Politicizing Privatization in Indiana

Amid a renewed discussion on Gov. Daniels’ proposal to lease the Hoosier Lottery, privatization remains a front burner issue in Indiana. As we report in Reason’s Annual Privatization Report 2008, the Indiana Family & Social Services Administration’s (FSSA) welfare eligibility modernization initiative is well underway, but has experienced some hiccups along the way (see APR2007 for more details on this initiative). Indiana began privatizing welfare delivery last fall in a pilot program covering a dozen central and eastern Indiana counties. Each county had previously run its own welfare office, but under the pilot program, operations in the 12-county region were consolidated in the Marion call center run by IBM and Affiliated Computer services. The initiative has since expanded to 59 counties statewide. Since the beginning of the pilot program, social service agencies have reported complaints from people who have lost their food stamps or Medicaid coverage or who have had difficulty utilizing either the call center or the new, Web-based application for welfare benefits. In July, the Feds asked Indiana to delay the rest of the project rollout due to delays in processing food stamp applications (though this is a complex issue, well explained here). FSSA Secretary Mitch Roob has acknowledged some implementation glitches but defends the privatization. According to Roob, FSSA is addressing problems with the rollout and will not expand the program to other counties until the agency is satisfied with progress in the pilot area. For instance, after resolving some technical issues in a Web program earlier this year, the number of applications in the pilot area increased 67% from 426 to 712 in just one week. He also noted implementation delays caused by the attention FSSA has given the state’s new health plan for low-income adults. Roob also points out that FSSA is currently serving record numbers of people as food stamp recipients increased nearly 4% between 2007 and 2008. It’s predicatable that you’ll face some challenges along the way with any major modernization initiative—a whopping 10 percent of Hoosiers (over 600,000) utilize this program, so it’s big. It seems to me like Sec. Roob and the private contractors are handling things the right way—working out kinks as they arise and modifying the rollout plan to accommodate that. In fact, just yesterday we learn that the Feds have acknowledged improvements:

The Indiana Family and Social Services Administration, along with private contractors handling the eligibility process, have improved the time it takes to process food stamp applications, according to a new letter from the federal government released Wednesday. [. . . ] A letter sent by the U.S. Food and Nutrition Service clarified that an earlier memo sent on timeliness problems used outdated data from the period of March 2007 through August 2007. It showed that 83 percent of the time the state met the timeliness goal of turning applications around in 30 days. But that was before the state privatized a large portion of the eligibility process. The state awarded a team of vendors ââ?¬â?? led by IBM Corp. and Affiliated Computer Services Inc. ââ?¬â?? a $1.16 billion, 10-year contract to process applications for Medicaid, food stamps and other benefits. Then FSSA piloted the welfare changes in a 12-county region of north-central Indiana in October, later expanding it to all but 33 counties in northern and central Indiana by May. [. . .] The latest letter from the Food and Nutrition Service shows that from August 2007 through January 2008, Indiana improved its timeliness rate to nearly 89 percent. States falling below 90 percent compliance must have a corrective action plan. “We’re doing better, but we are not where we want to be yet,” said Mitch Roob, secretary of the agency.

If I’m reading between the lines correctly, it sounds like overall state performance is improving, and stands to improve further in some of the counties where the modernization rollout has already taken place. More from Roob in this Indy Star piece:

While the project has not provided any savings to this point, Roob said he still expects significant savings in later years of the deal over the cost of state employees doing the work. He said the state should begin to realize some of the estimated $340 million in projected savings within the next year. Roob said the project is not just about saving money. He said it also is intended to improve service and access while containing future cost increases.

But in the political world, patience apparently isn’t a virtue. Daniels’ gubernatorial challenger Jill Long Thompson has vowed to create a commission to study the FSSA privatization, the Indiana Toll Road concession, and other privatization deals if elected in November.

If elected, Long Thompson promised to appoint a bipartisan committee of Hoosiers from various sectors to examine the effectiveness of privatized functions and cost-savings claims. She said all legal options surrounding the contracts would be pursued, including amending, renegotiating, canceling and/or buying out contracts. This includes the $3.8 billion Indiana Toll Road lease.

To be clear, I think it’s good practice for government to periodically review their privatization initiatives, as we’ve seen in Florida with their Council on Efficient Government, in Utah with their revamped Privatization Policy Board, and even within Daniels’ own Office of Management and Budget (who prepares and reviews business cases), for example. But the problem I see with Long Thompson’s proposal is that she’s clearly using this as a political issue, and given her vocal opposition to lottery privatization, the toll road lease, and the FSSA program, I think it’s safe to assume that the deck would fairly stacked against privatization from the start. And to suggest in the same breath that you’re open to privatization (as she did here), but you’re also willing to pursue “all legal options” to redo/undo contracts? Walking in with an implicit presumption that contracts need to be undone clearly reveals the objectivity as suspect. To even mention “undoing contracts” and “Indiana Toll Road lease” together starts to stretch the bounds of logic. What, would this commission propose a nearly $4 billion buyout of the concessionaire? I’d love to see where Long Thompson would propose digging up the loose change for that. In fact, Indiana’s budget director recently announced a decline in traffic on the ITR. Fortunately for Indiana, the $3.8 billion upfront payment they received from the concessionaire is already in the bank earning interest and funding new transportation infrastructure, and the revenue risk was shifted from government to the concessionaire. Through privatization, the state essentially turned a liability into an asset and is in a much better position today as a result. I’ve not heard opponents like Long Thompson ever acknowledge these fundamental realities in their rants against the lease; instead they prefer to demagogue it and nitpick non-issues. Long Thompson’s proposal is really just echoing recent moves in the state legislature. In the most recent session, there were several failed legislative efforts to introduce more bureaucratic oversight of Indiana’s privatization efforts. For the second straight year, the General Assembly considered a bill, House Bill 1340, that would have created a Privatization Review Committee to review plans and make recommendations to the governor. The bill would also have required a state agency to develop a privatization plan before privatizing any state program and hold a public hearing on the plan. It would have also required a state agency to perform a cost benefit analysis before entering into a contract for services, with the Department of Administration compiling semiannual reports on the cost-benefit analysis for each contract. The bill passed out of the House Committee on Interstate and International Cooperation in January 2008, but failed to advance further. A bill with similar provisions, Senate Bill 76, stalled in the Senate Committee on Tax and Fiscal Policy. For the latest privatization news, see Reason’s new Annual Privatization Report 2008 and our privatization research and commentary here.