nextERA seriesby Toy Beeninga
The emergence of the sharing economy (i.e., Uber, Airbnb, etc.) is disrupting the status quo and local governments have struggled to keep pace with the rapid development of technology. Making matters more complicated, the companies operating within the sharing economy have little sympathy for local governments’ attempts to regulate their operations and are prepared to ignore or challenge any attempt to regulate the marketplace. The Innovations and Emerging Practices in Local Government 2016 Survey found that 95.7% of municipalities do not have legislation in place but 11.5% of respondents were currently pursuing legislation to regulate the sharing economy. Since then, this number has increased but highlights the reactive approach most municipalities are taking, waiting to see what statewide legislation or court rulings provide in terms of guidance.
Here are four things to consider when developing regulations for the sharing economy:
1: Pressure on Policymakers
There is significant vertical and horizontal pressure on policymakers when it comes to regulating the sharing economy. This pressure includes calls from neighbors in communities who feel their neighborhoods being are ransacked with people, cars, and parties. State Legislatures are passing regulations banning the local regulation of the sharing economy. Established businesses impacted by the spread of peer-to-peer services are pressuring for equity of regulations since they have spent significant dollars to comply with existing regulations (i.e. Taxis, hotels, etc.). Meanwhile sharing economy companies are pushing for the least amount of regulations possible. Policymakers do not operate in a vacuum and it may take longer than expected to enact any regulations. Build this into your timeline and try not to create an unrealistic expectation. One common trend has been to overregulate and then slowly walk back those regulations, satisfying unhappy neighbors and then slowly reaching equilibrium. While this may not be an ideal approach, policymakers sometimes must react to the “fire” before figuring out how to build a new house.
Key takeaway: Local conditions may make a one-size-fits-all solution unattainable and the policy development stages may need to be right-sized to fit your community.
2: Intended Policy Outcome of Regulation
Before developing a regulation, determine the intended outcome. Some reviewed outcomes include (1) punitive in an attempt to limit an unwanted activity or pressure into compliance; (2) health and safety of those using the services; (3) revenue generation to offset loss of hotel tax or taxi regulation taxes/fees. The most desirable outcome for any regulation should be ensuring the health and safety of those engaging in the sharing economy and internalizing any negative externalities i.e. the costs (“living conditions”) imposed on unwitting neighbors. Compliance with existing building code/occupancy regulations, ensuring a driver has insurance and a safe vehicle, etc. are all reasons for local governments to pass rational regulations.
Key takeaway: the associated fees to ensure compliance with health and safety standards should have a rational nexus to the actual cost of ensuring compliance and the municipality must provide the resources necessary to ensure on-going compliance.
3: Developing a Reasonable Fee
A best practice seen in some municipalities includes an initial registration fee, an annual renewal fee, and fees for non-compliance. These fees result in an inspection of the property/vehicle and a certificate of compliance. An important takeaway is not all users are equal. Someone who rents their property for a few days a year is much different than a commercial entity renting a property year-round. It is important to create different but verifiable tiers in a fee structure. An example tiered structure differentiates owner-occupied and commercial properties with a different compliance process for each.
When developing a fee consider the following items:
- Determine the goal/outcome of your program.
- Create a checklist of the items/actions needed to accomplish the goal of your program.
- Create a process map from the checklist from step one to issuance of a certificate compliance.
- Assign a job type and reasonable amount of time to complete each step in the process.
- Determine the total time per application type for each job type.
- Determine cost per unit (minutes) for each job type involved in the process (variable costs).
- Consider fully loading costs to include administrative overhead.
- Spread fixed costs over an anticipated number of applications (three-year horizon).
- Establish a timeline and policy to review fees and true-up fees based on actuals.
The provided process is just one way to develop a fee, but this approach ensures the fee is tied directly to work performed to accomplish the goal of the program.
4: Engage Stakeholder Groups to Strengthen Policy
The best-developed regulation will not accomplish the desired goal without buy-in from stakeholders and a robust campaign to get people enrolled. A symbiotic relationship may be possible with peer-to-peer services where the companies require compliance with local regulations before someone can sign-up/list a room on their application. This benefits the municipality and companies by ensuring people are compliant with health and safety standards (best practice - i.e. https://www.airbnb.com/help/article/1404/denver--co).
Key takeaway: It does not hurt to talk with stakeholders when developing a regulation.
Other strategies include:
- When non-compliance is identified, provide education on process and steps to reach a compliant status (reactive);
- Search common applications for listings and send mailer providing education on process, steps to come into compliance, and fees associated with non-compliance (proactive);
- Educate homeowners or neighborhood associations on ways to report potential non-compliance and create community buy-in on process (both reactive and proactive);
Regulating peer-to-peer services is complicated, but hopefully, lessons learned will make governments more nimble at responding and finding ways to work with the market to find solutions that protect the health and safety of people within our communities. While this has been a challenge, it is absolutely vital, as items coming down the pipeline only look more complicated, i.e. drone delivery, autonomous vehicles, artificial intelligence, etc.
Continue the Conversation
To continue this discussion, you can contact Toy Beeninga, Senior Financial Management Analyst, at email@example.com.
 The Innovations and Emerging Practices in Local Government 2016 Survey is part of an ongoing research partnership between the International City/County Management Association, the Center for Urban Innovation at Arizona State University, and the Alliance for Innovation.
 Malhotra, Arvind and Marshall Van Alstyne, “The Dark Side of the Sharing Economy . . . and How to Lighten It,” Commun. ACM, 2014, 57 (11), 24–27.