Cozy Ties

In the battle to privatize welfare services in Texas, corporate bidders have enlisted some inside help

Mike McKinney was fed up. For eight months, McKinney, the head of the Texas Health and Human Services Commission, and other state officials had been awaiting the Clinton administration's ruling on a controversial Texas plan to privatize welfare. But still there was no sign of approval out of Washington. Governor George W. Bush -- and the corporations that stand to profit handsomely from privatization -- were itching for the state to begin the contracting out of some $2 billion worth of welfare programs.

By late February of this year, their patience was wearing thin, so McKinney fired off a letter declaring that "due to the delay in federal action" Texas would begin soliciting corporate plans for the vast privatization undertaking -- with or without federal approval. In response, the U.S. Department of Health and Human Services warned McKinney that "should the state proceed with its plans to release [the privatization bid offering] without our approval, it would be doing so at its own risk ... putting in question federal financial participation."

In May, nearly a year after Texas first requested federal approval to contract out a complex web of welfare services, the Clinton administration finally said the state's proposal went too far -- rejecting what McKinney has called "a model for the rest of the nation."

Indeed, the plan had captured national attention for being at -- or perhaps just beyond -- the cutting edge of President Clinton's sweeping call for the "end of welfare as we know it." Clinton's 1996 reforms enable states to hire businesses to run some welfare-administration programs, but Texas was the first to attempt privatization on a state-wide basis.

There is a great deal of money and power at stake in the Texas gambit, which has resulted in a struggle pitting state employees, anti-poverty advocates and some Democratic legislators against the Bush administration and the corporations waiting in the wings to operate welfare services. In what would be the nation's most lucrative and expansive welfare privatization, Texas intended to put up for bid a multiyear contract worth some $2 billion. On the block was the Texas Integrated Enrollment Service, or TIES, a statewide system that would dramatically restructure the way that eligibility is determined for nearly a dozen welfare-related programs.

The system would coordinate and computerize eligibility reviews in "one-stop shopping" centers where people could apply for several benefits at once. Critics of the plan claimed it was a model for mass layoffs of public employees and neglect of welfare recipients. Handing welfare over to private, for-profit firms, they argued, was counter to the whole idea of public assistance, and they warned that corporations would turn away welfare recipients in order to turn a profit. Proponents depicted a win/win scenario, insisting they could serve people more efficiently and cheaply than state government.

Several powerhouse corporations en-tered the bidding fray for the $500 million-a-year TIES contract: Lockheed Martin Information Management System (a subsidiary of the $30 billion defense department contractor), Electronic Data Systems (Ross Perot's old firm), IBM and Arthur Andersen Consulting.

In its jockeying for the inside track, Lockheed Martin IMS lured onetime aides to high-ranking state officials onto its lobbying team -- prompting a storm of protest and an investigation by the Travis County Attorney into possible violations of the state's Revolving Door Act.

According to Mack Martinez of the County Attorney's Office, the investigation is ongoing and hinges on how closely any former state employees were connected to the programs on which they are now lobbying. Texas's revolving-door law, Martinez muses, "is not as tight as we'd like it to be."

The 1991 law requires state agency officials and executives to wait two years before lobbying or otherwise influencing issues they worked on while in office. According to the statute, those officials "may not represent any person or receive compensation for services rendered on behalf of any person regarding a particular matter in which the former officer or employee participated during the period of state service or employment."

Legal or not, state Representative John Hirschi, a Wichita Falls Democrat and critic of the privatization move, found the hasty exodus from the public sector to private concerns seeking state business to be disturbing. "These high-ranking officials would be of great value to these companies," said Hirschi. "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."

Relations between the government officials overseeing the TIES contract and the corporations vying for it are incestuous, to say the least. Several of the well-connected lobbyists retained by corporate bidders once worked as top aides to the politicians who sit on the Texas Council on Competitive Government -- a powerful six-person agency that will make pivotal decisions about who wins the TIES contract.

The CCG, created by the Legislature in 1993, includes Governor George W. Bush, Lieutenant Governor Bob Bullock, Comptroller John Sharp, House Speaker Pete Laney, General Services Commission Chairman Alphonso Jackson and Texas Workforce Commission member David Perdue. The council's mandate and scope are far-reaching. Its chief purpose is to study and propose government cost-cutting through competitive bidding and privatization. To this end, the council can require any state agency to enter a bidding competition with "private commercial sources." It can also "prescribe ... the specifications and conditions of purchase procedures that must be followed ... to provide a service," according to the Texas Government Code. Perhaps most important, the council has power to award state contracts to the public or private bidder who "presents the best and most reasonable bid, which is not necessarily the lowest bid."

