story by Amita Sharma | KPBS
data analysis by Ryann Grochowski | inewsource
Fred, who is short, 40ish and East African, makes a lot of money in the taxi business in San Diego. And it’s not just from driving a cab.
Taxi permits are not legally transferable in San Diego. That has not stopped some from using loopholes in the system to make what some consider a more fair wage than they’d earn otherwise.
He’s exploited what Mayor Bob Filner calls the “black market” in taxi permits: buying and selling these coveted licenses several times over. He said he’s made tens of thousands of dollars over the past 10 years from would-be drivers, mostly from immigrants like himself.
“Sometimes, you buy $90,000, you sell it in one month and extra $40,000 profit you make,” Fred said. “I made a lot of money. I didn’t pay tax.”
Fred refused to be quoted by his full name because he fears retaliation by cab companies and other drivers, but he said he feels bad about taking advantage of people who want to get into the business.
“I was doing wrong,” Fred said. “I realize that. The system is wrong. The system has allowed us to do it.”
Local taxi industry insiders say Fred’s story is just one example of a pervasive problem: cab permits are being used to exploit drivers, consumers and even taxpayers. Many say the underground permit sales for up to six figures each are driving up passenger fares and forcing drivers to work perilously long hours for barely-livable wages.
Transportation agency and other government officials are aware of the shadow market, and there doesn’t appear to be a law against the private exchanges. But there are questions about whether these sales violate tax laws because sellers don’t pay sales tax on their transactions.
California Franchise Tax Board spokeswoman Denise Azimi says the state views the gain on the sale of an intangible business asset like a license as taxable. Finding documentation of the transaction would be a problem.
Drivers said the exchanges are all cash.
The taxi permitting is run by Metropolitan Transit System (MTS), the agency that runs the buses and trolleys in San Diego. Some, like Filner, believe the problems could be cleaned up if the permitting process was taken over by the city.
The city is exploring whether to assume control of regulation after receiving scores of complaints from drivers and passengers about the way MTS has run the system.
“I think it’s been lax. That’s why we’re going to take it over,” Filner said. “They’ve allowed this whole black market situation to develop without any oversight.”
Public property, private sales
Taxi permits are considered public property. Officially, they change hands from a seller to a buyer for a $3,000 fee to MTS through what’s known as a transfer. But drivers say the big money changes hands privately.
“Once MTS says ‘OK, we’ll transfer it,’ then all the money dealing is done with a handshake and a backroom,” said lawyer Bob Glaser, who represents a group of cab drivers who want to reform the system. “Where the people get the money to buy the license, where they borrow it from, how they earn it, that’s all off the record. Nobody knows.”
There are a limited number of taxi permits in the county. In the city of San Diego, 993 permits are held by 418 individuals and cab company owners, according to MTS. There are 1,850 licensed cab drivers. Since 1989, 125 new permits have been issued, according to agency documents.
An inewsource analysis of MTS data shows between March of 2009 and April of this year, there were 326 transfers, or about one-third of the total permits. About 83 percent of the permits that transferred changed hands once. Nearly 17 percent were transferred twice.
There is disagreement about whether limiting the number of taxi permits is good or bad. Some say the limited number fuels the private market. But others say unlimited permits would flood the market and create greater hardship for drivers searching for fares.
Industry insiders say poor working conditions, high cab fares and the black market are all illustrative of what industry insiders said are a shortage of permits in San Diego.
MTS is aware of the private sale of taxi permits. A consultant hired by MTS in 2010 concluded that “profit-taking has occurred on a grand scale in San Diego’s taxi market.”
The report acknowledges that MTS has the authority to stop the practice and require that permits be surrendered to the agency and re-issued through a process with more governmental control.
KPBS attempted to ask MTS why it permits the transfers, but the MTS spokesman refused to grant a recorded interview. In an email, spokesman Rob Schupp said “our board has not considered the specific issue of permit transfers and therefore, has no position on the subject.”
