This week the Institute for Justice (IJ) sent a letter to the city of Watertown, South Dakota, calling on officials to end the harmful “certificate of necessity” law for taxis. This law prevents individuals from offering car rides in exchange for cash, unless the city determines the existing public transportation infrastructure is “inadequate.” The City recently used the law to effectively shut down a local ride-for-hire business, run by Debra Gagne—right before her busiest time of year. An IJ attorney states that the law violates both the United States and South Dakota Constitutions.

“Not only is this law unconstitutional; it also serves no public safety purpose, keeps potential businesses out of the market and hurts customers by limiting competition,” said IJ Senior Attorney Erica Smith Ewing. “We’re urging Watertown to end its protectionist law and allow Debra Gagne to immediately resume her business.”

Debra Gagne, who runs a small ride-for-hire business called Need-a-Ride, was recently fined by city officials after they conducted a sting operation. One of Debra’s drivers picked up an undercover police officer who hailed a ride, and, when the driver accepted payment, she was saddled with a $100 fine. Debra has a South Dakota state license that allows her to provide such rides, but the city determined that because she was accepting cash, she was in violation of the city’s law because she didn’t have a taxi permit.

Following the sting operation and fine, Debra attempted to comply with the city’s ordinance. She recently applied for a license, but the City Council ignored her application. She currently services 30 riders per day, but until the issue is resolved, she is not allowed to accept any cash payment, not even cash tips.

Watertown’s law also treats businesses unevenly. The ordinance only applies to services that accept cash payment, and thus doesn’t apply to app-based ridesharing services such as Uber and Lyft. Prior to launching Need-a-Ride, Debra drove for both companies in the city without issue, and, as she pointed out to city officials, these drivers accept cash tips. A representative from Lyft testified against Debra during her permit application hearing. Despite the fact that many of her supporters have complained about the lack of affordable transportation in the city, the city then denied her application without providing a reason.

Debra sees her company as a service to the community, not just a business. She has regular customers who depend on her to get to and from work. She also helps keep people from drinking and driving, by providing an affordable ride-hailing service. That’s a large part of the reason why she has continued operating even though she is not allowed to accept compensation.

IJ has challenged certificate of necessity laws (also known as certificate of need laws) throughout the country, including a Kentucky law that prevents a home health care provider from offering services to Nepali refugees in a language they understand and a North Carolina law that makes it illegal for health care providers to safely provide care unless the government determines there is a need for the service. IJ has also challenged certificate of need of laws for transportation companies in multiple cities across the nation. These laws stop potential entrepreneurs from succeeding and drive up costs for customers.

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