Uber
Uber (Jason Doiy / The Recorder)

SACRAMENTO — In the state Capitol, cachet is definitely cool. But, as Uber, Lyft and Sidecar leaders are learning, cash and connections are still king.

The road to ride-sharing regulation in California has been a rough one for these popular startups. The Public Utilities Commission is squeezing them from one side, threatening to require the app developers to take on big-time insurance burdens. The state Legislature is pushing them from the other, proposing similar insurance requirements plus some safety measures akin to those governing taxis.

Throw in criticism from the state Department of Insurance, an established taxi lobby, trial lawyers, insurers and local regulators trying to protect their own turf, and these starlets of the innovation economy are finding that successfully challenging long-established regulatory schemes in the Golden State takes more than just a slick app or a gimmicky pink mustache.

“This is not a new story. In fact, it’s a pretty common and recurring story,” John Doherty, TechNet’s vice president of state policy, told a Senate policy committee earlier this month. “Technology comes in and disrupts a static industry and there’s an immediate sort of backlash to that. … The trick is that instead of trying to apply the old industry rules to a new innovative service or product, you have to try to come up with a new way to go forward.”

To get regulators to do just that, these ride-sharing companies have coupled a “build business first, worry about rules later” strategy with some old-school political techniques. Lyft launched its ride-sharing platform in 2012. Its predecessor, Zimride, started in 2007. Years later, after Lyft and its peers have attracted a loyal following—and serious investments—rulemakers are scrambling to catch up.

“It feels like an aspect of this approach for these businesses is to overwhelm the regulators so they can’t do their job,” said Donald Gilbert, a Sacramento-based lobbyist for the San Francisco International Airport. Airport officials said in mid-June that over a recent 60-day span, they had 370 “contacts” with “illegal operators” providing rides without having the required permits or following the same rules as commercial carriers.

“SFO and presumably other airports are being overwhelmed by a bunch of cars that are there for a commercial enterprise, but many, many of whom are not identifiable as such,” Gilbert told lawmakers at a June 17 hearing.

Messages left for Uber Technologies Inc. and Lyft over a two-week period were not returned.

The companies have always insisted that they’re apps, not traditional transportation carriers subject to government oversight. But they’ve responded to the new regulatory efforts by going on a lobbyist-contracting binge in Sacramento, paying advocates to give them “ins” with lawmakers so they can compete with opponents who’ve already spent years developing such relationships, often with the help of campaign contributions.

At one point this spring, Uber had five capital lobbying shops under contract, plus several public relations specialists and its own in-house team working on state regulatory issues. Lyft had three more contract lobbyists. Sidecar Technologies Inc. retained former PUC commissioner and current consultant Rachelle Chong in June.

They’ve used email and Twitter campaigns to urge customers to contact their local legislators. And they’ve bused in drivers carrying the trademark pink mustaches to stand on the Capitol steps before television cameras. Their message? Don’t stifle innovation and don’t take our jobs.

It’s a strategy that’s played out in cities and states across the country—around the world, really—as the companies expand operations at lightning speed. It’s had mixed success. After an intense lobbying campaign, Colorado’s Legislature this month became the country’s first to enact rules that explicitly authorize ride-sharing services. Uber and Lyft representatives have touted that state’s legislation as a model for California.

But Arizona Gov. Jan Brewer vetoed an Uber- and Lyft-backed bill in April. And Virginia recently ordered the two companies to stop operating in that state until they obtain the needed permission.

In California, it’s still too early to say whether the companies’ campaign has worked. But they’ve already won one concession. The PUC, largely backed by majority Democrats in the Legislature, has created a special enforcement category for apps that connect drivers in their personal cars with paying passengers. They’re called transportation network companies, and although they have to comply with certain insurance and safety requirements, they aren’t regulated nearly as intensely as taxis, which must carry commercial coverage around the clock.

“They’re Silicon Valley, let’s just face it,” said Armand Feliciano, vice president of state affairs for the Association of California Insurance Companies. “No other commercial business gets this deal.”

The innovation message sells in a state that’s still finding its way back from a budget-busting recession and days of double-digit unemployment. It also plays well with lawmakers who are sensitive to claims that California regulations are chasing away jobs.

