State vs. Local Control at the Center of Legislative Debates for Ride-Hailing Providers
Since 2013, 45 state legislatures have passed bills that impose some degree of statewide regulation on transportation network companies (TNCs). TNC is the term given to private-ride service providers such as Uber and Lyft. In six states, including Texas, the regulation focused on insurance requirements for TNCs and TNC drivers. In 39 states, a more complex regulatory framework was introduced. Often, these bills explicitly overrule existing TNC ordinances and the local authority to regulate TNCs. This is sometimes called state “preemption” of local authority. While state versus local authority is an important governance issue, it’s intertwined with the regulatory question of how much TNCs should be regulated (if at all) and the extent to which TNC regulations need to be tailored to local context.
In the current legislative session, Texas lawmakers are considering TNC legislation that would preempt local ordinances in 20 Texas cities and replace it with a statewide law.
Wait, So What Is Preemption?
Simply put, a state has the authority to overrule local laws. Texas cities hold only the powers granted to them by the state. The Texas Constitution grants governing authority to cities with more than 5,000 residents, which means they can adopt a charter, establish a city government, and draft ordinances (). Local autonomy is argued to enable cities to resolve local issues more quickly and to free the state legislature to focus on issues of statewide significance ().
Ultimately, though, local laws must be consistent with the constitution or general law of Texas (). So, the state can “preempt” local authority by introducing statutory or constitutional law that overrules or nullifies a local ordinance ().
State preemption has been applied in Texas and other U.S. states in recent years to policy areas, including minimum wage, paid leave, municipal broadband and home sharing (e.g., Airbnb) regulation (3). In the case of TNCs, 37 U.S. states have preempted some or all local authority over TNCs and introduced statewide regulations.
Why Would It Be Beneficial to Regulate TNCs Statewide?
States with TNC legislation typically mandate a uniform set of regulations for TNCs and TNC drivers operating anywhere in the state. This is generally viewed as less onerous than city-level regulations that often echo existing taxi rules (which can be extensive — more on that below). Proponents of state-level TNC legislation argue that statewide regulation prevents a “patchwork” of regulations that impose different requirements in each city. This patchwork is seen as an obstacle for a TNC driver who wants to pick up passengers in both San Antonio and Austin or for a TNC to expand to new cities ()().
What about Local Regulation?
On the other hand, it’s not clear that local regulations have significantly slowed the growth of TNCs nationwide. TNCs operate and comply with local regulations in dozens of Texas cities, including fingerprint requirements in Austin and Houston. Local regulation is argued to allow cities to ensure TNCs are held accountable to local standards and expectations of public safety ().
Another feature of for-hire ride services that can create distinct regulatory issues in a city is whether rides are requested via street hailing or flagging down of rides (“flag market”) or though dispatchers who receive requests for a ride and send out a driver (“dispatch market”). Historically, cities with extensive flag markets have faced oversupply of drivers and fare gouging. Schaller (2016) argues that these issues require a local or regional regulatory authority with the ability to coordinate with other local agencies and effectively enforce necessary regulations (). TNCs operate like traditional dispatch services by using digital technologies to direct a driver to a passenger, but frequently operate in cities like Houston and Dallas where flag markets for taxis are common.
What about Taxis? Are They Regulated at the State or Local Level?
Taxis and limousines are regulated at the city level in Texas and in most other states. Some opponents of state preemption of TNC regulations argue that statewide TNC regulation amounts to “special treatment” for TNCs because taxis would still be regulated locally (). Taxi regulations are often viewed as more restrictive than newly developed TNC regulations. For example, cities often regulate how prices are set and what color a vehicle can be painted. Taxi drivers are often required to have special equipment, obtain commercial driver’s insurance and undergo fingerprint-based background checks. In most states, taxi regulations remain unchanged and TNCs are often explicitly defined as not being taxi companies.
When Uber and Lyft first launched ride services, some regulators and taxi companies argued that TNCs were operating illegally outside the highly regulated taxi and limousine markets. TNCs claim that they are not taxi companies or even transportation providers because their role is to manage the application that connects drivers to passengers. In practice, TNCs and taxis provide similar services, compete in overlapping markets, and increasingly incorporate the same technologies.
