COFAR blog

The Pacheco Law in Massachusetts is a textbook example of how a good piece of public policy can be trumped and misrepresented for political and ideological reasons.

Now, a new paper published on a website called In the Public Interest has attempted to set the record straight about the 25-year-old law, which has unjustly been used as a political punching bag for almost that length of time.

Full disclosure: I’m one of the three authors of the paper, which is titled, “The Pacheco Law: 25 Years of Taxpayer Protection.” The Pacheco Law, which is also known as The Taxpayer Protection Act, requires a detailed cost analysis prior to privatizing government services.

As a one-time newspaper reporter who covered the legislative debates over the law, and now as a research and communications director for COFAR, I have long been interested in the far-reaching efforts in this state to privatize human services, in particular. In the past two decades, during which I worked for the state Inspector General’s Office and then became an adjunct instructor in public policy at Framingham State and other universities, I’ve become a fan of the Pacheco Law.

Lakeville State Hospital — one of many state-run human services facilities that were closed in Massachusetts. A loophole in the Pacheco Law allowed the closings without invoking the law’s cost analysis requirement.

The lead author of the paper is Elliott Sclar, an economist who is professor emeritus of urban planning at Columbia University. Also authoring the paper was Michael Snidal, a doctoral student in urban planning at the university.

Dr. Sclar and I were among a group of people who were asked last year by state Senator Marc Pacheco of Taunton to write the paper as part of a larger project to examine both the history and political future of the 1993 Taxpayer Protection Act, of which Pacheco, of course, was the chief author and sponsor.

In the Public Interest describes itself as “a comprehensive research and policy center on privatization and responsible contracting.”  As the Center notes, our paper presents evidence that the Pacheco Law has saved the taxpayers hundreds of millions of dollars in the past quarter century.

Thus far, Senator Pacheco’s project has received some preliminary funding from a public employee union in New York, the Amalgamated Transit Union. I should note that the funding the project has received pales in comparison with the huge amounts of money that have been spent to have organizations such as the Pioneer Institute vilify the Pacheco Law.

As I’ve noted on this blogsite in the past, the opponents of the Pacheco Law, which include Massachusetts Governor Charlie Baker, The Boston Globe’s editorial page, the Pioneer Institute, and many others in neo-liberal political circles, claim the law has almost completely stifled innovative efforts to privatize public services in Massachusetts.

But as we pointed out in the paper, what the Pacheco Law has really done has been to ensure in several cases that a comprehensive cost-benefit analysis was undertaken before state-run services in Massachusetts could be privatized. It’s not innovative if taxpayers end up paying more for a service, and it’s not innovative if the quality of the service is worsened rather than improved.

Privatization, of course, has been the focus of a long-running debate between those who claim that government is inherently inept and wasteful, and those who claim that the sole purpose of privatization is to enrich corporate interests that want to make easy money from government contracts. In Massachusetts, arguments over the Pacheco Law have usually been cast in those mutually exclusive terms.

Left out of the discussion, however, has been a third view, which is that privatization can work if it is subject to adequate competition, analysis, and oversight, and that policy measures such as the Pacheco Law provide the necessary analysis.  That’s the view we took in our paper.

Privatization proponents have benefited from a loophole in the Pacheco Law 

The basic requirement of the Pacheco Law is that before services can be outsourced, the state auditor must affirm that the move will actually save money, and that the resulting privatized services will be equal or better than the services provided by state employees.

Opponents of the Pacheco Law never mention the fact that 75 percent of the privatization applications made to the state auditor since the law’s inception have been approved. In addition, a major push for privatization in the field of human services has taken place in Massachusetts without triggering the Pacheco Law at all.

As we noted in the paper,  successive administrations from Governor William Weld onwards have exploited what is essentially a loophole in the Pacheco Law with respect to human services.  The loophole stems from language in the law implying that services can be privatized and subject to the law’s cost analysis requirement only if the services are currently performed by state employees.

That language has allowed successive administrations to assert that they are not outsourcing if they simply close a state-run residential center for the developmentally disabled, for example, and subsequently send either the former residents or others waiting for services to a privatized residential facility.

The Pioneer Institute erroneously contended the Pacheco Law lost money for the MBTA

As our paper points out, the Pacheco Law was invoked when the MBTA tried to outsource the operation and maintenance of Boston area bus lines in 1997. The state auditor concluded, after a review required by the law, that the agency had failed to prove that privatization would save money, and in fact, that outsourcing the bus service would actually cost the state $73 million more than keeping the function in-house.

