Flat Tire for Free-Enterprise in Las Vegas

With 24-hour gambling, 120,000 hotel rooms and millions of tourists pouring in every year, you'd think one of Las Vegas' best business bets would be starting a limousine service. "It's a lucrative business," said Rich Lowre, president of the Independent Limousine Operators Association.

But Lowre's got a problem: For the last year, it's the government that's been raking in the money by fining his members. Lowre's case shows how state business regulation can be as brutal on entrepreneurs and competition as the federal variety.

The Nevada legislature toughened its limousine-licensing law in '97, creating the Transportation Service Authority. The TSA has the power to impound limos that lack a certificate of "public convenience and necessity," and runs weekly stings to ferret out gypsy operators.

Penalties can include up to $10,000 in impound fees, $10,000 in civil fines and $2,000 in criminal fines. The TSA even gets to keep the fines, dedicating the money for further enforcement activities; it's a self- funding scheme as airtight as the house odds at any casino.

The typical sting costs an unlicensed limo owner about $5,000, says Lowre, whose association membership has been halved from 90 to 45 since the stings began.

William Clutter lost his limo on Dec. 4, 1997, when he gave an undercover TSA official a ride. To this day, Clutter's limo remains impounded, accruing involuntary storage fees of $15 a day in addition to $5,000 in fines.

"They're just a bunch of honest people, who want to make a dishonest living," said Dennis Colling, TSA's manager of transportation, who's been on his fair share of stings.

But it's not easy to go straight. Getting a limo license in Nevada isn't a straightforward matter of purchasing insurance, getting a commercial driver's license and passing a safety inspection, as it is in neighboring California. Like the now-jettisoned federal airline and trucking regulations, Nevada's regulatory regime makes entrepreneurs demonstrate a need for their services.

Operators must hand over extensive financial information and prove to TSA bureaucrats that they won't "adversely affect other carriers." And those "other carriers"—that is, competitors—have a right under the law to challenge each applicant.

"I'm not necessarily a total bureaucrat for regulation," Colling said, "but it appears that this is an area where the free market doesn't work." Which is certainly true, if the government erects stiff barriers to entry.

Only six companies are currently licensed to provide limousine service in Nevada.

When John West applied for a certificate, regulators wanted to know who he planned to use as a mechanic, how many miles he planned to drive and how much gas he planned to purchase at what price.

West, who holds a federal limo license and a $1.5 million insurance policy, figures he filed more than 500 pieces of paper and that the whole process cost him $20,000—roughly one-third the cost of a new limo.

Such financial questions may be absurd, but letting other companies meddle in the application process is obscene.

In response to West's application, one company filed a petition stating that West would "directly compete with" and have an "adverse economic effect" on the company's current charter limo business.

Bell Trans and Presidential Limousine, Las Vegas's largest carriers, claimed West would "create detrimental competition" and "disrupt economical and efficient service to the traveling public."

Sure.

After a year of paperwork, the three TSA commissioners tossed out West's application nine days before he was scheduled to defend it in a public hearing. One commissioner felt West's application had simply become "too complicated." Colling maintains it was West's fault, since he kept missing data request deadlines.

As a result, West, Lowre and Clutter are suing the TSA in state court. Represented by the Washington, D.C.-based Institute for Justice, they're claiming that state rules go far beyond the reasonable standard of ensuring public safety and therefore violate their constitutional right to earn an honest living.

"I've never been one to go out and fight," Lowre said. "But this in an injustice I can't handle."

This article was published in Investors Business Daily December 3, 1998.