Got to go back to headline writing school…

“Of what avail are any laws, where money rules

       alone,

Where Poverty can never win its cases?

Detractors of the times, who bear the Cynic’s scrip,

       are known

To often sell the truth, and keep their faces!”

–Ascyltus, from Petronius’ “The Satyricon“

In 1981, Chile adopted a privatized Social Security-like (pension) program that requires most workers to contribute 10% of their income to a private investment account. They may contribute up to 20%. These accounts are maintained by a number of private companies (known as Administradoras de Fondos de Pensiones, or AFPs) that compete for the business by advertising directly to the investing public.

These providers charge commissions and fees for certain services which are paid on top of the contributions.

An additional 3% is collected from most workers for Disability Insurance; 7% more is deducted from wages for health care.

At retirement, the money is either used to purchase an annuity from a private provider to provide a steady source of income or it’s withdrawn at a set rate over time directly from the account.

Those who are self-employed do not have to pay into the system, but they have the option to do so if they’re so inclined.

If you don’t have enough in your private account to purchase an annuity or to withdraw steady amounts over time, but you’ve been contributing for more than 20 years, you will receive a minimum pension from the Chilean Government…but you will also lose any contributions you made to your private account.

AFPs are regulated as to how they may invest; if, through investment losses, they do not have enough money to capitalize the accounts they carry they must provide the money out of their own cash reserves. If they follow the rules, and still lose so many assets they can’t continue to operate, a government bailout is in order.

At the same time, a second “welfare” program (PASIS) was established to create a “safety net” that would provide a benefit of 75% of the poverty level or 25% of your last 10 years’ earnings, whichever is higher.

You can’t collect from both programs, but it is possible to collect from neither. More about that later.

Employers do not contribute to funding the system, however, all employers were forced to give 17% pay raises to their workers to come up with the money for the workers to make their contributions. (Chile was a military dictatorship at the time, making the “forcing” process much easier than it would be in the US today.)

The system is just turning 30 years old, and we’re now seeing the first big wave of workers who are eligible to retire.

So how has all this been working out for Chileans?

The first thing we learn is that the poorest workers probably won’t do well enough to qualify for “top tier” pensions, even though it’s projected that they’ll tend to pay for the benefit over their working lives…which will reduce their income over their working lives. (It’s also projected that workers with higher incomes should do reasonably well.)

Since most workers are poor (Chile has some of the most unequal income distribution on Earth), in the end it’s starting to look like the problems of finding enough money to support the social safety net are actually getting worse, and not better.

Additionally, other problems have come to light:

–You have to find money to “transition” from one system to another, and transition costs have been quite expensive indeed: 6.1% of Gross Domestic Product (GDP; that’s a measure of the total output of an economy) in the 1980s, 4.8% in the 1990s, and 4.3% until 2037. If we were to duplicate the Chilean experience in the US economy, 6% of the 2008 GDP (about $15 trillion) means about $900 billion annually in transition costs for the first ten years, and something north of $600 billion annually for the last 37 years of the exercise.

(Keep in mind that Chile only provides 2/3 of their population with either PASIC or a pension; since we cover a higher number than that in the US, expect those numbers to come in higher than we’re guessing here.)

Why are so many not covered? Lots of workers are working outside the “official” economy to avoid making contributions that they won’t get back later (in 1994, it was estimated that only 52% of workers regularly contribute to their accounts); additionally, many women have never participated in the labor force.

–Because the service providers are competing for the business, administrative costs (read: advertising and sales commissions) have been far higher than in the US Social Security system, where administrative costs have been at .07% of distributions, or lower, since 1990. To put this another way, during the 1990s the US Social Security Administration was paying $18.70 per year to administer a claim; at the same time Chile’s various providers were paying an average of $89.10 to do the same thing.

–All that competition, some say, has lead to lots of changing of providers, which tends to make any investment program less efficient over time. (In 1996, half of Chilean workers switched providers; it’s estimated that reduced pension accumulations across the entire system by about 20%.) The Chilean Government made changes in 1997 to try to work through this problem, and they seem to have had some considerable effect.

Evidence suggests most of the switching not related to consolidation in the AFP business is being done by a small percentage of account holders, with some switching as much as eight times in a year; today the average Chilean seems to change AFPs about once every five years. Unemployment also seems to be related to switching; this because the unemployed can establish a new account with a lower set of fees if they move to a new provider.

–Many Chileans, despite living in a system that has, for almost 30 years, required them to manage their own money, actually know very little about that money.

Less than half know that the contribution rate is 10%, only 1/3 know how much (within 20%) is in their accounts, and, according to work done at the University of Chile, “few” actually know what they pay in fees and commissions.

–Those who end up in the welfare program are guaranteed 75% of the poverty level; that suggests that if you’re elderly and on welfare, you’re living in poverty. Because of limited funding, there are qualified elderly poor in Chile who do not receive any benefit.

Today, in the US, about 12% of the elderly live in poverty. Without
the current Social Security system in place, it’s estimated that 49.9% of the elderly would have been living in poverty in 2002.

–In Chile, taxes to cover the transition costs tend to rise faster than the “assets under management” for most workers, leaving them less well-off than before-an effect that is most common among the “financially illiterate”…meaning, of course, most Americans. In other words, reform, in Chile, tends to help the wealthiest and best educated at the expense of those who are less of either.

That’s a whole lot of detail, so let’s pull pack and look at the “macro” picture:

Chile has operated a version of a privatized system since 1981, and for the most part the working poor will never see any benefit from the transition. Since Chile doesn’t have much of a middle class, it’s hard to see how the Chilean experience would affect our middle class.

The US Social Security system has reduced the estimated rate of elderly poverty from nearly 50% to roughly 10%; such a reduction in poverty did not occur in Chile with their privatization.

The costs of moving to the same system here, if our experience were the same as Chile’s, would run anywhere from $600-900 billion annually for at least 50 years. Of course, since we provide a Social Security safety net to almost all of our citizens, as opposed to 2/3 of the population, as Chile does, it’s reasonable to assume our costs would be more or less 1/3 higher.

Chile forced its private-sector employers to raise wages to cover the workers’ costs of transition; I’m aware of no proposals that would, or could, impose such a cost on employers in the US.

It appears that Chilean-style privatization encouraged about half the population to engage in “under the table” work, making the funding problem for the system even worse that it would be otherwise.

Frequent switching of account providers is great for the providers, as it creates lots of chances to collect fees for opening and closing accounts and the like-but it’s not so great for the account holders, who are losing up to 20% of their potential earnings more or less because maintaining a sales force and running lots of ads are effective business practices.

It is unknown what happens when a shock like the recent recession hits the system, and we are awaiting research that will help us understand what happens when and if the State is required to refund losses incurred by the AFP if they “follow the rules” but still lose so much money that they lack sufficient capital to operate.

The costs of operating the PASIS program go up even as the cost of operating the retirement accounts are also still high, and the question of whether Chile can continue to expend “safety net” coverage to the 30% of the elderly poor who are not covered remains unknown.

So there you go: there are going to be lots of proposals to privatize Social Security this year, “getting a Chilean” may well be one of the options you hear Conservatives promote-and hopefully by now you have some idea why this doesn’t look like nearly as good an idea as some folks would tell you it is.

Next time, we’ll talk about proposals to invest Social Security money in Treasury debt, and whether such an effort is actually an investment at all.

It’ll be at least medium geeky…and hey, who doesn’t love that?

The administration’s cost analysis in shutting the Monson, Templeton, and Glavin developmental centers was submitted in July to the House and Senate Ways and Means Committees and to the Joint Committee on Children, Families, and Persons with Disabilities.  The submittal was required by language in the Fiscal Year 2010 state budget.

Just to reiterate, our two main objections to the administration’s cost analysis are these:

1) The administration’s cost analysis appears to compare apples to oranges:  It compares developmental center residents to community-based residents in concluding that community-based care is less expensive.  But community-based residents are, on average, younger, less medically involved, and less intellectually disabled than are the residents of the Monson, Glavin, and Templeton Centers. Thus, it’s not that care in the community system is less expensive, it’s that the community system serves people who, on average, need less expensive care.

2) The administration’s cost analysis projects only capital expenditures needed for keeping the three developmental centers open.  It doesn’t appear to include any projections for the costs of building new group homes in the community that will be needed when the developmental centers are closed.

The Springfield Republican, on Sunday, reported on our overall objection to the validity of the administration’s cost study.

The newspaper went on to quote Senator Gale Candaras, co-chairman of the Legislature’s Children and Families Committee, as saying she accepts the administration’s savings projections in closing the centers. Candaras would not, therefore, appear to be a likely vote in favor of a mutually credible, independent study of the cost issue.

On the other hand, Senator Stephen Brewer, Vice Chairman of the Senate Ways and Means Committee, is quoted as promising to scrutinize the administration’s transition plan for Monson residents.  “If we don’t have a level of comfort, she (DDS Commissioner Elin Howe) will have a fight on her hands,” Brewer said.  It’s not clear, though, if Brewer was referring to having a level of comfort with the cost analysis itself.

I put in calls in the past week to key staff members of the three legislative committees that received the administration’s cost analysis. I asked if they had all received a letter we had sent rebutting the cost analysis and whether they thought an independent analysis might be needed.

All of the committee staff said they were aware of our letter, and I got the impression that all at least view the point we’ve raised about the failure to compare equivalent populations as a potentially valid criticism of the administration’s analysis.  One staff member said we had provided “helpful information” to his committee and indicated that committee members may ask DDS about our concerns during upcoming budget hearings.

At the same time, I didn’t get the impression that there was much if any sentiment among the committee staff I talked to, to recommend that an independent agency undertake a new cost analysis.

One staffer acknowledged that the administration has not provided any “specific information” to her committee about how it had calculated a cost for community-based care in its report.  She said she assumed figures in the the administration’s cost report did indeed represent an average cost of care the community system.  

