Chicago to use TNC fees to improve ‘L’ service

By Brian Lutenegger

Chicago was the first U.S. jurisdiction to collect a per-ride charge from ride-hailing passengers. Now, Chicago and its transit authority are earmarking a recent increase in that fee to transit improvements and have just announced the specific locations of the projects. Other cities and states are trying out these fees and taxes as well, but their application is not yet an exact science.

Chicago first approved a per-ride charge on ride-hailing trips in 2015, the first of its kind in the nation. The $0.52 fee primarily goes into the city’s general fund, although a portion goes to the city’s Accessibility Fund that incentizes conversion of taxis and TNC vehicles to serve serve customers using wheelchairs. In November 2017, the city approved a $0.15 increase to that fee as part of its overall budget, for a total of $0.67 per ride. The newly added portion of the fee will directly fund transit, including the Chicago Transit Authority. The fee is expected to raise $16 million for CTA in 2018 and $30 million in 2019, when an additional $0.05 increase will come into effect.

The City of Chicago and CTA planned to utilize the funding for specific, long-deferred maintenance on its rail system, including upgrades to the track, structure, signal, and power systems that will help to shorten commuting times and improve the overall reliability of the ‘L’.

CTA has now provided more information on the projects that the ride-hailing fee will help fund between 2018 and 2021. The funds will be combined with bond sales and used for repairs to the rail infrastructure on specific sections of the Red, Blue, Brown, and Green lines. These repairs include rail, rail ties, and electrical power upgrades. When the repairs are completed, CTA officials estimate that riders will experience total trip time savings of 2-6 minutes compared to today’s average trip lengths. The first phase will be along the Green Line south of 35th Street, with additional work on the Green Line and the other lines to follow.

Chicago is not alone in collecting a user fee from transportation network companies or their passengers. More than a dozen other cities and states have followed Chicago’s lead and created fees and taxes for either riders or the companies themselves. For example, in Philadelphia, a 1.4 percent tax will raise $2.6 million for public schools as well as over $1 million for enforcement and regulation of the ride-hailing industry. In South Carolina, municipalities and counties may collect a 1 percent fee to spend as they wish. And Massachusetts is now charging 20 cents per ride, earmarked for transportation projects and to help the taxi industry adapt to new technologies and provide job training. New York City may soon charge the highest per-trip fees in the country—as much as $5 per trip—which could generate $605 million per year to repair the subway system there.

The issue of taxis is a sticky one in terms of fees and taxes charged to ride-hailing trips, as the fees may not apply to legacy taxis, or the reverse may be true. Cities and states have found new companies like Uber and Lyft to be easy targets to raise revenue. These vehicles contribute to increases in overall vehicle miles traveled and congestion, while also reducing public transit usage. Jurisdictions are taking the opportunity to update their tax code to apply to ride-hailing vehicles, particularly in instances where existing taxes apply to traditional taxis but not ride-hailing vehicles. Some cities, like Portland, OR, are proactively creating a fee that applies to both taxis and ride-hailing vehicles. Not surprisingly, taxi drivers are upset, fearing an impact on tips, and taxi companies find collection of the fee from their independent drivers to be a challenge.

Uber and Lyft have both said that they see their services as complementary to public transit in New York and Chicago. Uber has even stated it supports a congestion pricing plan for Manhattan, as long as it applies to all vehicles and doesn’t single out its drivers.

Ride-hailing services have impacts, both positive and negative, on our local and state infrastructure. Jurisdictions, such as Chicago, have seized on Uber’s and Lyft’s popularity to collect fees and taxes that generate millions of dollars of much needed funding for public services like transit. But the jury is still out on the most effective or equitable way to collect these charges.

Brian Lutenegger is a Program Associate at Smart Growth America.