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Governor proposes private, centralized system for public assistance eligibility

The proposal being pushed in closed-door budget talks contains little oversight and no study to show if the plan would actually save money. Similar outsourcing in other states has been problematic.

July 16, 2009|Michael Rothfeld

SACRAMENTO — A proposal that Gov. Arnold Schwarzenegger has been pushing in closed-door budget talks would tie the state, with little oversight or review, into a multibillion-dollar computer system likely to be run by the private sector to enroll low-income Californians in welfare, food stamp and healthcare programs.

A draft of the plan obtained by The Times shows that Schwarzenegger would replace existing county-run processes, which use four different computer systems across the state, with a single one. Administration officials say the new Internet-based system would allow them to save money on overhead and spend more on recipients.

"We just think we have a very inefficient system currently," said Joe Munso, an undersecretary at the state's Health and Human Services Agency. "We just think that in the 21st century here, we would be able to have one system and to do those things more expeditiously."

The plan is one of numerous changes the Republican governor has proposed for state government under the mantle of reform as he and lawmakers seek to close a $26.3-billion deficit. Democrats have faulted him for trying to use the crisis to win quick approvals of pet proposals that haven't been well evaluated.

The fate of his proposal to centralize eligibility for public assistance remained unclear as budget negotiations continued. As drafted, it would be approved without the normal exhaustive legislative review and without a financial analysis to show whether and how it would save taxpayer money.

Administration officials say it would cost about $2 billion a year, with start-up expenses at the beginning, but eventually save $500 million a year, although they have no study to buttress those estimates. They said the current system costs $3 billion annually.

Private companies would be able to provide both the labor and computer systems to take over the eligibility assessment for 8.6 million public-assistance recipients, a job now done by up to 27,300 public employees, many of whom could lose their jobs, although some could be rehired by the state vendor.

A consortium of counties could also bid on the contract, although their representatives said county charters and other complications would make that impractical.

Critics of the proposal point to other states, such as Texas and Indiana, that have allowed private companies to manage eligibility systems and experienced serious problems. Those have included high error rates that put the states at risk of federal penalties, recipients who were cut off or had to wait for healthcare and food stamps, and a lack of promised savings.

Frank Mecca, executive director of the County Welfare Directors Assn. of California, asked why the governor was trying to "jam" his plan through with almost no review in a state that has a troubled history in awarding big contracts, especially those involving computers.

"We're going to take this giant, multibillion-dollar gamble . . . based on a nonexistent fiscal analysis, for an administration and a state that has the worst track record in automation of any of the 50 states?" Mecca asked.

Schwarzenegger is an ardent proponent of public-private ventures. He proposed a version of the same plan five years ago in his California Performance Review, a conglomeration of ideas to increase government efficiency that largely went nowhere.

Under the current plan, the contract would have to be awarded by Dec. 31, 2010, a very short timeline that would ensure Schwarzenegger chooses the vendor before leaving office. It would be implemented by the middle of 2012.

The proposal would allow for competing bids but exempt the project from state laws meant to provide oversight on contracting -- and from reporting to lawmakers -- and it would allow the governor to choose any bidder he wanted without providing justification.

Munso said those provisions were inserted out of a desire to move quickly in the normally cumbersome procurement process and would be removed. He added that lawmakers would be able to review the project before appropriating the money.

State Sen. Denise Moreno Ducheny (D-San Diego), chairwoman of the state Senate's budget committee, said the proposal seems like "a solution in search of a problem" and wondered about Schwarzenegger's motives:

"It looks like he's trying to create extra profits for some for-profit company at the expense of county social workers who actually see people in person and know who they are."


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