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What Comes Next For Ride Services In Austin And Beyond Now That Prop 1 Is Dead?

Some frequently asked questions, and even a handful of answers.

By Comments

(AP Photo/Jeff Chiu, File)

Prop 1, the City of Austin ballot initiative that would have overturned the city council’s regulations on ridesharing services like Uber and Lyft—the chief component being that the companies require drivers to pass a fingerprint background check—failed spectacularly at the ballot box on Saturday. By a twelve-point margin, Austinites rejected the ordinance, which answers our question about the cost of local elections: It may cost $8.6 million (or more) to make voters care, but it also costs that much to incite 56 percent of the electorate into voting against you. People were certainly aware of the Prop 1 vote, but all of the direct mailers and unsolicited text messages in the world are apparently not enough to get people to vote the way that you want, as Uber and Lyft learned on Saturday night.

Both companies announced that night that they’d cease to offer services in Austin on Monday morning—Lyft at five in the morning, and Uber three hours later (giving them that crucial pre-rush hour window to make some extra cash before bailing). But the consequences of the failed proposition go way beyond Austinites’ commutes: the state and, indeed, the nation could feel the ripple effects. You have questions? We have (some) answers:

How does a local ballot proposition in Austin affect people in El Paso or Dallas or Houston? 

Just in case you think no one outside of Austin’s city limits cares about Prop 1, ask State Representative Matt Rinaldi (R-Irving), who tweeted on Sunday morning that he’s champing at the bit to get Austin in line.

“Tyranny” may be a strong word, but Rinaldi ain’t wrong—the Texas legislature will almost certainly be looking at statewide regulations for ridesharing services in 2017. The Lege considered such rules in 2015, though they didn’t get far out the gate. Now, though, the issue is ripe for enhanced lobbying. The battle over Prop 1 fell among fairly predictable party lines—the celebration at Austin’s Scholz Garten after it failed was hosted by the Travis County Democratic Party—and the Republican-dominated Lege is likely to join Rinaldi in seeing this as a stand worth taking. Texas Land Commissioner George P. Bush seems to think so too:

It seems probable, at this point, that Uber and Lyft will take their case to the Lege in the 2017 session. The bill they tried to pass in 2015 would have nipped Prop 1 in the bud by preventing Austin from passing its own regulations. Texas under Governor Greg Abbott has shown little compunction about overturning local control (or is it “local tyranny”?) when it comes to things that he doesn’t think should be regulated—the state blocked fracking bans last year, and Abbott also targeted city ordinances that ban plastic shopping bags. If language similar to Prop 1 crops up in the Lege, it won’t just be Austin that has to comply.

So why did Uber and Lyft fight this battle in Austin at all? 

This might have taken place in Austin, but it’s not really about Austin. As other cities around the country are considering their own regulations—which, like in Los Angeles, may include fingerprinting—the companies sure seemed like they wanted to send a message about the futility of trying to pass rules they consider too onerous to comply with. If Prop 1 had succeeded, they would have had a bargaining chip they could present to L.A. Mayor Eric Garcetti—”if you pass fingerprinting restrictions, we’ll just spend enough to get your own constituents to overturn it.”

That chip doesn’t exist, but it’s obviously not for lack of effort. At the raucous Scholz Garten party on Saturday night, political consultant David Butts declared that “Uber wanted to make an example out of Austin—instead, Austin made an example out of Uber,” a statement that was met with such rapturous enthusiasm that the crowd soon burst into a seemingly spontaneous chant of “Whose City? Our City!” while poor Austin Mayor Steve Adler tried to give a TV interview in the corner. But Butts wasn’t wrong—it’s definitely going to be harder for Lyft and Uber to threaten to spend their way out of any future regulatory holes they may find themselves in in other cities.

So the Austin City Council won, right?

Sorta, but it’s worth looking at what all of this means in the bigger-picture sense. If last night’s vote was a referendum on “Does Austin City Council have the right to make law,” the voters turned out in force to declare that they do. But Uber and Lyft have two big cards left to play: One of them is the 2017 legislative session, and the other is just leaving town.