The staffer said, though, that the administration had previously given her committee some rough cost comparisons between the facilities and the community system for persons with different levels of intellectual disability.  Those comparisons, she said, showed a lower community cost for people with equivalent disability levels.  But she said she had no information on how the administration had derived those figures.

That same staff member said she believed the administration’s overall claim that there would be a savings in closing the developmental centers because of what she views as the high cost of heating and maintaining the centers.  I responded that the Fernald Center budget, which we examined a few years back, showed that the cost of the physical plant was only about 8 percent of the facility’s projected budget for Fiscal Year 2010 and that the cost of staffing was the big cost item, at more than 75 percent of the projected budget.  (I later faxed her a Fernald budget document that shows this.)

The committee staff member then asked me what we believe the real figure for community based care would be for people now living in the developmental centers.  I said we don’t have a figure on that because we aren’t privy to all of the administration’s numbers, but that we think the cost would not be lower in the community for a number of reasons.  I cited the centralization of services in the developmental centers as the number one reason for possible lower costs in the facility system.

In sum, as I suspected, the three committees that received the administration’s cost analysis have, up to now at least, accepted the administration’s savings claims and figures at face value. We may have made them a little more aware of that, but it’s not clear they are willing to do anything about it.

Meanwhile, in order to shed as much light on this issue as possible, we have asked the administration under the Public Records Law for additional documents and analyses backing up its cost-savings projections in shutting the three developmental centers.

It would indeed be great if an independent agency such as the Inspector General or the State Auditor were to step in to put the cost savings debate to rest once and for all.  But given the apparently low likelihood of that happening, we’ll try to be as credible about the issue as we can.

Obama, Cooper says, is a talented politician and leader who came to office with major policy ideas and a plan to improve government performance by using technology, in particular.   All of these things require a commitment of resources,  including expertise, planning and coordination, by public agencies and their employees.

Yet, due to the “the actions and inactions of his predecessors of both political parties,”  President Obama “has inherited a capacity crisis that will stand in the way of the accomplishment of his constitutional duty and the obligations of the federal government,”  Cooper writes.   It’s a capacity crisis of which the president “has not demonstrated an awareness.”

Moreover, during his campaign for the presidency and after taking office, Obama has used what Cooper characterizes as “unhelpful rhetoric” regarding public employees such as talking about ”bloated bureaucracies” in Washington and promising to cut the budget deficit significantly by eliminating “too many layers of managers” and excessive paperwork.  Whether you agree or not that there is significant waste and inefficiency in the public sector, this is the type of rhetoric that has driven the downsizing of government and the increased outsourcing of government functions since the 1970′s.

Cooper notes that the result of this continual downsizing has been a loss of capacity in the executive branch — and the regulatory agencies, in particular — to function effectively.   Government downsizing began in the 1970s;  and Cooper tracks this trend from the Carter administration through Bush 2.  During this same period of time, he points out, work demands on these agencies increased substantially.

By 2003, the Government Accountability Office was reporting that contracting out of public functions had risen dramatically across federal agencies while the federal workforce available to manage those contracts had decreased just as dramatically.   Failures in government performance began to mount  — notably, the poor contract management of the U.S. reconstruction effort in Iraq and managerial fiascos in the Department of Homeland Security and in the response to Hurricane Katrina.

In my own book, “Managing Public Sector Projects: A Strategic Framework for Success in an Era of Downsized Government,” I discuss some of the consequences of this downsizing at the federal and state levels, from the lack of control over Big Dig project in Boston to the government’s reliance on contractors themselves to manage other contracts in Iraq.  (I sent a copy of the book to the White House, by the way.)

Cooper discusses a number of President Obama’s policy initiatives since taking office, including his advocacy of the economic stimulus package that emerged from Congress as the American Recovery and Reinvestment Act of 2009 (ARRA), and his health reform law and Wall Street reform legislation.  Each of those policy initiatives requires effective and coordinated management by public agencies, including “massive service delivery, payment and regulatory systems,” which simply don’t exist at the present time.  Moreover, key appointments to high-level administrative posts that could help bring about that coordination were delayed for months.

Cooper notes, in particular, a 10-month delay by the Obama administration in naming a director of the Office of Federal Procurement Policy, an agency vital to the effective management of ARRA.  There were also significant delays in naming directors of the Office of Personnel Management and the Office of Information and Regulatory Affairs, an agency critical in addressing failures in the regulatory system.

Even President Obama’s laudable initiatives to improve transparency in government through the introduction of new websites on agency performance were not carefully implemented or effectively staffed, Cooper maintains.  For instance, Grants.gov, a website intended to track grant applications and spending, was quickly overloaded by ARRA expenditures and faced the possibility of a shutdown.

Cooper concludes that:

The capacity challenge is…sufficiently grave, not only across the federal government but throughout the intergovernmental system, that it requires serious and direct presidential attention and commitment. 

Thus far, we haven’t seen that commitment from this White House.  Let’s hope we do, and that it ultimately affects all levels of government.  A real commitment by this president to restoring the government’s capacity to function effectively would go a long way toward achieving the goals for which thousands of people are now fighting in Wisconsin and Ohio.

Why might this be a problem?  Because the state Operational Services Division (OSD) depends on the information in the UFRs to determine how much in state funds to apply to that compensation.  By regulation, state funds going towards an indivdual contractor executive's compensation are capped at $143,986 a year, according to OSD. 

Take the May Institute, for instance.   According to its UFR, the nonprofit contractor took in roughly $105 million in revenues in 2009, of which about 66 percent came from the Department of Developmental Services and a variety of other government agencies in Massachusetts.  About 79 percent of the total revenues came from all government sources.

As of April 8, 2011, the online UFR states that Walter Christian, the May Institute CEO, made $509,798 in salary and other compensation in the year ending June 30, 2009.  Based on that number and on information from OSD, we calculate that OSD would have been required to “disallow” about $366,000 of that total compensation, meaning that amount would have to come from other sources than the State of Massachusetts.

However, the IRS Form 990 for the May Institute for the same 2009 fiscal year lists Christian's total compensation as $1.087 million.  That's a difference of more than half a million dollars between Christian's compensation as listed on the state's UFR and on the IRS 990 form.   If Christian really earned $1.087 million in compensation, we calculate that the state should have disallowed more than $940,000 of it, not just $366,000 of it.

All of this suggests that based on the 2009 UFR, the commonwealth may mistakenly think that more than half a million dollars in potential state funds went into direct care or other operations at the May Institute, when it really went toward Christian's compensation.

I would note that the UFR website stated as of April 8, 2011, that the latest online version of the May Institute 2009 UFR  had been submitted by the contractor on March 22, 2010, more than a year ago, and still hadn't been reviewed by OSD.  A previous version of the UFR had been submitted in December 2009.  The website stated that there were “no issues pending” regarding that version.

On March 21, I submitted a written question to OSD about the discrepancy in the listing of Christian's compensation on the UFR and Form 990, and followed up with a phone call and an email on April 5, saying I was preparing a blog post about the issue.  I still haven't received a response.

An OSD official told me in the April 5 phone conversation that he had been too busy to get an answer to my question (and a few related questions about the UFR) and was going on vacation the following week.  He said he didn't know when he would be able to get the answers.

It's not just with Christian's compensation that there are discrepancies between the UFRs and the Form 990s, however.  The May Institute UFR lists only Christian and one other executive as making over the $143,986 compensation threshold, above which compensation must come from sources other than the state.  The Form 990 lists a total of 13 employees of the May Institute as making over that threshold amount.  The discrepancy in listed compensation between the two forms was $3.4 million.

For Vinfen, the 2009 Form 990 listed a total of 10 employees as making over the threshold compensation for a total of $2.2 million, whereas the UFR lists a total of only  four employees making only $997,000 — a difference of $1.2 million.

The UFR website stated as of April 8, 2011, that the latest online version of the Vinfen 2009 UFR  had been submitted by the contractor on December 10, 2010, and was found by OSD to be “deficient.”  No further information was provided. 

For Seven Hills, the 2009 Form 990 lists four employees making over the threshold, for a total of $1.2 million in compensation, compared with the UFR, which lists only two employees making a total of $816,000.  That's a difference of $385,000.

The latest online version of the Seven Hills 2009 UFR was submitted to OSD on April 21, 2010.  The OSD website stated that there were “no issues pending.”

Last month, The Globe published a letter I wrote on behalf of COFAR, suggesting that Governor Patrick scrutinize the salaries of human services contractors as part of an overall crackdown he had announced on salaries in the state's independent agencies.

In response, Michael Weekes, president of the Providers' Council, accused me  of  attempting to “smear the leaders” of the human services sector and of “making scurrilous attacks that distort the facts and mislead taxpayers.”   Weekes said my concern over executive compensation was “moot” because state law caps the amount of state funds that can be applied to executive compensation.  He added that my “real concern” should be over the low pay of direct-care workers in the human services contract system, many of whom only make $12 an hour and have gone three years with no increase.

I agree with Weekes that we should be concerned over the low pay to those direct care workers.  That's exactly why we're asking these questions about the salaries of executives making as much as $1 million or more a year, and whether those executives' salaries may be soaking up state funds that should be going to the direct care workers.

(Cross-posted from the COFAR blog)

The administration, which also has no time to listen to people like Joan Douty, claims Glavin and the other centers must be closed because they’re too expensive to operate.  But COFAR has maintained that the administration’s claimed cost savings in closing the centers appears to be based on an apples-to-oranges comparison of the average community-based resident and the average facility-based resident.  Developmental center residents are older, more medically involved and more intellectually disabled on average than community-based residents.

Moreover, as COFAR and other advocates have noted, the centralized services model of the developmental centers is highly cost-efficient when compared to the dispersed clinical, medical, and day services that characterize the community system. 

COFAR has called since last year for an independent study of the cost of closing or maintaining the developmental centers because previous budget amendments have resulted in flawed analyses done by the administration itself, concluding, of course, that the facilities should be closed.

