An Inside Look at the Privatization of FSSA

The fiasco of the privatization of Indiana’s Family and Social Services Agency under the Daniels’ Administration is one of the low lights of recent Hoosier politics.

Daniels came to office as Governor with some sort of unearned legendary business accumen, promising to put the state back on track, financially, and rescuing us from the ravages of “liberalism.” Like there had ever been, or would ever be, a liberal agenda afoot in Indiana.

Daniels, who had, as George W’s Budget Director, overseen the demise of the quarter trillion dollar Clinton surplus and turned it into a hemorrage of red ink resulting in the greatest deficits in the country’s history, promptly set about redefining the state in a decided pro-business, anti-citizen orgy of libertarian, conservative excesses. He changed our time zones, making a worse hodge podge of the state’s divided time zone situation than even we opponents of the changes could imagine. He promptly privatized the prison system, the Indiana Toll Road, and the FSSA. He expressed interest in privatizing other state owned or managed entities, such as the State Park system, the South Shore Railroad, and basically any other agency that could be pitched to his cronies.

This post is about the boondoggle that happened at FSSA. There is some insider information that applies to the how and why the decisions were made to privatize the agency. Some of this is new information, and I have no doubt will be of interest to the the legal teams who are gearing up in the suit/countersuit between the State of Indiana and the private contractor hired to operate the FSSA by the Daniels’ Administration.

Daniels had appointed Mitch Roob, a former aide to Indianapolis Mayor Stephen Goldsmith, and later an Illinois political hack, to head up the FSSA. Roob, between various jobs within Illinois state government and his appointment to head up Indiana’s FSSA had been a vice president of Affiliated Computer Services. Their main business was in the arena of privatizing government computer services in state and local communities around the country.

Daniels also brought Carl Moldthan, a retired firefighter and then head of the Hoosier Taxpayers Association, aboard at FSSA as a $45,000 a year administrative assistant. He had also worked as a private business owner and was a consultant to local governmental agencies. Moldthan had worked hard to elect Daniels, and was genuinely interested in saving Indiana from governmental waste and excess taxation.

Because there had been so much talk about privatizing the services administered by the county welfare agencies, Moldthan was given the task to visit every single county welfare agency–all 105 of them. During the course of his visits, Moldthan made no fewer than 70 suggestions to Roob and his superiors on ways of improving the agency’s operations, changes if implemented, he claims would have resulted in hundreds of millions in savings. Little did Moldthan know at the time that his common sense ideas would be met with scorn, laughter or otherwise summarily rejected by his superiors.

What Moldthan came to learn was that Roob was going to privatize the work done by those county welfare agencies come hell or high water. Anyone who didn’t believe in privatization should leave, an offer Moldthan gladly accepted after less than a year on the job. Moldthan also learned that Roob had no intention of saving money from privatization. After all, the county welfare agencies comprised only $180 million of FSSA’s multi-billion dollar budget, representing just 7% of the agency’s entire budget.

Roob must not have shared his “no savings” comments about privatization with his boss. Gov. Daniels promised savings of more than $500 million over the first decade at the time he publicly proposed the privatization initiative in 2006. “Today, we act to clean up welfare waste, and to provide Indiana’s neediest people a better chance to escape welfare for the world of work and dignity,” Daniels said in his press release. “We will make America’s worst welfare system better for the people it serves, a much fairer deal for taxpayers, and for its own employees.”

Moldthan traces the privatization charade back to a KPMG report Roob had done on behalf of the agency in 2005, which merely listed known problems that had existed for over 20 years in FSSA and were never adequately addressed. It’s somewhat like telling someone that their roof leaks and they have known about it for 20 years.

Based on his visits and extensive interviews with the people in the trenches doing the work, Moldthan disagreed with Roob’s plan to privatize the family services. He hastens to add that he is not opposed to privatization in general. “I have always been a supporter of privatization and still believe in it,” he says. “However, I believe that when privatization is used its purpose should be to bring better service at a less expensive price but it should not be used as an end all tool for problems in government.”