In some cases, policymakers have tried to create similar regulations for TNCs and taxis. In Michigan, legislators revised existing taxi and limousine laws to create a single set of regulations for all vehicles for hire (). Washington, D.C., and Fort Worth, Texas, revised their existing ordinances by eliminating many requirements on taxis and implementing a single vehicle-for-hire ordinance that applies to both taxi companies and TNCs ().
Ultimately It’s a Discussion about If, How, and How Much TNCs Should Be Regulated.
State preemption of local TNC authority is narrowly about the question of which level of government is best positioned to regulate TNCs, rather than how much or what kind of regulation is appropriate. However, discussions on state versus local authority are often intertwined with discussions about specific policies (such as the form of background checks that best ensure public safety) and how to achieve overarching goals (such as encouraging economic development). Generally speaking, one uniform, statewide TNC framework is likely to be less onerous for TNCs than numerous local regulations. However, there may be benefits in tailoring regulation to local circumstances, as taxi markets have demonstrated.
In states with minimal taxi flag markets, regulating TNCs and taxi companies at the state level may create a level-playing field for for-hire ride services. Oversight and enforcement of large, complex flag markets may require a local or regional regulatory authority (7). Some states address this with taxi regulation that is shared between state and local authorities. Nevada, Pennsylvania and Maryland all have unique arrangements where a state agency is balanced with a dedicated, city-specific focus to address complex markets in one or more unique sub-markets (e.g., Las Vegas, Philadelphia).
Regardless of whether TNC regulation occurs at the state or local level, questions remain unanswered about how to best protect public safety and enable industry innovation and growth. Which would you rather see: a statewide framework that allows TNCs to easily expand across jurisdictions, or local ordinances that reflect local context and needs? What do you think would produce the better outcome for Texans? Could state and local authorities split the difference?
Maarit Moran is an assistant transportation researcher at the Texas A&M Transportation Institute.
 Texas Constitution. Article 11. Municipal Corporations. http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.11.htm#11.5. Accessed May 11, 2017.
 Vanlandingham, K. E. Municipal Home Rule in the United States. Volume 10, No. 2. Winter, 1968. William and Mary Law Review. http://heinonline.org/HOL/Page?handle=hein.journals/wmlr10&div=25&g_sent=1&collection=journals. Accessed May 11, 2017.
 Blogdett, Terrell. Home Rule Charters. Handbook of Texas Online. Texas State Historical Association. https://tshaonline.org/handbook/online/articles/mvhek. Accessed April 7, 2017.
 DuPuis, N., Langan, T., McFarland, C., Panettieri, A., and B. Rainwater. City Rights in an Era of Preemption: A State-by-State Analysis. National League of Cities. 2017. www.nlc.org/sites/default/files/2017-02/NLC Preemption Report 2017.pdf. Accessed April 4, 2017.
 Begley, Dug. Lawmakers mull state regulations to usurp city controls on Uber, Lyft. March 14, 2017. Houston Chronicle [online]. http://www.houstonchronicle.com/news/transportation/article/Lawmakers-mull-state-regulations-to-usurp-city-11001870.php. Accessed April 7, 2017.
 Collier, Kiah. After Austin Vote, GOP State Senator Announces Ride-Hailing Legislation. The Texas Tribune. May 8, 2016. https://www.texastribune.org/2016/05/08/top-senator-announces-ridesharing-legislation/. Accessed April 4, 2017.
 Severin, Anthony. Texas may consider how transportation network companies are regulated. March 3, 2017. House Research Organization. http://www.hro.house.state.tx.us/pdf/focus/TNCs.pdf. Accessed May 12, 2017.
 Schaller, Bruce. Unfinished Business: A Blueprint for Uber, Lyft and Taxi Regulation. September 2016. Schaller Consulting. http://www.schallerconsult.com/rideservices/blueprint.htm. Accessed April 4, 2017.
 Lawler, Emily. Snyder signs bills upping Uber regulations, decreasing them for taxis. December 21, 2016. MLive [online]. http://www.mlive.com/news/index.ssf/2016/12/snyder_signs_bills_upping_uber.html. Accessed April 4, 2017.
 Fort Worth, Texas. Ordinance No. 22308- 06-2016. July 2016.