A case for keeping the Pacheco Law

(Cross-posted from Blue Mass Group, and posted on behalf of The Fernald League, Inc.)

It seems to have become almost conventional wisdom in Massachusetts that it’s long past time to repeal the Pacheco Law, which has supposedly put the brakes on contracting out for services as a way to save taxpayer dollars.

The law, which was named for its original sponsor, State Senator Marc Pacheco, a Taunton Democrat, has gotten more bad press over the years, it seems, than just about any other single piece of legislation in this state.

What does the Pacheco Law do?  It essentially requires that a cost analysis be done before state operations can be privatized.  It authorizes the state auditor to undertake that analysis by comparing bids from private contractors to a calculated cost of continuing to perform specified work in-house “in the most cost-efficient manner.”

Sounds fairly common-sensical.  Yet, to say this law isn’t popular with many commentators and politicians would be an understatement.  Why?  Probably because the law messes with the sacrosanct private sector.

   

GOP gubernatorial hopeful Charlie Baker has listed repealing the Pacheco Law as one of his “Baker’s Dozen” proposals for reducing public sector costs.

The Boston Globe has editorialzed against the law as “wasteful policy,”  as has Globe columnist Scot Lehigh, who has made the Pacheco Law almost as frequent a target of his displeasure as teachers’ unions.  Lehigh has termed the law a:

misguided statute that effectively ended the state’s experiment with hiring private-sector firms to deliver public services.

Lehigh goes on to contend that:

With Pacheco on the books, it’s difficult even to explore the efficiencies that could come from contracting out, much less realize them.

The pro-privatization think tank, The Pioneer Institute, which Baker co-directed in the late 1980s, has termed the Pacheco Law “the most restrictive state anti-privatization legislation in the nation.”  A separate paper, written by the equally pro-privatization Reason Institute and published by the Pioneer Institute, claims that as a result of the Pacheco Law, Massachusetts is:

…the only state in the nation that has virtually outlawed the privatization of public services.

Strong words.  But like many of the negative claims about the Pacheco Law noted above, the Reason/Pioneer claim doesn’t appear to be backed up by convincing evidence.  For instance, in discussing the amount of privatization that Massachusetts has supposedly been “missing out on” due to the Pacheco Law, the Reason/Pioneer paper  cites a statistic from the Government Contracting Institute that the value of federal, state, and local contracts to private firms around the country increased by 65 percent between 1996 and 2002.  The paper, however, doesn’t provide any evidence that Massachusetts failed to keep up with that increase in contracting.

No doubt, the Pacheco Law has some provisions that can be argued are unfair to would-be contractors.  There may be good arguments for changing some of those provisions, such as one giving the auditor the power to reject a proposed contract he determines not to be “in the public interest,” without providing a definition or reason.  It might also be worth considering an appeal process from the auditor’s decisions.

At the same time, however, it is unclear that the Pacheco Law has really done much to block either privatization or the closures of state-run facilities in Massachusetts.  In fact, a case could be made that the Pacheco Law has been underutilized by those who might have used it to slow the rate of facility closures and privatization in the state.

Interestingly, the law was enacted in during a battle in the early 1990s over the then Weld administration’s plans to close nine state-run mental health, mental retardation, and public health institutions.  Yet, passage of the law didn’t stop the closures of any of those facilities, particularly the Dever Developmental Center, which was in Pacheco’s own district.  The planned closure of Dever had been the impetus for Pacheco’s proposed law.

As Daryl Cameron Every, an attorney who fought to preserve the Dever Center in the 1990s pointed out, the Weld administration avoided a Pacheco-Law review in that case after reaching an agreement with state employee unions to create a network of state-operated group homes to accomodate most of the Dever Center residents.  Every said she believes the state will eventually privatize those group homes.  As she noted, the Pacheco Law doesn’t obligate the state to continue running the residences.

Today, the Pacheco Law has similarly had no discernible impact on the Patrick administration’s plans to close an additional four state facilities for persons with developmental disabilities, including the Fernald Developmental Center.

There are many ways to get around the Pacheco Law and still effectively terminate or privatize state services.  James Durkin, a spokesman for AFSCME Local 93, said that the law won’t necessarily apply if a state facility, such as Fernald, is simply closed.  If the privatization process occurs over time, as is likely to be the case with the closure of Fernald and the state-operated residences following the closure of Dever, the Pacheco Law isn’t likley to be invoked, he said.

Durkin added that the Pacheco Law only applies to the privatization of existing state services.  When the Massachusetts College of Art recently built a new dormitory and hired private vendors to provide services there, the Pacheco Law didn’t apply, he said.

In addition, contracts under $500,000 in value are exempt from the Pacheco Law. That threshhold was raised from $200,000 to $500,000 last year.  Durkin said AFSCME considers the various ways around the Pacheco Law, including the $500,000 threshhold amount, to be “unfortunate loopholes.”  Apparently that threshhold isn’t high enough and those loopholes aren’t wide enough for the law’s critics.