But here’s the problem.  In the Massachusetts Legislature, a handful of people make all the decisions, and Rep. Dempsey is one of them.  There was no floor vote this week on Rep. Gobi’s amendment for the independent study.  In a closed-door meeting in his office, Dempsey simply ordered that Gobi’s amendment be scuttled.  It was not included in a catch-all budget amendment boosting human services line items that will be voted on this week.

Among those who Rep. Dempsey apparently has been listening to are the human service vendors in Massachusetts, who run most of the community-based group homes in the state and who are seeking more business when the developmental centers are closed.  In a letter sent to Dempsey and other legislators a day before Gobi’s amendment was thrown out, the Association of Developmental Disabilities Providers continued to pump out misinformation about the developmental centers.

The ADDP letter called for rejection of Gobi’s amendment and repeated the dubious claim that the developmental centers are “expensive and inefficient to operate.”  So why not agree to an independent study which would settle the question as to which system is most efficient?  To that, the ADDP letter made the ridiculous assertion that “this issue has been the subject of study for 30 years.”

Among the other pieces of misinformation in the ADDP letter was the claim that the developmental centers aren’t needed because “families overwhelmingly choose community settings for their loved ones.”  The ADDP letter didn’t mention that that’s because admissions to the developmental centers have been effectively blocked since the 1980s. 

The fact is that families that are being transferred from the developmental centers targeted for closure have overwhelmingly chosen to be placed at other developmental centers or in state-operated group homes.  They are avoiding the vendor-run system because they know it is beset with problems of poorly paid and under-trained staff.

The Senate now remains the only real hope for this sorely needed independent cost study.  We believe the study should be done by a non-governmental entity selected by either the State Inspector General or State Auditor.  Once again, though, the question remains whether Senate leaders will allow such an amendment to be debated in the light of day or whether they will do what the House did and quietly kill it in the proverbial smoke-filled room.

(Cross-posted from the COFAR blog)

Patrick administration officials appear to be admitting we may be on to something when we pointed out the state may be getting different information than the federal government gets about salaries earned by human services contractors in Massachusetts.

In an email sent to us on May 11, Terry McCarthy, director of audit in the state Operational Services Division (OSD), acknowledged there were discrepancies between executive salary information provided to the OSD and to the federal Internal Revenue Service for the same contractors.

McCarthy stated that the OSD will “reexamine the cited (federal and state salary reports) for proper compensation disclosures,”  and will seek explanations from two of the contractors we identfied for apparent discrepancies in their numbers.

At the same time, McCarthy put forward at least three explanations for the discrepancies, none of which fully satisfy our concerns about them.

First, a bit of background.  Concern has mounted around the country about salaries of executives of nonprofits.   In Massachusetts, that concern has largely centered around the pay of executives of hospitals and health insurers, but it has also extended to the hundreds of nonprofit vendors that contract with the state to provide human services to people with disabilities.

The OSD, which oversees the contracts with these vendors, requires them to provide detailed financial reports that disclose, among other things, the salaries made by their executives.  In addition, a state regulation caps the amount of state funding that goes to pay these salaries at $143,986 a year, meaning that sources other than the state would have to fund salaries higher than that amount.

One of the purposes of this regulation capping executive salaries is to ensure that an adequate amount of state funding is put towards wages of direct-care workers.

COFAR examined state Uniform Financial Reports (UFRs), which are filed with the OSD, and Form 990s, which are filed with the IRS,  for the May Institute, Vinfen, and Seven Hills, three of the largest contractors to the Department of Developmental Services.  In each case, the UFRs for the Fiscal Year 2009 listed lower salaries and other compensation for the same executives than did 2009 IRS tax filings for the same firms. 

The UFRs also listed a lower number of executives earning high levels of compensation than were listed on the Form 990s for the same firms.   These discrepancies imply that OSD may be unaware of the total amount of state funding potentially being used to pay salaries of these executives.

In his response, McCarthy acknowledged that the total compensation of four of five identified Vinfen executives appeared to be underreported on the UFRs by $101,539, while the compensation of two executives of Seven Hills appeared to be underreported by $18,509.  McCarthy said OSD will seek explanations from those contractors about those differences.

COFAR also reported that the 2009 IRS form for Seven Hills listed four employees making over the $146,986 threshold, while the state UFR listed only two employees making over that amount.  The difference in reported compensation between the two forms was $385,000. 

For Vinfen, the 2009 IRS form listed a total of 10 employees earning more than the threshold compensation amount, while the UFR listed only four employees earning more than that amount.  The difference was $1.2 million. 

McCarthy, as noted, stated that the OSD will reexamine the compensation disclosures made by these vendors.  However, he also offered two explanations for the differences in the numbers of executives listed on the state and federal forms.  One is that there are different filing deadlines for the two forms: the IRS forms lag behind the UFRs.

That may be, but it doesn’t seem a sufficient reason to list different salary numbers on each report or to report salaries for more people on the 990 forms than on the UFRs.   Moreover,  the 2009 Form 990 for Vinfen was signed by its president on May 14, 2010.  The UFR was first submitted to OSD in November 2009 and refiled in April 2010 and then in December 2010.  Again, there’s no apparent reason why the final UFR, which was submitted after the Form 990, would have less executives listed and lower salaries than the Form 990.

The second explanation offered by McCarthy was that the Form 990 has “more expansive” compensation disclosure requirements than the UFR.  McCarthy said the UFR is limited to including individuals in policy making positions, and would therefore not include a highly paid clinician, for instance. 

That doesn’t seem to jibe, however, with the OSD’s reimbursable cost regulation, which doesn’t say anything about exempting non-policy making individuals from the salary cap.

Also, all of the 13 individuals listed in the May Institute Form 990 as making over $150,000 are executive-level employees, starting at senior vice presidents on up to the president and CEO.  Those people are all clearly policy-making individuals, yet only two of them are listed on the UFR. 

Finally, McCarthy addressed our finding that there was more than a half million dollar difference in the reporting of the compensation of the CEO of the May Institute on the state and federal forms in 2009.  This, he said, appeared to be largely due to a one-time $682,343 distribution to the CEO on a vested deferred compensation plan that had been previously reported annually as deferred compensation. 

It wasn’t clear, however, whether McCarthy was saying that because this was a one-time distribution on a previously reported deferred compensaton plan that it didn’t need to be reported on the 2009 UFR.   But even if the CEO’s compensation isn’t counted, the difference between the total compensation for the 12 other May Institute executives listed on the IRS form and the compensation for the one other executive listed on the state UFR is $2.8 million.

We’re glad the OSD will go back to these three vendors and check to see that their UFRs were filled out accurately.  But we’re concerned that there is a potentially larger problem here.  It seems OSD does not have the capacity to adequately oversee the contracting system in this state.  One indication of that is that the latest online version of the May Institute 2009 UFR  had been submitted by the contractor on March 22, 2010, more than a year ago, yet it still hadn’t been reviewed by OSD as of today’s date. 

This administration needs to get a better handle on the human services contracting system in Massachusetts.

(Cross-posted from the COFAR blog)

The Patrick administration claims that the average per-person cost of Department of Developmental Services vendor-run group homes  is less than the average per-person cost of state developmental centers for persons with intellectual disabilities.

But we’ve now identified some specific missing group home costs that we think the administration overlooked in its analysis.

An apparently typical DDS vendor contract, which we have reviewed, did not specify any psychological or therapeutic services, and only specified minimal nursing services.  Developmental center budgets, on the other hand, do provide for all of those services.

This appears to be the first major confirmation we’ve been able to obtain, after months of Public Records Law requests from DDS, that the Patrick administration’s savings claims in closing four developmental centers in Massachusetts are based on an apples-to-oranges comparison.  The administration has not fully responded to our follow-up questions about these costs.

I asked DDS Commissioner Elin Howe on June 16, after we had first reviewed the $1.2 million contract, whether medical, clincal, and therapeutic services were available to the residents of the program, and, if so, how those services were funded.

The email I received in response from DDS General Counsel Marianne Meacham, dated July 2, stated the following:

With regard to your questions regarding clinical services available to individuals in the particular…program site, as you know, a full array of clinical services (medical, physical therapy, speech therapy, occupational therapy, psychological, etc.) are available to the individuals in the program through community providers as needed and set forth in the individual’s individual support plan.

This carefully worded answer states only that medical, clinical, and therapeutic services “are available to individuals in the program,”  but it doesn’t say how those services are funded — in other words, where the money comes from.  Here’s why that is a key question:

In July 2010, the adminstration provided a cost analysis to the Legislature, which claimed a $20 million annual savings in closing the Templeton, Monson, and Glavin Developmental Centers and transferring most of their residents to vendor and state-operated group homes.  In the cost analysis, the administration specified a “community residential” cost per client of $107,689.  After adding an average “day services” (work and daily living skills programs) rate to that cost and an average transportation rate, the administration computed a total “community services cost” of $140,955 per client.

The administration then compared that $140,955 total community cost to an average per-person cost at the Templeton, Monson, and Glavin centers of $233,902.  The administration’s conclusion was that serving a client in the community was $92,947 less expensive than in a developmental center.

After we asked DDS, starting last December, for all documents supporting its community residential cost figure, DDS provided, among other things, a spreadsheet listing total costs of close to 1,000 vendor contracts in FY 2009.  We selected one of those contracts for closer review and asked DDS for a copy of it.

The Fiscal Year 2009 vendor contract with the May Institute, Inc. specified  24-hour staffing in a program serving 14 individuals.  The contract further stipulated a rate per client of $286 per day, or $104,400 per year.  This was quite close to the $107,689 community residential rate in the administration’s analysis.

However, as noted, the $104,400 community residential cost did not include clinical, therapeutic, or full medical costs of care available to community-based residents.  The budgets of the Templeton, Monson, and Glavin centers do provide for those services.

