1*1!Ti,Ic,41 City Council Agenda Report

TO: Honorable Mayor and City CouncilMark Orme. City Manager

FROM:

BY:

RE:

Vincent C. Ewing, City Attorney

Vanessa Segura, Deputy City Attorney

Regulation ofTransportation Network Companies

REPORT IN BRIEF:

Meeting Date: August 2, 2016

The City Council has requested the City Attorney's office to provide an overview of local regulations ofTransportation Network Companies ("TNCs"), such as Uber and Lyft.

The City Attorney's office has determined that pursuant to California Public Utilities Commission("CPUC") Decision 13-09-045. issued on September 23, 2013. "TNCs" are subject to CPUC'sjurisdiction. A TNC is a company or organization operating in California that provides transportationservices using an online-enabled platform to connect passengers with drivers using their personalvehicles (e.g.- Uber and Lyft).

Currently. regulation of TNCs falls within the CPUC"s jurisdiction; therefore, California city regulationsof TNCs would likely be preempted by State law. As such. this office did not identify any Californiacity regulations of TNCs.

This analysis briefly summarizes the CPUC's regulation of TNCs. discusses California GovernorBrown's efforts to transfer TNC regulation to the California State Transportation Agency, and concludeswith a summary of the City of Long Beach's effort to allow taxis to lower fares to compete with TNCs.

BACKGROUND

Previously, California law recognized and regulated three modes of passenger transportation forcompensation: taxi service. regulated by cities and/or counties; charter-party carrier services andpassenger-stage companies, regulated by the CPUC.

In recent years, the communications revolution in wireless service, smartphones, and on-line appsfacilitated the development and adoption of passenger transportation, which did not fit neatly into theconventional understanding oftaxis or limousines (i.e., Uber, Lyft. etc.).

On September 19, 2013. the CPUC issued Decision 13-09-045 (the "CPUC decision"), which institutedregulations of TNCs. Consistent with the CPUC's decision, the Legislature amended the PassengerCharter-Party Carriers' Act (Public Utilities Code Section 5351 et. seq.) to include TNCs.

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DISCUSSION

TNCs

The Commission defines a TNC as an organization whether a corporation, partnership. sole proprietor.or other form. operating in California that provides prearranged transportation services for compensationusing an online-enabled application ("app") or platform to connect passengers with drivers using theirpersonal vehicles.

CPUC AND TNC REGULATIONS

The following is a summary of pertinent CPUC regulations of TNC"s:

. Permitting. TNCs (not the individual drivers) are required to obtain a permit from the CPUC.The fee for filing a new application is $1,000 and the permit is valid for three years. Currently.0.33% of TNC's gross California revenues, plus a $10 administrative fee is collected by theCPUC on a quarterly basis as part of overall fees and paid into the Public Utility CommissionTransportation Reimbursement Account ("PUCTRA"). TNCs are not permitted to themselvesown vehicles used in their operation or own fleets of vehicles. TNC drivers shall only transportpassengers on a prearranged basis. For the purpose of TNC services, a ride is consideredprearranged if the ride is solicited and accepted via a TNC digital platform before the ridecommences. TNC drivers are strictly prohibited from accepting street hails.

• Insurance Requirements. New insurance requirements came into effect on July l, 2015. Itdefined TNC services as having three periods, with each period having its own insurance level.

o Period One. When the app is on but the driver has not yet accepted a ride request. TNCshall have primary insurance o f at least $50,000 for death and personal injury per person,$100.000 for death and personal injury per incident, and $30,000 for property damage.The TNIC shall also have $200,000 in excess coverage.

o Period Two and Three. When the driver has accepted a ride but has not yet picked up apassenger, and when the driver is transporting the passenger, respectively. During thesetwo periods, primary commercial insurance of $1,000,000 for death, personal injury, andproperty damage is required. In addition, TNCs shall maintain $1,000,000 of uninsuredmotorist insurance from the moment the passenger enters the vehicle until the passengerexits the vehicle.

TNC's must obtain proof of insurance from each TNC driver before the driver begins providingservice and for as long as the driver remains available to provide service.

• Driver Licensing and Training. TNCs are required to establish a driver training program. TNCdrivers must possess a valid California's driver's license. be at least 21 years of age, and mustprovide at least one year of driving history before providing TNC services. TNCs must obtaineach TNC driver's driving record before the driver begins providing services and annuallythereafter.

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• Zero Tolerance Drug and Alcohol Policy. TNCs must institute a policy of zero tolerance forintoxicating substances with respect to drivers. Each TNC is required to include on its website,mobile application and riders receipts. notice and information on the TNC's zero-tolerancepolicy and the methods for reporting a driver whom the rider reasonably suspects was under theinfluence of drugs or alcohol during the course ofthe ride. Also. the TNC's website and mobileapplication must include a phone number or in-app call function and email address to contact toreport the zero-tolerance complaint. A TNC's website and mobile application must also includethe phone number and email address of the CPUC Consumer Intake Unit that handles passengercarrier complaints.

• Driver Background Checks. TNCs must perform national criminal background checks,including the national sex offender database on drivers utilizing their app, The criminalbackground check must be based on the applicant's social security number and not just theapplicant's name. Any person who has been convicted. within the past seven years, for DULfraud, sexual offenses, use of motor vehicles to commit a felony, a crime involving propertydamage and/or theft. acts of violence, or acts of terror shall not be permitted to provide TNCservices.

Drivers with convictions for reckless driving, driving under the influence, hit and run, or drivingwith a suspended or revoked license shall not be permitted to be a TNC driver.

