(Cross-posted from The COFAR Blog)
While proponents of privatizing the MBTA point to the rising cost of in-house operations there, the cost to the agency of contracting out appears to have risen even faster.
The annual cost to the MBTA of contracting for commuter rail services has risen by 99.4 percent since 2000, compared with a 74.9 percent increase in the annual cost of the agency’s in-house bus operations, according to cost information we’ve compiled from public online sources (see below).
In our view, the rising cost of the commuter rail contracts since 2000 casts further doubt on the claims by the Pioneer Institute and other privatization proponents that contracting out for services will automatically save hundreds of millions of dollars at the T.
In case you missed it, the Pioneer Institute issued a report earlier this month that compared the actual cost of MBTA bus operations to a proposal based on bids from outside contractors to undertake those functions.
The Pioneer report concluded that had the state auditor allowed the planned privatization of the bus operations to go forward, the MBTA would have saved $450 million between 1997 and 2015. The report claimed those allegedly foregone savings were the fault of the Pacheco Law, which the auditor had cited in objecting to the outside contract proposal.
(As discussed below, the state auditor did not definitively reject the MBTA’s contract proposal, but rather asked the agency to resubmit its proposal after addressing concerns raised by the auditor about its cost calculations. The MBTA never did resubmit its proposal, but instead chose to sue the auditor in state superior court to reverse the auditor’s decision, and lost.)
The Pacheco Law requires state agencies seeking to privatize existing operations to show that bids from private contractors would be lower than a calculated cost of continuing to perform specified work by regular state employees “in the most cost-efficient manner.” The state agencies must submit their calculations to the state auditor, who has the final say as to whether the functions can be privatized.
Largely due to unrelenting political pressure from the Pioneer Institute and other privatization advocates, the Legislature approved a 3-year freeze earlier this month on invoking the Pacheco Law with regard to privatizing MBTA functions.
Last week, we raised a number of concerns about the methodology of the Pioneer report, including criticizing its comparison of actual in-house MBTA costs to bids. We argued that it’s meaningless to compare actual costs to hypothetical costs over a nearly 20-year period.
We think it would make more sense to compare actual in-house costs to actual contract costs over a multi-year period. An obvious candidate for an evaluation of actual contracting costs appears to be commuter rail.
The MBTA has contracted out for commuter rail service since the 1980s, according to a state audit report on the agency. Beginning in 1987, Amtrak began providing commuter rail services to the T under a cost-plus-overhead and profit contract. In 1995, this was changed to a negotiated fixed price contract with a three-year term and two one-year options.
In May 2000, according to the audit report, the MBTA was given permission by the federal government to extend the Amtrak contract without bidding for an additional three years. The total cost of the three-year contract extension, plus additional work that was in included in subsequent contracts, came to $168 million per year.
The Massachusetts Bay Commuter Rail Company (MBCR) subsequently won a competitive RFP process to operate the commuter rail system, starting in 2003. The cost per year of that fixed-price contract was $217.4 million, which amounted to a 29.4 percent increase over the cost of the Amtrak contract three years earlier. In that same period, the in-house cost of MBTA bus operations rose by just 12.8 percent, based on the Pioneer report’s figures (See chart below).
In 2008, the MBTA granted MBCR a three-year contract extension at a cost of $246 million per year, which amounted to a 46.4 percent increase in commuter rail contracting costs to the MBTA since 2000. In that same time, the in-house bus operations cost had risen 40.4 percent.
In 2011, MBCR received a final 2-year commuter-rail contract extension costing $288.5 million a year. By that time, the MBTA’s cost of contracting for commuter rail had risen by 71.7 percent since 2000, whereas the in-house cost of MBTA bus operations had risen by 55.7 percent.
Finally, the MBTA signed an eight-year contract last year with Keolis Commuter Services at an annual cost of $335 million, according to The Boston Globe. (Note: the headline on the linked Globe story appears to be wrong.) As a result, by the time Keolis began operations last July, its annual contract cost was 99.4 percent higher to the MBTA than the Amtrak contract cost had been in 2000. In contrast, the cost of in-house bus operations at the MBTA was only 74.9 percent higher in 2014 than it had been in 2000.