On July 6, I emailed back to Meacham at DDS, asking once again how the medical, physical therapy, speech therapy, occupational therapy, psychological, etc. services available to residents of the May Institute program were funded for the residents of the May Institute program.  To date, I’ve received no reply to my question.

This is why we need an independent study of the cost of closing the Templeton, Monson, and Glavin Centers.

(Cross-posted from the COFAR blog)

It has been more than a month since we asked Secretary of Health and Human Services JudyAnn Bigby for public records detailing the costs of specified services in a particular group home program for intellectually disabled persons in Massachusetts.

It has been almost two months since we asked Commissioner of Developmental Services Elin Howe for the budgets of the Templeton, Monson, and Glavin developmental centers.

To date, we’ve received neither set of records.

As we’ve previously noted here, we’ve been attempting to compare the cost of an apparently typical vendor-run group home program with the three developmental centers.  We wanted to see whether the Patrick administration was comparing apples to apples in claiming to the Legislature in the last two fiscal years that closing the Templeton, Monson, and Glavin centers will save tens of millions in state funds.

As we reported,  a group home contract, which we did receive last May from DDS, specified a yearly cost per resident of $104,400.  In its cost savings analysis, the administration compared a very similar residential cost based on group home contracts with an average calculated cost of care at Templeton, Monson, and Glavin.

The potential problem with the administration’s analysis that we found in examining the single group home contract was that it specified budgeted costs for only direct-care, supervisory, and minimal nursing staff.  What about the extensive nursing, medical, clinical, and therapeutic staffing that exists at the developmental centers and to which the residents of DDS group homes are entitled? 

The fact that those additional medical, clinical, and therapeutic costs were not in the group home contract we examined appeared to raise the question whether the administration’s savings analysis was accurate.   One immediate question was: if those additional costs are not paid through DDS contracts, how are they paid?  Secondly, what is the total amount of those community-based costs that the administration may have missed in its analysis?

Once we get the answers to those questions, we can determine for ourselves whether there would be a savings or not in closing the developmental centers.

On July 29, we sent Public Records requests to both Secretary Bigby and Commissioner Howe, asking for copies of any documents detailing funding for medical, nursing, clinical, and therapeutic services for individuals residing in the community-based group home program we had selected for review.  About three weeks prior to that, we had asked DDS for the Templeton, Monson, and Glavin budgets for the same time periods as the group home contract. 

On August 9, I received a letter from the records custodian at EOHHS, stating that the agency was in the process of identifying the records we had requested regarding the group home contract.  Last week, I called the records custodian, and was told EOHHS was still working on our request.  He wasn’t able to tell me when the records would be found.

We’ve appealed to the Public Records Division for the Templeton, Monson, and Glavin budget documents.  We’re close to filing an appeal for the group home contract records.

But one piece of useful information may have emerged here.  The fact that the August 9 response to our request came from EOHHS and not from DDS does appear to confirm that it is not DDS, but some other source at EOHHS, that funds medical, clinical, and therapeutic services in the DDS vendor-run group home system.  We believe that other source of funding is MassHealth. 

In any event, it’s getting clearer and clearer that the administration wasn’t counting all the community-based costs of care it incurs when it told the Legislature there would be major savings in closing the developmental centers.

(Cross-posted from the COFAR blog)

After a month and a half, it’s troubling that the Patrick administration is apparently still unable to locate cost records we requested pertaining to a single community-based group home contract.

I just received a letter from the Department of Developmental Services, dated September 14, that they are in the process of searching for the documents, which I had requested on July 29.   Meanwhile, the MassHealth Privacy Office in the Executive Office of Health and Human Services has been searching for these same records since August 9.

To recap, we’ve been trying to find out the sources of state funding for medical, nursing, clinical, and therapeutic services in a single DDS group home program run by the May Institute, a private provider.  We have a copy of a $1.2 million contract with the May Institute, which provides for 24-hour residential services under the program for 14 individuals in four residences in the DDS Central Middlesex Area.

The FY 2009 contract, however, only provides for direct care and limited nursing services for the 14 residents.  It does not mention medical, extended nursing, clinical or therapeutic services.

From what we’ve been able to determine, the administration has been basing its $20 million annual cost savings estimate in closing the Templeton, Monson, and Glavin Developmental Centers on a comparison of their budgets with the cost of community-based group contracts such as the May Institute contract.  But here’s the rub.  Our understanding is that the Templeton, Monson, and Glavin budgets do provide for medical, extended nursing, clinical, and therapeutic services. 

Naturally, the community system will appear to be less expensive than the developmental centers if certain community-based costs are not taken into account.  That’s why we want to find out exactly how much is being paid to fund those additional services to which the May Institute residents are reportedly entitled, and where that money is coming from.

By the way, we originally asked DDS on July 7 for the budgets of the Monson, Templeton, and Glavin Centers.   A month later, we received a one-page document from the department with single, line-item amounts representing the total annual spending for each facility.  There was no budgetary breakdown whatsoever for the facilities.

We appealed to the state’s Public Records Division for help, explaining that a budget of a state facility involves more than just a single line item.  As a result, I received a second letter from DDS, also dated September 14, stating that the department was in the process of searching for the “additional (budgetary breakdown) information” I had requested. 

I guess DDS considers a budget and a “budgetary breakdown” to be entirely separate concepts.  Stay tuned.

(Cross-posted from the COFAR blog)

We’ve long maintained that the Patrick administration’s agenda of phasing down and closing state developmental centers would ultimately fail to free up additional funding for the community based system.

It’s been nearly three years since the administration announced its plan to close the Fernald, Templeton, Monson, and Glavin Centers and reportedly plow back as much as $45 million a year in the “savings” into beefing up the largely privatized community-based system of care.  That $45 million savings projection was a cornerstone of the administration’s “Community First” initiative.

So far, the administration has succeeded in moving hundreds of residents out of developmental centers, starting with Fernald, which is now emptied of all but 14 of  its residents, who have filed appeals of their transfers.  But nothing remotely close to the $45 million in savings has materialized.  In fact, the opposite has been the case — the administration has continued to cut community-based line items in the Department of Developmental Services budget.

In a November 20 email to members and other advocates, the Association of Developmental Disabilities Providers, which has wholeheartedly supported the closures of the developmental centers, stated the following :

For the last four fiscal years, in order to cope with the effects of the economic collapse of 2008, the Commonwealth’s budget has:

• deeply cut Family Support programs, leaving 10,000 families without service,  
• inadequately addressed Chapter 257 rate reform by not introducing sufficient funding to rate making but instead forcing existing programs to redistribute already inadequate funding
• failed to address historically low salary needs of the community workforce (though the Legislature has recently added the first salary reserve dollars in four years)
• continued to require community programs to implement state mandates without sufficient funding, including closing sheltered workshops without funding to replace this model in favor of a more inclusive and empowering model.
• not backed it’s professed interest in Community First and Employment First with funding to make these efforts successful. (my emphasis)

Not exactly a ringing endorsement of the success of the administration’s community-based care delivery model and its promised use of of the savings from the developmental center closures.  We hope the ADDP and the Arc of Massachusetts will reach the next logical step in their argument and urge the administration to cease and desist from closing the centers.

Unfortunately, the ADDP and the Arc of Massachusetts are supporting H.984, known as “The Real Lives Bill,” which appears to continue to rely on the premise that DDS clients should not be given the choice of living in developmental centers.

The bill, sponsored by Rep. Tom Sannicandro,  is intended to provide for more choice for persons with intellectual disabilities.   But it appears to specifically deny consumers the choice of “congregate services.”  In other words, everyone should have a choice, as long as they choose only small, community-based settings.  We believe, however, that the congregate services provided by developmental centers are appropriate for certain people who are unable to benefit from community based care.  And now we’re seeing that closing the congregate care centers is not freeing up community-based funding.

Sannicandro’s bill does appear to recognize that the community-based system has not thus far benefitted from the developmental center phase-downs.  The bill’s text reads:

Too many people are not receiving the assistance they need. The public Medicaid system is reeling from cost pressures. The time has come for individuals with disabilities, families, advocates and providers to work together with policy makers in the administration and legislature in crafting a support system that both increases quality and on average reduces costs whenever possible.

We agree with the language in Sannicandro’s bill on that last point.  We just disagree that closing the developmental centers is the right way to go about it.

Yesterday, the Mass. PTA, the American Civil Liberties Union of Mass., the Campaign for a Commercial-Free Childhood and Citizens for Public Schools wrote to education officials and Governor Patrick demanding they reconsider a plan to share private student information with a Gates Foundation partnership. Here’s the press release that went out about the letter.

Date of Release:

(Cross-posted from The COFAR Blog)

More than 550 executives working for some 250 state-funded corporate providers of services to people with developmental disabilities in Massachusetts received a total of $80.5 million in annual compensation as of Fiscal Year 2012, based on nonprofit federal tax reports surveyed by COFAR.

The average compensation among all 559 executives surveyed was $143,969 per year. Among CEOs, the average compensation was $185,809, while executive directors were paid an average of $127,164 in salary and benefits.

According to the COFAR survey, provider executives making over $100,000 a year on average included 97 executive directors, 92 CEOs, 71 chief financial officers, 31 chief operating officers, and 83 vice presidents.  CEOs or presidents of 14 providers made over $300,000 each.

“I think few people realize what the real cost of privatized care is in Massachusetts,” COFAR President Thomas Frain said.  “Do Massachusetts taxpayers really need to be paying hundreds of corporate executives millions of dollars for grossly duplicative duties?  This makes no sense at all.”

COFAR has long been critical of efforts by the Patrick administration and the Romney administration before it to outsource residential and other services to providers without adequate oversight of the growing privatized system. The system appears to have become top-heavy with corporate executives who do not provide direct-care services, but who nevertheless draw large salary and benefits packages.

Most of the providers surveyed are under contract to the Department of Developmental Services, which manages or provides services to people with intellectual disabilities who are over the age of 22.  Frain noted that DDS pays more than $1 billion a year in contracts to service providers, which operate group homes and provide day programs, transportation and other services to tens of thousands of intellectually disabled persons in the DDS system.