In the 2010 study, the MTS consultant wrote that the sale of these permits encourages taxicab owners to invest in their businesses and cars. The report also credits such transactions with creating an opening for newcomers into the taxi business.
It concluded that “there is no compelling public interest that would be served by disallowing permit transfers.”
Cab driver lawyer Glaser said the reverse is true. It’s consumers and cab workers who are suffering because of the high cost of taxi permits, he said.
“If a driver has to pay $150,000 just to get in the business, well they’re going to keep their rates just as high as they possibly can.”
San Diego has among the highest cab fares in the country, according to a 2012 Washington Post survey of 40 U.S. cities.
High cost of leasing
Some cab drivers say the high cost of permits on the private market forces some cabbies to lease permits rather than buy one. And leases are also expensive.
Bob is an East African immigrant, who leases one of six permits owned by a man in East County. Bob would not allow his name to be used because he says the permit owner will fire him if he speaks publicly about their financial arrangement.
He said he paid $7,000 up front to enter the agreement. And each month, he pays $1,200 to lease the permit. He said he spends another $650 on gas and insurance. There are some months, he said, when he only brings home $1,000, despite working 12 hours a day, seven days a week.
The married father of two children holds a second job as a technician.
“You have no option,” Bob said. “Jobs are limited. You have to work. You can’t take a day off. No medical benefits. You can’t save anything. Rent is going up.”
A recent study by San Diego State University and the Center on Policy Initiatives, a nonprofit institute that advocates for workers, found that nearly 90 percent of taxi drivers in the city lease permits from individuals or taxi companies. The study showed drivers earn a median wage of $4.45 an hour including tips. In fact, they would have to work more than 70 hours a week to earn the equivalent of a minimum wage worker during a 40-hour a week.
Alfredo Hueso, a partial owner of USA Cab in San Diego, says the study is overly broad. He believes taxi drivers make significantly above minimum wage and they have been wrongly painted as victims.
“They’re the ones that chose the profession,” Hueso said. “Nobody forces them into bondage.”
Hueso worries that if regulation transfers to the city, there may be too many taxi permits in circulation and not enough work for drivers.
Filner says he’s aware of that concern.
“Most cities have found a balance between the permit numbers,” Filner said. “You need access for the public and you need to assure the drivers that they can make a living. That’s not easy to work out. But that’s what we’re going to be talking about in the next six months.”
Glaser said he’d like to see San Diego’s taxi industry patterned after cities like San Francisco. A San Francisco city agency is trying out a program for buying and selling taxi medallions.
“Why doesn’t MTS create a transparent system,” Glaser asked. “There’d be no need to sublease if everybody got a license. There’d be no need to buy or sell licenses on the black market if everybody got a license.”
San Diego City Councilwoman Marti Emerald once headed MTS’s taxi advisory committee, which sets policy. She said she’s concerned about the taxi permit sales, but she’s cautious about how she characterizes the deals.
“I don’t believe they’re breaking the law,” she said.
A former taxi driver herself, Emerald believes city oversight would be an improvement.
“If we bring it back the right way,” she said, “I think we can do a better job of protecting the drivers and the public.”
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Gender Identity
Gender Identity
Gender Identity
Women
80%
Women
82%
Women
75%
Men
20%
Men
18%
Men
25%
Sexual Orientation
Sexual Orientation
Sexual Orientation
Straight
87%
Straight
82%
Straight
100%
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7%
LGBTQ-identifying
7%
Not specified
7%
Not specified
7%
Speak a language beyond English at home
33%
Speak a language beyond English at home
18%
Speak a language beyond English at home
75%
Race/Ethnicity
Race/Ethnicity
Race/Ethnicity
White
67%
White
73%
White
50%
Hispanic or Latinx
20%
Two or more races
18%
Hispanic or Latinx
50%
Two or more races
13%
Hispanic or Latinx
9%
Age
Age
Age
20-29
40%
20-29
45%
20-29
25%
30-39
47%
30-39
45%
30-39
50%
60 or older
13%
60 or older
9%
60 or older
25%
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Lorie Hearn is the chief executive officer, editor and founder of inewsource. She founded inewsource in the summer of 2009, following a successful reporting and editing career in newspapers. She retired from The San Diego Union-Tribune, where she had been a reporter, Metro Editor and finally the senior editor for Metro and Watchdog Journalism. In addition to department oversight, Hearn personally managed a four-person watchdog team, composed of two data specialists and two investigative reporters. Hearn was a Nieman Foundation fellow at Harvard University in 1994-95. She focused on juvenile justice and drug control policy, a natural course to follow her years as a courts and legal affairs reporter at the San Diego Union and then the Union-Tribune.
