Taxicab Concessions

High-tech, high-level wheeling and dealing makes all of us fare game

On February 12, 2004, the Taxi of the Future rolled past the gates into City Hall plaza for a firsthand, high-level inspection. Among the inspectors were Mayor Bloomberg, his chief of staff, his transportation commissioner, and his information technology adviser. All gave the high-tech taxi close scrutiny.

In the backseat, behind the driver's head and mounted on the safety partition, was a computerized touch screen. Depending on which panel was pressed, it provided up-to-the-minute flight arrival and departure information for New York airports; ticket-purchasing information for movies, Broadway shows, concerts, and sporting events; news and weather; and a map of the taxi's location, complete with a red squiggle showing the cab's route as it maneuvered through the streets. Yet another screen option allowed riders to pay their fare by credit or debit card, type in the tip, and after swiping the card through an adjacent slot, receive a printed receipt.

Up front, a text-messaging system let drivers send and receive messages about traffic jams and lost property. The meter electronically logged trips, number of passengers, and cost of the fares. A GPS device provided the cab's location and speed.

Taxi drivers' leader Bhairavi Desai: Questioning lucrative new contracts
photo: Giulietta Verdon-Roe
Taxi drivers' leader Bhairavi Desai: Questioning lucrative new contracts

Standing alongside the cab was the inventor of the apparatus, an engineer named Richard Thaler, who had been trying since 1999 to get the city's Taxi and Limousine Commission to authorize his system for use in the city's now almost 13,000 yellow medallion cabs. With Thaler was Robert Nemeroff, chief marketing officer for Melrose Credit Union, a major lender to taxi medallion purchasers, and whose ATMs would allow participating drivers to cash in their card receipts on a daily basis.

"How many members do you have?" Nemeroff recalled the mayor asking him. "I told him we had 18,000, and about 4,000 medallion loans on the street." The mayor then turned to his aides and smiled, Nemeroff recalled. "He said, 'Get this done.' Then he walked back up the steps into City Hall."


Of course nothing's ever that simple in city government, even when the order comes from a mayor who made his fortune on financial-communications technology and who has relentlessly pushed the city into adopting state-of-the-art equipment.

And things get especially sticky when it comes to the city's yellow-taxi industry, a multibillion-dollar business long controlled by a handful of powerful oligarchs and regulated by an agency seen as a haven for political-patronage appointees.

More than two years after Bloomberg's in-person inspection and Taxi and Limousine Commission chairman Matthew Daus's public pledge to get the equipment installed no later than November 2005, cabs still lack the technology that so impressed the mayor.

From the taxi-riding public's perspective, there's good cause to gripe. For one thing, New York is lagging behind other cities, where cabs already offer quick credit card payments and other service enhancements. For another, the high-tech improvements were cited by Daus as a key justification for the steep 26 percent fare hike approved by the commission in March 2004, saying they would be of "great benefit to the consumer."

"There's been more than $1 billion in fares collected since the fare went up, and there's still nothing to show for it," said Edward Rogoff, a professor of management at Baruch College and a longtime critic of the city's taxi medallion system.

Taxi commission officials now insist that a rollout of some form of the high-tech wizardry is just a few months away. But don't hold your breath. Since the mayoral edict came down, the city has spent an estimated $2 million on its own consultants to study just how the new system should be handled. It has paid for driver and passenger focus groups and an "information exchange" conference that attracted experts from the world's top communications firms. It issued a formal request for information, followed by an even more formal request for proposals.

But just where that long and winding bureaucratic road will lead is still unclear. Taxi officials tentatively approved four firms to offer their products to city taxi owners, who will eventually be given a mandatory deadline to have them installed. The winners included a pair of firms from outside the city's industry, one of them a Vancouver-based taxi-dispatch company, and the other a start-up firm based in New Jersey with no previous experience.

The other winners were both veteran insiders in New York's tightly woven taxi world. One is Taxitronic, a Queens-based company that provides most of the meters currently used in the city, and whose earlier version of wireless credit card units was panned by outside experts. The major player in the other approved company is taxi fleet owner Ronald Sherman, who heads the city's powerful fleet owners' association, and who, after publicly complaining at a taxi commission meeting that the new equipment might be too costly, launched his own private firm to cash in on the soon-to-be-mandated equipment.

There are reasons aplenty to spark investor interest. The program allows companies to collect fees, averaging 5 percent, for each credit card transaction (in the case of cabbies who lease their taxis—the vast majority of drivers—they'll have to pay it out of their share). There's also the potential for huge advertising revenue. The commission decided to allow "commercial content" aimed at passengers on the monitors, albeit with an on-off switch for riders who don't want to be bothered.

