Indianapolis can't regulate Uber and Lyft, so it might relax taxi rules

Vop Osili is sitting on the second floor of Indianapolis City Market when he notices something that, until recently, would have been unthinkable. There's a man outside in a suit who's using Pacers Bikeshare, the city's 3-year-old bike rental system.

"How cool," Osili, a Democratic City-County Council member says, gesturing out the window on a 70-degree spring morning. "You know, maybe five years ago, he would have thought, 'I'm wearing a suit. I'm in my 60s. Why am I riding a bicycle?' Well, it's that kind of jolt in the market of a new experience, a new way of transportation, that suddenly you get a new body of patronage."

Osili wants to put another jolt in the city's transportation market.

While it has become commonplace for a 60-year-old businessman to rent a bicycle in Downtown Indianapolis, that same man likely would not consider traveling across town in a traditional taxicab. That, Osili says, is because the city's antiquated taxi regulations have depressed competition and incentivized cab companies to squeeze every last dollar out of their existing business model instead of innovating.

At a time when ride-hailing services Uber and Lyft are gobbling up the city's for-hire car service market, Osili wants to help taxicab companies become viable again. To do that, he has formed the Taxi Reform Study Commission, a 13-member panel that will meet at least three times in the coming weeks and make recommendations to the City-County Council on how to scale back taxi regulations. The commission will look at regulations ranging from minimum car requirements for cab companies to grooming and clothing requirements for drivers.

Osili and other city leaders say it's important to improve the taxi experience because it serves as an introduction to Indianapolis for thousands of visitors per year. The first taxi commission meeting is at 5:30 p.m. Wednesday at the City-County Building.

"We've become very complacent, I think, in the way that we operate our taxicabs," said Osili, a Democrat who represents parts of Downtown. "And our taxi drivers, I think, have become rather complacent in that they think, 'As long as I'm taking you from point A to point B, we're good.' And the experience does not necessarily have to be a great one.

"How do we break through that? We can't regulate that or deregulate that, but we can bring it to the table of our taxicab operators to challenge them to consciously consider the user experience. That is important to me. The first experience of Indianapolis (for visitors) is through public transportation."

How we got here

Osili isn't the first Indianapolis official to attempt to ease rules on taxis — and wouldn't even be the first to succeed.

Former Republican Mayor Stephen Goldsmith created a panel that studied the city's taxi business for two years, resulting in a 1994 ordinance that lifted many regulations. Under Goldsmith, Indianapolis ended a 392-car cap on taxis, eliminated fixed prices, put a ceiling on rates and allowed taxis to cruise for customers instead of being limited to designated areas.

Less than a decade later, though, the pendulum swung back toward regulation — a cycle that also played out in other cities.

The City-County Council in 2002 passed a series of new rules, including requirements that cab companies have at least 20 cars, paint their cars in the same style and maintain 24-hour dispatch centers. The regulations, adopted amid concerns about the quality and accessibility of cabs, made it much more expensive to run a taxi company.

Mark Caplinger, an Indianapolis cab driver for 27 years, remembers the period between 1994 and 2002 when the city's taxi rules opened up opportunities for more drivers. The 20-car rule, in particular, made it impossible for most people to launch their own taxi businesses because of the capital costs required for that kind of scale, he said.

"There aren't a lot of people who can put that much money into a company, especially with the way things are now," said Caplinger, who drives for AAA Hoosier Cab.

The 2002 ordinance discouraged competition and protected the business model of Indianapolis taxi companies for more than a decade. But it also left those companies unprepared for the next era of for-hire transportation service.

Decline of taxis

Uber Technologies Inc. came to Indianapolis in June 2013. Lyft Inc. followed two months later. The San Francisco rivals, which let people hail rides and rate drivers through smartphone apps, immediately ate into taxis' business.

The number of taxis on Indianapolis streets peaked at 866 the year Uber and Lyft arrived, according to the city's Department of Business and Neighborhood Services. Active vehicle licenses last year fell to 620, a 28.4 percent decline from 2013, and are down to 581 so far this year. There are 32 cab companies in the city, two fewer than there were in 2013.

Uber and Lyft have an advantage because they are not subject to the same rules as taxis. Their drivers operate as independent contractors, appealing to riders with special touches such as bottles of water and candy. Many people drive for both companies.

Meanwhile, cab drivers are tied to the companies they work for. They must pay an annual $59 operator's license fee and pass thorough background checks.

