William H= Mellor

A Dr set of the institute for Justice ~~ ...

:§

Executive Summary

Today, tens of thousands of New Yorkers seeking to follow a rich tradition of entrepreneurship face a bewildering array of laws and regulations that prevent or stifle enterprise. The entrepreneurs featured here, and countless others like them, deserve a chance for a better future made possible when economic liberty-the right to pursue an honest living without arbitrary government interference--becomes a reality for all New Yorkers.

New York City's spirit of enterprise is in many ways an inspiring picture until one looks a bit more closely. For in a city in which some 10 percent of the population is on public assistance, any or an of the self-employed entrepreneurs described in this report face daunting government Irarassment-c-and even arrest-at a moment's notice for the "crime" of pursuing productive livelihoods.

This report:

examines the government-created barriers of licensing and permitting laws and public monopolies, and their effect on entry-level entrepreneurship in New York City;

documents how, in occupation after occupation, obstacles to enterprise often far exceed any legitimate exercise of government's authority to protect public health and safety;

highlights the heroism and tragedy among those who seek nothing more than to earn an honest living in their chosen trade, but who find this aspiration frustrated by rules and requirements whose main purpose appears to be to limit entry and competition in particular occupations; and

makes recommendations designed to ease legal entry into such endeavors, while recognizing government's role in protecting public health and safety.

The city's regulatory system seems swamped by a wave of the selfemployed who find that if they were to comply with the law, they would have to abandon their activities. Instead, they pursue them outside the law. These activities cannot be considered criminal but, except through luck or a Significant capital stake, they cannot become legal.

Their impact is enormous. The city's mainstream "formal" economy lost some 400,000 jobs in the late 1980s and early 19905. At the same time, the underground economy has grovm and may now represent as much as 20 percent of the city's economy overall

Restrictive laws-whatever their justification-force entrepreneurs underground. Once underground, these entrepreneurs have little hope of growing their business or obtaining necessary capital. Banks and other financial institutions simply cannot make loans to businesses-whether inhome catering or community transportation-which, although benign and profitable, are not legal. When they seek to operate within the above ground economy, they face time-consuming credentialing or paperwork requirements with practically no chance of ultimately realizing their goal.

It is beyond the means of this study to examine the full gamut of occupational license and permit laws in New York: They occupy no fewer than 73 pages in the Official Directory of the City of New York with listings of various types of licenses, permits or other forms of certification which one may need from either state or city authorities to own or operate a business or simply to be employed in one. One needs a license to repair video-cassette recorders, to work as an usher or to sell tickets at wrestling matches, to remove and dump snow and ice, to set up a parking lot or a junk shop.

This report looks specifically at a sample of occupational permitting and licensing requirements that affect the unskilled and/or entry-level, minimallycapitalized entrepreneur seeking the first rung on the ladder of upward economic mobility.

Restrictions that limit the self-employed from legally pursuing their occupations can be divided into three broad categories, listed here with examples which this report will explore:

Ceilings (a cap on the number of permits in entry-level occupations for which there are few, if any, qualifications or credentials required by law) [see page 5]:

Entry ceilings affect taxicabs, merchandise vendors, food vendors, and newsstand owners. Street vendors represent perhaps the greatest disparity between the numbers of those trying to conduct business and an arbitrary legal ceiling meant to limit entry. By law, no more than 4,000 food vendors and 1,700 merchandise vendors may operate on the streets of New York. Estimates of the number of non-licensed vendors currently operating-over and above those holding permits-range up to 18,000.

occupational Licensing (onerous licenses that minimize competition and go well beyond public health and safety concerns) [see page 18]: These requirements affect hairdressers, child care center operators, and car services. Such regulations often have little relevance to public health and safety. For instance, in New York one needs 900 hours of training to become a licensed hairbraider, 116 hours to qualify as an emergency medical technician with advanced training in the use of heart defibrillation: and 47 hours to be a security guard trained in the use of deadly force.

!iJ!fbfh

eM

ii

Public Monopolies (government reserves certain services for public employees and will not allow private companies to compete) [see page 22]: New York City has tried to quash private competition to its heavily subsidized public monopolies by jitney van driver/owners and residential trash pick-up providers. Even though jitney vans are highly sought after by paying passengers, more efficient, less costly (a dollar per ride) and more flexible than public buses (some of which require subsidies of more than $3 for each paying passenger), jitney entrepreneurs face shut down because they compete with public buses.

How, then, can New York come to grips with its wave of hopeful entrepreneurs and provide the .legal regime necessary to spark positive forces so desperately needed in its low-income communities? How can it reconcile the need for some regulation with the deadening effect posed by its current mass of regulation? The goal should be the formulation of a consistent policy across ranges of occupations, a policy designed:

" to encourage entry-level entrepreneurship (and employment generally);

" to discourage the use of regulation to create competitive advantage for private businesses; and

.. to articulate expressly the legitimate public interests that merit governmental concern (e.g., congestion, health or safety) and then to tailor laws or regulations to meet that end.

111

ontents

Introduction 1

Historical Warnings . . . . . , . . . . . . . . . . . . . . . . . . . . . . . 4

Ceilings 5

Occupational Licensing , 18

Public Monopolies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Conclusion. , . , , , , , , .. 25

Endnotes , 27

Biography 29

Introduction

The chance to earn an honest living without arbitrary government interference is the hallmark of the American experience. For generations, America has offered hope and opportunity for individuals of modest means through an economy that provided plentiful occupations for those 'with little capital and formal education. No city is more famous for its history of bootstraps capitalism than New York City, where traditionally waves of immigrants joined the native-born to create vibrant communities whose pillars were the local merchants, vendors and shop owners.

Today, New Yorkers seeking to follow in this tradition of entrepreneurship face a bewildering array of laws and regulations that prevent or stifle honest enterprise. This report examines such government-oreated impediments as they impact entry-level occupations throughout the New York metropolitan area. In occupation after occupation, obstacles to enterprise often far exceed any legitimate exercise of government's authority to protect public health and safety. Without a close connection between legitimate health or safety goals and the means government chooses to meet those goals, government's statutory and regulatory regime expands inexorably to the detriment of honest entrepreneurs and the communities in which they live. This tragic process is already well underway throughout New York.

This report describes licensing and permitting laws and related regulations affecting entry-level entrepreneurship in New York City. Recommendations designed to ease legal entry into such endeavors, while recognizing government's role in protecting public health and safety, are offered. The report chronicles the heroism and tragedy among those who seek nothing more than to earn an honest living in their chosen trade, but who find this aspiration frustrated by rules and requirements whose main purpose appears to be to limit entry and competition in particular occupations. These individuals and countless others like them deserve a chance for a better future which will be realized when economic liberty, the right to pursue an honest living without arbitrary government interference, becomes a reality for all New Yorkers.

This report was made possible through the support of The J.M. Kaplan Fund. 1 also wish to express my sincerest gratitude to Howard Husock, Director of Case Studies at the John F. Kennedy School of Government at Harvard University. He served as research director for this report and for forthcoming reports on Baltimore, Boston, Charlotte, Detroit, San Antonio and San Diego. Pamela Varley and Maureen Flynn of the Kennedy School provided invaluable research under Howard Husock's direction. The Institute for Justice undertook this study as part of a systematic examination 01 government-created barriers to entry-level entrepreneurship in the seven selected United States cities. These studies will provide the most comprehensive current examination of the legal and regulatory impediments that stand in the way of honest enterprise in urban America.

AW

--

TIlls report's findings may seem surprising because New York City is being swept by a wave of enterprising persons of modest means. Newly arrived immigrants join U.S. -born poor in energetic pursuit of the American Dream through occupations ranging from car services to street vendors. Consider some examples.

.. In the boroughs of Brooklyn and Queens, hundreds of vans, most of them owned and operated by immigrants from the Caribbean, regularly carry passengers from the end of the subway lines to the city's growing middle-class minority neighborhoods. The fare is less than that of the public bus and regular patrons appreciate that vans go where riders want to go and provide enhanced safety through door-to-door service.

10 In Harlem, as well as black neighborhoods in Brooklyn and Queens, salons specializing in African-style hairbraiding spring up almost overnight, offering specialized, stylish services, popular enough that they can fetch prices up to $200. New York is at the center of this nationwide phenomenon; one Brooklyn hairbraider is nationally-known for a book aimed at those aspiring to enter the field.

... On street corners, in otherwise vacant lots and in weekend street fairs, from Harlem to the Jamaica section of Queens, street vendors, some Caribbean, some West African, hawk a wide range of basic commodities such as ties, umbrellas and T-shirts, along with imported Afrocentric books and novelties. Southern-born African-Americarls, too, are involved in individual enterprises, preparing foods (such as barbecue or sweet potato pie) in kitchens at home, for sale on street corners or in neighborhood "farmers' markets." Estimates place the number of regular street vendors at more than 25,000.

.. Throughout the city's "outer boroughs," residential areas outside Manhattan, there are more than 20,000 providers of "car service," informal radiodispatched taxis that pick up customers who phone and take them to their destination for a pre-arranged fee. Car service drivers can get into the business using their personal cars in a city where almost half of all households either cannot afford or choose not to own a car.

It is in many ways an inspiring picture until one looks a bit more closely.

