This article originally appared in the Summer 2017 issue of The American Prospect. Subscribe here.
“Let the governor know that you are out here!”
That shout went up under a hot morning sun in mid-May, as orange-shirted transit union workers and their labor, community, and political allies spread out on the pavement below the Massachusetts State House in Boston to protest the latest privatization proposal by the Massachusetts Bay Transportation Authority, the Boston-area transit agency, known as the T. This one involved outsourcing its bus maintenance work to a private company, a move that would eliminate many jobs.
But Republican Governor Charlie Baker wasn't around to hear the cheering or the speeches. He had decamped to the other side of town for a ribbon-cutting marking the opening of a new, privately financed commuter rail station in Allston-Brighton—one underwritten by New Balance, the Boston-based athletic shoe company.
The theme here is a reliance on the private sector to underwrite or partially operate public services at a time of perceived budget squeezes. Are these moves truly more efficient, or mainly a shift in earnings from workers to entrepreneurs?
The State House protest marked the latest round in the fight over contracting out public-sector work at the country's fifth-largest transit agency. With billions in debt and delayed maintenance costs at the MBTA, Baker administration officials have promoted outsourcing as one remedy among many. But in their drive to contract out bus mechanic jobs, the administration may have overplayed its hand.
Privatizing segments of the Boston area's public transit operations obscures a key fact that no one in the Bay State transportation sector disputes, no matter what their political leanings: The MBTA's modest cost savings will not solve the authority's decades-long cycles of underfunding, austerity budgets, and underinvestment that have made traveling around the region by bus, subway, or commuter rail an existential ordeal for riders. That will take adequate public investment.
WBUR/Creative Commons
Today the MBTA is $6 billion in debt—and roughly 25 percent of its annual budget goes to debt service. The authority, which runs America's oldest subway system, has a $7 billion “state of good repair” backlog. Fares only cover about 40 percent of operating costs. MBTA's private, taxpayer-funded retirement fund, long suspected of hemorrhaging red ink, recently announced a $1 billion shortfall. Meanwhile, both the governor and the Democratic House speaker oppose tax increases.
This fiscal mess creates an all-but-irresistible temptation to privatize. MBTA commuter rail has already been partly privatized—with mixed results—while buses and subways remain largely public. This chronic situation became acute when the system was literally snowed under during the winter of 2015. The ensuing public uproar led to the creation of a fiscal and management control board to take over the authority.
Revamping the authority meant taking on the public-sector workers at the heavily unionized authority. “We want to fix the T,” Baker said during the 2015 debate over setting up a control board. “I do not want to privatize. I do not want to slash services. I do not want to lay off hundreds of T employees. I do not want to drive people off the T by making services unaffordable,” he said. “What I do want to do is give the people of Massachusetts and those who pay for the T and those who ride it a reliable, predictable, affordable public transportation system.”
That sounds like a plan, but the devil is in the details. MBTA officials view outsourcing to industry as a key way to cut costs, increase productivity, and kick-start innovation to help put the authority on a course to fiscal stability. However, labor union leaders see politicians with an ideological endgame: weakening public-sector unions by transferring effective control of public assets to the private sector. Until recently, Baker's actions had been applauded in this deeply Democratic state, a marker of the deep dissatisfaction with the MBTA. But the growing rumbling in the legislature over the administration's dealings with bus mechanics indicates that there are some cracks in Baker's blue wall of support.
WITH FINANCIAL PROBLEMS plaguing transit systems around the country, privatization seems like the panacea.
President Donald Trump has insisted that tax credits and private capital can fix the country's multitrillion-dollar infrastructure crisis.
To understand how a moderate Republican governor faced down powerful public-sector unions and persuaded Democratic state lawmakers (who hold a supermajority in both chambers) to appoint a control board and approve a short-term suspension of a statute that made it difficult to contract out state services, it helps to know something about how the winter of 2015 ripped away the force field that impeded reform at the MBTA.
With transit services to more than 170 cities and towns in eastern Massachusetts, the MBTA provides 1.3 million trips on an average weekday. Yet, reliable service even in sunny, warm weather is never assured, and riding the MBTA during New England's long harsh winters is a test of endurance. During and after snowstorms, riders suffer through commuter rail, subway, and bus delays and breakdowns made worse by aging tracks, railcars, switch, and signal systems that cannot handle blasts of cold, snow, and ice.
The winter of 2015 was the most severe in Massachusetts history. In the 30-day period from January 24 to February 22, 2015, nearly 95 inches of snow pummeled Boston. On-time performance on subway and commuter rail lines cratered and the entire system closed down three times. Inmates, National Guard troops, and just plain folks (at $30 per hour) were enlisted to dig out buses and railways. The transit system took more than a month to recover. Buses proved more reliable than the rest of the network—at least for riders who could navigate treacherous sidewalks, streets, and snowbanks.
