The Goldman School of Public Policy at UC Berkeley prepared an analysis of the City’s taxi medallion scheme in 2006.
Read it if you have a spare hour or so and if you enjoy these sorts of things. Here’s a summary if you want to keep your hour: the authors recommend switching to a transferable medallion scheme similar to New York City, allowing for sale and resale of driving medallions. Currently, San Francisco issues approximately 1,500 medallions to full-time drivers that have waited for 10+ years on a waiting list. (Basic primer: a cab must have a medallion to legally operate as a taxi in the City.) Drivers with medallions then lease back these medallions to cab companies who, in turn, lease the medallion and a car to shift drivers (like me).
Medallion holders must be able to safely drive 800 hours per year. As soon as he or she can no longer drive, the driver must forfeit the medallion back to the City at which time it is offered to the next driver on the list.
One effect of transferability (NYC) vs. permitting non-transferable medallions (SF) is a significant one-time revenue bump for the City plus ongoing City revenue via medallion transfer sale taxes. The report argues this would also yield a higher quality of life for drivers who purchase these transferable medallions, as selling a medallion upon retirement offers a significant windfall for a driver.
Whether or not San Francisco needs transferable medallions is a valid but complicated debate to be taken up elsewhere. (UPDATE 4/24/08: “elsewhere” is now apparently in the comments below.) I pose this question instead: if we had transferable medallions, how much would they be worth? Or, looking at it another way, how much are the collective medallion assets worth to the City taxpayers?
Calculating the Value of SF Taxi Medallions
A medallion provides a steady, predictable revenue stream. I’ve heard drivers claim that a medallion can bring in between $1,500 and $2,000 per month for the medallion owner.
The waiting list is long, so many drivers don’t get a medallion until age 40 or older. Let’s be conservative and say they only drive until age 60.
So, a medallion’s value to an individual would be 20 years of a steady stream of $1,500 per month ($18,000 per year) payments. Way back in finance class we learned how to calculate Net Present Value. I don’t remember how to do this, but this website can calculate it automatically. This sketchy website recommends using a discount rate of 6%. Please let me know if you have a better idea of what discount rate to use and why.
The result? Using a discount rate of 6% this yields an NPV of $206,458.58. Multiplying that by the City’s 1,500 medallions yields a total value of $300 million.
Whatever you may think of transferable vs. permitted medallions schemes, this quick napkin math analysis shows the City is practically giving away a $300 million asset for free.
Link to Goldman School Analysis
PS. Of course, I welcome revisions to my math so we can get the best estimate possible. It’s been a long time since finance class.
UPDATE: I’ve heard that some cab companies pay upwards of $2,000 per month.
- A $2,000 per month revenue stream for 20 years at 6% interest works out to have a Net Present Value of $275,278.11.
- $2,000 per month for 30 years at 6% is a whopping $330,355.95!
- Multiplied by the roughly 1,500 medallions on the street yields a total value of nearly $495,533,925 of City property being awarded at no cost to medallion holders.
Filed under: econ, taxi, transit | 12 Comments
Tags: asset, cab, econ, economics, medallion, net present value, npv, permitted, sale, san francisco, sf, tax, taxi, taxicab, transfer, transferable, value, versus
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Recent Comments
NPV formula: http://upload.wikimedia.org/math/3/8/2/3824d93f9d472d3ba000c290ddaa5bf3.png
The discount rate should be the opportunity cost of other investments the city is considering. You could use the WACC if you could think of a way to find that for an organization that gets its capital from taxes.
my recommendatin is that just let taxi driver buy medellion for about 200k x1500 medellions and then tax as property tax 1.123 per year the rest of there life with transperable.
City don’t wast too much by give free.
just some suggestion
Quinn
@Quinn: There are a number of people that would think San Francisco would benefit from a transferable medallion system like New York City which would allow drivers to purchase medallions. The City is losing out on a lot of money, which could be put back into the taxi industry in the form of health insurance for drivers, mandatory retirement savings programs, and security cameras that actually work.
But, it would understandably receive a lot of kickback from people that are eligible to receive medallions for free and have been waiting for nearly 20 years on the medallion wait-list.
If you think drivers get medallions for free, you try driving a cab 50+ hours a week for twenty years.
But what does the city get?
It gets committed drivers that have a reason to stay in this industry.
The current medallion system has changed cab driving from a transient job into a lifetime career.
@Mike:
The core debate here is between transferable (New York City style) and non-transferable (San Francisco style) medallions.