For in a city in which some 1 ° percent of the population is on public assistance and thousands are incarcerated for their involvement in the illegal drug trade, any or all of the self-employed entrepreneurs described face c1almting government harassment--and even arrest-vat a moment's notice for the "crime" of pursuing productive livelihoods.

Van drivers-cor self-described providers of "community transportation"-face long odds in an attempt to gain a license. Even if they succeed, they face fines or even confiscation of their vehicle for such offenses as picking up passengers at public bus stops. In essence, their activities are deemed illegal because they compete with public buses.

ffil#il4#t4*WiifW¥ &W 1N*£llWMWWMM8&MfW2WWWWM 'WW¥M¥2

2

Hairbraiders, unless they take more than five months of state-mandated classes totaling 900 hours (most of which teach irrelevant styling and treatment unused by African hairbraiders], carmot be licensed by the state of New York and face peremptory shut-down. Particularly in and around Harlem's 125th Street, many are forced to move from one clandestine location to another to avoid such a fate, simply because they ply a trade the government sees fit to over-regulate well beyond any legitimate public health and safety concerns.

Street vendors seeking a legal permit to sell their wares find that there are three to four times as many working vendors (and who knows how many wouldbe vendors) as there are .street sales permits available. The city's Office of Consumer Affairs sets the number of permits it issues so low that it will not even give out the permit application, so it is unlikely that one of the legal permits will become available.

Car service drivers face no such limit on their number. However, should they seek customers not through a radio-dispatch service, but by responding to a simple hail on the street, they face discipline by the city's Taxi and Limousine Commission, which prohibits them from operating as traditional taxis. If drivers aspire to operate a taxi in the city's lucrative midtown and lower Manhattan markets, ferrying passengers around town or to the airports, they will find doing so legally next to impossible. An artificial ceiling on the number of taxi "medallions," which allow drivers to pick up passengers on the streets of New York, has pushed the price on the private market to $175,OOO--a figure well out of range for the average entrepreneur, never mind those at the bottom rung of the economic ladder.

Thus New York City today is a metropolis in which a burgeoning, seemingly inextinguishable spirit of enterprise often confronts a regulatory system that clearly was not designed with such a large number of aspiring entrepreneurs in mind. The city's regulatory system seems swamped by a wave of the self-employed who find that if they were to comply with the law, they would have to abandon their activities. Instead, they continue them outside the law. Theirs are activities which cannot be considered criminal but which, except through luck or a significant capital stake, cannot become legal. Their activities are outside the city's regulatory oversight, even as to legitimate health and safety concerns. As a result, potential tax revenues are lost to the city.

The impact is enormous. The city's mainstream "formal" economy lost some 400,000 jobs in the late 1980s and early 19908. At the same time, the underground economy has grown and may now represent as much as 20 percent of the city's $50 billion econorny.! The vast preponderance of the underground economy consists of non-licensed and non-criminal activity, such as street vending or driving "gypsy" vans. License and permit laws have a role in dictating the size and nature of that informal economy. Restrictive laws, whatever their justification, force entrepreneurs underground. Once underground, these entrepreneurs have little hope of growing their business or

M£iM%#Wrl*MdM'OOh W!!W*M&&w'

3

obtaining necessary capital as they would in the formal economy. Enormous resources, human capital and energy must be devoted to avoidance of enforcement. When they seek to operate within the above-ground economy, they face time-consuming credentialing or paperwork they are ill-equipped to handle. The cumulative effect of such an environment suppresses the very dynamic of initiative, self-help, and economic growth most needed in New York's low income communities today.

Historical Warnings

The use of license and permit laws to limit entry to various fields, and thus protect existing businesses from competition, has long been recognized.e A 1972 report to the United States Department of Labor, which surveyed occupational licensing laws nationwide, wrote of "those who gain not only prestige but tangible economic benefits from the existing structure. "3 A study for the federal Employment and Training Administration focused on specific labor market effects_for minority groups and concluded: "Given the persistent high unemployment rates among youth and among minority groups and the desirability of lessening barriers to entry and mobility in the labor market, occupational licensure is an important area for analysis. "4 And the New York State Bar Association has said, "Licensing tends to have the clear effect, if not the clear purpose, of excluding worthy practitioners from the occupation in the self-interest of those already admitted. [The] exclusionary effect bears disproportionately on those who can least afford the time or money to assemble the necessary credentials. "5

It is beyond the scope of this study to examine the full gamut of occupational license and permit laws in New York: They occupy no fewer than 73 pages in the Official Directory of the City of New York with listings of various types of licenses, permits or other forms of certification which one may need from either state or city authorities to own or operate a business or simply to be employed in one. One needs a license to repair video-cassette recorders, to work as an usher or to sell tickets at wrestling matches. to remove and dump snow and ice, to set up a parking lot or a junk shop. So extensive is such regulation that one knowledgeable observer has been moved to write that "New York is a place where government dispenses access to the economy to a favored few. "6 The Giuliani Administration has undertaken notable reforms to make the city more hospitable to small businesses, but these reforms still leave in place a vast array of obstacles to honest enterprise.

This report looks specifically at a sample of occupational permitting and licensing requirements that affect the unskilled and/or entry-level. minimallycapitalized entrepreneur seeking to climb the first rungs on the ladder of upward economic mobility. In looking at such occupations, it becomes apparent that the warnings of older studies about the extent to which regulation can dampen legal

4

employment are especially relevant today. Restrictions that limit the selfemployed from legally pursuing their occupations can be divided into three broad categories. listed here with examples.

.. Ceilings (a cap on the number of permits): As they affect taxis, merchandise vendors, food vendors and newsstand owners.

" Occupational Requirements: As they affect hairdressers, child care center operators, and car services.

.. Public Monopolies: As they affect jitney van driver/owners and residential trash pick-up providers.

Ceilin s

Time and again in New York City, one finds entry-level occupations for which there are few, if any, particular qualifications or credentials required by law. And yet it is difficult, even impossible, for would-be taxi driver/owners. food vendors, merchandise vendor or newsstand owners actually to get into business. The reason lies in strict ceilings set by law on the number of activity permits. Frequently, such ceilings have been in place for many years and are now effectively overwhelmed by persons pursuing their occupations without benefit of a permit.

THE T.A.XI AND FOR~HlRE VEHICLE INDUSTR.Y

In addition to its theaters, restaurants, and museums, New York City is known around the country for one of its many forms of business regulation: the limit on the number of legal taxicabs. In 1937, the New York City Council capped the number of taxi medallions, the official city permit that allows taxis to pick up and discharge passengers on the street, at 13,595. At the time, the Council sought to help those already in the industry by limiting the overall number of cabs. At first the cap had little effect. By the late 1940s, the number of "medallion cabs" had decreased (through attrition) to 11.787.

Many areas of the city cannot get taxi service and there are far more prospective owners and drivers than there are legal taxis. Over time, this has had a series of unanticipated and unpleasant side effects. which have continued to multiply. The Giuliani Administration's recent move to add 400 new medallions at a cost of $175,000 each generates revenue for the city, but does little to alleviate the problems inherent in the medallion system. It is see the sales as much more than the city's move to capitalize on shortage it has created.

5

As early as the 1950s, it became clear that medallion taxis were getting enough business in lucrative areas, in particular the lower two-thirds of Manhattan (the midtown office district and the lower Manhattan financial district, as well as affluent upper East Side and West Side residential areas), and the two New York airports. It also became clear that they had no interest in serving poorer sections of Manhattan or the other boroughs (Brooklyn, Queens, the Bronx and Staten Island.) At the same time, the lucrativeness of the Manhattan and airport markets, coupled with the statutory limit on the number of taxi medallions and the fact that medallion owners are allowed to sell and lease them, combined to make entry into the taxi industry extraordinarily difficult and medallion prices ever escalating.

The high medallion price contrasts with relatively basic requirements for those who want to drive a cab. One must get a chauffeur's license from the state Department of Motor Vehicles at a cost of $20, renewable every four years. One must take a training class offered by the city's Taxi and Limousine Commission-a 14-hour course if one can show proficiency in English and map-reading, up to 80 hours in training if one cannot. These test requirements are a window into the demographics of those who would be New York cabbies today. Half of all applicants take a 40-hour course for those unfamiliar with the city; another 20 percent take an 80- hour course designed specifically for those for whom English is a second language. By such counts it is clear that would-be taxi drivers are largely poor immigrants, looking for a classic path upward. In a city in which more than 50 percent of the population does not own a car, owning and driving a taxi would seem to be an attractive, entry-level occupation.

The limit on the number of legal cabs sharply constrains such aspirations. Taxi and Limousine Commission figures show that some 40,000 people now have chauffeur'S licenses to drive medallion taxis in New York Crty, although there are only 15,000 such jobs legally available." Thus, as with regulated activities described throughout this report. there is a wave of ambitious would-be entrepreneurs confronting a government-imposed occupational limit. Drivers must pay high prices to lease the use of a medallion, prices driven up by the fact that medallion owners contract the work of leasing to "lease managers," who buy and maintain cabs on behalf of medallion owners and lease them to drivers. Because new medallion owners mayhave taken out large loans to buy a medallion, and because lease managers also want a share of profits, the result has been a high lease cost for drivers, as well as the use of older, less-expensive vehicles as cabs. Lease managers, whose profits come from the lease charges paid by drivers, have little incentive to compete by providing the best possible cars. Thus, it is common for medallion cabs to be former police cars that have been refurbished.