Hearn became Metro Editor in 1999 and oversaw regional and city news coverage, which included the city of San Diego’s financial debacle and near bankruptcy. Reporters and editors on Metro during her tenure were part of the Pulitzer Prize-winning stories that exposed Congressman Randy “Duke” Cunningham and led to his imprisonment.
Hearn began her journalism career as a reporter for the Bucks County Courier Times, a small daily outside of Philadelphia, shortly after graduating from the University of Delaware. During the decades following, she moved through countless beats at five newspapers on both coasts.
High-profile coverage included the historic state Supreme Court election in 1986, when three sitting justices were ousted from the bench, and the 1992 execution of Robert Alton Harris. That gas chamber execution was the first time the death penalty was carried out in California in 25 years.
In her nine years as Metro Editor at the Union-Tribune, Hearn made watchdog reporting a priority. Her reporters produced award-winning investigations covering large and small local governments. The depth and breadth of their public service work was most evident in coverage of the wildfires of 2003 and then 2007, when more than half a million people were evacuated from their homes.
Laura Wingard is the managing editor at inewsource. She has been an editor in San Diego since 2002, working at The San Diego Union-Tribune, KPBS and now inewsource. At the Union-Tribune, she served in a variety of roles including as enterprise editor, government editor, public safety and legal affairs editor, and metro editor. She directed the newspaper’s award-winning coverage of the October 2007 wildfires and the 2010 disappearance of Poway teenager Chelsea King. She also oversaw reporting on San Diego’s pension crisis.
For two years, Wingard was news and digital editor at KPBS, overseeing a team of four multimedia reporters and two web producers. She also was the KPBS liaison with inewsource and collaborated with inewsource chief executive officer and editor Lorie Hearn on investigative work by both news organizations.
Wingard also worked at the Las Vegas Review-Journal as the city editor and as an award-winning reporter covering the environment and politics. She also was the assistant managing editor for metro at The Press-Enterprise in Riverside. She earned her bachelor’s degree at California State University, Fullerton, with a double major in communications/journalism and political science.
Brad Racino is the assistant editor and a senior reporter at inewsource. He has produced investigations for print, radio and TV on topics including political corruption, transportation, health, maritime, education and nonprofits.
His cross-platform reporting for inewsource has earned more than 50 awards since 2012, including back-to-back national medals from Investigative Reporters and Editors, two national Edward R. Murrow awards, a Meyer “Mike” Berger award from New York City’s Columbia Journalism School, the Sol Price Award for Responsible Journalism, San Diego SPJ’s First Amendment Award, and a national Emmy nomination.
In 2017, Racino was selected by the Institute for Nonprofit News as one of 10 “Emerging Leaders” in U.S. nonprofit journalism.
Racino has worked as a reporter and database analyst for News21; as a photographer, videographer and reporter for the Columbia Missourian; as a project coordinator for the National Freedom of Information Coalition and as a videographer and editor for Verizon Fios1 TV in New York. He received his master’s degree in journalism from the University of Missouri in 2012.
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Brad Racino is the assistant editor and senior investigative reporter at inewsource. He's a big fan of transparency, whistleblowers and government agencies forgetting to redact key information from FOIA requests.
Brad received his master’s degree in journalism from the University of Missouri...
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