By the way, it may be only a matter of time before the Keolis contract cost rises above the $335 million annual amount, given that the company is reportedly already losing money operating the MBTA commuter system.
The Pioneer report characterized the in-house cost of MBTA bus operations as “inordinately expensive,” and concluded that for that reason, replacing that in-house service with contracted work in 1997 would have saved hundreds of millions of dollars. But the Pioneer report failed to consider the actual experience that the MBTA has had with contracting.
One might argue that you can’t legitimately compare the cost of commuter rail operations to bus operations. But at the same time, we think our comparison shows that entering into contracts for services doesn’t guarantee that the costs won’t rise dramatically. Since 1995, the commuter rail contracts have all been fixed-price contracts.
The Pioneer report misrepresented the state auditor’s objection to the MBTA’s 1997 privatization proposal as a “ban” on the award of the contracts
The Pioneer report referred in different places to the state auditor as having “banned” or “blocked” or “barred” the MBTA’s proposal to privatize the agency’s bus services in 1997. According to the report, this adverse decision, which was based on the Pacheco Law, not only thwarted the MBTA’s attempts to save costs and improve quality of its bus service, but the MBTA never again attempted to privatize that service.
But the actual decision by then State Auditor Joseph DeNucci did not ban or block or bar the MBTA from privatizing its bus services. Instead, DeNucci invited the MBTA to resubmit its proposal after addressing a number of issues raised in his decision letter and in a previous letter regarding the proposal. Among those issues were alleged failures by the MBTA to support specific cost savings in its bid proposal and to provide measurable indicators of service quality as a baseline for comparison, such as information about on-time performance.
It does appear that the MBTA was not happy with the issues and inquiries DeNucci’s staff was raising about the MBTA’s privatization proposal. According to DeNucci’s letter, the MBTA objected at one point to the auditor’s questions about how claimed savings in contracting out functions at garages in Charlestown and Quincy could be achieved since a third facility in Everett was providing services to support the two other garages.
When the auditor inquired as to how costs would be reduced at the Everett facility, the MBTA responded that the auditor’s inquiry was “of no significance,” and “beyond the scope” of the Pacheco Law.
DeNucci’s final letter to the MBTA stated the following:
Recommendation:
We believe that the MBTA should seriously address each of the above substantive issues disclosed
by our review. A carefully considered objective analysis of these matters, such as the Everett and
Arlington facilities, quality of service, changes and extra work, pension costs, 13(c), and bid price
changes, should be undertaken prior to privatization. A hasty, ill-considered, rather than a thorough
analysis, would not well serve the MBTA’s ridership and the taxpaying public.Conclusion:
Therefore, pursuant to Section 55(a) of Chapter 7, MGL, this office hereby notifies the MBTA of
its objection to the awarding of these contracts. In accordance with Section 55(d), this objection is final
and binding on the MBTA, until such time as a revised certificate is submitted and approved by this
office. As always, this office is available to discuss our findings and provide further assistance to the
agency. (my emphasis)
Whatever reasons the MBTA had for not answering the auditor’s questions, the fact that those questions remained unanswered was the reason that the auditor objected to the MBTA’s privatization proposal. Nevertheless, the auditor clearly invited the MBTA to try again and to resubmit a revised privatization plan that addressed the issues in the auditor’s review.
The Pioneer report implies that it is somehow the fault of the Pacheco Law and the state auditor that the MBTA never did revise or resubmit its proposal, and never again attempted to privatize its bus services. That seems to us to overlook the MBTA’s responsibility for failing to comply with the auditor’s reasonable requests for information.
If you want someone in authority to grant a request you’ve made, and they say they may well grant it, but first they would like some more information about it, do you then say “it’s none of your business?” That, in effect, appears to be what the MBTA told the auditor in the the bus privatization case.
It was the MBTA’s choice not to answer the auditor’s questions and subsequently to sue the auditor rather than resubmit its proposal. It was also the MBTA’s choice never to submit another privatization proposal to the auditor for those services.
Now, not only is the Pioneer Institute continuing to complain about the auditor’s 1997 decision, we think the Institute has failed to make the case that the decision cost the taxpayers money over the intervening years.
