How One Bad Regulation Creates Another

Of all the changes that arrived with the advent of the “gig economy,” perhaps none has been as disruptive as ridesharing. Cars have the odd distinction of being the most expensive consumer good most Americans will ever buy yet vehicles sit unused 95 percent of the time. Why pay so much for something so often idle?

Ridesharing promised an answer to that question from both ends of the ownership spectrum.  Services like Uber generate income for car owners with spare time while providing options for non-owners or anyone with limited or unpredictable transportation needs. Like any innovation, these services are not without problems, from increasing congestion to giving dangerous people (whether as drivers or passengers) an opportunity to victimize someone. Yet those problems can be addressed through heightened security requirements and working to integrate ridesharing services into urban plans that were designed and implemented well before such services existed.

Unfortunately, not all governmental responses to ridesharing make sense. Some bad ideas, such as Barcelona’s rule requiring a 15-minute wait before ridesharing cars can respond to a request, are brazenly designed to favor existing local groups with political influence. (The city’s taxi drivers, during protests that included blocking streets and occasional violence, originally demanded an hour’s delay.) Such restrictions are to be expected whenever new competition arises, but they wear out their welcome as local support for ridesharing begins to rival the local influence of taxi companies.

Retaliatory Legislation

Another type of bad idea is more dangerous, however: blocking competition based on geography by requiring an in-state driver’s license to pick up any passenger, even one standing a few feet over the line in a neighboring state. Unlike rules privileging taxis over Uber or Lyft drivers, these restrictions have few natural opponents, as the harm they create is either diffused across a wide customer base or diverted to out-of-towners with no political clout. Additionally, because these rules impact neighboring areas, they are far more likely to spread from place to place.

Connecticut demonstrated this potential for regulatory creep last month when the leader of its state senate proposed S.B. 12. Officially entitled “An Act Concerning Transportation Network Company Driver Requirements,” the single-paragraph bill has a simple purpose: forcing every rideshare driver in the state to “possess a Connecticut motor vehicle operator’s license.”

The immediate question to ask here is, what problem is this bill trying to solve? Were reckless Rhode Islanders tearing up the streets of Hartford? No. It turns out this bad Connecticut idea was spurred on by an equally bad idea previously implemented in neighboring New York. In a hearing after the Connecticut bill was proposed, the sponsoring state senator noted that, to be able to pick up a passenger in New York on behalf of a ridesharing company,

you must have a New York State driver’s license. New York will not allow Connecticut licensed drivers to initiate rides in their state. And yet, New York State licensed drivers are allowed to pick up and drop off passengers anywhere in Connecticut. A Connecticut licensed driver will take a passenger to one of the airports in New York City. The driver must pay for the gas and the tolls to get there. But they cannot bring anyone back to Connecticut from those airports. They still need to pay for the gas and the tolls to get back to Connecticut but they cannot offset this cost with another ride. How is this fair? It is not.

The legislator is entirely correct—this isn’t fair at all. But S.B. 12 would only amplify the unfairness rather than solve it. To his credit, the sponsor of the bill acknowledged as much, noting that “this bill does not completely solve the problem.” But, he added, “maybe it will result in New York State rescinding [its] unfair law.”

“Maybe” is a pretty thin hope, especially given the likely consequences of S.B. 12. Depriving New York drivers of the ability to make round trips into Connecticut will cut off cross-border rideshare traffic, further limiting Connecticut citizens’ ability to travel. This would raise prices for everyone involved by limiting the pool of available drivers and the liberty of Connecticut’s drivers to decide when and where one-way fares into New York are worthwhile.

In any case, why assume that Connecticut would have the last word? Passing a law similar to New York’s would just make Connecticut a villain to its other neighbors, Rhode Island and Massachusetts, prompting them to explore a similar response to such “especially harmful” behavior. The logical endpoint of such balkanization is a series of fiefdoms where individual states block access to each other like squabbling nations rather than acting as the United States.

Commerce Clause Contingencies

So if passing a law mimicking a law of the state of New York is a losing strategy, what might be a winning one?

It turns out this is not the first time a neighboring state has been forced to deal with protectionism from lawmakers in Albany. A line of Supreme Court cases involving similar restrictions has laid out the standard for invalidating state laws that discriminate against commerce from other states.  This principle is known as the Dormant Commerce Clause, so named in honor of the actual Commerce Clause, the constitutional provision that grants Congress the power to regulate commerce “among the several states.” Although the Supreme Court has allowed states to concurrently regulate interstate commerce, it forbids them from using “the illegitimate means of isolating the State from the national economy”[1] to do so.

Does the New York license requirement violate this “dormant” aspect of the Commerce Clause?  To answer this, the first thing we need to know is whether a state law openly discriminates against outsiders or merely has the effect of doing so. The New York law plainly says that only “a valid New York driver’s license” counts (with narrow exceptions for military families). The next thing to address is whether there is another reason besides its out-of-state origin to treat the regulated commerce differently. This requirement (that there be some factor other than mere provenance) would allow State A to ban the importation of plants or produce from State B if the latter were dealing with a parasite infestation, for example. Yet out-of-state drivers are not somehow uniquely dangerous, and as long as neighboring states have reasonable criteria for participating in ridesharing, this also weighs against mandating the possession of an in-state driver’s license.

The response to this analysis from New York officials would likely be that safety is the real concern, and that ridesharing should be treated like an occupational license rather than an “article of commerce.” In other words, an out-of-state Lyft driver picking up a New York passenger is like an out-of-state electrician wiring a New York house.

The weakness of that argument should be obvious, as Connecticut drivers are already allowed to drive all over the streets and highways of the state of New York. If New York’s real concern was that other states fail to incorporate passenger-safety provisions matching its own—for example,  blocking sex offenders and having a higher minimum age for driving a rideshare vehicle—then it would have passed a law mandating drivers from other states meet those criteria.

That isn’t the law New York passed because safety wasn’t the goal.

The Connecticut bill will not become law this legislative session, as the deadline for moving it forward has passed. But so long as these needless restrictions exist in New York—and in a handful of other states and cities, including California—the temptation will remain for nearby jurisdictions to build their own economic walls to the detriment of a free economy, regular citizens trying to make an honest living, and people trying to get from one place to another efficiently at a price they are willing to pay.

[1] City of Philadelphia v. New Jersey, 437 U.S. 617, 627 (1978).