Call to Order and Roll Call
The 4th meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, September 2, 2014, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Ernie Harris, Chair, called the meeting to order, and the secretary called the roll. The minutes of the August 5, 2014 Interim Joint Committee on Transportation meeting were approved.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Jimmy Higdon, Paul Hornback, Ray S. Jones II, Morgan McGarvey, Dorsey Ridley, Albert Robinson, John Schickel, Johnny Ray Turner, and Whitney Westerfield; Representatives Kevin D. Bratcher, Denver Butler, Tim Couch, Jim DeCesare, David Floyd, Keith Hall, Richard Henderson, Toby Herald, Kenny Imes, Jimmie Lee, Charles Miller, Terry Mills, Rick G. Nelson, Tanya Pullin, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, John Will Stacy, Fitz Steele, Jim Stewart III, Tommy Turner, and Addia Wuchner.
Guests: From the Kentucky Transportation Cabinet: Rodney Kuhl, Commissioner, Department of Vehicle Regulation; Rick Taylor, Deputy Commissioner, Department of Vehicle Regulation; and Rebecca Goodman, Executive Director, Office of Legal Services; Sharon Clark, Commissioner, Department of Insurance; Chris Johnson, Senior Policy Associate, Uber; James Ondrey, Uber General Manager, Kentucky and Ohio Region; Annabel Chang, National Public Policy Manager, Lyft; Steve Coston, President of Procarent, Yellow Cab Kentucky; Dan Spears, ACT Transportation.
LRC Staff: John Snyder, Brandon White, Dana Fugazzi, and Christina Williams.
Recognition of John Snyder
Chairman Collins presented John Snyder, Transportation Committee Staff Administrator, with a citation honoring him for receiving the National Conference of State Legislatures (NCSL) 2014 Legislative Staff Achievement Award.
Omnibus Revisions to KRS Chapter 281, Regarding Motor Carriers
Rodney Kuhl, Commissioner, Department of Vehicle Regulation, and Rebecca Goodman, Executive Director, Office of Legal Services, Kentucky Transportation Cabinet, discussed revisions to KRS Chapter 281 regarding motor carriers.
Rebecca Goodman stated that the KRS Chapter 281 omnibus revisions were introduced by Chairman Harris in the 2014 Regular Session as Senate Bill 177 and by Chairman Collins as House Bill 513. The revisions, which the cabinet will request again in the 2015 Regular Session, are intended to increase public safety and decrease barriers to entry in the motor carrier industry. The major proposed change is the elimination of the need for service requirements and the associated hearing requirements. This would extend the changes made for household good movers under 2014 SB 23, consistent with the federal court’s ruling in Bruner v. KYTC, to encompass all certificate issued by the cabinet.
The revisions would also establish a certificate process that would mirror the qualifying process found in Senate Bill 23, which includes aspects of insurance, background checks, motor vehicle applications, qualifications and renewals. For example, the proposed revisions would 1) require nationwide fingerprint background checks for all segments of the industry; 2) extend the same standards for employment with respect to criminal convictions as have been extended to household goods carriers by SB 23; 3) require Annual Automotive Service Excellence (ASE) vehicle inspections for all motor carriers; 4) grant concurrent regulatory control over taxicabs, limousines, and disabled persons vehicles (DPVs) to cities (This is currently in place for taxicabs only); 5) adopt the United States Department of Transportation’s minimum amounts of insurance coverage required of interstate carriers and applies it to intrastate carriers of property and larger passenger vehicles. The cabinet intends to tier the requirements by seating capacity; 6) reduce the minimum fine amount for operating without authority from $2,000 per violation to $500 per violation; and 7) codify requirements for Transportation Network Companies (TNCs).
In response to a question by Chairman Collins, Ms. Goodman stated the revisions of KRS Chapter 281 will amend the statutory provisions and then the cabinet will amend the existing administrative regulations and file those with the Administrative Regulations Committee. The cabinet intends to file an emergency regulation for regulation of the TNCs, which will be effective when filed, but the hope is to get the KRS 281 revisions passed in the upcoming Regular Session.