The council has been one of the prime forces behind TIES. Original TIES planning documents described CCG as "the sole point of contact with regard to all procurement and contractual matters" relating to TIES. The council, in tandem with the Health and Human Services Commission, was also charged with reviewing bids and awarding contracts for TIES. The CCG's decision-making power has been diluted somewhat by legislation that Bush signed a few weeks ago creating a major TIES oversight role for the Legislature and requiring public hearings before a contract is awarded. Nonetheless, the CCG remains a key player in the revamping of Texas's welfare system. Among the arrangements that critics have called into question:

Comptroller Sharp's former director of communications, Greg Hartman, now heads up the Southwest branch of MGT of America, a consulting firm that was in line to evaluate the performance of TIES contractors. While working for Sharp, Hartman helped design initial plans for privatizing human services, according to the Texas State Employees Union. Hartman did not respond to a request to be interviewed for this story.

Lieutenant Governor Bullock's former special assistant, Steve Bresnen, is now registered as a lobbyist for Lockheed Martin IMS. Bresnen denies he has any conflict of interest, insisting, "When I worked for the lieutenant governor, I had zero, zip, nada to do with this [welfare privatization] project." But Bresnen added, "If there should be a legislative effort to shape or inhibit the project, we will be lobbying."

Another member of Lockheed's all-star lineup, Richard Evans, has worked as an aide for two CCG members -- Bush and Workforce Commission head Perdue. According to the Texas Ethics Commission, he now works as an assistant to Lockheed lobbyist Dan Shelley, himself a former top Bush aide and a onetime Republican state senator from Crosby.

As Bush's chief welfare lobbyist and legislative director, Shelley convinced the 1995 Legislature to pass bills creating strong incentives for contracting out welfare to private firms. One measure authorized the CCG to study the cost-savings potential of privatizing human services.

"As soon as the bill was passed, Shelley went to work for Lockheed," says Lynn McCray of the Texas State Employees Union, which raised the complaint that led to the Travis County Attorney's investigation.

Lockheed IMS spokesman Ron Jury denies that his firm has any conflicts of interest. "Our employees did absolutely nothing improper. Our company maintains the highest ethical standards and follows the ethical requirements of any state we do business in." But after claiming that none of Lockheed's lobbyists had a direct hand in privatization legislation, Jury quickly called back to amend his comments: "I believe I gave you some erroneous information by suggesting that Dan Shelley wasn't involved in some aspect of the legislation when he worked for Governor George Bush."

A call to Shelley produced a more revealing response. A message about "welfare reform" left with Shelley's lobbying office several months ago was returned by Lockheed consultant Bill Miller, the ubiquitous lobbyist and adviser who's worked for Mayor Bob Lanier, the city of Houston and developer Wayne Duddlesten on his convention center hotel proposal. Miller stressed that Lockheed is "just one of Mr. Shelley's clients" and also downplayed Shelley's role in welfare privatization, saying it was "just one of his responsibilities." But Miller added: "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."

Rick Levy, legislative director of the Texas AFL-CIO, contends that Lockheed, in lieu of expertise in welfare, was banking on its name recognition and political connections: "It's a very sophisticated system of using the leverage they've gained with power in government through defense contracting, and now plucking out the highest leaders in the system they're looking to run."

Lockheed isn't the only company with a potential conflict of interest. According to the Texas Ethics Commission, Mike McKinney, the Health and Human Services commissioner, also worked in 1995 as a lobbyist for EDS -- one of the firms bidding for the welfare contract. Now, McKinney's commission will review his former client's bid. McKinney was unavailable for comment, but Health and Human Services spokesman Charles Stuart denied that McKinney's past connection to EDS poses any conflict.

Another questionable public-private meshing -- recently discontinued by state lawmakers -- joined state agencies and for-profit corporations in bidding "consortiums" competing for the TIES contract. One such team involved the Department of Health and Human Services, EDS and Unisys; another conjoined IBM, Lockheed Martin IMS and the Texas Workforce Commission. The consortiums exacerbated the potential conflicts of interest, since many of the corporate lobbyists and their public allies had worked for both competing and oversight agencies. The new law dissolves these consortiums and directs them to work "in concert," as Health and Human Services' Stuart puts it, to redesign welfare eligibility and delivery programs.

The angling for TIES has its roots in 1995 legislation that called, rather innocently, for a "privatization study" to evaluate the cost savings of outsourcing human services. With bipartisan approval, the Legislature created TIES.

No mere bureaucratic reshuffling, TIES was aimed at "streamlining" services and cutting costs through layoffs and competition between public agencies and private firms. TIES's emphasis on downsizing and contracting out government programs drew opposition not just from the Clinton administration, but from state and national unions, which warned that for-profit welfare administrators will skim public employees and welfare recipients in order to meet the corporate bottom line.

"We feel that a corporation whose chief motive is profit won't be hiring the people with the right skills, and won't pay well enough to attract people who are trained enough to know what welfare recipients need and what they can get," says the TSEU's McCray. Her union represents some 5,000 public workers who could lose their jobs to private firms. "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."

Meanwhile, state Representative Hirschi worries that for-profit firms may leave rural and special needs clients out in the cold: "There's some concern that these for-profit companies would tend to skim those that are most easily employable," says the Wichita Falls legislator, "and would be less interested in taking care of special needs clients, who we worry would fall through the cracks."

