Ottawa’s “supply management” system for Taxis

The article below is derived from the factum filed by Conway Litigation on April 6, 2023, as its closing statement in the Metro Taxi vs. City of Ottawa case. For ease of reading, Taxi News has deleted the references and footnotes found in the complete original document, which is attached at the bottom as a PDF file. Otherwise, the text has not been edited.

Taxi News will be serializing sections of the Conway factum in the days ahead. The City of Ottawa is scheduled to file its response by June 3rd. July 4th and 5th, 2023 have been reserved for oral submissions.

Read Excerpt #1 “Ottawa’s reponse to Uber was chaotic and unplanned”

Read Excerpt #2: “Uber lobbied Ottawa aggressively from Day #1”

The supply management system was born in the old City of Ottawa

Before amalgamation, the former municipalities of Ottawa, Cumberland, Gloucester, Kanata, Nepean and Vanier all regulated taxis. The former City of Ottawa had a fixed number of plates based on population. In 1969, the old City of Ottawa assumed control of regulation of the taxi industry from the police commission. In doing so, it enacted By-law L-1 and introduced a limit on the number of taxi plates that may operate. In 1971, the old City of Ottawa enacted By-law L-6, which authorized the transfer and selling of plates as commercial transactions.

Other municipalities, like the City of Vanier, did not limit the number of plates. Yet other municipalities did not regulate the industry at all.

The municipalities that had no plate limits experienced problems with the oversupply of plates. For example, Vanier introduced plate limits in the mid-1990s because the over-supply of plates was problematic.

The Vanier experience was not unique. The City has consistently recognized that an open system that does not limit the numbers of cars that can operate has historically caused serious problems. In the immediate period after amalgamation, the City considered the issue of plate limits and City staff explained the serious consequences that arise if the industry is opened. Specifically, in 2001, City staff prepared a report explaining the history and disastrous experience of an open system in other jurisdictions.

As explained in a 2001 staff report, the reason why an open system leads to serious problems is due to the nature of supply and demand in the taxi industry:

“in most industries, an economic slowdown results in lower demand for the product, and this results in a lower supply as firms reduce production or exit the industry. In the taxi industry, an economic slowdown reduces demand, but the industry tends to serve as an employer of last resort, so the supply of service actually increases as workers let go in other industries seek employment in the taxi industry.”

The 2001 staff report tied the concept of plate limits to the economic viability of the taxi industry. As the report put it, “[t]here appears to be wide agreement that removing limits on the numbers of plates issued will not lead to higher driver incomes (through lower plate rental fees) but rather to reduced income due to more drivers pursing [sic] the same business.”

The 2001 report goes on to connect plate limits to attracting investments in the industry and quality of service. In particular, the report noted that “the research suggests this approach [that is based on no plate limits] often leads to less investment in cars (and poorer quality vehicles) and a less attractive trade (less skilled drivers).”

The report further elaborated on the effect of an open industry and how such a model would affect investments in the industry and, in turn, the quality of service provided:

“This [open entry model] results in higher supply as demand is reduced, and rapidly dropping incomes, encouraging the most experienced and competent drivers, those who have other options, to leave the industry, reducing the general quality of service available. Open license systems also tend to feature many more part-time drivers which can contribute to the lower level of knowledge and experience among drivers. The reduced income per taxi also makes investment in cars, dispatch and other infrastructure more difficult, leading to worse quality taxis as well.”

Ms. Jones provided similar testimony about the rationale for plate limits and how it relates to the economic viability of the taxi industry as a precondition to ensuring the quality of service:

“the rationale, based on my understanding and and involvement as a licensed inspector and chief license inspector over the years, was the rationale for limiting the plates was to ensure that — our, our main rationale, first of all, in terms of licensing, was public safety, consumer protection — later on, we talked about accessibility — and our main rationale was to, first of all, ensure we had an adequate supply of taxis to provide transportation services to those who need it. We recognize taxi services as an integral part of the city and the region’s transportation network. And rationale for limiting plates is, we certainly had seen evidence in the past whereby if there were too many plates in operation, that an individual couldn’t necessarily earn an adequate living and, thereby, that had an impact on the ability to provide service. So being able to limit plates and, and being able to correspond the limitation of those plates with their ability to have a complement already what was in existence for public transportation was seen as, as a best practice and the way to go.”