In this system--neither envisioned nor designed by those who Ion 0: passed the medallion statute--someone driving a legal cab may pay a $?~S to SlOO lease charge for each 12-hour shift for the privilege of driving for someone else when they would just as soon drive for themselves. (This is the cost of both

Nth

% A

iI!!M

±

w,

6

cab and medallion. About 5,350 cabs are leased this way.) Or one may lease by the week with prices ranging from $450 to $650 per week. There are, thus, high fixed costs for each driver, to which is added the cost of gasoline. The typical driver of a medallion cab must work 10-12 hours a day, six days a week to earn $6.25 an hour, or just under $20,000 a year. The fact that fares are regulated--capped in their own way--adds to the pressure. High fixed costs related to the lease price of a medallion contribute to what some have called a "sweat shop on wheels." Drivers tend to work long hours, drive fast, and avoid unprofitable trips in order to maximize their incomes. But this can lead to further, sometimes heartbreaking, side effects. Some drivers do seek to become their OV1Tl boss by buying a medallion. Collectively, New York City medallion owners have taken bank loans totaling no less than $1 billion. Those who lack the means to secure a loan may make installment payments to a current medallion owner in what is called a conditional sale. In this arrangement, those who purchase medallions build up no equity through their payments; in other words, if they stop making payments, they lose everything. The New York Times has reported the story of a 52-year-old driver who, having paid $100,000 over eight years toward the purchase of a medallion, developed a heart condition that prevented him from working. He lost the entire $100,000.

The current medallion-based system also creates a "boomerang effect," which emerges in highly-regulated markets that numerous newcomers would like to enter. The barriers to entry to the taxi business have led to the advent of an estimated 30,000 so-called "gypsy cabs+non-authortzed privately-owned cars that respond to street hails. Some have gone so far as to paint their vehicles yellow and to install rooflights to pass for medallion cabs. On the one hand, such stories have a certain poignancy, reflecting the difficulty faced by those who enter the taxi business. At the same time, such gypsy cab drivers bypass even the relatively modest and common-sense regulations that protect New Yorkers: taxi inspections, driver background checks, tests of basic driver competence and familiarity with the city, and insurance. The barriers posed by medallion ownership has, thus, boomeranged by spawning a far larger, completely unregulated business.

Faced with a system in which drivers are faring poorly, the condition of taxis has been deteriorating, and vast segments of the city are underserved, the city's Taxi and Limousine Commission has initiated a series of complex fixes. In January 1996, the City Council agreed to a 20 percent fare increase coupled with a cap on lease rates designed to give drivers 60 percent of the higher fares. At the same time, the city imposed strict new rules as to the age of cars used as medallion cabs: new cabs must be less than three months old; cars owned by those who operate fleets of cabs will have to be retired within three years; those owned by individual owner-operators will have to be retired after Those who lease cabs may well fare better; those who want to drive cabs will face the increased cost of new car payments.

&

7

Attempts at adjustment. however, beg the core question about New York City's taxi system: why should there be a limit on the number of medallions, and what is the justification for the specific numerical limit that exists? A case can be made that there is limited public space to accommodate taxis on the city's streets in congested areas. Likewise, there is limited curbside space for taxi stands. But there is also a case to be made that, were there to be open entry to the taxi market, coupled with an unregulated fare structure. that a variegated taxi industry could form. Such an industry might be one in which low-income owner/operators offer lower prices than more luxurious, name-brand cabs. It might be one in which regular taxi users find drivers or fleets they prefer and choose them on a regular basis. In short. it might well be more like markets for most other consumer goods and services in American life.

One would be naive in the extreme to think that any sort of easy transition is possible from the current capped and regulated market to a freeentry alternative. Too many people acting in good faith on the basis of established rules have too great a financial interest in the existing system for a transition to be easy. That does not mean that New York should not try to map its way, over time, toward an open and fair taxi industry. One could imagine a number of strategies that would abet such a change. A system that allowed current medallion owners to operate for a fixed period, with the ability to sell medallions, would allow them to amortize their cost. at the same time the system was being phased out. A modest rate increase could provide a pool of money to compensate existing medallion owners during a transition period. The city would then face the decision as to whether there were public safety reasons for restricting the number of taxis in its congested sections and, if so, what such restrictions might be. One possible form: a system in which medallions, if there were a limited number, were free and transferable, in the context of a market in which fares were unregulated as well. Taxi owners would then compete as other Americans do: on price and quality. Clearly, there is no guarantee that any individual entrepreneur would fare better than at present, but nor would there be today's likelihood that would-be drivers stay poor while medallion-holders. through an accident of history and regulation, reap gains while consumers suffer.

CAR SERVICES

Even short of a wholesale transformation of the medallion taxi industry, there is a step the city can take quickly and, it would seem, relatively more easily to help those in the for-hire transport industry. It concerns car services. These are services in which drivers pick up passengers only by pre-arrangement. in response to a telephone request. In the financial district and midtown Manhattan, car services provide a popular supplement to taxis. Meanwhile, the lack of cab service outside core areas of Manhattan has led the city, over tile past 40 years, to permit neighborhood car services to fill the void. By 1993, the Taxi and Limousine Commission estimated there were some 20,000 car service cars in New York.S (If one combines them with medallion cabs. their total

8

number represents more than half of all the "taxis" in the United States.)9 Today, car services must pay relatively modest city fees ($275 per vehicle, $60 per driver) and be affiliated with a radio-dispatching base wtth a permanent headquarters in a commercial area and at least 10 affiliated vehicles. Drivers must obtain a state chauffeur's license, but unlike medallion drivers, need not demonstrate English proficiency.

Even these relatively modest requirements are too great a barrier to entry for some. Numerous vehicles and bases operate Without proper licenses. In early 1990-91, the Taxi and Limousine Commission issued 39,400 summonses over a 12-month period for car service vehicles, buses or drivers operated without licenses. In a six-month period in 1992, the Commission went so far as to seize 1,819 vehicles and, in an II-month period that same year, padlocked 16 bases.Iv It is hard to understand why, apart from the relatively insignificant revenues they produce, such services should be asked to register with the city, or face such steep sanctions for not doing so. Encouraging self-employed drivers and a climate of economic opportunity, properly licensed by the state as drivers and required to maintain adequately insured, safe vehicles, would seem to outweigh the importance of license fees, especially in a city concerned about unemployment and its extent of public assistance. It should be noted that car services often are operated by people of modest means for people of modest means. A Taxi and Limousine Commission survey found that 75 percent of car service vehicles are O\V11ed by their drtvers and most commonly use Chevrolets and Oldsmobiles between seven and eleven years old. 11

The most important change the city could initiate relative to car services involves a right now reserved for medallion taxis: the right to pick up potential passengers who hail from the street. The current ban on such hails, coupled with the ceiling on taxi medallions, acts to buffer medallion owners from competition from car services. It is time for the city formally to recognize that its low and middle-income residential areas, where car services operate, are markets distinct from the midtown, lower Manhattan and airport markets. Even without the development of open access to the taxi market generally, the city should allow car services to pick up street hails in their own speciflc service areas. In many ways, New York City is a vast collection of distinct neighborhoods. Allowing a Harlem car service to serve Harlem, a Canarsie car service to pick up hails in that part of Brooklyn--at the same time not permitting them to do so in the lucrative Manhattan markets--makes sense no matter what the ultimate form of the taxi market. Both Mayors Edward Koch and D,lVJd Dinkins proposed such a change. There is no reason it should not be enacted.

ON-STREET FOOD AND MERCHANDISE VENDORS

The sale of food and goods from carts and tables on the streets of New York City has long been a Signature of the city, something that distingu1:cc,hes it from other American cities. New Yorkers relish the hubbub and vi , the

MM&¥

9

bargains and the array of ethnic foods and New York specialties such as hot pretzels and roasted chestnuts. What's more, as Lincoln was known for the log cabin of his birth and his long walk to school, so have New York politicians been known for modest origins among the merchants of the streets. Former Mayor Edward Koch frequently connected with constituents by noting that his father had been a street peddler. Another former mayor, David Dinkins, was himself a street merchant as a youth. 12

Yet despite these traditions, New York today has simply not come to grips with the demand by new generations of New Yorkers to follow in the footsteps of those who have used the streets and vacant lots of the city to sell food and goods. In no other area is there a greater disparity between the numbers of those trying to conduct bustness and the number allowed by the arbitrarily set legal ceiling. By law, no more than 4;'000 food vendors and 1,700 merchandise vendors may operate on the streets of New York. Estimates of the number of non-licensed vendors currently operating range as high as 18,000.13 As with the taxi ceiling, the number of legal permits appears to have been set for reasons that are obscure. It does : not, as best can be ascertained from the city's administrative code, appear to have been based on criteria such as the capacity of the sidewalks to accommodate carts and tables, or other tangible measures.

