It's graduation day at the Service, Employment & Redevelopment Center, or SER, and Tejano music and the smell of fresh tamales fill the hallways of the one-story building in the Gulfton area of southwest Houston.
About 80 people from more than a dozen countries have crowded into an empty classroom to celebrate having attained a certain proficiency in the English language. Actually, the end of an English-language course at SER is more like a pep rally, with testimonials and punch, than an actual graduation ceremony.
The students have reached the end of a 12-week program of five-day-a-week, three-hour-a-day instruction in a new language. Some of the graduates will move on to the next level of instruction. Others will continue the college educations they began in their native countries. And then there are those, now that they have a working knowledge of English, who will try to find something better than the menial, low-paying jobs they have always had.
"The whole push here is to get ahead in employment," says Margarita Flores, who runs the programs at SER's family learning center, "and for a lot of them, all they lack is the language skills."
Places like SER are at the heart of the state's welfare-reform efforts. Tucked away in a tough, low-income neighborhood, it is one of dozens of small social-service agencies that provide everything from English classes to advanced occupational training to job placement for unemployed and underemployed people in Houston.
Such community-based organizations are likely to become critical resources for poor, hard-to-employ people who need training and job-placement services. Changes in federal law now require welfare recipients to find work within two years or lose public assistance. Benefits are limited to a total of five years over a lifetime. Other changes could result in cuts in food-stamp assistance.
At the same time federal welfare reform is making employment services more important, changes in state law seem designed to reduce the quantity and quality of those services. The city's poor could be most affected by a change in who controls federal job-training funds earmarked for Houston.
In the past, the city's nonprofit administrative agent, Houston Works, received an annual allotment of roughly $10 million from the federal government. The nonprofit then doled out subcontracts, approved by City Council, to about 30 small, community-based nonprofits and for-profits to provide training and job-placement services.
But under state welfare-reform legislation passed in 1995, control of those moneys will be turned over to a regional body, the Gulf Coast Workforce Development Board, on July 1. The '95 law also requires that the Gulf Coast board competitively bid employment and training programs traditionally performed by state agencies.
Last month, in the first major privatization of welfare services in Houston and Harris County, the GCWDB approved a $9.2 million contract with Lockheed Martin IMS, a subsidiary of the giant defense contractor, to provide employment services to welfare and food-stamp recipients. The contract has angered the Texas State Employees Union, whose members have been providing those services for decades. Moreover, in a departure from the standard approach to privatization, the state prohibited its own agency, the Texas Workforce Commission, from bidding on the job-training contracts.
"This whole thing, the legislation, was never intended to go this way, where we're basically going to put the state out of business," says Richard Shaw, a member of the Gulf Coast board and director of the Harris County AFL-CIO, who voted against the Lockheed proposal. "My thought was, let the Texas Workforce Commission continue to do what it's doing, and in the meantime, let [the local boards] redesign and restructure the way people get jobs."
Likewise, privatization has forced agencies like SER and the for-profit Employment Training Center to let go of the social safety net. In a further attempt to cut costs through competition, the Gulf Coast Workforce Development Board last month put an estimated $11 million worth of contracts, normally available to smaller, community-based agencies through the city and Harris County, out for competitive bids.
While Houston Works will likely retain a portion of those contracts for the city, Lockheed Martin is expected to bid on a significant portion of the funds as well. Since Lockheed plans on providing its own services, as well as exploring ways of computerizing them, fewer subcontracts will be available for community-based agencies that, like the state and its employees, have been doing this work for years.
Irma Gonzalez, who founded Employment Training Centers with her husband, Robert, in 1986, says she might have to cut services by as much as $1.5 million.
"There would definitely be some layoffs," she says. "We would have to look for other sources of funding, other opportunities."
Given that the state's welfare-reform effort is called "Work First," it's more than a little ironic that, so far, the only sure thing about the privatization of employment services is the loss of state jobs and the reduction of community-based organizations that offer education and job training to the unemployed.
