WATERTOWN, S.D.—Yesterday, the city of Watertown, South Dakota, passed a new ordinance that will make it easier for entrepreneurs to open taxi or other ride-sharing businesses within the city. The overhaul to the old law comes following a letter from the Institute for Justice (IJ) which argued the old law was unconstitutional and called on city officials to make a change. 

Chief among the changes made by Watertown officials was the repeal of the so-called “proof of necessity” provision, which essentially allowed existing taxi companies to deny permits for new ride providers by arguing that there was no need for the service. Similar laws exist across the country in various industries, including health care and transportation. The new ordinance will also allow ride providers to accept cash payment, which was not allowed under the previous law.  

“The proof of necessity law had nothing to do with protecting the public. It was simply the government picking winners and losers in the market,” said IJ Senior Attorney Erica Smith Ewing, the author of the letter that led to the reforms. “It’s great to see Watertown making important reforms that will allow entrepreneurs to pursue their dreams and lower the cost for riders by creating more competition.” 

IJ submitted its letter in December of last year, after the city shut down a local ride-for-hire business called Need-A-Ride, which was permitted by the state to operate. Officials determined Need-A-Ride was in violation of the old ordinance after one of the company’s drivers accepted a cash payment from a police officer who hailed a ride. Following the sting operation, the company’s owner, Debra Gagne, attempted to comply and asked the city for a permit. At her hearing, a Lyft driver opposed her permit and Debra was denied. 

This left Debra in a tricky situation: She could either continue to operate her business on a volunteer basis, she could shut down altogether, or she could continue to accept payment and face large fines for violating the ordinance. A couple of days after IJ submitted the letter, the city council held an emergency meeting and granted an exemption to the law for Need-A-Ride. This allowed Debra to operate her business—right in time for the holidays.  

IJ has challenged proof of necessity laws (also known as certificate of need laws) throughout the country, including a Colorado law that is barring a Jordanian immigrant from opening his ride-hailing business, and a similar law in Little Rock, Arkansas, which was ultimately shot down as unconstitutional.