The city does, of course, have authority to keep streets and sidewalks accessible by limiting congestion that might be caused by vendors of various stripes. But surely it is also in the city's interest not to arbitrarily limit the impulse of entrepreneurs who are looking for entry-level employment. It would seem wise for the city to seek to uphold its public safety responsibilities without quashing the entrepreneurial impulse of would-be merchants. As things currently stand. however, the city leans more toward restriction than employment: it restricts both the number of legal vendors, through permits and licenses, as well as, the places and hours in which they can sell. (There are 33 city streets, many in midtown Manhattan, in which it is illegal even for fullylicensed food vendors to operate.) With thousands of non-licensed vendors looking to conduct business. the city's regulations mean tension and, inevitably, selective enforcement. Unlucky vendors who try to occupy too busy a corner or run afoul of an individual police officer risk having their goods confiscated. Such confrontations do not often resolve much. Periodic confiscation is taken as a cost of doing business; vendors are known for giving the police false addresses, among them Gracie Mansion, official residence of the mayor.

FOOD VENDORS

In significant ways, the vendor situation mirrors that of taxis. In food vending. for instance. as with taxi drivers, one must get a personal license to sell food before one can get a permit (the equivalent of a medallion) to operate a food cart. Even getting the personal food vendor's license is not an easy matter. One can get the license application itself only by appearing in person at a single location in lower Manhattan: the Department of Health office at 125 Worth

t & fW&€f

-

10

Street. Simply going to that office can take the better part of a day for someone who lives in the Bronx, Queens or Staten Island. The applicant must take a 15- hour course that costs $100 and is offered only by the City of New York through its Health Academy. New York is unusual in requiring specific food handling training. Cities, more commonly, require health inspectors to approve the cleanliness of the cart and the safety of the food. For those whose first language is not English, waiting times for the IS-hour course can be lengthy: courses in such languages as Spanish, Korean, Chinese and Greek are offered only when there are a minimum of 50 enrollees=no more often, the city estimates, than every 3 months. It is difficult to understand why the city cannot permit the community college system or other non-profit, private providers to offer such training.

As with taxi drivers, however, obtaining the personal license is the easy part. A far greater hurdle is obtaining the pushcart "decal" which allows cart operators to sell legally on the street. The city awards only:

.. Three thousand two-year permits at a cost of 8200 for those who cook and $50 for those (such as pretzel merchants) who do not.

.. One thousand six-month permits, generally sought by summer icecream vendors.

Again, as with taxis, pushcart decals were generally issued long ago to individuals and corporations who continue to hold them and renew them every two years. There is one notable difference: food cart decals may not be bought, sold or leased. Corporate permit-holders have gotten around this law, however, by leasing not the decal but a cart with a decal for two-year periods, at costs ranging from $4,000 to $9,000. The profits to be had in such leasing, and in the fact that there are a limited number of legal food stands altogether, has, as with taxis, led to domination of the food pushcart market by a small number of decalholders. Nearly one third of the permits are in the hands of eight corporations, which have formed a trade group called the Big Apple Food Vendors Association. One vendor controls 499 of the decals himself and reportedly earns more than a million dollars a year--in part thanks to the artificial limits on competition that the city's regulation imposes.

In an attempt to deal with this artiflcially-constrained Situation, the New York City Council has trted to make incremental adjustments. In 1995, for instance, the Council approved the issuance of 200 new two-year pushcart decals, 50 each for the boroughs of Queens, Brooklyn, the Bronx and Staten Island. At the same time, the city has moved to limit the number of food decals that can be owned by one corporation--pushing the city toward a standard of one-owner, onedecal. Finally, the city has established an administrative Street Vendor Review Panel to consider congestion caused by licensed food vendors. It is noteworthy that the Panel's first rules were struck down by a Manhattan court as "arbitrary and without objective criteria."

11

It is hard to avoid the conclusion that this is an overly complex system that helps neither the entrepreneur nor those concerned about congestion. It would seem both simpler and more fair to allow open -entry into the food vendor market, eliminating the arbitrary limit on the number of pushcart decals. At the same time, there is nothing to prevent the city from limiting the number of carts on given blocks+if it can show that there are public safety problems that might be caused were there to be more than a set number of carts in a given area. The city might even charge more for pushcart permits good for prime locations than for those in outlying neighborhoods as a means of limiting congestion and competition for specific corners. Decals, as at present, should be limited in duration, thus allowing regular auctions for the opportunity to sell at highvolume corners. Such a procedure would mirror procedures already adopted, ironically, by the city's Park Department, which accepts requests for bids for specific locations. There is no formal cap on the number of park vendors. Some permits command $500 a year; one other+-the right to sen on park land adjacent to the Metropolitan Museum of Art--costs no less than $288,000 a year. 14 A market process is thus used to limit congestion, instead of arbitrarily restricting entry. In the long run, however, this is only a means of limiting the grmvth of successful vendors and encouraging them to engage in subterfuge to hide their ownership. Open entry, in the context of limited restrictions on sale so as to limit congestion, is a far better alternative.

Selling food on the street is a traditional and obvious way for poor entrepreneurs to capitalize on ethnic cuisines and to get started in business. A limited number of licenses, long waiting periods for training, and arbitrary limits on how many pushcarts one firm can hold all combine to make this a far more difficult business than it should be for those who want to sell on the sidewalks of New York.

DISCRmnNATION AGAINST HOME·BASED FOOD PREPARATION

There is at least one additional side effect caused by the ceiling on food vendor permits. It involves those who would sell food they prepare at home. In 1993, a group of African-American women in Brooklyn founded the Hornebased Entrepreneurial Network (HEN), a support group for those eager to start businesses in their homes. The group's members engaged in a variety of work, for instance, in-home catering and food preparation, sometimes for private parties, sometimes with an eye toward public sale. Such entrepreneurs run afoul of a wide variety of regulations. In residential neighborhoods, in-horne businesses are simply not permitted by zoning laws. Even if they were, local Department of Health regulations prohibit the use of a private kitchen for preparation of food to be sold to the public. And, as noted above. the the number of public food vendors makes on-street sales of homemade whether sweet potato pie, barbecue sauce or fried chicken--impossible. By law. an individual who wants to prepare food for sale must lease space from an established commercial kitchen. Some try to do so by leasing kitchen time in

${§

q

12

off-hours, such as the middle of the night. Others simply give up. One member of the HEN group, for instance, former vice-president Louise Crenshaw, had a cookie-baking business in her Queens home. The law, she recalls, "forced me out of the house to find a leased commercial space." Eventually, she gave up cookie-baking although her enterprising spirit found release in successfully establishing a neighborhood coffee bar. Of course, even access to a legal kitchen does not guarantee a baker/entrepreneur a place in which to sell, thanks in large part to the cap on food vendor permits. Some members of the now-defunct HEN group were forced to use a loophole in the law to sell their foods, establishing stands in an indoor market in which many vendors sell in a mall run by the Jamaica Queens non-profit community development corporation. Such a sale is permitted as long as the mall is registered as a "farmers' market." Apparently, the law presumes that food made in a rural farm home must be sanitary, but that made in an urban home or apartment must not be. Were the city to be serious about encouraging enterprise, it would re-examine regulations barring home-based businesses and allow the Health Department to inspect and approve private kitchens for catering and specialty food preparation.

GENERAL MERCH.ANDISE

The disparity between the number of general merchandise vendor permits and the number of people who would like to sell goods on New York's streets and sidewalks is even greater than that which distorts the food vending business. There are but 1,700 merchandise permits available. another 300 for sale in the city's parks. Half of the 1,700 city permits are, moreover. reserved for veterans and their spouses. And yet there is a wave of street vendors throughout much of the city, whether in neighborhood commercial districts--where they spark conflict with storeowners--and at neighborhood weekend street fairs, where they take advantage of a loophole in the law which allows 30-day permits with no cap. "Merchants bounce from one fair to another, selling a depressingly familiar array ofT-shirts, socks, potted plants, gyro sandwiches and knickknacks," 15 according to a New York Times editorial, reflecting an unfortunate disdain for the city's wave of merchants, rather than an appreciation of their efforts at self-support.

Merchandise sales permits are not the only way the city regulates the sale of goods on the streets. As with food vendors, to minimize congestion. the Department of Consumer Affairs also sets the hours and locations at which permit holders may legally operate. General vendor regulations include a 27- page schedule listing individual locations and the days and times at which vending is legal. fA separate schedule is provided for booksellers, whom the city presumes to have a constitutional right to sell their wares but who are, nonetheless, barred from sales during hours at which all vending is barred at a given locatiori.)

MffiMF!\i _!'lO

!@@jj@

**

13

As with other occupations. the logistics of getting licensed would be difficult, even if a greater number of permits were actually available. No matter what sort of merchandise permit one is seeking. applications for permits are available at only one location, the Department of Consumer Affairs, 42 Broadway in lower Manhattan. Licensed vendors are all required to obtain a sales tax identification number, but are not required to carry insurance.

Taken as a whole, such policies make it rational to conclude that the city has seen the advent of so many vendors as a liability rather than an opportunity, a problem to be managed or contained rather than a wave to be channeled. The city's policy of what can be called double regulation, requiring both licenses and limiting the hours and locations of sale, has proved, not surprisingly, to be difficult to enforce, given the sheer number of street merchants. The combination of a limited number of licenses and a huge number of would-be and actual vendors has arguably laid the groundwork for tension and controversy.

