(Cross-posted from The COFAR Blog)
In what has been widely viewed as a setback for state employee unions in Massachusetts, state legislators last week approved a state budget for Fiscal Year 2016 that includes a provision freezing the Pacheco Law for three years with regard to the MBTA.
The Pioneer Institute apparently had a lot of influence on the Legislature in approving the Pacheco Law suspension. The Institute and other long-time opponents of the Pacheco Law claim the suspension, or better yet, an outright repeal of the law, will allow the T to operate without “anti-competitive” restraints on privatization, and thereby improve transit service and save taxpayers millions of dollars.
We have waded through the Pioneer Institute’s report, which is filled with charts and financial analyses. You don’t have to go too deeply into the numbers, though, to see that there are a number of apparent holes in the methodology and logical conclusions drawn in the report.
The Pacheco law basically says you have to prove you will save money before you can privatize state services. The Pioneer Institute has had to twist the numbers, logic, and the facts to persuade legislators and the public to draw the opposite conclusion.
In at least one instance, which I’ll get to below, the Pioneer report appears to have misquoted the actual language of the law. It’s an unusually acrobatic performance even by the standards of the Institute.
(Note: While the Pacheco Law does not appear to have had a role in preventing the past privatization of human services, which we are primarily concerned with, the Baker administration’s next step, with the support of the Pioneer Institute and like-minded organizations, might well be to exempt future privatization of human services from the law.)
Unsupported statement
I’ll begin by noting that the Pioneer report says, without any attribution, that several “anti-competitive elements” in the Pacheco Law “combine to create the nation’s most extreme anti-privatization law.”
What the Pioneer report doesn’t say is that the Pacheco Law is based on a federal Office of Management and Budget (OMB) requirement that federal functions be subjected to a competitive cost analysis before they can be privatized (OMB Circular A-76). As I’ll discuss below, at least two of the top three supposedly anti-competitive requirements in the Pacheco Law are also requirements in Circular A-76, while a third is a requirement of the Defense Department in complying with A-76.
The Pioneer report makes no mention whatsoever of Circular A-76, which has public-private cost-comparison elements that date back to the Reagan administration and even before. That’s not surprising since an analysis of the requirements of A-76 would seem to cast doubt on Pioneer’s claim that the Pacheco Law is the nation’s most extreme anti-privatization law.
Far from complaining that the cost analysis requirements of Circular A-76 would prevent public agencies from saving money through privatization, most of the critics of A-76 have contended that its real purpose has been to encourage privatization of federal functions by introducing cost competitions for what had been publicly provided services. As a result, a moratorium has actually been placed on A-76 cost competitions at the federal level since 2009 as a means of slowing the rate of privatization of federal agency services.
It is apparently only in Massachusetts that a law setting conditions for competitions to privatize services can be seen as an impediment to privatization. We do not view the Pacheco Law as an impediment to privatization if the case has been made that privatization will save money and ensure the quality of services.
The Republican Bush administration maintained in 2003 that the competition provisions in A-76 would save taxpayers money. As an online Bush administration document noted:
At the Defense Department, a survey of the results of hundreds of (A-76 public vs. private service) competitions done since 1994 showed savings averaging 42 percent…It makes sense to periodically evaluate whether or not any organization is organized in the best possible way to accomplish its mission. This self-examination is fundamentally what public-private competition is intended to achieve.
The Pioneer Institute’s apples-to-oranges comparison
The Pacheco Law authorizes the state auditor to compare bids from private contractors to a calculated cost of continuing to perform specified work by regular state employees “in the most cost-efficient manner.” If the auditor determines that the cost of continuing to provide the services in-house would be less than the bids, or if he or she determines that the privatized service would not equal or exceed the in-house service in quality, the auditor can reject the bids and the service will stay in house.
The main complaint raised in the Pioneer report about the Pacheco Law is that the the auditor used the law’s provisions to deny a proposal by the MBTA to sign two contracts in 1997 with private companies to operate 38 percent of its bus and bus maintenance service.
