How Government Can Do More With Less: Massachusetts Leads the Way

Honorable James Kerasiotes

This is the first in a series of Civic Bulletins to be published by the new Center for Civic Innovation at the Manhattan Institute. Stephen Goldsmith, the mayor of Indianapolis, serves as the Center’s chairman. This Civic Bulletin is excerpted from an address given by James Kerasiotes, Secretary and Chief  Executive Massachusetts Executive Office of Transportation and Construction, at a Center for Civic Innovation forum.

Unless Challenged, Government Just Keeps Growing

In business, where I come from, when things start going south you change or you go broke. The faster you change, the better for you, your employees, and your customers. Unfortunately, this isn’t the case in government, where the concepts of risk and reward and customer service are very hard to find.  Too often in government it takes a crisis to create the opportunity and the demand for change.

With few exceptions, post-World War II government in Massachusetts has been all adds and no subtracts. Nothing came off the table no matter how outdated, wasteful, superfluous, duplicative, or expensive it was. Got a problem? No sweat.  The answer was more money, more people; add another layer like a tree adds another ring.

This culture breeds waste, fraud, and abuse, and we found plenty.  The Massachusetts Highway Department had one foreman for every two laborers, two budget departments, two personnel departments, eight district offices, eight public relations people, and a series of rubber-stamp operations in Boston that duplicated the work that was going on in the districts.

A president of one of our unions was on an “unpaid” leave of absence for a decade. But he continued to collect medical benefits and he found his way onto the payroll every holiday so he could collect his holiday pay. We found that over a ten-year period he had ripped the commonwealth off for $175,000.  We sent the case to the attorney general, who obtained an indictment.  Yet when the case went to arbitration, the arbitrator ruled in his favor, though that ruling was later overturned. 

Another example: the two-man radio rooms in each one of our districts were manned 24 hours a day. We found all sorts of irregularities, including scams that had gone on for ten years. Often one person would come in one day and the other would come in the next.  Sometimes one would come in for four hours, then the other would come in for four hours.  The bottom line was that people were getting paid full-time for half-time work. We took them to court and got indictments and convictions.

Dis-entrenching the Interests

We discovered that dozens and dozens of these kinds of incidents were happening every day. We fired many of the bosses who were responsible. And once we began to hold the bosses accountable, once we began to force change, people began to respond. But I’ve got to tell you that every day was a battle.

First we had to overcome the apologists, the outsiders who rationalized the excesses of government because they were benefitting. Among them were the 12 public employee unions, the legislature (who many regarded as the cavalry, riding to the rescue), and the career insiders who figured they could wait us out.

But we stayed at it, and we got a lot done.  When Governor Weld took office in 1991, there were 3,100 Highway Department employees. Today there are 2,300. Yet we are pumping out twice as much construction activity as the prior administration, including labor on the largest public works project currently under way in the United States.

Our budget went from $107 million to $72 million. We had eight district operations and reduced them to five. We introduced inmate labor to do things that our own employees didn’t want to do. The unions fought it, but ultimately we said, “Listen, you guys don’t want to do this work, so why not put the inmates to work?”

We reduced the public relations staff from eight to one. We took the two budget departments and made them one. And we combined two personnel departments into one.

How Privatization Saves Money

But the change that I’m most excited about, the one I most like to talk about, and the one that makes the enemies of change most apoplectic is privatization: hiring private companies to conduct many of our operations and do much of our maintenance work.

When we arrived, a lot of basic things just weren’t getting done.  The grass was being cut once a year instead of five times. Highways hadn’t been swept in three years. Bridges had never been washed.

We decided to try something that, as far as we knew, had never been tried before:  contracting out all of our maintenance.  We figured out that maintenance was costing us $5 million to $5.5 million a year.  We calculated that there was an additional $2 million worth of services that we wanted performed.  So we put together a set of specifications, and we opened it to bidding just like any other construction contract. We asked our unions to come in and participate.  They didn’t take it very seriously because they thought we didn’t have the nerve to do it, or that the Legislature would bail them out. The unions have to know that you really are going to pull the trigger, that you really will introduce competition.  The first time around they didn’t.

We ended up with a proposal from a private contractor to do $2 million more in service for $2 million less than we were paying. As it turned out, the contractor performed even better than promised, and the final price tag was $700,000 less than the original bid.