A Republican of the fiscal-conservative and social-liberal type attractive to Massachusetts voters, Baker, a former health-care executive and state budget chief, had been sworn in as governor about two weeks before the storms. The MBTA's collapse hit Baker like a snowball thrown by an unseen hooligan. It was the last straw for mad-as-hell-not-going-to-take-this-anymore riders who could not get anywhere for days.
An outside fiscal control board had occasionally been floated given the authority's dicey finances and poor long-term revenue outlook, but the idea had never gained public traction. The snowstorm did what a decade's worth of commissions and studies had not done—it forced the state lawmakers and the governor to focus. Baker insisted on a control board and the temporary suspension of a so-called “anti-privatization” statute, the Taxpayer Protection Act, popularly known as the Pacheco Law.
Not everyone was convinced that the MBTA needed tough love. State Senator Marc Pacheco, author of the 1993 statute—once regarded as the most complex in the United States—says that the Baker administration wanted a waiver in order to get around collective bargaining. “It's a way for them, on the one hand, to head in another direction and see if they can't bully their way to an alternative settlement, instead of just doing what the statute proposes,” he says.
In a state of powerful labor unions that help keep state lawmakers' war chests full, MBTA unions are among the most formidable. They have been largely insulated from any economic fallout from the decades-long fiscal dramas that have hamstrung the transit authority. The Boston Carmen's Union, the largest of the MBTA's 29 unions, representing bus and subway operators, is the only one in the state with recourse to binding arbitration that has supported generous wage and benefits packages for members.
But in a fed-up Boston, the control board was seen as the last best hope for an agency that has been the state's poster child for bureaucratic inertia, incompetence, and dysfunction. With frequent meetings, frank talk, and a huge dose of transparency that had been absent from largely public conversation about the MBTA, the control board has earned rave reviews in its first 24 months. However, it remains to be seen what gains will be made, given that all of the fixes are on the cost side and new revenues are not part of the board's mandate.
THE MBTA IS A $2 BILLION quasi-public authority that receives 20 percent of the state’s 6.25 percent sales tax as well as additional assistance from the state. But the authority must generate most of its own revenues from other sources such as fares, advertising sales, real estate, and the like for the bulk of its operating expenses.
A public bailout of private failures, the MBTA was not designed to succeed. Ironically, it was the collapse of private bus and private rail companies that led to the establishment of the MBTA in the mid-1960s. But sales tax revenues never met projections, and the authority inherited billions in debt from its predecessor organizations along with red ink associated with the “Big Dig” of the 1990s, the $22 billion central Boston tunnel highway and bridge project that lives in infamy in Massachusetts.
In the MBTA saga, there is plenty of blame to go around—riders, voters, union leaders, governors, state lawmakers, and MBTA managers all share varying degrees of responsibility.
The riding public has been at best disinterested; their major interest in the MBTA is as a means of travel. If outsourcing and bureaucratic modernization can produce a better riding experience, riders are largely agnostic about how that occurs.
The public behaves one way as riders, another as voters. In 2014, voters repealed a gas tax indexing provision that state lawmakers had recently passed. But riders and transit advocates continue to clamor for more projects like high-speed rail lines to connect Boston to the southeast and west, and a new tunnel to link the city's two main intercity train stations—all without any surefire way to fund construction costs or operations.
A “Fair Share” amendment, which will appear on the 2018 statewide ballot, would tax residents who earn more than $1 million at a higher rate. If passed, the monies would go to education and public transportation. The Department of Revenue found that the initiative, if passed, would raise between $1.6 billion and $2.2 billion in new annual tax revenues. Polls conducted since 2012 by the Boston-based MassINC Polling Group have shown 70 percent to 81 percent support for regional-financing ballot initiatives, and two bills that are pending in the legislature to allow municipalities and regional authorities to levy transportation taxes would dramatically alter the revenue landscape.
Under Republican Governor Mitt Romney, fares were increased but the financial crisis deepened. His successor, Democrat Deval Patrick, crafted an ambitious transportation revenue package, anchored by a 19-cent gas tax increase. State lawmakers pared the hike down to 3 cents. Tax-averse Democrats, further divided by tensions between the largely urbanized east and more rural central and western Massachusetts, have avoided addressing the MBTA's financial woes.