And one more thing about the Pioneer report’s calculation of the alleged foregone savings
As noted above, the Pioneer report’s figure of $450 million in lost savings from 1997 to the present, due to the Pacheco Law, is based on comparing the T’s actual in-house operating cost for bus service to an outside contract bid. The report stated that as a means of comparison, it escalated the proposed contract bid between the years 2002 and 2013, the last date for which in-house cost data on the MBTA was available. The Pioneer report escalated the contract bid by the same percentage rate that it escalated the in-house cost each year.
But why did the Pioneer report not escalate the contract bid for the first five years of the comparison (from 1997 to 2002)? For no readily apparent reason, the report lists the same hourly contract rate for those first five years of its comparison. Yet, the report shows in-house MBTA costs rising by over 18 percent during that same initial five-year period. Had the report applied the same escalation rate to the contract bid as it did to the actual in-house costs throughout the comparison period (1997 to 2015), it would reduce the alleged $450 million in foregone savings by about $72 million.
If there was a reason that the Pioneer report assumed the bus contract costs would remain flat for the first five years, but would escalate after that, it isn’t stated in the report, as far as I could tell. But even if the report had assumed the same escalation rate throughout the comparison period, we would still reject the entire comparison of actual to proposed numbers.
the guy from the Pioneer Institute made the argument that Charlie Baker’s new people were all really “smart,” and we should trust them to improve the T.
“Smart” is no guarantee against someone with a preconceived notion rationalizing their preferred outcome (looking at you, rightwing “institutes”)
Or for that matter, MassBudget?
I’m not surprised that the Globe and certainly the Herald would be MIA on this, but it’s frankly inexcusable that MassBudget is completely silent on this.
For all that Pioneer gets wrong, they are incredibly successful at getting their message out there. It doesn’t matter if the $450 M in “savings” figure is debunked if the print media and Beacon Hill accepts it as conventional wisdom, thereby poisoning the well to any conversation that doesn’t revolve around privatization and tax cuts.
The research here is amazing, and is needed, but the message needs to be simplified down into 2-3 sentences that drives home the point. Kind of like “private companies are going to be more efficient so they are better”, and then “The MBTA wasted a bunch of money by not privatizing”.
Pioneer Institute’s report concerning the Pacheco Law cited a federal-sponsored national study that reported savings of more than 40 percent by large bus transit systems that competitively procure bus service in comparison with providing the service directly. The report also presented data from the National Transit Database comparing the cost of purchased bus transportation versus agency-provided service from 1997 to 2013; again, this showed a savings of more that 40 percent. In the year of the Pacheco decision, the MBTA was procuring 17 percent of its bus service through private contracts at one-sixth the cost of its agency provided service. These are the kinds of facts that legislators paid attention to when considering MBTA reforms.
I disagree with Dave’s use of the MBTA commuter rail system as a comparison to the MBTA’s bus service. MBTA commuter rail is privatized in name only. When the MBTA privatized its commuter rail service, it was subjected to another protectionist law, federal Section 13(c), that obligated the MBTA to build into its contract a requirement that the bidders hire current MBTA employees at equivalent wages and benefits. Section 13(c) also required that the contract require that any employee who lost his or her job as a result of the privatization be compensated for up to six years pay, one year for every year worked up to six. Furthermore, the Section 13(c) required the contract to provide that maintenance work on the commuter rail vehicles be performed at the MBTA garage, using the same MBTA employees that had been doing the work previously. So when Dave compares the MBCR and Keolis contracts with MBTA bus service, he is comparing the products of two protectionist laws. By doing so, he tries to avoid comparing apples to apples, bus service to bus service. The overwhelming evidence demonstrates that purchased bus service is consistently less expensive than agency provided service in large transit agencies. Dave tries to present a case showing that the auditor’s office was correct in rejecting the two contracts in 1997 because, supposedly, the MBTA’s Pacheco application was flawed. Here’s something he can take to the bank: the Pacheco Law was adopted for the express purpose of blocking these two contracts. When the government wastes money by imposing protectionist laws, it has fewer funds to provide essential services.