In response to a series of questions by Representative DeCesare, Ms. Goodman stated the regulation on TNCs should be promulgated by the beginning of October 2014, and that an emergency regulation is effective when filed. Rick Taylor, Deputy Commissioner, Department of Vehicle Regulation, stated the regulation would address the TNCs and would also address regulations that need to be changed because of SB 23. KRS Chapter 281 already issues permits under the definition of a motor carrier for anyone who owns, controls, operates, manages, or leases a vehicle that is used for hire, therefore it is already broad and there will be no need to redo any regulations incorporating TNCs if the omnibus revisions to Chapter 281 are passed.
Chairman Harris asked if it was incorrect to say the proposed revisions to KRS Chapter 281 let the free market dictate who is in and out. Ms. Goodman stated that was correct.
TNCs and Ride-Sharing Applications such as Uber and Lyft
Commissioner Kuhl stated Transportation Network Companies (TNCs) are companies that use smartphone applications to connect passengers with drivers who use their personal vehicles to provide for hire transportation services. Examples of TNCs are Uber and Lyft.
The TNC model begins when a person downloads the application to a smartphone and provides the company with information, including credit card information that is stored for paying fares. A passenger in search of a ride sends a request via the app that searches for a driver in the area that is available. The driver then accepts the request and travels to pick up the passenger to deliver them to the destination. No cash is exchanged; the passenger approves the ride and the fare is charged to the passenger’s credit card.
Commissioner Kuhl stated the department has the statutory authority to regulate TNCs under the KRS 281.011(1) definition of a motor carrier as “… any person who owns, controls, operates, manages, or leases … any motor vehicle for the transportation of persons or property for hire.” The cabinets concerns regarding TNCs include insurance coverage, both personal and commercial, vehicle inspections, background checks on the drivers, driver history records, and the impact on regulated for hire motor carriers such as taxicabs and limousines.
Commissioner Kuhl added that KYTC organized two meetings this summer with regulatory agencies such as the Department of Insurance, the Attorney General’s Office, Lexington Fayette Urban County Government, Louisville Metro Government, Department of Worker’s Claims, the Louisville Regional Airport Authority, and the Legislative Research Commission staff regarding TNC operations. KYTC met with Uber in June to discuss its business model, and the other regulatory agencies subsequently met with Uber. Commissioner Kuhl stated KYTC is actively in the process of arranging a meeting with Lyft.
In response to questions from Chairman Collins, Commissioner Kuhl stated that TNCs will make application for a certificate to operate in the Commonwealth. Before a person is accepted as an Uber or Lyft driver, there will be a background check of the driver by Uber or Lyft through a party that KYTC will approve to conduct the check.
In response to a question by Representative Steele, Commissioner Kuhl stated Uber and Lyft do not accept cash as a form of payment. The fare is paid by the credit card registered in the application at the time the ride is requested, and an electronic receipt is sent to the customer.
In response to a question by Senator Ridley, Commissioner Kuhl stated once the ride is accepted by the driver there are two different types of insurances that are in force. One is gap insurance, which provides coverage from when the ride is accepted until the time the driver picks up the passenger. Once the passenger is picked up, there is a $1 million limit per incident commercial policy that goes into effect from that point until the passenger is delivered.
Senator Ridley raised the issue of whether this insurance method creates an unlevel playing field for the cost that is incurred or available to a passenger of a motor carrier, taxicab, or limousine. Inspections of the vehicle are extremely important.
In response to a question by Representative Butler, Commissioner Kuhl stated some public safety concerns surrounding TNC models were not knowing how the business model worked, how the background checks were done, what kind of insurance they had, what kind of mechanical inspections the vehicle underwent, therefore the meeting with each company was a necessity in order to regulate them on the same level as taxicab companies.