And while competition is supposed to be the key to cutting welfare costs and improving performance, state law has made it all but impossible for these smaller agencies to compete directly for job-training funds. Again, the culprit is the '95 legislation, which mandates a two-tiered welfare-employment system that operates on the "career center" model.
The first tier is limited to career center operators -- those agencies, such as Gulf Coast Careers of Harris County, that will assess clients and make the appropriate referrals to education and training programs or, in some cases, actual employment. The second tier is limited to agencies or contractors like Lockheed Martin that can provide occupational training and education to those referred by the career centers.
Agencies that do both -- such as SER and Employment Training Centers, a for-profit company that operates 16 full-service training and placement centers in Houston --will be forced to cut their operations in half if they want to compete for welfare-employment funds. Some organizations might not be able to survive the operation.
"In the long run," says state Representative Garnet Coleman, "I think all of this will be hurtful to the infrastructure of nonprofit, community-based organizations that have been willing and able to provide these services to people they are closer to."
Just as uncertain is how a profit-driven behemoth like Lockheed Martin, which inspired the term "corporate welfare" way back in 1971, will achieve its goal of getting people off the dole and into meaningful jobs. Indeed, since the corporation jumped into the social-service business in the early 1990s, it has suffered several infamous failures that have cost taxpayers millions of dollars.
Last summer, Connecticut canceled a $14.3 million contract with Lockheed Martin IMS after a faulty computer system built by the corporation nearly delivered $8 million in overpayments to foster parents. In California, Lockheed Martin was dumped after the cost of a new computer system to track child-support payments ballooned from $99 million to $277 million. Unfortunately, the contract limited Lockheed's liability to just $4 million, meaning taxpayers will have to foot the bill for -- well, you do the math.
Of greater concern is Lockheed's motivation, which, if its shareholders have any say in the matter, is to make a profit. Before the federal government squashed it last May, Lockheed was on track to manage the Texas Integrated Enrollment System, a plan to privatize public-assistance programs, including determining who is eligible for them.
Lockheed had proposed to "divert" two million recipients of welfare and unemployment benefits into job-training and -placement programs. Considering that the state's largest job-training program accommodates only 30,000, Lockheed's proposal seemed ridiculously optimistic. It also got people thinking about the kind of jobs and training people would be forced into so Lockheed could meet its performance-based goals.
Coleman, who co-authored the welfare-reform legislation, says he is wary of the state's rush to privatize its welfare-employment services. Coleman points out that under the new federal welfare law, those people who do not have a job in two years will be tossed off the dole. And if they do have a job, they'd better hang onto it, because there is now a five-year lifetime cap on welfare benefits.
"I'm not a fan of the way we are doing this," Coleman says. "For-profit entities have to satisfy their owners or stockholders, and a lot of times, they may be able to create certain savings in the short run. What we have to be concerned with is the people who receive the services. The reality is that there are people who need the services, and if they do not get them, they will be off the rolls."
Coleman says privatization will reduce the federal and state dollars available for agencies like SER, which will have to find other sources of funding or shut their doors.
Herlinda Gonzalez, executive director of SER, says she's committed to somehow finding the money to continue the agency's programs. In the meantime, however, her most immediate fear is for students enrolled in her agency's six-month business-training course. The next class begins in April, but if SER loses its funding come July 1, the class might not make it to graduation.
"This is a beautiful program that has had spectacular results," Gonzalez says. "But those students who start in April won't be able to finish their training."
A question worth asking is: How is it that the fourth-largest city in the country -- a major urban metropolis populated by 60 percent black and Hispanic residents, many of them poor -- is forced to compete with 13 largely rural counties for social-service dollars?
The situation dates back to January 1995, when state Comptroller John Sharp drew up something called "A Partnership for Independence," a reform package aimed at streamlining the state's public-assistance programs. Responding to Sharp's lead, as well as signals vibrating down from the Republican-controlled Congress, the state Legislature passed the Texas Welfare Reform Act in May 1995.
The act consolidated a host of programs formerly run by the Texas Employment Commission, the Texas Education Agency and the Department of Human Services under the newly created Texas Workforce Commission. The TWC is rather unique in that its primary purpose seems to be to put itself out of business.