Not so, retorts Health and Human Services' Stuart, who 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 being kept confidential. Stuart concedes, however, that "efficiency" innovations will involve layoffs: "The majority of the savings are in personnel."

Promoters say TIES is a benign efficiency measure that will improve access and reduce duplicative paperwork. But the project's expansiveness -- simultaneously integrating and privatizing cash assistance, food stamps and Medicaid programs -- may be its downfall. In its rejection of the current TIES plan two months ago, the Clinton administration cited federal laws requiring that food stamps and Medicaid be handled by public "merit system" employees. Several Republican congressmen from Texas -- including Bill Archer, Dick Armey and Larry Combest -- are now lobbying the House Agriculture Committee in an attempt to privatize food stamp programs.

The Clinton administration was careful to leave an opening for future TIES approval. After all, Clinton's 1996 welfare reform law enables -- some say encourages -- privatization of cash assistance programs (now called "Temporary Assistance for Needy Families," or TANF). In their May letter to McKinney, federal authorities said that "with respect to the administration of TANF, [Texas] can use non-public employees without limitation."

Following the federal rejection of TIES and mounting opposition in Washington and Austin, the Legislature revamped the program in its recently completed session -- retaining its goals while changing its ways. The new law creates a TIES legislative oversight committee, which, along with the Legislative Budget Board, will participate in the design and approval of the new program -- loosening somewhat the Council on Competitive Government's once-tight grip on decision-making about welfare reform.

"We were not looking for a wholesale outsourcing of the entire social services system in Texas without legislative approval," says state Representative Garnet Coleman, a Houston Democrat who co-sponsored the House version of the bill. Coleman says the new law was an attempt to bring "balance" to the process and to address the "appearance" of favoritism by the Bush administration toward Lockheed IMS.

Yet the future scope of TIES under the new law remains uncertain -- and subject to varying interpretations as long-standing opponents gird themselves for the latest battle in Texas's welfare war. Those opposed to privatization say this June's reforms -- including an explicit requirement of federal approval for any new program -- will likely diminish TIES. But backers of the original plan insist the law enables TIES to expand, not shrink.

Unions and public-interest groups hope the law will downsize the corporate outsourcing efforts. In particular, they cite the measure's stipulation that TIES planners give priority to computer-system changes, saying that such a provision shifts the emphasis away from the sweeping privatization of human services contemplated previously.

Levy and others also praise the law for requiring strict cost-benefit analysis of privatization and for ensuring that quality of service be weighed along with cost-cutting. "Before, the only real consideration was money -- the contractors making it and the state saving it," says Levy.

Yet despite the new priority on computer acquisitions and oversight, the bill still allows the state to fully privatize its welfare eligibility review system. Stuart says the new and improved TIES retains its original goal: "to streamline and integrate the system. The bill leaves open-ended the question of privatization." Rather than paring down TIES, Stuart says, officials are "looking at broadening the scope to include service delivery." Stuart downplays the outsourcing issue, insisting, "The goal has never been privatization. It's really just a tool, one of the methods to get there. The goal was never, 'Let's see how much we can contract out.' "

Equally disturbing to critics is the shroud of secrecy surrounding TIES -- a problem they say is inherent to privatization.

"There is an enormous amount of misinformation that results in recipients being disqualified," says Bruce Bower, staff attorney with the Texas Legal Services Center in Austin. "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."

Indeed, the companies held their plans close to the vest. And federal and state agencies refused to provide details of the soon-to-be-privatized programs, claiming this would ruin the competitive bidding process.

"That's a confidential document," said Colleen Daly, director of the state systems approvals division of the federal Department of Health and Human Services, when asked for a copy of the "request for offerings" which details which Texas programs will be up for bids. In response to a Freedom of Information Act request, the DHHS released just 15 of 686 pages relating to the Texas request for offerings that the Clinton administration subsequently rejected, claiming the bulk of the records contain "proprietary" and "confidential" information.

According to Bower, the Council on Competitive Government denied public input at vendor forums designed to help private companies prepare their bid proposals. "They established a room that members of the public don't have access to," he says. "It's like a chapter of 1984 that George Orwell never got around to writing."

Levy claims that the secrecy was a ploy to skirt opposition. "Nobody can get access to see what they're having these companies such as Lockheed bid on. The bids are private, but usually what's not private is what you're asking people to bid on, and that's what's so frustrating. We're talking about billions of dollars here, and the secrecy is outrageous."

Levy says the legislative oversight provided by the new law marks a "victory for people who are advocates of public decision-making and public accountability" and should put an end to the backroom deals. "Whereas before you had Lockheed and the governor working behind the scenes where nobody had access," Levy adds, "you now have public access. It's not going to be the governor and his boys behind closed doors."

But the new law is not a panacea for concerns about layoffs and outsourcing, Levy cautions. "There's nothing they [privatization promoters] couldn't do before that they can't do now." The agenda remains, as Levy puts it, "to transfer the money from workers and people receiving benefits to the coffers of these corporations."

(Christopher Cook is a freelance reporter who has written for the Christian Science Monitor, the Nation and In These Times.)

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