Piloting a squirrelly, rattle-prone Crown Victoria with worn rubber on the rims and little spring left in the shock absorbers, the cabbie prowls the deserted streets south of Market on a cold Sunday night in late January.
A staticky voice comes over the Motorola radio mounted to the taxicab's dashboard: A fare is waiting at a bayside bar on the Embarcadero. The cabbie, a twentysomething San Francisco man, tells the dispatcher he'll take it, stomps on the gas pedal, and races up Bryant Street toward the waterfront, the orange speedometer needle flicking up to 55 miles per hour. Worried that another driver might scoop up the fare before he can get there, the hack pays scant attention to traffic laws.
“The taxicab industry is an alternate universe,” a “vortex,” where the norms of American life and commerce don't apply, the driver says. He's half-joking, but he certainly has a point.
Spend some time scrutinizing San Francisco's taxi trade, where thousands of drivers toiling for 34 companies compete for cash, and you'll find a business where laws are routinely flouted and dubious behavior abounds. Since the early 1990s, the Internal Revenue Service, the state labor commissioner, the workers' compensation system, local prosecutors, and plaintiffs' lawyers have all taken key taxi industry players to court.
Lawsuits aren't the industry's only problem. Now city officials and taxi business insiders say a wave of deception is eroding the law that governs the taxis, a law designed to benefit working cab drivers.
To control traffic congestion and ensure that cabbies can earn a living, the city strictly controls the number of cabs, limiting the total to 1,381 and requiring each vehicle to have a city-issued permit or “medallion.” Since 1978, the city has awarded medallions only to full-time cab drivers — by law non-drivers and corporations aren't eligible. The idea is to give cabbies a financial stake in the industry by making them owner-operators.
The arrangement, however, is riddled with scammery. A person with a medallion who doesn't want to drive can make thousands per month simply renting the medallion out to a cab company or another driver — and apparently scores of them are doing just that.
It's a situation that infuriates some industry honchos. “There's corruption all over the place,” Luxor Cab President John Lazar complains.
At the San Francisco Taxicab Commission, the body that oversees the town's taxis, Executive Director Heidi Machen says her investigators have discovered at least 150 medallion holders who don't appear to be driving — what she describes as cases of “egregious fraud” — and thinks as many as 500 people may be bilking the system.
“At the current rate we'll be having disciplinary hearings from now until 2011,” says Machen.
To understand all this talk of corruption and fraud, you need a quick primer on taxicab history.
The legal framework governing San Francisco's taxi system has its origins in a spectacular 1970s-era corporate flameout, an Enron-esque implosion presided over by a felonious pal of Richard Nixon. The ill-fated company was the Westgate-California Corporation, a massive $2 billion San DiegoÐbased conglomerate helmed by C. Arnholt Smith, a financier and Republican activist tight with Nixon, whose empire, at its height, included a small airline, the San Diego Padres baseball team, a tuna cannery, a vast real estate portfolio, and the Yellow Cab operation in San Francisco.
Then Smith got busted by the federal government for income-tax evasion, prompting a federal judge to label him a “crook” before sending him to a federal correctional facility for three years, according to the New York Times. Westgate-California crumbled under the weight of more than $300 million in debt. The collapse spelled the end of Yellow Cab's San Francisco operations, sidelining 500 cabs. (Today's Yellow Cab Cooperative, the area's largest taxi fleet, is a separate outfit.)
The bankruptcy proceedings ground on for years.Taxis became a rare commodity.
Faced with this mess, then-Supervisor Quentin Kopp authored Proposition K, a local ballot measure designed to get cabs back on the streets, which was approved by voters in the summer of 1978, creating the legal framework that regulates the industry to this day.
To keep cab service from being crippled by future bankruptcy boondoggles, Kopp envisioned a plan that spread out medallions among individuals rather than concentrating them among a handful of companies. The business would be controlled by cab-driving San Franciscans, not corrupt San Diego tycoons.
To get a medallion under Proposition K, a driver first puts his or her name on a waiting list. When the applicant's name comes to the top of the list after 10 or so years, the Taxi Commission runs a cursory background check — law-abiding cabbies who drive full time get preference. After getting the prized medallion, the hack must put in either 800 hours driving annually or 156 four-hour shifts per year, in order to keep it. Eventually, when the cabbie decides to retire from the business, the medallion is returned to the city, which passes it on to the next driver in line.
“The intent was clearly to make medallions available to people who were bona fide taxi drivers,” says Kopp, an independent politician who went on to serve as a state senator and a San Mateo County Superior Court Judge. “It was supposed to be a strict system of rewarding those who actually drive.” Medallions, he continues, “are government permits, and when you're finished you turn them back in.”