The Goldman School analysis linked above seems to point to the transferable medallion system as being better for both the hosting city AND drivers.
In a nutshell, to pay off a loan for a transferable medallion requires about the same amount of time and net income as earning a non-transferable medallion via a waiting list. But, after paying off the transferable medallion, the medallion owner not only receives a monthly payment (just like a non-transferable medallion) but also has a sizable real asset to sell for a comfortable retirement. Unfortunately, since non-transferable medallions are not sellable there is no post-career sale windfall which causes serious hardship once drivers are ineligible for the non-transferable medallion.
The significant difference is the process of enrollment. Non-transferable systems require less commitment, only registering with the city to be put on the medallion waiting list. So, casual drivers who are not prepared to commit to 15-20 years of paying off a large medallion loan can still be eligible for the non-transferable medallion if they decide stick around. The transferable medallion requires a significant financial commitment which may turn some people off.
I agree with the view presented by the Goldman School that the upside of transferable medallions is worth this necessary financial commitment. The upside is significant city revenue to be put toward improving the taxi ecosystem such as working security cameras, sick pay, lower gate fees, mandatory health insurance, and retirement programs. And, medallion holders would have a significant windfall upon completion of their taxi driving career which is a notable improvement upon the current system.
Transition would be extremely difficult, especially in San Francisco where the non-transferable medallion system is concreted in the minds of drivers and regulators alike. The fear surrounding transferable medallions is a fear of change, which is understandable given the central financial importance medallion ownership holds for career taxi drivers.
Given this transition difficulty and fear of change, I don’t hold my breath for San Francisco to move to transferable medallions anytime soon. But, I do believe it’s a better solution.
befor the sell medallions they should stop TCP…..people get a tcp number and working like madallin holder…..
plus its ganan be easy to get lone 4 taxi medallion…?????? if yes then what’s ganna happen to those drive who been waiting 4 that many years and the money they had paid to city????? and how many taxi company’s we going to have????
befor the sell medallions they should stop TCP…..people get a tcp number and working like madallin holder…..
Dear Mayor Newsom, as i have understanding about the taxi permit, right now every medallion owner has lease to many people around SF for about $85.00/shift and 24hrs is $170.00 for a day. we take 30×170=5100, take 5100×12months=61200.
minus about $2000.00 for car, insurance and company fee. so does any owner pay anything for the city? NO NO No.
If i am a Mayor i will take all 1500 medallion and sell to every driver whoever want to buy just about 150000 to 200,000 each. i believe our city will solve all the financial problem and our city will have a lot of money for every program such as school, police, health care, play ground, and so fort.
this is an honestly comments.
Hen Wu
you cant balance a cities budget by stealing lives away from individuals who have worked their asses off for 20 plus years. the term worker owned would apply here if san francisco were still san francisco and not a sanctuary for the rich.
I am from a fifth generation N. Californian family. I attended San Rafael Military Academy High School in the late sixties where we were issued M1 rifles and played “Capture the Cong Village” at Ft. Chronkite. We were fighting communism at the time (Domino Theory). I marched in every official parade in SF twirling a rifle in my dress blues and performing the Queen Anne salute at the reviewing stand. Fortunately, while on a weekend pass in the City on my sixteenth birthday in 1969, I met the cast of “Hair” who invited me to lunch and sang “Happy Birthday”. That changed my life. I dove into music and even got to play with the Grateful Dead a few times. In 1979 I started driving a cab because it was the only job you could do with long hair and a beard besides dealing the dubious. It was twelve hour shifts at City Cab driving in fumes with shoddy tires and a radio that didn’t always work. The last thing I remember smelling is the odor of asbestos brakes coming off a streetcar. I refer to my past as a way of iterating part of my credentials. Knowledge in this industry is awareness of people and place. I know this place and it’s people. First sharing, more to come…
A happy solution is not likely. I suggest we compromise and take each case individually. If a medallion holder is ready to retire, let him sell and the city gets it’s cut. If a guy on the list wants to wait, let him and issue the next # that reverts back to the city. For sure weed out the scammers. It’s easy enough to know if someone is really driving a cab or not. Give pre K medallion owners the right to sell before they die. Pretty unfair to penalize the people who backed the taxi industry back in day when yellow cab went broke. Anyone willing to deal with the peculiar aspects of taxi driving, should be entitled to some compensation after 2, 3,and sometimes more than 4 decades in this job.