Moldthan warned Roob and his superiors that they had failed to check out the root of the problems at the county level before making a decision to privatize. “After reviewing the situation in FSSA it has become clear that no one has checked this out and in my opinion will be a very BIG mistake [to privatize],” he warned. “It is also clear that there was NO ONE who spoke against it and if they did, they were told as I was that, “Since you don’t believe in what we are going to do, maybe you shouldn’t work here'” “This cuts out all discussion in the negative and causes much of it to be canned or without truth,” Moldthan says. “It also increases the chance of failure when the other side is kept quiet.” How prophetic his warning to Roob and his superiors turned out to be.

Moldthan became very disturbed by the disparaging comments Roob was making about the county welfare workers as he was visiting their offices. “They are nothing but glorified order takers”, “They give away too much”, are just but a few of the disparaging remarks that Moldthan noted Roob had made about them.

Moldthan e-mailed Roob to express his concerns about privatization during the course of his fact-finding mission. He wrote:

“When I attended the meeting on July 1st you made two statements that surprised and confused me. One was that the part of the budget you were talking about (county offices at $180 million) was only 7% of DFR’s total budget. The other is that privatization was not going to save any money. If both of these are true then why may I ask are we going to privatize? You need to keep them informed.

As I stated before these people are paid poorly, eat lunch at their desks and most are more conservative than you and I. They feel what needs to change are the rules and policies. I think if they were given a chance they could and would succeed at the task of saving money. Unfortunately they’re not going to get that chance.”

Roob never responded to Moldthan’s e-mail.

Moldthan to this day speaks about how surprised he was by the dedication of the more than 1,000 county welfare workers he met during his road trip. Many of them had worked in their jobs for more than 20 years, and had experienced first hand the fraud and abuse taking place in the system but found themselves completely frustrated by efforts to make changes by middle management folks at FSSA to whom they reported. Moldthan outlined some of the basic problems that these workers confronted on a day-to-day basis:

1. No new computers for over 9 years.

2. Many of the forms are still done in paper which takes many extra hours from caseworker’s days.

3. Many very simple problems that cause counties extra work have not been addressed and have been left to fester.

4. Contrary to current beliefs county caseworkers DO NOT make decisions, Indiana’s written polices must be followed. If changes are expected the rules need to be changed and this move would save millions in the cost of employees alone.

5. Present computer forms for various programs such as Medicaid and TANF are out dated and are not equipped with relational databases.

6. Counties DO NOT control or have any input into their yearly budgets.

7. No raises. According to some people, out of 25 years they have only received raises 11 times. These people eat their lunch at their desks, work over without extra pay, come in early without pay and many other things that most people would quit over. This being the case they deserve a chance to make it work.

8.Starting wage for a caseworker is $22,700 and most are college graduates and are NOT big supporters of the union. Most are also very dedicated, however, they are anything but liberals in their beliefs about whom and how much the State gives to clients.

Moldthan had a whole list of changes Roob and his superiors could make that would achieve real savings without actually privatizing. They included:

Closing 15 to 20 offices and combining them with other local county offices.
Reduce staffing at the offices by one-third.
Modernize the technology used by the workers to increase efficiency, including newer leased computers supported by relational databases instead of static information contained on outdated computers that are unable to communicate with other databases.
Employ independent medical review teams rather than relying on a client’s physician exclusively. Moldthan noted that some offices experienced as many as 50% of the disability claims being based on a clients’ claims that they suffered from bipolar disorder. Workers told Moldthan they believed that many of those claims would have and should have been disallowed if independent medical review teams were utilized instead of the client’s physician.
Hire more fraud investigators. Moldthan learned that as much as 25% of the benefits may have been consumed by fraudulently-claimed benefits.
Allow clients access to computers placed in the office lobbies to fill out basic information in advance of meeting with welfare workers to aid the workers in assisting the clients more efficiently.
Provide incentive bonuses to county workers who come up with ideas that are implemented and save the agency money.

After Moldthan failed on numerous occasions to get Roob or his other superiors to listen to him and act on any of his suggestions, causing him to become increasingly frustrated, he hand-delivered his findings to Gov. Mitch Daniels, then-Senate President Robert Garton and then-House Speaker Brian Bosma. Moldthan’s cover letter included a scathing indictment of Roob’s administration of FSSA. Moldthan wrote in his October 31, 2005 letter, in part:

“My job with FSSA was to suggest methods to save money. To date, I have made over 70 suggestions with an estimated savings of many hundreds of millions of dollars. However, not one of these suggestions has been implemented and as far as I know have not even been studied. In fact, I have heard every obscure and ridiculous reason NOT to do them. I wish I could count the number of times I have heard, “that’s not our problem” or “that’s not our area”.