In response to a question by Representative Lee, Ms. Goodman stated other states that have similar regulations are Minnesota, Colorado, and California. Detroit, Michigan has an agreement with Uber. The cabinet has looked at how this issue is regulated in other jurisdictions. There is nothing from any of those jurisdictions that looks much different from what Kentucky already requires from taxi companies.
Chairman Harris stated that, after hearing testimony at legislative conferences this summer concerning TNCs, he arranged for this meeting to be an informative look into TNCs and all aspects and regulations that go along with them for the committee to be prepared for future bills, regulations, and issues. After he returned from the conferences, he met with Commissioner Kuhl and members of the cabinet to address the changing technology that is affecting the entire industry. Chairman Harris suggested letting the industry sort issues out such as insurance, safety, and background investigations and then observe the outcome of the industry findings. Chairman Harris and Chairman Collins met with members of the cabinet staff and requested that the cabinet ensure they included every entity and agency that could be affected by the transitional period of TNCs and the cabinet has done that.
Chris Johnson, Senior Policy Associate, Uber and James Ondrey, Uber General Manager, Kentucky and Ohio Region, discussed details of Uber’s business model. Mr. Ondrey stated Uber is a technology company with a mobile platform that connects riders with available drivers with the push of a button on a smartphone. There is a variety of transportation options to choose from within the application in different cities, including Uber Black, which connects the rider to a licensed limousine driver, Uber Taxi, which connects the rider to a taxi that is partnered with the Uber system, and Uber X which is the low cost option that connects the riders to private drivers who use their own personal vehicles. Currently, Uber X is the only option offered in Kentucky, having launched in both Louisville and Lexington in early 2014. Uber X is now available in nearly 100 United States and over 30 European and Asian markets. Uber hopes to extend to more Kentucky cities soon. The drivers are considered independent contractors and receive 1099 forms to pay taxes on the income that they have earned throughout the year.
Mr. Ondrey stated that, unlike traditional taxicab services, Uber X is a ride-sharing service where independent, part-time drivers have the option to work only a few hours a week. Unlike taxis, drivers for Uber X do not pick up passengers from street hails or taxi stands. Each trip is prearranged through the smartphone application.
Mr. Ondrey stated that the Uber application is free to download to any smartphone. To utilize Uber, a rider can enter different methods of payment such as any credit card, Google Wallet, or PayPal. When the rider agrees to the terms and conditions, the Uber network is available. Anytime a rider needs to be picked up, the same Uber application can work in all cities around the world in which Uber is located.
Mr. Ondrey stated the GPS system in the smartphone will locate the rider for pickup, or the rider has the option to type the address absent GPS. After the location is pinpointed, the rider will then see all of the available drivers near the pickup location. The Uber application will show the rider the closest driver and give an estimated time of arrival. The application will then send a signal to the closest driver, who can accept the request and proceed to pick up the rider. Once the match is made, the rider receives a picture of the driver, the make and model of the car, the license plate number of the car, and the phone number of the driver. The rider can watch in real time on the smartphone as the driver approaches the meeting destination.
Uber takes steps to ensure the safety of the drivers and riders. Feedback is requested by riders and drivers after every ride is given. Uber conducts reviews of the feedback, which allows quality to be maintained at an exemplary level. After the ride has been completed, a detailed receipt is sent to the rider’s email address. If there is an issue with the receipt or the charge, the rider may reply to the email, and an Uber representative will handle the issue.
Mr. Ondrey stated cities are embracing ride sharing applications because there are fewer vehicles on the road, helping ease traffic and environmental strains of consumers operating their own vehicle. The ride sharing applications are also helpful in significantly reducing DUI rates and impaired driving offenses. Uber also makes cities more tourist and business friendly because of the ease of transportation to explore favorite destinations or meeting places.