Those same legislators, however, have to be just as sensitive to groups who have a broader range of interests in the Capitol. Trial lawyers and insurance companies—two groups that rarely see eye-to-eye politically—have joined with organized labor and the taxi lobby to fight any proposal that would allow Uber and Lyft to avoid providing drivers with sizable liability protections from the time they switch on their apps to the time they turn them off.

These groups have political heft. This year, one Personal Insurance Federation of California committee contributed almost $142,000 to state politicians, political committees and parties between Jan. 1 and May 17. Uber, Lyft and Sidecar have reported no campaign donations.

Assemblywoman Susan Bonilla, D-Concord, is trying to chart a middle course between the two sides. Her AB 2293, in its current draft, would require the companies or their drivers to provide at least $750,000 in commercial liability insurance in the so-called Period One phase. That starts when drivers turn on their apps to indicate their readiness to pick up a ride and ends when they are matched with a passenger. The $750,000 figure would equal what traditional charter carriers have to carry.

“I don’t see this as stifling innovation,” she said. “We do have a new business model. Clearly there’s a market for it. The bill seeks to balance the innovative elements of the business model with consumer protection.”

But Uber and Lyft say they don’t see a balanced approach.

“The period when the app is on, the driver is merely sitting in the vehicle, there’s no money changing hands. These are personal drivers in their personal vehicles,” Sally Kay, a former Cooley partner and current Uber policy executive, told a Senate insurance panel. “This amount is 25 times [what is] required for personal vehicles. … Why would the state require online-enabled platforms to carry coverage at such inflated amounts of coverage scales?”

Neither the companies nor analyses of the bill have pegged what the coverage would cost. A PUC report suggested that a $1 million coverage requirement during Period One, a proposal that the commission will consider at a July 10 hearing, might increase costs for the ride-share companies by 30 percent. While that sounds significant, proponents of the high policy minimums point to Uber’s recent $18 billion valuation.

“These companies are seeking to foist their costs on their drivers and the people they’re hurting,” said San Francisco plaintiffs attorney Christopher Dolan.

Dolan represents the parents of Sophia Liu, the 6-year-old girl who was killed on New Year’s Eve 2013 when she and her family were struck by an Uber driver while crossing a downtown San Francisco street. Sophia’s mom, Huan Kuang, said she saw the driver—allegedly operating in Period One—looking at his cellphone, his face illuminated by the screen.

“We are not rich like Uber,” Kuang said through an interpreter at a press conference arranged by Bonilla’s office prior to a June 25 hearing on AB 2293. “We are a regular San Francisco family. This company has destroyed us.”

Kay told lawmakers that insurance for both the driver and for Uber paid out after the accident. But Dolan said taxpayers are on the hook for the family’s enormous medical costs.

AB 2293 is an attempt at compromise, and few interests are really happy with it. The app developers say the insurance requirements are an attack on their business model. Taxi drivers and owners say that the bill would still allow Uber and Lyft to operate much like a cab service without having to abide by the same stringent requirements or regulated rates set by local transit authorities. The taxi lobby is suing the PUC in an attempt to overturn the unique transportation network category commissioners created last year. Disability rights advocates are also expected to file suit over lack of access to ride-sharing vehicles.

Taxi drivers, led by the Taxicab Paratransit Association of California, are sponsoring AB 612, legislation that would force transportation network companies, or TNCs, to participate in Department of Justice background checks of drivers as well as a Department of Motor Vehicles program that flags drivers with safety violations. Amid opposition from TNCs, the author dropped a provision that would have required Uber and Lyft drivers to permanently display decals alerting the public to their possible ride-sharing work.

TNCs oppose AB 612 too. Advocates say the bill doesn’t go far enough, but it may force the startups to play by some of the same rules as taxis.

“We always assumed that this country is government by the rule of law, and the rule of law would apply equally to everyone. But it doesn’t,” said William Rouse, president of the Taxicab Paratransit Association of California. “Ain’t a ride that’s been shared yet by these companies. That’s what we like to say.”

Contact the reporter at cmiller@alm.com.