DENVER – Internet companies that connect riders to drivers with a few taps on a cellphone app will be regulated in Colorado with legislation soon to become law, putting the state at the forefront of a push to try to legitimize the flourishing tech startups.
The entry into the transportation marketplace by companies like Uber and Lyft has left legislators and local officials struggling to catch up with emerging technology that competes with traditional taxis and limos, but with less overhead. The drivers of the new companies, for example, use their personal cars and often do it for extra cash to supplement their income at other jobs.
A handful of state legislatures this year have tried and failed to pass bills to provide oversight for the so-called ridesharing companies. Taxi and limo companies have objected, arguing the web-based businesses have an unfair advantage and light regulation. Several municipalities nationwide are also grappling with the issue.
But Colorado's attempt at regulation is the first to come out of a state legislature, according to research from the National Conference of State Legislatures.
The bill that Colorado lawmakers passed this month, and is expected to be signed by Democratic Gov. John Hickenlooper, will allow the companies to continue to operate here. Without a legislative fix, the companies faced formal complaints from the state's public utilities commission, which has maintained that Lyft and Uber's lower-cost carrier UberX, have been operating illegally.
No date has been set for the bill signing, said Eric Brown, Hickenlooper's spokesman.
"What this does is it welcomes technology and innovation to Colorado," said Rep. Dan Pabon, D-Denver, one of the bill sponsors.
The bill puts Lyft and UberX under the oversight of the state's public utilities commission. The companies will be classified as transportation network companies, or TNCs, separate from taxis and limos.
To obtain permits, the companies must have drivers pass criminal background and driving history checks. The driver's cars must pass vehicle inspections, and be clearly marked as TNC cars.
The drivers must also carry personal car insurance, in addition to the commercial insurance Uber and Lyft provide.
Insurance was the biggest issue of concern in Colorado, and it's been a major sticking point in other states because there's confusion about which insurer -- the driver's personal carrier or the companies'-- should be responsible in case of an accident. The uncertainty centers around a potential gap in coverage when a driver is on the app waiting to be connected to a rider. Personal car insurance policies don't cover drivers who use their cars for a commercial purpose.
Colorado's bill sponsors say their bill fixes that confusion, requiring the companies' commercial insurance to kick in the moment the rider is connected to a driver through the cellphone app. When a driver is on the app but waiting to be hailed, the bill specifies that the companies' insurance will be in place, the lawmakers say.
Arizona Gov. Jan Brewer cited the potential gap in insurance as a reason for vetoing legislation last month that would've regulated ridesharing companies.
"Consumer safety must not be sacrificed for the sake of innovation," she said in her veto letter.
Bills in Georgia and Maryland also failed this year, while legislation in Illinois and Oklahoma is pending, said Douglas Shinkle, who has been tracking the issue for NCSL. The District of Columbia adopted emergency rules last year, and state regulators in Nebraska and Rhode Island are discussing what they should do about the companies, Shinkle said.
Last year in California -- the birthplace of Uber and Lyft -- the state's public utilities commission implemented rules for the companies.
Brad Whittle, the senior vice president at Veolia Transportation, which operates Yellow Cab in Colorado, said he doesn't believe the confusion about insurance has been resolved. He said traditional taxi companies will still face more regulation than their new competitors. For example, state regulators set rates for taxis, but under the bill they won't have that same authority over TNCs.
"It really is a quasi-deregulation for transportation in the Colorado marketplace," he said.
For their part, Uber and Lyft say they welcome the legislation, and have disputed arguments about a gap in insurance.
"We're hopeful the Governor signs the legislation and creates a permanent home for ridesharing in Colorado," said Uber spokesman Lane Kasselman. Lyft spokesman Paige Thelen said the measure will "secure a future that will allow ridesharing to grow and thrive in the state of Colorado for years to come."