The Pioneer report concludes that had the Pacheco Law not been in effect, the MBTA would have saved $450 million since 1997 through the privatization of those bus services. But in making this claim, the Pioneer report compared bids proposed by the two prospective bus service vendors with actual costs incurred by the MBTA in that and subsequent years, and applied a cost-escalation factor to the bids.
The problem in doing that is that even though the Pioneer Institute claims it is being fair in applying that cost escalation factor, it is still comparing apples to oranges.
Under the Pacheco Law, the state auditor compared the bids from the vendors with a calculated cost of in-house operation at the MBTA based on operation in the most “cost efficient manner.” Based on that comparison, the auditor found that the MBTA operation would be less expensive than the proposed bus contracts.
The Pioneer report takes great exception to the Pacheco Law’s requirement that the cost comparison be made between contractor bids and a projection of the “most cost efficient” state operation. That is a key “anti-competitive element” that the Pioneer Institute cites. But the Pacheco Law is not unique in setting the comparison up that way. Circular A-76 also states that a federal agency can base its costs in a privatization analysis on what is referred to as a “most efficient organization.”
In fact, we think the Pacheco Law and Circular A-76 establish a true apples-to-apples comparison. While calculating costs based on operating in the most efficient manner may not reflect an agency’s actual operating costs, neither do bids necessarily reflect a vendor’s true operating costs. Bids are often lowballed, as we well know. As a result, contracting out for public services can prove to be much more expensive in actuality than it appeared in the plans or bids.
The Project on Government Oversight (POGO) found in 2011 that the federal government was paying billions of dollars more annually to hire contractors than it would to hire federal employees to perform comparable services.
We think that much of the high cost of human services contracting at the state level is due to a hidden layer of bureaucracy consisting of executives of corporate providers to the Department of Developmental Services. Our own survey showed that those executives receive some $85 million a year in taxpayer funding in Massachusetts.
So, in that regard, the Pioneer’s entire calculation of a $450 million in foregone savings in rejecting the MBTA vendor contracts is suspect, in our view.
A second major complaint about the Pacheco Law in the Pioneer report is that the law requires the winning bidder to offer jobs to public agency employees whose jobs are terminated by privatization. But that requirement is also in A-76.
Apparent misquote of the language in the Pacheco Law
The Pioneer report claims 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. This, according to the report, “neutralizes any potential advantage the outside bidder may have based on cost of labor.”
The Pioneer report, in fact, appears to be quoting from the law verbatim in including the following statement under the heading “Restrictive Elements of the Pacheco Law”:
Every privatization contract must include compensation and health insurance benefits for the contractor’s employees no less than those paid to equivalent employees at the public contracting agency; (my emphasis)
But I could find no such language in the Pacheco Law! Regarding wages, the Pacheco Law states that the outside bidder must 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.
Regarding benefits, the Pacheco law says the bidder must offer a comparable percentage of the cost of health insurance plans as the state agency. This is consistent with the policy of the Defense Department, for instance, which prohibits private bidders in A-76 competitions from offering to pay less for health benefits than the DoD pays for its employees.
Despite his chamber’s action last week to freeze the Pacheco law, Senate President Stanley Rosenberg has appeared to be less than enthusiastic about the efforts to discredit the law and either freeze or repeal it. “There’s an ideological-slash-political component to this,” Rosenberg said. “We ought to be driving policy based on outcomes and data and how things actually work.”
Unfortunately, the latest attacks on the Pacheco Law seem to be more about ideology and politics than about real outcomes and data.
In 2010, I wrote a defense of the Pacheco Law, noting that it was already a major political target of the Pioneer Institute and Charlie Baker, who was making his first bid for governor at the time. If anything, the hyperbole and misrepresentations used to attack the Pacheco Law have only intensified since then.
And I need to read this a second time to understand everything.
This is the kind of thing newspapers need to, but rarely, do.
