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Massachusetts Bets Big by Raising Ride-Sharing Surcharges

As the number of rides from transportation network companies has surged in recent years, governments feel compelled to charge higher fees to help pay for road congestion problems and to improve public transit.

Man waiting for an Uber ride
Massachusetts Gov. Charlie Baker recently announced a proposal to significantly increase the fee imposed on ride-sharing firms known as transportation network companies (TNCs). The current assessment, now 20 cents per ride, would become a $1-per-ride charge. The fee, if approved, would be the largest of its kind in the country, generating $120 million in new revenue.

Why such a big hike? Baker, who introduced the proposal during his fiscal 2021 budget rollout, pointed out that TNCs like Uber and Lyft provided nearly 100 million rides in the state. “… you’re talking about a wear and tear on our roads and bridges that needs to be supported through some other mechanism," Baker said. 

But the increase in revenue will also help pay for public transit. About $73 million of the TNC assessment fee would go toward a $135 million funding boost for the MBTA (Massachusetts Bay Transportation Authority), Boston’s public transit network. The city is one of a handful of urban hot spots that has benefited significantly from the new economy, but that success has come at a price. Boston has some of the worst road congestion in the country and after years of underfunding public transit, the capital city is in a race to upgrade its transportation infrastructure. The challenge has led the state to find new ways to fund transportation improvements without raising taxes.

TNCs are an easy revenue target.  Ride sharing is booming in Massachusetts. The Department of Public Utilities’ report in June found that TNCs provided 81.3 million rides in the state in 2018, about 25 percent more than the year before. These trips accounted for 4.4 percent of all trips in Boston in 2018. In 2016, Massachusetts became the first state to impose a ride-sharing fee on TNCs.

In other cities and state where ride sharing has taken off, governments have reacted by slapping surcharges and fees onto the rides. In 2018, New York added a surcharge to Uber and Lyft rides and, like Massachusetts, said the revenue was needed to help fund public transit. Fees can be found in Chicago, Oakland, Calif., and Washington, D.C., as well.

TNC companies don’t like the fees. The big fee hike proposed in Massachusetts has received criticism from the ride hailing companies. Lyft said the fee increase won’t solve the state’s transportation financing problems and will hurt those passengers who can least afford to pay the increase. While the fee isn’t a direct tax on state residents, most expect the TNCs to pass along the fee increase to their customers.

Local governments will continue to impose TNC fees. According to a 2020 taxation forecast from Lexis Nexis, experts expect to see localities nationwide impose new taxes and fees on new economy activities, such as TNCs. They point to fees imposed in late 2019 by San Francisco, Chicago and Seattle. “Each of these cities imposes a tax, a fee, or both, on ride-sharing/transportation network companies, or TNCs. San Francisco and Chicago justify their new charges by claiming a desire to reduce traffic congestion, while Seattle focuses on harnessing the large volume of TNC activity as a means of paying for housing initiatives.” 

However, the report points out that in these cities and others that follow their lead, states may challenge these kinds of local fees, and “going so far as to impose constitutional limitations on the ability of localities to impose taxes or fees nonuniformly.”
Tod is the editor of Governing . Previously, he was the senior editor at Government Technology and the editor of Public CIO, e.Republic’s award-winning publication for IT executives in the public sector, and is the author of several books on information management.
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