Milwaukee Taxis

Introduction

Ghaleb Ibrahim came to the United States from Jordan in the late 1970s, without much more to his name than big dreams of success in a new country.  He attended engineering school in Buffalo, New York, but was not able to complete the program.  He met his wife in the U.S. and raised a family, finally settling in Milwaukee as his American home.  In the late 1980s, he began driving a Milwaukee taxi.  Taxi driving gave Ghaleb a feeling of freedom and the opportunity to meet all kinds of people who live in and visit the city.  He says he considers driving a matter of public service, making sure people are able to get affordable, reliable, transportation.

For most of the last two decades he has driven a taxicab. It has always been, however, a taxicab that someone else owned. But Ghaleb came to this country to do more than just work for someone else:  He wants to own a cab and run his own taxi businesses.  The city, however, has slammed the door shut on this plan—and that is why Ghaleb, along with two other would-be Milwaukee taxi entrepreneurs, has joined forces with the Institute for Justice to take down Milwaukee’s restrictive taxi cartel once and for all.

Starting a Taxi Business in Milwaukee:  All You Need Is a Car . . . and $150,000

The taxi business is quintessentially suited to immigrant or low-income entrepreneurs.  It doesn’t require much in the way of formal education or start-up capital—all you need is a safe vehicle and a good work ethic, and you are on your way to the American dream.  For generations, taxis have been the vehicle by which people lifted themselves and their families out of poverty and into entrepreneurial success.

But not in Milwaukee.  If you want to run a taxi business in Milwaukee you either need to be one of the privileged few who hold one of the approximately 321 permits (one permit per cab), or you need to buy a permit from one of those privileged few.  There is no system by which you could obtain a new permit—city officials have imposed a hard cap of 321 taxis for the whole city.  This limit—about one taxi for every 1,850 residents—makes Milwaukee a taxi wasteland.  Washington, D.C., has about one taxi for every 90 residents; smaller cities like Denver and Seattle have about one cab for every 480 and 940 residents, respectively.[1] It is no wonder it is hard to get a cab in Milwaukee.[2]

The consequences of this system are predictable.  Even if a would-be entrepreneur can find someone willing to sell a permit, the going rate on the “secondhand market” (or “gray market”) is approximately $150,000.[3] By comparison, the average sales price of a Milwaukee home is approximately $100,000.[4] In the classic story of entrepreneurship, someone starts a taxi business in order to save up enough money to buy a house.  In Milwaukee, you need to save up enough money to buy a house just to start a taxi business.  This taxi cartel enriches a privileged few at the expense of the city’s drivers and citizens.

Unable to buy their own permit, taxi drivers are left renting one of the handful of available permits.  Weekly rents for taxicab permits can run as high as over $1,000 per week plus a cut of all credit card sales, plus gas.  To be clear: Milwaukee’s taxi drivers are paying a fee every week to literally rent the government’s permission to be in business.

The Plaintiffs:  Trying to Live the American Dream

Many Americans have a familiar story in their family history:  An ancestor comes to this country with nothing but a dream to succeed.  Then, with years of hard work, saving, and a little business savvy, they achieve that dream for themselves and their descendents.

Ghaleb Ibrahim is trying to live that dream.  He started driving a cab just before the city placed a cap on the number of taxi permits in 1991.  After that he noticed the price of permits increased steadily, and along with it the rent he paid on a weekly basis.  Eventually the rent got so high that he moved out of driving a cab and now drives a limo with a couple colleagues.  He would love to go back to cab driving if he could own his own vehicle.

The only thing standing between Ghaleb and his own taxi business is the staggering cost of a taxi permit.  The costs associated with the business itself—such as a vehicle and insurance, and initial gas, maintenance, advertising, and fees for a dispatch service, etc.—are relatively modest, totaling a little over $10,000.  This is about average for what it costs to start a small business.[5]

Letting entrepreneurs like Ghaleb start new taxi companies would help consumers.  If Milwaukee removed its arbitrary cap, new cabs could bring needed services to Milwaukee’s neighborhoods.  As Ghaleb says, outside of downtown it is hard to find a cab.  More cabs, creating more competition, would give drivers an incentive to service other areas of town, particularly minority neighborhoods, such as Milwaukee’s north side.  It is in pursuit of this vision of a free market in taxis that Ghaleb has joined forces with the Institute for Justice to challenge Milwaukee’s shockingly restrictive taxi-permit system in court.

Jatinder Cheema is a Milwaukee resident.  He came to America from India in 1981 looking for a better life.  Eventually, he moved to Wisconsin and in 2002 was able to find a Milwaukee cab company that would rent him one of its cabs for the night shift.  He has been driving a nightshift cab ever since.  Jatinder rents half of a taxicab from an existing permit holder.  He drives 12 hours a day and another driver drives the other 12.