In short, the supply management system created by the former City and adopted by the amalgamated City was based on decades of experience and research that suggested that opening the industry in a free-for-all manner was not conducive to providing effective or even adequate service. For decades, the City realized that the provision of effective and adequate service hinges on imposing plate limits and ensuring the economic viability of the taxi industry. Simply put, the City deliberately designed the taxi industry in a way that seeks to protect the economic interests of the taxi industry through plate limits to ensure the quality of service to the public.

The plate system creates the plate market and plate value

The City’s supply-management plate system is the foundation for the market of plates.

The system combines the limited supply of plates with the transferability of plates: it creates a scarce and tradeable commodity, automatically generating a market for plates. This is borne out in the evidence. The market for plates began immediately after plate limits and transferability were introduced in 1969 and 1971 respectively. The combination of plate limits and transferability directly resulted in the creation of plate value.

Failed attempts to abolish or reform supply management

A mere four years after plate limits and transferability were introduced, the old City of Ottawa was put on notice that taxi plates had accrued value. In 1975, the former City of Ottawa released its first major report on the taxi industry, authored by Jim Mackenzie. Mr. MacKenzie noted that plates were trading for up to $8,000 and considered the possibility of removing the taxi plate limits. He concluded that the City would be “directly responsible” for losses incurred due to changes in regulation:

The City charges an initial fee of $300 for a taxicab license and an annual renewal fee of $100. The license is transferrable after 3 years and current market price is in the neighbourhood of $8,000. (The City received 10% of this as a transfer fee). This high artificial value of a license has been established by virtue of the limit on the number of plates available. Removal of the limit would automatically result in almost total loss of value.

As a result of its actions in allowing the transfer of licenses, the City has condoned the investment of up to $8,000 in a commodity that it issues for $300 and that has no direct value in itself. If it removed the limit or made the license non-transferrable, the City would be directly responsible for causing substantial financial loss. I suggest that the City is now obliged to protect the investment it has encouraged. For this reason I do not recommend removal of the limit.

At a City Council meeting on December 15, 1975, the old City expressed its agreement with Mr. MacKenzie’s statement by voting to maintain the plate limits.

An opportunity to reform the supply management system arose once again in the late 1980s and early 1990s. In 1989, the Regional Municipality of Ottawa Carleton (“RMOC“) considered an overhaul of the industry across the lower-tier municipalities through a report of its Licensing Committee, also known as the Cameron Report. The Cameron Report endorsed the elimination of municipal boundaries and plate transfers. In recognition of plate owner investments, the Cameron Report also recommended that plate limits be maintained and a system of compensation for existing plate owners should be established. The recommended compensation system would ultimately “establish a street value at a future stage at an acceptable level for expansion of ownership in the industry”. Even though the City did not adopt the suggested elimination of plate boundaries, plate transferability and compensation, the City maintained the closed plate system.

These are just examples. The City and many of the former municipalities have consistently studied and upheld the supply managed plate system.

The amalgamated City reaffirms its commitment to supply management

In 2000, the Ottawa Transition Board, which was responsible for facilitating the amalgamation process, established the Taxi Project Team with a view to harmonizing the industry upon amalgamation.

As part of its study, the Taxi Project Team commissioned a confidential and in-depth study of taxi plate values from Hara and Associates. This study considered various compensation scenarios in the event that plate limits were removed. None of these studies appeared in any public reports of the Taxi Project Team. However, the studies are cogent evidence that the Transition Board took note of plate values and seriously considered the issue of compensation.

On September 8, 2000, the Taxi Project Team released a draft report recommending an “open-entry” system that would abolish plate limits. In response to a negative reaction from the public, the Transition Board recharacterized its recommendation as one of “controlled entry” in its final report of December 2000.

The recommendations for an open entry system were not adopted. As mentioned above, the City upheld the closed plate system once again by reaffirming its commitment to plate limits and transferability in 2001. Brian Bourns was the consultant who recommended this way forward.