Even if Indianapolis had been inclined to crack down on ride-hailing services, the state legislature preempted such action. The General Assembly in 2015 passed a law banning municipalities from regulating the ride-hailing services.

"It's not fair," Caplinger said. "The things we have to do to obtain our licenses — they have to do nothing. It's unbelievable. Deregulating it would make it easier for us."

While Uber and Lyft have resisted efforts to regulate their businesses, they have regularly applauded cities and states for taking efforts to broadly deregulate for-hire car services.

Era of deregulation

Since Indianapolis can't subject Uber and Lyft to more stringent rules, Osili wants to make it easier for taxi companies to do business. Possible changes include lowering the required vehicles per company from 20 to as few as two, eliminating the mandate for 24-hour dispatch centers and giving cab companies and drivers more freedom over their cars' colors and features.

Also on the table: The commission will consider lower fees for cab companies, which annually pay $208 per vehicle license, and making prices more flexible. Cab companies can set their fares up to a maximum rate allowed by the city, but they must post the rates on the cars. That makes it impossible to respond to market changes as ride-hailing services do with surge pricing.

"Can you imagine not being able to regulate your own fares? How difficult is that?" Osili said. "That's how you make your money."

Indianapolis isn't alone in contemplating how taxis do business. Other cities, including Philadelphia, Austin, Texas, Cedar Rapids, Iowa and Sarasota, Fla., have either started conversations or taken steps toward easing rules on taxi companies.

Michael Farren, a research fellow in the Project for the Study of American Capitalism at George Mason University's Mercatus Center, thinks cities are right to reduce the burden on taxis. He has co-authored a study entitled, "Rethinking Taxi Regulations: The Case for Fundamental Reform."

"There should be one model for all (companies) providing for-hire transportation services," Farren said.

Other cities' efforts to deregulate taxis in the ride-hailing era are too recent to provide data on how they affect cab companies, Farren said. But, he added, it's the proper course regardless of how taxis perform.

"It's less a matter of whether taxis can compete and survive and more of an argument that they should evolve and there should be one system," Farren said.

'Make it cool'

Brian Tyson, a driver for A-Star Taxi in Indianapolis, is skeptical that rule changes can help him.

"There's such an imprint that has been made by Uber, and people who are under 30 have become so used to using it now, that business is pretty much gone for the taxis," Tyson said.

Tyson, like Caplinger, said he largely survives because of advance appointments and a solid base of return customers. Spontaneous bookings are virtually nonexistent, he said.

But Osili hopes reduced expenses for cab drivers and companies will spur them to make improvements that might win over customers.

"If I'm spending all this money on overhead, what's the chance that I also have the means to fix up a vehicle and make it cool, or do things that personalize it or make the experience more wonderful?" Osili said. "You know, the extra bottle of water, or whatever it is that builds up brand loyalty, that keeps people coming back. If I can't make those sorts of personal touches in my vehicle, it puts me at a disadvantage competitively."

That's a key issue not only to Osili, but also to business groups such as Visit Indy, Downtown Indy and the Indy Chamber, each of which will have a seat on the taxi commission. The groups are hoping for changes that make taxi rides more enjoyable, especially to visitors who might be arriving at the airport and experiencing Indianapolis for the first time.

Although Uber and Lyft provide service to and from Indianapolis International Airport, it's one place where taxis retain somewhat of an advantage. Many air travelers still don't use the ride-hailing services and some who do would rather not use an app to book a ride after getting off of a plane. A taxi can provide a seamless trip from the airport to Downtown.

"We don't have a light rail line that runs between the airport and Downtown, so people rely on the taxi service, and that taxi service is often your front door," said Mark Fisher, the chief policy officer for the Indy Chamber. "You want to make sure the cars are clean, they're safe and people coming to the city have a very good first experience."

In addition to rule changes, Osili also wants the commission to discuss whether the city can help create a smartphone app for taxis while also encouraging Indianapolis cab companies to cooperate with those in other cities on a digital platform. He envisions a universal app that, so far, has been elusive in the taxi business.

Osili thinks the success of Uber and Lyft in Indianapolis could create an opportunity for taxis to appeal to people who previously wouldn't have considered taking any for-hire car service. After all, if a 60-year-old businessman is willing to rent a bicycle, perhaps there is hope for taxis to appeal to a 25-year-old technology worker.

"Folks who would never think about taking a taxi because they might have started with Uber and Lyft and that's what they found pleasurable, well, it's possible they might do the very same thing with a taxicab operation."

Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.