Joining Ghaleb and Jatinder in the lawsuit is Amitpal Singh, who—like his father—currently rents and drives a taxi in Milwaukee.  Amitpal dreams of one day teaming up with his father and opening a Milwaukee taxi business together.

The Dream Denied:  Milwaukee’s Taxicab Cartel

The reason existing taxi permits are so expensive is that the city has not issued any new permits since 1991.  Before then the city had no official “cap” on the number of permits.  The city would haphazardly issue permits on an annual basis, often with a waiting list of denied applicants.[6] The permits were not transferable, so if a willing entrepreneur wanted to start a taxi company it was left to the grace of the Common Council’s Utilities and Licensing Committee to determine whether the “public necessity” required a permit.[7]

Taxi owners complained that this system did not allow them to sell their businesses, because buyers could not be confident they would be permitted to operate.[8] Therefore, the Common Council amended the law to allow permits to be transferred.  This on its own would have solved the problem, but at the same time the council created an even bigger problem:  It prohibited the city from issuing any new permits in the future.[9] Now permits could be transferred, but a transfer was the only way to get one.

At the time, Alderman John Kalwitz, along with four other members, bravely voted against the change.[10] Kalwitz issued a prediction that this would send the cost of permits skyrocketing, as it had in many other cities with similar “medallion” policies.  He even said “I don’t want to see the cost of a license go up to $10,000.”[11] something that sounded absurd at that time.

Statement by Alderman John Kalwitz

The sponsor of the 1991 amendments, Alderman Thomas Nardelli, and more recently, until August 2011, the administrator of the Wisconsin Division of Environmental and Regulatory Services, brushed these warnings aside.  He said the council could simply come back to the topic and issue more permits in the future.[12] Despite almost 20 years and overwhelming evidence that there are not enough taxis to meet demand, the council has never raised the cap.  As Kalwitz predicted, it is held hostage to the cartel of existing taxi permit holders.  This is exemplified by the fact that one taxi owner owns almost half of all permits.

Statement by Alderman Thomas Nardelli

Alderman Kalwitz was not the only city official who warned against creating a cartel.  Over 1978 to 1980 the city commissioned a detailed study on taxi regulations.  The study squarely advised against the city’s then de facto cap on the number of taxi permits, concluding that all issues of public health and safety that are associated with the taxicab industry can be addressed in other ways, and that the cap itself only benefits existing permit holders through a monopoly windfall.[13] In fact, for a brief period in 1979-1980, the city issued permits to all qualified applicants.[14] For whatever reason, this history and advice were tossed aside in 1991 to make way for the taxi cartel.

Milwaukee’s taxi permit cap presents a classic case of regulatory capture:  The benefits of the system are concentrated in a few permit holders while the costs are diffused among consumers, drivers and would-be owners.  The permit holders, especially Mike Sanfelippo of American United, have every reason to fight against reform.  Mike’s brother Joe, a Milwaukee County Supervisor, testified at the state legislature in support of further protecting the cartel.  The permit holders want to keep permits scarce so their values will remain high and they also want to artificially-suppress the supply of cabs to protect their profits.  Everyone else either lacks the political clout to fight back or only feels the costs indirectly via the lack of cabs and poorer customer service.  For IJ’s clients, the city has violated their right to earn a living.  But, because they have no voice in city government compared to the established taxi cartel, they cannot fight for that right inside city hall.

The Wisconsin Constitution Has Long Protected the Right to Earn an Honest Living

There is supposed to be another place to fight city hall:  the courthouse.  In our system of constitutional government, when special interests capture the machinery of government the judiciary is supposed to step forward and protect individual liberties.  As the Wisconsin Supreme Court said over a hundred years ago, “Doubtless the fathers of the constitution foresaw the likelihood and danger of the security of personal rights, which the fundamental law was intended to firmly entrench with the judiciary as its efficient defender.”[15]

One of the rights that the judiciary is supposed to protect is the right to earn an honest living.  Wisconsin courts have a long history of striking down arbitrary regulations denying people the right to earn a living.  In the 1938 case State v. Withrow, for example, the Wisconsin Supreme Court declared that “any person is at liberty to pursue any lawful calling, and to do so in his own way, not encroaching on the rights of others,” and that it was “beyond the police power” to suppress or prohibit “a business or occupation that is innocent in itself and has no effect necessarily injurious on the public welfare.”[16]

In much of the country, state and federal judges have long evaded their responsibility to protect our rights.  Outside of a few exceptions, such as free speech or racial discrimination, for decades judges have routinely evaded protecting individual rights, deferring to the other branches of government even when it is unmistakably clear that the government has simply protected established insiders at the expense of the general public.  The right to earn a living has been one of the biggest victims.  The entrepreneurs judges are supposed to protect through enforcing that right have suffered incalculable harm as a result, as special interests collude with government to pass all manner of protectionist legislation.

