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The_Poverty_Profiteers_Privatize_Welfare

Mark Dunlea
"This is one of the biggest corporate grabs in history,"

charges Sandy Felder, public sector coordinator for SEIU, a union representing public employees. She is referring to the aftermath of the welfare "reform" passed by the 104th Congress. While the bipartisan coalition that pushed through the legislation raked political hay by scapegoating the poor, the jobless, single mothers, and children, corporations preferred their profits in cold cash. They understand that one consequence of the downsizing of"big government" is the upsizing of big corporations. The privatization of welfare-related social services now underway will mean a massive handoff from government to the private sector. According to an industry survey, 49 states have already privatized some welfare functions and many are considering further outsourcing. "Obviously, [firms] are not going into it with altruistic motives and the intent of losing money. The profit motive is foremost," said John Hirschi, a state legislator in Texas, where the first major contract is on the block. The corporations believe Texas "will be a model for the rest of the country," said Bruce Bower, a lawyer who specializes in welfare issues at the Texas Legal Services Center. "They're licking their chops."

And the feast they are anticipating is tempting indeed. The recent federal legislation mandating block grants to states to replace the welfare system is the biggest overhaul of a federal program since the New Deal. Up for


grabs is much of the $28 billion a year that governments now spend nationwide to distribute $250 billion to welfare recipients. With welfare comprising 6-30 percent of state budgets, the changes will be radical. The new legislation, in addition to opening the door to corporate profiteers, will by conservative estimate push an additional 1.5 million adults and 1.1 million children into poverty. Most of the children affected live in families with a working parent.

It will also offer unprecedented opportunities for corporate

profitmaking as major firms engage in high-stakes bidding for the potentially lucrative contracts. One of the most aggressive is Lockheed Martin, the $30 billion defense contractor which made billions selling weapons to the very "big government" it is now trying to supplant. Ironically, although Lockheed has little experience in the social services, it does know welfare from the inside. In the 1970s and '80s, Congress approved a massive bailout for the failing weapons manufacturer. Also trying to win contracts are: Electronic Data Systems (EDS), the $12.4 billion information-technology company founded by presidential candidate Ross Perot; Andersen Consulting, a $4.2 billion sister company of Arthur Andersen, the accounting firm; Unisys; and IBM.

GATEKEEPERS AND REVOLVING DOORS
One strategy the corporations are using to gain an inside edge is to aggressively recruit federal and state welfare officials, especially from


states where contracts are up for bid. In October, the Texas State Employees Union asked for an investigation of eight high-ranking state officials who took jobs with companies bidding for the state's contract. Another man who stepped through the revolving door is Gerald Miller, former director of Michigan's welfare program. As Lockheed's new head of "welfare initiatives" division, he quickly predicted that "[t]he private sector will ultimately run these programs, the era of big government is over."

The initial areas of welfare

privatization are child support collections and job placements. Lockheed already has more than 200 state and municipal clients. It collects delinquent child support payments in 30 states and gets about 19 cents from the government for each of the $1.15 billion it recovers annually. The new law expands the opportunities for business by allowing states to: contract out the administration of the block grants program (now renamed Temporary Assistance to Needy Families, or TANF); contract with charitable, religious, or private organizations to provide TANF services; and contract out the administration of child care funds. Private companies are also seeking to take over eligibility and benefit determinations, thus becoming the new gatekeepers to welfare services.

Many politicians around the country are eager to cooperate. While elected officials at all levels of government have long called for the overhaul of the system, the reality is that few are willing to get involved in the day-to-day details of moving low-income households which often present a wide range of economic, educational, and social challenges from welfare into jobs. Nor are


they eager to take the consequences for failure.

Lockheed's head of "welfare initiatives" division predicted: "The private sector will ultimately run these programs, the era of big government is over."

When Congress transferred responsibility of the

design and operation of these welfare programs, it also imposed financial penalties for states that fail to meet such targets as the number of welfare participants engaged in "work" activities. An attractive solution for local politicians is to pass the buck by awarding a low-bid contract and letting private industry worry about making the system work.

