Taxi Surcharges and Congestion Pricing — They Go Great Together

The surcharge on NYC medallion taxi fares that took effect this month is a bit like a bases-loaded groundout that scores a run but kills a big inning: It does some good, but a ringing base hit could have done a lot more.

traffic_taxis.jpgCongestion pricing paired with a significant taxi surcharge would speed cab trips and boost Manhattan’s transit funding contribution. Photo: Bill in STL/Flickr.

The good, in this case, is a new pot of money for the financially strapped MTA: the 50 cent-a-ride surcharge is expected to raise $80 to $85 million a year according to transit officials, a figure confirmed by inputting the surcharge into the Balanced Transportation Analyzer (BTA) pricing model. While that will barely cover one percent of the MTA’s budget, it will help patch the authority’s deficit and sustain essential services like subway car cleaning and system maintenance.

A side benefit is that the discouragement of taxi use due to the surcharge should cause travel speeds in Manhattan to rise, saving time for car and truck drivers and bus passengers. With some taxi trips switching to subway or bus, transit farebox revenues will go up as well. But the surcharge is so slight — around 5 percent of a typical fare — that these gains will barely be perceptible: a mere 0.1-0.2 percent rise in Manhattan travel speeds and a $2-$3 million-per-year rise in transit revenues, according to the BTA. And any increase in taxi cruising to make up for the lost fares would cut into the minuscule improvement in traffic.

While the press bewails the surcharge’s impact on taxi users, the people likely to suffer the most are the drivers, who on average can be expected to turn 1½ to 2 fewer fares a week. Losing $20-$25 in weekly revenue may not seem like much, but it’s a bitter pill for drivers who can barely pay off their medallion leases as it is. Indeed, the taxi surcharge, enacted by the legislature as an afterthought to the "mobility (payroll) tax" last spring, may do to drivers what the new taxi credit card payment system reportedly has not: drive them to the wall, economically.

Does this mean that surcharging taxi fares to pay for transit is categorically a bad idea? Decidedly not. I’m prepared to argue that a taxi surcharge a good deal larger than 50 cents per ride is essential to the political and logistical success of congestion pricing. At the same time, congestion pricing is essential to making a taxi surcharge fair for taxi drivers and passengers. With, and only with, a cordon toll, will Manhattan traffic improve sufficiently that cabbies can book more fares per shift, not fewer. Moreover, the same speedup will enable users to save valuable time, partially compensating them for the surcharge and ensuring that the taxi sector stays robust.

To grasp these synergies, consider a variable toll to drive into the Manhattan Central Business District of $3 to $9 on weekdays and $2 to $4 on weekends, with the revenues used to cut transit fares roughly in half. Residents of Queens and Brooklyn would pony up 45 cents of every dollar in new toll revenue, because of tolls on the East River bridges. Manhattanites would contribute less than 7 cents of each dollar, less than residents of Nassau County, Staten Island and the Bronx, yet would reap most of the benefits of quieter and safer streets, cleaner air, and faster bus service.

Such a plan would be DOA in Albany. Indeed, I would argue that this very imbalance between beneficiaries and benefactors helped doom the Bloomberg cordon fee in 2008 and the Ravitch bridge tolls this year.

Now take the same toll plan and add a 33 percent taxi surcharge — yes, a one-third increase in the mileage rate, the waiting time rate and the "drop." Instantly, Manhattan residents — who comprise an estimated three-fourths of medallion taxi users — would see their payment share nearly quadruple to 25 percent. Brooklyn and Queens residents’ share would shrink from 45 percent without the taxi surcharge to 28 percent with it. The borough-inequity argument largely disappears.

Not only that, the taxi surcharge revenue, a cool $400-$500 million according to the BTA, could allow transit officials to eliminate bus fares. Free buses would be a particular boon in distant precincts where subway lines don’t reach. As well, the rise in the taxi fare would offset the fall in the "time cost" of taxi service due to the decrease in auto traffic, and keep new taxi trips from inundating the CBD. Total use of medallion cabs would stay roughly constant under this integrated plan, with the reduction in gridlock enabling drivers to handle an extra 15-20 fares per week without booking more hours.

