Christopher Cook
The four qualifying words in President
Clinton’s pledge to end welfare—"as we know
it"—are proving to be the ultimate twist of the
dagger in the heart of public assistance. While ending AFDC,
America’s 61-year-old guarantee of aid to poor families,
Clinton’s reforms extend $28 billion worth of new
contract opportunities to for-profit firms.Before the new law’s ink was dry,
corporations began jockeying to capitalize on what many
called "the business opportunity of a
lifetime"—the transfer of welfare programs to
profit-making businesses. Sporting "welfare
initiatives" divisions, powerful lobbyists and big-time
political connections, corporations such as IBM, Lockheed
Martin Information Management Systems (IMS, a subsidiary of
the $30 billion Defense Department contractor), and
Electronic Data Systems (EDS, Ross Perot’s old firm) are
now poised to cash in.States and localities have already
begun outsourcing aid to the poor. In Texas, state and
corporate officials have collaborated, often in secret, on a
five-year, $2 billion statewide welfare privatization
project—the most expansive in the nation. Milwaukee
County, Wisconsin recently opted to privatize many of its
welfare functions. In Massachusetts, two job-training centers
for welfare recipients and the unemployed are now run by
for-profit firms.Riding the crest of this privatization
wave, corporations are seeking to expand their welfare
enterprise portfolios. "The federal government is under
pressure to waive Medicaid and Food Stamps" from
privatization restrictions so that for-profit firms can take
over these functions, says Cecilia Perry, a public policy
analyst with the American Federation of State, County and
Municipal Employees (AFSCME). A similar flurry of
waivers preceded Clinton’s 1996 repeal of AFDC. The
ultimate aim, says Perry, is to create corporate-run,
one-stop shopping, in which "you go to Lockheed for
every type of government assistance you need. How does that
sound to you?"Corporations are hardly bashful about
their aim: to reap new profits by running welfare programs.
At a World Research Group conference in Washington, DC this
March, titled, "Welfare Privatization: Government
Savings and Private Earnings," corporate executives
received advice on how to "capitalize on the massive
growth potential of the new world of welfare reform,"
and "gain a leading edge in the market while it is still
in its early stage." Executives forked over $1,295
apiece for the opportunity to, as a brochure put it,
"establish a solid network with key [government] players
and decision-makers," and "identify future
strategies in this new booming market." The conference
also counseled government officials on how to "identify
‘targets’ for privatization," and develop
strategies to "manage union opposition."Indeed, unions and anti-poverty groups
are up in arms. They warn that profit-minded corporations
will lay off public welfare workers and deny benefits in
order to enhance their bottom line. "Welfare is a
program to benefit poor people," says Perry. "If
you’re going to take that money and give it to large
corporations that are designed to make profits, there’s
a huge contradiction."Less is More
Critics cite caseload-reduction
incentives in the 1996 welfare reform law, which they say
invite corporations to "cherry-pick" recipients who
are easiest to employ in order to maximize profits. These
inducements coincide with an intensifying push by federal,
state, and local officials to reduce the rolls. While
expanding "states’ rights" through flexible
welfare block grants, the law requires states to reduce their
caseload numbers in order to continue receiving federal
funds—compounding the pressure to push people off the
dole as quickly as possible.States such as Arizona and Pennsylvania
are taking a similar tack, offering financial incentives and
penalties to coax private welfare operators to reduce
caseloads. The Arizona Legislature proposed, for example,
that "The state shall contract with an outside vendor to
operate the Arizona works program." The bill included
performance-based incentives for "reductions in the
length of stay on assistance," as well as reductions in
caseloads. In Missouri, a welfare-to-work bill defeated in
the legislature this year proposed offering pay bonuses to
case managers who reduced their caseloads. The measure
promised managers up to $2,000 a year in bonus pay for
reducing their caseloads by 25 percent.In the context of tight job markets,
rewarding welfare administrators for reducing the rolls will
push recipients into low-wage and temporary jobs, and
discourage some from applying for benefits altogether.
"The jobs aren’t there and the companies are going
to be rewarded on the basis of reduction in caseloads,"
says AFSCME’s Perry. "There are reverse incentives
to helping people." Ellen Bravo, executive director of
the National Association of Working Women (known as 9 to 5),
puts it even more starkly. "There should be incentives
for getting people employment," she says, "but
instead there are incentives for throwing people on the
street."According to Maurice Emsellem, staff
attorney with the National Employment Law Project in New York
City, these "reverse incentives" are already coming
home to roost. At a privately run job center in Boston, he
says, "they’re not serving the people with the
greatest needs because it’s just more expensive…It has
to pay for them to do it. There’s no financial
motivation for them to serve those who are hardest to serve,
who need lots of education, who have disabilities, who need
transportation from the inner city."Inner-city welfare recipients
aren’t the only ones likely to be left out in the cold.