Toward that end, the TWC created 28 geographic "workforce-delivery areas" around the state and turned over control of programs that help welfare recipients, displaced workers and the unemployed to 28 local boards. The Gulf Coast Workforce Development Board was created in July 1995, and its 34 original board members appointed by the Houston-Galveston Area Council, a government agency that coordinates long-range planning for the region.
At the time, Houston was in limbo. Mayor Bob Lanier requested that the city be designated a "workforce-delivery area," separate and apart from the Gulf Coast board. Without actually turning down Lanier's request, Bush cited the new state law that prohibits that designation for any area smaller than a county.
For almost a year, the city and state haggled over the designation, with Lanier pointing out on numerous occasions that Bush had the authority to certify Houston as a workforce-delivery area. Apparently the governor wasn't listening. On January 9, 1996, the state law on local workforce-development boards was finalized. The following day, Lanier threw in the towel and told Bush by letter that the city would join the Gulf Coast board. However, he added, the city planned to negotiate an agreement with the 13 counties in the region that would allow Houston Works to continue to administer the JTPA funds.
While state law clearly precludes Houston from becoming its own workforce-delivery area, the city could have merged with Harris County to retain control of its job-training programs. That is, if Harris County hadn't joined the Gulf Coast board first, a surprise move that effectively forced the city to follow suit or forfeit any control over the region's funding.
"Everyone thought Harris County was going to be merging with the city of Houston, and the workforce board would manage the balance of the region," recalls Irma Gonzalez of Employment Training Centers. "It made all the sense in the world. Most of the county programs are rural in nature, and we have always felt that urban needs are much different than rural needs."
Apparently, though, county officials saw the benefits of a regional approach to job training, which presumes that both employers and unemployed workers think on a more global scale. For one thing, the legislation that broke the state into 28 service-delivery areas strongly encourages a broader view. For another, the Houston employment market does not end at the city limits and, in fact, extends well beyond the confines of Harris County.
"The city makes a strong argument that they have the bulk of the problem," says Gulf Coast board member Richard Shaw of the Harris County AFL-CIO. "The other side says the city is really a larger body, and what we're really talking about is a region, and a regional approach is best, because not everyone in the city is going to work next door."
But the $9.2 million contract recently awarded to a partnership formed by Gulf Coast Careers of Harris County and Lockheed Martin IMS wasn't simply the result of pragmatism. The deal also smells of the kind of opportunism and inside dealing that's as closely associated with Lockheed as the $640 toilet seat for which it once billed the Pentagon.
The executive director of Gulf Coast Careers is a longtime county employee named Deanie Diamond. Since 1995, Gulf Coast Careers has been receiving federal funds through the Gulf Coast Workforce Development Board to operate career centers. Like Houston Works, Gulf Coast Careers would then subcontract with nonprofits and community-based groups, who would conduct the various job-training and placement services.
In December, Diamond announced that Gulf Coast Careers was offering "partnering opportunities" to provide employment services and job training for welfare and food-stamp recipients. About a dozen organizations that have done similar work in the past for Gulf Coast Careers responded by the January 8 deadline.
But, on January 26, Diamond notified bidders that Gulf Coast Careers had chosen to partner with Lockheed Martin -- which she described as "an organization that has been successful throughout the nation in providing services in welfare-reform programs." What Diamond did not reveal was that she had accepted a job as Lockheed's local director of operations. In that capacity, she will be overseeing a subcontract with her former employer to operate Gulf Coast Career Centers for Lockheed.
In an interview with the Press, Diamond said her employment with Lockheed has no relation to the corporation's partnership with Gulf Coast Careers of Harris County. She says county commissioners made the final decision on the contract, not her.
That may be true in theory, but as director of Gulf Coast Careers, Diamond made the formal request for approval of the Lockheed partnership -- without informing commissioners that she would, in fact, be going to work for the company. In a January 28 letter to commissioners, Diamond asked for authorization to strike a "Partnership or Teaming Agreement with Lockheed Martin IMS to jointly provide services to the welfare recipients in the Gulf Coast region."