So, MBTA commuter rail won’t be truly privatized until they have the wages & employee turnover of a fast food restaurant?
No, gwsullivan, as a member of the Pioneer Institute, you are the one who takes money to the bank for rationalizing rightwing ideology.
The Pacheco Law was a simple requirement for a fair accounting between the privatizers and the public interest. And all the big money behind the Pioneer Institute has suspended a good law.
Would that all private companies were subject to the same degree of oversight and protections as these!
I would note the following:
1. Greg cites a federally sponsored study that found a cost savings of more than 40% for large bus systems. I located the study, which assessed proposals to privatize bus services in Florida. I would not characterize the study as concluding that contracting for bus service is necessarily desirable for Florida. The study noted, among other things, that researchers have reached conflicting conclusions as to whether contracted services are more cost effective. To the extent that there have been cost savings, there has also been a tradeoff in reduced quality of service, according to the study. The study states the following:
2. Greg argues that the high cost of contracting for commuter rail at the MBTA is due to a federal law protecting the jobs of existing MBTA employees. While it’s true that the law required the MBTA to retain its current commuter rail maintenance employees when the agency attempted to rebid its contract with Amtrak in 1999, the requirement was only for six years, according to the state audit report cited in the post above.
3. With regard to the point above, while existing employees continued to do commuter rail maintenance at least for a time, existing employees at the MBTA also continued to work in bus operations; yet the cost of commuter rail contracts rose at a greater percentage than the bus operations from 2000 to the present. So, in that regard, it would appear that actual bus operations versus commuter rail operations costs is an apples-to-apples comparison.
4. We’ve discussed the intent of the Pacheco Law here before. The fact remains that the Pacheco Law was based on — and is fundamentally similar to — a federal policy requiring a cost competition before services can be privatized. Only in Massachusetts is the concept of a cost competition between state-run operations and contracted operations seen as bad for the taxpayer.
I have been responding to Dave’s critiques of Pioneer’s Pacheco Law/MBTA report. I should disclose the fact that Dave was an employee of mine when I served as state Inspector General whom I had to lay off after the state legislature cut the agency’s budget by 30 percent in the early 1990s. I take exception to what I consider to be misrepresentations in his many lengthy analyses. An example concerns his commentary about a federal study cited by Pioneer that found that large transit agencies in the U.S. saved more than 40 percent per mile in 2008 by purchasing bus service rather than providing it directly.
Dave posted a link to the report and claimed that the study instead “assessed proposals to privatize bus service in Florida.” If this were true and the federal study concerned only Florida, Dave’s criticism would be justified. But it is not true. Here is an excerpt from the study: “FDOT expressed interest in examining the potential for and issues surrounding private sector participation in the provision of public transportation in the state and contracted with the Center for Urban Transportation Research (CUTR) at the University of South Florida (USF) to investigate, document, analyze, and synthesize previous privatization efforts for providing fixed route bus public transportation services in Florida and the United States (U.S.).
And here is the excerpt from the report that Pioneer cited:
Table 4 – Operating Cost per Revenue Mile by Agency Size (Large U.S. Agencies)
Directly Operated $ per Revenue Mile $11.19
Purchased Transportation $ per Revenue Mile $6.67
The study cited by Pioneer presented and analyzed federal transit data for 63 large bus transit agencies in the U.S. (those with 250 or more buses), not just data from Florida transit agencies as Dave would have readers believe. The relative savings of purchased bus service versus agency-provided service ($6.67 versus $11.19) is 40.4 percent, as cited in our report.
Dave also claims that federal Section 13(c), the federal protectionist regulation, expired after six years and no longer applies to the MBTA commuter rail contract. This is untrue. Despite his assertion to the contrary, Section 13(c) labor protections continue in the current MBTA/Keolis commuter rail contract.
Finally, the federal law that Dave claims is fundamentally similar to the Pacheco Law, as I pointed out previously, is fundamentally different because it requires that federal employees actually be held accountable for delivering on federal employee’s counter-proposals to privatization contracts.
I find your first paragraph irrelevant and perhaps even a violation of the ToS for BMG.