Texas State Representative John Hirschi (D-Wichita Falls),
who represents a mixed rural-urban district where 10 percent
of the population is on food stamps, worries that for-profit
welfare firms will avoid rural recipients who are more
difficult to reach. "When you contract out to somebody
who’s doing this for profit, there’s an inclination
to make convenient services available. There’s a
disincentive to serve rural areas," where transportation
is more costly, says Hirschi, who has opposed a massive
privatization push in Texas. "There’s some concern
that these for-profit companies would tend to skim those that
are most easily employable, and would be less interested in
taking care of special needs clients, who we worry would fall
through the cracks."Also at risk of falling through the
cracks are tens of thousands of public-sector workers (the
most highly unionized in the country), who will likely lose
their jobs due to welfare downsizing and outsourcing. In the
name of "efficiency," private firms will severely
reduce staffs, putting many public workers on the
unemployment lines—and, possibly, on welfare.The arrival of corporate titans on the
welfare scene also threatens to drive away non-profits which
have historically been the government’s welfare
subcontractors of choice. "Non-profits can’t
compete with these corporations on bids," Perry
observes, noting that huge corporations boast
state-of-the-art technology and superior economies of
scale—not to mention heavyweight political connections.
Beyond the prodigious competition, some non-profits and
charities may be dissuaded by federal rules promoting speedy
caseload reduction. "Non-profits aren’t necessarily
going after the eligibility [review] function," Perry
says, "because they don’t want to turn people
away."Texas: Privatization Battleground
The debate over privatizing welfare
has, until recently, been a war between glowing promises and
dire warnings. Now, a sprawling privatization effort in
Texas, involving well-connected corporations vying for
mega-bucks contracts, provides a troubling glimpse into this
emerging "brave new world." The Lone Star state is
the first to attempt welfare privatization on a statewide
basis. Seeking Texas-sized profits, the bidding corporations
have hired top former state officials as
lobbyists—prompting an investigation into possibly
criminal conflicts of interest.The prize is considerable: a 5-year
contract worth an estimated $2 billion is up for grabs in the
nation’s largest welfare auction to date. Up for sale is
the Texas Integrated Enrollment Service (TIES), a statewide
system designed to determine eligibility for nearly a dozen
welfare-related programs. TIES would coordinate and
computerize eligibility reviews in "one-stop
shopping" centers where people would apply for several
benefits at once. Texas Health and Human Services
Commissioner Dr. Michael D. McKinney glowingly asserts TIES
is "a program which will serve as a model for the rest
of the nation."Unions and anti-poverty groups say
it’s a "model" for mass layoffs of public
workers and diminished access for the poor. "We feel
that a corporation who’s chief motive is profit
won’t be hiring the people with the right skills,"
says Lynn McCray, organizing coordinator of the Texas State
Employees Union, "and won’t pay well enough to
attract people who are trained enough to know what welfare
recipients need and what they can get." McCray’s
union represents some 5,000 welfare-system employees who
could lose their jobs due to privatization. "We envision
people getting $7 an hour with few benefits and no training,
under pressure to push through as many people as possible and
give out as few benefits as possible."Charles Stuart, spokesperson for the
Texas Health and Human Services Commission, insists there is
"absolutely no financial incentive" for
corporations to reduce benefits or deny recipients. But he
can’t document exactly how the state will ensure
this—details of the program are confidential since the
program is up for bid. Stuart concedes, however, that
"efficiency" innovations will involve layoffs:
"The majority of the savings are in personnel."No minor bureaucratic reshuffling,
TIES—the brain-child of the Texas Council on Competitive
Government—is aimed at "streamlining" services
and cutting costs through layoffs and competition between
public agencies and private firms. According to U.S.
Department of Health and Human Services documents, "the
TIES project contemplates a restructuring of the
administrative methods…that is broader than an acquisition
of automatic data processing equipment and
services"—in other words, a revamping of both the
ways and means of welfare eligibility review in Texas.This May the Clinton administration
rejected the Texas proposal, saying its plan to integrate and
privatize cash assistance, Food Stamps, and Medicaid (which
must be administered publicly) pushes the envelope too far.
Beyond its concerns about Food Stamps and Medicaid, the
Administration said TIES threatened to turn key eligibility
decisions over to private hands: "Activities in which
specific eligibility criteria are discussed with an applicant
or eligibility-related information is collected and
evaluated, must be performed by a State merit system
employee."But all is not lost for would-be
welfare profiteers. Clinton’s DHHS assured Texas
officials that the state "has very broad authority to
administer the Temporary Assistance for Needy Families (TANF)
program and, with respect to the administration of TANF, can
use non-public employees without limitation…significant
opportunities exist for the State to take advantage of the
efficiencies and expertise available through the vendor
[business] community."Automated Welfare
One TIES "restructuring" plan
parallels a nationwide trend that further distances
government from the poor: the automation of welfare
eligibility reviews and benefits payments. For example, TIES
planning documents call for "Automated screening for
programs for which an individual or family may be
eligible," and for "Automated financial assessment
across programs that require financial information to
determine eligibility."One of the major bidders for TIES,
Lockheed Martin IMS, brings related experience to the table.