As for the effect on taxi users, the BTA indicates that the integrated plan outlined here would add $2.16 to the price of the average CBD cab trip while shortening the ride by 1.8 minutes. In other words, passengers pay $1.20 per minute saved — a steep rate, for most of us, and it would be steeper for trips that venture outside the CBD, where the travel time savings would be smaller, percentage-wise. Even with a cordon toll, then, taxi surcharges can’t be sold to riders as an unalloyed win-win, although riders could help themselves by cab-pooling and prioritizing their taxi use.

Of course, taxi surcharges are still justified as a means of internalizing the "social delay" costs of vehicle traffic on congested streets. They’re most fair and effective, though, when coupled with cordon tolling.

  • Ian Turner

    Drivers are not the ones hit by this taxi surcharge, either: It’s medallion owners. If a medallion gets you 1-2 fewer fares every week, that reduces its value, which means lower lease costs for drivers and lower sale costs for owners.

    It continues to bewilder me why private medallion owners are permitted to be the beneficiary of the state-created polygopoly; is there any good reason at all not to sell the medallions by auction?

  • J:Lai

    While I support raising taxi fares, I think there are good reasons why some portion of the increase should go to the taxi drivers as opposed to 100% going to the MTA.

    While it is fair to have the riders pay more as a way to decrease total motor vehicle use, and to have them pay for some of the externalities they creates, one consequence is that drivers will see a decreasein revenue from reduced demand. In the interest of fairness, some portion of the increase could remain with the driver to compensate for the reduced demand.

    In addition, an increase in driver income could help to reduce some of the most aggressive and dangerous tactics currently used by taxi drivers.

  • Hey J:Lai — I’m in total synch with you, once again. The BTA has a “switch” that assigns a percentage of taxi surcharge revenues to the taxi industry — owners + drivers (I’m not going to specify who gets how much!). In the plan I discussed (which you probably recognized as Kheel-Komanoff), 10% is set aside — around $50 million a year. You can set the percent to any level you like. Of course, the higher the set-aside, the less that’s left over for transit.

    I was going to mention this in my post but it was already too wonky.

  • Ian Turner

    J:Lai, as I noted above, 100% of the increase or decrease in revenue per taxicab is captured by medallion owners, typically within 1-2 years of the change. Raising fares doesn’t do jack for drivers.

  • Ian Turner


    How do you proposed to determine how much goes to owners and how much goes to drivers? Isn’t that like haggling over whether renters or landlords should pay property tax?


  • JK

    Charlie can you explain how raising the cost of taking a cab reduces the amount of driving cabs do? Raising the cost of taking a cab will reduce demand for cabs, but why does it reduce the need for drivers and owners to get paid and service the costs of leases and medallions? The supply of cabs is not a widget that a factory can make less of when demand declines. Why won’t drivers cruise more to try and make up for the reduced number of hails? Also, the bigger the difference between medallion and livery fares, the more demand for liveries there will be (substitution) and the more incentive livery drivers will have to cruise south of 96th street in Manhattan. (There are already plenty of liveries doing so.)

  • How do you propose to determine how much goes to owners and how much goes to drivers? Ian, that’s beyond my pay grade … seriously. I would hope some fair means could be devised, but the allocation is a zero-sum game, ugh. Suggestions welcome.

    Charlie can you explain how raising the cost of taking a cab reduces the amount of driving cabs do? Why won’t drivers cruise more to try and make up for the reduced number of hails? JK, I don’t know whether cruising would increase in response to fewer fares (or decrease in response to more fares). I welcome your and others’ input. The nice thing about the Kheel-Komanoff Plan is that, on paper at least, the cross-cutting factors (cab rides cost more, but are faster) are almost perfectly offsetting, so the total number of fares stays approximately constant, and we shouldn’t have to worry about cruising effects.

    Also, the bigger the difference between medallion and livery fares, the more demand for liveries there will be (substitution) and the more incentive livery drivers will have to cruise south of 96th street in Manhattan. JK, I’m assuming that medallion cabs, like other autos, will pay to cross 60th Street and enter the CBD, whereas medallion taxis (and only medallions) will be exempt. I guess the liveries would service more riders north of 60th Street at the expense of medallion taxis, though. That’s worth examining. Thanks.