To a large degree, however, Wisconsin judges have resisted this trend.  In addition to older cases such as Withrow, in recent years the Wisconsin courts have often stated they will not simply accept the government’s justifications for a law and go home.  For example, in 1991 the Wisconsin Supreme Court struck down the city of Kenosha’s mandate that taxi drivers wear uniforms, finding that it violated the drivers’ right to operate their businesses as they saw fit.[17] In other cases Wisconsin courts have struck-down liquor licensing laws, finding that they merely served to protect established interests at the expense of competition.[18] Further, in recent years Wisconsin courts have not been afraid to review the actions of the government when constitutional rights were at stake, going so far as to strike-down the retroactive application of a state statute in July 2010 because it violated the right to contract.[19] Thus, the Wisconsin courts provide solid grounds for Ghaleb Ibrahim and his colleagues to succeed in their quest to vindicate their right to make a living.

Let the Cabbies Compete:  Success in Lifting Licensing Caps

Many cities around the country and around the world have found that allowing open entry into taxi markets improves customer service and does not lead to increased traffic congestion.  For example, the city of Minneapolis recently lifted its long-standing cap of 343 taxi permits.[20] Where once cabs were often hard to come by—especially in poorer neighborhoods—now there are now almost twice as many taxis.  This reform was spearheaded by the Institute for Justice, whose client, an immigrant from Ecuador named Luis Paucar, put a human face to the underserved entrepreneurs and consumers of Minneapolis and convinced the city to reform its anticompetitive laws.[21]

Internationally, countries such as Ireland and New Zealand have recently lifted caps and other anticompetitive regulations from their taxi markets, allowing greater competition and incentives for innovation.[22] And, again, Milwaukee itself experimented with an open entry system in the late 1970s, before the city forced the market to close.

These experiments are important because taxis are more than just a fruitful avenue for would-be entrepreneurs:  They are an essential tool for those who lack alternative forms of transportation, such as people with disabilities and the urban poor, and they are heavily used by racial minorities.  For example, a 1978 survey found that 44 percent of Milwaukee’s taxi riders were black, even though black people represented only about 22 percent of the city’s overall population.[23] The same survey found that, while people of all income groups used cabs, 58.5 percent of taxi passengers were lower-income individuals.[24] Taxis are a necessity for people to get from point A to point B at all hours of the day.  Further, not only do taxis put people to work, they take people to work.  In the survey 27 percent of respondents stated they were using a taxi to commute.[25]

Thus, lifting caps on the number of taxis makes sound economic sense, and it benefits all levels of society, especially those limited in their transportation alternatives.

Litigation Team

Lead counsel for the Institute for Justice is Anthony Sanders, staff attorney with the Minneapolis-based Institute for Justice Minnesota Chapter (IJ-MN).  He is joined by Katelynn McBride, also a staff attorney with the Minnesota Chapter.  Local counsel for the case is Milwaukee area attorney Mike Dean.

IJ-MN has litigated a number of cases to protect the right to earn an honest living.  IJ-MN defended governmental reforms expanding the rights of taxi entrepreneurs by intervening on behalf of the city of Minneapolis in a lawsuit against the city when it repealed the cap on the number of taxicab permits.  IJ-MN sued the state of Minnesota to deregulate its licensing of African hairbraiders and forced the state to stop requiring hairbraiders to obtain an irrelevant cosmetology license. Similarly, IJ-MN successfully challenged the city of Minneapolis to reform its arbitrary sign-hanging regulations.

Founded in 1991, the Institute for Justice, among many other cases, has vindicated the rights of entrepreneurs in the transportation industry in their fights against arbitrary government regulation:

Bokhari v. Nashville—In this case, just filed in April 2011, the Institute for Justice represents a set of limo and sedan owners challenging an arbitrary minimum price requirement of $45 per ride.  This fences out affordable transportation services and protects high-end politically connected limo companies.

Clutter v. Transportation Services Authority—In 2001, the Institute for Justice defeated Nevada’s Transportation Services Authority and its entrenched limousine cartel that had stifled competition in the Las Vegas limousine market.

Ricketts v. City of New York—The Institute for Justice successfully defended commuter van entrepreneurs in 1999 in a fight against the government bus monopoly that would not allow any jitney entrepreneurs to provide service to consumers in underserved metropolitan neighborhoods in New York City.