OR TOLL BOOTH OPERATORS
This handover of sensitive social issues to corporations is raising concerns.

"As companies like Lockheed adjust to the end of the Cold War," said union spokesperson Sandy Felder,

"they're looking around to see where they can grab some extra money. You really need the individuals who are making decisions about who receives government benefits to be held accountable to the taxpayers, not to some private company whose main concern is its profit margin. A public employee is more likey to be concerned about moving a welfare participant into a long-term employment situation,because that will save the most tax dollars

The_Demolision_
The_Reconstruction

in the long run. A worker for a private company is going to focus on how to get individuals off welfare in the shortest time, no matter what happens to them later, since that is what increases their company's profits and keeps the worker employed."

If profits increase when companies reduce caseloads, they will have a high incentive to deny or terminate assistance. "It's the same problem we are seeing with health maintenance

organizations," said Henry Freedman, executive director of the Center on Social Welfare Policy and Law. "While the companies contend they can save money through increased efficiency, they can also do it by reducing services, which is much easier. We need to examine how the contracts are structured, so that profits are tied to increases to long-term employment. Unfortunately, it's usually simpler to measure performance by reduction in caseloads." "Traditionally," even under public administration, which has less incentive to deny benefits, "many low-income individuals have had a difficult time obtaining the public benefits they are entitled to," said Rachel Leon, who works for the Hunger Action Network, a statewide anti-hunger organization in New York.

"Legal aid attorneys and advocates constantly plead with, cajole, and sue state and local officials to force compliance. When these services are


contracted out to a private agency, not only is there another layer of bureaucracy to contend with, but for-profit companies have no experience with anti-poverty law or negotiations. I don't look forward to arguing on behalf of a client in front of a hearing officer on Lockheed's payroll."

Involving private companies also threatens to further erode client privacy. "The welfare system asks far more personal questions than the average American would tolerate,"

stated Ron Deutsch, associate director of the Statewide Emergency Network for Social and Economic Security, an economic justice organization based in New York State. Once collected, the information "can also be used in paternity suits, abuse and neglect cases, and custody cases. The more entities that have access to this data, the more difficult it is to ensure confidentiality."

Another area of potential abuse isthe increased possibility of political corruption; lucrative

contracts often attract patronage,kickbacks, and bribes. It was such corruption scandals earlier in the century that led efforts to professionalize the public workers in the 1920s, enabling them to perform services that were previously contracted out.

Those who favor the transfer contend that benefits will outweigh problems since privatization saves money by bringing cost-cutting and efficiency and allows government to take advantage of

A_Single_Mother_
A single mother of two, Twana lost her job removing asbestos. She lives in
a shelter waiting for welfare and tries to juggle job searches with child care.

innovations and expertise developed by the private sector. Critics counter that savings are often illusory or short-term, with costs rising after the private companies have established themselves. And once they get in, argues Freedman, "a lot of these private companies will have a stranglehold. ... When a public agency doesn't perform, you improve the training or replace the people who aren't performing. At least you already own the hardware and infrastructure. It will be much more difficult for the government to start from scratch if the private company walks away with everything when their contract is terminated."

And finally, those adding up the advantages of privatization fail to factor in related costs such as contract preparation, administration, and monitoring as well as the frequent free use of government facilities, equipment, and materials. They also completely ignore long- term social costs such as reduced salaries for workers and smaller staffs.

PLAGUE OF PRIVATIZATION
Welfare "reform" is only the

latest manifestation of a major trend toward the privatization of formerly public functions. Elected officials of both major parties are rushing to outsource everything from social security, to trash collection, to dispensing fines for delinquent parking tickets, to fire, ambulance, and policing services. Private prisons now house almost 80,000 people.

This drive to privatize gained political currency as "big government" replaced big corporations as public enemy number one. The US has always had strong populist movements,


but historically they targeted the powers of robber barons and corporations.

