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December 16, 2013 at 6:00 AM

Seattle City Council’s ridesharing proposal kills innovation

On Friday, Seattle witnessed an example of how disruptive business models can thrive and gain popularity with consumers, but they can’t escape forever from the weight of existing regulatory structures.

Sylvester Bush, 50, of Renton is one of the first drivers for a ride-sharing app called Lyft. (GREG GILBERT/THE SEATTLE TIMES)

Sylvester Bush, 50, of Renton is one of the first drivers for a ride-sharing app called Lyft. (GREG GILBERT/THE SEATTLE TIMES)

The Seattle City Council’s latest draft rules to legalize and regulate ridesharing companies such as Lyft, Uber and Sidecar, leave room for improvement before a final vote in early 2014. City leaders say their intention is to not punish or stifle innovation, but that’s exactly what their proposal would do.

We need to keep consumers safe through common-sense regulations, but we also need to let the market determine how many taxi, for-hire and rideshare services are really necessary. Perhaps the city of Seattle can go back to the drawing board and adopt more aspects of the California model, which ridesharing companies like Lyft contend are fair and will not put them out of business.

Here’s a link to Seattle Channel’s video of the meeting and the city clerk’s summary of the draft legislation. Some highlights:

  • App-based ridesharing services would fall under a new category inspired by California law called Transportation Network Companies (TNC).
  • The entire framework is a “pilot” program that would expire on Dec. 31, 2015.
  • Each company would pay at least $50,000 for a business license annually.
  • Maximum of 100 vehicles per company.
  • Drivers would have to have a special permit or a more stringent “for-hire” driver’s license, as well as be subject to a “zero tolerance” drug and alcohol policy.
  • Vehicles would be subject to a 19-point safety inspection.
  • Vehicles that are not as heavily inspected as professional for-hire cars would be restricted to working 16 hours per week.
  • $1 million umbrella insurance policy.
Taxis protest the lack of regulation for services like Uber and Lyft in Seattle on Aug. 2, 2013. (Genevieve Alvarez / The Seattle Times)

Taxis protest the lack of regulation for services like Uber and Lyft in Seattle on Aug. 2, 2013. (Genevieve Alvarez / The Seattle Times)

As The Seattle Times’ Alexa Vaughn reports, the ridesharing companies are none too happy with this proposal. Though they’d been prepared for new rules to operate above-board (à la the California Public Utility Commission’s model), Lyft Founder John Zimmer says the proposed legislation would effectively shut down their business model in Seattle. Especially troublesome, he said, is the city’s effort to limit the number and hours during which ridesharing vehicles can operate. (He didn’t offer an exact number, but revealed during an interview last Wednesday at a shared economy panel that Lyft employs “several hundred” drivers in Seattle who work a variety of shifts — as little as one hour per week.)

On Oct. 20, the editorial board argued for the council to move away from protecting the city’s current taxi monopoly and toward leveling the playing field for all drivers. Their first priority should be to protect consumer safety and choice. Here’s a reminder of those suggestions — and the city’s response in parentheses.

• Taxi drivers pay thousands of dollars a year in regulatory and operating fees that ride-sharing drivers do not. The city must find a way to reduce overly burdensome costs for taxi drivers.

(The proposed framework does not appear to lower fees. Instead, it raises fees for ridesharing businesses and only raises the number of available taxi licenses by 50 in the next year.)

• Lyft, Sidecar and uberX drivers are not subject to city-certified vehicle inspections, background checks and insurance standards. Do passengers consider liability before they jump in cars adorned with pink mustaches? Probably not. But the city must. Make all car services follow the same requirements.

(The proposed framework does require ridesharing vehicles to be subject to a 19-point inspection less stringent than for-hire and taxi vehicles, but then it limits the number of hours those drivers can work, as well as how many vehicles can be on the road per company. We need to also see a side-by-side comparison of each company’s insurance standards versus the city’s proposed requirements.)

• The council is considering 50 additional taxi licenses citywide. That’s not enough. Milwaukee and Minneapolis officials lifted caps after courts ruled their taxi monopolies were illegal. Seattle should let the market — not lawsuits — decide how many drivers are really needed.

(Fifty is the number in the proposal. Again — it’s just not enough.)

During the subcommittee’s public comment period last Friday, taxi drivers portrayed the proposal as ridesharing services shirking city rules. They reminded the council that taxis provide a valuable service to all — not just those equipped with smart phones and data plans. They’re right. For years, drivers have followed city rules and paid their dues. Many are immigrants. But that mindset also fails to recognize that the ridesharing business model is meeting consumer demand and creates new opportunities for other immigrants and working-class people. Pushing them out of business when their services are needed — and when taxis still control for-hire rides in the city and county — would be unwise.

The ridesharing genie is out of the bottle — and it’s not going back in. The sooner we accept this, the better off everyone will be. Here’s some perspective published by The Economist on March 19, 2013:

What looks like a disruptive new model will probably end up being mixed into existing models and embraced by incumbents, as has often happened before. Tim O’Reilly of O’Reilly Media, a long-term watcher of internet trends, says such consolidation is inevitable. “When new markets come in, they often look more democratizing than they end up becoming,” he says. The idea of renting from a person rather than a faceless company will survive, even if the early idealism of the sharing economy does not. The fact that regulators, tax collectors and big companies are now sniffing around a model that has been embraced by millions of people is a measure of its value and growth potential.

On Friday, I wrote this Opinion Northwest blog post about Seattle’s burgeoning shared economy. I said everyone talks about the importance of awarding innovation, but existing rules aren’t always set up to deal well with disruptive and unregulated phenomena.

How do you think we can strike the right balance?

Share your thoughts in the forum below. I’ll gather responses for a future blog post. Remember, first and last names are required.

Comments | Topics: city council, lyft, ridesharing


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