Following a transition period after amalgamation, all former municipal taxi by-laws were harmonized in By-law 2005-481 (“2005 By-law”), which maintained plate limits and transferability. With this regulatory change, the City merged all the zones into one and maintained the closed (supply managed) plate system. As a result, plates from the former cities continued to have value as Ottawa plates.

The City introduces accessible plates

The City began issuing accessible plates in 2002. Initially, the accessible plates were distributed via a waiting list and were transferrable after a five-year period.

In 2004, the City contracted Mr. Brian Bourns and Dr. Dan Hara to review the taxi cost index as well as the plate limit ratio. As part of that mandate, Mr. Bourns was required to review the accessible taxi plate per population ratio. Mr. Bourns noted that the uptake of accessible plates was successful due to their high plate value. The implication of this was that high plate values lead to increased accessible services, which was of public benefit.

Despite these findings, the Taxi By-law was amended in 2007 to require all future accessible plate owners to be the primary driver and prohibit the transfer of the plates. The drivers who received accessible plates after 2007 wanted them to be transferrable and urged the City to make the plates transferrable. These drivers, who ultimately became plate owners when they were given accessible plates by the City, wanted the plates to be transferrable to ensure that they can sell their plates in the future to recoup their investments and secure their retirements.

In response to industry concerns, the City re-enacted the 2005 By-law as By-law No. 2012- 258 (“2012 By-law”). In doing so, the City permitted all accessible plates to be transferable after a five-year period and removed the primary driver requirement. The rationale at the time was to allow all accessible plate owners to be able to “recover the large capital investment that they make in their business” in light of the high costs of operating an accessible taxicab. Council made clear that it sought to maintain a “uniform and equitable structure for plate ownership”.

The City partnered with the taxi industry to maintain the integrity of the system

The City and class members had a long-standing partnership to maintain the integrity of the plate system. This partnership began upon amalgamation and culminated in an initial collaborative investigation of Uber in the fall of 2014.

In the early 2000s, the taxi industry began raising the issue of bandit cabs with the new City. In doing so, the taxi industry would regularly provide By-law and Regulatory services with information regarding unlicensed activity. Susan Jones, the Chief License Inspector at the time, testified that the industry provided enforcement tips with a view to protect the licensed industry and its investments. In turn, the City undertook to investigate such activity.

With this continued assistance from the industry, the City charged, prosecuted, and convicted unlicensed operators and bandit cab drivers. The City accepted investigative reports and witness statements from class members in the taxi industry, including Mr. Way. As these enforcement efforts were successful in shutting down unlicensed operators, the City was able to prevent substantial economic losses to the industry. City staff made public representations to this effect.

The City continued to enforce proactively against bandit cab operators even in the face of technological change. The City would adapt its enforcement strategies to new technologies and it would change its “approach and focus” in light of such developments.

Collaboration with the industry with regards to enforcement against bandit cabs intensified into the late 2000s. After the City dedicated two by-law officers to taxi licensing enforcement, it had established the Taxi Stakeholders Working Group. Through regular meetings, industry representatives would regularly discuss the issue of bandit cabs with the City. As bandit cab operations increased, the Council directed the City and the taxi industry to collaborate together on enforcement strategies and public awareness campaigns.

During the two-year period prior to the entry of Uber in Ottawa, the City and the taxi industry intensified their partnership. The City would receive and act on evidence submitted by the industry, respond to specific requests for information on unlicensed operators, and arrange for undercover pickups of bandit cabs to be ticketed. In 2012, the City and Coventry Connections had even joined forces to lobby for more extensive enforcement powers through proposed legislative amendments. In 2014, class members and the City continued to meet on a regular basis with the goal of increasing enforcement against bandit cabs and operators.

The City continued to collaborate with the taxi industry upon the arrival of Uber into Ottawa. In fact, the City enlisted Coventry to assist during the first investigation of Uber at its recruitment event at the Westin Hotel in late September 2014.

This long-standing collaboration was based on a basic understanding between the industry and the City. The industry, heavily dependent on the City’s regulatory framework and enforcement efforts, needed to be economically viable in order to continue operating. The City needed an economically viable industry to ensure safe and adequate taxi service to the public. To ensure economic viability and public safety, the City needed to enforce the by-law against unlicensed operators.