Welfare Privatization

In 1996, welfare as we knew it was changed radically by the passage and
signing of the Personal Responsibility and Work Opportunity Reconciliation
Act. The new law gave states unprecedented leeway in determining how the
new Temporary Assistance for Needy Families (TANF) and related programs
would be handled. Individual states were “liberated,” free to set up their
own delivery systems within broad federal requirements. Many states confronted
with the daunting task of rapidly implementing this “reform,” chose to
contract out services to non-profit organizations and for-profit corporations.

Long-time advocates of welfare privatization were delighted. It was difficult
to tell which part of the “reform” trifecta made conservatives, and many
liberals, happier—the potential multibillion-dollar market; shutting down
Aid to Dependent Children (AFDC)—the federal government’s commitment to
a social safety net; or the promise that welfare recipients would no longer
get an “easy” ride.

As Lucy A. Williams, Professor of Law at Northeastern University School
of Law, points out in Political Research Associates’ The Public Eye (www.publiceye.org/pra),
“the targeting of welfare, dates to the ‘Old’ Right of the 1960s—the movement
headed by Barry Goldwater and identified with the John Birch Society. In
the 30 years since the 1960s, right-wing think tanks and intellectuals
have polished and refined the critique, and developed the policies that
were captured in the current bill.”

A not so funny thing has happened on the way to a fully privatized welfare
system. Many of the largest companies receiving contracts from individual
states are facing charges of inefficient, inept, and improper behavior.
For almost four years, two of the biggest contractors, Maximus Inc., and
Lockheed Martin, have been on a roller coaster ride of limited successes
and questionable practices.

Maximus Inc.’s misuse of welfare funds and other rapacious conduct resulted
in an early-October 2000 request by Milwaukee-area Democratic Congress-
people Jerry Kleczka and Tom Barrett to the General Accounting Office for
a full inquiry into practices by private companies hired to manage welfare
services. “The increased privatization of state aid programs for the poor
has revealed that some for-profit corporations have mishandled welfare
funds and contracts,” Kleczka said. “Hopefully the GAO can shed some light
on just how widespread these problems are and provide Congress with some
insight as to how to prevent future misuse and abuse of public funds.”

Sandy Felder, Public Sector Coordinator for SEIU, a union representing
public employees, told Covert Action Quarterly in 1996, “This [welfare
reform] is one of the biggest corporate grabs in history. Welfare reform
was the most powerful bomb yet to be dropped on America’s already shredded
social safety net. Mark Dunlea, executive director of the Hunger Action
Network of New York, predicted, “The privatization of welfare-related social
services…will mean a massive handoff from government to the private sector.”

“The federal government turned over $16 billion in TANF money to the states
without setting any federal standards for privatization,” Cecilia Perry,
public policy analyst for AFSCME, told me in late December. The early contracts
in Wisconsin were particularly egregious in that they were based on setting
“perverse incentives aimed at reducing caseloads and making huge profits.”

Privatization, as touted by its supporters, was to be the guiding hand
of welfare reform. It was supposed to convert bloated federal and state
bureaucracies into streamlined and cost-effective corporate providers of
services. Privatizers held that private companies would also administer
welfare regulations more stringently and accurately, deliver more timely
and efficient services, and only to the “deserving” poor. At the same time,
the private sector would save money for taxpayers. Private companies competing
for contracts promised states they would dramatically reduce welfare rolls.
Indeed, this is the one area they have been successful. But at what cost,
and to whom?

Welfare “Reform”: What’s Going On?

Learning about the impact of the privatization of welfare is extremely
difficult. Even Congress has little idea what’s really been going on with
these programs. The scarcity of government-supplied information has made
it incumbent upon welfare rights groups, human rights organizations, and
independent research groups to take on the task of gathering data and drawing
conclusions about the first few years of welfare “reform,” especially in
terms of the impact of privatization.