That part isn’t good, and it shouldn’t be considered a victory for Austin’s city council. Part of the problem with Prop 1—and with the heated rhetoric around it—is that there were two very different ways of looking at it; depending on which of those things you saw as the primary issue, you could have a very different perspective on what makes sense.

“Does Austin City Council have the right to make law” is good policy, and voters turned out for it. “Should Lyft and Uber have to comply with fingerprint background checks” isn’t really good policy, and the city should be looking at alternatives.

How much did Lyft and Uber pay you to type that sentence?

Pretty sure they’re done spending in Austin right now.

That’s not an answer.

See, this is the thing about the issue that made the conversation around it so difficult. Either you were opposed to Prop 1, and you hated innovation and didn’t care about the countless ridesharing drivers who were going to lose their job when Uber and Lyft stopped operating in Austin—or you were in favor of Prop 1, and you wanted to see city government run by big-spending corporations from out of town who could bully their way into ensuring that the only regulations they had to comply with were regulations they wrote themselves. That’s no way for adults to have a conversation about how to govern themselves, and this issue definitely needed more nuance than it got. That’s to be expected in electoral politics, especially when there’s so much money involved, but it’s a disappointment.

What should happen now, then?

Fingerprint-based background checks aren’t great. The FBI’s database is known to be flawed with outdated and inaccurate information. It’s kind of like taking your shoes off before you get on an airplane—it provides the feeling of security while also inconveniencing a bunch of people for show. Still, it might turn out to be the best option—more on that in a second—but as the city considers what regulations are in everybody’s best interest, now that it has ensured that it has a full complement of options at its disposal, it should be looking beyond fingerprinting.

Isn’t Austin stuck with fingerprinting now that people voted down Prop 1?

Nope. If Prop 1 would have passed, the city would have been prohibited from passing fingerprint-based regulations. But now the city is allowed to create whatever regulations it deems appropriate. City council can—and should–be looking to tweak the current ordinance with one that, for example, doesn’t prove discriminatory against drivers of color the way that fingerprint checks do. Although we doubt that Uber and Lyft are particularly passionate about that issue when it doesn’t directly concern them, the Austin chapter of the NAACP and the Urban League certainly are, and the objections they raised deserve to be considered and taken into account.

So what sort of background check should Lyft and Uber do?

That’s the zillion dollar question here. The problem is that most jobs have a process that screens out people who raise red flags. For most companies, you go through an interview, meet the people you’ll be working for, and get offered the chance to interact with the public based on the judgment of someone who is responsible for making sure that the company is represented well. (Depending on the job, it can also come with more formal background checks.) Because the “hiring” process for Lyft and Uber is more of a “sign up” process, the system relies on computer checks to do all of that work. That’s going to result in a process that has definite flaws—and it’s going to take creativity beyond just “run a fingerprint check” to address them. What that specifically looks like is hard to say, but between Austin’s leaders and Lyft and Uber, you’d think there would be enough brainpower to consider some viable options.

Austin’s a big tech town. Couldn’t some start-up just replicate what Uber and Lyft do?

The short answer: “Probably, yeah.” The longer answer: Uber and Lyft are well-funded global companies, but they don’t bring much in the way of value to the transaction that happens. The most expensive part of a ridesharing operation is getting a bunch of cars on the road—but Uber and Lyft don’t own their fleets, so that’s a responsibility borne by the drivers. So are things like insurance and fuel, which means that the actual overhead to running one of these companies is pretty low. Routing is done with map services like Google Maps that are free to use. Mostly, if you’re running a ridesharing service, you need money to build up your app so that it works properly, doesn’t crash, etc, and to market yourself so that drivers and passengers actually sign up and find each other.

That can be a big challenge in a crowded market where two titans of the industry—Uber and Lyft—dominate the bulk of the business. But if those companies aren’t operating in Austin, then you can imagine what a unique opportunity that presents to someone who wants to get into the business without having to compete with the big guys. If you have drivers and passengers—and somebody is gonna get drivers and passengers in Austin—you could likely replicate the bulk of Lyft and Uber’s functionality pretty cheaply.

