survey made by Alderman Bauman on Facebook or some similar sort of social network be enough testimony to be provided at a hearing? Considering the time commitment, be much easier for most folks to provide their support in that format.

  26. MilwDave says:

    It seems that the politicians prefer the present system which funnels money through Sanfelippo to their campaign coffers over the the revenue that the city could collect by licensing unlimited cab permits.

  27. The Danimal says:

    @ John G. Thanks. Or even sworn, notarized statements could me mailed in. That way people can express their testimony in a legal, verifiable manner that works around their schedules.

  28. Dave Reid says:

    @The Danimal / @John G I believe you can email you Alder. and ask them to make your letter a part of the record in regards to a file. But from what I’ve seen watching city hall having people show up for public hearings really does make a difference and carry more weight.

  29. Sonia S. says:

    Most bars per capita and fewest cabs. Stay classy, Milwaukee.

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