Welfare “reform” has been particularly difficult for single mothers and
their children. The Impact Research Team at the Oakland, California-based
DataCenter looked at two studies, Health Care After Welfare: an Update
of Findings from State-Leaver Studies from the Center on Budget and Policy
Priorities, August 2000, and A Status Report on Hunger and Homelessness
in America’s Cities 1999, by the United States Conference of Mayors, December
1999, and discovered that:

  • In most states roughly one out of every two parents in families that left
    welfare, and more than one of every three children in these families, have
    lost Medicaid

  • In most states, more than one in five children is uninsured after leaving

  • Fewer than half the families that leave welfare for work are offered the
    opportunity to purchase health coverage through their employers

  • Welfare recipients often have a pressing need for ongoing health coverage
    due to mental health issues, physical impairments that limit their ability
    to work, and substance abuse problems

  • In many states, families’ unmet medical needs increased markedly after
    leaving welfare

  • The demand for emergency food assistance grew in 1999 to the highest level
    since 1992

  • 21 percent of requests for emergency food assistance were unable to be

  • 67 percent of adults requesting food assistance were employed—city officials
    identified low-paying jobs as a leading cause of the need for aid

  • The demand for emergency shelter grew at the fastest rate since 1994

  • About 37 percent of the requests by homeless families for emergency shelter
    were unmet

  • 21 percent of the homeless population is employed

  • The homeless population is estimated at 50 percent African American, 31
    percent white, 13 percent Hispanic, 4 percent Native American, and 2 percent

  • Requests for assisted housing by low-income families and individuals increased
    in 1999—only 21 percent of those eligible are currently being assisted

Families USA, a national health consumer group, reports that the majority
of those thrown off the welfare rolls were children under 19. A September
14, 2000 news release from the Institute for Public Accuracy, a Washington,
D.C.-based group making progressive viewpoints available to the mainstream
media (www.accuracy.org), cited comments from longtime welfare activists.
Frances Fox Piven notes, “It is really no feat, and no accomplishment,
to cut the welfare roles unless poverty among single mothers and their
children is also reduced.” Gwendolyn Mink, professor of Politics at the
University of California at Santa Cruz and author of Welfare’s End, said
“three years after leaving welfare, the median income even among employed
former recipients was only $10,924—well below the poverty line. The hardest
hit, are women of color and their children: welfare Reform has had an unmistakable
disparate racial impact,” she added.

In What Government Can Do: Dealing With Poverty and Inequality (University
Chicago Press), political scientists Benjamin Page and James Simmons, write:
“An analysis of 21 state reports found that most former welfare recipients—even
those who were working—were still poor; many had trouble paying for food
and utilities.” Citing an Urban Institute study, Page and Simmons report
that “about one-third were back on welfare within a year or two. About
25 percent of those who stayed off welfare had no one in the family working,
one-third had to skip meals or cut back on food.” The Children’s Defense
Fund and the National Coalition for the Homeless also found “only a small
fraction (8 percent) of former welfare recipients’ new jobs paid above
poverty wages—most paid far below—and extreme child poverty was increasing
even at a time of economic expansion.”

In their haste to cleanse their welfare rolls, states are failing to fulfill
their legal obligations to inform the poor of their rights. Author Karen
Houpert, writing in the Nation, examines this dirty little secret: “Safeguards
written into the law—like making sure a family has health insurance, food
stamps and daycare…have gone largely unenforced. What has evolved instead
is a system that pretends to offer such things but in practice withholds
them with alarming frequency, vastly expanding the ranks of the working
poor.” In states like South Carolina, Mississippi, Florida, and New York
abuses of the law are so egregious “former welfare recipients and applicants
have filed lawsuits against them for refusing to give Medicaid and food
stamp applications to eligible families.”

The privatization of welfare services has resulted in numerous examples
of the erosion of services. Many programs are seriously under-staffed and
there is a woeful lack of public accountability. There are an increasing
number of local stories exposing corporate misdeeds under the “cost of
doing business”—the amount of money corporations spend to wine, dine, and
pay off principles involved in making decisions about awarding contracts.
The public gets what its paying for—poorly run welfare services in the
hands of large corporations.

Maximus Inc.

