Fare Game

On a hot weekday afternoon, ground transportation at Logan Airport is a study in “hurry up and wait.” Massport buses cut the muggy air with hydraulic wheezes while rental-car vans and private cars honk and dart from lane to curbside. Coasting into the taxi stand, a dozen cabs cut their engines and pop their trunks. They've come from the nearby taxi pool, where they've waited more than an hour to be dispatched. Now they wait some more. A few drivers get out and stretch. Asked how business has been so far today, a lanky cabbie in a blue jersey takes out a wad of cash. “You see this?” he says, peeling back the bills and counting $105. “All morning, this is what I make.” So that's good, isn't it? Not at all, he says, laying out a lesson in the complicated economics of Boston taxis.

Like most of Boston's 5,000 taxi drivers, the cabbie in the blue jersey doesn't own his own cab. He leases it from the real owner, in this case for $70 for a 12-hour shift. He's also responsible for gas, which will probably run him $25 today. Add it up, and so far the guy's made $10. That, plus whatever he gets over the next three hours of his shift, will be his take-home. He earns no benefits.

Boston taxis are the third most expensive in the country, yet the profits clearly aren't going to the drivers, and inspectors say they're not going back into the cars. So, somebody must be making money, right? The answer lies partly with money lenders who profit from people who seek to drive their way to the American dream, and partly in the story of a man from Jordan who came to Boston and quietly built a taxi empire.

In many ways, it's all about the medallion, that small metal square attached to every one of Boston's 1,825 taxis. Medallions were introduced in the 1930s to curb a glut of cabs on city streets. The number was capped at 1,525 and remained there for six decades until a 10-year legal battle led to 260 more being sold at auction in the late 1990s.

To cabbies — most of them immigrants who average 72 hours a week driving someone else's taxi to net maybe $550 — the medallions are like gold, keys to better lives for themselves and their families. As a result, the medallions that cost $50 in 1935 now fetch more than $250,000, making them the second costliest in the country after New York City's. As the price keeps rising, the cabbies keep driving and driving and trying to keep up.

On the other side of the industry, the king of Boston taxis lives in a handsome Colonial on a cul-de-sac in Belmont. His name is Edward J. Tutunjian, and he doesn't talk to the press. Still, it's possible to tell something of his story from public records. In 1966, Tutunjian, who turns 55 this month, came to the United States from Jordan as a teenager. He went to Watertown High School and studied accounting at Bentley College, but didn't graduate. Instead, he started driving a cab and bought his first medallion in 1973, the same year he became a U.S. citizen.

Tutunjian kept buying medallions, and by the end of the 1980s, he owned more than 100. In those days, half a dozen owners, including Tutunjian, controlled around 40 percent of the city's medallions. At the top was Frank Sawyer, whose family owned more than 275 cabs in the Checker Cab and Town Taxi fleets.

In the 1990s, while many of the larger owners struggled with rising insurance and maintenance costs and sold off their medallions, Tutunjian bought more. He also bought a garage, gas pumps, a car wash at 60 Kilmarnock Street, and a building next door for his taxi dispatch service, Boston Cab Dispatch. He did this all fairly quietly, going to work in a basement office at 60 Kilmarnock that his employees called “the cave” and bringing in his nephews to help manage his holdings.

In 2000, after Frank Sawyer died and his daughter began selling off the family business, Tutunjian bought out the remainder of Sawyer's legacy: 170 more medallions. Today he owns 339, with a market value of about $84 million. Add the handful of medallions owned by his relatives, and you have a nearly one in five chance of getting a Tutunjian taxi in Boston every time you hail a cab.

Of course, this kind of volume has proven lucrative for Tutunjian. According to bank documents from 2001 attached to court records, Tutunjian's taxi management company pulled in about $5.6 million in lease and rental payments from drivers in 2000. When the money from Tutunjian's other cab businesses was added, the total revenues were nearly $9 million, representing a profit margin of more than 17 percent. Even with the effects the 9/11 disaster had on business travel, a mainstay of the taxi industry, projections were that Tutunjian's 2001 revenues would jump another 50 percent.

Today, nobody else owns more than about 30 Boston taxi medallions. As for how Tutunjian bucked the downsizing trend, John Ford, a 30-year industry veteran and owner of Top Cab Dispatch, says simply: “He had the balls to do it.”

Tutunjian doesn't just lease and dispatch cabs. He also owns a limo service, garages, and the Linwood restaurant, near Fenway Park. There's one other business he's involved with: making loans. Bank records indicate that in 2000, he was collecting between 15 and 20 percent on about $2.6 million from drivers who borrowed the money to buy their own medallions.

As both medallion prices and prime lending rates rose throughout the 1990s, making loans to would-be medallion owners was a profitable business. It helped that between January 1999 and June 2000 — around the time prime rates were peaking — the city held three medallion auctions. Far from depressing the value of medallions, as many owners feared they might, the new sales spurred the market, medallion prices soared, and the auctions raised tens of millions of dollars that helped to pay for the construction of the city's new convention center.

Even as interest rates have fallen, lending to cab drivers with dreams of owning their own medallions has remained very profitable for the businesses that specialize in it. Take Progressive Credit Union, 75 percent of whose loans are for medallion purchases in New York, Boston, and other cities. In 2002, Progressive was the most profitable credit union of its kind in the country. Another example is Medallion Financial, a “specialty financing company” that holds about $15.5 million worth of medallion loans in Boston. The company's philosophy, “In Niches There Are Riches,” proved true last year, when it reported more than $14 million in interest income.