But won’t these hypothetical new companies have to comply with onerous city council regulations?

The regulations that Austin City Council passed regarding fingerprint background checks—if they don’t get re-written once the No On Prop 1 forces stop celebrating—don’t fully go into effect until February 2017. So they’ll have to comply—GetMe already promises that they will—but they’ll have the better part of a year to scale up in the meantime.

Wait, Uber and Lyft don’t have to fingerprint all of their drivers until next year? Why did they say they had to stop operating in Austin immediately after the vote, then?

¯\_()_/¯

Come on, man.

Remember, this isn’t just about Austin. They don’t want to be seen as making empty threats, or it’ll be that much harder to negotiate in L.A. or other cities around the country that are considering fingerprint background checks.

Don’t these companies face really strict regulations in New York and make it work there? Can’t Austin keep these regulations in place and get these companies crawling back?

The regulations regarding ridehailing services in New York City are much more strict than just fingerprint backgroung checks. Those drivers need a license from the Taxi & Limousine Commission and corresponding plates on their car, plus commercial insurance. But—not to put too fine a point on it—Austin isn’t New York. It’s not as important to these companies in terms of market or marketing. You don’t hit a $40 billion valuation (which Uber enjoys) if your company doesn’t have a presence in New York. That’s not the case with Austin, obviously.

So what would make Uber and Lyft come back to the table, if they can just lobby for new rules in the legislature in 2017?

A couple of things: One, they don’t want to give up market share if a competitor picks up steam here over the next year. Two, it’s hard to keep growing a company that’s opted out of too many markets. Investors who see that Lyft doesn’t operate in Austin or Houston, and who know that they may have to make some threats about leaving L.A., have to give some thought to the growth potential of the company.

So what’s the best case scenario here for everybody?

Smart regulations that don’t rely on fingerprinting would be a good place to start. Austin should want Uber and Lyft operating in the city. Uber and Lyft should want to operate in Austin. Austin should want to create regulations that keep people with a history of DWI arrests, or violence against women, or other red flags like that, from driving people around for money—but it shouldn’t enforce regulations that would, say, keep drivers of color (who are disproportionately arrested for minor infractions that don’t put passengers at risk) from working. That system may not exist yet, but creating it ought to be a priority for everybody.

More than anything, a lot of ego is gonna need to be checked. The people who fought against Prop 1, which had a sort of David and Goliath quality to it, need to recognize that the support they received on Saturday was at least as much of a response to the tone of the campaign Uber and Lyft were running as it was a show of support for the specifics of the current regulations. Drawing a hard line around those specific regulations just because they won the vote would be a short-sighted, wrongheaded move.

Uber and Lyft, meanwhile, definitely need to approach Austin City Council with some humility, and consider not just what makes it easiest for them to add drivers to their ranks, but also that there are legitimate safety issues at stake here that the current regulations fail to address.

All of that may happen, or it may not. If it doesn’t, it’s going to be unfortunate, at least in the short term—there are people who need to get around town who deserve more options than Austin currently provides, and even growing the one new company that replicates Uber and Lyft’s services is probably not sufficient to meet the demand (plus, competition would be good for prices). There are certainly a whole lot of people who’ve made their living driving for those companies who are gonna be scrambling to make rent this month, and that’s not good for anybody.

So probably the real best case scenario here is for Austin to make some overture to renegotiating the regulations in good faith—to create room for Uber and Lyft to save face as they say, “OK, we’ll continue operating in Austin in the short term.” Then, everybody involves needs to calm way down and recognize that an unprecedented number of Austin voters were engaged on this issue, and it’s incumbent on both the city council and the companies that offer these services to respond to that engagement. Now that we’re not in the middle of a deeply contentious election, maybe that can actually happen.

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  • kylejack

    Fingerprint background checks are working just fine for us in Houston. In fact, the process revealed that some Uber-approved drivers were in fact identity thieves or felons who had somehow slipped through the cracks.

    • jk

      “Fingerprint background checks are working just fine for us in Houston.”