Mr. Ondrey stated safety will always be a top priority with Uber. Uber drivers go through a rigorous vetting process that includes background checks and insurance requirements that are more comprehensive than the current requirements for taxis in Kentucky. All of the potential drivers are screened against county courthouse records going back seven years for every county of residence, federal courthouse records going back seven years, and multi-state criminal databases going back seven years. For comparison in Louisville and Lexington, taxi requirement background checks are only required to go back five years. In Louisville, any hit and run, DUI, or reckless driving offense that did not cause injury or death only goes back three years. Uber conducts a national sex offender registry screen, a lifetime social security trace, and a motor vehicle history report going back seven years.
Mr. Ondrey stated all trips on Uber X are covered by a $1 million primary commercial insurance policy. The policy provides up to $1 million in coverage for each and every incident that occurs from the moment a driver has accepted a trip and is in route to pick up a passenger, or is transporting a passenger to the destination. The $1 million insurance coverage is ten times the coverage amount required by taxi services in the city of Louisville and twenty times the coverage amount required in KRS 281.655 for taxis of $50,000 for total body injury.
Mr. Ondrey stated Uber also holds a separate contingent insurance policy with $50,000 per individual and $100,000 aggregate limits, which is two times the Kentucky taxi insurance requirement, for the period of time in between trips, and when the driver has the Uber application on and is waiting to accept a fare but is not yet engaged in the activity.
Mr. Ondrey stated that the insurance policy covers bodily injury caused by uninsured or underinsured motorists up to $1 million per incident. This type of coverage is not required by taxi services in Kentucky. Uber has personal injury protection insurance for the driver for $10,000 per incident.
Mr. Ondrey stated Uber recently met with the Kentucky Transportation Cabinet, the Kentucky Department of Insurance, and the Department of Worker’s Claims to educate each on Uber’s business model. Uber provided copies of insurance policies to the Department of Insurance and met with the department to discuss those policies.
In response to a question by Chairman Harris concerning the organizational structure between Uber technologies and Raiser LLC, Mr. Ondrey stated Raiser is a 100 percent wholly owned subsidiary of Uber. Uber X is the ride-sharing portion of Uber, Raiser handles the operations, and the contracts that are signed by the drivers under Uber X are with Raiser, LLC.
Annabel Chang, National Public Policy Manager, Lyft, and Diana Dellamere, National Public Policy Manager, Lyft, discussed Lyft’s business model. Ms. Chang stated Lyft, which was launched in Lexington and Louisville on April 24, 2014, has the same background screening and insurance requirement policies as Uber Technologies. Almost everything in Lyft’s business model is similar to Uber X.
Ms. Chang stated Lyft met with Louisville Metro Council and will be meeting with Lexington Urban County Government and with the Department of Insurance and KYTC to share the Lyft business model. Lyft would like to evaluate the emergency regulations after they are drafted. Lyft’s goal is to work towards a long term solution. The company welcomes regulation, with the hope that it acknowledges the unique Lyft model that entails personal drivers with personal cars. Ms. Chang said there is no fleet with Lyft. There has been incredible change as Lyft just launched in 2012 but is evolving quickly.
Ms. Chang stated that Colorado was the first state to pass state legislation recognizing the TNC model. California and Virginia entered into an operating agreement with Lyft and Uber. Both of the operating agreements essentially sanctioned what Lyft currently offers concerning background checks, vehicle checks, and current insurance requirements.
The Lyft business model hinges on safety. The passenger must trust the safety of the vehicle and the driver, and the driver must trust that the passenger is safe. About one-third of Lyft’s drivers are women, which is very different from the existing taxi industry. About one-half of the passengers that Lyft picks up are women.
Lyft’s criminal background checks disqualify anyone with a conviction or arrest for a violent offense, anything related to theft or property damage, violation of probation, or possession of drugs.
As for drivers’ driving records, if a driver has had more than two moving violations in the previous three years, the driver is not able to drive for Lyft. Based on all of the screening checks and the screening process, Ms. Chang stated that approximately 95 percent of all applicants are screened out and not allowed to drive under the Lyft platform.