I am the author of the above-cited Pacheco Law study, Greg Sullivan of Pioneer Institute. Here a three quick observations about the above-analysis. The critique argues that OMB Circular A-76 is as restrictive as the Pacheco Law. This is not true for one critical reason. The analysis strategically leaves out the central difference. OMB Circular A-76 requires that if federal agency employees claim that they can increase their cost efficiency to beat the bid price of a proposed contractor, they “must perform the work promised in the agency’s winning bid, and achieve the specific levels of service for the price (cost) it committed to in its competitive bid.” As my report accurately explains, the MBTA employees asserted in 1997 that they could beat the price of the two winning bus vendors by $5 million by becoming more efficient. After the work was kept in-house, that never happened. Over the five-year term of the contract, costs increased dramatically, adding up to more than $80 million above the contract rate. OMB Circular A-76 actually enforces the cost bid of government employees; the Pacheco Law does not. Second observation: OMB Circular A-76 was created to prevent inhibitions to contracting of federal government services; the Pacheco Law has the opposite intention for state services. Here is language from OMB Circular A-76: “The Executive policy regarding the performance of “commercial activities” [is] that the Federal Government should not be in competition with the private sector.” Finally, the critique ignores the real-life economic outcome of the Pacheco Law in this case: the MBTA employees did not beat the cost of the two contractors or come remotely close to doing so. The numbers in my report come from self-reported data of the MBTA to the Federal Transit Administration. They show that the Pacheco Law’s mandated requirement of comparing bids to “regular agency employees performing the work in the most efficient manner” proved to be an $450 million dollar mistake. The reason is that the Pacheco Law lacks the central protection of OMB Circular A-76, which is holding the government employees to their proposed efficiencies. This is why the Pacheco Law is the most restrictive anti-privatization law in the US, including the anti-discrimination against privatization OMB Circular A-76.
… You do know, do you not, that State Auditor DeNucci’s June 20 1997 refusal is available on the internet…? It’s an interesting read, and only part of it, and not the largest part, rests upon the Pacheco law: DeNucci objected to the MBTA’s request to privatize the bus lines out of Charlestown and Quincy because, he said, they could not adequately prove the cost savings, could not guarantee quality of service, could not be proved to serve the public interest and, lastly, fell afoul of the Pacheco law. DeNucci, in fact, gave them several chances to explain themselves and their purported cost savings. They could not. The Pacheco law is not the main reason privatization of the MBTA has not happened.
Your assertion that the “MBTA employees” (whatever it is you think that means…) guaranteed efficiencies in the face of possible privatization and/or competition is simply incorrect. The specific denial of privatization happened because the MBTA itself could not adequately 0explain the costs savings, could not guarantee quality of service, could not explain how privatization served the public good and could not do so in the face of the Pacheco law. You assert that there are justifications and guarantees, but when the numbers hit the paper in 1996 and 1997 they were not persuasive.
I’m also interested to know that names of the two companies who bid in 1997 (after several extensions from the Weld administration) and their track record. You purport, without support of any kind, that they would have done better (and guaranteed quality of service) but what is their track record? Are they, in fact, still in business? What other buses in what other cities do they run? We have eighteen years of MBTA service to judge against some phantom privatization… You’re going to have to back up your ‘proof’ with some pudding, here…
must achieve the price it stated in its bid.
It does appear to be true that OPM requires that actual costs of either the federal agency or contractor be tracked and reported over time, whoever wins the cost competition.
But I don’t see that if an agency realizes higher-than-projected costs under an A-76 competition, it means that the service then gets privatized. If that were the case, it would also seem the service should be returned to the agency if a contractor were to win the competition and contract costs later were to increase.
I disagree that your analysis proves that the actual cost of the MBTA’s services since 1997 exceeded what the contract would have cost. We don’t know what the bus contracts would have cost; we only know what the contracts were projected to cost. Experience suggests actual costs of contracting almost always exceed the projections.
But even if it were true that the Pacheco Law is flawed in the way you’ve described, why not advocate for improvements to the law rather than for its repeal or suspension? At least the Pacheco Law set rules for privatizing services. Now there are no rules with regard to privatizing the MBTA.
Of course there are no rules. Everybody know there are no rules in a knife fight.
“Butch” (Governor Baker) needs to destroy the MBTA unions and labor contracts in order to bring about “reform”. Great movie. Terrible governance.
… that this will end with somebody asking Gov Baker;
“… ya think you used enough dynamite there, Butch?”
