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Uber Could Take $500M Bite Out of City's Taxi Medallion Income

By  James Fanelli and Jeff Mays | July 23, 2015 7:44am 

 The city has revised its revenue projection from taxi medallion sales over the next four years. It now expects to haul $500 million less from the sales, records show.
The city has revised its revenue projection from taxi medallion sales over the next four years. It now expects to haul $500 million less from the sales, records show.
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Shutterstock/Jeff Skopin

NEW YORK CITY — While Mayor Bill de Blasio and Uber reached a deal to stave off a temporary cap on e-hail drivers, he hasn't found a way to keep mobile-app car services from draining the city's coffers.

The growth of Uber and other new generation for-hire vehicles has helped to drive down the price of yellow cab medallions — and as a result the city is expected to take a $500 million fiscal hit over the next four years.

In February, City Hall released figures showing it expected to haul in $1.266 billion by auctioning off 1,650 new taxi medallions between fiscal years 2015 and 2019.

But three months later, the mayor’s 2016 fiscal year executive budget dramatically revised the revenue projection, saying the city would only make $731 million from the sales.

The revision was little noticed at the time, but city Comptroller Scott Stringer highlighted the revenue change in a June report about de Blasio’s executive budget.

Stringer’s report also noted that the city called off auctions during fiscal year 2016 to allow the Taxi and Limousine Commission to update rules and analyze trends in the livery industry.

The plummeting revenue projections reflect how smartphone-based car services like Uber and Lyft have undercut the yellow cab business in a relatively small amount of time.

Roughly two years ago, when Uber was still in its infancy in the city, the TLC raked in $359 million off the sale of 350 new taxi medallions. Each sold for more than $1 million.

Since then the ranks of Uber drivers has risen to approximately 26,000 cars, 6,000 of which are on the road at any given time in the city.

Uber says 25,000 New Yorkers take their first ride with the company each week.

The city has also allowed certain livery vehicles known as green cabs to make street hails in the outer-boroughs and in parts of northern Manhattan.

Members of the yellow cab industry say the dwindling value of medallions is taking a toll.

Crain’s New York reported on Wednesday that Evgeny Freidman, one of the city’s biggest owners of medallions, filed for bankruptcy protection. The filing hopes to ward off creditors from foreclosing on 46 of his medallions.

“The filing is necessary due to inflexible, predatory banks ignoring the unparalleled crisis facing the medallion industry,” Freidman’s spokesman Ronn Torossian said in a statement.

Melrose Credit Union in Queens, which has loans out on the purchase of approximately 3,000 taxi medallions, now has more than $200 million in delinquent principal owed on those loans, said adviser Arthur Schwartz. That represents a 22 percent increase from just the month before.

In January 2014 the total amount of delinquent principal was just $32,000.

"Yellow cab drivers are saying they can't find fares because Uber is driving away the market," said Schwartz. "You have all these yellow cabs sitting in garages empty and idling."

Drivers are no longer interested in purchasing the medallion, which gives yellow cabs the right to pick up street hails, because of the cost and regulation associated, he said. And if medallion values don't improve, owners may flood the market with sales, further reducing their worth.

"Would you rather buy a medallion for $1 million or lease a Toyota Camry for $20,000, buy an iPhone and join Uber?" Schwartz asked.

Schwartz said Uber should be considered as a black car service and allowed to only pick up pre-arranged passengers. The smartphone app riders use to send for an Uber car is equivalent to a street hail, lawyers for Melrose are arguing in court.

Uber and other companies say the app is pre-arranged travel similar to calling a black car.

Schwartz called suggestions by the city to discuss cap legislation — limiting the number of Uber and similar vehicles on the streets — a "charade" that would not solve the crisis facing taxi medallion holders.

"Unless they protect the exclusive right of medallions to pick up street hails, there may not be any yellow cabs on the streets in a couple of years," Schwartz said.

Uber declined comment on the decreasing medallion sales revenue.

De Blasio had backed City Council legislation that would cap the growth of for-hire vehicles at 1 percent for a year while the city conducts a traffic and congestion study. Uber said the mayor and the City Council were protecting the interests of one of their biggest donors, the taxi industry, with the legislation.

The Council was expected to vote on the legislation on Thursday, but the mayor pulled the plug on the cap after reaching an agreement with Uber. 

Under the deal, Uber will provide trip data for a traffic study to "examine the impact of Uber and the for-hire vehicle industry on traffic congestion on New York City streets," Deputy Mayor Anthony Shorris said in a statement.

The study is to be finished by the end of November.

“Uber has also agreed to maintain its approximate current rate of growth and not flood the streets with new licenses and vehicles," Shorris added.

De Blasio was returning to the city from a trip to Italy to speak at the Vatican and did not issue a statement about the agreement.

But de Blasio spokesman Wiley Norvell said there was "no connection" between the city's declining taxi medallion revenue and the previous plan to cap the growth of for-hire vehicles such as Uber.

There was growing opposition to the cap plan. Comptroller Scott Stringer came out against the legislation on Tuesday, calling the cap premature. Gov. Andrew Cuomo also came out against the cap Wednesday.

"Uber is one of these great inventions, startups of this new economy," Cuomo said on "Capitol Pressroom."

"I don't think government should be in the business of trying to restrict job growth."

Schwartz said the jobs of thousands of yellow cab drivers and medallion owners are also at stake.

"Some medallion owners had to decide between buying a house or buying a medallion," he said. "Many who bought the medallion are now despondent because they thought it would feed their families and fund their retirement."