• Vehicle Requirements. TNCs may only use street-legal coupes, sedans, or light-duty vehiclesincluding vans, minivans, sport utility vehicles (SUVs) and pickup trucks. The maximumseating capacity is seven passengers, including the driver. TNCs must inspect all vehicles andmaintain the record of such inspection in case ofan audit. TNCs, or a third party licensed by theCalifornia Bureau of Automotive Repair, must conduct a 19-point inspection.

PREEMPT]ON DOCTRINE

Since regulation of TNC's falls within the CPUC's jurisdiction, a California city's regulations of TNCswould likely be preempted by State law.

A city may not enact local laws that conflict with State laws. (Cal Const, art. XI, § 7), A local lawconflicts with State law within the meaning of Article XI, § 7 of the California Constitution, if it enters afield which has been fully occupied by State law. (California Fed. Sav. & Loan Ass'n v. City of LosAngeles (1991) 54 Cal. 3d 277,290). When State law contains provision that expressly declares anintent to preempt local regulation of a "field." a local law regulating that same "field" will beinvalidated.

Article X], § 5 of the California Constitution vests charter cities with plenary authority over municipalaffairs. free from any constraint imposed by the general law and subject only to constitutional 1 imitation.(See California Fed. Sav. & Loan Ass'n. 54 Cal. 3d. 12). However. regulations of matters of statewideconcern are not municipal affairs. (Id. at 13) Therefore. while Charter Cities may exempt themselvesfrom general laws. they may not exempt themselves from State laws occupying a particular field ofstatewide concern. e.g., alcohol, elections. etc.

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CPUC REFORMS

On June 27.2016. California Governor Brown and State legislators announced a package of reforms tothe CPUC. These reforms are intended to increase the CPUC's focus and expertise by relocatingresponsibility and making logistical changes that improve the commission's ability to function. Inpertinent part. the reforms propose to transfer the implementation and enforcement of TNCs to theCalifornia State Transportation Agency. The details as to how TNCs will be impacted by these reformsis unknown. as proposed legislation does not provide specific details regarding implementation. TheGovernor's Office will work closely with the Legislature to implement these reforms in the monthsahead. Current CPUC regulations of TNCs are binding, until proposed reforms are adopted.

TAXI REGULAT]ONS ENCOURAGING COMPETITION WITH TNC'S

Unlike most forms of transportation in California, taxicabs are subject to local rather than Stateregulation. (Cal. Public Utilities Code § 5353 (g)). State law requires cities to adopt certain taxicabregulations, including those governing driver permits, rates. mandatory testing of drivers for alcohol andcontrolled substances, and investigation of complaints. (Cal. Gov. Code §§ 53075,5-53075.7),

Cily of Long Beach

Pursuant to this regulatory authority, the City of Long Beach relaxed restrictions on taxis to encouragecompetition with TNCs. In May 2015, the Long Beach City Council voted to allow its exclusive taxicab franchise to rebrand itself, update the appearance of its fleet and offer variable, discounted fares.free rides and other promotions to lure customers. These changes left in place the price ceiling for LongBeach taxis. which some predict is a competitive advantage because taxis could prove cheaper thanTNCs during periods of peak demand. Pursuant to the "Taxi Regulation Modernization Pilot Program"(Long Beach Municipal Code section 5.80.400) the Operator may:

• Charge variable. demand-based rates. which must be just, reasonable and nondiscriminatory, andnot in violation of the Long Beach Municipal Code Chapter 5.80 and/or any provision of law.There are no penalties for discounts or promotions.

• Establish a smart phone/internet based electronic application which will permit the public tobook a taxicab. The Operator s provider of a booking application may charge a convenience feefor booking through the application.

• Designate a number of vehicles. approved in advance by the City, which shall comprise the PilotProgram Fleet, identified in an alternative manner to the permitted taxis.

• City will examine through the Police Department the use of expedited driver background-checksand licensing procedure for drivers,

• Pilot Program Fleet may pick up or discharge passengers in areas that are not official taxi stands,as designated by the City.

• During the Pilot Program, Operator shall provide the City with monthly reports, includingincreases or decreases in ridership, use of mobile applications and website, etc., which may beevaluated by the City in expanding or amending the program.

Re: Regulation of Transpoilation Network CompaniesMeeting Date. August 2.2016

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CONCLUSION

TNCs are currently regulated at the State level by the CPUC.

CPUC's regulation of TNCs require CPUC issued permits, insurance coverage. national criminalbackground checks of drivers, zero tolerance policy for drug and alcohol use by drivers, vehicleinspections, and front and rear trade dress on al[ vehicles. CPUC has declared its regulatory jurisdictionover TNC and California city regulations of TNCs would likely be preempted on State preemptiongrounds.

Governor Jerry Brown proposed reforms last month that would transfer implementation andenforcement responsibilities for TNCs to the California State Transportation Agency: however. suchreforms have not been implemented and current CPUC regulations stand.

In contrast to TNCs, taxicab companies are regulated at the local level. California cities such as LongBeach. San Francisco, San Diego, and San Jose have relaxed and/or implemented taxicab regulations,which encourage competition with TNCs. Orange County and Fresno are considering a similarapproach. Such regulations may allow more taxis in their cities, allow taxicab companies moreflexibility in establishing their rates, and relax restrictions on taxis.

Please contact the City Attorney's office if you have questions.

Reviewed by:

Vincent C. Ewing, City Attorney