The difference between the Pacheco Law and the federal OMB Circular A-76 procedure is that the federal procedures result in a binding Letter of Obligation, executed by the agency employees and the federal contracting officer that established a binding contract with an enforcable budget.
This is completely absent in the Pacheco Law. In the Pacheco Law process, the agency employees make a proposal to beat the bid price made by the outside contractor. This happened during the 197 Pacheco Law process. The big difference is that in Massachusetts that offer becomes meaningless, is not tracked, is not enforced, and has no force after the outside contract is prohibited.
Here are some links discussing this:
“The Most Efficient Organization is performance-based. That is, it must perform the work promised in the agency’s winning bid, and achieve the specific levels of service for the price (cost) it committed to in its competitive bid. Most of the bids are based on administrative consolidations, process reengineering, and new degrees of automation—and they promise very substantial savings, particularly in personnel reductions. The MEO results from an “acquisition” process that is conducted under the Federal Acquisition Regulations (FAR),and it is governed—and its success is tracked—under the terms of a Letter of Obligation (LOO) that is similar to a contract. Any deviations from the LOO are allowed only in accordance with official modifications of the LOO approved by the contracting officer (CO) responsible for the individual LOO. And, the LOO modification is roughly equivalent to a contract modification.” Source: Proceedings of a Symposium Convened by the National Academy of Public Administration. http://www.napawash.org/wp-content/uploads/2006/06-13.pdf
The LOO reflects the commitments made by the Contracting Officer (CO) for the Government and the official who is responsible for executing the Agency Tender (the ATO or MEO Team Leader) to perform the services described in the solicitation within the costs contained in the Agency Tender. http://www.dhs.gov/sites/default/files/publications/mgmt_directive_0476_performance_commercial_activities.pdf
No. That did not happen in 1997. You are, pointedly, quite mistaken.
The MBTA employees made a bid which the MBTA declined to accept. Instead of the bid by the MBTA employees, the MBTA formally declared the awarding of the bids to the two (as yet, unnamed) private vendors. It is at this point that any bid by MBTA employees becomes moot. The MBTA employes bid was specifically DENIED by the agency. That is why it is not tracked nor enforced because it was never adopted.
It was at this point the State Auditor DeNucci stepped and objected to the awarding of the bids to the private vendors on the grounds the said bids did not make sense. Nowhere did the States Auditor say that the MBTA must award the bid to the MBTA Employeess… and nowhere in state law does it say the MBTA employee’s bid is the default. The States Auditor has no official position on the efficacy of the MBTA employees bid because it was null and void by the time the States Auditor got involved in the case
Three bids were made. The MBTA Employees bid was definitively refused BY THE MBTA itself. Then, the States Auditor stepped in and objected to the bids the MBTA DID award, without reference to the employees bid, saying they were incomplete and, in fact, incomprehensible…
The MBTA Employees bid is no more an accurate measure of spending over the past 18 years than a hypothetical 3rd or 4th vendor’s private bid also rejected by the MBTA in 1996/7.
the federal requirements of Circular A-76 vs. the Pacheco Law, I would just note that I don’t think it’s clear that federal agencies are held accountable for meeting the cost efficiency requirements under the federal process. As the US IG for the Dept. of Education noted in 2007:
You really haven’t responded to the points that my post makes that:
1. Both the federal A-76 process and the Pacheco Law compare bids from vendors with public agency costs operating in the “most cost-effective” manner. Your report raised this as a unique problem to the Pacheco Law.
2. In asserting $450 million in foregone savings due to the Pacheco Law, you are making an apples-to-oranges comparison between actual MBTA costs and vendor bids (which are not actual costs). This renders the $450 million number meaningless. There is no way you can say what amount would have been saved if the bus companies had been hired.
3. Your report misquotes the Pacheco Law in asserting that the law requires the outside bidder to propose wage rates that are equal to the state agency rate. The law allows the bidder to use an average private-sector wage rate, which could well be lower than the state wage rate.
4. Your report fails to cite any sources in making the claim that the Pacheco Law is the “the nation’s most extreme anti-privatization law.” Any good editor would have asked for some attribution for a statement like that.