State regulations capped state payments to provider executives at approximately $149,000, as of Fiscal Year 2011.  The average compensation among the surveyed executives was slightly less than that amount.  Money earned by executives above the state cap is supposed to come from sources other than state funds.

But while the state cap on executive salaries is intended to limit the total amount of state funds going into the pockets of provider executives, COFAR has reported that the state may not receive complete information on the total compensation paid to provider executives and may not have the capacity to oversee their finances adequately.  Also, COFAR has raised concerns that increasing amounts of money going to provider executives has not translated into higher pay for direct-care workers in Massachusetts.

The state auditor reported last year that in one case involving the May Institute, a DDS provider, hundreds of thousands of dollars in state funds had been paid to company executives in excess of the regulatory cap. COFAR’s executive compensation survey found that the May Institute CEO received $404,900 in compensation in FY 2011 and that a total of 12 company executives were paid a total of $2.5 million that year.

At $404,900, the May Institute CEO was the fifth highest paid CEO on COFAR’s list. Community Systems, Inc. topped the COFAR list of the highest paid CEOs, with two employees listed on the company’s federal tax filing as serving as company CEOs in FY 2011 and drawing combined compensation of $526,755.  Second on the list was Morgan Memorial Goodwill, whose CEO was listed as making $464,572 in FY 2012.

Community Systems federal tax filing states that the company, which is based in Forestdale, MA, took in $14.4 million in revenues in Fiscal Year 2011.  Of that amount, the company received $11.6 million from DDS, according to a 2011 financial report filed with the state’s Operational Services Division.

(The Community Systems OSD report lists only compensation in FY 2011 for two executive directors and does not list the company CEOs.  As a result, OSD appears to have disallowed only $21,000 in funding to the company as having been earned above the regulatory compensation cap.  This appears to confirm COFAR’s  finding that the OSD receives incomplete information from providers on executive compensation.)

In addition to the CEOs listed on the Community Systems federal tax report, two employees were listed as executive directors of the company that year and made a combined total of $276,538.  The OSD report lists the two executive directors of the company as having made only $154,473.

The following chart, based on COFAR’s survey of some 250 providers, shows 30 of the providers with the top earning CEOs (click on it to enlarge).

[Cross-posted from The COFAR Blog]

As The Boston Globe reported last week, Governor Patrick has “unveiled an ambitious and potentially costly plan” to reform the way the state’s criminal justice system handles mentally ill people.

The governor has proposed both a major increase in staff at Bridgewater State Hospital and a new facility there where potentially violent patients could receive care, according to the Globe.

We support the administration’s commitment to expanding care at Bridgewater State.  But we wonder whether this is yet more evidence of what appears to be a double standard on the part of the administration with regard to care of the mentally ill versus persons with developmental disabilities.

The administration appears to believe that congregate settings are necessary and appropriate for the mentally ill, but not appropriate for the developmentally disabled.  In fact, we think Governor Patrick will be known as a builder of major institutional facilities for the mentally ill, yet as a closer of facilities for the developmentally disabled.  This appears to us to reflect the absence of a comprehensive plan by this administration for care of all disabled people in the commonwealth.

Why are we building new state facilities and expanding state-run care for one group, yet tearing facilities down, eliminating an intensive care model, and privatizing most services for another group?

In addition to the plans for expansion of Bridgewater State for the mentally ill, the administration has taken major credit for the construction of the new Worcester Recovery Center and Hospital.  That facility, which opened in August 2012 at a cost of $302 million, has 320 beds for persons with mental illness.  The administration has billed it as “the largest non-transportation construction project (the state has) undertaken in more than 50 years.”

The administration has also apparently realized that intensive treatment models are necessary for the mentally ill.  According to the Globe, the administration has declared that mentally ill people “should receive the appropriate care in the appropriate setting.”   The Bridgewater proposal includes a plan for spending $10 million for an additional 130 full-time mental health clinicians at the complex. Patrick administration officials told the paper that if the Legislature approves this funding promptly, the additional staff could be working at Bridgewater by September.

The Bridgewater proposal further calls for $500,000 to study the possibility of retrofitting an existing state facility such as Taunton State Hospital or building yet another a new facility to treat and evaluate potentially violent people accused of committing crimes, according to the Globe.  The plan gives no cost estimate for the new facility.

At the same time, the administration is closing or has closed four of six developmental centers for people with profound levels of intellectual disability and severe medical conditions, contending these centers are too institutional.  Developmental centers provide an intensive level of care that must meet federal Intermediate Care Facility (ICF) standards.  ICF rules specify more staffing and monitoring than do federal and state requirements for privatized, community-based care in group homes.

Even sheltered workshops are considered by the administration to be too institutional for the intellectually disabled, and the administration has announced plans to shut those down by June of next year.  The administration is, at the same time, pouring additional funding into privatized group homes for the intellectually disabled, scattered in communities throughout the state.

The argument could be made that the administration views institutional care as appropriate for people with mental illness who are violent, and that’s why it is expanding facilities such as Bridgewater State.  But that doesn’t explain the construction of the Worcester hospital center; and it doesn’t explain why the administration is eliminating the ICF care model at facilities for the developmentally disabled such as the Templeton Developmental Center, where many people with behavioral problems live.

The alleged assault by a Templeton resident that caused the death last year of Dennis Perry shows that even that facility may not be fully equipped to meet the needs of all the people who live there, and keep them safe.  And yet, the administration is closing Templeton as an ICF and converting the facility to group homes, which will only reduce the level of staffing and supervision there.   Also, the attempted rape of a woman by a resident of a group home in Chelmsford in 2011 shows that there are intellectually disabled persons with potentially violent impulses who live in the DDS community system.

It has been argued that another difference between facilities for the mentally ill, such as the Worcester hospital center, and developmental centers for the developmentally disabled is that the Worcester facility is meant to help people make a transition to independent living in the community, whereas developmental centers are not intended to do so.  Therefore, according to this argument, the developmental centers should be closed, and the remaining system will be devoted either to serving all disabled people in the community or helping them get there.

Our response to that argument is that we have consistently stated that residents of developmental centers who want to benefit, or can benefit from community-based care should be encouraged to do so.  As far as we know, there has never been any rule or policy that prevented anyone who wanted to leave a developmental center from doing so and moving into the community system.

As we argued in connection with the Chelmsford group home incident, the real issue is the care model.  The administration wants to eliminate the intensive, ICF care model for people with developmental disabilities.  The administration does acknowledge that people with mental illness should receive the appropriate care in the appropriate setting.  And they appear to understand that the community system is not the appropriate setting for all mentally ill people.  But for some reason, the administration hasn’t yet figured out that the community system isn’t the appropriate setting for all people with intellectual and developmental disabilities either.

We do believe that one day, the state will come to realize that institutional care for a certain segment of the developmentally disabled is needed, and there will be an effort to reconstruct our institutional facilities for them.  Unfortunately, we’re making that future job much more difficult and expensive by tearing down the system that we have had in place and which we spent so much money to upgrade from the 1970’s onward.

(Cross-posted from The COFAR Blog)

The history of what is now known as the Fernald Developmental Center hasn’t been free of some serious blemishes or controversy.  But from 1889 to the present time, Fernald’s 200-acre campus in Waltham has been the site of a facility providing residential care for persons with intellectual disabilities.

That’s all about to change permanently.

Under legislation negotiated among representatives of the Patrick administration, the City of Waltham, and local legislators, the state will sell the campus to the city for $3.7 million, which comes to 18,500 per acre — a price that has been described as “dirt cheap.”  It appears there is also a requirement that the city pay the state up to half the proceeds from the re-sale of any of that land to developers.

There is just one group of people that seems to have been left out of the plans and negotiations. That group is the developmentally disabled — the very persons who had been living at Fernald all along.  Other than keeping the therapeutic swimming pool open at Fernald and maintaining a 29-bed nursing home on the campus, there appear to be no plans to continue to provide care or services at the Fernald site for persons with disabilities who live in the surrounding community.

This is an unfortunate oversight, not only for the residents who have been forced to leave Fernald, but for developmentally disabled people in the community.  As I’ll explain, the lack of a plan for integrated, community-based care at the Fernald site has been, and will continue to be, both a missed opportunity to help those waiting for services and a potential waste of taxpayer money.

First, I would note that the Fernald Working Group, a coalition of local organizations, had recommended that a portion of the campus remain the site of residential care and services for the intellectually disabled.  Similar proposals have been made over the years by the former Fernald League and COFAR.  Both of those latter groups suggested a “postage-stamp” arrangement under which existing residents would live in housing situated in a small area of the campus while the rest of the campus was converted to other uses.  And Waltham Mayor Jeannette McCarthy, the chair of a Fernald Reuse Committee, also publicly supported the continued use of part of the campus for institutional, residential and health care.

But the then Romney and subsequent Patrick administrations were interested only in one thing — closing Fernald and three other developmental centers in the state, contending the state would save tens of millions of dollars a year in doing so.  They never considered any of the proposed alternatives to the closures, and have never done what administrations in other states have done, which is to propose the integration of congregate care facilities for the developmentally disabled with their surrounding communities.

The result is that since 2008, two of six remaining developmental centers in Massachusetts have been closed; a third center is being converted to state-run group homes, and just two residents of the Fernald Center remain on the campus out of a total of 160 who were there at that time. Most of the residents living in the four facilities targeted for closure were dispersed around the state, with the majority going either to state-operated group homes or to the Wrentham Developmental Center.  Why has all of this been a missed opportunity and a potential waste of taxpayer money?

First, with regard to the cost to taxpayers, the administration projected that Fernald would be closed by July 2010, but the closure was blocked for four years by administrative and court appeals filed by guardians on behalf of some 20 remaining residents there.  The administration elected to keep Fernald open only for the remaining residents there, pending resolution of their administrative and court appeals.  This turned out to be an extremely inefficient way to proceed.