Diamond admits that Lockheed had been trying to hire her away from the county for about a year. But, she says, it's merely a coincidence that she accepted the company's offer around the same time she recommended that Harris County commissioners approve a partnership with Lockheed.
The job offer, she says, was "one of four opportunities that came my way. It just happened to come first."
Others aren't so willing to give Diamond the benefit of the doubt. Irma Gonzalez of Employment Training Centers says the news that Diamond planned to partner with Lockheed Martin IMS came so late, no one had time to form partnerships with other bidders or to apply for the funds directly.
"I think what they did, Lockheed and Gulf Coast Careers, was restrict competition," Gonzalez says. "All of these organizations applied to be subcontractors, and they made us all believe we were partnering with Gulf Coast Careers. If I had known she was considering Lockheed, I would have looked for somebody else to partner with."
Diamond's trip through the "revolving door" recalls the ruckus Lockheed caused in July 1996, when it was learned that a number of high-level officials who helped develop the state's privatization policies had gone to work for Lockheed Martin. For instance, Dan Shelley, Bush's former legislative liaison, helped consolidate state services under the Texas Workforce Commission, and then left to become a lobbyist whose first client was Lockheed Martin IMS.
Greg Hartman, a high-ranking employee of state Comptroller John Sharp, lobbied the Legislature on welfare-reform measures on behalf of Sharp. He then joined the Austin office of MGT of America, where he helped Lockheed Martin prepare its bid to manage the Texas Integrated Enrollment System.
In October 1996, the Texas State Employees Union filed a complaint with the state ethics commission, alleging violations of Texas's "revolving door" law. Besides Shelley and Hartman, the TSEU complaint named Allan Pollock, a former Sharp employee who joined Hartman at MGT; Steve Bresnan, former special assistant to Lieutenant Governor Bob Bullock, who became a lobbyist for Lockheed Martin; and Michael Grossenbacher, a former TWC administrator who was hired away from the state by Lockheed.
Gulf Coast board member Richard Shaw says that privatization, if not Lockheed's role in it, is "a political deal to benefit George Bush."
"Even as we are doing this, members of the Texas Legislature are saying we weren't supposed to contract out all of these jobs," Shaw says. "But, you know, it's a done deal. George Bush is turning this into a platform to run for president of this country."
Indeed, Bush's desires are so obvious and Lockheed's influence so prevailing that even a strong, established organization like Houston Works has decided to seek an alliance, rather than buck the trend.
"Let's just be honest about it," says Terry Hudson, director of Houston Works, "I mean, Lockheed was a political favorite, and they were obviously going to get a slice of the 13 counties. And if we can control what they do inside our centers, that's got to be a win-win for us."
Toward that end, Houston Works and Lockheed issued a joint proposal for about $12 million in job-training services for welfare and food-stamp recipients. The proposal was approved, but later changed to award each agency about $9 million to operate its own career center: Lockheed with Gulf Coast Careers of Harris County; and Houston Works with the Houston Urban League, the Chicano Family Center and the Neighborhood Center.
While the end result was an increase in job-training funds for Houston and Harris County, only a handful of community-based organizations were able to secure subcontracts.
Says Irma Gonzalez: "I think we have gotten quite a taste of what Lockheed is capable of and the influence that it carries, everywhere."
On a cloudy afternoon in late February, a few members of the Texas State Employees Union held a press conference for exactly one member of the press in front of 3555 Timmons.
The building is home to the Houston-Galveston Area Council, and is where the Gulf Coast Workforce Development Board meets every month. The address also happens to be the offices of Lockheed Martin IMS -- a fact that TSEU president Linda Herrera pointed out early in the press conference.
"Just after [the state legislation] was passed, they opened an office in this building," Herrera said. "Right next to the conference room where the workforce-development board meets."
Without question, the biggest thorn in the side of privatization has been the state employees union. According to organizer Judy Graves, 700 to 800 state employees stand to lose their jobs as companies like Lockheed Martin take over their duties. Already, according to the union, more than 215 local state employees have been notified that they will be laid off by April 30.