5. In your report’s section on the history of the Pacheco Law, there is no mention of the fact that it is modeled after the OMB Circular A-76. That is a rather glaring omission, given that at least two of the supposedly unique anti-competitive elements of the Pacheco Law that your report complains about are also in Circular A-76.
I think your report would have been more useful if it had examined questions that haven’t been hashed over politically for years. For instance, what has the record been of A-76 competitions and competitions in other states that may hold them? How could those competitions be improved, and what implications would that hold for the Pacheco Law?
As I said before, I’m not claiming the Pacheco Law is perfect. It may well need improving. But it seems all we’re getting are political attacks against it.
I have nothing to add to this conversation except that I’m enjoying it. I’m glad Greg Sullivan responded and glad people are asking good questions and making strong counter-arguments.
I will note that what Mr. Sullivan calls the “strongest anti-privatization law” might also be considered “strong public employee protection” or “good jobs protections.”
…as far as I’m concerned, mass transit is a public good. No part of its services should be privatized – period.
Should the buses be manufactured by public employees? Should the diesel be cracked and blended at publicly-held facilities? Etc.
I really think it’s about the quality of oversight and accountability, whether public or private employers are fixing your buses. If the bus shows up on time and in good repair, I’m happy.
I think Dave’s strongest argument above is that Sullivan has compared a contract bid to actual incurred costs. Maybe that would have panned out, but [ahem] that’s not the history of public-private contracting in MA in the 90’s.
…at the point of interaction with the public is what I was referring to.
The state gives money to private nonprofit organizations to deliver services directly to the public.
I guess I’m a little more comfortable in general with non-profit than for-profit, but this is an off-the-cuff blog answer. If I were an actual policymaker I would need to study the specifics better.
… no. Why do you ask?
It was the Weld administrations zeal for privatization of services like mental health (remember Charles River Hospital? I do.) prison healthcare and other services — alongside their less-than-zeal for regulation, follow through, or even proving cost savings — that was the impetus for the Pacheco law in the first place.
I’m suggesting that if the state already believes that private nonprofits can deliver services better (let’s say, Head Start, or fuel assistance) then the answer would have to be no. The next question would be then what, based on analysis and after that who based on performance expectations. We might all agree that state buildings don’t need state employee janitors (though interesting enough towns seem to think that’s crazy), but if we stop at “never” for the T, we can’t even debate what the possibilities might be.
NOT necessarily bad. In theory, having businesses bid on a service should produce the best price. In theory. In practice, not necessarily.
In practice, you can’t depend on private business lowballing their bids. You can’t depend on having enough competitors to drive the price down. You can’t rely on business not to engage in some form of legal, that is, tacit collusion about price. You can’t depend on the private business paying their workers less and providing fewer benefits. They may lower costs, but the workers will pay for the savings. And business has more resources to game whatever system government sets up. So do many unions for that matter. The MTA has been good at safeguarding our general welfare. Our local is pretty good too, though other locals in my area are particularly weak. Our custodians are unionized, but they don’t make much money just the same. Philosophically, I’d rather pay our custodians $15 or a little more with some good benefits so they can have a decent life. I’d rather see Mitt Romney pay more in taxes so my custodians can have a decent life.
Two stories:1) we’ve completed construction on two buildings since I’ve been selectman. On both, there was enough evidence to suggest that contractors had low-balled their bids. The problem was we would have had to risk as much money in court as we could count on saving if we won. The contractors had the attorneys on staff or on a hefty retainer. 2) Our schools privatized our cafeterias. There was an initial savings. Then the meals got smaller and sucked. Kids were buying double lunch because they weren’t getting enough.
FYI starting pay for janitors in Andover is $18. Some make more than $50K. I’m okay with that. I know one district that went private and they paid the custodians $11, and I assume their company pocketed the difference. I’m not okay with that. But in the whole range of stuff a town (or state) does a mix is probably best. When it snows the town uses private contractors in addition to the DPW. Maybe it’s the landscaping. Maybe it’s a whole service.