In the present regulatory environment. there are several complaints leveled against the non-licensed merchandise vendors. Unlike small store owners, the vendors pay no rent and no taxes. In fact, the city has estimated that if the illegal vendor sales were taxed, they would bring $25 million to the city's treasury each year.l6

There is in addition the issue of public safety. Along streets most popular for street vending, competition for sidewalk space is fierce and sometimes even violent. Pressed for space, vendors set up their tables in front of residential doorways and shops. They form a solid wall, flanking both sides of the sidewalks, so that passersby may be jostled or even robbed when they squeeze through. In response, some pedestrians take their chances by walking in the streets, which are also crowded, full of vehicles double and triple parked, as customers pull up to buy from the vendors and wholesalers pull up to sell to them. In some medical crises, emergency service personnel have had trouble getting through the crowd. And some vendors gerry-rig wires SO as to steal electricity from nearby utility poles, a practice both illegal and unsafe.

There also has been vocal opposition to the street vendors from the owners of storefront businesses in areas of heavy street vending. They object to the congestion around their stores, which makes it difficult or intimidating for customers to enter. They object to the fact that vendors get "prime real estate" but pay no rent or taxes. They are angry at being undersold by the vendors-vespecially if the vendors are selling illegal goods or counterfeit name brands. But perhaps their biggest complaint is that the vendors leave behind mounds of garbage in front of their stores which, by law, the store owners must clean up. (Store owners are legally responsible for cleaning the sidewalks and gutters directly in front of their property.) Some have stopped cleaning up and are refusing to pay to 8250 fmes they are assessed by the Department of Sanitation, a srtuation that has contributed to "the many filthy neighborhood business strips seen in recent years." according to a city report on the topic. 17

M so

*+'0

14

Such complaints led, in the fall of 1994, to the controversial step of evicting unlicensed street vendors from 125th Street in Harlem-sa street that has been called "Harlem's Soul." The street had become a mecca for street vendors, and by some estimates as many as 1, 000 vendors came there regularly to sell. Business people along the street had been vigorously pressing for their ouster for some time.

Several things conspired to make the situation especially charged. For one, the employment picture in Harlem is dire. Citywide, 9.3 percent of men and 8.7 percent of women are unemployed; in Harlem, 22.3 percent of men and 13.7 percent of women are officially unemployed.lf In addition, West 125th Street has been "gentrifying" =wealthier newcomers have been moving in. Small black-owned businesses along the street have been under the economic pressure of higher commercial rents, and are being displaced by national chain stores, such as Foot Locker, the Body Shop, and Ben and Jerry's. These are developments some have greeted happily as a sign of economic rejuvenation, while others view them as a white corporate incursion into a local black area. Most explosive of all, more than half the store owners on the street are white, but nearly all the vendors threatened with eviction were black.

In October 1994, nearly 200 city police equipped with riot gear and large tractor-trailers for hauling away merchandise descended on the vendors and cleared them out. The action was an extension of Mayor Rudolph Giuliani's emphasis on reducing "quality of life" crimes, small crimes that create a climate of lawlessness in which more significant crimes can occur. In the process of the police sweep, there were scuffles, protests, marches, arrests, store windows smashed, and local merchants threatened, but at the time, no serious injuries. The black activist, Rev. AI Sharpton, who has an office on 125th Street, took up the cause of the vendors, joining a leader in the vendor community, Morris Powell, to file suit against the city, arguing that its eviction of the vendors had "obliterated the cultural roots and diversity of Harlem's African community.r lf

In what has since been adjudged a crucially important move, the city made a city lot at the corner of Lenox and 116th Street available to the unlicensed vendors, and convinced the local Malcolm Shabazz Mosque, to which many of the vendors belonged, to manage the market. Most vendors were cynical about the new market in the beginning, and some remain so. "You have to want to come down here to 116th," observed one Gambian vendor, working at the new market. "On 125th Street. everybody is already there."20 Still, perhaps owing to the credibility of the mosque, about 200 vendors agreed to give the market a try, paying $6 per day for a spot and accepting a tax identification number. The 116th Street market must be considered among the most enlightened initiatives the city has undertaken to nurture rather than suppress the wave of entrepreneurship on its streets. The new market offers free 11gh Ling and storage, round-the-clock security, business seminars and advice, public toilets, a snack bar, an automatic teller machine, and the more ineffable comfort of respectability. As legitimate, tax-paying operators, the vendors began to accept credit cards. Notably. six vendors quickly opened small storefront

kilWdlAWi4'?¥£,%WIi1i#·@W¢i@ilM4MA4!f&1IllSM§Sit@iW!!§§iii§?i&M ; a #f\ii%\Wif4IUl4 WW¥MfN¥M¥MWH 4

#

15

businesses. What's more, with the help of the city, the Malcolm Shabazz Harlem Market has become a tourist attraction and several tour buses began making regular stops there. The city considers the market a great success and has plans to replicate the 125th Street strategy on vendor-congested streets in Queens, Brooklyn. and the Bronx.

Indeed, the advent of city-facilitated, open-air markets for otherwise unlicensed vendors does have to be considered a tacit acknowledgement of their value as entrepreneurs and contrasts markedly with a simple crackdown. The development of such open-air markets, which effectively legalize large numbers of merchants outside the legal ceiling, might be termed "license equivalency," a creative means to provide a legal umbrella for vendors who are not individually licensed. There is, however, simply no getting around the fact that, in the move from 125th to 116th Street, many vendors were clearly discouraged from pursuing their trade, and that some vendors were sure to make less money in the new market. Carlos Pesante, who had sold toys and games for seven years on 125th Street, earning as much as $150 a day, has said that in the new market, he earned half as much.v! Moreover, a horrifying set of events unfolded in conjunction with th-e eviction of the 125th Street vendors. Some of these vendors joined in a daily picket -protest of a clothing store on 125th Street, owned by a white, .Iewish businessman, targeted because he was no longer willing to sublet part of his space at below-market rent to a record shop owned by a black immigrant from South Africa. In December 1995, one of the street vendors involved in the protests entered the clothing store with a gun, shot four people, and set fire to the store. In all, eight people died, including the gunman, and four were wounded. Some of the gunman's friends and relations attributed this burst of rage to his eviction from 125th Street. "He felt they were driven out like dogs," a friend told the Daily News.22 One cannot dismiss the idea that the impossibility of attaining legal status may be an incentive, though certainly not an excuse, for street vendors to engage in other illegal acttvtties-vranging from the sale of stolen goods to the unfortunate events of 125th Street.

An enlightened policy might be based. as with food vendors, on removing the ceiling on permits. Common-sense public safety regulations can be established and enforced, with no one barred arbitrarily, from selling merchandise on the street. In such a system, the city could still deal with congestion and merchants angling for the best selling corners. Permits could be sold for the right to do business in specific areas. Again, market mechanisms could be used: permits for more attractive corners would simply cost more. The city could build on its constructive policy of offering vacant lots to vendors by making such space available at little or no cost. All vendors could be required to pay a minimal city occupancy tax. Would this protect all existing businesses from the competition of ambitious vendors? Of course not. But it is not the city's role to make such guarantees. There is nothing, however, to prevent the city from insisting that legal vendors not only clean up their garbage or face a fine. but also pay the sales taxes.

16

The key first step, however, is legalization and an end to the system of double regulation: a permit ceiling along with time-and-place restrictions. Once merchants are brought on to the right side of the law, the city can begin to craft reasonable permit rules-designed to foster, not frustrate, entrepreneurship.

NEWSSTANDS

There are, by law, only 230 legal newsstands in New York City. Permits to operate the stands are issued for two years by the city's Department of Consumer Affairs and cost $1,100. A variety of preferences for veterans, immigrants and the elderly have been designed to favor certain entrepreneurs. But the overall ceiling on the number of permits has tended, as with taxis and food vendor licenses, to have another effect. A small group of family owners, primarily from India, is said to have gained control of most of the city's newsstands by paying those with licenses. These operators are then said to illegally hire employees, rather than to operate the stands themselves, as the regulation contemplated.

The city currently is considering what would appear to be a quite different approach, one in which corporate and non-profit bidders would compete for the right to construct and operate newsstands, licensed through a request-for-bid process similar to that which the Park Department uses for food vendors. Bidders would compete for the right to use publicly-owned space. The city anticipates bids of approximately $10,000 per permit; operators would be limited to one license. In addition, they would have the right to sell advertising space on the side of the newsstands.

There is a question here, however, as to whether this is a policy designed to aid entrepreneurs or to maximize revenue for the city. It is ironic that those who sell books on the street are, under a city interpretation of the First Amendment. exempt from the cap on general merchandise permits while no such interpretation has been applied to newsstands. It would seem fundamental for a policy designed to encourage newsstand ownershtp to drop the overall ceiling on permits. As suggested above in regard to vendor licensing, the city might still, in order to reduce congestion and eliminate overly aggressive competition for specific locations, charge varying prices for different newsstand locations. It is difficult, however, to see why the city would want to insist by law that those who start newsstands should remain small businessmen or women. Absent a legal limit on the number of stands, the entry-level owner of a small stand could coexist with larger firms owning more stands. As with vendors, the city's ceiling on the number of operating permits cries out for re-examination.

¥$k&¥&

*WM¥

17

ccupational licensing

In the areas described above, permits for activities such as driving a taxi or selling food on the street, are nearly impossible for would-be entrepreneurs in New York to obtain. QualifYing to do the job is not, in comparison, that hard, though it could be logistically difficult to take a required training course, however brief. There are, however, a wide range of other regulations that apply to New York City residents but are administered by boards overseen by the office of the Secretary of State of the State of New York. These regulations frequently set education and training requirements that potential entrepreneurs find not only arduous to meet but also unrelated to legitimate regulatory concerns.