Not only has there been an undisclosed cost to the state in fighting the legal battle to close Fernald over the past decade, but as the population dwindled in all four targeted facilities, the cost per resident of care there shot up due to fixed costs such as heating and other utilities in larger buildings.  This was particularly true for Fernald, which has remained open for more than four years with 20 or fewer residents.

The administration could have saved millions of dollars a year since 2010 had it been willing to consider and negotiate an alternative to outright closures of the facilities. The legal battle over Fernald would have ended immediately, and instead of continuing to house the remaining residents in several locations on campus, the state could have built small, cost-efficient housing in one location for the residents.  That proposed alternative to closure has rarely if ever been reported on by the media, which has instead adopted the position of the administration and its corporate providers that the high cost of continuing to operate Fernald has been solely the fault of the residents remaining there.

Moreover, dozens of the Former Fernald residents were sent, as noted, to the Wrentham Center, which amounted to transferring residents from one developmental center to another.  Not only was there no real savings in doing this, but the administration was forced to undertake renovations at Wrentham in order to accommodate the former Fernald residents — a project that cost taxpayers at least $3.2 million.

There is a second, and potentially greater, cost to taxpayers in closing Fernald and the other developmental centers without planning for any continuation of care at those sites that could be integrated with their surrounding communities.  As we have noted, an undisclosed number of developmentally disabled people throughout the state have been unable to access services or care from DDS due to a lack of resources.  The state has tried to address this problem by expanding the provider-run residential system, which has involved building more than 150 group homes spread around the state since 2008 and substantially increasing rates paid to the providers.

But there is no centralized system of care in the provider-run system.  People have to be transported to day programs and for medical and other types of care — a process that is potentially much more expensive than if all of this care were available in centralized locations. Continuing to provide centralized care at developmental center sites could both allow more people in the surrounding community to receive services and provide those services more cost-effectively than is the case in a system consisting almost entirely of disbursed group homes.

We have also pointed out the potentially high cost of privatized care in Massachusetts and elsewhere due to the thick layer of highly paid corporate executives in that system.

That there isn’t necessarily a long-term savings in transferring people from developmental centers to decentralized, provider-based care has been acknowledged even by one of the leading proponents of deinstitutionalization in the Obama administration.  I’ve blogged about a law journal article written by Samuel Bagenstos, a former top litigator in the Justice Department’s Civil Rights Division, in which Bagenstos stated that any cost savings in closing developmental centers “will shrink as people in the community receive more services.” He added that a significant part of the cost difference between institutional and provider-based care “reflects differences in the wages paid to workers in institutional and community settings — differences…that states will face increasing pressures to narrow.”

All of this is why we supported the vision of the Fernald Working Group, which described “a progressive site at Fernald where open space and greenways can be matched with an equal vision of integration for individuals with disabilities.” That vision encompassed both existing residents and disabled persons in the surrounding community.  The Working Group specified that this vision included new housing and the preservation of the therapeutic pool and gym at Fernald as well as the chapel and programs for physical therapy, dental and medical services.  As the vision statement noted, “all of these services could become part of the community and economic life of the Fernald redevelopment.”

But as far as we can tell, the Working Group’s vision has not been adopted by either the administration or the Legislature.  While the newly signed legislation to sell the Fernald land to the city provides incentives for adopting “smart growth principles” and affordable housing in the development of the site, it makes no mention of continued services or care for persons with developmental disabilities.

Last week, I emailed Senator Michael Barrett and Representatives Tom Stanley and John Lawn, the key sponsors of the land sale legislation, to ask whether the continued use of a portion of the Fernald campus for individuals with disabilities was considered in the negotiations over the bill and whether any provisions for that might be made in the future.

A staffer in Barrett’s office said that no proposals to serve the developmentally disabled at Fernald were made at a public hearing on the land sale bill that was held in July by the Legislature’s State Administration Committee, and the idea was therefore not considered. But while the Village at Fernald concept for the disabled may not have been raised at a public hearing earlier this summer, most, if not all, of the negotiating parties to the legislation have long been aware of that concept.  It should have been a part of the legislation from the beginning.

Tuesday’s Democratic primary in Malden includes the choice between two candidates to replace Chris Fallon as our MA state-house rep: Steve Ultrino, a true democrat/Democrat; and Neil Kinnon, a less-than-democratic ‘Democrat’ . Both men are city councillors currently. Steve has been a teacher and principal, and works for the Middlesex Sheriff’s office as director of education programs for the incarcerated  . Neil works in financial records and is the main executive of the Mystic Valley Charter School.

Many Maldonians view Kinnon as having an ongoing obvious conflict of interest between his role in the Charter School and his voting on issues concerning the regular public schools of Malden.  I  have wondered for a long time if Kinnon is getting funding/investment or other backing from larger charter-school supporters outside of Malden, as major properties have been purchased for the Charter School’s expansion, and his explanation that economies in the School’s operations have provided the necessary funds, seems unlikely.

In this last weekend before the primary, everyone gets many mailers from different candidates. We just received one supporting Kinnon from a group that is clearly aligned with privatization of public education, and with other groups including collections of hedge-fund managers working to cash in on such privatization.  This group is “Democrats for Education Reform-Independent Expenditure-PAC“, with Patrick van Keerbergen listed as treasurer on the mailer. I remembered having seen this name in the Nation recently, in a discussion of groups seeking to profit from privatization of public education.

The aim of this group is to influence the Democratic Party to support privatization of education, and to destroy teachers as professionals, and destroy teachers unions. This is the Arne Duncan (Chicago) line of ‘Democrats’.

I don’t know if Kinnon & Co. have been getting investment monies from some of the board members or advisory board members of Democrats for Education Reform, but I wouldn’t be surprised. Below is a  list of hedge-fund executives associated with Democrats for Education Reform, taken from a UFT webpage explaining what the organization is:

<<http://www.uft.org/feature-stories/who-are-democrats-education-reform>>

Among the group’s eight-person board :

hedge-fund manager John Petry of Gotham Capital, who with Eva Moskowitz co-founded the Harlem Success Academy Charter School;

Tony Davis of Anchorage Capital, the board chair of Brooklyn’s Achievement First East New York school;

Charles Ledley of Highfields Capital Management;

Tilson, chief of T2 Partners and Tilson Funds and vice chairman of New York’s KIPP Academy Charter Schools.

Of DFER’s seven-person advisory board, five manage hedge funds:

David Einhorn of Greenlight Capital, LLC;

Joel Greenblatt, founder and managing partner of Gotham Capital and past protégé of fallen junk-bond icon Michael Milliken;

Vincent Mai, who chairs AEA Investors, LP;

Michael Novogratz, president of Fortress Investment Group;

Rafael Mayer, the Khronos LLC managing partner and KIPP AMP charter school director.

Orbiting the group:

billionaire “venture philanthropist” and charter school funder Eli Broad, whose foundation gave upwards of $500,000 to plug advocacy related to the documentary “Waiting for Superman,” and another charter-touting film, “The Lottery.” Though not himself a DFER board member, Broad is a major funder of Education Reform Now, DFER’s nonprofit sister organization, also headed by Joe Williams.

Meanwhile, Andrew Rotherman, recently retired DFER director and EduWonk blogger, is co-founder of and a partner in for-profit Bellwether Education, described as “offering specialized professional services and thoughtful leadership to the entrepreneurial education reform field.” Rotherman sits on the Broad Prize Review Board, while DFER board member Sara Mead is a senior associate partner at his Bellwether Education and sits on the Washington, D.C., Public Charter School Board.

——

May I see your passport, please

(Cross-posted from The COFAR Blog)

More than 600 executives employed by corporate human service providers in Massachusetts received some $100 million per year in salaries and other compensation, according to our updated survey of the providers’ nonprofit federal tax forms.

By our calculations, state taxpayers are on the hook each year for up to $85 million of that total compensation.

We reviewed the federal tax forms for some 300 state-funded, corporate providers, most of which provide residential and day services to persons with developmental disabilities.

The following is a summary chart of our latest survey results (click on the chart to enlarge):

For the complete survey chart, click here.

We first released our survey about a year ago, when we found that more than 550 executives working for some 250 state-funded corporate providers of services to people with developmental disabilities in Massachusetts received a total of $80.5 million in annual compensation.

COFAR has also previously raised concerns that increasing amounts of money going to provider executives have not translated into higher pay for direct-care workers in Massachusetts.

The latest survey reports on 635 executives who received total annual compensation of $102.4 million and average annual compensation per employee of $161,231.  The survey was based on provider tax forms filed in either the 2011 or 2012 tax years.  Those tax forms are available online at www.guidestar.org.

The survey sample included 100 CEO’s and presidents, making an average of $210,227 in salaries and benefits; and 107 executive directors receiving an average of $130,835 in compensation.  As the chart above shows, the survey also included 67 chief financial officers, 31 chief operating officers, 100 vice presidents, 110 directors, and 120 other officers, all earning, on average, over $100,000 a year.

A state regulation  limits state payments to provider executives to $158,101, as of fiscal year 2013. Money earned by executives above the state cap is supposed to come from sources other than state funds.

Based on this regulation, we calculated that provider executives are eligible for up to $85 million a year in state funding to cover those total salary and benefits costs.  Our calculation was based on identifying the companies paying executives at or above the state threshold of $158,101, and assuming that amount as the maximum state payment for each of those companies’ executives.

Among the top-paying providers in our latest survey was the May Institute, which paid two employees a total of $999,221 in the 2012 tax year.  Both employees were listed as president and CEO of the provider.  The May Institute’s federal tax form shows that one of the two employees, Walter Christian, worked for the company until December 2012 and received a total of $725,674 in salary and benefits in that tax year, which started on July 1, 2012. Christian was replaced as president and CEO by Lauren Solotar, who received a total of $273,547 in that same tax year, which ended on June 30, 2013.

