Christopher Whalen ran a limo business in Phoenix until moving to Portland in 2006. His wife thought Arizona was too hot, and wanted to be closer to her family.

Last January, after working as a driver for a year, he started his own company, based in Beaverton. But Whalen needed six months to secure the operating permits from the city of Portland for the sedan and SUV in his seven-car fleet, a delay that cost him thousands of dollars in business.

In Phoenix, taxis are largely unregulated—and a 2007 study by New York City transportation planner Bruce Schaller concluded such lack of regulation leads to headaches with uninsured or unlicensed cabbies. Portland follows a very thick rulebook, but our bureaucratic approach has created a different problem with the business of taxicabs, shuttles and towncars:

The city keeps a lid on the number of taxicabs, shuttles and towncars at 569. But since caps were introduced in 1999, another 232,000 people have moved to the metro area—a 12 percent increase—and Portland International Airport handles another 100,000 passengers a month—a 7 percent jump.

In short, demand has risen, but supply hasn’t.

“I found it to be very much a racket,” says Whalen, who runs Entourage International Limousines and Transportation.

It wasn’t supposed to work this way. City rules require a new study of local demand for taxicabs every two years. But the last such study happened in 2000, because the City Council never wanted to spend the money to update it.

“When you have a moratorium going on for years and years and years, it really creates some terrible pressures on the market,” says Frank Dufay, the city’s chief taxi regulator.

Worse yet, the 2000 study, which still guides Portland’s taxi regulations, was basically built on guesswork. City officials don’t know how the permit caps were set back then. “There were assumptions made that you need x cabs for every 1,000 population,” says Dufay. “We’re not sure where that came from.”

But this year the Council finally agreed to put up the funds for a new demand study. Bids for the study, estimated to cost $100,000, are due Sept. 18; the study should be finished by 2009.

Officials hope the report, together with a simultaneous revision of the taxi code by the city attorney’s office, will make life easier for both drivers and passengers.

If the demand study suggests more permits should be issued, that could mean more money for the cab companies eager to tap increased demand. But it could mean less money for some drivers, many of whom rent their cabs as independent contractors, because of increased competition.

“The taxi companies are caught in a Catch-22. They’ve got to have more permits, but drivers say there’s already too many guys on the road,” says Whalen, who credits Dufay for helping him finally get two Portland sedan permits.

The companies have long hunted for loopholes in the code. Last year, Broadway Cab found a way around the moratorium on new permits by simply buying Sassy’s Cab Co. outright, essentially adding 17 taxis to its fleet. Until then, Broadway and Portland’s other big cab company, Radio Cab, had each held 136 permits.

“We’d like to see fewer regulations, but [keep the] regulations we can really enforce,” says Dufay. “Right now it’s a really problematic code.”

The taxi permit cap also provides no incentive for cab companies to upgrade their fleets with more fuel-efficient vehicles. Jesse Yun, a co-owner of EcoShuttle, which powers its five vehicles on biodiesel made of chicken fat and waste vegetable oils, says the business could grow faster if permits were easier to obtain and regulations were streamlined.