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Pacheco Law Blocks Contracting, Drives Up Cost of Government

Originally published in The Boston Globe

January 7, 2011
Boston Globe editorial staff

The so-called Pacheco law doesn’t just keep government agencies from saving money by hiring outside contractors to perform certain services. It also sends a broad message: In Massachusetts, the demands of special-interest groups — in this case, public-employee unions — can outweigh the obligation to run government efficiently.

As the chief executive of the state in a time of great fiscal distress, Governor Patrick must deliver better government in a frugal manner — and that should mean getting the Pacheco law repealed.

Named for its author, state Senator Marc Pacheco of Taunton, the 1993 law puts up high barriers to keep state agencies from hiring private companies to do jobs previously performed by public employees. Under the law, which applies to contracts worth more than $500,000, contractors have to pay public-sector wages and must pay the same percentage of their employees’ health costs as government agencies do — even though wages and benefits for many jobs are far higher in the public sector. To be approved, a privatization initiative must produce savings not over the status quo, but over the level of efficiency that public employees might achieve under ideal conditions — regardless of whether those conditions ever occur in real life. Determining whether a privatization initiative complies with the law is up to the state auditor’s office, long occupied by union ally Joseph DeNucci.

The law is an affront to common sense. One can only speculate about the benefits of privatization, because it happens so rarely in Massachusetts. In practice, many agencies that might benefit don’t bother even exploring the idea, because the process is so arduous. When they do, their efforts often prove fruitless. In the late 1990s, a private company was willing to pay for the right to maintain bus shelters, as long as it could sell advertising on them. DeNucci rejected the contract. The T appealed, but the state Supreme Judicial Court ruled against it.

Supporters of the Pacheco law always come back to the Big Dig. Private companies oversaw the $15-billion megaproject, the argument goes, and look what happened there! But at best, the legislators who approved the Pacheco bill drew the wrong conclusions from the Big Dig. Its cost overruns weren’t the result of privatization per se, but because a variety of interest groups — not just the private managers but also politicians seeking cushy jobs and unions seeking elevated wages — colluded in running up the tab for a complex project and expected the federal government to cover most of it. Protecting special interests over the broader public need was a mistake then, and preserving the Pacheco law is a mistake now.

The law is one of a number of state policies, from project-labor agreements to the state’s prevailing-wage law, that encourage state agencies to rely on unionized labor. Yet the Pacheco law is also the hardest to justify, because it takes away any incentive public employee unions might have to agree to flexibility in work rules.

And the policy has even broader implications, because it discourages any innovation in how public services are delivered. Harvard economist (and Globe contributor) Edward Glaeser has argued that a privately operated late-night transportation service could enliven the often sleepy nightlife in Boston, but the Pacheco bill is an obstacle.

To its credit, the Legislature somewhat limited the reach of the Pacheco law in 2009 by raising — to $500,000 from $200,000 — the threshold at which a proposed contract triggers the law. That was modestly helpful, but the provision still has an odd consequence: Privatization is hardest when it might save the most money.

The main provisions of the law have persevered because public-employee unions support it with great intensity. But the potential benefits of repealing it would be spread far more widely.

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