Unlike New York City, where medallions are auctioned off for hundreds of thousands of dollars and can be sold from one person to another, in this city medallions are available to cabbies for a minimal processing fee and can't be resold.
Still, possessing a medallion does offer an obvious financial benefit: When a driver with a medallion isn't on the road, he or she can legally rent their cab and medallion to another cabbie, or to a taxi company, an arrangement that keeps cabs circulating 24/7, and typically puts an extra $1,800 to $2,000 per month in the pocket of the medallion holder. [page]
Some medallion holders take this rental concept to the next level. Instead of being an actual operator and doing the required driving, they find jobs that are more lucrative than steering a Crown Vic through Bay Area traffic. Because they don't use the medallion during a shift, they can get more money in extra rental fees.
This practice of getting around the law drives Luxor Cab's Lazar crazy. “These medallion holders have found a way to go and make more money” by avoiding the regulations, he says, adding that medallion owners are regularly hitting him up for bigger rental fees. “Guys come up to me and say, 'I've got a broker to manage my medallion.'”
At the Commission, Machen reinforces the point by saying: “The public voted for Prop. K in 1978 because they believed that putting these medallions in the hands of working drivers was the way to go.”
Nearly 30 years later, the law has deteriorated to the level of farce — after spending hundreds of hours auditing the industry, Machen and her staff estimate that of the 920 medallion holders who should follow Proposition K (there are still more than 400 medallions floating around from the pre-Proposition K days), at least 150, and possibly as many as 500, are flouting the law.
To prove they've done their required driving, medallion holders submit stacks of handwritten road logs, called waybills, to the Taxi Commission. The waybills show when the medallion holder took the cab out, where they went, and when they drove it back to the garage. Or at least they're supposed to. When SF Weekly started examining them, we quickly discovered numerous waybills that raised questions for us.
Take the case of Adelheid “Heidi” Mueller, a prominent Realtor with Prudential California, who describes herself as a “real estate legend” on her Web site. According to the site, “Heidi Mueller and her team have sold more than $800 million in real estate.” The San Francisco Chronicle describes her as an “elite” broker, and evidently the profession has been kind to her, providing Mueller with the income to personally purchase about $1 million worth of property in San Francisco and Oakland, according to property records.
In addition to her gig selling homes, Mueller has possessed taxi medallion No. 854 for more than a decade, and she claims to put in hundreds of hours of seat time in the cab each year. “I'm a Realtor and I have a medallion,” Mueller says, adding that she does drive her taxi.
Her waybills from 2005, though, look dubious. SFO tracks every cab coming in and out of the facility using an electronic transponder system akin to FasTrak, and when we compared Mueller's waybills to the airport's data, we found inconsistencies.
According to the waybills, Mueller never treks out to SFO — “I don't like going out there,” she tells us — but airport records show that somebody is taking her cab to the airport during her shifts. On at least three days it was at SFO according to the transponder logs, when Mueller indicated on her waybills that it wasn't. Either the airport's transponder system is bunk or Mueller's waybills are.
When we asked Mueller about this, she threatened to sue SF Weekly and hung up the phone.
She's not the only person whose records seem to be problematic. Take the case of Philip Chiu, an Antioch man who holds the medallion for a blue-and-white DeSoto minivan taxi with a wheelchair ramp.
SF Weekly obtained a pile of Chiu's waybills from 2005 and 2006 and began analyzing them. We came away believing the documents were probably created by two different people. Some of the waybills were remarkably messy, covered with sketchy, sloppy handwriting that tilted to the right side of the page, while others were filled out with very neat, feminine handwriting that slanted backward, toward the left side of the paper.
“It's all my handwriting,” says Chiu when asked about the discrepancy. His waybills are also contradicted by the airport's transponder data.
Under the law, medallion holders are barred from creating “false or misleading” waybills.
Chiu, though, is truly a cabbie. Several hacks we interviewed say he's a veteran driver, and according to DeSoto General Manager Cindy Ward, Chiu has been on the driving roster there for eons — “I know he's been driving for more than 25 years,” she tells us.
Neither Chiu nor Mueller have been accused by the Taxi Commission of any wrongdoing.
Then there's Eugene Shu, an engineer with the city Water Department, who earns a $71,000 yearly salary and owns an $850,000 home and roughly $30,000 in securities, according to public records. Shu also claims to be a full-time cabbie.
Last fall when his name came to the top of the medallion waiting list, he handed over a pile of waybills to the Taxi Commission, a paper trail supposedly documenting his career as a cabbie. Like the others, Shu's waybills don't square up with airport records. “I did drive,” he maintains. “I'm a long-term driver.”