Of course you’ll always have problems with bids. One of our schools had a defective roof. We just replaced a school way short of its intended life because of bad design and engineering. That’s the nature of things.
I just think that a law that makes it very hard to explore alternatives seems a bit much.
analysis, decisions about privatization should consider both cost and quality. Cost and quality are actually inseparable. If you cut one of those two, it will affect the other, and not necessarily in a good way. However, if you do consider both of these factors together, I think it is possible to deliver high-quality service at low costs through contracting.
The problem with the Pioneer report is that it focuses entirely on cost, and doesn’t consider quality; and it doesn’t deal honestly with cost. Other than that, it’s a fine report!
Greg Sullivan argues that the MBTA would have saved money via the bus contracts because these would have been fixed-cost contracts. The trouble is, fixed-cost contracts do not guarantee quality service. Neither do they guarantee fixed costs over time.
The Pioneer report tacitly admits that quality is not a consideration in their argument against the Pacheco Law. The report complains (inaccurately) that a key problem with the Pacheco Law is that it requires outside bidders for state services to offer wages and benefits equal to what the state offers. In other words, the Pioneer folks see a major opportunity for savings in cutting workers’ wages and benefits. Not a prescription for quality; and, in the long run, not a prescription for cost savings.
The same problem exists with regard to the privatization of human services. Operating under a cost-cutting mindset, the state places very little emphasis on ensuring quality of those services through contracting out. Human services contractors pay lower wages and benefits to direct-care workers than the state does. Yet, there is little oversight of the large amounts of money pocketed by contractor executives.
As I’ve said a couple of times, the Pacheco Law may not be perfect. But it does focus on ensuring both cost and quality. To that extent, it has the potential to ensure a thoughtful and ultimately cost-effective process of contracting out for services. The opponents of the Pacheco Law simply want a playground without rules, to paraphrase somervilletom’s comment.
There’s a “profit premium” that’s paid by workers and by quality–that is to say, pay less to workers and cut quality, pass on (at least at first) some savings and reap some profit. That’s what happened with our privatized school cafeteria, which was prompted by some needed upgrades in the cafeteria.
Talking with my municipal colleagues in municipal governance, the consensus is that privatization really doesn’t save any money. My dad refers to privatization as “profitization,” which is probably more meaningful.
I think Pioneer, and probably Greg Sullivan (it would make for an interesting discusion), make some questionable assumptions; 1) numbers can tell the whole story 2) government is basically business 3) government should always cut costs because it is a business 4) the economy, not “customer” or citizen need, should determine how much government should cut.
We would argue that numbers don’t tell the whole story, that government, which unlike business makes no profit, is not the same as a business, that the need of our citizens should play more of a role in what government spends.
I said it before, but thanks for an insightful post and discussion. I like to learn and what you have offered here was not available anywhere else.
… I think the most damaging, particular, assumption made in this report is that the 1997 MBTA employees bid (which was rejected) formed the baseline with which to measure costs. That’s the comparison which the Pioneer Institute uses to calculate and then extrapolate the $450 million dollar number. I’m not sure the comparisons, and therefor the calculations and resulting extrapolations, stand very solidly on that foundation.
I don’t think Pioneer used these numbers deliberately knowing they might be bogus.. I think they assume that the MBTA simply swizzled existing practices into a pro forma bid and, because of that (Pioneer says) it’s fair game to call that the baseline.
After the States Auditor objected to the awarding of the contracts the MBTA continued on with business as usual and, since business as usual is all (the assumption goes) that made up the bid then we can use the bid as a tide water mark with which to measure costs and savings over the resulting 18 years. It is entirely possible that this, in fact, may have been exactly what the MBTA did with the employees bid. But I find no support either for or against that. And it is a question I would like to see answered…
Why is this important? And why is this is in a reply to Mark Bails general (yet altogether devastating) critique of privatization and it’s underlying assumptions? Because Mark’s lists as the first assumption made by privatizers that “numbers tell the whole story.” I think this a good description of that assumption… But then we go from an assumption about numbers and narratives to an imperative to find numbers. And imperatives, we suspect, can ride roughshod. I suspect that’s what is going on here.