Inside the agency, bureaucratic spats between MBTA general managers, state secretaries of transportation, and governors have created an atmosphere worthy of a telenovela. Patrick went through five transportation heads and several MBTA general managers in eight years. Low salaries for general managers down through the mid-level managerial ranks have hampered the authority's ability to recruit and retain talent to manage a complex transit system.
Procurement and contract oversight is poor—from tenants in subway-system spaces that did not receive electricity bills for more than two years, to bigger catastrophes like the botched extension of the Green line, a contracting failure that once again spotlighted the agency's inept oversight. In 1990, the state agreed to build a 4.7-mile light rail line connecting Somerville, Cambridge, and Boston. The line is now projected to cost nearly $3 billion after the state abrogated contracts with the original builders. “Any other agency would have gotten four of them done by now,” says Paul Regan, executive director of the MBTA Advisory Board, an oversight body composed of area communities served by the network.
AP Photo/Chitose Suzuki
One of the major promises of privatization is in allowing a public agency to focus on its core mission rather than ancillary operations, providing significant cost savings in the process. In the country's large transit systems, paratransit vans and cars for the elderly and disabled are typically outsourced to private companies. Other operations like cleaning or niche transport like ferry service are also outsourced. Another big potential source of savings from outsourcing is lower wages or looser labor rules.
THE OPEN SECRET ABOUT outsourcing at the MBTA is that some core operations, including commuter rail, have long been contracted out to private companies—without making much of a dent in long-term financial problems. Indeed, some contracts, such as the MBTA’s deal with Keolis, a French contractor that serves as the commuter rail operator, have cost the authority additional millions.
With commuter rail, the MBTA owns the infrastructure, cars, and stations, while Keolis operates the trains, makes repairs, and maintains the system. But Keolis got more than it bargained for in 2014 when it won a $2.6 billion contract, the largest in Massachusetts, for the antiquated system. The MBTA's commuter rail Twitter feed is a laundry list of mechanical issues, disabled trains, and lengthy delays.
Saddled with the MBTA's crumbling rail network, it is not surprising that Keolis performs poorly—and has cost the T millions more. Recently, the MBTA agreed to pay the company an additional $66 million on top of its original contract in order to have Keolis add more trains to current schedules and invest in new locomotives and maintenance. The company has also incurred millions in performance penalties, some of which have been waived. In January, Baker administration officials announced that the MBTA's commuter rail contract would be put out to bid before the current agreement with Keolis expires.
“When we look at the privatization of [public] services, all we have to do is look at Keolis—the on-time response, the quality of the services, and the financial blunders,” says Pacheco.
In fact, the MBTA has outsourced commuter rail operations since its inception. In the mid-1960s, when the state took over failing private railway and bus companies and created the MBTA, transportation officials decided to assume ownership of the railroad assets, tracks, locomotives, railcars, and other infrastructure, and outsource operation and maintenance to private companies. Amtrak provided commuter rail service for the MBTA for many years, followed by Massachusetts Bay Commuter Rail, and then Keolis. Union members retained their jobs throughout these hand-overs, thanks to the employment protections offered by the federal Railway Labor Act.
While some riders and union members like to curse Keolis, commuter rail is merely a mirror image of MBTA's own long-standing problems
, such as contract mismanagement and underinvestment in locomotives, railcars, and other infrastructure, which contributes to the company's poor on-time performance record.
THE BAY STATE HAS been down the privatization road before. Republican Governor Bill Weld (now a Libertarian) came into office in 1991, determined to find savings in state government agencies from health and human services to transportation. One of his chief lieutenants was Baker, who came into the health and human services secretariat from his post directing the conservative Pioneer Institute, a Boston think tank. Weld’s protégé soon moved on to head the state’s budget office, where he oversaw the governor’s privatization initiatives.
Weld administration officials pointed to nearly $300 million in savings early on, gained by closing mental hospitals, contracting out prison health care, and one regional highway maintenance operation. But privatization came under fire from public union members, health care–sector advocates, and Democratic state lawmakers. A 1993 report by the House of Representatives' watchdog office faulted the administration's initial savings projection, insufficient planning, and problematic management.
To curb Weld's and future governors' enthusiasm for outsourcing, state lawmakers passed the Pacheco Law over Weld's veto—this after 36 privatizations in nearly three years. Under the measure, the elected state auditor evaluates privatization proposals and “must certify that the cost of performing the service by the private vendor is less costly than having the work done by state employees, and that the quality of services will be equal or better.”
Conservative critics of the plan counter that the law's sole purpose is to protect unions. Since 1993, 18 privatization requests have been submitted: 13 have been approved and five turned down; two of those five involved proposals to privatize MBTA bus operations and maintenance in the mid-1990s. Despite the push for privatization at the MBTA, which the waiver of the Pacheco Law has facilitated, the Baker administration has only pursued three other privatization plans under the Pacheco Law.