The_Fingerimaging_Technology

However, one of the legacies of Barry Goldwater's failed presidential election besides paving the way for Ronald Reagan was to enable conservatives to redirect anger away from corporations and onto government. With ever-increasing corporate ownership of the media, it may be a long time before corporations replace government as the focus of populist enmity.

Big business, which has benefited mightily from the shrinking of government, has not been a passive bystander. Unlike welfare moms, corporations have the resources to lobby legislators and to feed the campaign coffers that are the way to many a politician's vote. The pattern of their buying influence and shaping legislation is well documented. A few years ago, for example, an advocate on welfare issues for the Hunger Action Network of New York state was startled when she ran into lobbyists for Shea & Gould at the state legislature. The powerful New York law firm was pushing for the expansion of fingerprinting of welfare participants.


Previously, the fine details of welfare policy had only attracted the interest of government officials and a few underpaid and overworked advocates. Even the utility companies, landlords, and supermarkets that receive almost all of the welfare payments seldom paid much attention to the annual fight over benefit levels. Why then was one of the highest priced law firms in the state suddenly involved? Shea & Gould was representing one of the companies interested in the "fingerimaging technology" designed to prevent fraud even though there was no documented evidence that there was a problem with individuals using multiple identities to cheat the system. (The welfare system already had one of the most rigorous application and documentation processes of any government benefit program.) The manufacturer had invested in the lobbyists with the expectation that once welfare participants had been used as the guinea pigs to develop a statewide system, fingerimaging technology could be sold for wider commercial applications, such as hotel rooms, car rentals, and automated teller machines.

PAIN IN THE GLUTEUS MAXIMUS
Maximus Inc., one of the largest private company's involved in running welfare systems, is represented by two major PR firms well-known for lobbying in state capitals and in Washington: the Jefferson Group and Wexler Group. With $100 million in various government consulting contracts, Maximus has welfare-related contracts with a dozen states and the District of Columbia, including a $10

The_Unemployment_job_Application
Some 5,000 unemployed arrived in the first two hours for
job applications distributed at the Detroit post office.

million contract in California to recruit Medicaid recipients into HMOs and $7 million in job placement contracts in Boston; Fairfax, Virginia; and two California counties.

Maximus also takes advantage of the revolving door. Its founder and president, David V. Mastran, served as acting director of research for the Department of Health,Education and Welfare under Presidents Nixon and Ford. Several other company officials have strong

governmental backgrounds, including John A.Svahn, its former chair,

"As the government moves to restrict welfare for poor people, they're expanding it for the corporations."

who worked for Ronald Reagan for more than 18

years. He was instrumental in securing Maximus' first big welfare contract from Los Angeles County in the late 1980s.

The company has had a history of problems with its contracts. In West Virginia, Kenneth Roberts, a former project director at the Department of Health and Human Services, was jailed in 1996 for illegal activities involving Maximus' bid on a child welfare services contract. Maximus lost the contract to Lockheed. In 1993 in Arizona, after child support


workers charged that Maximus had made data entry errors, the state had to return $250,000 in incorrectly assessed child support payments. In Nebraska,in June 1995, following a dispute over the company's fees and a debate over privatization, the state legislature terminated its contract.

AMERICA WORKS, NOT
America Works, another major player, specializes in job placement and related services for welfare

participants. It bills itself as the "first private company dedicated to the public cause of putting people to work." Founded in 1984, it lost several of its contracts in Buffalo and Ohio in its early years after complaints about excess costs. The company, which now receives generally positive media coverage, focuses on finding entry-level positions such as receptionist, secretary, mail-room clerk, word processor, cashier, security, or warehouse worker. A typical annual salary is supposed to range from $15,500 to $18,000. Advocacy and watchdog groups have accused it of working only with people who require little more than help polishing their rsums and job leads while summarily weeding out those in most need. For example, 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.