Shu admits his waybills are screwed up, but says that's because he filled them out at the end of his shifts and didn't always remember precisely where he'd gone that night. The Taxi Commission didn't buy that — in a public meeting two Commission members said they thought he'd falsified his records — and the body voted to reject his application in October because of the waybill discrepancies.
One well-placed industry source, who asked not to be identified, says certain cab companies routinely help out medallion holders by forging their waybills, to make it appear they put in drive time.
Sure, this might all seem a tad esoteric. Why should anyone care if people are trying to make money by allegedly circumventing some arcane bureaucratic rules erected three decades ago? [page]
In Machen's opinion, the scamming “is unfair to the medallion holders who are really driving. It's unfair to the drivers who are on the waiting list for a medallion and would like to get one.” The fraud, she adds, tears at the fabric of civic life, thwarting the will of the voters who passed Proposition K and have refused to tinker with it since (modifications to the law have been voted down at least a half-dozen times since 1978, most recently in 2003.)
Other industry figures are skeptical, questioning whether medallion fraud is as widespread as Machen believes. Mary McGuire, a longtime cabbie and former taxi commissioner, says all this talk of fraud is overblown.”Fraud isn't rampant,” says McGuire. “Most medallion holders drive their cabs because we have to” — the money made from renting a medallion doesn't go that far in the Bay Area.
McGuire, an outspoken critic of Machen, figures the most important aspect of the taxi business is providing the populace with safe, pleasant, reliable transportation — about 50 percent of the time cabs don't bother to pick up the customers who call for them, according to a recent survey. “Isn't public service the No. 1 issue?” she asks. “I mean, come on.”
Sitting in a cluttered suite in the Redstone Building, an aging office complex on 16th Street in the Mission District, Ruach Graffis takes the medallion fraud issue more seriously. Graffis views the taxi trade through the lens of class conflict — a three-way grudge match between company owners and higher-ups, medallion holders, and, at the bottom, drivers like herself who don't have medallions.
To Graffis, former chair of the United Taxicab Workers, an activist association affiliated with the AFL-CIO, medallion scammers are exploiting the people on the rung below them. Graffis claims they're unjustly enriching themselves on the labor of underpaid and underappreciated hacks.
For drivers without medallions, working conditions are hazardous, the pay is paltry, and “there are no sick days, and there are no vacation days,” she says.
When it comes to medallion fraud, Graffis says, “the companies know these people aren't driving,” and estimates that “certainly a third” of all medallion holders aren't complying with Proposition K. Stories of medallion holders living overseas in exotic locales and collecting monthly rental checks abound, she says.
According to a May 2006 study by UC Berkeley graduate students at the Goldman School of Public Policy, while the typical cabbie without a medallion earns $24,000 per year, the average medallion holder makes about twice that much. Figures for company bosses are harder to come by, but the San Francisco Controller's Office does collect some taxi business data, and those figures, for 2005, show the bigger firms are posting profits on average of 20 percent per year.
An old court case gives a snapshot of the volume of cash banked by some company bosses. In the mid-1990s Emory W. Speck, then-head of Arrow Cab and Veterans Cab, pleaded guilty to cocaine possession in Marin County court and entered a diversion program. Court documents related to the bust indicated he was pulling down “$20,000-plus” per month from the company at the time.
As far as Graffis is concerned, men like Speck (who died in 2004) have generally bent the regulations to their will. She says, “Cab companies are used to being able to do whatever they want to do. Oversight from the city has historically been loose to nonexistent. We have some oversight now” — with Machen leading the Taxi Commission — “but not nearly enough.”
While Graffis and the UTW praise Machen, she's clearly made plenty of enemies during her roughly two-year tenure at the Commission, and her job isn't likely to get a lot easier in the near future. Machen herself believes she's outraged major industry figures by trying to strictly enforce Proposition K.
Created in 1998 to take over duties previously handled by the Police Commission, the Taxicab Commission is a relatively new entity, composed of a panel of seven citizens who set policy and mete out discipline — they can revoke a driver's medallion or seek fines for lawbreakers. Machen and her small staff advise the seven commissioners, who are appointed by the mayor.
Last June, at the conclusion of an epic meeting that dragged on until 2 in the morning, the commissioners voted to oust Machen.
The firing followed revelations that she'd hired her friend and roommate, former taxi driver Joao Tristan Bettencourt, to serve as her second in command. The issue wasn't just cronyism, it was Bettencourt's criminal record: He'd been convicted in 1989 of first-degree burglary for stealing jewelry from the home of a fare. (Bettencourt claims it was a case of mistaken identity and later had his criminal record partially expunged.)