COSl"iiETOLOGY

New York City has become a national center of a national phenomenon:

African-style hairbraiding. TIlls West African-influenced hair style for AfricanAmericans can be seen among people in all walks of life and at all economic levels. Its stylistic influence is not confined only to blacks. To a great extent, this is a business of sole proprietors and small shops, often practiced in private homes and apartments or small storefronts. "Salons seem to crop up overnight along 125th Street and around the city to meet the growing demand for African-inspired hairbraiding," The New York Times reported in the summer of 1994.23 So well-established is the hairbraiding industry in New York that it has come to influence entrepreneurs in other cities as well. One of the nation's best known hairbraiders, Nekhena Evans, sells her how-to guide for aspiring hairbraiders, "Everything You Need to Knou. about Hairiockinq," from her home-based firm in Brooklyn, New Bein' Enterprises. It is not uncommon for prominent hairbraiders to work out of their homes. As Diane Bailey of the International Braiders Network has observed: 'The industry is so underground. This is a cottage industry done in our homes, on our stoops, in our kitchens.Y"

Hairbraiding is done this way because it is, for the most part, performed by unlicensed practitioners. As with home-based catering, in-home hair salons are by definition not legal. But the central complication for "braiders" lies in the fact that, because they provide a service involving hair, they are subject to the occupational licensing laws affecting the entire field of cosmetology. In New York state, that means that. to become a licensed hairdresser and thus qualify to practice hairbraiding legally, one must attend no less than 900 hours of classes focused on such areas as haircutting techniques as well as general business training. Nine hundred hours represents a 1994 modification, a modest attempt to accommodate braiders and other so-called natural hair stylists. Tl)C: requirement had been 1000 hours and the mandatory course which included chemical treatment of hair, a process never used by hairbratders. That requirement had been scheduled for an increase to 1,200 hours prior to a regulation freeze imposed in 1994 by Governor George Pataki.

18

New York is by no means unusual in requiring that these courses apply to hairbraiders. There are no exceptions for "braiders" in the laws of California, North Carolina or Massachusetts, which require 1,600, 1,500 and 1,000 training hours respectively. It is not within the scope of this report to critique the training process required for beauty enhancement licenses. Suffice it to say that the extent of training is significantly greater than that for other seemingly demanding state-licensed occupations. In New York, one needs only 116 hours to qualify as an emergency medical technician with advanced training in the use of heart defibrillation: and 47 hours to be a security guard authorized in the use of deadly force.25

Other training periods may be shorter because of a desire of employers in those fields to train as many qualified employees as possible to fill jobs for which people are urgently needed. The cosmetology requirements, on the other hand, may reflect a desire to restrict entry into the field so as to minimize competition. This view has been well-documented historically. A 1975 Department of Labor economic analysis of occupational licensure demonstrated a correlation between the number of applicants judged to fail cosmetology exams and the rate of unemployment in a given state. The study concluded that exams were used as a way to exclude potential new entrants to the field during times when hairdressers had additional motivation to reduce the number of cornpetttors.vf

There is reason to believe that cosmetology laws in New York are similarly inspired. Consider the case of manicurists, who may also offer hair removal service. The growth of such nail salons, many run by Korean and Russian immigrants, inspired a new regulation, adopted in April 1994, to require 250 hours of training for those who would work as manicurists. In addition, those who would offer hair removal service were required to obtain a full-fledged cosmetology license. Members of the Korean American Nail Association have charged that the regulations were anti-competitive. "My feeling," one salon owner has said, "is that the American beauty salons felt they were losing business to the Koreans and felt they needed some protection. "27

As with vendors, it is important to distinguish between legitimate interests of the state-vlnvolvtng health and safety--and anti-competitive regulations that make use of the force of law. In the case of cosmetology, it is difficult to see how the public would be harmed by confining state inspections to the sanitation of the premises of hair salons, whether in-store or in-home. The idea of inspection of premises rather than the licensing of individuals also has been raised in a report cornmiseioned by the U.S. Department of Labor, which drew an analogy with restaurants: "Restaurants are inspected periodically by sanitarians who work under the jurisdiction of a health department. They have the authority to close any establishment that fails to meet standards established by a local board of health. The questtori gocsback to whether it is necessary to license individuals when the objectives of may be achieved just as well or even better by licensing an establishment. "28

em hUiIl itt 1m; 4&

44&4W464!4&M¥§§&%W&tWW

Ii!i!i

AM

-

19

Apprenticeships, too, could offer those who cut or set hair a means to learn their trade. Those who chose to attend beauty academies could still advertise that fact, in order to seek competitive advantage. Those who employ chemical treatments of the hair may want to emphasize their specialized training. In general, however, it is difficult to envision a risk to the public commensurate with the current level of regulation--especially when that regulation has the effect of driving underground a service which the public wants and which hairbraiders want to offer. The greater risk, in fact, may be that posed by the status quo. By driving legitimate hairbraiders underground one risks, as with gypsy cabs, the same boomerang effect. Maximum regulation becomes the enemy of basic reassurance, which, in this case, might be health inspections of hairbraiding premises,

CHILD CARE

The need for high-quality child care centers has become Widespread over the past two decades. The growth of women in the workforce and the increased pressure on women receiving public assistance to seek employment combine to keep demand for child c-are high. And yet legal requirements seem to make it more difficult for private providers to offer "affordable" child care,

In New York. opening a group day care center (defined as a freestanding facility for seven or more children) outside one's own home is an elaborate process--one that requires approval of the premises by inspectors from the city's Building Department, Fire Department and Department of Public Health. In addition, there are demanding occupational licensing requirements. The regulations of the city Department of Health's Bureau of Day Care require that prospective employees in a child care center meet the same certification requirements as school teachers.

A center director must either have obtained a master's degree or enroll in a master's program upon being licensed. At least. one staff member rmrst have child abuse prevent.ion training, CPR training and two health-related courses in child development. All of this in addition to programmatic requirements, which limit the number of children in specific age groups and specify the type of snacks to be served, even requiring that there be enough snacks for children to get second helpings,

It may be hard to find fault with the motivation behind such regulations~protection and education of children=but such occupational requirements, in particular, raise questions. Are educational credentials the best or the only assurance for parents as to the wholesomeness of a child care center's environment? Child care techniques can be and are learned from experience by people than master's degree levels of education. Should such persons be excluded as clay care center directors? Just as cosmetology license requirements are a boon to beauty academies, master's degree requirements and teacher certification are a boon to schools of early childhood education at the expense of child care supply.

¥fAA

.. 00

20

It is worth noting that New York City sets considerably higher standards for day care center operators than many other jurisdictions. The teacher certification and master's degree requirements are particularly unusual. In other places experience with children substitutes for formal education. Massachusetts regulations, for instance, allow program supervisors to have only a high school diploma if they have four years of experience caring for children. North Carolina, Similarly, does not require any sort of advanced degree. California allows day care center directors to have a high school diploma and 15 credits of early childhood education or four years of experience in a day care center or group child care program.

"FAMILY" DAY CARE

The onerous demands for formal day care center directors and staff ironically contrast with New York State-regulated requirements for another form of day care. "Family" day care is provided in private homes or apartments, limited to six children under the age of six: or twelve school-aged children. It is a regulated activity but not a licensed one. In other words, there are operating rules and a permit for operations must be obtained, although a license based on personal qualifications is not necessary. Those who seek the services of a family day care provider assess competence based on conversation, observation and common sense.

The relatively modest family day care requirements include a 15-hour free orientation offered in a variety of languages, two to three times a week in all five boroughs of New York City, as well as two years experience with children sL"C weeks to six years. Interestingly, a required 1I5-hour refresher course, necessary for permit renewals, is offered by community-based non-profit groups raising the question as to why food handler training cannot be offered by institutions other than the city's Health Academy. There are also the less stringent occupational standards for family day providers. There are more than 5,000 registered family day care providers in New York City. By way of comparison, there are an estimated 4,000 such providers in the entire state of New Jersey. Still, state regulators believe that there are numerous unlicensed providers, as well.

Not that this is viewed by local officials as a success worth butldmg on.

City officials complain that zoning laws do not apply to family day care operations, which are not considered a "commercial use." This precludes local officials from applying a host of local regulations to family day care centers, a situation local regulators would like to change.

The fairly minimal family day requirements, however, and the large number of providers who have obtained permits. appear to demonstrate that sensitively set regulation can solve the problem of practitioners driven underground, a city maintain its role in protecting public health and safety. Formal child care centers in New York provide both employment for their staff and options for parents. How many more might there be if the precedent of family day care applied to child care centers generally?

l!i!

21

Public Monopolies

A public monopoly is an economic activity that a government reserves for public employees. Such monopolies are, in theory at least, based on the belief that some activities are what economists call "public goods" --products or services that are of benefit to society at large but the efficient provision of which is not profitable through the private market. For example, national defense is a public good. New York City reserves a number of activities to public employees, though one can question whether these are truly public goods. In one important instance a public monopoly, in fact, has clashed with private competitors. What was New York's response? Quash the private competition.

