Seattle plans to tax Uber and Lyft rides to raise $133M for affordable housing and transit

Seattle Mayor Jenny Durkan unveiled new fees and regulations for Uber and Lyft during a briefing Wednesday at Seattle City Hall. (GeekWire Photo / Monica Nickelsburg)

Seattle Mayor Jenny Durkan plans to introduce a new tax of 51 cents per Uber and Lyft ride to fund affordable housing construction and complete the city’s beleaguered streetcar project. She estimates the tax will generate $133 million in new revenue by 2025.

The city disclosed those details for the first time Wednesday after offering a broad outline last week. It’s part of a push by cities and states on both coasts to impose new regulations on Uber and Lyft in an effort to address congestion and extend worker protections to drivers.

“Cities are becoming the safety net for America and in this changing economy,” Durkan said. “Workers that are not given adequate protections are looking to cities for support. This is really about fairness for those drivers.”

Durkan will introduce the tax as part of her annual budget next month. She is also planning to implement a new minimum hourly rate for Uber and Lyft drivers and create an organization to advocate for drivers when they are deactivated from the ride-hailing apps.

California lawmakers went so far as to pass new legislation that could force Uber and Lyft to reclassify their drivers as employees, threatening their fundamental business models.

In Seattle’s case, Durkan wants to tax the companies to address two of the city’s most pressing challenges: housing and transportation.

Durkan unveiled her “Fare Share” plan to reporters at a briefing at City Hall on Wednesday. If adopted, the tax and minimum wage will take effect July 1, 2020.

Seattle already charges 24 cents per Uber and Lyft ride to fund wheelchair accessible taxies and cover the costs of regulating the industry. The new tax will bring the total fees to 75 cents per ride. It will apply to all rides that originate within Seattle city limits.

“The mayor’s decision to triple Seattle’s tax on ridesharing would raise prices for riders and decrease trips for drivers,” said Uber spokesperson Nathan Hambley in a statement. “We support the creation of a guaranteed minimum earnings standard for drivers, and have engaged in good faith with the Mayor’s office and labor leaders for several months on this issue in hopes of reaching a compromise. We believe that any rideshare proposals should be developed based on broad input from the entire rideshare driver community in Seattle.”

The city plans to spend $56 million of the new revenue to complete construction of the Center City Connector streetcar, an overdue project costing tens of millions more than initially estimated. More than $52 million will be invested in affordable housing projects that the city estimates will produce 500 new homes near transit. An additional $17.75 million will be used to create a Driver Resolution Center, an organization that will arbitrate between ride-hailing companies and drivers who have been deactivated from the apps. The remaining funds will cover administrative costs.

In March, Seattle will launch a study to determine drivers’ costs and expenses, time spent on the Uber and Lyft apps, and other factors. The study will inform the minimum wage that the city establishes for drivers

Seattle is still deciding whether to require Uber and Lyft to provide benefits, like workers compensation and paid time off, to drivers or if the cost of those services should be baked into the hourly rate.

City officials are studying New York City’s model. In 2018, New York became the first city to set a wage floor for drivers. Uber and Lyft responded by locking drivers out of the apps during periods of slow demand. Durkan said she hopes that won’t happen in Seattle.

“Everyone has stated that they believe in the same goal,” she said. “They want drivers to be paid fairly and to earn at least the minimum wage. The difference is how people calculate that has been greatly varied. This study will put that to rest.”

Uber and Lyft have been engaged in ongoing negotiations with the City of Seattle over the new regulations. Both say they are supportive of minimum pay standards for drivers but they’re wary of new fees. Lyft sent a letter to the mayor’s office on Monday detailing the company’s concerns.

“While Lyft fully supports a minimum earnings guarantee for drivers, the Mayor’s regressive tax proposal for riders will hurt the underserved communities that rely on affordable rideshare most,” said Lyft spokesperson Lauren Alexander on Wednesday. Lyft estimates that in low-income neighborhoods, the tax would increase fees by 300 percent “making it the most taxed rideshare city in the country.”

Lyft’s claim is a matter of perspective. In certain parts of New York City, a $2.75 fee is tacked on to Uber and Lyft rides. But Lyft puts New York in a separate category because ride-hailing is regulated more like a taxi service. Other cities, like Chicago, have fees comparable to what Seattle is proposing.

City officials have also been in conversations with drivers about their needs. Drivers are split on regulation. While some have organized demonstrations calling for more wage transparency and better treatment, others are resistant to new rules.

Seattle’s plan is concerning to Drive Forward, a group of 2,000 drivers initiated by Uber when Seattle passed a law allowing ride-hailing drivers to unionize. The organization issued a statement condemning the tax proposal before it had even been formally announced.

“This misguided regressive tax proposal will only harm drivers and riders,” said Drive Forward Executive Director Michael Wolfe. “It will make a transportation option Seattleites rely on every day less affordable and take tens of millions of dollars out of drivers’ pockets.”

Seattle’s new regulations will apply to ride-hailing companies that facilitate 1 million rides per quarter in the city. Only Uber and Lyft meet the criteria. Durkan said that her team focused narrowly on those two companies because business models in the gig economy vary too much to establish one standard.

“Every gig economy sector has a variety of factors that are unique to that sector,” Durkan said. “What we wanted to do was really approach this sector, which we have some data about, which is already regulated by the city … we’re hoping that this can provide a model for how we approach a gig economy sector.”

One goal of the new regulations is to address Seattle’s paralyzing traffic. Uber and Lyft had 24 million rides in the City of Seattle last year, according to Durkan’s office. She expects that number to continue growing. The city is concerned that ride-hailing services add to congestion because drivers circle streets looking for rides and pick passengers up outside of designated loading zones.

In Seattle and other cities, Uber and Lyft endorse a method of reducing traffic called congestion pricing, which charges tolls for cars that travel downtown during peak hours. The companies say fees designed to reduce traffic should apply to all vehicles, not just ride-hailing services. Durkan is considering congestion pricing in addition to the new Uber and Lyft rules.

Editor’s note: This story has been updated with context on how Seattle’s proposed fee compares with other cities. 

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