I think numbers can tell a variety of stories — complete and not so — all at once. At the end of the day, privatization or not, the numbers here are also — and whatever else, always — about jobs: The sole reason for the bus driver getting paid is to ferry other people to and from their respective workplaces… The only reason to pay a mechanic to fix the bus is to get the driver to keep on ferrying more people to more jobs. If that costs more than we think we like maybe we just don’t like so many people working? If the perspective, instead, is that the public transportation infrastructure helps the economy maybe we — talking businessspeak — should treat the busses and their maintenance as a ‘loss leader’. Seen in this light, no privatization will ever work because the components privatized will only have the loss and somebody else will have the lead… or it”s all loss and no lead.
This great conversation is a tribute to Blue Mass, a great public service. I am in San Francisco visiting my six day old son Jake, future democratic mayor of the Bay City. Anybody who thinks that outsourcing at the T is a right wing conspiracy should remember that Barney Frank, the greatest state rep in MA history, included it in the 1980 MBTA Management Rights Act. Parting thoughts: best comments: mark-bail. As always dave-from-hvad is a thoughtful person, but in this case off-base. He thinks that the Pacheco Law was modeled on a pro-privatization law in Washington, OMB Circular A-76. Think about it Dave, Pacheco was put through explicitly to block these two contracts. You have got to know that. It isn’t really the Taxpayer Protection Act. You think that it is impossible to know what the five-year bus contracts would have cost, but you overlook the fact that these were a fixed price contracts. Add up what it finally cost the T and the total is a finite amount: $80 million plus for five years. I escalated the contracts at the T’s actual rate of increase. That is very conservative. A congressionally mandated study concluded that purchased bus service costs 40 percent less than agency-provided service on average in large transit agencies. My numbers showed closer to 30 percent. Do the math. Do you really think that outsourcing of T bus service would not have saved money? At the time of the Pacheco decision in 1997, the T had the least expensive purchased bus service in the US and the sixth most expensive agency provided bus service. At the end of the day, the Pacheco Law has been suspended at the T for three years. Contracts executed during the three-year period are exempt from Pacheco going forward. A smart new MBTA control board is coming in. Smart, big-thinking, talented urban democrats like House Speaker Bob DeLeo want to see what can be done. We will see.
“Smart, big-thinking, talented urban democrats like House Speaker Bob DeLeo”? To resurrect a dated expression — please … gag me with a spoon.
I’d like to remind Mr. Sullivan that Mr. Frank is alive, well, and sentient today. If you want ANY credibility with me, you’ll solicit and repeat Mr. Frank’s CURRENT characterization of this CURRENT policy.
There is nothing “smart” about this. Nor is there anything new. What I see is the same-old anti-labor screw-the-worker greed of the 1%, covered with multiple layers of badly-applied Limbaugh-style distortions packaged in a cover that says “Report”.
I’m going to guess that the Pioneer Institute and perhaps Mr. Sullivan have contributed similar “studies” regarding Global Warming (and, of course, concluding that it’s all a left-wing conspiracy of corrupt scientists). This sort of elaborate weaving of a fabric of distortions and lies to serve a pre-ordained outcome is a staple of denialist climate change screeds.
Those are my parting thoughts.
I just … Can’t … Even …
Anyway, yes, we will see if we now realize 30-40% savings with comparable or better quality. I remain skeptical, without new and stronger accountability measures from within the MBTA.
that fixed-price contracts do not preclude the risk of major cost increases due to unforeseen conditions, scope changes, etc. It’s naive to assume that adding an inflation-based escalation clause to a bid will accurately predict what the contract cost will be nearly 20 years in the future, which is what you have attempted to do with your analysis.
As I noted in a blog post in 2010, the Reason Institute, in a paper published jointly with the Pioneer Institute, asserted that the Pacheco Law was modeled after OMB Circular A-76. Ask Senator Pacheco about it. I think he’ll confirm that he based his law on A-76.
Also, while Pacheco did intend to try to block or at least provide oversight for privatization with his legislation, the law is fundamentally similar to A-76 in that both require cost competitions before services can be privatized. And it could be argued that A-76 has provisions that are more extreme than the Pacheco Law.