The next time around we decided to introduce competition for all of our services in eastern Massachusetts. We got a very different response from our public employee unions.  We put seven contracts out to bid, and we awarded four to private contractors and three to public employee unions. The union proposals weren’t for less money, but they were actually trying to compete.  Politics played a role too: the Massachusetts legislature was debating an anti-privatization bill, and we figured we could get our privatization contracts through if we made that kind of an offer.  We ended up privatizing without laying off any employees because attrition took care of that.

Improve Management: Cut Spending

I also oversee the Massachusetts Bay Transportation Authority. The MBTA had been so badly managed that it made the Highway Department look like a walk in the park.  Let me give you some examples: the MBTA bought a financial management information system.  It agreed to pay $9 million but the thing ended up costing $11 million — and the MBTA never even got the system.

There were so many management deficiencies that we created a list we affectionately called “Off the Track at the MBTA.”  We developed it through a highly sophisticated technique — “management by walking around” — that’s often the best way to find things out.  We discovered, for example, that you couldn’t get one aspirin if you worked at the MBTA.  You could only get a bottle: one containing 100, or one containing 250.  It turned out the MBTA had an inventory of 15,000 bottles of aspirin.

The absurdities were endless.  The MBTA was paying $200 to a gas station owner to rent his bathroom.  Some departments had twice as many phone lines as people. Anybody who moved from desk A to desk B, as a lateral transfer, automatically got a 10 percent pay increase. We had people being officially hired 30 days before my office received any paperwork, so that I would not be able to veto the hire. I’d be told, “What do you mean, you don’t want me to hire him?  He’s already here.” And the unions tried to stop us from putting in token vending machines. We did it anyway, and it will save us $760,000.

At one point we proposed the unthinkable: cutting the budget.  The response from managers was as if the sky were falling. But we went ahead anyway.  The first year we cut $40 million.  It was an arbitrary figure, 5 percent of the total. There was no magic to it: We just thought it had to be possible to cut 5 percent. We also cut the capital budget by $9 million, giving us a total cut of $49 million.    At the same time, we increased service.  We added a commuter rail line that year; we introduced crosstown bus service; and we increased our police force by one third.

Labor Union Sabotage and Threats of Violence

We faced stiff resistance to our changes. Sometimes it got personal. One Sunday afternoon my five-year-old daughter was talking on the telephone.  I could tell something was wrong, so I took the receiver from her.  It turned out to be a union goon telling her that Daddy was going to get his face broken if he kept up what he was doing.

The week before Christmas last year, I woke up to a telephone call from a neighbor.  She told me that there was a school bus parked down the street and that there were 70 people with signs heading toward my house.  They marched in front of my yard for a while, and then they went to the center of our small town and marched there for a while.

When we first privatized the Highway Department we had a lot of sabotage, such as people putting concrete blocks in the gears of drawbridges.  It happened pretty regularly, but after a while it stopped.

Too often public managers get beaten down and give up. When the phone calls come in at home, when the picket lines go up around the house, when the public loses its appetite for change because it gets confused about which side is right, when it’s no longer a story and the crisis has subsided, you still have to stay at it.

Many people in government want to make friends.  They want people to like them, so they make nice-nice and say, “We’ll look into that; we’ll follow up on that; we’ll do that.”  At the end of the day, they have reputations as nice guys, great women. But they haven’t done their job. Because when those with a vested interest in the status quo say nice things about you, it’s a sure sign that you’re not making the tough decisions you should.

Privatization Is Practical, but Not a Panacea

We realized, too, that privatization isn’t a panacea. You shouldn’t privatize for the sake of privatizing.

In one case, we actually de-privatized.  We wanted to initiate a new program to maintain the roads and bridges, which had long been neglected. But we decided that we couldn’t go through the process of hiring design firms because it would take too long.  In 1990, private contractors were doing 80 percent of design work;  government employees only 20 percent.

Over three years we reversed that proportion, while at the same time reducing the workforce from 3,100 to 2,300. That was an impressive accomplishment on the part of the people in that design department, and they did it because they wanted to keep the work.

Whether it’s privatizing or managing more efficiently or just cutting out the baloney, every day that we’re on the job, we try to change things, to challenge the status quo, to rock the boat, and to reduce the cost of government.  Because, as taxpayers, we need a government that serves the people — and that doesn’t go broke.