Mayor Gavin Newsom, who'd tapped Machen, his former aide, for the Commission job, suggested her true offense was trying to reform the industry, telling the San Francisco Chronicle she “rubbed some people the wrong way.” The whole surreal scene got weirder when the mayor quickly forced Machen's foes off the Commission and orchestrated her reinstatement. Political gossips Matier and Ross described the Commission as a font of “cloak-and-dagger intrigue.”
Today Machen stands by her record. “Everybody hires people they know. Gavin knew me and hired me. You hire people who'll produce good-quality work, and that's what I did,” she argues, hinting darkly that her opponents are unhappy that she's cracking down.
She remains a controversial figure — so much so that her critics have created a Web site, HeidiGate.com, which details her connection to Bettencourt, and the man's shady past, which includes being taken to small claims court for allegedly stiffing someone for $900.
At the same time Machen is seeking to salvage Proposition K, one of her major critics, Carl Macmurdo, the president of the Medallion Holders Association and a Yellow driver, is trying to scrap it. [page]
The law makes no mention of what should happen to medallion holders who get sick or seriously injured or just grow old and can no longer drive. If they're physically unable to drive, should they be forced to turn their medallions in to the city?
Macmurdo says no. For him this is a far bigger matter than medallion fraud. “Heidi and her cohorts are fighting the disability issue,” he complains, adding that Machen and her staff have given few breaks to disabled medallion holders. The city, he maintains, needs “a firm policy that someone doesn't have to drive if they're feeble.”
For her part Machen says, “Everybody is trying to get an ADA [American With Disabilities Act] exemption,” including people who are perfectly capable of safely driving a car.
In a business with no retirement plan, medallions predictably have become a type of pension for elderly cab drivers, and Macmurdo says ailing senior citizens who really shouldn't be behind the wheel at all are driving cabs because they're afraid of losing their medallions, and the money it brings in. Yellow Cab, he notes, suffered “a $14 million accident with an elderly driver who passed out at the wheel.”
Macmurdo is pushing new legislation that would revamp Proposition K, making it more like the New York system, where medallions are bought and sold, and driving isn't required, an approach supported by UC Berkeley's Goldman School study. “We believe a system permitting the sale of medallions … would provide a more equitable and improved taxicab industry,” the report concludes.
The UTW, though, isn't sold on the idea, and neither is Machen: “I'm not convinced Prop. K is broken,” she says, adding that restructuring the system “is a huge discussion.”
Meanwhile, cleaning up the current medallion system will likely take years, or perhaps decades, if the story of Joseph Breall is any indication. Breall, a lawyer, has held medallion No. 207 since 1998, though, by his own admission, he's rarely transported people from point A to point B.
The Commission first came after him for failing to do his driving hours in 1999, and today, six years later, they're still wrangling with the guy in court. According to transcripts of a 2004 disciplinary hearing, most of the waybills Breall submitted were “basically void of any information,” aside from his name, which was misspelled.
At the hearing Breall claimed that he took his cab out twice a week and drove it around to do errands, although he generally didn't actually pick up any fares. “Every once in a while I'd pick somebody up,” he said, adding that he didn't write down the information on his waybills, and didn't usually “charge them any money.”
Since Breall first went to court, the San Francisco Board of Supervisors has tweaked the law, allowing key cab company personnel — managers, dispatchers, etc. — to keep their medallions as long as they drive a mere 120 hours annually. The legal rewrite is a boon to Breall, who serves as general counsel to National Cab, making him a key employee and allowing him to do a minimum of driving.
“I'm not sure Prop. K ever worked that well,” Breall says, adding that he's done nothing wrong. “It was written in the 1970s and it doesn't deal with the realities of the new millennium.”
Or perhaps it's been gutted over the decades by people seeking to make an easy buck. Last month Machen's deputy, Jordanna Thigpen, requested budget money for two more investigators to “audit, investigate, and prosecute” Proposition K scams, as well as funds to cover expenses generated by the “extremely large volume of litigation” the Commission expects to engage in this year.
It's approximately 8:30 on Sunday night and the cabbie, who doesn't have a medallion, zooms toward the airport, a drowsy Manhattan bond trader in the back seat. The bond guy journeyed to California to hunt wild boar with buddies in Sonoma for the weekend, and is now headed back to New York and the Wall Street hustle.
As he drives, the cabbie breaks down the economics of the taxi business. He'd paid a $78 “gate” fee to rent the cab and medallion, and so far — about three hours into the shift — he's yet to break even. “That 20 minutes without a fare sucks,” he says. “That'll put a hole in your night. You need to be busy every minute, constantly busy.”
Of course, things will be different if he ever gets a medallion. Then he'll able to lounge around, get creative with the paperwork, and stash away a couple thousand per month — all for doing absolutely nothing.