Perhaps others (include dave-from-hvad) have more time or expertise to analyze documents like this. I find little credibility in your apparently cherry-picked excerpts — right-wing groups like the Pioneer Institute have a long history of lifting such excerpts out of context in order to turn reality on its head (particularly regarding climate change).
Your response misses what is, in my view, the most important point dave-from-hvad makes about the Florida study: the reduced quality of service that resulted from the alleged (and apparently overstated) cost savings.
The rest of your comment is similarly either dubious (in my view) or repetitive (regarding your characterization of the Pacheco Law).
You also fail to address another key objection to the Pioneer study, namely its mischaracterization of the state auditor’s objection.
The Pioneer report misrepresented the state auditor’s objection to the MBTA’s 1997 privatization proposal as a “ban” on the award of the contracts. An invitation to re-submit a proposal is the antithesis of a “ban”. Your silence on the matter suggests that you agree.
I find the arguments you make here that are not just plain offensive (such as your inappropriate personal disclosures) uncompelling and entirely consistent with what I have come to expect from the long history of the Pioneer Institute (and others of its ilk).
laid off by Greg Sullivan in 2003. But if Greg means to imply by making that disclosure in his comment that I’ve been critiquing his report in response to having been laid off, I can assure him and everyone else that’s not the case.
After the Legislature enacted the suspension of the Pacheco Law with regard to the MBTA earlier this month, I was asked by Tom Frain, COFAR’s president, to write a blog post about that. Tom was concerned that DDS services would be next to be exempted from the law.
So, it was a total coincidence that I ended up debating Greg on this issue. I admit, I’ve been a little harsh on the methodology of Greg’s report. But I don’t think I’ve misrepresented anything about it.
I will acknowledge that we came late to the latest round of debate over the Pacheco Law. I actually didn’t realize the Pioneer Institute was so involved in the legislative budget debate over the law until I started looking further into the matter and came across Greg’s latest report. I would add that I wrote a blog post that was critical of the Pioneer Institute’s position on the Pacheco Law about five years ago, well before Greg started working at the Institute.
As for the study that Greg refers to in his comment, I didn’t dispute that there has been a finding noted in the study of a 40% lower cost for contracted bus service in large agencies. All I said was that the study itself did not conclude that privatization was necessarily desirable for Florida, which it was focused on; and that the study noted that previous cost studies on privatization have reached conflicting conclusions.
My citation of the six-year duration of the job protection provision in the the federal law was taken from a state audit report that I linked to in my post.
I have nothing but respect and admiration for dave-from-hvad and I do not intend any ad hominem criticism towards him whatsoever. He is as fine a human being as you could find anywhere, a person of complete integrity, and one who fights for what he believes in, most often with great effect. Just disagree with him on this one, that’s all. Blue Mass Group is a truly valuable public service and I have been a consistent reader for many years. As to the bashers who think that Pioneer is pitching a right-wing idea, I told you before that outsourcing at the MBTA was authorized by legislation in 1980 sponsored by the great Barney Frank, the best state legislator I ever served with, who in his Massachusetts and Washington service consistently tried to find ways to free up money for essential services by making the government more efficient where possible.
at the IG’s Office: in particular, your investigation that blew open the misinformation that was being provided to the bondholders about the cost of the Big Dig in the 1990s. I was disappointed in your recent Pioneer report, but I’m glad you have clarified that the criticisms I’ve raised are based on my honest assessment of the facts of the case.
Again you repeat your offensive invocation of a 35 year old Barney Frank position. I don’t have a personal email address for Mr. Frank, so I don’t know how to contact him directly. He was my representative for years while I lived in Brookline. As I wrote when you earlier invoked his name, I’m far more interested in his opinion of your most recent report than in his position 35 years ago. Knowing Mr. Frank, I suspect that he might take issue with your characterization of his position even then. The actions of Mr. Frank in 1980 are utterly irrelevant to the political orientation of the Pioneer Institute today.