      Not so much, and I assume you missed the news that Uber is planning to exit the Houston market unless its city council revamps its TNC driver requirements. They’re doing so specifically because fingerprint checks are *not* “working just fine” in Houston — quite the contrary, actually. Despite being America’s fourth-largest city and 3x the size of Austin, Uber has fewer drivers in Houston than Austin — and that’s *without* competition from Lyft in Houston. Moreover, a total of over 20,000 driver applicants started the application process but never finished it because it’s so cumbersome (it takes at least two full days and requires visiting five unique city-run locations to complete each required element).

      “In fact, the process revealed that some Uber-approved drivers were in fact identity thieves or felons who had somehow slipped through the cracks.”

      Actually, it revealed only one. In contrast, Uber had 160 driver applicants in Austin who still had a valid city-issued chauffeur’s permit, meaning they had all passed Austin’s fingerprint check for taxi drivers. A full 30% of them FAILED Uber’s own background check, and 20 of them failed due to a recent serious felony.

      • kylejack

        I doubt Uber is pulling out of Houston. They were directly involved in the negotiating that brought our TNC ordinance into being. I think they issued this recent threat because people in Austin were noticing the double standard that Uber was willing to comply with fingerprinting in Houston.

        I use Uber semi-regularly, and they’re not starved for drivers. It’s hardly ever a surge, except in nasty weather or when Beyonce’s in town. As to the exact number of drivers in Houston, Uber has sued to prevent City of Houston from providing this in response to a public record request in the media, so I’d take any pronouncements from Uber about this with a large grain of salt.

        • jk

          “I doubt Uber is pulling out of Houston.”

          …which is what 95% of Austinites were saying a week ago, too (with respect to pulling out of Austin, that is).

          “They were directly involved in the negotiating that brought our TNC ordinance into being.”

          Yes, but in the end the Houston City Council gave the taxi industry virtually *everything* it wanted. (Also, did you forget that Lyft left town specifically *because* Houston’s TNC ordinance is so onerous?) I don’t know exactly why Uber stayed put, but if I had to guess I’d say it was solely for the purposes of spiting Lyft. Also, note that Houston is the *last* city where Uber stayed put after a city initiate mandatory fingerprinting for TNC drivers; it subsequently left San Antonio for most of 2015, along with Lyft, after it did so.

          “It’s hardly ever a surge, except in nasty weather or when Beyonce’s in town.”

          Surge pricing is heavily localized, so unless you live someplace like Midtown and go out every weekend night, you could very well never experience surges at all.

          • kylejack

            Uber is using the pull out threats and pull outs as a negotiating tactic. For example, they pulled out of Austin immediately on the heels of the vote for rhetorical purposes, as the fingerprint checks aren’t even scheduled to go into effect until next year. If Uber ultimately chooses to leave because they don’t want to comply with our fingerprinting, I’ll gladly use other options, as I like the fingerprint checks and would like to see them continue. When Lyft left, I was glad to see a market participant who refused to fingerprint check their drivers gone, as I do not wish to ride with people that haven’t been checked out to this extent.

          • jk

            “Uber is using the pull out threats and pull outs as a negotiating tactic.”

            Actually, Uber’s been contemplating pulling out of Houston since last September, but yes: the timing of its announcement was obviously intended to sway the vote in Austin.

            “If Uber ultimately chooses to leave because they don’t want to comply with our fingerprinting, I’ll gladly use other options”

            Such as?

            “When Lyft left, I was glad to see a market participant who refused to fingerprint check their drivers gone, as I do not wish to ride with people that haven’t been checked out to this extent.”

            Well, that’s you’re prerogative, but I think you missed one of the main points of this article: the fingerprinting process is full of flaws, and relying on it provides merely a false sense of security.

          • kylejack

            “Such as?”

            My bicycle, METRO, Get Me, etc.