Despite the regulation capping compensation payments by the state, the state auditor reported in May 2013 that the state had improperly reimbursed the May Institute, a corporate provider to the Department of Developmental Services, for hundreds of thousands of dollars paid to company executives in excess of that cap. COFAR had previously reported in 2011 that the state may have paid Christian and other executives of the May Institute more than the state’s regulatory limit on individual executive salaries.

The following charts show the top earning presidents/CEO’s and executive directors in our latest survey and the number of those executives holding each title in each company:

Most of the providers surveyed are under contract to the Department of Developmental Services, which manages or provides services to people with intellectual disabilities who are over the age of 22.  The providers operate group homes and provide day programs, transportation and other services to tens of thousands of intellectually disabled persons in the DDS system.

As we have noted, the state’s priority has been to boost funding dramatically to corporate residential providers, in particular, while at the same time slowly starving state-operated care, including state-run group homes and developmental centers, of revenue.

Funding to DDS corporate residential providers rose past the $1 billion mark for the first time in the current fiscal year.  The line item was increased by more than $140 million –or more than 16 percent—over prior-year spending in fiscal 2015 dollars.  At the same time, both the former governor’s and the legislative budgets either cut or provided much more meager increases for most other DDS line items.

More financial information about nonprofit corporate providers, including compensation of executives, can be found at www.guidestar.org.

(Cross-posted from The COFAR Blog)

When is the federal government — particularly the Department of Justice — going to recognize or admit that deinstitutionalization of the developmentally disabled hasn’t worked as planned?

The DOJ seems to have closed its eyes to the realities on the ground in continuing to file lawsuits around the country to close state-run care facilities.  This has caused “human harm, including death and financial and emotional hardship,” according to information compiled by the VOR, a national advocacy organization for the developmentally disabled and a COFAR affiliate.

While the DOJ has not filed such a suit against the State of Massachusetts, that may be because the state has closed, or is in the process of closing, four out of six developmental centers that were in operation as of 2008.  But with two developmental centers remaining as well as other programs that the DOJ considers to be institutional, such as sheltered workshops, Massachusetts could well become a target for a lawsuit at any time.

The VOR filed testimony last month, urging a congressional subcommittee to adopt legislative language that would require the DOJ to do two very commonsense things before filing more lawsuits to close state-run facilities:

• First consult with the residents or their legal guardians “to determine residents’ needs and choices with regard to residential services and supports,” and,
• Second, do not “impose community-based treatment on patients who do not desire it.”  This second requirement is consistent with the 1999 U.S. Supreme Court decision in Olmstead v. L.C.

The DOJ’s continued pursuit of class-action litigation to close developmental centers and other facilities has led to the irony that those lawsuits are generally opposed by the families of the residents on whose behalf the suits are ostensibly filed. As U.S. District Court Judge J. Leon Holmes wrote in 2011 in dismissing a lawsuit brought by the DOJ against the State of Arkansas to close the Conway Human Development Center center there:

…the United States is in the odd position of asserting that certain persons’ rights have been and are being violated while those persons – through their parents and guardians – disagree. (U.S. v. Arkansas, June 8, 2011, dismissal order).

Judge Holmes’ decision noted that evidence in the case showed that the parents and guardians of residents of the Conway Center “are overwhelmingly satisfied with the services there and believe that the Center is the least restrictive, most integrated placement appropriate for their children and wards.”  Moreover, the judge’s decision stated that the weight of the evidence in the case failed to support the DOJ’s contention that care at the Conway Center was substandard.

The VOR notes that the DOJ’s Civil Rights Division has filed more than 45 legal enforcement actions in 25 states since 2009 to limit or shut down state care.  On a website listing all the litigation it has filed, the DOJ includes the heading “Olmstead: Community Integration for Everyone.”

It’s not true, though, that Olmstead requires community-based care for everyone.  The Supreme Court decision established a right to community-based housing and care only when:

1. The state’s treatment professionals have determined that community placement is appropriate,

2. Transfer is not opposed by the affected individual, and

3. The placement can be reasonably accommodated, taking into account the resources available to the state and the needs of others with mental disabilities.

Despite those clear conditions, the DOJ has plowed ahead with its community-integration lawsuits under the explicit assumption that all institutional care should be ended and everyone should be sent into community-based care, whether they want to go or not.

This viewpoint by the DOJ is a misinterpretation of the Olmstead decision, and it has had tragic consequences, according to the VOR.  The organization pointed out in its testimony that higher mortality rates have been documented in Virginia, Nebraska, Tennessee, and Georgia in the wake of the DOJ’s deinstitutionalization settlements.

Those problems have occurred because so many of the privatized group homes to which the people formerly in the state facilities have been transferred are poorly monitored and are afflicted by high turnover and poor training of staff.  Yet, that reality does not appear to have been recognized by the DOJ.

In Virginia, a state sued by the DOJ to close its state-run developmental centers, the risk of mortality for those individuals who left those centers was double that of those who stayed.

In Tennessee, DOJ lawsuits resulted in the closure of one developmental center in 2010 and the downsizing of two others.  In that state, deaths among people released from institutions nearly doubled between 2009 and 2013.  In addition, according to The Tennessean, a 2013 State Comptroller’s audit reported a lack of access to adequate medical and dental care, incarcerations, and hundreds of reports of abuse, and neglect and exploitation among the transferred developmental center residents.

In Nebraska, a 2014 monitoring team report found that of 47 persons considered to be “medically fragile,” who were transferred from a developmental center in 2009 as a result of a DOJ settlement, 20 (or 43 percent of them) subsequently died.

In Georgia, a 2010 a DOJ settlement agreement required the closure of all state-operated developmental centers and the transfer of 1,000 persons with developmental disabilities as well as 9,000 persons with mental illness from facility-based care.  In March, The Augusta Chronicle reported that of 499 individuals with profound developmental disabilities, who had been transferred from the state developmental centers under the DOJ settlement, 62 (or 12%) died unexpectedly.

The Augusta Chronicle article discussed the case of Christen Shermaine Hope Gordon, a 12-year-old girl who died in community-care after being transferred from the Central State Hospital in Milledgeville, GA.  The article recounted a litany of poor decisions and poor care that appear to have led to Christen’s death.

In a letter to the DOJ in January of this year, Margaret Huss, president of Intellectual Disabilities Advocates of Nebraska, urged the DOJ to ask critical questions about the mortality figures and other data regarding the transfer to community-based care prior to filing further lawsuits to close state facilities.  “An increased risk of death should not be the unintended consequences of the worthy goal of community integration,” Huss’s letter stated.  As of May 1, the DOJ had not responded to her letter.

That an increased risk of abuse, neglect, and death exists in community-based care has long been recognized, but few policy makers or people elected to office have been willing to stem the tide of deinstitutionalization.  In March 2013, U.S. Senator Chris Murphy of Connecticut did call for an investigation of abuse and neglect in privatized group homes around the country, in response to a series by The Hartford Courant detailing those problems in that state.

In a letter to the Office of the Inspector General in the U.S. Department of Health and Human Services, Murphy termed the level of abuse and neglect in group homes “alarming.”  Murphy asked the IG “to focus on the prevalence of preventable deaths at privately run group homes across this nation and the widespread privatization of our delivery system.”

But more than two years after Murphy’s request, it is not clear that the HHS Inspector General ever did undertake such an investigation.  The IG’s office has so far not released a report and did not respond to an email query from us on April 30, seeking information on whether an investigation has been undertaken and what its status might be.

Senator Murphy’s office also did not respond to repeated inquiries from us last week as to whether Murphy ever received a response from the IG to his call for an investigation or whether he ever followed up with the IG after his original request in 2013.

Unfortunately, lawmakers in the U.S. Senate, in particular, have also not been supportive of VOR’s proposed legislative language to require the DOJ to consult with families before filing further lawsuits against state care.  While language was inserted in a House appropriations bill for the DOJ last year at VOR’s request that protections for institutional care be considered by the DOJ as appropriate for those who desire it, that language was later watered down.

We can only hope that folks begin to wake up in Washington and elsewhere to overwhelming evidence that deinstitutionalization accompanied by privatization is not working, and that someone finally steps forward to slow both of those trends.

(Cross-posted from The COFAR Blog)

In what has been widely viewed as a setback for state employee unions in Massachusetts, state legislators last week approved a state budget for Fiscal Year 2016 that includes a provision freezing the Pacheco Law for three years with regard to the MBTA.

(Note: While the Pacheco Law does not appear to have had a role in preventing the past privatization of human services, which we are primarily concerned with, the Baker administration’s next step, with the support of the Pioneer Institute and like-minded organizations, might well be to exempt future privatization of human services from the law.)

A second major complaint about the Pacheco Law in the Pioneer report is that the law requires the winning bidder to offer jobs to public agency employees whose jobs are terminated by privatization.  But that requirement is also in A-76.

The Pioneer report claims that under the cost analysis requirements of the Pacheco Law, any outside bidder must offer to pay the same wage rates and health insurance benefits to its employees as the incumbent state agency. This, according to the report, “neutralizes any potential advantage the outside bidder may have based on cost of labor.”

The Pioneer report, in fact, appears to be quoting from the law verbatim in including the following statement under the heading “Restrictive Elements of the Pacheco Law”:

Every privatization contract must include compensation and health insurance benefits for the contractor’s employees no less than those paid to equivalent employees at the public contracting agency; (my emphasis)

But I could find no such language in the Pacheco Law!  Regarding wages, the Pacheco Law states that the outside bidder must offer to pay the lesser of either the average private sector wage rate for the position or step one of the grade of the comparable state employee.  That could mean that the bidder could stipulate a lower wage cost in its bid than the state’s wage.

Regarding benefits, the Pacheco law says the bidder must offer a comparable percentage of the cost of health insurance plans as the state agency.  This is consistent with the policy of the Defense Department, for instance, which prohibits private bidders in A-76 competitions from offering to pay less for health benefits than the DoD pays for its employees.

