ON PRIVATIZATION, BUREAUCRATIZATION, FOSTER CARE, AND THE POVERTY PROFITEERS

OVERVIEW

“By 2000, America’s largest weapons manufacturer, Lockheed Martin, may be as familiar to social service bureaucrats as it is to the Pentagon’s top brass. If the company’s strategy succeeds, Lockheed Martin will not only be a major aerospace manufacturer but also a leading dispenser of public assistance to America’s neediest citizens.”

Thus began an article in the Baltimore Sun adapted from a longer peice that previously ran in The Nation.

“Surprised? Lockheed made headlines when it tapped American taxpayers for $855 million to pay for a recent series of mergers that sent its stock prices soaring. Now, this king of corporate welfare turned free-marketer is trying to cash in on the drive to privatize welfare and boot poor people off the dole.”

Writing in the Winter 1996-97 edition of the journal Covert Action Quarterly, Mark Dunlea provided a comprehensive analysis of privatization of the human services in an article aptly entitled The Poverty Profiteers Privatize Welfare.

Welfare reform legislation offered “unprecedented opportunities for corporate profitmaking as major firms engage in high-stakes bidding for the potentially lucrative contracts,” Dunlea explained. One of the most aggressive contractors at that time was Lockheed Martin, the defense contractor which made billions selling weapons to the very “big government” it is was at the time “trying to supplant.” Other aggresive bidders during that period included Electronic Data Systems, the multi-billion information-technology company founded by presidential hopeful Ross Perot; Andersen Consulting, at the time a $4.2 billion sister company of Arthur Andersen; Unisys; and IBM.

Still among the major players in the field of human services is MAXIMUS, a company that “has had a history of problems with its contracts.” Dunlea explained that 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 that contract to Lockheed. In Arizona, after child support workers charged that the company had made data entry errors, the state had to return $250,000 in incorrectly assessed child support payments. In Nebraska, following a dispute over the company’s fees and a debate over the merits of privatization, the state legislature terminated its contract.

NOT (JUST) IN KANSAS ANYMORE

Dunlea’s report arrived even as privatization was being peddled as a panacea sure to cure the ills of the foster care system, with the State of Kansas taking the lead in 1996. A report issued in 2010 by the Kansas Joint Committee on Children’s Issues describes the privatized system as one in which there are instances when contractors “do not place children with family, are allowed to submit sometimes subjective court reports parents and family of the child are not allowed to see, act in arbitrary ways, do not return children when parents have completed reintegration plans, and don’t provide enough meaningful contact between children and parents in their visitation policies.” By that time, the Witchita-Eagle reported that: “Legislation to end Kansas’ privatized foster care system is the latest volley from lawmakers who say the state lacks oversight over the contractors managing such child welfare services.”

THE POSTER CHILD

Writing for the Progressive States Network, Nathan Newman explained in an article posted in August 2006: “The poster child for the failure of privatization has been Texas’ attempt to hand over management of social services in that state to Accenture, a Bermuda-based consulting firm. Computer systems have failed, costs have mounted, and, worst of all, the result has been tens of thousands of children being dropped from health insurance rolls because of bungling by the private contractor.” Indeed, by that time Texas State Comptroller Carole Keeton Strayhorn was reported by the Austin Chronicle as having started an investigaaion of the company, saying that: “The Accenture contract appears to be the perfect storm of wasted tax dollars, reduced access to services for our most vulnerable Texans, and profiteering at the expense of our Texas taxpayers.”

These and other problems notwithstanding, Texas continued its push toward privatization of foster care and child welfare services, hitting a roadblock in August of 2012, when it was announced that Lutheran Social Services of the South had lost its bid to privatize foster care in South Texas because of what was reported as “a history of problems” at three of its operations in the Lone Star State.

The state agency sent Lutheran Social Services a letter saying that it needs to correct serious problems in the three affected cities. Among other things, staffers “have routinely failed to properly oversee foster homes, conduct background checks on families and protect youth from abuse and neglect.” The state identified dozens of problems in the homes supervised by Lutheran’s Laredo, Richardson and Garland offices, including:

  • Levying prohibited punishments, such as pinching, pulling hair, biting or shaking a child.
  • Failing to properly secure weapons and ammunition.
  • Using food as a punishment or reward.
  • Humiliating, ridiculing or yelling at a child.
  • Failing to keep homes safe, clean and in good repair.