VAN SERVICES/"COMMUNITY TRANSPORTATION"

When Hector Ricketts calls a meeting of the Interborough Alliance for Community Transportation, as many as 25 local businessmen and women, many the owners of fleets of vehicles, show up. People like Ricketts, the owner of Queens Van Plan, or Vincent Patterson, owner of Patlin Transportation, or Pat Harvey, president of Pat's Carriers, are, to all appearances, law abiding citizens. They run businesses that seem quite straightforward, ferrying passengers throughout immigrant and minority neighborhoods of Queens and Brooklyn, typically taking them from subway stations, down major commercial streets and into residential neighborhoods. The "dollar van," indeed charges a dollar per ride and run throughout the day and much of the night. There are an estimated 5,000 vans, carrying some 20,000 passengers a day--a larger number than most bus systems in the United States.29 The van services have been the route by which their owners, many of whom now employ numerous drivers, have worked their way up the ladder of economic mobility. Virtually all are Caribbean immigrants, from Barbados, Jamaica, St. Kitts, Guyana and assorted islands, who have escaped poverty through this enterprise.

Appearances are deceiving, however. Everyone at an Interborough Alliance meeting knows that he or she is at risk. City and state inspectors, or local police, may, on any given day, slap vans with a variety of citations. In one IS-month period, for instance (July 1990 through December 1991), 11,700 city citations and 6,500 state citations were issued to vans for offenses such as stopping at or near public bus stops to pick up or discharge passengers. Those found to have numerous previous offenses today risk immediate confiscation of their vehicle and possible shut down of their entire business.

"You invest $30,000 in equipment and insurance," observes Hector Ricketts, "and you have to run and hide. You're part of a $50 million industry and you're running like a crook."

~.;M&4#b¥M%**** 4'=I&.&&&&&W ¥1&4¥#A¥

This results from a fundamental problem that the van services face.

Although some have licenses, none is or can be licensed for what drivers and customers really want to do: pick up passengers wherever they find them and drop them off wherever they might like along the van's route. This innocuoussounding goal flies in the face of a public monopoly: the exclusive right of buses owned and operated by the independent public agency called the Metropolitan Transit Authority (MTA) to run on New York City streets. The theory behind the MTA is that of the public good; that a public transportation system is vital and that a public agency must run such vehicles. By law, no private transit service may compete with a public bus route.

Such theory did not, however, anticipate small, flexible-route vehicles such as vans and mini-vans that can be operated at a profit by private owners. One could imagine New York welcoming the advent of such a service, especially because public buses are expensive and heavily subsidized. The buses, in fact, lose money--a lot of money-eon every run. Citywide, the revenue received from passengers (which reflects various fare discounts for students and the elderly) averaged $1.08 for each local ride. (The full posted fare is $1.50). On an average weekday, it costs the Transit Authority $2.66 to provide that ride, accounting for an average subsidy of $1.58 per rider per ride. Subsidies are even higher on many of the routes on which the public buses compete with dollar vans. The Q5 bus in Queens receives a subsidy of $3.94 per rider; the Q84, a substdy of $3.13. Such subsidies help to support. wages for bus drivers which, including fringe benefits, top $25 an hour, or more than $53,000 a year. And yet despite such high levels of tax dollar support. public bus lines lose riders to vans whose dollar fare must not only cover costs but allow owner/operators to make a profit.

Why could dollar vans attract riders despite heavily-subsidized competition? The answer lies in the unpopularity of public bus service, especially in outer boroughs, such as Brooklyn and Queens. Service is sporadic (in part to control costs), Typically, bus routes may lack sufficient capacity at rush hour and have too much capacity at other times. Buses will not pick up or drop off passengers where they want. To provide as much service as possible at peak hours, the Transit Authority may have to incur overtime charges for its work force of unionized drivers. In addition, the public bus fare (81.50) is half as costly 2S that of the dollar vans. This was not a small matter in the city's so-called "two fare" zones--neighborhoods in which residents took a bus simply to get to the city's subway syst.em, where they had to pay a second fare. The Transit Authority recently announced plans to provide free transfers from surface lines to subways thus eliminating the two-fare structure.

All this notwithstanding, New York City regulation is stacked, formidably, against van owners, who provide a far less expensive and more popular Historically, a relatively small number (SOO-plus) of van owners were able to obtain New York State Department of Transportation licenses to operate as commuter vans transporting passengers from one fixed point to another (for example, a shopping plaza to a subway terrninus.) Even to obtain these licenses,

*S i1t?d H

however, van owners had to pledge that they were not competing with public buses and that, in fact, public buses did not run within two miles of their routes. More recently, the authority to regulate vans has been given to the New York City Council, which has issued only two licenses in more than a year.

However, even those vans holding state licenses or those which are able to gain city approval cannot be licensed to do what they really want to do: compete wit.h public buses. Such competition is illegal. Moreover, if a van is able to identify and gain a license to serve a route not served by a public bus, the public system has the right to initiate service along that route and demand that the private provider cease and desist. Just to reiterate: the city prohibits vans that cost a dollar and turn profit for private owners from running in competition with public buses. Instead, the Transit Authority runs buses which lose so much money on every run that, in order to cover costs, some require subsidies of more than $3.00 for each paying passenger.

It is easy to see why the Metropolitan Transit Authority and the Transit Workers' Union would resist the dollar vans. By one internal MTA estimate, the authority loses between $30 and $50 million annually to these non-legal competitors. Unionized drivers, who earn more than twice what van drivers earn (average pay $20,000 a year), clearly have an incentive to keep out the vans. But it is much harder to identify how the public would suffer were such vans to be legalized as overt competitors to the public buses and regulated to protect public health and safety. It is possible that certain populations, such as the handicapped, might not be served. More broadly, it is possible that there are services offered by public buses which are, indeed, public goods and should be addressed. Similarly, an open market for dollar vans may pose congestion problems, given limited curb space in crowded neighborhoods. But such issues-if they truly are issues--can be dealt with directly. They hardly merit the suppression of an entire industry.

RESIDENTIA.L TRASH REMOVAL

The only people who pick up household trash in New York City are the employees of the City's own Department of Sanitation, a department with more than 11,000 employees and a budget of almost $600 million. Although commercial trash is picked up by private haulers, the Department of Sanitation alone is responsible for the pick-up and disposal of the 14,000 tons oftrash New Yorkers generate daily. More than 8,000 uniformed "san men" (sanitation men) fan out daily over 59 local districts in more than 1,000 garbage trucks. Another 200 trucks pick up curbside recyclable materials. The salaries of san men start at $23,000, the highest in the nation, and is complemented by a package worth an additional $13,500. When overtime is considered, however, it is not uncommon for those who pick up garbage in New York to take home salary and benefits worth more than 855,000.

24

But why is the pick-up of household trash a public monopoly in New York? Historically, the city has feared the influence of organized crime on the private "carting" industry. The recent entry of major national garbage pick-up firms into the New York market, along with indictments of the owners of a number of small carters, may mark a change, however.

It is extremely common for cities to contract with private haulers to do such pick-ups. Some cities, with an eye toward retaining their own capacity to pick up trash and to keep equipment on-hand that might be useful in snow emergencies for instance, have developed systems that combine public and private pick-up. In Indianapolis, for example, the city is divided into nine districts; bids from both public employees and private firms compete for the right to pick up trash in each district.

There is, by no means, a guarantee that an end to the public trash monopoly will favor the small, entry-level entrepreneur whose interests are paramount in this report. Indianapolis has chosen to reserve some districts for locally-owned trash haulers but such a system poses its own potential problems of Inefficiency and unaccountability. It may be, too, that the pick-up of recyclable materials could be bid on a district-by-district basis in a way that could include small haulers, who might need only a relatively simple truck in order to do the job.

Trash hauling is currently a public monopoly. There are many reasons, including budgetary ones for the city, to re-examine that monopoly. The small entrepreneur would be among the beneficiaries of a competitive market system.

Conclusions

The revival of a culture of enterprise, one in which thousands of poor but ambitious people routinely pursue their occupations, aids both those in business for themselves and others whom they may inspire or, ultimately, employ. Such a culture of enterprise is an essential and powerful catalyst for community building. For as Jane Jacobs, the famed observer of urban life and the life of New York in particular, has pointed out, small ideas can become bigger ideas, and the lives of the poor can be fertile ground for innovation. "Acute practical problems in cities," Jacobs has written, "often bear most heavily upon people lowest in social hierarchies, and thus are noticed, and also often understood, by those people long before they are taken seriously by those who lead more sheltered lives." The example of the dollar vans of Brooklyn and Queens as a response to the gaps in public transit service clearly comes to mind.

Htstorically small scale entrepreneurialism was called "penny capitalism."

As such, it has a contemporary echo in the burgeoning movement known as "trucrofinarice," the creation of mechanisms to direct capital to very small-scale

25

entrepreneurs. Common in developing countries such as Bangladesh, there is growing interest on the part of philanthropic donors such as New York's Citibank (through its "CitiCorps" foundation) in transplanting the microfinance model to poor neighborhoods of American cities, including New York. Regulatory barriers are a significant hurdle to such an effort. Banks and other financial institutions simply cannot make loans to businesses+whether in-home catering or community transportation+which, although benign and profitable, are not legal.