America Works receives fees from two sources. It charges the welfare agency approximately $5,000 for each client, and it


keeps a significant portion of the salary its clients earn during their first four months on the job. During this time, while monitoring performance, America Works reaps $6-9 an hour from the employer, which pays the trainee minimum wage. It further boosts profits by collecting various government incentives and tax credits for hiring welfare participants. Because of a three-stage funding contract, New York state has paid America Works more than $1 million for people who never found jobs and for placements that never became permanent. NON-PROFITS JOIN THE FEEDING FRENZY
Non-profit organizations are also lining up for a piece of the welfare pie. United Way, one of the country's oldest philanthropies, is playing a key role in Mayor Giuliani's plans to privatize much of New York City's welfare system. Since 1993, it has been under contract to the city's welfare agency to provide data on a wide range of social, health care, and neighborhood issues. In 1995, United Way completed a quarter-million dollar study
on how the city could privatize income support centers where people apply for benefits and meet with caseworkers. The plan, based on the HMO model, would base payment to agencies on the number of people they got off public assistance.

In late 1995, after United Way of New York state joined with the Business Council and several large human service agencies to endorse a welfare reform plan, many advocacy organizations accused it of supporting measures that


would hurt many of its member agencies and their clients. After public employee unions threatened to boycott payroll deduction programs, the charity was forced to back off from supporting the scheme which called for cuts in benefits and a four-year time limit on welfare. At the time, United Way was desperate for new sources of money. Following a 1992 scandal involving its national president, donations had dropped by $8 million in NYC alone.

Nor are non-profits immune

from the temptations of patronage and graft. Earlier this year, NYC signed a $43 million deal with the Hellenic American Neighborhood Action Committee to supervise Home Relief recipients and try to move them off welfare. The FBI investigated the committee after learning that it had submitted the highest bid and had several well-connected former city employees on its payroll. After the publicity, the mayor canceled the contract. The city also terminated a $3.4 million welfare contract with United Way when the city comptroller charged that it should have gone to the lowest bidder.

WORKFARE OR SLAVE LABOR?
As the clock ticks, states are scrambling to put people to work any work. Under the new law, 25 percent of adults must be in a "work" program by August 1997; within five years the quota rises to 50 percent. With about 10 million Americans out of work, no money in the welfare legislation allocated to job creation, and a system that does not even aspire to full employment, welfare participants are far more


likely to end up in these workfare positions than in a real job. In these publicly subsidized jobs (New York, for example, puts up $3,500 a year for each slot), former welfare recipients perform low-level, dead end labor, "working off" their welfare and food stamp checks for the minimum wage or less. They do not qualify for unemployment and Social Security and lack the grievance and organizing rights of other workers.

Previously, federal law limited

workfare to public sector or non-profit positions that provided community service. New York City, for example, replaced many parks department employees with workfare participants and is now looking for slots in the subway system. Now, the new law removes the community service restriction. Facing the federally imposed deadline, states and cities are increasingly looking to the private sector, both to accept workfare participants and to participate in wage subsidy and on-the-job training programs. Workfare participants can now be placed in fast food restaurants, home health care agencies, and janitorial services. President Clinton is also pushing for expansion of wage subsidy programs for welfare participants.

So far, workfare's rate of success in moving people into real employment is not good; it is about 8 percent in New York state. The program is rapidly creating a large subclass of workers with subminimum


wages and poor working conditions. It is also pitting desperate former welfare clients against other low paid workers in a job market which cannot sustain them both.

Meanwhile, corporations are rushing in to bid on newly privatized services and profit from the

misery. They are unlikely to be disappointed by any lack of entrepreneurial opportunity. "The new welfare law has many corporate welfare provisions. The changes open up new markets for companies to sell their services, while providing a pool of free labor. As the government moves to restrict welfare for poor people, they're expanding it for the corporations," stated Cecilia Perry, public policy analyst for AFSCME. The dangers are substantial. Despite the inefficiency and opaque bureaucracies that mark most government-run programs, they provide mechanisms for accountability and public input; they also weigh the public good when designing and assessing success. The private sector, on the other hand, looks only to the bottom line.

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