Can Taxi Medallions Still Be a Billion Dollar Budget Booster?
The City of New York expects to generate $1.2 billion in revenue from the sale of new taxi medallions from fiscal years 2019 to 2023; however, increased competition from ride-sharing services has resulted in a significant decrease in the value of medallions. The City should adjust its budget assumptions to reflect this situation, with the most prudent action being removing this revenue from its financial plan until the industry stabilizes.
The State Legislature and City Council must approve any increase in the number of taxicab permits, which are called medallions because the owner is issued a medallion that is affixed to the hood of the vehicle. In December 2011, an agreement was reached to allow the City to auction 1,500 new medallions; in 2012 legislation authorized up to 2,000 new medallions on the condition the cabs be wheelchair accessible.
The City initially planned to realize revenue from the sales in a single year; its November 2011 financial plan projected $1 billion in revenue in fiscal year 2013. (See Figure 1). The revenue estimate was based on a robust secondary market in which medallion prices were reaching record highs.
When the City adopted the fiscal year 2013 budget in June 2012, the City’s economic and financial picture continued to improve; the expected medallion sale revenues were spread over three years and increased to $1.5 billion (in part reflecting the increase from 1,500 to 2,000 authorized new medallions). During fiscal year 2013, the City further postponed the expected revenue to fiscal years 2014 through 2017.
During fiscal year 2014, the City auctioned 350 medallions, generating about $359 million. The auctions coincided with a high point in the private market when medallions were selling for more than $1 million each. The average winning bid was about $864,000 for an individual medallion and $1.1 million for a corporate medallion.
Use the arrows to move through the City's financial plans and track actual and expected revenue from taxicab medallions in each iteration.
The City has not sold any additional medallions. Its tax revenue growth continues to be strong and plans for additional sales have been repeatedly postponed to later years. As of the most recent January 2017 financial plan, $1.2 billion is expected from sales during fiscal years 2019 to 2023.
The delay in the medallion sales is not due exclusively to the availability of alternative revenues; additionally, medallion prices have declined due to changes in the industry. As competition from other services such as Uber and Lyft has surged, yellow taxi trips and fare revenues have declined; as a result, medallion prices are down significantly from the 2014 high, and lenders are taking medallions under foreclosure auctions. In the just 17 private transfers of medallions in 2016, independent medallions averaged $480,000 and corporate medallions averaged $600,000—nearly half the price paid at the City’s 2014 auctions. In this market the City’s budget assumptions—$550,000 for independent medallions and $850,000 for corporate medallions—are unrealistic. Bringing a significant number of new medallions to auction while the market is unstable could further lower the price of medallions or result in too few bids as buyers are hesitant to invest and financing is hard to secure.
The current financial plan includes $731 million in revenue from taxi medallion sales during fiscal years 2019 to 2021 and another $470 million in the subsequent two years. Trends in the industry suggest the City should, at a minimum, adjust its assumptions for how much can be earned from future sales. A more prudent action is to remove the revenue from the financial plan until a more stable and realistic basis can be identified for the value of any future auctions.
- Aaron Elstein, “As lender falls, taxi revenues continue to go downhill,” Crain’s New York Business (February 19, 2017), www.crainsnewyork.com/article/20170219/FINANCE/170219870/as-lender-falls-taxi-revenues-continue-to-go-downhill.
- The legislation also established “green cabs,” taxicabs that would be allowed to pick up street hails in Northern Manhattan and the four other boroughs. Approximately 18,000 permits were approved for green cabs. The sale of 1,600 of the 2,000 new medallions was contingent on State approval of a plan to increase the accessibility of the city’s entire taxi fleet.
- While 400 medallions were auctioned, the city successfully closed on 350. Due to the time to finalize some transactions, the revenue came in mostly in 2014 with some not realized until 2015.
- Current owners can transfer their medallions to new owners in a negotiated sale.
- There were just 57 medallion transfers with consideration over $0 (some transfers are in name only, for $0) in 2016, and of those, 37 were due to foreclose and 3 were estate sales. The averages are for the remaining 17 which could be considered arms-length transactions.