How Boston’s Transit System Would Benefit From Reducing Privatization Restrictions
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Commentary

How Boston’s Transit System Would Benefit From Reducing Privatization Restrictions

Contracting out transit services not only saves taxpayers and riders money, but has also been shown to improve service quality and safety.

As the nation continues to come to grips with the effects of the coronavirus pandemic, mass transit authorities should be expecting considerable financial difficulties for the foreseeable future.

Reduced ridership in the short-term may eventually give way to long-term reduced ridership due to an increase in telecommuting, fears about COVID-19 until there’s a vaccine, changing work, and travel patterns during the economic downturn and more. These changes will result in reduced transit fare revenues. Additionally, transit-dedicated sales taxes from cities and states will also likely drop sharply because of reduced economic activity. Boston is a prime example.

When combined, fare revenues and dedicated sales taxes make up 84 percent of funding for the Boston-area transit referred to as the “T” system. These circumstances place greater pressure on the Massachusetts Bay Transportation Authority (MBTA) to effectively use rider and taxpayer funds.

Sections 52-55 of Chapter 7 in Massachusetts General Laws, termed the Pacheco Law, contain many provisions that needlessly and unabashedly favor in-house government staff over outside contractors. These provisions include practices such as penalizing out-of-state providers for lost tax revenues despite not doing the same for in-house work, or including contract monitoring costs for outsourced proposals without ensuring equivalent costs for monitoring in-house employees

When the MBTA received relief from the Pacheco Law’s provisions from 2015-2018, they demonstrated that substantial savings could be achieved. The 2018 report from the T to the Massachusetts legislature says the temporary relief from the law is set to provide a projected $450 million in savings over the next decade and is playing a decisive role in the T achieving its first balanced operational role in a decade.

MBTA has also seen improved efficiencies in collective bargaining for in-house work even when privatization is not chosen. This has caused the agency and its unions to “to examine and rethink internal processes and operations in ways that had rarely, if ever, happened before,” an MBTA report said.

Given the stated savings from contracting, combined with the lack of self-examination of process and operations by in-house staff,  the Pacheco Law assumption that in-house staff always operate in “the most cost-efficient manner” becomes illusory.

If the T’s cash room employees were operating before privatization “in the most cost-efficient manner possible,” how could Brinks perform the same services for 75 percent less compared to the T’s in-house staff last year? If Boston’s Carmen’s Union staff were achieving such a standard, how did the threat of privatization (via the Pacheco waiver) manage to achieve over $200 million in savings for the MBTA in a new collective bargaining agreement? As the T stated in its 2018 waiver report, “The purpose of the waiver was to advance performance, not privatization.” Consequently, being subject to the Pacheco Law’s full provisions punishes performance.

But contracting out transit services is about more than saving money as it has also been shown to improve service quality and safety. A December 2019 report from the T’s Safety Review Panel revealed substantial gaps in approaches to safety between the T’s agency-operated transit rail and its commuter rail, which is operated and maintained by the private company Keolis.

Some of the report’s findings show just how performance can suffer from a misguided safety culture. The executive summary laid the groundwork for revealing the T’s in-house run transit is falling way short of its private-sector counterpart, Keolis, which manages and operates the T’s commuter rail lines:

In general, the SRP (Safety Review Panel) found that the T’s approach to safety is questionable…In almost every area we examined, deficiencies in policies, application of safety standards or industry best practices, and accountability were apparent. The foundation for safety is also not obvious as the agency has not identified or adopted a comprehensive vision, mission, values or set of strategies and goals to guide the agency’s actions…Without such strategy being implemented and embraced by executive leadership, it becomes substantially more difficult for the agency to achieve the level of performance required to run a safe transit system.

It is noteworthy to mention that the commuter rail service is performing well and does not face many of the challenges that were identified on the transit side of the house.