Ms. Chang stated Lyft conducts a 19-point vehicle inspection of the driver’s vehicle. Lyft conducts mentor rides, requiring every potential driver to ride with a Lyft experienced driver (mentor). On the mentor ride, questions are asked and a personality check is conducted to ensure that future passengers may be comfortable riding in a car with that person.
Similar to Uber, Lyft has a five-star rating system. After each ride, there is real-time feedback. If a rider gives feedback that is less than 100 percent satisfactory, Lyft prompts the rider to answer why the ride was less than satisfactory. The driver will get the feedback, as will Lyft. If there is anything related to safety that is reported as less than satisfactory, such as the involvement of drugs or alcohol, the Lyft driver is taken off the Lyft platform immediately and will not be allowed to give any more rides pending an investigation. If a Lyft driver falls below 4.7 stars over 100 rides, the driver is no longer allowed to drive under Lyft.
Ms. Chang stated Lyft has the type and same amount of insurance coverage as Uber, and both companies have the same insurer. Lyft is trying to break ground in the personal auto insurance industry. Lyft has met with Metlife and will be announcing a new product line in the near future that would essentially be personal auto insurance with an endorsement or rider for Lyft drivers. She hopes the development of this coverage will incentivize other insurers to offer similar coverage. Lyft is an additional layer of transportation, offering consumers other options, and is not a replacement for other modes of transportation such as taxis. Seattle studied taxi cab services. The year that the transportation network companies launched, taxis made more revenue than ever before. The reason is because people were more willing to leave their cars behind due to more options. Consumers knew they could get a ride into town and they could get a taxi back home or vice versa. Drunk driving also decreased. Ms. Chang stated Lyft’s model is based on the casual driver, as most Lyft drivers work less than 15 hours a week. Lyft’s goal is to provide a transportation mode that works, that makes sense, and is safe.
Representative Riggs raised a concern that, while the TNCs consider their drivers to be independent contractors rather than employees and 1099s are issued, the drivers may not be independent contractors. Instead, that determination is up to the courts and the judge when there is a lawsuit. He asked if the companies had been challenged on this issue anywhere in the country. Mr. Ondrey stated there have been no cases regarding Uber. Uber’s legal team advised that the contracts complied with case law. Ms. Chang stated that, in anticipation of questions arising on the independent contractor issue, Lyft had partnered with the Freelancers Union to form a co-op to which drivers can pay dues, which would in turn grant them access to medical and other benefits.
In response to a question by Chairman Collins concerning layoff of drivers and unemployment insurance, Mr. Ondrey stated the drivers are viewed as independent contractors, not employees, therefore unemployment insurance would not be paid if the driver is no longer working for the company.
In response to a question by Representative Mills as to why there is not a guest option on either the Uber app or the Lyft app, Ms. Dellamere stated part of that has to do with trust and safety issues as the model is not created for anonymous one or two time use because that takes away the accountability, trust and safety that Lyft relies on for the service to be provided safely and comfortably.
In response to a question by Senator Westerfield concerning a study that he recently was made aware of involving Uber drivers using burner cell phones to tie up Lyft drivers on fake pickups only to cancel them, Mr. Ondrey responded that was not correct and he has not been made aware of any instance where that has occurred. Senator Westerfield reiterated his concern for having a fair and free market.
In response to a question by Representative Floyd, Mr. Ondrey stated there are terms and agreements on the application that the user must agree to before use of the Uber platform.
In response to a question by Senator Ridley concerning the calculation of fares, Mr. Ondrey stated for Uber, the fares are based on a time and distance charge so the driver who is completing the fare has a smartphone for which the Uber driver app runs. It collects GPS information based on the time and distance of that ride. The receipt that the rider is given will break down the total fare for the rider. Ms. Chang added that, under Lyft, the passenger pays by credit card, which goes to a third party processor, who splits that amount. Lyft receives up to 20 percent of the commission and the driver receives 80 percent commission. Lyft’s fares are based on time and distance.