We have calculated that without the Pacheco Law, the MBTA would have gone ahead and outsourced the bus service, resulting in compounded losses exceeding $200 million over the ensuing years. Those calculations were based on my own finding in 2015 that the cost of contracted commuter rail services at the MBTA actually rose faster since 2000 than did in-house bus service costs.

Our paper’s combined findings stand in sharp contrast to a claim made in an influential report by the Pioneer Institute in 2015 that the failure to privatize the bus service ultimately cost the MBTA $450 million.

In fact, the Pioneer study had inappropriately compared  bids proposed by the two prospective bus service vendors with actual costs incurred by the MBTA in 1997, and applied the same cost-escalation factor to the bids and in-house costs between 2003 and 2013.

The Pacheco Law requires agencies like the MBTA to compare “apples to apples” bids under which both numbers represent a projection, i.e. a contracted projection against a projection of in-house services delivered in a “cost efficient manner.”

Ultimately, as we pointed out in our paper, both our cost calculations and the Pioneer’s report were based on back-of-the-envelope calculations that, even if done correctly, fell far short of the comprehensive cost analysis required by the Pacheco Law.

Recent history of privatization in Massachusetts 

Our paper attempts to place the Pacheco Law in the context of the history of privatization in Massachusetts from the 1980s onward. The law was a response to a worldwide privatization trend beginning in the 1980s. And one of  the most ardent proponents of the trend was William Weld, who became governor of Massachusetts in 1991 “with an unabashed conviction that less direct government service provision guaranteed better outcomes.”

But while outsourcing in itself wasn’t new when Weld took office, the difference now was that “neoliberal contracting or privatizing had become a matter of ideology, a belief that the private sector is always competent and the public sector inherently deficient.”

In Massachusetts and elsewhere, a major effort was begun to privatize governmental services and functions with little supporting analysis and few checks or balances.

Among those working under Weld to carry out the rush to privatize was Charlie Baker, at the time secretary of human services and later secretary of administration and finance. Baker came highly recommended to the administration by the Pioneer Institute.

Privatization proposals “flew in from near and far” – from local think tanks like the Pioneer Institute and from “antigovernment hard hitters” like the Heritage Foundation and the Cato Institute, the latter declaring Weld the best governor in America.

Weld’s subsequent closings of the state-run Paul A. Dever State School in Taunton and nearby Lakeville Hospital “hastily pushed families dependent on chronic care away from places they had called home for decades.” The equipment at Lakeville was given away to the private Parkwood Hospital in New Bedford at no cost.

As a Globe Spotlight series in 1993 showed, the Weld administration and its privatization arrangements “were deeply conflicted by special interest money, lobbyist motivated lunches, and massive corporate campaign donations.”

In this context, Pacheco, whose Senate district included Dever and Lakeville, first proposed his legislation while he was a member of the House in 1992. It didn’t pass then, but did pass the following year after Pacheco had been elected to the Senate.

As noted above, however, Weld and subsequent governors, Republican and Democratic, continued to shut facilities for the developmentally disabled and to expand the private system of corporate, provider-run group homes without invoking the Pacheco Law.

Costs misrepresented

Both the Romney and Patrick administrations claimed that privatized care for the developmentally disabled was cheaper per resident than state-run care by comparing the average cost per resident in privatized residences to a calculated cost of care in state-run developmental centers such as the now-closed Fernald Developmental Center.  This comparison was disingenuous; Fernald served a population with a much more profound level of intellectual disability and more severe medical needs than the population in the privatized community system.

Their cost comparison method also overstated the state costs per resident. The administrations simply divided the total Fernald budget by its population of residents to determine the cost of care, overlooking the portion of Fernald’s budget that went to programs that benefited community-based residents.

In bypassing the Pacheco Law, these administrations never seriously considered proposals to operate developmental centers more efficiently, something the law explicitly calls for.

Had the cost and quality analyses required by the Pacheco Law been used in the contracting of services for the developmentally disabled in Massachusetts since the 1990s, a better understanding of the costs involved in that process and higher quality care would have resulted.

The Pacheco Law would have:

1) ensured that all potential costs were fully analyzed prior to closing state-operated facilities, and

2) ensured the quality of care run by corporate providers be equal or better that state-run facilities.

Privatization can work if it is subject to competition, analysis and oversight 

Our paper concludes with the observation that governments may be able to maintain quality of service and reduce their bottom line if there exists a competitive private market that has a known quality and price. In those instances, it can often be shown that costs can be reduced by privatizing services.

However, unproven generalizations about the cost effectiveness of privatization must be subject to scrutiny.

In sum, as we noted, the Pacheco Law’s 25-year anniversary, which occurred last month, “provides a ripe occasion to start a national dialogue about how we restore vibrancy to a public sector that has been badly damaged by ideological attacks on government.”