Cities in 26 states now dispense welfare and food-stamp funds
through ATM-style cards and cash machines known as
"electronic benefit transfer" (EBT)
systems—most of which are operated jointly by Lockheed
Martin IMS and Citibank EBT (a Citibank spin-off focusing on
EBT business ventures).On several occasions, EBT snafus have
left welfare recipients with no access to cash or food
stamps. One day in 1995, half of the computers in Texas went
down, recalls Bruce Bower, staff attorney with the Texas
Legal Services Center. Suddenly, tens of thousands of people
using the Lone Star Card couldn’t get their benefits.
"When people got a message saying there was no money in
their account and called the help desk, that help desk
didn’t respond." As it turned out, the
"desk," run by Transactive Corp., had moved to
Florida—ironically, taking Texas jobs with them.Regardless of how smoothly they are
run, the EBTs mark a departure from hands-on, interpersonal
assistance. "It’s this whole reliance on technology
as a cost-cutting mechanism," says Rick Levy, legal
director of the Texas AFL-CIO. "The ultimate goal is to
have welfare recipients get all their assistance from an ATM
machine, which is absurd given the client population
you’re dealing with…The whole notion of serving this
population is not just to get them on a computer screen. You
really have to work with people."Revolving Doors
But corporations seeking lucrative
contracts have chosen a different crowd to work
with—hiring former top Texas officials to lobby state
agencies for privatization contracts, and prompting a storm
of protest and allegations that once-public officials are
engaging in illegal corporate lobbying. The Travis County
Attorney’s Office is investigating whether any of these
officials are violating state ethics and revolving-door laws.According to Mack Martinez of the
Travis County Attorney’s Office, the investigation is
ongoing and hinges on how closely the officials were
connected to the programs they are now lobbying. But, he
muses, Texas’s revolving-door law "is not as tight
as we’d like it to be."In response to growing complaints about
the backroom deals, Governor Bush signed a law this June
requiring public hearings and legislative oversight of the
TIES planning process. Privatization critics, including
unions and public-interest groups, say the measure should
slow the privatization rush and democratize decisions.Legal or not, state Representative
Hirschi finds this public-private hop-scotch disturbing.
"These high-ranking officials would be of great value to
these companies…I just don’t know about the propriety
of this situation, where officials are trying to leapfrog
from a destructing state agency into profitable firms."In their aggressive campaigning for the
TIES contract, Lockheed Martin IMS, IBM, and EDS hired former
high-ranking Texas officials who, critics charge, helped pass
legislation promoting welfare privatization. Indeed, several
of these corporate lobbyists and advisors once worked as top
aides to political heavyweights who orchestrated
privatization—and who will now make pivotal decisions
about who wins the contracts.At front and center is the Texas
Council on Competitive Government (CCG), a six-person
super-agency that promotes privatization. The council
includes the state’s most powerful politicians, such as
Governor George W. Bush, Lieutenant Governor Bob Bullock, and
Comptroller John Sharp. Former top aides to Bush, Bullock and
Sharp now work as lobbyists for corporations bidding for the
TIES contract. Until recently, the Texas Workforce
Commission, a state agency with a seat on the CCG, was teamed
with Lockheed Martin and IBM in a public-private bidding
"consortium."To get a leg up on the competition,
Lockheed Martin IMS assembled a Dream Team, including Texas
Governor George W. Bush’s chief welfare lobbyist and
legislative director, Dan Shelley. Now a lobbyist for
Lockheed, in 1995 Shelley was Governor Bush’s point man
in convincing the Texas Legislature to pass measures that
created strong incentives for contracting out welfare to
private firms. "As soon as the bill was passed, Shelley
went to work for Lockheed," according to Lynn McCray,
organizing coordinator for the Texas State Employees Union
(TSEU), which has vigorously opposed privatization.A call to Shelley’s lobbying
office produced a revealing response from Lockheed consultant
Bill Miller: "Welfare reform, of course, is
privatization. That was part of the governor’s
initiative. As his legislative director, of course, it was
[Shelley’s] responsibility to get the bill passed."Public Funds, Private Plans
Equally troubling is the privatizing of
once-public information—a problem critics say is
inherent to the outsourcing of welfare. The companies in
Texas are holding their plans close to the vest,
and state and federal agencies refuse to provide details
of the soon-to-be-privatized programs. In response to a
Freedom of Information Act request, the U.S. Department of
Health and Human Services released just 15 of 686 pages
relating to the Texas RFO, claiming the bulk of the records
contain "proprietary" and "confidential"
information.The implications of privatizing welfare
information are far-reaching, according to Bruce Bower, an
attorney with the Texas Legal Services Center in Austin. Even
under public oversight, "There is an enormous amount of
misinformation that results in recipients being
disqualified," Bower says. "This will be
exacerbated by private corporations…Rather than state
officials accepting responsibility, they’ll say
it’s the contractor’s problem, it’s not our
doing."This is all about outsourcing.
The state will not have the same first-hand knowledge of
what’s going on in these programs that it used to have.
One of the problems with privatization," says Bower,
"is that once you dismantle the system, it’s gone.
Christopher D. Cook is a freelance
writer from San Francisco who has written for The
Nation, In These Times, and the San Francisco Bay
Guardian.