Glen Brierre, a spokesman for State Auditor Joseph DeNucci’s Office, said the auditor has approved about 20 proposed contracts since the Pacheco Law went into effect.  The “vast majority” of proposals have been approved, he said.

By the way, it’s not as if the Pacheco Law came out of thin air.  The Pioneer/Reason paper acknowledges that the law was modeled after a federal rule for contracting out governmental functions (the Office of Management and Budget’s Circular A-76).  The Pioneer/Reason paper contends that the Pacheco Law made significant changes to the federal guidelines, although it doesn’t specify what those changes were.

The OMB Circular states that governmental “commercial activities (i.e. those activities eligible for privatization) should be subject to the forces of competition.”  Specifically, it says, that competition should determine whether “government personnel should perform a commercial activity.”  In other words, like the Pacheco Law, the OMB requires a cost analysis in which government gets to compete with the private sector for the business.

Suffice it to say, the competitive contracting-out process in OMB Circular A-76 is extremely complex (just take a few moments to scroll through the Circular in the link above to appreciate that complexity for yourself), and we’re not in a position to judge exactly how the Pacheco Law differs from the federal model.  But then again, we’d doubt that many of the critics of the Pacheco Law are either.

It seems to us that to the extent the Pacheco Law requires a thoughtful review of the costs and claims of privatization in Massachusetts, it should stay on the books.

How government can regain the capacity to control and manage environmental disasters

On a recent segment of MSNBC’s “Morning Joe,” the folks around the table were discussing the federal government’s seeming inability to get BP to act with urgency and effectiveness in stopping the oil leaking into the Gulf of Mexico.

Much of the discussion, of course, concerned the damage to the environment that is being compounded daily by the spreading oil.  But there was also frustration expressed by just about everyone at the table at the government’s “loss of capacity” to do anything about it. 

It does seem that we used to be a “can do” nation that could win wars unambiguously, land men on the moon, and respond effectively to disasters.  But it seems we have lost much of our capacity in recent years, not only to accomplish great public undertakings, but even to manage the growing number of private sector actors that have moved in to fill the vacuum. 

Why is this?  Have we, in fact, become a “hollow state” in which public agencies have little ability left to do anything other than rubber stamp corporate activities, many of which seem irresponsible if not downright destructive?  From the reconstruction of Iraq to the Big Dig in Boston, we no longer seem to be able to control spiraling costs or ensure top quality in the results. 

In fact, the related managerial trends of privatization, decentralization, and deregulation have combined in the past couple of decades to reduce government’s capacity to act effectively in these instances.   The Government Accountability Office reported that while the amount of federal contracting rose by 11 percent between 1997 and 2001, the size of the federal workforce devoted to managing contracts decreased by 5 percent.   This phenomenon has certainly been true at the state and local levels as well. 

The late academic scholar Larry Terry pointed to a loss in “institutional memory” in government due to the departure of “institutional elders–those individuals who possess extensive knowledge, expertise, and valuable information about an organization’s history…”    Some of this governmental loss in capacity is the result of downsizing trends in government that took root in the Reagan years and continued during the Clinton years and during the presidencies of Bush 1 and 2.  The New Public Management, which was promoted by the Clinton administration, promoted “market driven management,” which advocated increased privatization of government services and the use of private sector practices and technologies within government.  

Meanwhile, countless politicians, from state legislators to presidents, have built their political careers on criticizing government as too big, bureaucratic, and ineffective.  The result, however, is that we now have a government in this country that may be a little less big, but still seems bureaucratic and even more ineffective. 

But that doesn’t mean we can’t undertake great projects anymore or that government is doomed to impotence in controlling  oil spills and other disasters.  Take the oil spill in the Gulf.  Government still has the capacity to act effectively in situations like that.  It simply has to act smarter. 

First, political leaders and public managers must resist the temptation to muddle through these crises with ad-hoc decisions that seem to change each day on the basis of news reports and polling.  The president needs to establish an environmental crisis team that can respond immediately to situations such as the oil spill, similar to the crisis team that advises him during national security emergencies.  

When an environmental crisis occurs, the president and his team must immediately develop a coherent plan for dealing with it.  That process must involve a careful analysis and definition of the problem the team is facing.  The president and all team members must constantly question their presumptions about the problem and its possible solutions.  From day one, such a team could have held a series of meetings in which they asked themselves: what methods of stopping the oil leak are likely to be the most successful and to stop it the fastest?  BP engineers and executives as well as outside oil industry and environmental experts should have been called in to the meetings. 

Many collateral issues should have been explored in the meetings as well, including the best options for cleaning up the already-spilled oil, the safety of the chemical dispersant being used by BP, and how the oil-capping and cleanup activities would be financed. 

The project plans that emerged from that process would have clear scopes of work for BP and others to accomplish as well as clear penalties for failure to meet the specifications.  Then, once the plans had been put into effect, the president and his crisis team would be well-positioned to monitor and assess the project activities in accordance with the plans. 

Both public and private-sector organizations have always suffered from a lack of systematic approaches to dealing with complex projects and sudden crises.  It’s all the more imperative that such approaches be developed and used by our current downsized public sector in our increasingly fragile world.