AUGUSTA — Gov. Paul LePage’s administration has increasingly moved to have private companies and nonprofits do the work of state government, from dispensing welfare benefits and providing mental health programs to running prisons and operating a drawbridge. But LePage is hardly alone in his quest to privatize some of the functions of state government.
In the past decade, governors around the country, Republicans and Democrats alike, have looked to the private sector for ways to save taxpayer money or improve the delivery of services without increasing costs.
“There’s sometimes a belief that this issue of privatization is exclusively the domain of the right, but that couldn’t be further from the truth,” said Leonard Gilroy, director of government reform at the Reason Foundation, a nonprofit libertarian think tank.
What’s less clear is how well privatization works. The record is mixed, with some public-to-private transitions moving smoothly and efficiently, while others break down, leading to more spending on services rather than less.
There’s no comprehensive national data on privatization, but it appears to be a growing trend that started as the U.S. economy turned downward after 2001 and state budgets were subsequently squeezed by declining tax revenues.
CASCO BAY BRIDGE: Now run by a Florida company so the state can focus more on road work.
In Maine, it’s difficult to track whether privatization is increasing, said David Heidrich, communications director for the Department of Administration and Financial Services, which administers most of the state’s contracts.
The LePage administration announced last month that it had selected a private company to operate the state’s ASPIRE program, under a $62 million contract that could eliminate 50 jobs in the Department of Health and Human Services. ASPIRE finds jobs for people who receive financial assistance through the federally funded Temporary Assistance for Needy Families program.
The ASPIRE contract was the latest of several privatization moves that LePage has made since he took office in 2011. The administration also has created privately run virtual and charter schools; put the state’s wholesale liquor business in private hands to generate money to pay off hospital debt; proposed a privately run mental health hospital to handle forensic patients currently in Riverview Psychiatric Center; outsourced the operation of Casco Bay Bridge to a Florida company; and hired private vendors to manage the MaineCare program that provides transportation to medical appointments.
OTHER STATES TRY PRIVATIZATION
Gilroy, at the Reason Foundation, said LePage’s effort to outsource the ASPIRE program is similar to proposals by other governors. These include former Pennsylvania Gov. Edward Rendell, a Democrat, and Chicago Mayor Rahm Emanuel, also a Democrat who served in Congress and was once chief of staff for President Obama.
Gilroy said he likes to paraphrase former New York Gov. Mario Cuomo, also a Democrat, who said it was not up to government to actually provide the services mandated in law but to ensure those services are provided. “It illustrates being agnostic on who is doing something as long as that service is being delivered effectively,” Gilroy said.
LePage has seen mixed results from his administration’s efforts to privatize.
In 2013, for example, the administration re-bid and renegotiated a contract that allows for the private administration of the state’s wholesale liquor business. The changes made to that contract allowed the state to retain the bulk of the profits from liquor sales, while the contractor is now paid a fee for the services it provides in marketing and warehousing the alcohol.
CHARTER SCHOOLS: Allowed as of 2011, Maine now has nine of them, serving about 2,000 students.
The state earned $46 million in profits from $155.5 million in liquor sales in 2015. Future profits from the sale of liquor were pledged as collateral for a $220 million revenue bond that the LePage administration used to repay $183.5 million in outstanding debt to Maine hospitals. The 39 hospitals had been operating without full reimbursement from the state’s Medicaid program since 2009. The state’s repayment, in turn, triggered a federal payment to the hospitals of $305 million.
SOME CHANGES DON’T GO WELL
But in some privatization cases, Maine taxpayers are spending more on the cost of services, and the quality of services has declined.
For example, the state was forced to terminate the contract of a private vendor hired to broker transportation services in the MaineCare rides program in 2013, after hundreds of patients were left waiting and missed medical appointments. In addition, the overall cost of the program crept upward, from $44.3 million in 2014 to $50.3 million in 2015.