How, then, can New York come to grips with its wave of hopeful entrepreneurs and provide the legal regime necessary to spark positive forces so desperately needed in its low income communities? How can it reconcile the need for some regulation with the deadening effect posed by its current mass of anarchic and archaic regulation? The goal should be the formulation of a consistent policy across ranges of occupations, a policy designed to encourage entry-level employment [and employment generally)' to discourage the use of regulation to create private, competitive advantage, and to articulate expressly the legitimate public interests that merit governmental concern (e.g., congestion, health or safety) and then to tailor carefully laws or regulations to meet that end. Every current regulation on entrepreneurship should be re-examined now and on a regular basis to conform to these criteria.

Among specific topics should be the issues of permit ceilings, public monopolies and occupational licensing standards. Such issues should be considered in the context of encouraging entrepreneurship and employment, which is nowhere mentioned as a succinct public goal in the administrative histories of any of the city's activity regulations. Reformers should keep in mind the words of the New York Bar Association, which has observed that "regulation" should be considered "undesirable" when "adverse consequences are not substantial" and "the consumer has available bases other than state licensure upon which to evaluate [the] practitioner, such as referrals and inspection. "30 As things stand now, regulation has given New York entrepreneurs a blighted future. These individuals, their customers, indeed the city itself, deserve a vibrant, hopeful future in which enterprise and aspirations for a better life can be a driving force throughout the metropolitan area.

nu ¥6¥&M 4

#9

Endnotes

Deborah Sontag, "Hidden Economy: Immigrants Underground," The New York Times, June 13, 1993, sec. 1, col. 3, p.I. The informal economy was estimated at $54 billion.

2 Milton Friedman, Capitalism and Freedom, (The University of Chicago Press, 1982) p. 148 (Licensure "almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public. There is no way to avoid this result."]

3 Benjamin Shimberg, Barbara F. Esser, Daniel H. Kruger, Occupational Licensing and Public policy, Final Report to the Manpower Administration of the us Department. oj Labor (Educational Testing Service, Princeton, New Jersey, October 1972) pp. 343, 365.

4 Elton Rayack, An Economic Analysis oj Occupational Licensure, US Department of

Labor, Employment and Training Division, Washington, DC, September 1975.

5 New York State Bar Association, New York State Regulatory Reform, April 1982, p. 27. 6 Steve Mariotti as paraphrased in "It's Not the Same America," Inc .. May 1994.

7 New York City Taxi and Limousine Commission, The New York City Taxicab Fact Book, May 1994 (34th edition), p. 41.

8 New York City Taxi and Limousine Commission. The New York City For-Hire Vehicle Fact Book, February 1993, p. 39.

9 Fidel Del Valle, former chair, New York City Taxi and Limousine Commission, as

quoted in Emily Sachas' "Viewpoints," New York Newsday, January 26, 1994, p. 87.

10 The New York City For-Hire Vehicle Fact Book, supra note 8, pp. 34-36.

11 The New York City For-Hire Vehide Fact Book, supra note 8, p. 11.

12 Deborah Sontag, "Unlicensed Peddlers, Unfettered Dreams," Part II from "Hidden Economy: Immigrants Underground," The New York Times, June 14, 1993, sec. A. coL 1, p.l.

13 Lennit Bligen. director, and Fred Leopold-Hooke, deputy director, New York City Vendor Initiative Program, Addressing the Problems of Street Vending: Strategies that incorporate concerns for public safety, street vendor entrepreneurship, and small More relief, undated, p. 15.

14 Information regarding parkland adjacent to the Metropolitan Museum of Art comes from an interview with Mark Feinstein of the Parks Department, Revenue Division.

15 Editorial Desk. "Street Fairs Need Reform," The New York Times, January 24, 1996.

sec. A. col. 1, p.1S.

16 'unlicensed Peddlers, Unfettered Dreams," supra note 12.

17 "Addressing the Problems of Street Vending," supra note 13, p. 7.

18 Dan Barry and .Johnathan Hicks, "With Harlem at a Crossroads, Visions for Economic Future Diverge," The New York Times, December 24, 1995, sec. 1, col. 2, p. 19.

19 Dan Barry and Johnathan Hicks, "Protester is Caught in Fatal Fire's Glare: New Look

at a Harsh Message." The New York Times, December 15, 1995, sec. B, col. I.

20 Guy Trebay. "Speech Defects: Word War One on 125th Street," Village Voice.

December 26, 1995, Citystate, p. 18.

21 Karen Hunter, "125U1 Street Solution Still Getting Mixed Reviews," New Yoric Dully News. July 5, 1995, Business, p. 45.

@4ii%$il!@¥4WM¢p ¥@4ASMi*¥&i§MbW

4&

£

27

22 Jere Hester, "Fiend a Vendor With a Gnldge Gunman Mad at Being Moved," New York Daily News, December 11, 1995, News. p. 7.

23 Claudine Williams, "Hair Wars: Underground on 125tl1 Street," The New York Times, August 21. 1994, sec. 13, col. 2, p.4. Braiders are said to earn from $70 to $200 per customer.

24 Patricia Reynolds, "Homespun Hair: Kitchen Salons Hold the Key," The Boston GLobe, October 25, 1995, Living, p. 71.

25 Information regarding the hours needed to qualify for state-licensed occupations comes from the Governor's Office of Regulatory Reform, State of New York, Albany, NY.

26 Elton Rayack, An Economic AnaLYsis of Occupational Licensure, US Department of Labor, Office of Research and Development, September 1975, p. 147. "When labor market conditions worsen, licensing boards tend to fail a higher percentage of applicants, in order to reduce the flow of new entrants into the market and thereby strengthen the competitive position of the licensed."

27 Rosalyn Retkwa, "Korean salons' polish chipped; Manicurists menaced by state rules," Crain's New York Business, November 1, 1993, Women's Business, p. 46.

28 Occupational Licensing and Public Policy, supra note 3, p. 372.

29 Information about the dollar van industry and level of subsidy for public buses comes from the Office of Management and Budget, New York Transit Authority.

30 New York State Regulatory Reform, supra note 5, p. 30.

28

Biography

WILLIAM H. MELLOR President and General Counsel

William H. (Chip) Mellor serves as President and General Counsel of the Institute for Justice. Mellor litigates cutting-edge constitutional cases nationwide protecting economic liberty and challenging the Regulatory Welfare State. Among his accomplishments are breaking open Denver's 50-year-old taxi monopoly and defending of New Jersey's welfare reform.

The Wall Street Journal wrote of the Institute, "Meet the new civil rights activists. Their belief is that the right to earn a living free from excessive regulation is guaranteed by the Constitution." "The Institute for Justice's influence is being felt across the nation," noted Investor's Business Dailv, and Barron's National Business & Financial Weeklv remarked, "So give a cheer and a wink for Clint Bolick and Chip Mellor, legal gunslingers with a taste for entrepreneurs."

Mellor's views and writings have appeared in The Washington Post, The New York Times, The Wa11 Street Journal, Los Angeles Times, Chicago Tribune, National Law Journal, Reason, Investor's Business Dailv, "CBS Evening News", CNN, "Today", ABC News "Nightline" and numerous other publications and programs.

From 1986 until 1991, Mellor served as President of the Pacific Research Institute for Public Policy, a nationally recognized "think tank" located in San Francisco. Under his leadership, the Institute commissioned and published the path-breaking books on civil rights, property rights, and technology and the First Amendment that serve as the Institute for Justice's long-term, strategic litigation blueprint.

Prior to Pacific Research Institute, Mellor served in the Reagan Administration as Deputy General Counsel for Legislation and Regulations in the Department of Energy. From 1979-1983, Mellor practiced public interest law with Mountain States Legal Foundation in Denver, Colorado. Mellor received his 3.D. from the University of Denver School of Law in 1977. He graduated from Ohio State University in 1973.

Through strategic litigation, training, communications, and outreach, the Institute for Justice advances a rule of law under which individuals can control their own destinies as free and responsible members of society. We litigate to secure economic liberty, school choice,

property rights, freedom of speech, and other vital individual liberties, and to restore constitutional limits on the power of government. Through these activities we challenge the ideology of tilE) welfare state and illustrate and extend the benefits of freedom to those whose full enjoyment or is denied by government. The Institute was founded in 1991 by William H. Mellor and Clint Bolick.

W'4@9Mci; #1QWi\W\MiO

29

The Institute tor Justice is a nationally acclaimed public interest law firm that pursues strategic public interest litigation and outreach to ensure that individuals have the opportunity to pursue their chosen occupation and gain a foothold on the economic ladder. Scripps Howard News Service wrote, "the Institute for Justice [is] a public interest group fighting for something our cities desperately need more of: economic opportunity at the grassroots."

The Institute tor Justice is now in seven cities across the country analyzing government-created barriers to entry-level entrepreneurial opportunity. At a time when there is widespread recognition of the need for less government and more opportunity, these studies identify specific laws and regulations that stand in the way of people trying to earn an honest living.

This report, Is New Yarl: City Killing Entrepreneurshipi, by Institute for

J ustice President and General Counsel 'William Mellor, addresses significant barriers to economic opportunity at the grassroots in New York City. This study, the Erst of its kind ever commissioned, will soon be followed by the release of similar reports detailing the conditions in Baltimore, Boston, Detroit, San Antonio, Charlotte and San Diego.

For more information, please contact:

IJ

INSTITUTE FOR JUSTICE 1717 PENNSYLVANIA AVENUE, N.W.

SUITE 200 WASHINGTON, D.C.

TEL: (202) 955-1300 FAX: (202) 955-1329 WVVW·IJ·ORG