WBER/Creative Commons
“The Pacheco law was put in place to prevent outsourcing based on political philosophy, raw politics, and simple expediency,” says State Auditor Suzanne Bump, a Democrat. “There is an imperative to force agencies to make the business case before they make substantial changes in their operations, especially when a service that formerly was provided by state workers will now be provided by the private sector at a profit to that private-sector entity.”
Transportation Secretary Stephanie Pollack declined a request for an interview. Interim MBTA general manager Brian Shortsleeve, who initially agreed to speak with The American Prospect, later declined, instead issuing a statement that read in part: “The T is partnering with the private sector to perform certain operations and functions in ways that generate both financial savings and improved performance.”
A KEY PIECE OF leverage for the control board is to compel the unions to look harder for cost-saving efficiencies as an alternative to the blunt instrument of outsourcing jobs. In this respect, the two sides can point to some successes.
With initial projections of an MBTA deficit of $335 million by fiscal year 2018, the control board has shaved off $305 million through aggressive cost-cutting and maximizing existing revenues, driving down the deficit to $30 million. Other privatization initiatives involving money collections and the central warehouse make up $15 million of that total. The authority expects to save $400 million over the next ten years.
The MBTA's paratransit service, the “Ride,” has been run by private contractors. But with the cost of paratransit skyrocketing, state lawmakers passed legislation allowing Lyft and Uber to conduct a year-long pilot program to serve passengers on demand (previously trips had to be scheduled in advance) at lower prices and faster response times. A private vendor also handles paratransit call-center operations.
The MBTA has slashed its operating expenses growth rates (which had fluctuated from about 10 percent in fiscal year 2009, to roughly 3 percent in 2010, and nearly 8 percent in 2014). After the control board was established, MBTA operating expenses growth rates declined to zero percent. The authority has also begun chipping away at deferred maintenance.
Privatization supporters also contend that introducing competitive elements into the mix compels public employees to implement cost savings through less-restrictive work rules and other productivity-enhancing goals. The key to securing those efficiencies at the MBTA was the suspension of the Pacheco Law. With the administration free to pursue outside contracts without making a case to the state auditor, the Carmen's Union decided to re-open their contract early for the first time in 50 years.
Last year, the Carmen agreed to cap the number of hours union members could work. Hours that exceed that cap could be outsourced. New bus routes or expansions (like late-night services that had been eliminated) could also go to a private contractor. The union agreed to outsource its warehouse and cash-counting jobs, which had been staffed by union members who either accepted buyouts or were reassigned. Other concessions included forgoing raises in fiscal year 2018 and accepting lower wages for new employees. The two sides were satisfied enough with the deal that the head of the Carmen's Union, Jim O'Brien, sat between MBTA acting general manager Shortsleeve and Control Board Chair Joe Aiello at Baker's state of the state address earlier this year.
Outsourcing, however, has major drawbacks. Surrendering a public asset to a private contractor deprives lawmakers, authority officials, and consumers of transparency regarding finances and operations. Contracts can be skewed by underbids, and private vendors can and do request additional payments. The profit motive dictates that private companies that will provide a significant return on investment may not be interested in services like providing bus routes in poorer neighborhoods or servicing lines with lower ridership.
“It's not reasonable to have a position that no privatization ever makes any sense,” says Rafael Mares, a vice president with the Conservation Law Foundation, a New England environmental advocacy group. “At the same time, it's not reasonable to have a position that any problem can be solved by privatization.”
IN A BID TO OUTSOURCE a core transit service—bus maintenance—the MBTA opened up a hornet’s nest. It launched a two-pronged strategy for the authority’s 1,000-vehicle bus fleet. A pilot program at one garage, agreed to by the MBTA and the Carmen’s Union, aims to introduce new work rules—including bringing in the best supervisors, revamping the scheduling, and evaluating available equipment—and increase productivity by matching best practices in private industry.
AP Photo/Steven Senne
However, the proposal to contract out maintenance of four other decrepit garages that needed to be rebuilt or completely torn down, combined with the authority's unwillingness to reopen the machinists' expiring contract as they did with the Carmen, has drawn the ire of the Machinists Union Local 264 and state lawmakers. The entire 11-member Massachusetts congressional delegation also weighed in. In a rare move, the group sent a letter to Baker and Pollack noting that “IAM Local 264 seeks only the same opportunity to negotiate.”