When the 1996 welfare reform bill was signed, it set off a welfare privatization
gold rush. Privatization of government programs is not a new phenomenon—in
the early 1960s the Ross Perot-founded Electronic Data Systems (EDS), won
the contract to manage the Texas Medicaid program. As Adam Cohen pointed
out in Time, EDS made its fortune by “crunching financial data for agencies
like the Social Security Administration.”

One of the first companies to stake its claim was the McLean, Virginia-based
Maximus, Inc. City Limits Weekly wrote that “Maximus was no stranger to
privatization, having been the first company to privatize a welfare system—Los
Angeles County’s, from 1988 to 1993.”

Founded in 1975 by David Mastran, a former Defense Department analyst who
worked for the Department of Health, Education, and Welfare during the
Nixon administration, Maximus officials were optimistic about the profit
potential. Welfare reform “is, as yet, an undetermined revenue pool,” company
spokesperson Kevin Gedding told the Los Angeles Times in 1997. “But there
are billions of dollars in potential project work that need to be done
in the next four to five years.” Bernard Picchi, an analyst of growth stocks
for Lehman Brothers, told Time the potential market could easily be more
than $20 billion a year.

If there is any doubt that welfare “reform” has become a fruitful business,
check out these numbers—Maximus has grown from a $50 million operation
in 1995 to $105 million in 1996, to $319.5 million in 1999.

Maximus has more than 3,700 employees, located in more than 130 offices
across the country. It has recently renewed or signed new contracts in
a handful of states including Alaska, Illinois, Tennessee, South Carolina,
New Jersey, Kansas, Michigan, Pennsylvania, and Texas. According to the
AFSCME Leader the company also has operations in Buenos Aires, Argentina
and Cairo, Egypt. Maximus has done so well financially that Forbes magazine
selected it as one of the ten Best Small Companies in America in 1999.

Will the Real Welfare Cheats Stand Up

Although the bottom line has been soaring, it hasn’t been all good news
for Maximus. Negative headlines in newspapers around the country have highlighted
a series of corporate bad practices including the misappropriation of funds,
poor service provision, discriminatory practices at company offices, and
financial irregularities. The AFSCME Leader found that in 1994, during
the pre-welfare “reform” era, “Mississippi froze a child support collection
contract with Maximus when costs nearly doubled what the state had spent
previously.” In West Virginia the company was disqualified from bidding
on a state contract “after a state employee was convicted of taking a $20,000
payment from Maximus,” which was not charged in the case.

Maximus went public in 1997 and the following year the company came under
fire in Connecticut over a $12.8 million dollar contract to run the program
providing childcare for working welfare recipients. Within months Maximus
found its operations in disarray. Time reported, “More than half of the
17,000 thousand bills submitted by child-care providers were over 30 days
late in being paid. Day-care centers were confronted with decisions about
turning away children and parents trying to contact the company found that
the telephone system had virtually collapsed. “In terms of service here,
they’ve been abysmal,” noted Rick Melita, a spokesperson for the Connecticut
State Employees Association. “They underbid, over-promised, and they didn’t
deliver” he told Ethnic NewsWatch.

The breakdown in Connecticut was a harbinger of things to come. Significant
complaints against Maximus surfaced in other states as well. Privatization
advocates have long considered Wisconsin, where Maximus provides a complete
spectrum of Wisconsin Works (W-2) programs, the showplace of welfare “reform.”
Since 1997, Maximus garnered more than $100 million in contracts in Milwaukee
for welfare related services. During the past several months, The Milwaukee
Journal Sentinel
has reported on growing dissatisfaction with and rampant
improprieties in the way Maximus is running its contracts. A coalition
of Milwaukee-area church groups, representing 50 churches in the city and
suburbs, and 6 state lawmakers, including supporters of “welfare reform,”
have called for the termination of a $46 million Maximus contract that
provides job training and other services to welfare recipients.

