Mayor proposes increasing tax on Uber & Lyft rides, minimum wage for drivers

(update below)

Tomorrow morning, Mayor Durkan will unveil another of her 2020 budget initiatives: increasing the tax on Uber and Lyft rides in the city. In combination with that, she will announce a proposal to institute a minimum wage for Uber and Lyft drivers.

Mayor Jenny Durkan and Deputy Mayor Shefali Ranganathan briefing the press on the proposed new tax on Uber and Lyft rides and minimum wage for TNC drivers

Currently the city imposes a tax of 24 cents per trip on TNC rides, which funds regulatory enforcement and wheelchair-accessible taxis. Durkan is proposing to roughly triple that to 75 cents per ride, starting July 1, 2020. This is expected to generate about $24 million of new revenue per year, rising to about $27 million by 2025.

By comparison: Washington, D.C. and Chicago each currently impose a tax of 72 cents per ride. New York City’s is a whopping $2.75 per ride. San Francisco has a pending ballot initiative that would establish a tax of 32 cents per ride.

In what her office calls the “Fare Share Plan,” the Mayor proposes to spend the approximately $125 million of new revenues over the first five years on three things:

  1. filling the $56 million funding gap for the Center City Connector streetcar, which would fully fund the project (assuming federal funding still comes through);
  2. investing $52 million to build 500 units of affordable housing near transit hubs (leveraging city dollars with matching grants, something the Office of Housing is very skilled at);
  3. spending about $18 millon to establish a Driver Resolution Center to provide support to drivers in resolving claims of unwarranted “deactivation” by Uber and Lyft, a source of frequent complaints against the companies. This will be accompanied by the establishment of an appeals process to a neutral, impartial arbitrator. The Driver Resolution Center will also offer culturally responsive outreach and education services on drivers’ rights.

The Mayor is proposing that after the first five years, the revenues from the tax increase will be dedicated to funding pedestrian, transit and bicycle infrastructure across the city.

The minimum wage proposal is more of a problem statement and a “plan for a plan” than a solid proposal.  Relying on a number of studies, the Mayor’s Office concluded that Seattle Uber and Lyft drivers are paid well below the minimum wage. They cite an Economic Policy Institute study showing that nationally Uber drivers earn $10.87 per hour after deducting Uber’s fees and Social Security/Medicare taxes that self-employed “independent contractors” are required to pay.

They also rely on a study commissioned by Uber and Lyft that divides up driver miles into three types:

  • P1: miles that a driver is logged into the platform and waiting to be assigned a trip;
  • P2: miles that a driver spends driving to a pickup location;
  • P3: miles driving passengers to the drop-off location.

The study, which looked at data from last September, found that Seattle Uber and Lyft drivers spend only about half their drive time actually driving passengers (P3). This is important, because Uber and Lyft only pay drivers for P3 miles — even though the company benefits from both P1 and P2.

Update: Nathan Hambley, spokesperson for Uber, clarified that if the “P2” drive to pick up a passenger takes longer than 9 minutes, drivers get paid at the P3 rate for the excess time, and if drivers are required to wait longer than 2 minutes for the passenger once they arrive, they are paid 40 cents per minute for the excess waiting time. However, that is the “gross” earnings — Uber takes its cut from those driver revenues too.

Durkan’s proposal is to immediately commission a study, to be completed by March, that would determine minimum wages and expenses (e.g. insurance, depreciation, maintenance, repairs and fuel) to be paid to Uber and Lyft drivers starting on July 1, 2020.

Some other observations and notes on the proposal:

  • Both the tax and the minimum wage would only apply to TNC companies logging more than 1 million trips starting and/or ending in Seattle per quarter. In other words, just Uber and Lyft.
  • They would not apply to other similar businesses that employ app-based drivers, such as Postmates, DoorDash, or Amazon’s delivery drivers. When I asked why she isn’t taxing those other businesses, Durkan said that she wanted to start by focusing on just this sector. which has well known issues with underpaying its drivers and a well-studied business model.
  • When I pressed further about why they couldn’t apply just the tax (and not the minimum wage) to those adjacent businesses, I got an interesting response from the Mayor’s spokesperson. She explained that when discussing various options for increasing the tax, representatives from the TNCs warned that increasing the tax too much would result in decreased earnings for drivers. So for the Mayor it was critical to pair the tax and the minimum wage together; that way, the increased tax is less likely to affect drivers’ earnings. There are two ways that increasing the tax could decrease wages: if the tax is passed on to consumers as a price increase that decreases demand, then drivers will get fewer trips (or Uber and Lyft will need fewer drivers); or if the tax comes out of driver compensation, then drivers earn less per trip.  Durkan is clearly hoping to enact a compensation model where neither happens, and in so doing is relying on demand for Uber and Lyft trips to continue to increase. On that point, it’s worth noting that the minimum compensation may add significantly more to the cost of a TNC ride than the increased tax. All told, the Mayor’s theory that pairing the tax increase and the minimum wage together will protect drivers from economic harm is an interesting hypothesis that may not stand up when tested.
  • Durkan said that her office has been discussing the tax and compensation issues with Uber and Lyft, as well as drivers and other stakeholders, for quite some time, and that the two companies have been surprisingly open to both increasing the tax and addressing compensation. A letter to the Mayor from Lyft’s Director of Public Policy earlier this week backs that up: she says that Lyft supports “a modest tax increase” and “a driver earnings guarantee” that “would ensure all Seattle drivers earn above Seattle’s $16 local minimum wage plus expense reimbursement.” However, she also says that the company thinks Durkan’s proposal of a tax increase of 51 cents per trip is too much and compromises the balance between raising funds for transit/housing and keeping prices low enough not to depress demand.  Lyft instead would prefer universal congestion pricing be implemented, which it considers “a more equitable alternative, comprehensive approach.”

  • Here’s the reply that the Mayor’s Office sent to Lyft, which calls out the company’s $28 billion market value at its IPO in March, and the $30 million that the company is committing to support a referendum in California on its state law declaring Uber and Lyft drivers to be employees, not independent contractors (Uber is also contributing $30 million).  It goes on: “[W]e believe our approach is balanced, and will have little impact on drivers or your business model while creating a significant positive impact for drivers and our community.”
  • Durkan said that she didn’t consider following California’s model and declaring Uber and Lyft drivers to be employees rather than independent contractors because cities don’t have the authority to do so; that power rests only at the state level.
  • The city will issue an RFP early next year to identify an organization to run the Driver Resolution, with the goal of selecting one in the 4th quarter of 2020. They will be looking for organizations that have experience with the grievance process, since much of the work will be shepherding drivers through arbitration.
  •  Durkan’s proposed legislation to establish the tax and the minimum wage will be part of her proposed budget to be released on Monday, and it will be considered by the City Council as part of its budget package deliberations in October and November. The Council has the final word on both taxes and spending, and may have other thoughts on priorities for the funds.

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