SWEEPING THE NATION

By 2010 child advocates in Nebraska were weiging in on problemswith the state’s efforts to privatize. A report issued by Nebraska’s Platte Institute described the perverse financial incentives driving placements: “The current system creates an incentive to shuffle a child into foster care, not because it is the best option for the child, but because in many cases funding is sure to follow. On the other hand, alternatives that actually cost less and are more effective are not taken into serious consideration.”

By late-February of 2012, the Omaha World-Herald reported that the state was down to a sole remaining private contractor. In March, the Nebraska Legislature’s Business and Labor Committee advanced a bill to reimburse the private child welfare providers who had thrown in the towel. The Omaha World-Herald reported that the measure “would add $2.5 million to the cost overruns incurred by the child welfare privatization project launched by Gov. Dave Heineman’s administration. The program’s costs increased 27 percent last year.”

In July, the Nebraska Families Collaborative was the state’s sole private provider. The Omaha World-Herald reported that: “The collaborative contract is all that remains of the state’s 2½-year experiment with privatizing child welfare services. State workers again manage cases in the rest of the state.”

THE CROSSROADS OF AMERICA

From Indiana comes a recent Evansville Courier and Press editorial explaining that “the worst decision Mitch Daniels made during his two terms as Indiana governor was to privatize the state welfare system.”

While privatization may have its place, it “can be a disaster when privatizing services for people, especially our most vulnerable citizens, such as the poor and the elderly,” the Courier and Press explained. “As such, the state’s deal with IBM and other contractors to privatize the application process for welfare, food stamps and Medicaid went terribly wrong.”

Indeed things did go terribly wrong, and a lawsuit consequently ensued pitting IBM against the state. A July ruling by Marion County Judge David Dreyer said that: “Neither party deserves to win this case. This story represents a ‘perfect storm’ of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame and Indiana’s taxpayers are left as apparent losers.” Judge Dreyer blamed “misguided government policy and overzealous corporate ambition” for the failure of the system, which he called an “untested theoretical experiment.”

NORTH CAROLINA

In North Carolina, the Charlotte Observor reported in June of this year that “two computer teams toil away on behalf of the biggest contract in state history – the computer system that processes 88 million Medicaid claims each year.”

The Observor continues on to explain: “The 500-plus team of workers from Computer Sciences Corporation, a tech company from northern Virginia, is working to finish the new system by next summer. Upstairs, 200 workers from Hewlett Packard, the technology giant from California, keeps the old 1980s-era system running, receiving, auditing and paying about 250,000 claims each day.”

The computer upgrade “has gone in fits and starts since it began in 2004,” having been “cancelled and rebid, then amended and extended.” The costs kept rising, and so much so that the expense of setting up the new system and running it for seven years, while maintaining the old system, add up to $851 million.

“And that’s if it goes on line next summer, as scheduled,” the Observor explains. Time can only tell.

CLOSE-UP
THE EMPIRE STATE

In 1996, New York State hired Accenture (formerly known as Andersen Consulting) to develop the “CONNECTIONS” computer system for $37.5 million. The system was intended “to track child protective, preventive, foster care and adoption service information statewide,” Donna Young reports in Government Computer News. IBM provided the hardware, software, maintenance, customer support and training under a $76.1 million contract. By 1998, IBM’s contract had increased to $100.7 million because of change orders, and Accenture’s contract had nearly tripled to over $100 million. To further complicate matters, the state hired MAXIMUS under a $7.6 million contract to “monitor” the implementation of the system. The problems were glaring enough to inspire the New York State Assembly to investigate. The Senate’s report, issued in 2001, noted that: “Since their inception in 1996, the Andersen and IBM contracts have increased by 167% and 53% respectively, together representing an overall increase of 90% for the project.”

Former New York City Mayor Guiliani was determined to see it work, upping the ante with an additional expenditure of $67 million for upgrading desktop computers to accommodate CONNECTIONS. In 2005, the Administration for Children’s Services for the first time required caseworkers in preventive service agencies to use the system, but they quickly complained that it was faulty and burdensome. By 2007, there was talk of scrapping the $400 million-plus system, a consideration that Child Welfare Watch described as the “CONNECTIONS defection.”

This sentiment is shared statewide. Indeed, in its 2010 Annual Report, the Madison County Department of Social Services explains:

    In 2011, we look forward to two major changes in Children’s Services. One will be the transformation of the New York State Child Welfare computer system, known as Connections. This system has been complicated and difficult to work with since its inception several years ago. New York State is attempting to make the system easier to work with, thereby improving efficiency by making it a web-based system. We do not yet have an implementation date, but we expect it to be sometime this summer and there will be training required for all staff to use the new system.