The Milwaukee Journal Sentinel cited a late-July 2000 audit by the Legislative
Audit Bureau that “found nearly $800,000 in questionable spending by Maximus.”
This included “thousands in W-2 funds spent on soliciting contracts in
other states, concerts for W-2 clients by Broadway singer Melba Moore and
a holiday party for Maximus employees.” Jennifer Reinert, who heads the
state agency that oversees W-2, said auditors found no evidence of fraud,
and she blamed the problems on “sloppy bookkeeping.” Maximus has agreed
to pay back $500,000 for “improper spending of taxpayer W-2 money,” and
to spend another $500,000 on “extra services for the poor in Milwaukee
County to try to make amends.”

Milwaukee Journal Sentinel columnist Eugene Kane wondered how “a large
sophisticated company like Maximus—with welfare reform contracts in more
than two dozen states—could have made so many glaring mistakes.” Maximus,
“one of five agencies hired to help create a welfare ‘reform’ system here
that ended up being so confusing and poorly run that in little more than
three years, loads of frustrated poor people opted out of the system. Cutting
poor families off the dole proved so successful, W-2 enjoyed a huge surplus
of funds, mainly because the program was drastically overbudgeted in the
first place.”

While the Wisconsin situation was unfolding, Maximus was also under siege
in New York. According to the Mason City Iowa Globe-Gazette, New York City
comptroller Alan Hevesi refused to certify $104 million in welfare-to-work
contracts with Maximus, charging that the contract by Mayor Rudolph Giuliani’s
administration raised the appearance of “corruption, favoritism and cronyism.”
Hevesi concluded that Maximus was given an unfair head start in preparing
its bid. In April, a New York State Supreme Court justice blocked the contract
because of “compelling evidence that the contracting process has been corrupted.”
The Manhattan district attorney’s office launched an investigation into
the hiring by Maximus of a father-in-law and a family friend of New York
City’s welfare commissioner, Jason Turner, as the company was preparing
to bid on the city’s welfare contracts. (Turner was the architect of Wisconsin’s
welfare programs). However, in late October 2000, a state appellate court
overturned the decision blocking the contract. It was a victory a beleaguered
Maximus spokesperson called “vindication.”

In addition to financial shenanigans, the Milwaukee Business Journal, on
the basis of interviews with current and former Maximus employees, reported,
“16 formal gender or racial discrimination complaints have been filed with
the Milwaukee office of the Equal Employment Opportunity Commission, filed
against Maximus or one of its subsidiaries. In addition…as many as a dozen
internal grievances were filed with the company’s human resources office
related to unfair promotion practices.”

Lockheed Martin

Lockheed Martin is probably the biggest and most well known company involved
in welfare privatization. In the Nation, William D. Hartung and Jennifer
Washburn describe how America’s largest weapons manufacturer designed a
division of the company—Lockheed Martin Information Management Services
(IMS)—“to run full-scale welfare programs in Texas and Arizona.” Coming
on the heels of the company’s $885 million Pentagon contract, Lockheed
Martin’s grand strategy includes allowing private companies “to run entire
government programs; in the case of welfare and Medicaid, moreover these
are essential services, affecting the most disenfranchised members of the
population, who are least able to defend their rights.”

Lockheed Martin’s controversial and checkered history makes Maximus Inc.
look like a Girl Scout troop. Hartung and Washburn: “This is, after all,
one of the companies whose fondness for doling out bribes moved Congress
to pass the Foreign Corrupt Practices Act in 1977; the company whose multibillion
dollar overcharges on the C-54 transport plane made ‘cost overrun’ a household
phrase; and the company whose 1971 government bailout—a $250 million loan
guarantee with no strings attached —inspired former Senator William Proxmire
to coin the phrase ‘corporate welfare’.” Of course, there’s the legendary
$600 toilet seat Lockheed produced for the Navy.

In May 1995, Dan Shelley, then-Governor Bush’s legislative liaison, quietly
slipped a proviso “into the state’s welfare reform bill requiring a study
on privatizing public assistance.” From that point, the governor and a
number of his aides got involved; campaign donations were made by Lockheed
to Congressperson Dick Armey and Senators Phil Gramm and Kay Bailey Hutchison;
“an unprecedented (and some believe unconstitutional) public-private partnership
with the Texas Workforce Commission” was created; and, the unions initiated
a campaign accusing Lockheed Martin of “improper lobbying,” and “revolving
door hires.”

