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MBTA will outsource cash counting with Pacheco Law exemption

Cost cuts may come from economy of scale, lower wages

Jule Pattison-Gordon
MBTA will outsource cash counting with Pacheco Law exemption
Boston Carmen’s Union members protest MBTA privatization during a demonstration at Dudley Square last week, part of a series of demonstrations held at T stations in the Greater Boston area.

The MBTA Fiscal and Management Control Board has exercised for the first time its exemption from legislation that had restricted outsourcing, in order to privatize the T’s cash counting operations. Virginia-based firm Brink’s Inc. was selected over one other bidder.

On the web

MBTA cash collection privatization report:

The privatization move riled several elected officials who rallied with union members outside Faneuil Hall last week. Speakers said they predicted the outsourcing would bring loss of fair wages and benefits and lead to indiscriminate privatization of other operations. Sen. Marc Pacheco called for the state legislature to rescind the T’s exemption from his namesake Pacheco Law — legislation that prohibits public service privatization that does not meet certain standards.

Meanwhile, some praised the decision. The Pioneer Institute — a think tank that advocates free market principles and limited government — said the move will bring finances under control in a department plagued by mismanagement, and that privatization applied to cash counting and other departments may help dig the T out of debt.

The FCMB’s Steve Poftak, executive director of the Rappaport Institute, told the Banner that while outsourcing is not a panacea, the nature of the T’s cash counting operations and the vendor’s offer made it a compelling choice in this case.

About 72 public employees will be let go from the money room, but will be offered opportunities to return to previously-held roles with the MBTA. Many formerly were bus drivers, and the T already had intended to increase headcounts in those positions.

Money room privatization

The FMCB approved a two-year, $7.7 million contract with Brink’s Inc. to run its cash collection operations, including collecting cash and coins from fare vending machines, servicing cash machinery and processing and depositing funds, MBTA spokesperson Joe Pesaturo told the Banner. Overall, the T expects to save $8 million per year, according to Pesaturo.

The FMCB expects that Brink’s can offer the same service for less money in part due to an economy of scale producing lower operational costs, Poftak said. At present, Brink’s collects currency from locations across Boston and so has the required equipment and facilities already in place and can add the T onto its workload at an incremental cost, he said.

Although Poftak did not specify this item, an FMCB report states that savings may come as well from utilizing private workers, who are not eligible to receive pensions and retirement healthcare from the T — areas that already are underfunded.

“Annual future unfunded long-term healthcare and pension costs should be considered when comparing the cost of internal services to contracted services,” the report states.

And then there are the savings on capital expenses. T officials expect to save $1.2 million in future capital costs by dodging the need to modernize and maintain its own money room facility, security, armored vehicles and equipment, according to the report. Sweetening the pot: The T expects it can sell the money room for $3 million and the armored truck fleet for $200,000, the report says.

And at the end of the day, Brink’s has promised to do it for less.

“They’re legally obligated now under terms of contracts to provide it at a certain price, and that’s far lower than what was costing us to do it in-house,” Poftak said.

He did acknowledge that private vendors have not always kept such promises and that the T must manage the contract actively to ensure terms are kept, and plan to find another vendor or quickly rebuild internal capacity should the vendor fail to provide as promised. Those wary of privatization have pointed to Keolis, the firm contracted to operate the commuter rail, which did not keep to its bid price; the MBTA agreed to pay it approximately $66 million above the contracted amount over the next six years.

Spotlight on workers

Currently most money room workers employed by the T earn $35.86 per hour, Pesaturo said. They also receive pension and health benefits.

Although the MBTA does not require a contractor to report the compensation and benefits it would provide its workers, CommonWealth Magazine notes that last year, Brink’s workers in Chicago protested over starting pay of $13.25 per hour and no overtime pay, suggesting that the company is unlikely to match current compensation levels.

Had the Pacheco law been in effect for the T, officials could not go through with a privatization effort that relied on cutting employee wages and benefits to bring cost savings.

Many dispute whether reducing employee compensation is an acceptable approach. Some proponents of outsourcing say an advantage of private companies is their ability to secure less costly deals with workers. Adam Millsap, research fellow for the State and Local Policy Project at the Mercatus Center at George Mason University, wrote in a Forbes opinion piece that while public officials may feel obligated to unions, private firms are free to pursue the greatest savings.

“Private, competitive firms have an incentive to minimize costs and consequently will be tough negotiators, while public officials tend to acquiesce at the bargaining table since transit unions are a powerful constituency in local politics,” Millsap wrote.

Others say if wages drop too far, everyone will be harmed. Some predict patronage of businesses may drop, and the government may incur new costs to support families whose income has suffered.

Donald Cohen is the executive director of In the Public Interest, a research and policy center focused on public-private contracting and public services and goods. He said privatization of public service represents a clash of philosophies, because private companies focus on maximizing profits, while governments are expected to focus on maximizing quality of life for residents. He noted that the process goes both ways, with some cities restoring to public control services they had privatized.

“For a private company, more outcome is more profit. For us, outcome is more service,“ Cohen said. In his view, restrictions such as the Pacheco Law allow private interest to be harnessed for public good by ensuring it meets certain priorities.

Critical test

The Pacheco Law is among the strongest privatization regulations in the nation. When the T’s finances floundered, it created an opportunity for opponents to the Pacheco law to weaken it, Cohen said, and now that the law is suspended for the MBTA, privatization advocates across the nation will be looking to Massachusetts to make their case for dismantling the Pacheco protections.

“For Pioneer Institute and groups like that around the country that hate the Pacheco law and have been looking for an opportunity, this is it,” he said. “They took advantage of the T’s problems to weaken the Pacheco law.”

The Pioneer Institute did not respond to a request to comment for this story.