New York, however, failed to learn from the failure. An audit released in May 2012 by the New York City Comptroller explains that the City had contracted with Hewlett-Packard to “transform and consolidate” its 911 Emergency Dispatch System. The Comptroller notes that there was a lack of “reasonable assurance” that the expenditures “were reasonable and justified,” and as a result of HP’s “poor performance” the cost overruns may be as high as $362 million.

CALIFORNIA

California contracted with Lockheed-Martin to build a statewide computer system to track child support collections. When the problem-ridden system — originally projected to cost $99 million, escalated into a $277 million debacle — the state cancelled its contract with the military supplier, the Baltimore Sun reported. A State audit issued in 2006, aptly entitled “California Children and Families Commission: Its Poor Contracting Practices Resulted in Questionable and Inappropriate Payments to Contractors and Violations of State Law and Policies,” identified numerous problems, not the least of which were that the Commission:

  • Did not always follow state policy when it used a competitive process to award three of the contracts valued at more than $47.7 million and failed to provide sufficient justification for awarding one $3 million contract and six amendments totaling $27.6 million using the noncompetitive process
  • Did not always ensure that its interagency agreements met the state requirement for using subcontractors
  • Agreed to pay $1.2 million more than it should have for administrative overhead because it did not follow state policy that limits such payments
  • Intentionally used some memorandums of understanding with counties to avoid having to comply with state contracting requirements.

A more recent report from the California Auditor garnered headlines for the revelation that 1,000 addresses of foster homes may correlate with the addresses of registered sex offenders. Equally disturbing were the findings with respect to privatized foster care. The audit explains:

    While the number of children in placement has dramatically decreased in the last 10 years, the percentage of children placed with foster family agencies, which recruit and certify foster homes and whose monthly compensation is significantly higher than state- or county-licensed foster homes, has continued to increase. The dramatic growth in the use of foster family agencies, which originally were meant to be a substitute for group homes for children with elevated treatment needs, has been accompanied by a matching drop in the percentage of children placed in state- and county-licensed foster homes and a fairly steady percentage of children in group home placements. These data indicate that, rather than significantly reducing expensive group home placements, growth in foster family agencies has reduced relatively inexpensive licensed foster home placements.

THE NORTHWEST UPGRADES

Elsewhere, Oregon’s $40 Million Child Welfare Computer Upgrade Has Glitches, Some Serious,” blares a headline in a recent edition of The Oregonian. The story continues: “Oregon child welfare managers have not had access to statewide performance data showing how quickly local offices are responding to abuse reports and other information. Foster parents have waited for payments. And caseworkers say they are spending time putting information into a computer that should be spent with families.”

“Oregon isn’t alone. Washington, which used the same vendor, also encountered problems updating the state’s child welfare technology,” the article reports.

It would all be so laughably ridiculous, if not for the tragic outcomes.

Proponents of privatization continue to advance the claim that it reduces costs. But as the auditor’s report explains: “We estimate that the growth in the percentage of placements with foster family agencies has resulted in spending an additional $327 million in foster care payments between 2001 and 2010 — costing an additional $61 million in 2010 alone.”

Privatization of every aspect of the human services marches on. Michele Simon, president of Eat Drink Politics, a watchdog consulting group, released a study in June 2012. Her press release announcing her report asks some provocative questions:

    Are food stamps lining the pockets of the nation’s wealthiest corporations instead of closing the hunger gap in the United States? Why does Walmart benefit from more than $200 million in annual food stamp purchases in Oklahoma alone? Why does one bank, J.P. Morgan Chase, hold exclusive contracts in 24 states to administer public benefits?

Her report, Food Stamps, Follow the Money: Are Corporations Profiting from Hungry Americans? explains that at least three powerful industry sectors benefit from food stamps, or SNAP as the program is called today: 1) major food manufacturers such as Coca-Cola, Kraft, and Mars; 2) leading food retailers such as Walmart and Kroger; and 3) large banks, such as J.P. Morgan Chase, which contract with states to help administer SNAP benefits.

Let there be no doubt about it. Whether the cause is that of “protecting children,” upgrading a computer system, collecting child support to reimburse the state for the services it ever-so-reluctantly provides, or dolling out meager portions of food assistance, poverty is indeed a very lucrative business in these United States.