In the end, Lockheed Martin’s bid to completely overhaul Texas’s welfare
system was rejected. However, the company received several major contracts.
It has been quick to take credit for finding jobs for thousands of Texans
who had been receiving welfare. As it is with many other states, it’s difficult
to measure the long-term effects of Lockheed’s programs since, as Miriam
Rosen reports in the Dallas Observer, the state legislature doesn’t track
them. Rosen says, “the chief concern of many frontline poverty workers…is
the lack of research on the consequences of welfare reform. No one knows
whether Lockheed Martin’s success stories will end up back on the dole
in a few years.”

Kim Olsen, an organizer at ACORN, told Rosen she had informally interviewed
some 700 welfare recipients since the reforms took effect. Olsen “believes
that Lockheed Martin’s tactics have left many aid recipients in the dark
about benefits for which they are eligible—including educational and child-
care subsidies.”

Lockheed has won more than two dozen contracts providing several states
with case management, skills training, and job placement assistance. However,
its reputation as a service provider has come under criticism. In Baltimore,
Maryland, for example, where the company won a three-year contract to collect
child support, Lockheed “failed to meet performance goals” in its first
year. In California, the company and the state “mutually agreed to cancel
a contract for Lockheed Martin to build a computerized tracking system
for collecting child support…[when] the system’s projected costs had skyrocketed—from
$99 million to $277 million.”

America Works…But Does It Really?

Founded in 1984 as a private for-profit company by Peter Cove and Lee Bowes,
America Works has become another company eagerly sharing in the privatization
of welfare boom, with contracts in New York City, Albany, New York, Baltimore,
Indianapolis, and Miami. According to its website, its mission is to “change
peoples lives by lifting them from welfare dependency into the productive
world of employment.”

The company’s founders believe that poor work habits are major obstacles
to the long-term unemployed. Attaining and keeping jobs requires knowing
how to be “on time and reliable, take direction and behave appropriately.”
It is this “tough love” approach or “boot-camp-style job readiness” welfare-to-work
services that has made America Works the darling of Mayor Rudolph Giuliani
(NY), who made cutting the welfare rolls the centerpiece of his Administration.
Giuliani “raised some eyebrows a year ago,” according to the New York Times’
Jason DeParle, by bringing the above-mentioned Jason Turner “one of the
nation’s most uncompromising critics of public assistance,” on board to
run the city’s welfare agency. “Turner, a veteran of Wisconsin’s anti-welfare
campaign, designed his first welfare plan in junior high school, and he
has been refining his craft ever since.” America Works’ approach has also
received considerable positive coverage in the mainstream media.

The Hunger Action Network’s Mark Dunlea says that the company “focuses
on finding entry-level positions such as receptionists, secretary, mail-room
clerk, word processor, cashier, security or warehouse worker…[with] a typical
annual salary…rang [ing] from $15,500 to $18,000.” An often-voiced criticism
about America Works is that it skims off the best potential clients and
disregards the hard-core cases. “For example,” says Dunlea, “a worker who
has a family emergency and fails to comply with an attendance policy—far
stricter than in most workplaces—is typically kicked out of the program.”

A 1996 audit by New York State Comptroller H. Carl McCall pointed out that
America Works was under contract with the state to place AFDC recipients
in private sector, unsubsidized jobs. The company was paid by the state
when a client either: “(a) enrolled in the program, or (b) was placed in
a job by the program, or (c) retained the job for at least 90 days.” Dunlea
cites an AFSCME report claiming that America Works has received more than
$1 million from New York State “for people who never found jobs and for
placements that never became permanent.”

Transforming Nonprofits

An unintended consequence of welfare “reform” has been the transformation
of the nonprofit sector—particularly the better-funded national organizations—from
community assets to market-based competitors. The traditional distinction
between nonprofits investing in people and communities, and for-profit
entities that make money for their owners, is becoming blurred. In some
areas, for-profits and nonprofits are now in direct competition; in others,
they are creating partnerships to secure government contracts.

