Is imposing a minimum price for limos and sedans so as to not “take all of the best fares from . . . the taxi industry” a rational basis for an economic regulation?

April 26th, 2012

What would Judge Brown think of IJ’s latest case?

Like many cities, Portland distinguishes between limousine and executive sedan companies, and taxis. Livery services are often run by independent drivers with a single car, whereas taxis tend to have a larger, corporate framework. In comparison to the 382 legally licensed taxis in Portland, only around 160 executive sedans and 30 limos and party buses operate in the city.

In Portland, livery services must charge a minimum fare of $50, and receive reservations at least an hour in advance of pick-up. The law, which went into effect in 2009, also prohibits them from parking in front of hotels. Livery vehicles must charge a minimum rate 35 percent higher than competing taxi companies for any ride outside the city. The fine for violating the ordinance is $500 for the first offense, $1,000 for the second and suspension of permits for a third.

These sorts of regulations are usually passed in the name of consumer protection, even though they often result in consumers paying more for car rides. However, Frank Dufray, administrator for Portland’s Private-for-Hire Transportation Program, which regulates both taxi and livery services, said the laws aren’t intended to help consumers or the city, but to protect market share for the taxi industry.

“The main thing is that you don’t want the Town cars to take all of the best fares, which are to the airport, and not leave any for the taxi industry,” he said. “That’s why there’s a minimum fare and a one-hour wait requirement.”

But Red Diamond, the taxi representative to Portland’s City Council, defends the law, saying taxis provide an essential community service that limousines do not. “What’s the point of having them out there providing the same service at the same cost if they’re ultimately not providing greater services to the community?” he said. “It undermines our abilities to provide broader service to the community, and the reason it’s regulated is because our community depends on these services. The rules are there for very basic, common sense, practical reasons.”

The first rationale is frank, but scary. The second rationale is incoherent. Neither seems rational.

Plus some public choice 101:

According to John Case, Portland’s limousine representative charged with voicing livery concerns to the City Council, the main competitors are two companies in business since the 1930s.

“These two companies, between them, have the political clout to fundraise for elections, so the commissioners are pretty much in their pocket,” he said. “Of course, the commissioners will say it’s not true, but it is true. Time and time again, any time a taxi issue comes before the city council, there’s always a majority vote for any taxi issue that is favored by those two large companies.”

The Institute for Justice filed an action in District Court in Oregon:

The Institute for Justice, the libertarian public-interest law firm, has just filed suit in federal court against the city. They succinctly summarize the issue at stake:

Can the government bar entrepreneurs from offering competitive prices, online discounts and prompt service merely to protect politically powerful insiders from competition?

That is the question the Institute for Justice (IJ) and its clients seek to answer though a federal lawsuit they have filed challenging Portland, Oregon’s anticompetitive limousine and sedan regulations.

As IJ attorney Wesley Hottot says in the nonprofit’s YouTube video outlining the case, “That isn’t just wrong; it’s unconstitutional.”

IJ’s complaint filed today with the U.S. District Court for the District of Oregon, which will be put onlineshortly, is based on the Constitution’s Fourteenth Amendment and its Equal Protection and Due Process Clauses. The law firm expects the more general legal question at issue here eventually to reach the U.S. Supreme Court.

These bold-faced protectionist laws make no pretenses about protecting consumer safety. They are simply transfers from one group to another.