Time to Repeal Massachusetts’ Pacheco Law

Massachusetts State Senate Minority Leader Richard Tisei and State Rep. Jeffery Perry write in separate op-eds (in The Boston Globe and the Cape Cod Times, respectively) that the state’s ongoing fiscal crisis demands real government reform, and they suggest that the state could save over $1 billion through a series of reforms that include repealing the state’s anti-privatization Pacheco Law. As Perry writes:

Since this anti-privatization measure was approved during the Weld administration, the state has lost out on the opportunity to save hundreds of millions of dollars through the outsourcing of certain government programs and services. The law has effectively stifled state privatization efforts by keeping most work in-house, even when a private company could potentially deliver the same services more efficiently and at a lesser cost.

As I wrote in Reason Foundation’s Annual Privatization Report 2009, the 2009 legislative session in Massachusetts saw increased interest in tweaking the Pacheco Law:

The state’s “Pacheco Law”ââ?¬â?a 1993 procurement statute that many observers say has created numerous procedural obstacles to the privatization of state servicesââ?¬â?came under scrutiny in May 2009 amid legislative negotiations over the state’s FY 2010 budget, which will require closing a $1.5 billion deficit.

By an 11-28 vote, the Senate rejected a budget amendment that would have repealed the law. Amendment opponents argued that the strict law serves an important oversight function and that its repeal would threaten state jobs. Supporters countered with several arguments in favor of repeal:

ââ?¬¢Repealing the law would help the state do more with less through privatization, potentially saving hundreds of millions of dollars that could support vital programs.

ââ?¬¢The privatization of state services has effectively stopped as a result of the highly restrictive provisions of the law.

ââ?¬¢One provision of the law requires state agencies to compare the cost of using private contractors to a hypothetical cost if state employees were to optimize the efficiency of current service delivery, ignoring the true costs of current service delivery.

ââ?¬¢The state auditor already has the authority to unilaterally reject contracts he deems “not in the public interest.”

But the Senate did approve, 24-15, a separate budget amendment that would exempt all contracts under $2 million in value from the provisions of the Pacheco Law, which currently applies to contracts over $200,000. According to amendment supporters, raising the cap would facilitate more privatization and help the state save millions of dollars.

Let’s be honest about itââ?¬â?this law should have never existed in the first place and represents a cynical political attempt to appease public employee unions by stacking the deck against privatization from the get-go. At a time of record deficits, policymakers should be focused on removing unnecessary and counterproductive laws and rules that stand in the way of streamlining government. Ironically, with the law in place, the public employee unions that fought to pass and subsequently protect this law actually made their jobs a little less safe, which is precisely the opposite of what they intended. After all, if you’re not outsourcing very many services (driving up costs) and government gets as bloated as it is in Massachusetts, then when it comes time to close a multi-billion budget deficit, by definition the public employees will automatically bear the brunt of the cuts.

Instead of fighting privatization, it might be more sensible to public employees to just embrace competition, as the costs savings generated by privatization will work to reduce the pressure on the state budget over time, which would be a win-win for both the public employees and contractor community.

Ã?” Reason Foundation’s Privatization Research and Commentary