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Lessons of welfare debacle apply in school voucher debate


It’s been a costly lesson, but Indiana’s long and troubled experiment with welfare privatization will be even more costly if lawmakers don’t take its message to heart. Outsourcing key state functions to private businesses can ultimately come at greater expense and, most important, cause irreparable harm to some Hoosiers.

Here’s the takeaway from an Indiana Court of Appeals ruling in the state’s suit against IBM, the lead partner in a $1.3 billion deal to administer welfare services: “In the most basic aspect of this contract – providing timely services to the poor – IBM failed,” wrote Chief Judge Nancy H. Vaidik.

The words can’t begin to describe the suffering the botched deal caused for the state’s most vulnerable residents. The poorest Hoosiers, seniors and people with disabilities depend on assistance for food and medical care, but vital services were interrupted when a paper-based caseworker system was replaced by an automated system. Problems surfaced almost immediately when clients were directed from county welfare offices to online applications and phone interviews conducted by call-center workers.

Thursday’s ruling overturns an earlier decision but still awards the company $50 million in fees the state had agreed to pay. The decision allows the state to go after as much as $177 million in a breach of contract suit, but the real winners will be the outside counsel hired to pursue the case. The state hired Barnes & Thornburg, the same law firm that represented ACS, IBM’s partner in the privatization fiasco, to handle the case. As of mid-2012, the state already had paid the law firm $9.6 million. Contract amendments since that time have added another $2.1 million to the legal tab.

ACS, of course, was the former employer of Mitch Roob, the Family and Social Services Administration secretary who oversaw the privatization mess. This page warned in 2006 that the murky process that created FSSA’s deal with IBM and ACS would “grease the skids on the road to debacle.”

The results should be foremost in lawmakers’ minds as the privatization push continues, particularly with the important business of education. The General Assembly continues to expand Indiana’s private-school voucher program, siphoning nearly $135 million away from public schools in just three years. When problems arise, they won’t be concentrated within one giant corporation, but failure by even a handful of voucher schools will result in harm to students. The case for negligence will be even tougher to prove.

As the welfare privatization lesson shows, costs weren’t so much contained as made less transparent. In extolling the IBM contract in 2006, state officials claimed taxpayers were in line for $1 billion of savings and that recipients would see better service.

The savings and better performance now promised by school voucher proponents sounds suspiciously like the bill of goods sold eight years ago with the FSSA deal.