In an effort to slow the privatization effort, the union, in addition to the ethics complaint it filed in October 1996, has taken its fight to Washington. A year ago, TSEU and its supporters persuaded the Clinton administration not to allow states to turn over key parts of social-service functions. Clinton told Texas officials that only state employees could determine who is eligible for food-stamp and Medicaid benefits. The decision scuttled the Texas Integrated Enrollment System, which would have privatized the administration of Medicaid, food stamps and welfare payments.
In November, the union sued the Texas Workforce Commission, seeking an injunction to halt contracts that would eliminate state jobs. The union also charged TWC with violating state procurement laws by transferring state property to private companies.
TSEU has also appealed to elected officials such as U.S. Congressman Gene Green, who was asked by the union to conduct an inquiry of both TWC and the Gulf Coast board for procurement irregularities that favored Lockheed Martin.
State officials such as TWC Commissioner Bill Hammond and Department of Human Services Director Mike McKinney have dismissed the lawsuit as evidence that the union is losing members, thereby proving that privatization is cutting costs by reducing the state's payroll.
Still, the organization has refused to back off; nor, in the view of union president Linda Herrera, can it afford to.
"Lockheed has been disappointed with what they've accomplished so far in Texas," Herrera says. "But they keep pushing for more and more contracts."
How many more the corporation gets will ultimately be determined by how well it performs. But apparently, the standards by which Lockheed's performance will be measured have yet to be worked out -- and may not be by the time the corporation's first contract with the Gulf Coast board goes into effect June 1.
Rodney Bradshaw, an official with the Houston-Galveston Area Council, which administers the Gulf Coast board's contracts, says the contract is still being negotiated, and no decision has been made on performance measures. Carol Anderson, a Lockheed project manager, says the company is angling for a series of incentives.
"We'd prefer a performance-based contract," Anderson says. "I think we'd work better and more efficiently that way."
No matter what standards Lockheed is ultimately held to, almost everyone agrees that simply counting the number of people who fall off the welfare rolls is a poor way to measure performance.
With a federal law that limits lifetime benefits to five years, putting people into dead-end jobs or training programs that teach skills that are not needed will only exacerbate the problem down the road. The results of welfare reform in other cities and states suggest that connecting welfare recipients to meaningful jobs is not as easy as some people seem to think.
In New York, a recent study found that only 29 percent of the people who dropped off the state's rapidly shrinking welfare rolls found full-time or part-time jobs in the first few months after they were no longer on public assistance. The study has raised questions about the value of tough welfare-to-work provisions like those being implemented by private companies in Texas.
"The easiest thing to count is the number of people on the rolls," says Michael Bisesi of the United Way. "The ultimate question is what happens to people once they are off welfare. I think we're very lucky that we have a pretty good economy right now, but inevitably the business cycle runs its course, and if all these help-wanted signs go down, which they will, what's going to happen to those people who have managed to land jobs right now?"
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What kind of job-training or employment is found for Houston's poor is a concern to those who worry that the city has lost significant control of its job-training funds. But, apparently, that is not a concern of the administration of Mayor Lee Brown. According to Brown's executive assistant, Al Calloway, the mayor has chosen to allow the agreement with Houston Works to expire, as stipulated, come July 1.
"It's very difficult for us to maintain control and still remain within the terms of our agreement with the Gulf Coast workforce board and state law," Calloway says. "But, if we become isolated or find that our constituents are not being served, we won't hesitate to step in."
However, community-based service providers like Irma Gonzalez of Employment Training Centers say that the city is taking a chance by letting its job-training funds get away. Especially since, if either the Gulf Coast board or Lockheed Martin fails to look out for the best interests of welfare recipients who want to work, there may be no one left to do it.
"The issue is not for-profit versus nonprofit, or even privatization, as much as it is organizations that have roots in the community, know the people it proposes to service and have obligations, moral or otherwise," Gonzalez says. "We take this very, very seriously. This is our livelihood. It's not like we can go to work in some other state or for some other branch of government.