In the Harvard Business Review, William P. Ryan, a Cambridge, Massachusetts-based
consultant to foundations and nonprofit organizations, looks at the changing
landscape for nonprofits forged by government willingness to contract with
for-profit corporations to administer government services. Ryan points
out: “By playing in the new marketplace, nonprofits will be forced to reconfigure
their operations and organizations in ways that could compromise their
missions. The danger,” writes Ryan, “is that in their struggle to become
more viable competitors in the short term, nonprofit organizations will
be forced to compromise the very assets that made them so vital to society
in the first place.”

At the most elementary level, welfare reform allows nonprofits unprecedented
access to cheap labor. Steve Williams, executive director of the San Francisco,
California-based People Organized to Win Economic Rights (POWER), observes
that both for-profit and non-profit sectors derive this benefit from SFWorks,
the city of San Francisco’s welfare-to-work program. According to Williams,
private companies hire at “just above the minimum wage.” Companies like
United Airlines and Burger King place workers in short-term, low-paying,
dead-end jobs that require a minimum commitment on the part of employers.
When they hire welfare workers, SFWorks reimburses them for a major part
of their salary outlay.

One of the most insidious consequences of the San Francisco County’s welfare-to-work
program is that local nonprofits and private businesses are able to “steal
jobs from low-wage workers, for whom these jobs no longer exist.” This
short sighted pitting of low-wage workers against welfare workers threatens
to create a new group of unemployed workers, who may find themselves applying
for welfare benefits.

To compete in the marketplace, nonprofits are adapting to its new realities
in a myriad of ways, “from subcontracting to partnership to outright conversion
to for-profit status,” writes Ryan. He points to the YWCA of Greater Milwaukee,
which although “large and sophisticated by any nonprofit standard…could
not go it alone.” In order to deal with the “demand of a comprehensive,
$40 million welfare-to-work contract, it created a for-profit limited liability
corporation [called YW Works], with two for-profit partners.”

In addition to unleashing predatory corporate forces, and the ongoing transformation
of nonprofit organizations into high stakes competitors for government
contracts, the Personal Responsibility and Work Reconciliation Act of 1996
contains the first enactment of a concept known as “charitable choice.”
Far from expanding anyone’s choices, “charitable choice” mandates that
state and local governments include religious organizations in their pool
of bidders for service-delivery contracts.

On the face of it, this is nothing new. As Cathlin Siobhan Baker, Co-Director
of the Employment Project, explains, for years religious organizations
have received government funding for emergency food programs, child care,
youth programs, and the like. However, they were expressly prohibited from
religious proselytizing.

Now, Baker writes: “Gone are the prohibitions regarding government funding
of pervasively sectarian organizations. Churches and other religious congregations
that provide welfare services on behalf of the government can display religious
symbols, use religious language, and use religious criteria in hiring and
firing employees.”

President George W. Bush has been a big-time supporter of charitable choice
and faith-based initiatives. If his faith-based initiative, announced to
great fanfare in late January, ever gets back on track, it will allow for
a bunch of social services to come under the control of faith-based organizations.

During the presidential campaign, Bush repeatedly called for “armies of
compassion” fielded by “faith-based organizations, charities and community
groups” to help aid America’s poor and needy. In a USA Today opinion piece
he laid out his plan for taking “the next bold step in welfare reform,”
proposing $80 billion over 10 years in tax incentives to “help our nation’s
most heroic armies of compassion.” He also proposed a federal initiative
to “support community and faith-based groups that fortify marriage and
champion the role of fathers.”

Right-wing ideologues find charitable choice attractive because it not
only deflates government services, but it injects a “moral framework” into
the welfare debate. Welfare is no longer a question of poverty or the economic
inequities in our society. Charitable choice frames the debate within such
time-honored moral hodgepodge as the proverbial “epidemic of out-of-wedlock
births,” or the “lack of personal responsibility”—behaviors that conservatives
claim, contribute to the general moral breakdown of our society.