While skyrocketing medallion prices may be good for lenders, they're not good for cabbies hoping to go into business for themselves — or for the quality of Boston's taxi service. Mark Cohen, director of the Boston Police Department's Licensing Division, which regulates the taxi industry, draws a circle to represent the fare income a new medallion owner might earn in a month. He draws two skinny wedges to show how much of that income goes to the driver and the vehicle. Then he labels the huge remaining portion “medallion,” meaning the loan payments new medallion owners have to make.

And the medallion wedge is growing, Cohen says. “Driver and vehicle costs are much less a part of the pie. But those smaller wedges have a big impact on service.”

To put this in perspective, compare taxi medallions to another precious commodity in Boston: housing. In about the last 10 years, the median home price in Boston has nearly doubled. During the same period, the average cost of a new medallion has more than tripled.

Rising gas prices, higher tolls, and the lingering effects of 9/11 have also cut into cabbies' income, says Boston City Councilor Paul Scapicchio, who once drove a cab part-time himself. “There are also thousands of liveries, which are unregulated,” he says. “And they ply the street like taxis. Meanwhile, the cab driver has that medallion payment hanging over his head.”

Still, there are plenty of people willing to take their chances driving cabs. “Everybody thought I was crazy; I thought I was crazy” for buying a medallion about a year ago for $227,000, says one driver, an immigrant from Haiti. But, he adds, “the last one, I heard, went for $260,000. So I'm ahead of the game, I can say, for now.”

Glenn Kulbako, a veteran cabbie and labor organizer, says, “It may have something to do with there being an immigrant population here that's willing to become part of that system. It's like investment fever, despite the actual value of what you have in hand. I'm not sure these people always know what they're getting into.”

Knowing what they're getting into can be tough for drivers in the world of medallion lending. Back in the 1980s, when Tutunjian was accumulating much of his empire and medallions cost a fraction of what they do now, most of the purchases were made with bank loans. In recent years, however, banks have become more conservative in their lending, and cab drivers, many of them recent immigrants with little credit history, often don't make the cut.

In general, the riskier a borrower, the more interest and fees he will be charged on a loan. And when a cabbie looking to buy a medallion has been turned down by banks, credit unions, and places like Medallion Financial, there is at least one more place he can turn. It's a company called Tis We Own Ting, headed by a Swampscott businessman named Ronald H. Rainer.

You won't find Rainer's company in the phone book, but almost everyone in Boston's cab industry knows about it. Since the early 1990s, Tis We Own Ting has made hundreds of loans, often at high interest rates, to would-be medallion owners. Rainer says he's given many drivers with few other options a way “to achieve the American dream.” If a cabbie can come up with the same down payment a bank would demand, says Rainer, his rates “are competitive with banks and other lending institutions.” As for other borrowers, “obviously, if there's a higher risk, you want a higher return.”

One cabbie, who says he took out a high-interest loan from Tis We Own Ting several years ago, has a different view. “The reason why these companies exist is because sometimes your credit is bad, and you borrow money foolishly. I survived it, and I moved on. [But] people don't realize what interest does. . . . It's very, very easy to get into trouble.” Another cabbie with a current loan from Rainer says he's paying about 11 percent, compared to the 6.5 percent banks might typically charge now, or the 7.5 to 8 percent he might pay to Medallion Financial. Given the size of a medallion loan, adding a few percentage points to the interest rate can mean tens of thousands of dollars paid over the life of a loan.

There have always been lenders of last resort for medallions. There has also always been a need for them, as cabbies with bad credit struggle to get behind the wheels of their own cabs. The main difference now, of course, is that the sums involved are so much greater and the pit of debt that much deeper.

Mark Cohen, of the Police Department's Licensing Division, estimates that fewer than 200 of Boston's cabs are owned and operated by individuals. While there are hundreds of people who own just one medallion each, most of those owners usually pay off their purchases by driving for 10 to 12 hours a day and leasing the cab for the other shift. Or they just lease out the medallion and leave the vehicle purchase, maintenance, and driving entirely to others.

Cohen says he's determined to find ways to increase the number of owner-operators. A one-per-customer limit in the recent medallion auctions was one such measure. Yet now it's not only mega-owners like Tutunjian and money lenders like Rainer who have a vested interest in keeping the system as it is — and medallion prices high. So does every cabbie who has sacrificed to buy just one medallion. Asked about proposals from free-market advocacy groups that the medallion system be scrapped, Cohen replies, “If people in think tanks can come up with a way to look a guy in the face who's been driving a cab for 15 years in order to pay off a medallion and say, 'Tomorrow, we're going to yank that all away from you,' I'd like to hear it.”

For now, Cohen says, he'll focus on what he calls the “long-term professionalism of the industry” — requiring newer cars, holding seminars to educate would-be medallion buyers on their financing options, and putting more focus on driver training. Cohen's office also has been rewriting the city's taxi regulations, which will be reissued next spring. In an industry that depends on speed and quick customer turnover, significant changes happen only gradually — and often grudgingly.

Many cab drivers take it all in stride. “I prefer this to having a boss on my back,” says a cabbie heading downtown from Logan. This driver came to America from the Dominican Republic 20 years ago. He has four kids and has been driving for most of the last decade. When business dropped off after 9/11, he quit and got a job picking up trash at Fenway Park. Now he's back behind the wheel, paying somebody $130 to keep the cab for 24 hours at a stretch.

It's just past 1 p.m., and the driver figures he'll work until 3 in the morning. “I might make money today, maybe not,” he says, and he shakes his head. Soon, the cab reaches its destination. “There are also very good days,” the cabbie notes as his customer opens the door of the taxi onto a crowded downtown sidewalk. “And a very good week can make up for a bad week. It's our luck, you know.”