The Myth That Privatization Is Always the Solution

A Massachusetts law that makes it harder to outsource services is working better than its critics acknowledge.
June 26, 2015
By Suzanne M. Bump  |  Contributor
Suzanne M. Bump is the auditor of Massachusetts.

When it comes to regulating the privatization of government services, it seems that one person's mindless bureaucratic obstacle is another's essential accountability mechanism. Thus it is in Massachusetts, where an exemption from a state law governing privatization is being sought in the name of fixing Boston's troubled mass-transit system.

The policy debate over privatization in Massachusetts, which raged during the 1990s and 2000s, calmed down during the past two terms of a Democratic governor but returned to war-cry mode when the new Republican governor, Charlie Baker, proposed repealing the law as it pertains to the Massachusetts Bay Transportation Authority (MBTA).

As the state official charged with enforcement of what is known as the "Pacheco law," and from that perch rather than from the legislative battlefield, I offer these thoughts in contrast to those advanced in this space recently.

While it is true that the intent of the law was to slow down outsourcing, it is not the blunt instrument depicted by its opponents. As I have noted elsewhere in response to other critics of the Pacheco law, it prevents agencies from basing outsourcing decisions on political philosophy by forcing them to explore alternatives to their current models and then base their choices on costs, desired outcomes, competitive bidding and value. A privatization plan can be approved when an agency is able to demonstrate that a private company can perform a government function at a lower cost without compromising quality, safety or effectiveness.

And contrary to the assertions of critics, the law has not made privatization all but impossible. Since its passage in 1993, 12 of the 15 privatization plans reviewed by the state auditor holding the office at the time have been approved, and of the three that weren't approved two had been advanced by the MBTA.

The law's critics say that the standard for calculating the public-private comparison is at fault, but that was not at issue with the MBTA's proposals. Privatization of bus-shelter maintenance was rejected because of the MBTA's inability to say how many shelters would be covered by the contract, making it impossible to determine a fair price for the work. Proposals to privatize two bus operations and maintenance facilities were also turned down because the MBTA could not demonstrate that privatization would actually save money or improve quality, since its plan also called for shifting some work to other MBTA facilities. The MBTA could have sharpened its thinking and its pencils and re-submitted plans that could have passed muster, but it chose not to.

While my review of these proposals does not weigh this factor, I hope that policy-makers also would consider how effective the MBTA's oversight of any new privatization contracts is likely to be. Its recent record is one unlikely to inspire confidence. Audits subsequent to the 1996 privatization of the MBTA's real-estate-management operations, for example, questioned millions of dollars of payments to the private company performing the work that were either improperly billed or went to projects that were never completed.

The list goes on. Other audits have uncovered huge cost over-runs and delays in MBTA station-modernization projects; $15 million worth of undocumented fuel payments to the private operators of the MBTA's RIDE paratransit program; and a $94 million automated fare-collection system that for five years could not accurately count the day's receipts.

That kind of performance should give those who reflexively advocate privatization a lot to think about. It's important to keep in mind that nothing is free: When a government operation or service is outsourced, the taxpayers will still be paying the bills. They deserve the kind of accountability that laws like Massachusetts' are designed to provide.