The effort to privatize and outsource the state’s ASPIRE program also is expected to come at an overall higher cost, but supporters say it will ultimately increase the state’s capacity to successfully transition people from welfare to work.
Other states also have seen poor outcomes from privatization.
In New Jersey, Republican Gov. Chris Christie’s successful push to privatize components of that state’s lottery missed its projected windfall to the state by $35 million in its first year, and by 2015 that shortfall had grown to nearly $65 million.
It appears that Louisiana will be borrowing $400 million to balance its state budget this year, partially as a result of former Republican Gov. Bobby Jindal’s privatization of several charity hospitals and clinics that were previously managed and operated by Louisiana State University.
And in 2014, Michigan terminated a three-year, $145 million contract with Aramark Correctional Services a year after the company hired to feed state prisoners came under scrutiny for a lack of cleanliness, unapproved menu substitutions and other issues.
STANDARDS AND ACCOUNTABILITY
Gilroy said the success of privatization efforts or public-private partnerships depends largely on solid contract writing and a commitment by government officials to monitor those contracts closely and hold contractors accountable. He calls contract writing an “art” that depends on two key things.
LIQUOR BUSINESS: Awarded to Pine State Trading of Gardiner in 2014, in part to pay off Maine’s debt to hospitals.
The first is “having a really good sense of knowing, ‘What are you trying to achieve? What are your goals?'” Gilroy said. “Along with that you need to operationalize those goals, develop performance measures so you can ensure you are hitting them.”
He said the second component involves making contractors accountable. “Enforce that contract, hold the contractor’s feet to the fire,” he said.
State Sen. Eric Brakey, R-Auburn, co-chair of the Legislature’s Health and Human Services Committee, where many of the outsourcing proposals for Maine’s welfare programs have been aired, said turning to a private-sector contractor has several advantages for policymakers, the biggest being increased flexibility to ensure programs are reaching their intended outcomes.
“If we are not getting the outcomes we want we can simply terminate the contract and look at hiring somebody else to do the job,” Brakey said. “Sometimes when we try to do it ourselves, just doing it in-house, when things aren’t working it’s much harder to try something new. It’s much harder to let people go who aren’t meeting the expectations.”
Advocates for vulnerable populations or for those in state custody, as well as the unions who represent state workers whose jobs are being privatized, are usually the fiercest opponents of privatization. They say the poor, imprisoned, mentally ill and disabled are often left in the lurch of the disruption that can occur in a poor transition from public to private.
MENTAL HEALTH: A plan would send patients who have committed crimes to a private hospital.
Many struggle to reconnect, or face new barriers to access the services they once had, after a former state operation is placed in private hands. Moreover, critics argue that the quality of services can also diminish under a private-public partnership that’s managed largely by the private entity with little oversight and far less transparency than when government is at the helm.
Rep. Scott Hamman, D-South Portland, another member of the Health and Human Services Committee, said Mainers have seen what happens when privatization doesn’t turn out as intended, as was the case with the MaineCare rides debacle.
“We should always be looking for ways to make programs more effective and efficient, but DHHS has a poor record when it comes to outsourcing,” Hamman said. “Maine kids can’t afford further harm if the ASPIRE privatization is anything like the expensive MaineCare transportation outsourcing.”
Hamman said he hopes that DHHS has learned from its past mistakes “and this (new) ASPIRE contract includes tight renewal requirements, comprehensive outcome measures and independent quality controls.”
WORKER UNION CITES DRAWBACKS
Ramona Welton, president of the Maine State Employees Association, SEIU Local 1989, the union that represents the bulk of state employees, said the state loses skilled workers it may otherwise need in other roles just from privatization announcements like the one for the ASPIRE program. That program is now understaffed, she said, because many of the 50 workers who could lose their state jobs already have moved to the private sector or to other state agencies and departments.
Welton said skilled workers want stability and job security, and privatization plans usually offer neither.
“What we’ve seen around other contracts and how the (LePage administration) has done this, it’s not all that reassuring,” she said.
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