Outsourcing the Public Good

Texans seeking public assistance used to find out if they
qualified by talking to workers from the state. But according to a
new plan, their requests for food stamps, child health insurance,
and other services will be handled by a ‘call center’ run by a
private company. For those who are inclined to think the private
sector does everything better, Texas is a trailblazer, but others
see reason for caution and even alarm.

‘Texas is facing a $10 billion budget deficit,’ Jonathan Walters
reports in Governing (May 2004). ‘In the view of
many influential Republicans, there is only one way to deal with
that number: Let the private sector in on state work to lower state
costs.’ Under the plan sponsored by state representative Arlene
Wohlgemuth, Texas will consolidate 12 health and human services
agencies into 4 and hand 2,500 jobs over to private-sector vendors
in the next two years.

While cities and states have a history of contracting out jobs
like corrections and sanitation, they’ve now entered new territory.
The latest push is to privatize functions that were previously seen
as key roles of government, including some internal operations,
like human resources. On its Web site, the Mackinac
, a conservative Michigan think tank, puts it this
way: ‘There are typically many more opportunities for privatization
than local officials realize for solving problems involving
government-owned assets, facility operations, services, debt
structure, and other facilities and infrastructure. Identifying
these involves . . . applying privatization techniques to the
fullest possible range of government services and facilities.’

Faced with massive budget shortfalls, business-friendly
politicians at all levels are buying the pitch. Under Governor Mark
Sanford, who faces a $350 million deficit, South Carolina may
outsource inmate health care. Meanwhile, under Governor Jeb Bush,
Florida is tendering contracts to the private sector for child
protective services, foster care, and human resources management.
Still, ‘most eyes right now are on Texas and its decision to
privatize eligibility determination — and whatever else it can —
as part of its health and human services overhaul,’ writes

The risks are great and the critics numerous. Walters quotes
Gary Anderson, executive director of the Texas Public Employees
Association, who worries that the state will lose ‘valuable
institutional knowledge’ as it hands tasks over to the private
sector. The state is guilty of ‘stepping over dollars to save
dimes’ in its shortsighted strategy, Anderson says. One concern is
that the state is giving up the ‘capacity to easily take work back
if vendors don’t pan out.’

John Davis, the South Carolina official who has been chosen to
help privatize inmate health care, admits that the state takes a
major risk when it farms out government jobs, because annual
budgets prevent the state from locking any company into a long-term
contract. ‘Once you’ve dismantled the system, it’s tough to put it
back together,’ he says, ‘and vendors know that.’

A good example is Florida’s ill-fated decision to outsource
human resources jobs. ‘A $280 million contract with
Cincinnati-based Convergys Corp. to take over the job has bogged
down badly, which means the state is spending millions of dollars
keeping its old system up and running while Convergys tries to work
out kinks in the new system,’ writes Walters.

The move to privatize public assistance in Texas will be run by
powerful consulting firms. ‘Deloitte Consulting, Maximus, and
Accenture are doing everything from reengineering how work gets
done to ensuring that whatever system Texas ends up with squares
with federal cost-accounting requirements,’ reports Walters. Gregg
Phillips, a former Deloitte consultant who now heads the effort to
outsource the work done by the state’s Health and Human Services
Commission, is convinced that needy Texans won’t be let down.
‘Texans seeking service don’t care who they’re talking to as long
as who they are talking to is courteous and accurate, and performs
well,’ he says.

Still, one notable irony is that the public assistance call
center jobs in Texas stand a good chance of being outsourced to
low-wage, low-benefit countries. ‘The image of employees in India
handling Virginians’ and Vermonters’ queries about food-stamp
benefits had governors and legislatures nationwide arguing all
spring about whether they ought to limit state contracts to vendors
who agree not to send jobs abroad,’ writes Walters.

Without such limits, Texans and others seeking services may end
up on the phone with workers who would themselves qualify for food
stamps, Medicaid, and other assistance if they lived in the United

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