I have seen irresponsible management within the agencies and a total disregard for taxpayer’s dollars. I have also witnessed incompetence. The sad part is the only people who seem to give a damn about saving taxpayer money are those employees who work in the trenches and deal directly with the public. They see the waste and tell the appropriate people and then they are ignored.

It is this type of total disregard for taxpayer’s funds that concerns me and creates skeptics in the public sector. After careful thought and consideration I have come to the conclusion that the leaders of FSSA are so focused on privatization that they are disregarding numerous opportunities worth potentially hundreds of millions of dollars in savings. I generally am in favor of privatization and I have made that known on many occasions, however, I have made known my reservations about moving too quickly and without studying this situation to insure success . . .”

Daniels never met with Moldthan, nor discussed his ideas and the problems he encountered at FSSA under Roob’s leadership. His letter merely resulted in an angry Roob summoning him to his office for a verbal undressing and a demand that he recant the comments in his letter. As Moldthan recounts his meeting with Roob:

“On the morning of November 23rd I met with Mr. Roob and John Davis, General Counsel for FSSA and I apologized for not copying Mr. Roob in the original document. Mr. Roob then told me I should write him a letter recanting the entire document as “innuendos”, “factually incorrect information” and merely “my opinion”.  Roob stated that I was the “most disloyal person he had ever met.” During the entire meeting I sat there quietly and NEVER said a word. I let Mr. Roob babble on.

After the meeting Mr. John Davis came running out of the meeting and stated that he had told me that Mr. Roob was angry. He handed me notes he had taken during the meeting and stated that I should write the letter. I never wrote the letter and NEVER will.”

Four years later it has become abundantly clear how right Moldthan was and how wrong Roob was. After spending $361 million on a privatization contract with IBM and its partner, ACS, who just happened to be Roob’s former employer before joining the Daniels administration, even Daniels had to agree the effort had become an unmitigated disaster and had become a major embarrassment for him. Daniels cancelled the contract Roob executed on behalf of the state and sued IBM, which in turn has filed suit against the state.

The Daniels administration declined requests by the media to compare the cost of the old system run by county welfare workers to the costs under the IBM-ACS-led effort. Daniels’ spokesperson said there were too many variables to make such a comparison beneficial. Before the privatization was undertaken, the administration claimed an internal modernization would cost $220 million a year compared to an annual cost of $150 million under the privatization plan.

Daniels has retained ACS’s services after cancelling the contract with IBM under a new hybrid approach to delivering welfare services. The fallout from the ill-fated privatization plan continues, however.

The federal government has levied multi million dollar penalties against FSSA for miscalculating food stamp benefits.  The federal Food and Nutrition Service said FSSA, who is running the food stamp program for USDA in Indiana has a combined error rate of 7.1 percent, or more than 1.5 times the national average of 4.36 percent. FNS also said Indiana erred in 13.69 percent of cases when it came to denying benefits or granting eligibility. The national average was 9.41 percent. FSSA blamed the problems on IBM and its partners, from whom it would seek to recover the financial penalty in its lawsuit against IBM.

So after this fiasco, filled with corporate cronyism and questionable ethical lapses, not to speak of the complete failure of the experiment, where do find Mitch Roob today? Oh he’s left the FSSA after making a total shambles out of the system and costing Hoosier taxpayers billions of dollars now and into the future.

Never fear for Mr. Roob, however. Governor Daniels is taking good care of him. Immediately upon leaving FSSA in total disgrace, the Governor named him to be Indiana’s Secretary of Commerce. In that job Roob is continuing his less than stellar ways. He is making claims of job creation and business relocations within the state that have, to date, no supporting evidence. In fact, to the contrary. But we are told to believe his claims all the while that he is cloaking the statistics, claiming confidentiality of information. Even though all of this information is legally within the public right to know.

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