In response to a question by Senator Ridley, Mr. Ondrey stated it is possible for a driver to become a driver for both Lyft and Uber.
In response to a question by Senator McGarvey if a driver were en route to pick up a passenger and were to hit and kill a child, representatives from Uber and Lyft stated the primary $1 million insurance policy would be in effect for that incident.
Steve Coston, President of Procarent, Yellow Cab Kentucky, discussed the taxicab industry’s concerns with TNC operations. News of the proposed revisions of KRS Chapter 281 and information that was shared from Uber and Lyft has been informative. Yellow Cab would like to be a part of the ongoing discussions concerning all of the platforms.
Yellow Cab is a locally operated, family-owned business operated out of Louisville, providing career opportunities for over 500 employees, including drivers, mechanics, cashiers, and general administration. It is concerned with the need to regulate the current TNC operations that are operating without any regulation. Yellow Cab is not in favor of more regulations or excluding any company from providing a service to Kentucky citizens, but rather wants the service to be provided safely. The TNCs are great business models, but the safety of their operations must be proven. Yellow Cab is concerned that Uber and Lyft have been operating for a period of time, but their insurance has not been in place for very long, and thus there are big insurance gaps.
Mr. Coston stated a person that uses Yellow Cab can text, call for a ride, or download the Yellow Cab application on a smartphone similar to Uber and Lyft. Yellow Cab also offers payment options of credit cards or cash.
Yellow Cab has previously faced significant insurance gaps as it has a percentage of drivers who operate their own vehicles and are subcontractors. Because these drivers operate using their own vehicle, they could be driving their vehicle for personal use or could be driving for a fare. Yellow Cab insures those drivers for commercial insurance. If the drivers are leasing the vehicle from Yellow Cab, they are insured around the clock.
Mr. Coston expressed concern if an Uber or Lyft driver were to take cash for a quick ride against company policy as to what insurance takes effect if an accident were to occur, reiterating insurance loopholes that still need to be addressed. He said he wanted to ensure all entities are able to operate safely and successfully and not put the citizens of Kentucky at risk.
In response to a question by Senator McGarvey, Mr. Coston stated Yellow Cab has independent contractors and employees.
Representative Lee expressed his wish to have the insurance commissioner involved in the administrative regulation process concerning TNCs when the emergency regulations and regular regulations are drafted and placed before the Administrative Regulations Committee.
Ms. Goodman said the Department of Insurance has been included in meetings with the involved agencies to share information and concerns, as well as the Department for Workers’ Claims, so the issues about the independent contractors versus the employees, and the insurance requirements are things that they are being addressed. The cabinet intends to provide copies of the emergency regulation, as has been requested by Yellow Cab and others, prior to its filing. There will be enough time between the drafting of the regulation and its filing to entertain comments, questions, and criticisms.
Sharon Clark, Commissioner, Department of Insurance, stated the department has been working closely with the other agencies and will not need to have an emergency regulation, but it will continue to work with all parties on all aspects of the regulations. Uber and Lyft have filed all of their policies with the department, and the policies already meet the statutory requirements. Representative Lee requested Commissioner Clark’s presence at the Administrative Regulations Committee meeting in October, and Chairman Harris concurred.
Senator McGarvey urged the cabinet to review the wavier that must be signed before the driver enters the vehicle, specifically questioning the possibility of an arbitration clause.
Chairman Collins urged the cabinet to allow Yellow Cab to be involved in the regulation process. Ms. Goodman stated the cabinet would welcome Yellow Cab’s participation.
Dan Spears, owner of ACT Transportation which operates under Yellow Cab in Bowling Green, Kentucky, and owner of several other companies, voiced concerns about the proposed revisions of KRS Chapter 281, the TNC business model, and the fact that TNCs have already been operating in the Commonwealth without the proper authority.
There being no further business, Chairman Harris adjourned the meeting at 3:03 P.M.