Arnold’s privatization plan full of holes, foes say
By Josh Richman
Wednesday, July 15th, 2009 at 11:45 am in Arnold Schwarzenegger, state budget.
County social services officials and consumer advocates say Gov. Arnold Schwarzenegger’s eleventh-hour plan to privatize the health and human services eligibility process could be disastrous.
County Welfare Directors Association of California Executive Director Frank Mecca told reporters on a conference call this morning that his group’s members are “really disappointed in the governor and have very serious concerns about his proposal … which we believe will cost the taxpayers a fortune and more importantly is going to harm the most vulnerable, needy people in our state.”
Mecca said the plan seems to have “absolutely no accountability or oversight,” giving the governor’s administration a free pass on competitive bidding, conflict-of-interest and other controls. And while the governor says the plan could save California hundreds of millions of dollars over time, “the governor has never provided an analyis to anyone including the legislature showing a cost-benefit for his proposal,” he said.
The governor’s likening of programs such as MediCal to the already-privatized Health Families Program is “completely flawed, beyond simplistic – to call it apples to oranges is proably to paint it in more favorable light than it deserves,” Mecca said, as MediCal is immensely more complicated.
Celia Hagert, senior policy analyst at the Center for Public Policy Priorities in Austin, Tex., said from what she’s seen of Schwarzenegger’s plan, there are “striking similarities between it and what was attempted in Texas… which would make me very nervous if I were a California policy maker.”
Texas in 2007 dissolved an $899 million contract with Accenture Ltd. that called for the company to run an integrated eligibility determination system for the state’s health and welfare programs. That system’s January 2006 rollout in two Texas counties had been “an immediate disaster” with thousands of children kicked off their health care, a huge food-stamp application backlogged and long wait times and many abandoned calls for those seeking aid, Hagert said. Texas is still recovering from the debacle, she said: “It’s a high price to pay, and very difficult to make up for mistakes once they’re made.”
A similar story is still unfolding in Indiana, where the initial rollout “has been riddled with so many problems that the state hasn’t been able to justify rolling it out in other areas,” said Stacy Dean of the Center on Budget and Policy Priorities in Washington, D.C. Yet Schwarzenegger seems eager to relive the Texas and Indiana experiences, she said: “Unfortunately, I fear that it’s ‘Groundhog Day’ in California.”
Elizabeth Landsberg, a legislative advocate for the Western Center on Poverty & Law, said it’s “terrifying” to think that could happen here. “We’re not scared of modernization and we’re not scared of automation, but we need to do it right” rather than in last-minute, closed-door Big Five budget negotiations, she said, especially when 7 million Californians’ due process and privacy rights, not to mention their health and food, are at stake.
San Luis Obispo County Social Services Department Director Lee Collins said his county has one of the state’s highest work participation rates for people in the CalWorks welfare program because his staff starts helping people find work as soon as they begin the application process – something that will be lost if that process is privatized and automated. “These online eligibility programs really kind of hook them into public assistance and keep them there and don’t allow us to work with them as easily to achieve self-sufficiency,” Collins said, citing a case in which a $400 car repair helped keep one family from entering the CalWorks system for a lengthy stay.
“California has a bad enough track record in automation … We don’t need another Oracle,” he said, referring to the state’s 2002 cancellation of a $95 million contact with software maker Oracle after a state audit found it would cost the state an extra $41 million over time rather than save it $100 million as some had claimed.
Replied Schwarzenegger press secretary Aaron McLear: “This is another example of defenders of the status quo fighting against reform and against Sacramento living within its means. It is clear these individuals have no understanding of our proposal or the reforms that are necessary to end the fraud and abuse in these programs.”
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July 15th, 2009 at 5:07 pm
A summary I wrote back in 2004 when there was talk about privatizing eligibility determinations.
The push for privatization is not entirely new. Some government services have been contracted as early as the 1930s. However, beginning with the Reagan era the trend toward privatization became greater. Business wanted a piece of the pie. When welfare reform passed in 1996 some previous restrictions that prohibited states from contracting out initial welfare and eligibility determination functions were no longer valid. The latest trend has been towards allowing contracts to for profits, including corporations. In the United States, Texas and Wisconsin are the states that have contracted out services more than others. Most of the services that have been contracted out are for computer support, child support collections, prison administration and job services for WtW participants. However, some large corporations have won contracts for other types of service delivery.