Specific to the ability of the T’s in-house transit to assess performance and collect data:

The SRP found little evidence of the MBTA’s mass transit operation establishing safety objectives, safety performance targets or safety performance indicators. Very few measures have been established to monitor safety as well as other key operational indicators. The monthly Safety reports have only one metric, “zero derailments”. There are no targets or key performance indicators for other operational incidents such as collisions, fires, employee lost time injury rates and preventative maintenance, as some examples. The agency does not use performance monitoring tools…Most of the reports can be characterized as record keeping, providing month to month trends with no analysis and causes for variance in the data reported.

In contrast, with respect to the privately-run commuter rail service:

The Panel attributes this higher level of performance to the structure provided by FRA regulations, which are clearly defined and have fiscal consequences, if not complied with. The MBTA should seriously consider immediately adopting FRA regulations for the transit operation to provide clear direction to the workforce on minimum thresholds for operational safety activities.

The contrast can also be seen in how the two rail operators respond to emergencies. On the MBTA-run transit rail the report states:

Following an incident, there is a feverish response to a very specific problem without developing and implementing a global strategy to address the hazard. The corrective action is tracked for a brief duration and then closed. The CAPs (“corrective action plans”) are not being effectively audited to evaluate whether the required actions are continuing to take place or if the corrective action is effective. As a result, no substantial corrective actions are institutionalized, which if nourished, could create permanent change. Hence, the safety concerns and operational incidents persist.

Conversely, on the commuter rail side, Keolis has clearly defined targets and upon request, its management was able to produce detailed data regarding the amount of operational testing and inspections that are being performed by the type of test, title of the person being monitored and the outcomes.

The explanation given to justify the T’s poor performance in managing overgrowth along transit line routes compared to the privately-run commuter rail appears the opposite of what Pacheco Law’s defenders would have you believe:

It appears that on the transit side of the T operation, in many instances, financial considerations take precedence over operational performance and safety, even when it is extremely detrimental to the organization as described above. This mindset demonstrates an “upside down” set of priorities for running a transit agency.

The report also chides the T’s transit operations over management, staff and instructors nonchalantly giving students answers to final exam questions, finding T’s approach to safety “questionable” overall.

Even when private contracts at MBTA fall short of expectations, outcomes are improved. An audit of a parts warehousing contract entered during the Pacheco Law waiver found problems with the contractor (Mancon) in a variety of areas including; the misstatement of the firm’s information management capabilities, questionable inventory keeping procedures and accuracy, a failure to live up to regular and emergency delivery performance standards, and inadequate training. It also faulted the accounting the T used to justify expected savings, in terms of overstating in-house costs and understating contractor costs.

However, many of the problems can be at least partially thrown back at MBTA, which initially “did not have some of the necessary experience, resources and capabilities to fully perform contract administration and oversight of Mancon.” This led to the hiring of consultants and a renegotiated contract since the original contract “lacked a clear scope of services and agreement on the work to be performed throughout the contract.” The use of the MBTA’s inventory management system (which was used by the contractor after Macon could not deliver their own) was faulted for not keeping records of damaged, incorrect, or lost deliveries.

But even taking the Safety Review Panel at their word on added privatization costs not initially accounted for, the warehousing contract is saving money, though in terms of hundreds of thousands per year instead of millions. The lack of performance has also produced fine revenues given back to the agency (just under $70,000), in addition to a heightened level of service with respect to “expanded coverage at base locations, a dedicated transportation model, emergency delivery services and active inventory management.”

The MBTA’s revenues will undoubtedly be harmed by the coronavirus pandemic and economic downturn, which will cause the need for an even greater commitment to efficiency. By assuming in-house staff at the MBTA work at maximum efficiency in theory, the Pacheco Law hurts the T’s efficiency in practice.

A brief period of relief from the law has already generated significant savings.  Even where falling short of expectations, it has resulted in improvements in the T’s operations. A recommitment to exempting the T from the Pacheco’s provisions would result in greater efficiencies and perhaps, more importantly, instill a greater commitment to accountability, performance, and safety.

Austill Stuart is the director of privatization and government reform at Reason Foundation and editor of Reason's Annual Privatization Report.