Noting that the state's 15 regional transit authorities also contract out maintenance to private companies employing union labor, the MBTA says the plan would save $26 million in bus costs. The authority also claims that these savings would enable the agency to beef up its long-criticized bus service in bus-dependent minority areas in Boston and surrounding cities.
The MBTA bus maintenance workers enjoy a reputation as a highly skilled workforce that did well at keeping the mostly older buses of different models and technologies roadworthy, especially during the snows of 2015. They have argued that new mechanics would lack the deep experience with the quirky fleet that they had honed over years in poor working conditions.
A March 2017 MBTA report on bus maintenance read like an outsourcing proposal, but provided no data about privatization costs at the state's regional transit agencies. When the MBTA makes its case for privatization, its data is not as robust as some of its arguments on other issues, according to Mares. “It always is a comparison between ‘This isn't working' and ‘The solution is privatization,'” he says. “There should be a third column—fixing it internally. What does that take?”
The actual cost of MBTA bus maintenance is hotly disputed. The Pioneer Institute has published several public reports in recent years arguing that the MBTA's costs are the highest in the country. Local transportation advocates like the Invest Now Coalition counter that bus maintenance salaries are less than the average of the top 25 transit agencies in the United States, while the unions say that MBTA buses have the highest number of miles between breakdowns.
Costs are important, but other factors like safety records, route scheduling, neighborhood coverage areas, and customer satisfaction are also critical factors.
The dueling data points have clouded the issues, particularly when it comes to the Koch brothers–funded Pioneer Institute, a leading voice on privatization in Massachusetts. Regan of the MBTA Advisory Board says that Pioneer reports are “accurate enough to get the discussion going,” adding that they “start out with a conclusion and then build their arguments around it.” Nevertheless, Pioneer is well represented within the Baker administration.
This summer, Shortsleeve, who came to the MBTA from Bain & Company and served on the Pioneer Institute board of directors, plans to step down from his current post and take a seat on the control board. Another Pioneer alum, Steve Poftak, the executive director of Harvard's Rappaport Institute for Greater Boston, will take over as interim general manager until the MBTA identifies a permanent replacement.
Recent bus maintenance outsourcing plans have not been successful. The MBTA signed a contract with the Maine Military Authority, which does bus maintenance, but it ended up adding $8 million to costs when the work proved more complex than anticipated. Larry Hanley, the Amalgamated Transit Union's international president, points to the DC Circulator, a private bus route in Washington operated by First Transit (a company that appears in the MBTA's bus “innovation proposals”), which serves tourist destinations and largely white areas of the city and has been faulted for its poor bus maintenance record and safety lapses.
For Baker, the fight with bus mechanics who are trying to protect wages that put them in the middle class in one of the most expensive regions of the country is bad optics going into his widely anticipated 2018 re-election campaign. (Baker has yet to make an announcement.) To complicate matters, the clock ticking is the Pacheco Law waiver (it expires next year), and in the wake of the bus maintenance controversy, the governor has yet to ask for a waiver extension, nor would the legislature be too inclined to grant one. But some Democrats have stepped up their calls for the waiver to be phased out sooner rather than later—a tantalizing but unlikely prospect. One thing is certain: Baker does not want to hit the campaign trail tracked by angry union members.
With the state's current fiscal crunch—a half-billion-dollar revenue shortfall—consuming state lawmakers, grappling with the MBTA will not be high on their legislative priority agenda. While there have been periodic debates over whether the state should assume a portion of the MBTA's debt, the likelihood of that becoming reality is slim. The state simply has too many other pressing issues, such as education finance and the opioid epidemic, to consider allocating scarce revenues to alleviate the authority's debt burden. Even if the state were in better fiscal shape, shoring up the MBTA has never been an easy sell.
The control board has shaking up the authority well in hand, but delving into the MBTA's fiscal problem is in some ways beyond their mandate. Transit advocates have stepped into the breach to continue to push for new revenue generators, such as a regional ballot initiative, that hold the best promise for communities to take matters into their own hands. Voters in the Boston region may be more willing to direct a few cents to the MBTA to fund service improvements, while voters in more rural areas of Massachusetts could zero in on local roads and regional bus fleets. As for the “Fair Share” amendment, it is a popular concept that already has attracted quite a bit of support.
How partial privatization will affect the MBTA in the long run remains unclear. Union members have become privatization watchdogs as they continue to make their case that public-sector union workers are better stewards of public assets. The major peril of privatization for the MBTA is that it gives the appearance of progress even though it does not come close to addressing the authority's central problem—the underfunding and underinvestment that has contributed to billions of dollars in deferred maintenance and a fragile system. No amount of modest cost savings will solve that headache.
