Still in search of privatization savings

Following up on the earlier news about the very critical state audit of claimed savings by privatizing HR and payroll functions of the Texas Health and Human Services Commission (THHSC), we have this Chron story which adds some more details.

The commission says it never expected to save money in the first year but concedes it has sliced its own projected cost savings in half since the private contract was awarded last year.

The auditor sharply criticized the agency for "significant errors and omissions" in its assumptions about how much it would cost a private company versus the government to perform the administrative duties.

The inaccuracies resulted in overstating what it would cost for an in-house consolidation of payroll and human resources functions while understating what it would cost for a private company running the system, the auditor found.

The commission awarded the contract to Convergys in October 2004 after conducting an analysis it said showed the company could save the state as much as $21.7 million over five years.

"As of August 2005, the commission reported that it had not yet achieved any cost savings from outsourcing this function," the auditor said.

Commission spokeswoman Jennifer Harris said state officials never expected cost savings in the first year.

However, she added that the commission now expects cost savings over five years from outsourcing to be about $10.9 million, roughly half what it originally estimated.

[...]

The auditor said commission officials overestimated the cost of a government-run system by $19 million while omitting $24 million in start-up costs and not counting other costs for the private contractor.

"Because of the magnitude of these discrepancies, documentation available at the commission was not sufficient to determine whether outsourcing was cost effective," the auditor said.

Even so, the commission insists it will save $32.7 million over the next five years as a result of consolidating payroll and human resources, with roughly a third of that the result of private contracting.

You may note that the original story cited a claimed $45 million cost reduction. It's no wonder no one can say for certain what we're supposed to save. There's too damn many numbers floating around.

More damning is this story, a followup to the original Express News piece, in which we learn that THHSC cannot abide bad news.

A dispute remains unsettled between the Texas Health and Human Services Commission and the state auditor's office over how much would be saved by privatizing the commission's human resources and payroll functions.

Last year, the commission, which oversees all of the state's health and welfare services, said it was beginning its effort to privatize some services now provided by state workers as a cost-saving move.

Because the commission disagreed with the auditors' preliminary analysis that only $1.1 million would be saved, the figure was dropped from the auditors' final report, released Tuesday.

Instead, the figure was replaced with a statement that auditors were unable to quantify what savings would come from outsourcing.

Responding to the critical audit, HHS Commissioner Albert Hawkins acknowledged "errors and omissions" in its cost analysis, but said the errors were not significant enough to change the commission's calculation.

As Casey Stengel once said, can anyone here play this game? The Jeffersonian is right. This is outrageous. There were two justifications for privatizing THHSC's functions: The private sector can do them more efficiently and less expensively. Neither one is proving to be true. At what point are we going to reexamine our assumptions and take corrective action?

If we don't do something soon, the feds may force our hand. Via the Quorum Report, states may soon face limits on how much they can privatize food stamp programs.

The U.S. Senate passed a $100 billion Agriculture Department annual funding bill on Thursday that would prevent states from privatizing the food stamp program by sending some administrative jobs to overseas call centers.

[...]

Iowa Democrat Tom Harkin sponsored the ban on replacing state workers with outside firms to handle food stamp applications. Otherwise, he said, low-paid workers in an overseas call center might decide if poor Americans got aid.

As noted by Waco Trib columnist John Young, the House version of this bill doesn't have that provision, so nothing is certain yet. That said, this passed the Senate by a 97-2 margin.

This mess is getting attention within Texas. Chris Bell has sent a letter to the USDA, which regardless of the above legislation is still required to approve any privatization deal involving food stamps, urging it to reject this one. The following is from a press release I got from State Sen. Gonzalo Barrientos:

In a letter to Lieutenant Governor David Dewhurst co-authored by Senator [Eliot] Shapleigh, Senator Barrientos expressed his concerns over findings in the audit which described the Commission's inability to accurately estimate savings and properly document their actions as required by state law. "In anticipation of an unsatisfactory outcome, I wrote the Commission in February 2004 asking that they reconsider the push to privatize payroll and human resources, and was assured in a response that 'as good stewards of taxpayer dollars' the Commission would 'carefully establish their criteria' and 'focus on performance and accountability'," wrote Barrientos. "In light of the Commission's response, I find the results of the State Auditor's report particularly disappointing." Barrientos continued by saying "(a)s news of the audit has spread, I have begun to field reports from state employees who are unable to access the HR system, check and use their vacation time, and in some cases, even receive a paycheck. This is simply unacceptable. We need increased legislative scrutiny before we move further down the often one-way street of privatization."

We have not heard the last of this.

For previous entries on this, see here and here. There's more at BOR and PinkDome.

Posted by Charles Kuffner on October 06, 2005 to Budget ballyhoo | TrackBack