"For the fleet guys, it is a nice chunk of change if the ads kick in," observed a knowledgeable industry source. "There is a lot of potential for money to be made here."

Then there's the New York factor. The reason every vendor fights so hard to capture New York City government contracts is that the city's are the nation's biggest and most complicated. And when it comes to selling to government, it truly is a case of "if I can make it here, I can make it anywhere." Companies approved for work in New York get bragging rights that often propel them into other lucrative municipal deals.

But the high-tech-taxi effort has been rocky.

The selection process has already prompted one probe of alleged influence-peddling by the city's Department of Investigation (officials quickly ruled there was no wrongdoing). There was also a traffic-stopping demonstration last fall organized by the increasingly influential New York Taxi Workers' Alliance, which represents several thousand drivers who lease their cabs. Dozens of angry cab drivers, many of them Muslim immigrants, rallied outside the taxi agency's Rector Street offices, denouncing the new equipment as intrusive, expensive, and unnecessary. (A similar plan to install costly, high-tech tracking devices in Philadelphia's taxis resulted in a one-day strike by cab drivers on May 17.)

Taxi Workers' Alliance leader Bhairavi Desai said last week that her group intends to ask the City Council to outlaw the use of Global Positioning Systems in medallion cabs. Part of her group's gripe is that, unlike the GPS available in newer cars, the taxi agency's model doesn't offer navigation assistance for the driver, or even a panic button in case of emergencies. "It is just to track the vehicle. It won't even be used to help a driver get to where he's going," said Desai.

There is also the looming threat of a lawsuit by Thaler, the engineer whose ideas appear to have started it all, but whose firm, Omni Media Network, failed to make the cut when the taxi agency initially approved its four winners last year. The city's contract evaluation panel faulted Thaler's setup for its passenger information monitor and text-message and wireless capabilities.

The rejection struck Thaler as odd, since approval only meant the opportunity to market his wares to city medallion owners; it didn't obligate anyone to buy from him. The wireless rejection was puzzling as well, since his partner in the proposal was telecommunications giant Sprint. His suspicions deepened when Taxi and Limousine chairman Daus wrote to him two months after the original rejection, saying the agency had erred when it flunked him on his passenger information monitor (it turned out evaluators had somehow miscounted their own score sheets).

The denial was odder still in light of the fact that Thaler's was apparently the only fully functioning system able to provide a live demonstration at the time of the contract evaluations. "The goal was not to put the vendors through the development cost up front," said taxi commission spokesman Allan Fromberg. "There is an acceptance phase to come. That's when the rubber meets the road."

But the decision to deny Thaler a crack at the taxi market appeared even stranger given that, shortly after the live demonstration for the mayor in early 2004, Daus had agreed to an exclusive pilot program that would have allowed Thaler to put his equipment into 250 taxicabs on an experimental basis—an agreement that was later canceled before it was even implemented.

"The government is bestowing on the lucky few allowed into its cartel the right to charge money to private parties who must use only their services," Robert Brill, an attorney representing Thaler's firm, told a hearing on the contracts in December. "This is a classic, illegal restraint of trade," he said.


A few weeks after the tentative winners were announced, Thaler got one more reason to be spooked about the selection process. At a lunch with two young men who had launched the New Jersey start-up firm that won city approval, he said he was told that the duo had employed a key city consultant, who served as a member of an advisory committee helping to evaluate the proposals. According to affidavits provided to the city by both Thaler and Nemeroff, who was also present at the lunch, the New Jersey entrepreneurs, Jae Choi and Oded Salomy, told them they'd retained consultant Bruce Schaller "at significant expense" to help guide them in the taxi industry. Alarmed, Thaler relayed his concerns to the city comptroller's office, which has to approve the contracts. The comptroller, in turn, alerted the Department of Investigation.

Schaller is a former policy director for the city's taxi commission who is now a recognized expert on taxi service and economics. In an interview with the Voice, Schaller acknowledged that he had provided "nominal" consulting advice in the past to a previous entity owned by Choi, whose Taxi Technology Corporation was approved to participate in the new program.

Schaller declined to describe his work, but a spokesman for Taxi Technology said it had to do with the feasibility of using a prepaid card in city taxis, for which Schaller was paid about $3,200. "This is a case of sour grapes," said the spokesman.

But Schaller also acknowledged that he has worked for Sherman's group, the Metropolitan Taxicab Board of Trade, helping the fleet owners evaluate their street service and preparing arguments for the 2004 fare hike. Schaller said his past ties to the bidders had had no impact on his performance during the proposal evaluation. "The projects I did for various private-sector people were all prior to even the RFP for the enhancement project, so there is no conflict of interest," he said.

