T considering privatization of core services

THE MBTA, which has already used privatization to cut costs in its warehouse and money room operations and to extract wage and work rule concessions from its largest union, is now pushing to outsource some of its core services, including bus and subway maintenance, bus operations, and customer service.

T officials on Monday said the three-year suspension of the so-called Pacheco Law, which governs how public agencies can outsource services, has already allowed the transit agency to cut costs by an estimated $400 million over the next 10 years. Agency officials estimate privatization of warehouse and money room operations will save $81.2 million and $96.1 million, respectively, over the 10-year period, while a new contract with the Carmen’s Union will save $217.9 million.

But with an operating deficit persisting this year and costs rising next year, officials are now considering the outsourcing of core services, including the maintenance of buses and subway cars, bus operations, and customer service work. The T is reviewing a number of outsourcing options, but officials estimate savings could total as much as $165 million in fiscal 2021.

Brian Shortsleeve, the T’s chief administrator and acting general manager, said the Legislature’s suspension of the Pacheco Law has played a key role in reducing the authority’s cost structure. “The Pacheco waiver has proven very valuable,” he said, echoing the comments of other Baker administration officials.

State Auditor Suzanne Bump, whose office oversees enforcement of the Pacheco Law, scoffs at the MBTA’s claims. While admitting she is not in favor of privatization personally, Bump said in a recent interview that all of the T’s outsourcing initiatives so far could have been accomplished within the confines of the Pacheco Law.

“If the administration makes the case on the merits, we’ll approve it,” she said. The law requires state agencies to provide evidence that outsourcing will save money without impacting service, which the T has done with each of its privatization proposals.

Bump also dismissed claims by MBTA officials that the Pacheco Law suspension, and the threat of privatization it portended, allowed the T to secure wage and work rule concessions from its largest union. She said the threat of privatization would have existed even with the law in place. “They still held that threat,” she said. “They could have obtained the same result if the Pacheco Law had not been suspended.”

Asked about Bump’s claim, Shortsleeve restated his belief that the waiver has been extremely valuable in helping the T cut costs and improve service.

Shortsleeve said the T’s operating deficit for the current fiscal year is projected at $50.1 million, down roughly $30 million from initial projections. One area where little progress has been made in reducing costs is operation of the T’s paratransit service, called The Ride, which is $6.8 million over budget. Shortsleeve said the T tried to divert riders from the core Ride service, which ferries passengers to their destinations at an average cost of $46 per trip, but ridership has instead gone up. “We have continued to see growth in the core Ride service,” he said.

In fiscal 2018, which begins July 1, cost pressures on the T are expected to intensify. Debt costs are expected to rise by $53 million and sales tax receipts, which provide the bulk of funding for the T, are forecasted to be flat. T officials hope to boost parking and advertising revenue, and Keolis, the commuter rail operator, is initiating a more aggressive fare collection process. On the expense side, T officials said they are looking to reduce the number of employees, boost productivity, and reduce or eliminate weekend commuter rail services and discretionary paratransit service.

The T is also planning to expand its use of privatization, with the initial focus on bus and subway maintenance, bus operations, and customer service.  Bus maintenance and operations account for roughly a third of the T’s $1 billion in operating costs.

Mark Aesch, a consultant hired by the T, estimated $30 million to $40 million in annual savings by outsourcing bus maintenance work and $14 million in annual savings by outsourcing subway maintenance. Bus maintenance work is currently handled by Local 264 of the International Association of Machinists. Shortsleeve said private maintenance contractors would also employ unionized workers.

The T’s agreement with the Carmen’s Union guarantees union members will handle the agency’s existing bus service. But Aesch recommended that private operators be used for any expansion of bus service and any fill-in service required when subway lines are shut down for maintenance.

Aesch also called for outsourcing the T’s customer service operation, which consists of 202 agents working at subway stations who are paid $27 per hour, excluding fringe benefits. He estimated the T could save as much as $11 million by outsourcing customer service operations.

A handout provided by the T discussed much broader outsourcing proposals, ranging from contracting out select bus routes to contracting out all bus operations. The handout noted that only 65 percent of MBTA buses are on time (departing within three minutes of scheduled departure times) and 30 percent are crowded at peak times.