When Friends become Foes: City of Portland vs. the Citizens

City of Portland propping up taxi industry at the expense of consumers.Pick up most any civics textbook, and it’ll contend that one of the purposes of government is to protect the common interests of the citizenry against the forces of corruption and special interests.

The idea is that government regulations can help curb the excesses of unfettered capitalism and help keep the playing field fair for everyone.

Unfortunately, we know from experience that things rarely turn out this way in practice. We have ample proof in the scads of lobbyists and special interest groups that swarm Washington, DC and the state capitals, holding sway over many politicians and the laws they enact.

Public opinion polls by Gallup and others show that the U.S. public sees the federal government as more culpable than state or local governments when it comes to special interests having undue influence over legislation.

But does the reality comport with the perception that “local” is less of a problem?

The latest example showing that this perception may be wrong comes from Portland, Oregon. The city council there has put in place regulations that require limousine and sedan services to charge a $50 minimum for transporting people to and from Portland International Airport … and to charge at least 35% more than taxis for trips to any other destination in the city.

In addition, sedan and limo services cannot pick up customers until at least one hour has elapsed after the customer has called for transportation.

Does anyone seriously believe that these regulations were put in place to benefit the citizenry of Portland … or to foster healthy competition for transportation services? If you believe so, you’re pretty naïve.

In actuality, the Portland city council is just doing the bidding of a small but politically powerful interest group in the city: the taxi industry. Frank Dufray, the administrator for Portland’s Private-for-Hire Transportation Program, says as much:

“The main thing is that you don’t want the Town Cars to take all of the best fares, which are to the airport, and not leave any for the taxi industry. That’s why there’s a minimum fare and a one-hour wait requirement.”

Basically, this is tantamount to stifling fair competition and protecting market share for the taxi industry by government fiat.

It gets worse: “Daily deal” companies like Group and LivingSocial have become a very popular way for local business to gain new customers by offering limited-time special offers that allow consumers to purchase goods and services at a discounted price. But when two Portland-area companies offered their chauffeur services at a discounted rate through Groupon last year, the city of Portland responded by assessing fines on every Groupon deal sold by these firms.

And these weren’t just “nuisance” fines. They totaled $259,500 for Fiesta Limousine and a whopping $635,500 for Towncar.com!

Rather than risk going bankrupt, these two companies did the only thing they could from a practical standpoint; they refunded all of the proceeds back to their would-be customers.

So, thanks to the city of Portland, we have customers who are unable to take advantage of special pricing for limousine services, plus we have two companies who lost both time and opportunity – not to mention the administrative hassle of refunding customers their money while also dealing with the potential legal fallout.

But there’s a winner, of course. It’s the local taxi industry, sitting pretty while being validated in the idea that political pressure placed on local politicians works.

But in an interesting twist, this may not be the end of the story. The Institute for Justice, a public interest law firm, has now filed suit in U.S. District Court against the city of Portland. Here’s how the group summarizes the legal question:

“Can the government bar entrepreneurs from offering competitive prices, online discounts and prompt service merely to protect politically powerful insiders from competition?”

The Institute for Justice’s complaint was filed on April 26, 2012, citing the U.S. Constitution’s 14th Amendment plus the Equal Protection and Due Process Clauses.

Expect this one to make its way all the way to the Supreme Court.

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