Jones v. Temmer—In 1995, the Institute for Justice helped three entrepreneurs overcome Colorado’s anti-competitive taxicab monopoly to open Denver’s first new cab company in nearly 50 years. IJ used this victory to help break open government-sanctioned taxicab monopolies in Indianapolis and Cincinnati.

For more information, contact:

Bob Ewing

Director of Communications Institute for Justice 901 N. Glebe Road, Suite 900 Arlington, VA 22203 (703) 682-9320 ext. 206 bewing@staging.ij.org

Anthony Sanders

Staff AttorneyInstitute for Justice Minnesota Chapter527 Marquette Ave. Ste 1600 Minneapolis, MN 55402-1330 (612) 435-3451

asanders@staging.ij.org

[1] See Bruce M. Schaller, Entry Controls in Taxi Regulation: Implications of US and Canadian experience for taxi regulation and deregulation, at 6, available at http://www.schallerconsult.com/taxi/entrycontrol.pdf; Annual Estimates of the Population for Incorporated Places over 100,000, (SUB-EST2008-01), U.S. CENSUS BUREAU, available at

http://www.census.gov/popest/cities/SUB-EST2008.html.

[2] Mike Di Sisti, “Get in. Shut up. Hang on!,” Milwaukee Journal Sentinel Online, March 28, 2010, available at http://www.jsonline.com/news/milwaukee/89370867.html (“For many, the fact that this city has taxicabs at all may go unnoticed.”).

[3] Based on conversations IJ attorneys have had with participants in the Milwaukee taxi industry.  The actual sales of permits are private transactions and not recorded by the city or any governmental body.

[4] Paul Gores, “Home sales rise in 2009,” Milwaukee Journal-Sentinel, p.1, Jan. 12, 2010.

[5] Wells Fargo/Gallup Small Business Index study, cited in “How much it takes to start a business,” CNNMoney.com (Aug. 17, 2006), available at http://money.cnn.com/2006/08/17/smbusiness/wells_fargo_study/index.htm.

[6] Department of City Development City of Milwaukee, “The Milwaukee Taxicab Regulation and Operation Study: 1978-1980, Final Report” p. 40 (1982).

[7] Former Milwaukee City Code § 100-50(2)(b) (1991).

[8] Public Comments at Dec. 9, 1991 Utilities and Licensing Committee hearing.

[9] City of Milwaukee Common Council File No. 910692, adopted Dec. 20, 1991.

[10] City of Milwaukee Common Council File No. 910692, adopted Dec. 20, 1991.

[11] Dec. 9, 1991 Utilities and Licensing Committee hearing.

[12] Dec. 9, 1991 Utilities and Licensing Committee hearing.

[13] Department of City Development City of Milwaukee, “The Milwaukee Taxicab Regulation and Operation Study 1978-1980, Technical Reports and Supporting Documents, Part III, Problem 2.b, p. 18.

[14] The Milwaukee Taxicab Regulation and Operation Study, p. 65.

[15] State v. Redmon, 114 N.W. 137, 139 (Wisc. 1907).

[16] State v. Withrow, 280 N.W. 364, 366 (Wisc. 1938).

[17] Peppies Courtesy Cab Co. v. Kenosha, 475 N.W.2d 156 (Wisc. 1991).

[18] Grand Bazaar Liquors, Inc. v. City of Milwaukee, 313 N.W.2d 805 (Wis. 1982).  In this case the Wisconsin Supreme Court ruled “the [Milwaukee] ordinance was supported by special interest groups as an anti-competitive measure to keep large retail stores out of the retail liquor business.”

[19] Society Insurance v. Labor & Industry Review Commission, 786 N.W.2d 385 (Wisc. 2010).

[20] Institute for Justice, “Defending Minneapolis’ Free-Market Taxi Reforms Against an Establishment Backlash,” https://staging.ij.org/about/component/content/665?task=view.

[21] Katherine Kersten, “Newcomer fights city’s taxi cartel and may triumph,” Minneapolis Star Tribune, p. 1B, June 29, 2006.

[22] Organization for Economic Co-operation and Development, “Taxi Services: Competition and Regulation,” p. 8 (2007), available at www.oecd.org/dataoecd/49/27/41472612.pdf.

[23] The Milwaukee Taxicab Regulation and Operation Study, p. 20.

[24] The Milwaukee Taxicab Regulation and Operation Study, p. 20.  “Lower income” was defined by the study as individuals living in households who qualified for city housing subsidies.

[25] The Milwaukee Taxicab Regulation and Operation Study, p. 20.