Stated Reasons for Privatization
• Reasons given for privatization are to:
• Reduce costs
• Improve customer satisfaction and quality of services
• Increase efficiency
• Meet demands that are beyond the capacity of the government
• Provide flexibility in staffing
Other reasons given include increasing competition (to drive down costs).
Covert Reasons for Privatization
Corporations and businesses are actively searching to expand into areas that have traditionally been held by government employees; for example, eligibility determinations for public assistance programs. According to the Urban.org study, one of the ideologies behind privatization is that “less government is better.” Businesses and corporations look at contracting service delivery as a way to tap into new markets to increase corporate profits.
Opposition to Privatization
The main opposition is not aimed at non-profits, but rather at private business, and for profit entities. The main arguments include:
• Loss of public employee jobs
• Loss of control by government of public funds and lack of fiscal accountability to taxpayers
• Decreases participation of citizens in government
• Threatens confidentiality
• Tendency to focus on easy to serve clientele I order to maximize profits and reduce costs, meaning hard to serve or disadvantaged may suffer
• Cost savings will go to stockholders not taxpayers
• Greater chances of service interruption
• Potential for corruption
• Health and welfare public services are more sensitive and life threatening than contracting out garbage service, road construction, or other services, and should not be administered by companies whose focus is on corporate profit vs. public service (conflict of interest)
One of the most important issues is that even though services may be privatized, local government is ultimately responsible for outcomes, and must monitor, track and provide reports to State or Federal government agencies. This means that highly trained and competent staff must carefully manage these contracts. Control over services may be lost even though accountability is not.
The Jury is Still Out on Results
So far, there are mixed results on whether privatization outperforms public delivery of services. I could not find any research showing definitively that privatizing delivery of public services generally reaps better results. There was one study done on three prisons where two were privatized and one was left public that indicated some improvements with privatization in some areas. However, they had problems in other areas that public administration did not. And in Maryland, when public employees were given the tools needed to improve they actually outperformed some public vendors on child support collection.
Results are Not Always as Advertised
According to an audit done In Ontario, Andersen Consulting gave an estimate of $50-70 million, which more than doubled to $180 million. In addition, they failed to provide replacement technology needed to administer the program within timeframes. In some cases, project managers were paid $575 an hour, and wages increased by 63%. This was not an isolated incident. Reports are cited that show that Anderson Consulting had overruns and failures in other jurisdictions such as Texas and New Brunswick, where they did not meet their contractual obligations. Should we take these kinds of risks?
Jobs Threatened
In areas where privatization has occurred some employees in public service were hired in the private sector. However, in some cases, even if the wages were slightly higher, the benefits were less. The studies do not state how much less. Since the majority of benefits are medical benefits, and we know that the cost of medical benefits is very expensive and rising, a decrease in benefits can negatively impact middle-income families. In our County and many others, we are seeing the middle class shrink, and the percentage of both rich and poor grow. This trend is expected to continue. To make matters worse, if for profit companies are allowed to bid for large contracts to provide services the result will be shift of money from middle class wage earners to corporate stockholders.
Privatization-Why We Should Wait?
Privatization has not shown to save taxpayers any money as of yet. Until businesses can prove that privatization of public services is successful in that it reduces costs to taxpayers, is able to provide the necessary government reports timely, and provide quality service to the public, we should be very cautious about any efforts to privatize delivery of public services.
Public Employees Can Increase Productivity
Studies show that in Cuyahoga, San Mateo, Washington County, and the State of Ohio, public employees can improve performance through partnerships, collaboration, automation, and training. If government officials can see that public employees are providing quality, cost-effective services there will be no need to look to privatization in the future.
July 15th, 2009 at 11:26 pm
Yeah, The main problem will be the Loss of public employee jobs.
July 19th, 2009 at 11:55 am
A for-profit outfit grabbing a cut from the public till? I thought there was a budget crisis? Freebies to well-connected profit-making outfits probably linked in some way to the politicians proposing this cannot be afforded. In fact, most places would consider this to be corruption. These outfits giving money to the politicians, skimming a profit as a result of these decisions, then giving the politicians another cut.
I see there are some who think that it’s justice for these executives to take this cut if it means that public employees are fired… I guess they like to destroy the middle class. Ayn Rand, what evil you have unleashed…
July 21st, 2009 at 8:28 pm
I will never never never again vote dem not ever