How much is a San Francisco taxi medallion worth?

San Francisco taxi medallion with dollar signs instead of a number

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.
About these ads
This entry was posted in econ, taxi, transit and tagged , , , , , , , , , , , , , , , , , . Bookmark the permalink.

17 Responses to How much is a San Francisco taxi medallion worth?

  1. crasshopper says:

    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.

  2. quinn willian says:

    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

  3. kfarr says:

    @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.

  4. Mike says:

    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.

  5. kfarr says:

    @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.

  6. happy says:

    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????

  7. happy says:

    befor the sell medallions they should stop TCP…..people get a tcp number and working like madallin holder…..

  8. Hen says:

    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 5100x12months=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

  9. joe says:

    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.

  10. Pingback: kfarr

  11. Blake says:

    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…

  12. gus says:

    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.

  13. W. Blake Derby says:

    Allow me to elucidate. When the South Terminal was remodeled (1981?) and asbestos was floating in the air like snow we parked outside right next to the terminal and fed into the lane directly in front of the terminals where we proceeded to engage arriving passengers to hire our taxis. There were no starters dictating our movement, no fee for picking-up passengers and very little need for oversight. Oversight includes methods for monitoring, scrutinizing, “regulating” and imposing fixed conformity for the purpose of exploitating the industry. This is all instigated by people with reptilian predator minds, those money-grubbing, power-tripping control freaks in City Hall who see only to their own interests “doing the business of the City.” So one day someone put up a parking ticket dispenser in the lot at SFO. There was no notice of public hearing regarding that decision. Ever since we’ve had to pay a series of people in cahoots to pick up at the airport. It was Leonadakis at first, then AMPCO and DAJA, which includes the Bessiers, former Law-Firm Partners and friends of Willie Brown. After the cab-staging was moved to the basement of the garage it took five years just to get fans to blow away the toxic exhaust. People pissed on the wall because they wouldn’t even spring for porta-potties. It took 10 years just to get fairly clean bathrooms. Ah sweet memories…To this day, I have met no one who can share the details about the profit-sharing arrangement between the airport revenues, the City and these private enterprises. I do know that not one single whit goes back to benefit anyone in the taxi industry. Kudos to anyone who can obtain a copy to the contracts awarded by the City to “handle the cab-flow”. I believe the City actually pays DAJA and AMPCO perhaps millions per year to collect money from us. In my next post I may tell you about how my son’s best friend was murdered on Maui while I was in SF arguing at the TC hearings that an intention to drive is not a requirement to drive and that even if it were, 156×4=624 not 800 hours. We lost that one so that’s fewer prime shifts that go to harder working drivers. I’m older now, not so much of a lean, mean, hot dog. It may take me 100 shifts to do the 800 hours. Meanwhile, my three children on Maui miss their father due to the reality of livelihood restrictions and the increasing fact that only well-off people can live in Hawaii comfortably. Then our dear Mayor buys an interest in the Hana Hotel, a two hour drive from my ex-wife and children. He signs the Healthy Families Initiative, not that it helps mine. This year I got three months with my kids.
    You try having two residences, two jobs, two cars and a family…I know I’m not the only one. Regardless of the circumstances I still consider myself greatly blessed for not having to be on the dole or sleeping in the streets. I do live in my van while I work in the City until I pay off my debts and so that I can afford to see my kids once in a while. My story is not so unique. Unfortunately the “one size fits all” policy regarding rules and regulations completely disregards individual variation of circumstances and exigencies. At this point I will kindly remember Lindsey Welcome…If you don’t know who she was then you don’t know what the City does to career drivers…
    Aloha,
    Blake

  14. SuperNaturalMom says:

    I came upon this site trying to help my MIL figure out what to do with her deceased father’s medallion. At this point it is the only source of income for her and her mother, however after reading everything here it seems the right choice for all is to sell it. Does anyone know if they can hang on to it? Knowing they will not be driving? Or must they sell it? And if they must sell it what is a fair price?

    Any advice would help. We are lost and know not where to turn…

    Thanks,
    SuperNaturalmom

  15. Observer says:

    A better solution would be for the City to auction off 5-year leases for medallions in a rolling manner (so that 300 medallions go on sale every year, assuming there are 1500 total medallions). Use a “dutch auction” so that people bid the true value. Limit medallion sales to 1 per driver; and have some eligibility criteria so that only the qualified drivers apply. This can become a sizable source of income for the City.

    Right now, some well-connected (read: corrupt) people have cornered a good chunk of the medallions, and the hardworking drivers are caught in the system like slaves.

  16. Walter Derby says:

    I take issue with the phrase “no cost to medallion holders…”. The actual cost is decades of 10 to twelve hour days heaped with stringent requirements and compliance directives while lacking health and retirement benefits for career drivers that are even remotely similar to those of Muni and BART drivers…
    The City lets longtime drivers sell their medallions as long as they contribute 20% of the sale price to the MTA…That is a fair arrangement to leave gracefully someday…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s