Speech  Testimony of State Auditor Suzanne Bump Before the Joint Committee on Transportation on House Bill 3347

Boston — Good afternoon Chairman McGee, Chairman Straus and members of the Committee. Thank you for this opportunity to testify on House Bill 3347, An Act for a reliable, sustainable Massachusetts Bay Transportation Authority.

I have come here to speak specifically on Section 11, which would exempt the MBTA from the Commonwealth's Privatization Law. The so-called “Pacheco law” has been cited as an obstacle to the goal of a more efficient, less costly mass transit system for the Commonwealth. As the state official charged with ensuring that plans for having private companies run certain government operations meet the requirements of that law, I must disagree, and I want to voice my opposition to this exemption.

How often have we all heard the lament, “’government should act more like a business?” I have heard it countless times, and I have said it myself. If it is to do so, a higher premium must be placed by management on activities like the tracking of costs, long-range planning, the effective allocation and use of limited resources, and a focus on outcomes. Too often across state government, not just at the MBTA, this is not the case. My office’s audits continue to illustrate that many agencies poorly manage resources and operations and lack the wherewithal to engage in continuous improvement. These agencies can be slow to recognize wasteful practices and to innovate. Too rarely are operational decisions based on rigorous cost/benefit analysis.

Mind you, it is not necessarily managerial incompetence that is at work here. When you are understaffed, when you lack technological tools, when you are beset by events beyond your control, it can be a monumental task to make accountability a front-end function. You just do what you can with the information and resources at hand.

The Pacheco Law changes this dynamic by forcing government agencies, unaccustomed to thinking like businesses, to explore alternatives to their current model and to base decisions on costs, desired outcomes, competitive bidding, and value. The Auditor’s Office has produced guidelines to help agencies do just that. They explain how to calculate and compare costs and make the business case for the change in operations. When an agency demonstrates that a private company can perform a government function at a lower cost without compromising quality, safety, or effectiveness, that privatization plan is approved. The Pacheco Law ensures that it isn’t just political philosophy, raw politics, or the desire for a quick fix that guides the decision. Since privatization means that somebody is going to make a profit off a state contract, it is essential that the notion of government accountability is embedded in the decision-making process.

Since the law’s passage, 12 of the 15 privatization plans reviewed by the Office of the State Auditor have been approved. Most recently, in January 2014 I approved a contract for the privatization of the UMass Dartmouth campus bookstore.

Of the three that were not approved, two plans had been advanced by the MBTA.

A 1996 proposal for the privatization of bus shelter maintenance failed because the MBTA did not demonstrate it had a complete knowledge of costs. For example, the MBTA could not calculate an exact total of bus shelters that would be covered by the contract. This made it impossible for either the agency or a private contractor to determine a fair price for the work.

In 1997, proposals to privatize bus operations and maintenance in Quincy and Charlestown 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.

When you look at the MBTA’s history of privatization and its management of contracts with private companies that have been reviewed by my office, you see a record of poor performance. In 1996 the Office of the State Auditor approved the privatization of MBTA real estate management operations. Subsequent audits have questioned millions of dollars of payments to that private company that were either improperly billed or went to projects that were never completed. Further, the company failed to follow state contracting laws. For years, despite our criticisms and that of others, it continued to manage the real estate operation. That has only recently changed. Let’s hope the MBTA has learned from the past and handles this new vendor more effectively.

The MBTA also regularly contracts out its public work to private companies for services unrelated to the Pacheco Law. Our audits in this area have found many deficiencies. For example, a 2012 audit found that the MBTA’s poor contract management resulted in a $94 million automated fare collection system that, for five years, could not accurately count the day’s receipts. A 2014 audit found $40 million in costs over-runs and delays in station modernization projects.  A 2009 audit found $15 million worth of undocumented fuel payments to the private operators of the RIDE program. Contracting out doesn’t mean the end of management’s responsibility. Contracts have to be managed in order to ensure that we get the results we are paying for.

Let us not forget that when a government operation is privatized, taxpayers are still on the hook. The private company gets paid for doing the work formerly done by state employees. In the interest of accountability, the Pacheco Law ensures that taxpayers and consumers of government services benefit from privatization. 

With this record and with what we have all learned this winter about other planning, contract and operational management deficiencies at the MBTA, can we trust it to undertake privatization without the discipline and oversight required by the Pacheco Law? Not if we want better results.

Thank you for this opportunity to provide testimony on this important piece of legislation. Please let me know if my staff or I can answer any of your questions.