Dear Ms. Councilwoman, "What Can You Do About Uber in the City?": The Role of Local Governments in the Post-Regulatory Landscape of Transportation Network Companies.

• Author: Theall, Joseph T.

"Over the past four years, transportation network companies, primarily Uber and Lyft, have convinced legislators in the vast majority of states to overrule and preempt local regulations and strip drivers of rights. The speed and sweeping effectiveness of the industry's use of this strategy ... is unprecedented." (1)

1. INTRODUCTION

   In 2018, Vermont became the forty-ninth state to pass statewide regulations for transportation network companies (TNCs), such as Uber and Lyft. (2) After these emerging companies entered the marketplace, many states grappled with whether these services should be regulated as traditional taxi and livery services within existing regulatory schemes or as something else. (3) In many localities, TNCs persuasively argued that they do not fit into the existing regulatory framework, creating a legal "gray area" for regulators to address. (4)

   In contrast, municipalities have historically regulated taxi and limousine companies, creating a fragmented scheme of control and directives. (5) A central debate regarding TNCs and taxis is whether states or municipalities should regulate the two services uniformly. (6) Courts, however, have made clear that the services are differentiated enough from taxis to prevent challenges on equal protection grounds and have held that taxi medallion holders do not have a vested property interest in those licenses. (7) Thus, challenges to the regulatory landscape of TNCs have taken place in the legislative branch of state governments and will likely continue for the foreseeable future. (8) These state initiatives will shape the future of the transportation-for-hire industry through statewide regulatory schemes and the distribution of governmental authority. (9)

   While the federal government must act in accordance with the enumerated powers the U.S. Constitution granted to it, state governments hold plenary power. (10) States' plenary power provides broad latitude to regulate; local governments, however, which derive their power from the state, do not share in this power. (11) This difference in inherent authority creates a unique challenge for state legislatures, as lawmakers must choose what powers to delegate to local governments, often balancing the advantages of statewide uniformity and the specific needs and concerns of local communities. (12) As municipalities grapple with the impact TNCs have on municipal affairs, such as their ability to generate revenue from these services or impose more stringent safety requirements, preemption clauses in statewide regulations may hinder these efforts. (13)

   This Note will discuss regulatory reforms states have undertaken in regard to TNCs and the policy-innovation obstacles the preemption of local control has created. (14) Part II will provide a background of how TNCs came into existence, their position within the larger sharing economy, and the traditional regulatory landscape of transportation services. (15) Part II will also discuss the relative power balance between state and local governments and recent decisions by courts regarding legal challenges against TNCs. (16) Part II will then highlight different state approaches to preemption, using two states as case studies: New York, which exemplifies a more flexible preemption approach, and Texas, which bars any municipal regulation. (17) Finally, Part III will argue that restrictive preemption provisions may constrain innovative policy approaches and statewide TNC legislation may need to be revisited, especially in light of overall judicial restraint regarding these services. (18)

2. HISTORY

   1. Emergence of TNCs in the Transportation Market

      Rapid expansion and growth marked the emergence and legalization of TNCs. (19) TNCs first entered the consumer space in 2009 when Travis Kalanick and Garrett Camp founded Uber. (20) Lyft, a competing app, launched three years later. (21) Since the development of app-based ridesharing services, Uber and Lyft have dominated the market and dramatically transformed the transportation industry. (22)

      TNCs seek to provide customers the benefits of black car services and the convenience of hail-based livery services. (23) TNCs allow users to download an app on their cell phones and request a ride. (24) The platforms then match customers with a nearby driver after the customer enters their location on their phone. (25) Rides are priced on a variety of factors including mileage, time traveled, various company fees, and applicable taxes. (26) Unlike traditional taxis, TNCs have unique advantages such as the ability to store payment information and provide passengers with advance notice of their driver's identity and location. (27) Taxis have the exclusive ability to engage in "street hails," further differentiating them from TNCs. (28)