Despite his chamber’s action last week to freeze the Pacheco law, Senate President Stanley Rosenberg has appeared to be less than enthusiastic about the efforts to discredit the law and either freeze or repeal it.  “There’s an ideological-slash-political component to this,” Rosenberg said. “We ought to be driving policy based on outcomes and data and how things actually work.”

Unfortunately, the latest attacks on the Pacheco Law seem to be more about ideology and politics than about real outcomes and data.

(Cross-posted from The COFAR Blog)

While proponents of privatizing the MBTA point to the rising cost of in-house operations there, the cost to the agency of contracting out appears to have risen even faster.

The annual cost to the MBTA of contracting for commuter rail services has risen by 99.4 percent since 2000, compared with a 74.9 percent increase in the annual cost of the agency’s in-house bus operations, according to cost information we’ve compiled from public online sources (see below).

In our view, the rising cost of the commuter rail contracts since 2000 casts further doubt on the claims by the Pioneer Institute and other privatization proponents that contracting out for services will automatically save hundreds of millions of dollars at the T.

In case you missed it, the Pioneer Institute issued a report earlier this month that compared the actual cost of MBTA bus operations to a proposal based on bids from outside contractors to undertake those functions.

The Pioneer report concluded that had the state auditor allowed the planned privatization of the bus operations to go forward, the MBTA would have saved $450 million between 1997 and 2015. The report claimed those allegedly foregone savings were the fault of the Pacheco Law, which the auditor had cited in objecting to the outside contract proposal.

(As discussed below, the state auditor did not definitively reject the MBTA’s contract proposal, but rather asked the agency to resubmit its proposal after addressing concerns raised by the auditor about its cost calculations. The MBTA never did resubmit its proposal, but instead chose to sue the auditor in state superior court to reverse the auditor’s decision, and lost.)

The Pacheco Law requires state agencies seeking to privatize existing operations to show that bids from private contractors would be lower than a calculated cost of continuing to perform specified work by regular state employees “in the most cost-efficient manner.”  The state agencies must submit their calculations to the state auditor, who has the final say as to whether the functions can be privatized.

Largely due to unrelenting political pressure from the Pioneer Institute and other privatization advocates, the Legislature approved a 3-year freeze earlier this month on invoking the Pacheco Law with regard to privatizing MBTA functions.

Last week, we raised a number of concerns about the methodology of the Pioneer report, including criticizing its comparison of actual in-house MBTA costs to bids.  We argued that it’s meaningless to compare actual costs to hypothetical costs over a nearly 20-year period.

We think it would make more sense to compare actual in-house costs to actual contract costs over a multi-year period.  An obvious candidate for an evaluation of actual contracting costs appears to be commuter rail.

The MBTA has contracted out for commuter rail service since the 1980s, according to a state audit report on the agency. Beginning in 1987, Amtrak began providing commuter rail services to the T under a cost-plus-overhead and profit contract. In 1995, this was changed to a negotiated fixed price contract with a three-year term and two one-year options.

In May 2000, according to the audit report, the MBTA was given permission by the federal government to extend the Amtrak contract without bidding for an additional three years.  The total cost of the three-year contract extension, plus additional work that was in included in subsequent contracts, came to $168 million per year.

The Massachusetts Bay Commuter Rail Company (MBCR) subsequently won a competitive RFP process to operate the commuter rail system, starting in 2003.  The cost per year of that fixed-price contract was $217.4 million, which amounted to a 29.4 percent increase over the cost of the Amtrak contract three years earlier.  In that same period, the in-house cost of MBTA bus operations rose by just 12.8 percent, based on the Pioneer report’s figures (See chart below).

In 2008, the MBTA granted MBCR a three-year contract extension at a cost of $246 million per year, which amounted to a 46.4 percent increase in commuter rail contracting costs to the MBTA since 2000.  In that same time, the in-house bus operations cost had risen 40.4 percent.

In 2011, MBCR received a final 2-year commuter-rail contract extension costing $288.5 million a year.  By that time, the MBTA’s cost of contracting for commuter rail had risen by 71.7 percent since 2000, whereas the in-house cost of MBTA bus operations had risen by 55.7 percent.

Finally, the MBTA signed an eight-year contract last year with Keolis Commuter Services at an annual cost of $335 million, according to The Boston Globe.  (Note: the headline on the linked Globe story appears to be wrong.)  As a result, by the time Keolis began operations last July, its annual contract cost was 99.4 percent higher to the MBTA than the Amtrak contract cost had been in 2000. In contrast, the cost of in-house bus operations at the MBTA was only 74.9 percent higher in 2014 than it had been in 2000.

By the way, it may be only a matter of time before the Keolis contract cost rises above the $335 million annual amount, given that the company is reportedly already losing money operating the MBTA commuter system.

The Pioneer report characterized the in-house cost of MBTA bus operations as “inordinately expensive,” and concluded that for that reason, replacing that in-house service with contracted work in 1997 would have saved hundreds of millions of dollars.  But the Pioneer report failed to consider the actual experience that the MBTA has had with contracting.

One might argue that you can’t legitimately compare the cost of commuter rail operations to bus operations.  But at the same time, we think our comparison shows that entering into contracts for services doesn’t guarantee that the costs won’t rise dramatically.  Since 1995, the commuter rail contracts have all been fixed-price contracts.

The Pioneer report misrepresented the state auditor’s objection to the MBTA’s 1997 privatization proposal as a “ban” on the award of the contracts

The Pioneer report referred in different places to the state auditor as having “banned” or “blocked” or “barred” the MBTA’s proposal to privatize the agency’s bus services in 1997.  According to the report, this adverse decision, which was based on the Pacheco Law, not only thwarted the MBTA’s attempts to save costs and improve quality of its bus service, but the MBTA never again attempted to privatize that service.

But the actual decision by then State Auditor Joseph DeNucci did not ban or block or bar the MBTA from privatizing its bus services.  Instead, DeNucci invited the MBTA to resubmit its proposal after addressing a number of issues raised in his decision letter and in a previous letter regarding the proposal.   Among those issues were alleged failures by the MBTA to support specific cost savings in its bid proposal and to provide measurable indicators of service quality as a baseline for comparison, such as information about on-time performance.

It does appear that the MBTA was not happy with the issues and inquiries DeNucci’s staff was raising about the MBTA’s privatization proposal.  According to DeNucci’s letter, the MBTA objected at one point to the auditor’s questions about how claimed savings in contracting out functions at garages in Charlestown and Quincy could be achieved since a third facility in Everett was providing services to support the two other garages.

When the auditor inquired as to how costs would be reduced at the Everett facility, the MBTA responded that the auditor’s inquiry was “of no significance,” and “beyond the scope” of the Pacheco Law.

DeNucci’s final letter to the MBTA stated the following:

Recommendation:
We believe that the MBTA should seriously address each of the above substantive issues disclosed
by our review. A carefully considered objective analysis of these matters, such as the Everett and
Arlington facilities, quality of service, changes and extra work, pension costs, 13(c), and bid price
changes, should be undertaken prior to privatization. A hasty, ill-considered, rather than a thorough
analysis, would not well serve the MBTA’s ridership and the taxpaying public.

Conclusion:
Therefore, pursuant to Section 55(a) of Chapter 7, MGL, this office hereby notifies the MBTA of
its objection to the awarding of these contracts. In accordance with Section 55(d), this objection is final
and binding on the MBTA, until such time as a revised certificate is submitted and approved by this 
office. As always, this office is available to discuss our findings and provide further assistance to the
agency. (my emphasis)

Whatever reasons the MBTA had for not answering the auditor’s questions, the fact that those questions remained unanswered was the reason that the auditor objected to the MBTA’s privatization proposal.  Nevertheless, the auditor clearly invited the MBTA to try again and to resubmit a revised privatization plan that addressed the issues in the auditor’s review.

The Pioneer report implies that it is somehow the fault of the Pacheco Law and the state auditor that the MBTA never did revise or resubmit its proposal, and never again attempted to privatize its bus services.  That seems to us to overlook the MBTA’s responsibility for failing to comply with the auditor’s reasonable requests for information.

If you want someone in authority to grant a request you’ve made, and they say they may well grant it, but first they would like some more information about it, do you then say “it’s none of your business?”  That, in effect, appears to be what the MBTA told the auditor in the the bus privatization case.

It was the MBTA’s choice not to answer the auditor’s questions and subsequently to sue the auditor rather than resubmit its proposal.  It was also the MBTA’s choice never to submit another privatization proposal to the auditor for those services.

Now, not only is the Pioneer Institute continuing to complain about the auditor’s 1997 decision, we think the Institute has failed to make the case that the decision cost the taxpayers money over the intervening years.

And one more thing about the Pioneer report’s calculation of the alleged foregone savings 

As noted above, the Pioneer report’s figure of $450 million in lost savings from 1997 to the present, due to the Pacheco Law, is based on comparing the T’s actual in-house operating cost for bus service to an outside contract bid.  The report stated that as a means of comparison, it escalated the proposed contract bid between the years 2002 and 2013, the last date for which in-house cost data on the MBTA was available. The Pioneer report escalated the contract bid by the same percentage rate that it escalated the in-house cost each year.

But why did the Pioneer report not escalate the contract bid for the first five years of the comparison (from 1997 to 2002)? For no readily apparent reason, the report lists the same hourly contract rate for those first five years of its comparison. Yet, the report shows in-house MBTA costs rising by over 18 percent during that same initial five-year period. Had the report applied the same escalation rate to the contract bid as it did to the actual in-house costs throughout the comparison period (1997 to 2015), it would reduce the alleged $450 million in foregone savings by about $72 million.

If there was a reason that the Pioneer report assumed the bus contract costs would remain flat for the first five years, but would escalate after that, it isn’t stated in the report, as far as I could tell. But even if the report had assumed the same escalation rate throughout the comparison period, we would still reject the entire comparison of actual to proposed numbers.