THE PIPELINE

The economic costs associated with child abuse and neglect rose to a staggering $103.8 billion in 2007. Merely ten percent of federal money dedicated for child welfare — approximately $741.9 million — can currently be used to prevent child abuse and neglect by strengthening families. The $103.8 billion cost includes more than $33 billion in direct costs for foster care services, hospitalization, mental health treatment, and law enforcement. Indirect costs of over $70 billion include loss of productivity, as well as expenditures related to chronic health problems, special education, and the criminal justice system, according to a study released by Prevent Child Abuse America and Kids are Waiting.

Given the well-documented role that the foster care system plays in the school-to-prison pipeline, one necessarily needs to give consideration to the conditions that far-to-many of today’s foster care wards will face when they find themselves “emancipated” from state care. Indeed, study after study reveals that former foster youths have poor outcomes, and that they are quite likely to find themselves either homeless or imprisoned upon aging out of the system.

In May of 2012, the National Council on Crime and Delinquency issued a study entitled Prison Bed Profiteers: How Corporations Are Reshaping Criminal Justice in the U.S..

“Reported crime is at the lowest level in decades, safe alternatives to incarceration are an accepted part of the corrections system, and private prisons have not provided the cost savings and improved conditions of confinement that their proponents promise. Nevertheless, business is booming for prison companies,” the study explains. The authors note that since their start in the 1980s, private prisons have come to hold 8% of all U.S. state and federal prisoners, including half of federal immigration detainees, and, as a result:

    A steady flow of inmates has meant huge profits for these companies. Just as steady have been the reports of abuse and neglect, poor management of inmate needs, and poor governmental oversight. Low pay, limited staff training, and other cost-cutting measures—the primary ways private prisons sustain their profits—can lead to unmet inmate needs and security issues, heightening the inherent dangers to staff and inmates in secure settings. Private prison companies spend millions of dollars on lobbying, political campaign contributions, support for legislation favorable to their profits, shaping public opinion, and research likely to support their practices, which leads many to question the prison industry’s influence on criminal justice policymaking. There also are significant issues with the government’s ability to effectively monitor what goes on at private prisons.

These points are not lost on the American Civil Liberties Union, which released a report in November, 2011, promising to provide “the first comprehensive analysis of the destructive impact of prison privatization.” The report, Banking on Bondage: Private Prisons and Mass Incarceration, traces the rise of the for-profit prison industry over the past three decades, and shows how private prison companies “have capitalized on the nation’s addiction to incarceration to achieve gigantic profits.” All the while, the report shows, mass incarceration wreaks havoc on communities by unnecessarily depriving individuals of their liberty, draining government resources and bringing little or no benefit to public safety.

The ACLU went so far as to challenge the CEO of Correction Corporation of America to a public debate on the merits of prison privatization. The challenge was timed with the company’s annual shareholders meeting, and came after CCA had “repeatedly criticized the views of the ACLU regarding for-profit incarceration.”

While I would not go so far as to suggest that the current child welfare system was deliberately designed to increase poverty, homelessness, and imprisonment; I would suggest that had it been so designed, that it could not have done better than the current child welfare system. Human rights advocate Bonnie Kerness expressed the sentiment well:

    How is it that a 15 year old who the country labels worthless to the economy –- how is it that this child who has no hope of getting a job or affording college –- can suddenly generate 20 to 30 thousand dollars a year once trapped in the criminal justice system? The expansion of prisons, parole, probation, and the court and police systems has resulted in an enormous bureaucracy which has been a boon to everyone from architects, plumbers, and electricians, to food and medical vendors –- all with one thing in common –- a pay check earned by keeping human beings in cages. The criminalization of poverty is a lucrative business and we have replaced the social safety net with a dragnet.

Nor is the problem unique to the United States. A comprehensive study released during the mid-1970s by Australia’s Commission on Poverty called for the abolishment of the “lucrative business” aspects of social welfare programs. The Commission explained: “As happens so often in other spheres of activity, Australia is following the trends in the United States, and poverty is being professionalised and bureaucratised. In the process, it is becoming a lucrative business — for professional welfare workers, administrators, researchers and consultants.”

“We hope,” the report continued, “that somewhere economists, accountants and system specialists are working out how to deliver the maximum proportion of the welfare dollar to the poor and not to the bureaucrat. If this is not already being done, we recommend that it be done.”