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 legislatures this year have tried and failed to pass bills to provide oversight for the ride-service companies.
Taxi and limo companies have objected, arguing the Web-based businesses have an unfair advantage and light regulation.
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Several municipalities nationwide, including Seattle, also are grappling with the issue.
The Seattle City Council passed regulations in March that increased insurance standards and limited each ride service to 150 drivers on the road at a time as a pilot regulation phase. A referendum threat kept the regulations from going into effect last month, and they’ve been on hold ever since Mayor Ed Murray started negotiating with Uber, Lyft and Sidecar.
King County will discuss countywide regulation soon.
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 (NCSL).
The bill Colorado lawmakers passed this month, which Democratic Gov. John Hickenlooper is expected to sign, will allow the companies to continue to operate in the state.
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 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 drivers’ 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 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 on 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.
Sponsors of the Colorado bill say their measure 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 also 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 have regulated such ride services.
“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 the NCSL. The District of Columbia adopted emergency rules last year, and state regulators in Nebraska and Rhode Island are discussing what they should do, he said.
Last year in California — the birthplace of Uber and Lyft — the state’s public utilities commission implemented rules for the companies.
Uber’s Seattle manager, Brooke Steger, has said Uber hopes to persuade Washington state to approve regulations similar to Colorado’s. But for right now, the state’s TNC regulation debate has been grounded in Seattle, not Olympia.
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.”
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 ride-sharing in Colorado,” said Uber spokesman Lane Kasselman. Lyft spokesman Paige Thelen said the measure will “secure a future that will allow ride-sharing to grow and thrive in the state of Colorado for years to come.”
Seattle Times reporter Alexa Vaughn contributed to this report.