          • Bluesybrews

            I live inside the loop in Houston and use Uber every weekend. I’m also a HR professional and know the deficiencies in fingerprinting/background checks and I have no heartburn getting into a car with current Uber policies. It is my choice, or I think it should be. This really isn’t about security it is about protecting city cab contracts. What should be happening is the cab companies recognizing they have competition because they mostly suck and doing something about it, not pushing city councils to protect them. I can go to Austin for the weekend and book a residence using Airbnb who does not use background checks on hosts or guests and I don’t hear any outrage over that service. I know cities are grappling with the new “share” economy so I’m okay with some hits and misses as long as the parties continue to talk which doesn’t sound like the case in Austin. I, for one, do not want to see Uber leave Houston or Austin for that matter. I would do a lot less partying downtown and in midtown, if I didn’t have Uber to lean on.

  • José

    In just a few more years this problem will solve itself. Self-driving cars are not that far off. Someone is going to make a killing with a fleet of driverless, on-demand taxis.

  • Scott Whitt

    Author seems dead against finger print scanning bt doesn’t offer an alternative. Saying that t isn’t 100% accurate isn’t a good reason not to use it either. Uber and Lyft are not ride sharing no matter how many times you say it. They are a collection on independent taxis.

    • jk

      1. The alternative is letting Uber and Lyft continue to use the electronic background checks they use everywhere else in the country. While they’re not perfect, either, they’re almost certainly superior to fingerprint-based checks (for the reasons the author details).

      2. Yes, “ridesharing” is a stupid term, but “independent taxi” isn’t really accurate, either. (Uber and Lyft drivers aren’t “independent,” for one thing.) “Transportation network company” (TNC) is a mouthful, but it seems to have stuck as a descriptor.

      • Realist50

        I think of “on demand car service” as the most accurate description, though that’s about as much of a mouthful as “transportation network company”.

  • joethepleb

    Hear hear. I think a voluntary incentive-based program is best the answer.

  • rakohlin

    I am sad to see that the State legislature may feel they must take up the issue. Leave it to the cities, they seem fully capable of handling (or mis-handling) the issue. I have not heard that Uber or Lyft have any problem dealing with regulations on a city by city basis. That being said, I was supporting the proposition (I guess?, confused) as I believe it another unnecessary level of government intrusion; people that claim to be adults should be perfectly capable of judging whether they felt safe enough using them. However, the citizens of Austin that cared enough to vote (I did not) overwhelmingly said they loved their nanny-city making the decision for them. The residents were given a chance to vote and clearly demonstrated that at 2 am when the bars close they would much rather call Ann Kitchen for a ride than an Uber driver that hadn’t been fingerprinted. Uber and Lyft are gone, more stringent background checks will soon be in place. Leave it alone legislature, there are many MORE important issues you will need to deal with.

    • wessexmom

      Sorry, but most people don’t want to have to assess the safety of everything they do every time they step out the door! Driver competence and passenger safety are public safety issues, and therefore, it is REASONABLE to regulate them.

      • rakohlin

        Now pay attention to what has been written, it is NOT about safety any longer, it is about the right of Austin City Council to set safety standards, or if it needs to be done by the state for consistency. Several state legislators are chomping at the bit to reign Austin back in from their intrusion in the free market by the city council. If safety is your concern and feel it is achieved by strict regulations, I GUARANTEE you will not find your happiness with the regulations of a free market oriented state legislature over the regulations put in place by Austin’s nanny council and confirmed as desired by Austin voters

  • Kyle Kepner

    Author is sorry sighted. Uber and lyft are bad for drivers at the low rates. Austin already had another rideshare company caked get me with thousands of drivers Ajay signed up. They will fill the void. Their pricing model is more generous for drivers but does not have surge. They are priced lower than limos. Now check is 100% accurate but uber nor lyft had to pay anything out of pocket for these checks. In San Antonio and Houston drivers either go to the police station or another entity to submit their fingerprints and the drivers pay the fee. Both uber and lyft try to hire add many duvets as possible. This process will result in better drivers for the passengers in the Austin area.

  • wessexmom

    Dan totally misses the MAIN point–Public safety should be the priority here!!! Why should Austin or Houston or LA allow Uber and Lyft to operate under a totally different set of safety restrictions than what’s required of their drivers in NY?

    • jk

      I’ll take it as a given that you’ve never lived in NYC. I have, and am thus aware that its “safety restrictions” for taxi drivers are a farce.