  • ManhattanDowntowner

    Way off the mark, Komanoff. Both raising taxi prices and congestion pricing are regressive forms of tax.

    As far as congestion pricing, have you read any of the London Chamber of Commerce and Industry reports? Since 2003 the LCCI has consistently reported financial downturns for small businesses in the zone – I guess you want more of the soul of NYC to be done in. It’s taxes like these that will favor rich yuppies who can afford $4-5 cups of starbucks everyday and pay for a 12 dollar cab ride to go 20 blocks – sorry, that’s not a good picture for middle-class NYC’ers.

  • ManhattanDowntowner — Please explain how taxing premium transportation by “rich yuppies who can afford [to] pay for a 12 dollar cab ride to go 20 blocks” and dedicating the revenues to cutting subway and bus fares is regressive?

  • Erin

    Nice idea, C. Komanoff. I wish that an outside-the-box idea like this would be implemented – it really would end up fairer for outer-borough residents who for whatever reason need to drive into the city and will pay the congestion tolls. I like that Manhattan residents who use automobiles (taxis, in this case) would also shoulder some of the congestion fee. Because as we know, congestion doesn’t discriminate. Whether originating on this side of the bridge or that one, the vehicle traffic is too dense here.

  • Taxi User

    “A side benefit is that the discouragement of taxi use due to the surcharge should cause travel speeds in Manhattan to rise, saving time for car and truck drivers and bus passengers.”

    Real considerate. Let’s put the working class taxi drivers out of work just to satisfy the ‘green’ fad of the moment. More B.S.

  • Ian Turner

    Hi Taxi User,

    Taxi drivers benefit from reduced congestion because they can pick up more fares in a given period of time. Because of the fare structure, taxi drivers make more revenue picking up new fares than sitting stuck in traffic.

    The reality, however, is that it doesn’t matter how these fees change taxi revenue, because all the extra profit is soaked up by taxi medallion owners. You could give an extra million dollars a year to taxi drivers, and they’d still be working class, because the cost of a medallion lease would increase accordingly.



  • Perhaps I am in the minority, but I do not see how taxis are the real enemy here. Discouraging taxi use could also increase the likelihood of people choosing to own cars on the island, which helps no one.

    “A side benefit is that the discouragement of taxi use due to the surcharge should cause travel speeds in Manhattan to rise, saving time for car and truck drivers and bus passengers.”

    Who cares about saving time for car drivers? As far as I am concerned they shouldn’t be on the island at all. Congestion pricing is positive because it helps us work towards the end goal of removing car traffic from manhattan (which would also make taxi trips shorter, and as a result, more frequent.) I also agree with ManhattanDowntowner, that a taxi surcharge creates a needless social barrier against the middle class. Having more people in taxis is better for pedestrians and bikers than having more private cars.

    Let’s also not forget that hybrid taxis are more fuel efficient than most of the private cars that drive on the road. We should be bolstering the efficiency of our taxi fleet, not encouraging the low mpg of private drivers.

  • Erik

    It seems like the whole medallion system is a barrier to including taxi fares in any toll/fares-based congestion solution. Anyone know how much would it cost for the city/state to just buy all the medallions back, and then just license taxis to individual drivers on short-term leases? Then you could at least adjust the taxi fare how you wanted, and allocate fixed percentages for drivers, and you could regulate who drives the taxis much more closely (e.g. require fluent English-speaking skill, and basic standards of personal hygiene). The medallion system is so archaic – this is a basic transportation concession; it shouldn’t be subject to financial pressures as if it’s the luxury real estate market.

    All of that aside, the combined effects of this recession/unemployment and the taxi fares going up steadily for the last 10 years is gradually making the taxi a choice only for the upper-upper middle class and above (NYC used to have one of the cheapest taxi fares amongst First World cities – no more), so if you want to soak those folks to pay for cheaper bus fares, sounds great to me.

  • Ian Turner


    Why should the city even have to buy back the medallions? It’s not like they were sold for a profit in the first place (except for a few recent ones). The medallion system should simply be aboloshed, and replaced with triennial leases, with price determined by auction.

    Unfortunately, the existing taxi polygopoly seems to be very well-connected in New York politics, so I don’t expect much reform in this area.



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