Public Services in a Monopoly: Why it Costs so Much to Fix Boston's Buses

There's abundant evidence that greater Boston's transit agency could save a lot of money by contracting out bus maintenance. But thanks to a restrictive state law, that's not likely to happen.
by | July 10, 2013
 

Some debates are eternal; they rage on for generations, with both sides continuing to make essentially the same points. Among them is the question of whether governments should privatize service delivery or have the work performed by public employees.

But I would argue that it doesn't matter whether public or private entities deliver services. Maximizing value for taxpayers is what's important, and competition is the best way to ensure that.

The pitfalls of delivering public services in a monopoly were highlighted in a recent policy brief written by former Massachusetts Inspector General Greg Sullivan and published by the Pioneer Institute, a public policy think tank (with which I'm affiliated as a senior fellow).

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Sullivan looked at bus maintenance costs for the Massachusetts Bay Transportation Authority (MBTA), greater Boston's transit agency. He found that the MBTA was second out of the nation's 29 largest transit agencies in number of maintenance personnel per bus mile traveled and fourth out of 344 bus systems in cost per bus mile traveled. He also reported that the average all-in annual cost of a full-time MBTA bus maintenance employee was over $111,000 and that the forepersons at the MBTA's two bus repair facilities earned far more than the governor of Massachusetts or the state secretary of transportation.

Sullivan compared the MBTA to the Minneapolis/St. Paul area's Metro Transit, a bus system with almost identical characteristics. Despite spending more than twice as much as Metro Transit on maintenance over five years, the MBTA suffered three times as many major mechanical system failures.

To put these figures in context, the MBTA spent about $832 million on bus maintenance between 2000 and 2011. Bringing its costs in line with other comparable agencies would save at least $250 million over the next six years.

There is no single cause of the MBTA's bus maintenance woes, but a significant part of the problem is the nation's most restrictive anti-privatization law, which requires state agencies and many independent authorities such as MBTA to run a gantlet of virtually insurmountable obstacles before contracting out any service currently delivered by state employees.

Instead of comparing public and private costs, the law makes state managers compare the outside bid price to what state costs would hypothetically be if state employees were to work "in the most cost efficient manner," even though few would argue that state employees have been working in that manner and they would not be held to that standard if the work were kept in-house.

The law goes on to count the cost of any state-incurred unemployment and retirement benefits against the private price proposal. And if any of the contract work would be performed outside Massachusetts, foregone tax revenue is added to the private bid, though there is no corresponding allowance for tax revenue that would be generated from private, taxable entities performing the work. In the unlikely event that a contract proposal makes it this far, it is then turned over to the state auditor, who can reject it for a variety of reasons including his or her determination that it is "not in the public interest."

The results are predictable: In the roughly 20 years since the law was enacted, the number of privatizations is still in single digits.

The law does allow outsourcing when there is a temporary shortage of in-house capacity, and the MBTA has achieved significant savings each of the three times it has taken advantage of that exception, in each case for bus-overhaul work. Last year, the MBTA's procurement director told the authority's board of directors that it would cost 50 percent more to perform that work in-house.

There is no one answer to the public vs. private debate. But what Greg Sullivan's policy brief on bus maintenance demonstrates is that taxpayers lose when competition is removed from the equation.

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