      The *actual* reason the taxi industry nationwide — not just in Texas or NYC — is so dead-set on maintaining the status quo of using fingerprint-based background checks is an ugly truth: the overwhelming majority of taxi drivers in every major U.S. city are undocumented immigrants. This has been the case for over 30 years now, ever since the taxi industry was deregulated and drivers were reclassified as independent contractors instead of employees. As a result, taxi franchise owners started treating drivers like garbage to such an extent that they literally can’t get anyone to work for them except those most desperate for work. Ergo: immigrants.

      The reason checking the fingerprints of immigrants is largely pointless is because they don’t *have* any prints — meaning prints on *file* anywhere, seeing as they may have only entered the country a year or two earlier. For all we know, they could’ve been a serial killer in their home country, but a driver’s fingerprint check will come up clean as long as he’s never committed a crime in the U.S. On the other hand, using the *electronic* background checks employed by Uber and Lyft is problematic for them because they reveal the truth: that X driver has literally no history on file — no known addresses, phone numbers, schooling, etc. — prior to whatever date they first entered the country. Now THAT, naturally, raises red flags.

      Finally, if you’re wondering just how many taxi drivers are undocumented immigrants: the *official* figure — derived from the U.S. Census — is 60%, but then, census-response levels among those not in the country legally are known to be far below average. The *actual* estimated levels in major cities are around 90% — on the low side, that is. A better bet is likely 95%.

  • jk

    Kudos for penning one of the most rational pieces I’ve seen thus far on the Great Ridesharing War of 2016, but you made one fallacious assumption: that “the actual overhead to running one of these companies is pretty low.” While that *seems* like it’d be the case, at least in theory, the reality of the matter speaks otherwise.

    Uber and Lyft have developed systems that a) simultaneously track, in real time, the precise movements of hundreds of thousands of drivers, with virtually zero error or down time; b) maintain a precise log of every trip, including a match of *every* driver-passenger pairing and *all* of the details of said trip, up to and include the exact route followed (which is subsequently emailed to passengers as soon as they exit the vehicle – instantly); c) autonomously initiate surge pricing within a radius as small as 1,000 feet, and raising fares *only* within said radius (while keeping fares normal everywhere else in a given city); and d) seamlessly processes millions of automatic credit card payments per day, as well as hundreds of thousands of automatic direct deposits of paychecks into drivers’ bank accounts. If you think building such a system is either cheap or easy — even in *one* city, let alone multiple ones — I have a water well over the Ogallala Aquifer to sell you.

    Finally, the proof is in the pudding — well, okay, it’s in the spending: Uber has burned through over TEN BILLION DOLLARS to date, and spends its cash faster than any other entity on the planet short of the U.S. Department of Defense. (Proof is also arguably transpiring in real time: despite having seven months to work on its system, GetMe’s app has been in full-tilt meltdown mode most of the time since Uber and Lyft left Austin — and that’s been during the *slow* part of the week. The Thursday-thru-Saturday-night rush will be another matter altogether.)

  • Realist50

    “Wait, Uber and Lyft don’t have to fingerprint all of their drivers until next year? Why did they say they had to stop operating in Austin immediately after the vote, then?”

    While there’s little doubt that Uber and Lyft wanted to make a point to other cities, the way that the author has described the February 2017 requirement is misleading to the point of being inaccurate. The Austin ordinance has escalating requirements on the percent of each TNC company’s drivers who need to have passed a fingerprint-based background check: 25% as of May 1, 2016 (i.e., right now); 50% as of August 1, 2016; 75% as of November 1, 2016; and 99% as of February 1, 2017.

    The city is reportedly not enforcing that requirement right now, and for some reason enacted the ordinance without specifying penalties, with members of the city council stating that they intend to do so later. (See http://www.twcnews.com/tx/austin/news/2016/05/11/austin-unable-to-enforce-fingerprint-rules.html ) Unless Uber and Lyft started doing fingerprint background checks on at least a large portion of their drivers, however, they’d both be operating in violation of Austin’s ordinance as of today.