Food Trucks, Land Use, and the Free Rider Problem

The food truck wars continue. In this piece on Slate, Matt Yglesias talks about several cities' and states' efforts to ban or regulate food trucks in a way that prevents them from competing with existing restaurants.  He cites what he considers a particularly egregious example: a San Francisco ordinance that permits any existing business to comment on an application for a new vending license and directs the city to "consider" whether the new vendor will operate within 300 feet of an existing vendor in deciding whether to grant the license.  Yglesias concludes: "a basic rule of thumb seems to suggest itself: The fact that business owners would prefer not to face competition is not a valid regulatory purpose."

This proposition would surely come as a surprise to most land use folks, who generally accept as a matter of course that land use regulations are, at their core, anti-competitive.  From large-lot single-family residential zoning that inflates the cost of housing for the benefit of existing homeowners to anti-big-box store laws that are designed to protect quaint mom-and-pop businesses, zoning represents pure economic protectionism.  Indeed, the San Francisco ordinance Yglesias mentions is pretty familiar: many zoning laws give neighbors the right to file a protest to a proposed land use change in their neighborhood, which can result in requiring the city to enact the zoning change by a supermajority vote or possibly even block the zoning change (I address the legality of these neighborhood zoning provisions in my article Neighborhood Empowerment and the Future of the City.)

Zoning laws are generally allowed to be anti-competitive because they are thought to be means of combatting free-rider problems.  Economists like William Fischel and Bruce Hamilton have argued, for example, that a preponderance of expensive homes on large lots tends to correlate with higher-quality schools.  But in the absence of large-lot zoning, people would have strategic incentives to build smaller, less expensive homes in the area just to have access to the better schools.  Of course, if too many folks did the same, the very thing that attracted people to the area (the good schools) will be lost as the area becomes congested with smaller homes and more schoolchildren.

Food trucks, it would seem, present an even stronger free-rider problem.  Foot traffic is drawn to an area because of the existing shops, restaurants, etc, and the foot traffic in turn generates a demand for more shops, restaurants, etc.  Rents and property values go up, as do property taxes, and many high-traffic areas use special assessments or business improvement districts to provide collective sanitation or security services for the area (again overcoming a free-rider problem, as I explain in my Neighborhood Empowerment piece).  When a food truck swoops into a high-traffic area, it pays no rent, no property taxes, and no assessments for that privilege, and its lower operating costs enable it to siphon some of that foot-traffic away from existing fixed eateries, thus free-riding on the efforts of those eateries to bring in the foot traffic in the first place.  Think of it this way: if the food trucks are sufficiently successful to bankrupt the existing fixed eateries, leaving lots of vacant storefronts in their wake, people will stop coming to the area altogether, and the food trucks will move elsewhere. In other words, the food trucks depend on the existence of fixed eateries to fuel their business.  But while fixed eateries pay taxes and fees for the ability to do business in a particular place, food trucks do not.  So it should not be a surprise that existing businesses are unhappy.

The solution that suggests itself to me is fairly obvious: since business improvement districts are mechanisms for overcoming free-rider problems, than food trucks should be forced to pay assessments to the business improvement district or special assessment district in those areas where they operate.  Legally and conceptually, though, this is difficult to accomplish because special assessments are, as a matter of hornbook law, supposed to be keyed to the benefits that accrue to real property.  Because food trucks are not real property, it is difficult to apply the special assessment to them.  But wouldn't it be possible for municipalities to use their home rule powers to impose some sort of free-rider fee on food trucks?   I would hope that cities and states will consider this alternative rather than simply banning food trucks altogether.

For more on food trucks, see my colleague Ernesto Hernandez-Lopez's piece, LA’s Taco Truck War: How Law Cooks Food Culture Contests.

Ken Stahl