The taxi medallion crisis has left New York City taxi drivers stuck with underwater loans amid a year-long pandemic that has sent decimated demand for cab rides, which were already dwindling because of ride-hail apps. Calls for a bailout plan and other reforms to help owner-drivers – people who own a medallion and drive their own cab – started long before the pandemic, but they’ve intensified in the last year as COVID-19 has thrown drivers into even more dire financial straits.
This week, New York City Mayor Bill de Blasio threw taxi drivers a life preserver, announcing a $65 million plan that will offer up to $29,000 in no-interest loans to roughly 3,000 owner-drivers. Out of that sum, each driver will have access to up to $20,000 in no-interest loans to use as a down payment with the intention of encouraging lenders to restructure medallion owners’ debt, and up to $9,000 in no-interest loans to make monthly loan payments. The plan will be funded by money directed to New York City through the recently passed federal stimulus package. “Medallion owners have been hit hard by this pandemic. They deserve all the support we can give them as ridership recovers,” de Blasio said in a statement announcing the plan on Tuesday. “This program creates a pathway to solvency and supports the yellow medallion taxi industry’s important role in building a recovery for all of us.”
While some lenders have lauded the plan and suggested loans could be restructured to between $250,000 to $300,000,whether this rescue plan is actually an effective life preserver is still up for debate.Medallion owners on average owe about $500,000. The immediate reaction to the plan from driver advocates and some Democratic lawmakers such as state Sen. Jessica Ramos and New York City Comptroller (and mayoral candidate) Scott Stringer, was that it falls far short of what is needed to pull medallion owners out of debt.
To weigh in on what the plan will do to help drivers and what more action is needed, City & State reached out to industry experts and advocates including Nicole Gelinas, senior fellow at the Manhattan Institute; Bhairavi Desai, executive director of the New York Taxi Workers Alliance; transportation analyst Charles Komanoff; and Jonathan Peters, professor of finance and data analytics at The College of Staten Island. (Peters and Desai served on a New York City Council task force that made recommendations on addressing medallion debt last year). Responses have been edited for length and clarity.
Will the proposed loans in the city’s plan go far enough to help drivers get out from under their medallion debt?
Nicole Gelinas: No. The city proposes to solve a problem of too much debt with yet more debt. Zero-percent loans for a down payment (of up to $20,000) to restructure medallion debt is still debt, not equity. It is not at all clear that this loan program will spur lenders to do what medallion driver-owners need, which is to reduce the total amount owed for the original purchase of the medallion now that the medallion has plummeted in value.
Bhairavi Desai: The city's plan is basically a cash giveaway to lenders and does nothing for drivers. Since 2019, one of the biggest holders of medallion debt, the hedge fund Marblegate, has been squeezing drivers to pay $25,000 cash to have loans restructured to $300,000 with monthly payments close to $2,000... The city is now using federal money to loan drivers the cash Marblegate has been demanding of them, while getting no concessions from the lenders to the benefit of the drivers. The city has done this disgraceful deal while the state is considering a bill to backstop loans at $125,000. The (Taxi and Limousine Commission) undercut drivers' ability to negotiate a better deal, while hedge fund Marblegate...is kept whole. (Editor’s note: The mayor has said that he disagrees with the characterization that the plan is a giveaway to lenders.)
Charles Komanoff: A man stranded in the desert needs more than a cold bottle of water. Perhaps for some, the loan can at least be an oasis. But drivers need sustained relief. Restructuring their loans isn’t enough.
Jonathan Peters: I think we have to step back for a moment and examine the question of how much of a bailout should occur, who should pay and what it will cost. Some of the debt on medallions is due to owners refinancing their medallions to borrow money for other purposes – such as home purchases or family expenses. Thus, we have to balance the benefit to the medallion owners and the cost to the public for the bailout. The city does not have unlimited resources, so this expenditure will likely displace some other public expenditure from the stimulus package resources – say perhaps healthcare or low income housing. I would prefer a restructuring of the market to transition us to a more open and competitive market for for-hire vehicle services in the city as opposed to a massive public bailout. It is important to remember that a large number of medallion loans are now held by a few financial companies that paid only a small portion of the total loan value to acquire the loans from banks that were in financial distress. Perhaps the finance companies should take a larger role in writing down these loans as opposed to pouring in public money in a bailout.
Is a larger bailout for taxi drivers feasible, and if so, how would it work and who would fund it?
Bhairavi Desai: The New York Taxi Workers Alliance put forward a fiscally-sound debt relief plan that was vetted by the New York City comptroller, the New York state attorney general and Senate Majority Leader Chuck Schumer. Under NYTWA's plan, the city would call on lenders to restructure medallion debt to $125,000 and refinance for no more than 20 years at $757 per month (4% interest rate.) And the city would play a "backstop" role for loans that are restructured to $125,000 in order to incentivize lenders to restructure medallion loans.