As it happened, the city's Department of Investigation never examined Schaller's ties to the fleet owners' trade group, but it did scrutinize his ties to Taxi Technology. It found "no misconduct."


But Thaler wasn't the only would-be bidder seriously troubled by the process. A British firm, Cabvision, whose credit card and wireless communications equipment is already operative in 1,000 London taxis, was ruled ineligible when its proposal arrived a few hours after the deadline. Like Thaler, Cabvision had been working with city officials long before the request for proposals was issued, and as in Thaler's case, its executives noted that their suggestions appeared to have been incorporated directly into the city's proposal request documents.

Cabvision CEO Peter DaCosta wrote in an e-mail to the Voice that he had pushed up to the deadline to acquire enhanced communications technology and the backing of a hedge fund that would allow Cabvision to install its systems in New York City cabs for free—just as it currently does in London taxis.

DaCosta said he was assured by a top TLC official that it wasn't necessary to fly over to deliver the proposal personally, as long as the package was postmarked by the deadline. When city officials later rejected his firm's proposal as unacceptably late, DaCosta appealed—citing the erroneous assurance he'd received. The appeal was denied.

"They were told, in no uncertain terms, that you have until Monday noon to get this proposal before us," said agency spokesman Fromberg. "We would have preferred to have had their proposal to consider."

That might have been the end of things for Cabvision's ill-fated attempt to penetrate New York's tight taxi industry, but the klutzy performance by top taxi agency officials continued. Taxi commission records show that even after his appeal was denied, DaCosta sent Daus a sportsman- like note thanking him for the chance to participate in the process and asking that his proposal package—"which I hope was unopened," as DaCosta wrote—be returned forthwith. No such luck.

An investigation by the Mayor's Office of Contract Services later determined that a mailroom clerk at the taxi commission initially opened the proposal by mistake (a violation of city procurement rules, since proposals contain valuable, proprietary information). Realizing it was an RFP response, the clerk delivered it to the office of Louis Tazzi, a veteran city aide who is currently a deputy commissioner at the taxi agency and serves as its chief contracting officer. Despite rules forbidding the examination of a rejected proposal, Tazzi told investigators that he noticed that Cabvision's pricing proposal, which had been in a sealed envelope, had been opened. So, "out of curiosity," as he later told the investigators, he read it. Tazzi, however, swore he never discussed it with anyone.

Things got worse. Although no one ever determined who originally opened Cabvision's original pricing proposal (testimony by agency employees was deemed "contradictory" by city officials), it later disappeared. At one point, an independent city consultant who was overseeing the RFP evaluation procedure acknowledged that he had moved Cabvision's proposal out of a secure cabinet to a cabinet where the other, previously accepted, proposals were kept—another rules violation. The consultant later offered the same explanation as Tazzi for his actions: He was curious.

Despite this Keystone Kops routine by top figures at the taxi agency, the rules violations were later examined by the Mayor's Office of Contract Services and deemed to be "inadvertent" and "de minimis," amounting to a "minor rules violation"—which meant the selection process could proceed. DaCosta, however, said he's still concerned. Despite repeated requests, the taxi commission still hasn't returned his rejected proposal.


All of the winning bidders declined to comment on the process, pointing to a gag order contained in the RFP rules that precludes them from discussing their products or efforts until after the comptroller registers the contracts. A spokesman for one of the approved vendors, an old hand at the mud wrestling that often accompanies the pursuit of city work, scoffed at the objections raised by the disqualified bidders. "You know you get one of these in every bid," he said. Reminded that he has often griped about agency slights to his own clients, he added, "OK, sometimes there are real problems."

One of those real problems occurred back in 1984 when a woman named Barbara Myers, the owner of a small taxi fleet, complained publicly that the then taxi commission chairman, a product of Brooklyn's Democratic clubhouses named Jay Turoff, had steered a lucrative experimental program offering extra medallions for cabs using diesel fuel to a pal, the owner of one of the city's largest taxi fleets.

Myers's complaints caught the attention of the state's investigation commission, whose probe eventually led to the indictment and conviction of Turoff and the fleet owner on corruption charges. The fleet owner, Donald Sherman, pled guilty and was sentenced to three months' house arrest and a $250,000 fine. Charges against his son, Ronald Sherman, the fleet owner whose company won approval in the latest experimental program, were dropped in exchange for his father's guilty plea. "Those charges were expunged," said a spokesman for Ronald Sherman last week.

Daus, the $167,000-a-year taxi commission chairman, who hails from his own Brooklyn Democratic clubhouse, declined to be interviewed. "He's not available," said Fromberg, the agency spokesman.

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