Since 1996, responsibility for welfare services has shifted from the federal
government to the states and the states have contracted many services out
to for-profit corporations and non-profit organizations. Under President
Bush’s faith-based initiative, religious organizations will become a major
player in the service provider mix. However, in addition to the bevy of
objections raised by liberals and conservatives that have stalled the implementation
of Bush’s faith-based plan, many people of faith do not believe that they
can shoulder such a burden.

In Religion-Sponsored Social Service Providers: The Not-So-Independent
, independent researchers Jim Castelli and John McCarthy of Pennsylvania
State University, conclude that it is mistaken to believe that faith communities
can take on the burden of expanding their provision of social services
as a substitute for government efforts. “Not only is there no infrastructure
at the national, state, or local levels to administer programs and large
amounts of funding, but such expansion would require faith communities
to wholly change their funding priorities in order to build their capacity.”

Privatization as the engine powering welfare reform was supposed to replace
federal and state bureaucracies with streamlined, cost-effective corporate
service providers. Privatizers believed that private companies would administer
welfare regulations more stringently and accurately, deliver services more
efficiently, and focus on only those who really deserved benefits. Saving
the taxpayers money was another appealing promise. Companies competing
for contracts assured states that they would dramatically reduce the welfare

Has the privatization of welfare delivered on its promises? Have private
companies and enterprising nonprofits transformed the old welfare system
with the outcome of long-term employment with decent pay for former welfare
recipients? Max Sawicky, economist at the Washington, DC-based Economic
Policy Institute, is troubled by the fact that the so-called “success [of
welfare privatization] was announced before the results are in.”

In a 1997 speech, Lawrence W. Reed, President of the conservative Midland,
Michigan-based Mackinac Center for Public Policy, touted privatization
as the wave of the future: “The superiority of [privatization]…is now approaching
the status of undisputed, conventional wisdom: the private sector exacts
a toll from the inefficient for their poor performance, compels the service
provider or asset owner to concern himself with the wishes of customers,
and spurs a dynamic, never-ending pursuit of excellence – all without any
of the political baggage that haunts the public sector as elements of its
very nature.”

After four years of welfare reform there is evidence that privatization
has been successful, not for the people who were supposed to be moved out
of poverty, but for corporate profiteers.

  • While welfare privatization has delivered drastic reductions in caseloads
    and welfare rolls, it has not moved recipients from the “underclass” to
    the working class. Privatization is not efficiently delivering job training
    and support services to those who need them.

  • The financial bonuses privatizers receive for reducing caseloads create
    an incentive to terminate clients’ benefits, not to assist them in climbing
    out of poverty.

  • As in the case of Curtis and Associates, staff working for private companies
    often have neither the credentials nor the training to handle their caseloads.
    Consequently, clients do not receive services they need, and to which they
    are entitled, such as childcare, transportation subsidies and medical care.

  • As Wisconsin, New York, and Texas have learned to their chagrin, companies
    like Maximus and Lockheed Martin blithely spend public money from other
    jurisdictions to wine, dine, and pay off decision-makers in the pursuit
    of new contracts.

  • The states and local governments that contract with corporations for welfare
    services have not instituted any form of systematic oversight.

  • Because information about large private contractors is not centralized,
    it is not unusual for a company in hot water one place to pick up new contracts
    at the same time in another state—or in another county in the same state.

  • Ultimately, for-profit corporations are accountable to their shareholders,
    not to the communities they are hired to serve.

Spurred by revelations of Maximus’s questionable activities, Milwaukee-area
Democratic Congress- people Jerry Kleczka and Tom Barrett, are hoping the
federal General Accounting Office will fully investigate the practices
of private companies hired to manage welfare services. As we move closer
to welfare reauthorization, the GAO needs to vigorously take on the Congresspeople’s
request. In the meantime, corporations will continue prospecting for gold
among the poor.                                          Z

Bill Berkowitz is an Oakland, California-based writer covering the religious
right and related conservative issues. Thanks to the staff of the Applied
Research Center, and Gale Bataille, for her editorial and moral support.