I suggest that pretty much every idea that the Pioneer Institute pitches is at least acceptable to the right wing, because the Pioneer Institute IS a right-wing organization. Multiple sources including BMG in 2013 confirm that Pioneer is part of the Koch brother’s “family” of organizations. Historical sources like “Right Wing Watch” have come to the same conclusion since at least 2002. The Koch brothers do not operate an eleemosynary institution. They fund right-wing political action groups, often disguised as think-tanks. They are cut from the same cloth as Richard Mellon Scaife and Joseph Coors. Sorry, but you get to dance with the one who brung you — I stand by characterization of the Pioneer Institute as a right-wing organization.
The Pioneer Institute was CREATED in order to pitch the right-wing’s view of privatization, as documented in pieces like this (emphasis mine):
It is no accident, given its sponsorship by the Koch brothers, that the Pioneer Institute attacks the MBTA. The long-standing interest of the Koch brothers in destroying public transportation is well documented. Given Mr. Baker’s close ties to the Pioneer Institute, the direction of Charlie Baker’s “reforms” of the MBTA is also no accident.
Here is an excerpt from a Bill Moyers report concerning this thread’s topic in October of 2014:
If you “just disagree” with dave-from-hvad, and “did not intend any ad hominem criticism towards him whatsoever”, then the opening lines of your previous comment were irrational. I, frankly, don’t believe you.
I have never met you. I’m sure you’re a very nice guy. The commentary you are posting here is just as slippery, just as offensively ad hominem, and just as full of distortions, misquotes, and misinformation as the rest of the rubbish published by Koch-sponsored mouthpieces.
If all this makes me a Pioneer Institute “basher”, then I proudly and loudly plead “GUILTY GUILTY GUILTY”. Apparently I join Bill Moyers and a host of other journalists in coming to the same characterization.
My perception is that Governor Baker joins Bob DeLeo in seeking to destroy public transportation in Massachusetts. My perception is that Mr. Baker and Mr. DeLeo cynically exploit any and every means available to them to accomplish that end, including the flagrantly distorted and deceitful rubbish published by the Pioneer Institute. My perception is that Mr. Baker and Mr. DeLeo intentionally and purposefully seek to demean, destroy, and insult virtually every MBTA worker as part of their “war on transit” (Mr. Moyers’ phrase, not mine).
I’m tired of these relentless lies and distortions. The MBTA is a crucial part of the state I love and have called home for more than forty years. You, the Pioneer Institute, and our current governor and legislature are each doing all in your power to destroy it.
Don’t, therefore, look for nice words from me.
… whose support is not sub rosa in this case.
Link
Normally I don’t have a problem with independent organizations serving as government watchdogs, even when I don’t agree with their politics. It does seem to me, though, that Pioneer’s extreme ideological slant makes it difficult for them to play this role effectively. In the couple of cases where they’ve tried to report on something I know about, my impression is that they are not able to get good information because potential sources don’t trust them.
I like that you guys are sticking to the classic definition of “ad hominem” and not stretching it beyond recognition as in some previous discussions.
A November 2013 report by the National Center for Transit Research entitled “Transit Contracting Models and Proper Incentives for Long Term Success” concluded that “contracting with private service providers for the management, operation and maintenance of transit services has become an acceptable business practice within the transit industry.” It also concluded, “The most common reason that transit agencies contracted service was to improve operational cost efficiency, followed by the desire to take advantage of resources available to private contractors that would enhance the agency’s capability to start new service or expand existing service.”
These national trends—and the opportunity for efficiency and cost savings through purchase of bus transportation—have been lost to the MBTA because of the Pacheco Law.
Look at the stats in Pioneer’s Pacheco report. In the years since the 1997 Pacheco decision, transit agencies across the country have increased their purchasing of contracted bus service dramatically. Transit agencies serving areas with populations greater than one million increased their annual purchase of private bus service from 93.9 million miles in 1997 to 221.8 million in 2013, an increase of 127.8 million miles. During the same period, directly provided service by these agencies declined by 82.0 million miles. The reason for this wholesale substitution is easy to understand: from 1997 to 2013 purchased transportation cost 42.2 percent less per mile than directly provided service at these transit agencies. A report published by the National Center for Transit Research sponsored in part by the U.S. Department of Transportation entitled “Analysis of Contracting for Fixed Route Bus Service” found that in the nation’s large transit systems, defined as those with 250 or more vehicles operating at maximum service, agencies paid 40.4 percent less in 2008 by contracting for fixed-route bus services per revenue mile ($6.67 per mile) than for directly provided bus transportation ($11.19 per mile).
