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Welfare Reform Incorporated: Social Policy Going Private

By Judith Havemann
Washington Post Staff Writer
Friday, March 7 1997; Page A01

As states begin remaking their welfare programs, several are turning over whole sections of their bureaucracies to private industry, a move that could eliminate tens of thousands of government jobs and leave some states with an unprecedented reliance on big business to carry out social policy.

Texas hopes to contract out 13,000 welfare jobs now held by state employees. Wisconsin has handed over the administrative tasks of welfare in part of Milwaukee County to a Virginia-based company called MAXIMUS Corp. The Arizona legislature is considering whether to go further yet: eliminating the state welfare bureaucracy and turning the job of caring for the poor over to the private sector.

For years, states have been relying on business to carry out what used to be considered government work; food conglomerates manage school cafeterias and banks in many areas have taken over the collection of taxes. More recently, an entire new industry has emerged to run prisons.

What makes welfare stand out is that, rather than simply performing management duties, companies are in position to become decision-makers, helping to determine who gets what help and under what circumstances.

For business, welfare reform is being viewed as a lucrative new field that promises to become a multibillion-dollar enterprise. But it is also becoming clear that, as the nation undergoes what could be one of the largest transfers of public sector operations into private hands, powerful opposition to the idea is forming.

Among the strongest opponents of welfare privatization is organized labor, which believes the move could cost unions thousands of state jobs. Advocates for the poor, meanwhile, worry that corporations will be more interested in protecting their bottom lines than the interests of the needy, particularly if those two goals diverge.

In the middle of the dispute is the White House, which must approve any broad privatization plans, but, according to those on both sides of the debate, seems paralyzed about what to do.

At stake is the shape of welfare reform to come as states begin the job of moving millions of women with children into the work force. States see privatization as a way to inject efficiency, up-to-the-minute technology and private sector performance into the backwaters of their welfare offices. They say turning over large sections of this task to business will save states money and provide better service to the welfare clients for whom they are trying to find jobs.

But the labor unions that represent government workers argue that states are unfairly taking these jobs away and being shortsighted about the dangers of reliance on big business.

"This 'reform' enables big business to rack up huge profits, while facilitating potential losses in public accountability and client confidentiality," said the American Federation of State, County and Municipal Employees, which represents 1.3 million workers nationwide.

The privatization is particularly troublesome to unions because their members are already being threatened by job losses as states such as New York start requiring thousands of welfare recipients to begin working for the city and state governments in return for their benefits. In all, more than 50,000 poor Americans are picking up trash, scrubbing trains and filing papers to work off their welfare and food stamp payments in various cities. The program is growing so fast that "workfare" laborers outnumber paid workers by 3 to 1 in some places.

Organized labor, unable to block the expansion of the program at the local levels, has been pressuring Washington to pledge that welfare recipients at least be guaranteed the minimum wage and other protections.

Welfare reforms' threats to organized labor come together in Washington, where several federal agencies are deciding what standards the federal government will require states to meet in contracting out welfare, food stamps and Medicaid administration, as well as in state workfare proposals.

The largest and most far-reaching plan comes from Texas, where the legislature voted in 1995 to contract out the jobs of about 13,000 workers who determine eligibility for welfare, food stamps and Medicaid. Among those bidding for the contract are Lockheed Martin Corp., IBM, Electronic Data Systems Corp. and Andersen Consulting, a subsidiary of the accounting firm Arthur Andersen & Co.

Federal agencies have been contemplating the Texas proposal since June, under heavy union pressure to block it by any means possible. After months of questions and information exchanges, federal officials sent the state a curious letter in January:

"We cannot provide a final decision on your request at this time. . . . The issues . . . are being discussed at the highest level within the Department of Health and Human Services," the letter said. A second letter went out last Friday, warning Texas that it might be jeopardizing federal funds it if proceeds.

But after informing HHS that each month of delay is costing Texas taxpayers $10 million, the state decided to move ahead without Clinton administration approval. "We spend half of our money [on welfare] for eligibility systems," Texas Gov. George W. Bush (R) said in an interview, "an amazing statistic." He suggested that the federal delay might be caused, in part, by organized labor. "Public employee groups are nervous . . . that it will set a precedent," he said.

The state believes that by further automating its practices, it will improve the level of client services, and at less cost to the state. Texas expects to save 10 to 40 percent of the $550 million it now spends to administer these programs. By fall, the state hopes to have the new system up and running.

Organized labor has a two-track strategy to derail the privatization proposals before then: the national track, where the union presidents are seeking repayment of the investment they made in President Clinton's reelection campaign; and the state track, where they are lobbying legislatures, the public and welfare clients about the dangers of privatization.

National union presidents met with White House Chief of Staff Erskine B. Bowles, national economic adviser Gene Sperling and others in late January, seeking to block the Texas plan. Unions have also inundated federal agencies with thousands of letters protesting the plans.

"We have been raising hell in every forum we have," said Michael Gross, the organizing coordinator for the Texas State Employees Union, part of the Communications Workers of America.

Gross said he is concerned that private companies will cut the number of people administering welfare and replace them with computerized kiosks or other measures that would reduce the work force.

Lockheed said it has no intention of replacing welfare caseworkers with computers and voice mail. "We have always said that this is a people business and the most important person in the welfare system is the front-line worker," said Gerald Miller, senior vice president and managing director for Lockheed's welfare reform services division, himself a former Michigan welfare commissioner. "We have a team of people who have run welfare programs throughout the country, we know how to run programs, how to help people find jobs and we have an outstanding technology partner."

Robert Stauffer, a vice president with EDS, said, "We are going to be using technology as an enabler, but blending the best of the private sector way of doing things with the best of the public sector."

Even in states more labor-friendly than Texas, union campaigns against privatization have won only limited success in the welfare reform bills that are moving through legislatures.

New Jersey unions succeeded only in winning a one-year moratorium on privatization, and they failed in an effort to guarantee the minimum wage to recipients who are required to work off their benefits in workfare jobs.

While federal and state governments have been contracting out work for decades, often over organized labor's objections, poverty advocates say new dangers are presented when the work to be privatized is welfare.

Advocates for the poor fear that putting profit-making companies in charge of welfare will cruelly twist the incentives from assisting the poor to making money.

"Starkly put, companies have a duty to shareholders to make the maximum profit possible," said Henry A. Freedman, executive director of the Center on Social Welfare Policy and Law in New York.

Other advocates fear that if a company's profits are tied to reducing the number of people on welfare, the firms will work to manipulate the system to keep poor women from signing up in the first place, force recipients into jobs lasting just long enough so they can collect their money; or even offer up clients to perform free work in exchange for employer "training." The goal of welfare reform is to make poor families self-sufficient.

MAXIMUS, the Virginia firm that won the Milwaukee contract, dismisses such speculation. "It is insulting to the people in [state] social services to say they are so dumb that they would construct contracts that don't protect the recipients," communications director Kevin Geddings said. "Clearly the incentive is to get people into well-paying jobs. The bottom line is tied to how well the client does."

© Copyright 1997 The Washington Post Company

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