      The emergence of TNCs and other shared services, including home and car sharing, are a byproduct of both the organization of cities into neighborhoods and growth opportunities created by existing taxi services. (29) Dense urban populations create a natural market for sharing services, where both consumers and sharing economy workers are readily available and in need of products. (30) The existing taxi industry was generally costly, underserved poorer areas, and had lower quality services. (31) These disadvantages of the taxi industry are advantageous to TNCs and have allowed them to quickly find an audience with consumers who find that TNCs are more efficient, cost effective, and more likely to serve diverse communities. (32)

   2. How TNCs Fit into the Larger Sharing Economy

      The rise in TNCs is also part of a larger, nationwide market trend towards a "sharing economy" or "gig economy." (33) Within the past decade, services have emerged that allow individuals to share their homes, cars, and workspaces, and workers have found increased employment opportunities for performing discrete tasks as independent contractors. (34) TNCs have proven particularly popular with younger populations and those in urban areas. (35) Providers have capitalized on the willingness of these populations to share services, introducing product features that allow individuals to pool rides with other users in the nearby vicinity. (36) Notably, a number of the industries governed at the local level are disrupted by sharing-economy services. (37) Within the sharing economy, companies have resisted municipal regulatory efforts and have used fragmented rules to their advantage. (38)

   3. TNCs' Place in the Transportation Economy and Legalization Efforts

      The contrast between TNCs and taxis, the market incumbents, is apparent within their regulatory schemes. (39) Municipalities have long regulated taxi services with a shared focus on protecting the economic interests of workers and the health, safety, and fair treatment of their consumers. (40) Municipal regulation of taxi companies is consistent with cities' and towns' traditional role of regulating issues of transportation. (41) By granting this authority to localities, communities are able to oversee taxi drivers and impose requirements that ensure that taxis service all neighborhoods and passengers, maintain service standards, and provide reasonable and nondiscriminatory rates. (42) A number of communities impose a requirement on taxis that licenses only be granted to operators if they can establish a "public convenience and necessity." (43) Opponents of specific taxi regulations have argued that states designed these schemes to create a natural monopoly in the market. (44) Amidst this debate, lawmakers found themselves in the difficult position of determining how TNCs fit into these existing regulatory schemes. (45)

      As TNCs entered the marketplace, they found themselves operating in a legal "gray area." (46) Municipalities struggled to determine whether TNCs shared the same legal status as traditional taxis, thus subjecting them to a comprehensive series of regulations, or if they were unique products, which would effectively put them outside the scope of any existing regulations. (47) TNCs advocated that their unique status did not make them traditional taxis and thus not subject to local regulations for those services. (48) TNCs capitalized on this legal "gray area" in many jurisdictions, launching their services in cities that did not have a clear answer whether they could legally operate. (49) States and municipalities varied in their willingness to accept TNCs' argument that they were unique products outside of traditional regulatory frameworks, setting up a fragmented regulatory system across the United States. (50)

      As these platforms gained prominence, states began to experiment with regulatory schemes to address the absence of rules for these products. (51) Efforts in some states focused on establishing minimum insurance requirements for drivers utilizing their personal vehicles for TNC purposes. (52) These "insurance only" bills sought to promote the safety of drivers and passengers without subjecting the companies to a complex series of comprehensive regulations. (53) Other states took a more comprehensive approach and enacted legislation that would require background checks for drivers, limit the use of surge pricing, restrict total driving hours, and collect data on rides, among various other requirements. (54)

      After Colorado passed the first statewide TNC regulation in 2014, all but one state followed suit and passed a regulatory scheme, making TNCs legal across the entire United States within five years of Colorado's initial regulation. (55) TNCs actively involved themselves in lobbying efforts leading to their legalization, hoping to shape a more relaxed regulatory approach than traditional taxi regulations for their services. (56) TNCs not only lobbied state legislatures, but also participated in efforts to shape and encourage the adoption of model legislation for their products. (57) The TNCs' model bill emphasized insurance requirements and background checks for...