With respect to my favorite all-time Massachusetts state legislator, I call your attention to the following excerpt from Stuart Weisberg’s 2009 book, “Barney Frank: The Story of America’s Only Left-handed, Gay, Jewish Congressman.”
Barney detested wasteful government spending and inefficiency. “It’s the liberal’s responsibility to try to save money because if we don’t save money in the right places, it’s going to be cut in the wrong places,” he said. As a liberal he is an enthusiastic supporter of trade unionism. But he took the lead in efforts to reduce the power of public employee unions in Massachusetts. He sponsored legislation to limit the power of MBTA unions because he thought they were out of control and their demands for salary and benefits were excessive and contrary to the public interest, and he wanted to curb what he viewed as the excesses of civil service and the intolerable inefficiency at the MBTA. He described [the MBTA] in these words: “Never has one organization paid so much to so many people to do so little.” He complained that MBTA work rules “required three people to change a fuse- two to carry the ladder and one to supervise.” He wanted to make it easier for managers to discharge MBTA employees for poor performance. ‘You can’t hire them, you can’t fire them, you can only yell at them, he said with frustration. He wanted to make it easier for MBTA managers to discharge MBTA employees for poor performance. “I am not trying to make it easier to fire a hundred MBTA employees, I just want to make it a reasonable task to fire one employee,” he said.
A self-admitted basher thinks that outsourcing of bus services by transit agencies is a right-wing idea cooked up by Pioneer Institute. A November 2013 report by the National Center for Transit Research entitled “Transit Contracting Models and Proper Incentives for Long Term Success” concluded that “contracting with private service providers for the management, operation and maintenance of transit services has become an acceptable business practice within the transit industry.” It also concluded, “The most common reason that transit agencies contracted service was to improve operational cost efficiency, followed by the desire to take advantage of resources available to private contractors that would enhance the agency’s capability to start new service or expand existing service.”
These national trends—and the opportunity for efficiency and cost savings through purchase of bus transportation—have been lost to the MBTA because of the Pacheco Law.
Look at the stats in Pioneer’s Pacheco report. In the years since the 1997 Pacheco decision, transit agencies across the country have increased their purchasing of contracted bus service dramatically. Transit agencies serving areas with populations greater than one million increased their annual purchase of private bus service from 93.9 million miles in 1997 to 221.8 million in 2013, an increase of 127.8 million miles. During the same period, directly provided service by these agencies declined by 82.0 million miles. The reason for this wholesale substitution is easy to understand: from 1997 to 2013 purchased transportation cost 42.2 percent less per mile than directly provided service at these transit agencies. A report published by the National Center for Transit Research sponsored in part by the U.S. Department of Transportation entitled “Analysis of Contracting for Fixed Route Bus Service” found that in the nation’s large transit systems, defined as those with 250 or more vehicles operating at maximum service, agencies paid 40.4 percent less in 2008 by contracting for fixed-route bus services per revenue mile ($6.67 per mile) than for directly provided bus transportation ($11.19 per mile).
Greg,
Somervilletom may be an admitted Pioneer Institute basher, but the Pioneer Institute seems to be a state-employee basher. Quoting Barney Frank from 35 years ago about three people having to change a fuze at the MBTA doesn’t really advance the debate in a meaningful way unless you provide some evidence of those alleged work rules.
While there has certainly been a trend toward outsourcing of government services in the past couple of decades, that doesn’t mean it has been a good idea in all cases. Certainly, there have been savings in many cases in privatizing services, but there have been higher costs as well in privatization, and the studies show conflicting results on this.
The data we found appear to show that the annual cost to the MBTA of contracting for commuter rail services has risen by 99.4 percent since 2000, compared with a 74.9 percent increase in the annual cost of the agency’s in-house bus operations. Even if commuter rail contracts have had job projection provisions for MBTA workers, why has the cost of contracting gone up faster percentage-wise than the cost of in-house bus operations, which the Pioneer report describes as “inordinately expensive?”
