Extend the T’s Pacheco Law exemption

Let’s fix the MBTA once and for all

“Competition is a good thing,” said MBTA Acting General Manager Brian Shortsleeve.  “It drives innovation; it drives productivity.”  That sums up the importance of extending the MBTA’s exemption from the Pacheco Law, the Commonwealth’s anti-privatization law.

A three-year exemption from the Pacheco Law was granted as part of the 2015 emergency legislation aimed at fixing the troubled MBTA. In an announcement that raises questions about the Baker administration’s commitment to modernizing the MBTA, transportation officials have suggested that they have no plans to seek an extension to that exemption.

Competitive bidding has allowed the Fiscal and Management Control Board to make huge strides in getting the T’s fiscal house in order.  Decisions to outsource the MBTA’s money room, warehouse operations, and fare collection will save tens of millions of dollars annually and avoid tens of millions in capital costs.

Introducing competition brought the MBTA’s biggest union to the table to renegotiate its contract.  State Transportation Secretary Stephanie Pollack said the agreement wouldn’t have been possible without the exemption.  After the deal was signed, Carmen’s Local 589 President James O’Brien told the Boston Herald, “We’re glad that we were able to negotiate out of the privatization.”

The contract guarantees 589’s jobs but gains efficiencies and savings amounting to more money saved. As a result, the T’s projected $242 million deficit for the current fiscal year is now down to around $50 million.

More remains to be done.  The Fiscal and Management Control Board is exploring contracting out bus maintenance.  In 2015 the MBTA had the highest vehicle maintenance costs and highest total vehicle maintenance salaries among the 302 US transit agencies that operated bus service.  The T projects that annual savings could reach $30 to $40 million; a Pioneer Institute study estimated savings of $50 million, not including the potential to avoid capital costs.

Such a reform simply emulates what most of the Commonwealth’s Regional Transit Authorities already do.  They outsource bus maintenance to companies using union mechanics.  On average, they pay about a quarter of what the MBTA does per vehicle mile.

State Auditor Suzanne Bump says the T could have achieved the same savings without the Pacheco Law exemption.  Her comments are an insult to all previous transportation officials.  Were they all so inept?

Reality is that, under the Pacheco Law, the cost of a proposed privatization is compared to an imagined scenario, where public employees work  “in the most cost-effective manner.” Public employees are never required to perform at that level.  The law also regulates wage rates and the percentage of health insurance costs vendors bidding to provide a service must ensure for their employees.

The biggest problem with the Pacheco Law, however, is the almost unlimited power it gives to the state auditor to accept or reject privatization contracts.  It allows the auditor to reject a proposal for reasons a vague as a determination that it is “not in the public interest.”

Unsurprisingly, less than one privatization proposal per year has been approved during the 23 years the Pacheco Law has been in effect.  The law’s onerous, unpredictable process has worked exactly as intended by discouraging state government from even attempting to outsource.

The result is that, today, MBTA productivity is what one would expect from an organization whose employees have long enjoyed a virtual monopoly.

Thanks in great part to its Pacheco Law exemption, the T has made real progress toward repairing its finances.  But for riders, the quality of the service is what really matters, and less progress has been seen there.

When Gov. Charlie Baker was elected, his first challenge came in the form of nine feet of snow and a failed transit system that paralyzed the region.  Progress on MBTA finances is not enough.  Any rider can tell you that the T is still far from a high-performance transit system.  Until it is, there should be no let-up in the intensity of reform.

Meet the Author

Jim Stergios

Executive Director, Pioneer Institute
There is no good reason for the governor not to seek and the Legislature not to grant an extension to the full package of tools adopted in 2015.  Let’s fix the T once and for all.  Hundreds of thousands of riders are counting on state leaders to get this right.

Jim Stergios is the executive director of the Pioneer Institute.