For instance, A-76 requires that a “conversion differential” cost as high as $10 million be added to the contractor’s bid. Also, contracts under $500,000 are exempted from the Pacheco Law. No such exemption in A-76.
It’s true that A-76 was developed to set standards for privatization of “commercial services.” But the circular specifically precludes privatization of what it calls “inherently governmental” activities. The Pacheco Law does not preclude any categories of services or functions from being privatized.
… even though I am generally fairly moderate and would entertain a convincing argument when it comes to the “Pacheco law”.
I respect Greg Sullivan’s knowledge and service to the Commonwealth; however, I think he distorting the issue by making this argument solely about costs. Every contract is two-way. In these cases, state money is expended to buy services. Costs are easy to measure, the quality of service much more open to interpretation. Dave, as an advocate for human services, wants to know whether the services contracted for were actually provided (and how many corners may have been cut in the process). In reality, there is a lot of wiggle room when it comes to how and whether contract fulfillment was measured, how the contractor responded to unforeseen circumstances not covered in the contract, etc.
Sullivan also ignores the ripple effects of government outsourcing, which when employed too broadly can hollow out the capacity of government employees to supervise contracts effectively. As former OMB chief Peter Orszag put in in 2009,
“In particular, overreliance on contractors can lead to the erosion of the in-house capacity that is essential to effective government performance. Such overreliance has been encouraged by one-sided management priorities that have publicly rewarded agencies for becoming experts in identifying functions to outsource and have ignored the costs stemming from loss of institutional knowledge and capability and from inadequate management of contracted activities. Too often agencies neglect the investments in human capital planning, recruitment, hiring, and training that are necessary for building strong internal capacity – and then are forced to rely excessively on contractors because internal capacity is lacking.”
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Oh yeah, Jake is my new grandson. Thanks everybody.
If you want to know how privatization works, do some reading on the COFAR website and elsewhere on the DDS (fka DMR) budget. Of $1.8 billion dollars, most is privatized via contracts with 300 different companies; 300 CEOs, 300 VPs, etc. More than $85,000,000 annually goes to executive salaries. And this is for a service that the government already does itself and better than corporations and for less. All privatization amounts to, and the T is included here, is politicians pulling the cash flow pipe away from unions and public employees and putting it into the pockets of corporations in exchange for patronage. More than anything else the resurgence of privatization of the MBTA speaks to the Baker administration’s goals of more giveaways to corporations. If they really want to improve government then enforce some of the regulations already on the books and indict people who are breaking the law.
Assuming only 300 VP’s, that is 600 CEO’s and VPs… That is $141,667 salary each per year. not too outrageous a salary.
I assume I am missing something.
You are saying we could use less CEOs/VPs if it was not outsource… sorry
I know of very few companies with only one VP — 3-5 is more typical (there is almost always a VP-sales and VP-hr, at a minimum). Most executives get at least twice the $141,667 salary cited.
I suspect that the actual “executive salaries” number is a great deal higher than $85 M. Also, it’s important to know whether that number truly IS “salaries”, as opposed to “compensation”. Many executives are compensated by various instruments that avoid the tax implications of salary.
get other sorts of compensation?
that taxpayers are liable for about $85 million of a total of more than $100 million in salaries and benefits received by corporate providers to the Department of Developmental Services each year.
The survey sample included 100 CEO’s and presidents, making an average of $210,227 in salaries and benefits; and 107 executive directors receiving an average of $130,835 in compensation. The survey also included 67 chief financial officers, 31 chief operating officers, 100 vice presidents, 110 directors, and 120 other officers, all earning, on average, over $100,000 a year.
A state regulation limits state payments to provider executives to $158,101, as of fiscal year 2013. Money earned by executives above the state cap is supposed to come from sources other than state funds.
Based on this regulation, we calculated that provider executives are eligible for up to $85 million a year in state funding to cover those total salary and benefits costs. Our calculation was based on identifying the companies paying executives at or above the state threshold of $158,101, and assuming that amount as the maximum state payment for each of those companies’ executives.