Color Schemes: The Underground Taxi Market

Shift changes at Yellow Cab Cooperative in the Bayview have an unvarying rhythm: Workers line up outside the cashier's booth, each clutching a small wad of bills. One by one, they hand over a $5 tip, which some drivers call a "kickback." The cashier gives them a set of keys and a waybill to log their hours. Engines sputter in the parking lot, fluorescent lights zap in the break room, taxis glide out the gates onto Mississippi Street. Thousands of dollars change hands in the course of an hour. Much of that money is unreported.

Cabs operate within a giant cash economy, many transactions happening under the radar. Tipping cashiers is de rigueur at both Yellow and Luxor Cab companies, and it rakes in hundreds of dollars under the table. Luxor's Assistant Manager Charles Rathbone says that while he doesn't encourage such practices, he also has no way to stop them.

But shady dealings in the industry go well beyond the bill-wads passed through the cashier window. Last fall, the San Francisco Municipal Transportation Agency busted three brokers who had each amassed a pool of medallions and launched an underground business within an established company, renting out taxis at far above the regulated gate fee.

One such broker, Mohammed Iqbal Khan, allegedly "managed" between 25 and 30 taxi permits — called "medallions" — within Luxor Cab Co., according to a complaint filed with the SFMTA. That meant he rented medallions from outsiders for a monthly fee that was at least commensurate — but probably much greater — than the $2,500 industry standard. He then purchased his own small fleet of cabs, paid Luxor for rights to the cab color scheme and the dispatch service, and hired his own drivers, charging an undisclosed gate fee per shift.

Because some brokers don't play by the rules, they have the spending power to outbid regular companies, says DeSoto Cab President Hansu Kim. Whereas a company like DeSoto is constrained by the hundred-dollar regulatory gate fee that keeps it from grossing more than $6,270 per cab a month, a broker won't abide by such regulations. Some of them offer more than $3,000 a month per medallion, says Kim. They then rent the color scheme of a company — usually at $400 a month per cab — to make their operations look official. They recoup that money by skimping on overhead and extorting drivers.

Such backdoor deals are common in the cab industry, says Kim, who had to clean house when he and Matt Gonzalez took over the famously corrupt DeSoto in 2011. Kim explains that since medallions confer all the power in the industry, anyone who wants to be a mogul has to commandeer as many of them as possible. That's not easy with the SMTA's tightly managed wait-list system, which prohibits anyone but seasoned cab drivers from purchasing the $300,000 permits.

While companies fight for any medallion that comes on the market, it's often more enticing for a medallion-holder to lease it out to a third party, or to buy his own taxi, license the color scheme of a company, and go it alone. Meaning many cabs tooling around the city may bear the colors and logos of Yellow or Luxor or Town Taxi, but they're actually run by outside operators, which worries regulators. Competition for medallions has provoked a lot of sweetheart arrangements that are hard for lawmakers to pin down. SFMTA records show that company managers are often complicit.

Many drivers, too, are willing accomplices in their own exploitation. Some turn to brokers to get a cab without a credit card machine so they don't have to report their income, Kim says. Some pay through the nose to snag the more lucrative Friday and Saturday night shifts, which are in shorter supply at regular companies. Others work for brokers if they're fired by regular companies for getting in an accident or having an altercation with a customer. In other words, brokers keep a lifeline for the worst drivers in San Francisco.

They've also opened the door for a subterranean medallion market within an industry that San Francisco is struggling to regulate. Like just about everything else in the taxi industry, it's fueled by untraceable cash deals.

"The problem is [brokers] don't care if you have a taxi permit when they give you the keys to the car," Kim explains, adding that a typical broker might charge $300 for a 24-hour day, which induces the person renting the cab to drive all 24 hours. (SFMTA sets a 10-hour cap on regulated cab shifts.) Many of them switch shifts at each others' houses, rather than at a dispatch lot, says one former Luxor employee who didn't want to be named. That makes them a lot harder to monitor.

Worse yet, for medallion holders who don't want to drive the 800 hours per year that SFMTA requires, brokers make it look like the holder is doing all that driving by forging waybills. That's harder to detect in an underground market, says SFMTA taxi investigator Eric Richholt, though the agency gets complaints about it all the time: He just wrapped up an investigation of a medallion holder who served as a CEO of one German and several American companies, while supposedly only operating a cab.

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7 comments
guest
guest

If MTA would at minimum make it known to drivers that gate control applies to every cab maybe something could be done. They won't even take that step so how serious are they. "Too hard to prove " is their answer to everything including the "tipping" problem. A lot of crimes are hard to prove if you demand photographic evidence. Let the tryer of facts decide if evidence is credible.


Gusto
Gusto

" brokers keep a lifeline for the worst drivers in San Francisco."

Actually that would be Lyft, Uberx, etc....

Ragazzu
Ragazzu

Taxi driving isn't really a cash business anymore. Typically half or more of a driver's gross during a shift is paid on plastic. It would be nearly impossible to make a living refusing credit cards these days.

waitnomore
waitnomore

Waitresses & Waiters have been 'skinned alive' over tips for years.  The IRS created a formula which divides the restaurants gross revenue by the number of Waitstaff then taxes them at a set percentage, ignoring a list of variables.  Waitstaff are not guaranteed a set tip amount, and most establishments require them to tip-out bartenders, hosts, bussers, cooks etc.  And, Hotels have been applying a 20% service charge to their entertainment invoices, that's not a gratuity for servers.  If Waitstaff are racked over the coals for tips, then everyone else should pay their fair share too.

Ragazzu
Ragazzu

@waitnomore You're right, but this article is not about taxi drivers cheating on their taxes.

waitnomore
waitnomore

Waitresses & Waiters have been 'skinned alive' over tips for years.  The IRS created a formula which divides the Restaurants Gross Revenue by the number of Wait Staff then taxes at a set percentage %, ignoring a list of variables.  Waitstaff are not guaranteed a set tip amount, and the majority of restaurants require them to tip-out  bartenders, hosts, bussers, cooks etc.  And Hotels have been applying a 20% service charge to their entertainment invoices, that's not a gratuity for servers.
  If Waitstaff can be raked over the coals for tips, then everyone else should pay their fair share, too.


sfmf2013
sfmf2013

Illegal taxi medallion brokers can easily be stopped by putting an end to all Long Term Leases. The problem grew out of control because the SFMTA was too busy trying to make long time drivers pay 300K for a medallion when they really should have been going after these brokers instead.

The SFMTA needs to focus on stopping illegal limos from stealing the fares of taxi drivers off the street. This is a much greater problem to a drivers income than the stupid $5 to get a cab for a shift.WTF. Where is your common sense people?????

 
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