Why not just expand the yellow cabs?

Last week I discussed the City's plan to add 1,500 new citywide taxi medallions and 6,000 new "borough taxi" medallions that would only allow the driver to pick up passengers outside of Manhattan (and presumably in Manhattan north of 96th Street). I mentioned two alternate proposals that would be much simpler: to just add citywide medallions until drivers started cruising the boroughs, and to simply convert all the existing livery cabs to "borough taxis" with the right to pick up street hails. Why didn't the City choose one of those?

There are three reasons I can think of. One is that the medallions would be auctioned off. As Joel put it in the comments, "I estimate the value of outerborough medallions at $50,000 each. $50,000 x 6,000 is a lot of money." $300 million to be exact. The City is looking at budget shortfalls, and would love to be able to plug $300 million of those holes without raising taxes.

Another reason for this two-tier approach was articulated by the Administration's designated mediator with the livery cabs, Bronx Borough President Ruben Diaz, Jr. (also known as "the reasonable Ruben Diaz"). Diaz said, "We want to find a way to decriminalize street hails and at the same time not devalue the yellow medallions that so many people have invested so much in." That last part is the key.

The idea that the government has a responsibility to maintain the "value" - that's resale value, mind you - of medallions. makes me so hopping mad. We've got enough investor value to prop up, including FDIC-insured bank accounts and the various types of government bonds. We really didn't need another one, but that's what we set up in the 1930s - essentially a backdoor bond system.

The Master Cabbie has an interesting introduction to the economics of taxi medallions. He claims that they are a good investment because their values are countercyclical - that they go up when the rest of the economy goes down, because the supply of taxi drivers increases. This makes them a good hedge against cyclical investments like the stock market.

Selling bonds can benefit a city in two ways. First, they bring in money. Second, they turn the bondholders into allies on the project, because the bondholders want to recoup their investment. So the taxi medallions bring in money, but they also attract powerful champions for the taxi system.

In return, the city has to repay the bonds when they come due - except they don't buy back taxi medallions, and the medallions never mature. They also need to keep the bond market up - but that's so that they can sell more bonds when they need to. People like Ruben Diaz Jr. want to keep the value of taxi medallions high only because the medallion owners are wealthy and powerful, and nobody wants to piss them off. Which is not really a good reason.

Basically, the taxi system in New York is being held hostage by a small group of powerful investors who don't want to see their investment diluted. And Bloomberg, Goldsmith and Yassky don't seem interested in doing anything about it.