If contractors are so much better at management, they should have found a way to overcome the alleged disadvantage in hiring existing employees, or at least have been able to keep their costs from exceeding MBTA cost increases.
There are at least 3 other points in my posts that you’ve never responded to:
1. The state auditor did not ban or block or bar the MBTA from privatizing its bus services in 1997, as your report repeatedly asserts. Instead, the auditor invited the MBTA to resubmit its proposal after addressing a number of issues raised in his decision letter.
2. Your report claimed that under the cost analysis requirements of the Pacheco Law, any outside bidder must offer to pay the same wage rates and health insurance benefits to its employees as the incumbent state agency. But the actual language in the law states that the outside bidder can offer to pay the lesser of either the average private sector wage rate for the position or step one of the grade of the comparable state employee. That could mean that the bidder could stipulate a lower wage cost in its bid than the state’s wage.
3. Why did your report hold contract bid costs flat for the first 5 years of your comparison with the in-house MBTA bus costs? That seems to have thrown your alleged savings in contracting out off by at least $72 million.
Happy to answer. In reverse order, 3.) the contracts were five year contracts for fixed amounts, as our report explained, that is why the first five years are at a level rate; 2) you are wrong because the proposed/rejected contracts in 1997 provided for equivalent wages to be paid to T employees, not minimum step wages; 1) sometimes people get the message. At the time of the rejection of the T outsourcing proposals, it was outsourcing 17% of its bus service at the lowest cost per mile in the U.S. among large transit agencies, one-sixth of the cost of its agency-provided bus service. Despite this, the auditor found what he determined to be lack of evidence that the proposed outsourcing would result in savings. If you think objectively about that, you may wonder how that could have occurred. As I said before, but you choose to ignore, is that the Pacheco Law was adopted for the purpose of blocking these contracts, four months after Governor Weld announced his MBTA bus outsourcing plan (as explained in our report). You think that this was on the level, but it was not. This is why your references to the Pacheco review conducted by the auditor’s office miss the point. Now, the MBTA can join all of the other transit agencies in the U.S. that are allowed to conduct competitive procurements including all of the transparency and fair competition provisions provided by state law.
Again, thank you to Blue Mass Group for providing this valuable forum. I have tried my best to respond to questions, etc., over the last week but I hope that you will not be offended if I jump off this dialog due to other obligations. Thanks everybody.
what appears to be an unsubstantiated charge in your comments that the state auditor’s review of the MBTA’s bus privatization proposal was “not on the level.”
What is that charge based on? I’ve linked in the post to then State Auditor Joseph DeNucci’s 22-page decision, in which he asked reasonable questions of the MBTA about their cost savings claims in contracting out the services. The MBTA declined to respond to those questions and declined the auditor’s invitation that they resubmit their proposal.
As current State Auditor Suzanne Bump has pointed out, her office has approved the vast majority of privatization proposals that it has received since the Pacheco Law was enacted. So, how is the process not on the level, and how does the Pacheco Law amount to a ban on privatization?
As to my other two points:
1. Your report stated inaccurately that the Pacheco Law requires that the contractor’s bid include wages and benefits equal to the state’s numbers. You did not respond to that.
2. Regarding the flat contract rates in the first five years of your comparison, I realize the contract bid was for five-year, fixed-price contracts. But then why did you escalate the the contract numbers beginning in 2003? The commuter rail contracts have all been fixed-price contracts since 1995. Apparently, you felt the need to apply an escalation rate to at last some of the contract years. Why ignore the first five?
The Pioneer Institute is a right-wing organization funded by the Koch brothers. The suggestion that this “study” is “mainstream thinking” exemplifies the distortions and deceptions that are the stock-in-trade of right-wing organizations like this.
The “war on transit” initiated by the Koch brothers most certainly IS a right wing idea. One doesn’t have to be a “self-admitted basher” to recognize this.
Nothing about this report is “mainstream”. It is, instead, a case study in how right-wing organizations lie, distort, cherry-pick, mis-quote, and deceive in relentless pursuit of their self-serving agenda.