Nicole Gelinas: A direct taxpayer-funded bailout is unwise, no matter if those taxpayers are federal, state or local. Such a bailout would represent direct intervention in the capital markets and would set a bad precedent for other assets that may decline precipitously in value over the coming years, including Midtown Manhattan office and retail real estate.
Jonathan Peters: The question as to how big a bailout is warranted is a fair discussion. I would suggest that we consider using a set of fees that are applied to all of the industry members to provide the resources to solve this problem. Basically, the yellow taxi medallion crisis is part of the pain of transitioning from a very regulated quasi-monopoly market for for-hire car services to a more open and competitive market. Changes like this tend to cause some disruption to the monopoly providers – yellow cabs in this case – but also typically improves service for the customers. And that is the case in for-hire vehicle trips in the city. Prior to the new entrants such as Uber and Lyft, there were about 500,000 trips a day in for-hire vehicles. Prior to the pandemic, we were seeing in excess of 1,000,000 trips a day in for-hire vehicles. And that is a lot more service for the customers. To solve the crisis for the medallion owners by changing a few fees, I believe we can help medallion owners recoup some of their value and retire, or sunset the medallion system and allow us to move towards a more open market in the for-hire vehicle services industry.
Charles Komanoff: Fairness would be Uber and Lyft investors funding a full bailout with their outsize profits from invading the taxi drivers’ franchise. To be sure, New York City is also culpable for caving to Uber and Lyft pressure. The courts may have to sort this out.
Apart from bailouts or loan restructuring, what other kinds of policies or initiatives can the city or state undertake to help drivers stuck under these loans?
Charles Komanoff: To begin, getting congestion pricing rolling will shift some private car traffic to for-hire vehicles. Charging Uber and Lyft for stockpiling vehicles in Manhattan will shift some rides to yellow cabs. Ditto, raising the obscenely low (around $250) per-vehicle permit fee. These steps are good not just for cabbies but for the city as a whole: less gridlock, new revenue. But even the best-run desert has only so much water. Even with these pricing reforms, the city probably can’t support all 13,587 medallion taxis. Training drivers for new work needs to be a priority.
Nicole Gelinas: The city, state and federal government can implement other policies to help medallion driver-owners. First, the state should suspend the collection of the $2.50 congestion-pricing fee for fares that cabbies pick up below 96th Street. Second, the state should exempt yellow cabs from the broader congestion-pricing plan to be rolled out in the coming years. Both actions can be taken under the theory that the original purchase of the medallion from the city was a form of congestion pricing. Such actions could add $130,000 to the value of a medallion over a 10-year period. Third, all levels of government should ensure that forgiven debt is not taxed as income. City and state government could also work as a third-party mediator between owners and lenders, with the goal of lender debt write-offs so that medallion owners owe less money against an asset that is worth less. In return, lenders could get an equity stake in any future increase in the medallion value.
Jonathan Peters: I have suggested that by restructuring the fare structure a bit for the yellow and green taxis and implementing a cruising fee for the Transportation Network Companies (TNCs) such as Uber and Lyft, it would create a level of value for the taxi medallions that would stabilize the value at around $250,000 to $350,000. This would be accomplished by restructuring the current Metropolitan Transportation Authority fees paid by for-hire vehicles in the Manhattan Congestion Zone and also imposing a cruising fee on the TNCs for every minute they are in the zone. That would reduce a bit the cost of a trip in a yellow taxi and recognize that the medallion has some real value – in this case, the right to operate in Midtown Manhattan. By removing the MTA charge on the yellow taxis and imposing a cruising fee on the TNCs, the MTA would get the same amount of money, the yellow taxi medallion would increase in value by about $315,000 and we would reduce excessive TNCs cars cruising in Midtown – all at the same time. We call this a self-medicating problem, where the industry pays for its own transition costs. The benefit to the TNCs is that they can continue to operate in NYC and can expand their market, instead of facing further restrictions or caps on vehicles. By increasing the value of medallions and also stabilizing their revenue, the owners should be able to pay off their existing debt without further bailouts.
Bhairavi Desai: NYTWA is calling on congress to pass Rep. Gregory Meeks' bill, which would provide tax exemption on any medallion debt forgiveness. We're also calling for an investigation into the mayor's plan because we want to know how he ended up in the pockets of hedge fund billionaires and what he got in exchange for selling out drivers. (Editor’s note: TLC Chair Aloysee Heredia Jarmoszuk said at a City Council hearing this week that the city's plan was not developed in consultation with any lenders.) But the most important thing drivers need to rise out of the despair of poverty is real, meaningful debt relief. Drivers deserve nothing less after years of service to a city that betrayed them. And we will be protesting outside Gracie Mansion until we win.
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