Chairman Thomas Patterson called the meeting to order at 9:00 a.m. and attendance was
noted. See attached list for other attendees.
APPROVAL OF MINUTES
There were no minutes submitted for approval
PRESENTATIONS
Senator Patterson announced that he had invited several members of the Senate to attend
and participate in the Government Reform meeting to discuss the privatization of the
administration of the welfare system. He stated that although Arizona is on the "cutting
edge" of welfare reform, there are other states with experience in privatizing welfare
programs. He said Massachusetts and Maryland have privatized their child support
programs and Mississippi contracts out with private companies for job placement services.
He submitted that Texas has passed legislation which has yet to be enacted to privatize
their welfare program. Wisconsin has allowed each of their 72 counties to privatize their
welfare program if they so desire and seven counties have done so, including Milwaukee,
which has 40 percent of the caseload in that state. He testified that Wisconsin's caseload
has dropped over 30 percent.
Jerry Miller, Lockheed Martin IMS, introduced two other Lockheed Martin staff members, Ms. Holly Ploog, in charge of business development, and Claudia Languth, in charge of
Marketing for Lockheed Martin's welfare reform efforts. Mr. Martin stated he would share
examples of successful privatization efforts which Lockheed Martin has been a part of and
the conditions and considerations which make these efforts achieve the desired outcomes.
He stated he would like to discuss how Arizona can insure itself of a cost effective results-driven strategy . Mr. Martin distributed a handout of his presentation, (on file with original
minutes), titled, "Reforming Arizona Welfare: How Privatization Can Work to Change the
Current Welfare System in Arizona" which contained information about Lockheed Martin
IMS. He discussed options for the privatization of Arizona's welfare system such as
specifications of the services, establishment of procedures for monitoring performance,
feedback and suggestions, contracts and terms, protection against non-performance,
competitive contracting, statewide procurement, and time frames for developing and
awarding its privatization contract.
Rick Ferreira, Manager of Human Services, Electronic Data Systems, (EDS) Office for Government Affairs, Washington D.C. Mr. Ferreira distributed an EDS 1996 fact book. (On file with original minutes). Mr. Ferreira
confirmed that he is the "lead person"
for his company's work in Wisconsin and would be discussing his work there. Mr. Ferreira stated he would like to talk about privatization from an Electronic Data System (EDS)
perspective. He stated that though much has been learned about privatizing welfare, there
is not a lot of experience in contracting out to the private sector which does put Arizona on
the "cutting edge". He stated that a growing number of state legislatures around the
country are interested in viewing privatization for making limited resources match
increasing demands for services. He stated privatization has been suspect in some
quarters in the belief that the client well-being will diminish because accountability for
outcomes will be overridden by the profit of the private sector. As states have become
more sophisticated in their contracting practices and as successes meet the accountability
expectations of legislators and clients advocates, privatization of traditional public systems
is growing nationally and will continue to do so. Mr. Ferreira urged members to remember
that we are still in the early states of this transformation and that there are many
unanswered questions. He stated that EDS is "fully cognizant" of the myriad of stake
holders in human services delivery. He stated that as EDS enters into the human services
privatization market they will seek only collaborative approaches in their solutions that
involve government and state and local levels, private non-profit and faith-based
organizations and others. He stated EDS's goals are to establish a mutual agenda and
outcomes to work to redefine the way "business gets done"; to build a self sustaining
alliance to consistently achieve agreed upon outcomes; and seek circumstances which
produce "mutual commitment to mutual outcomes to which there is mutual responsibility
and reward".
Mr. Ferreira stated that with regard to Wisconsin, the primary focus has been in Milwaukee
County which has opted to privatize unlike other surrounding counties which have chosen
to operate their systems themselves. In Milwaukee, they have split the county into six
small regions, ranging from 3,000 to 5,000 cases per region. Five vendors have been
selected to serve as "W-2" agencies. He stated that EDS has partnered with three of them,
all non-profit organizations such as Goodwill Industries who have long histories in the
welfare arena. He stated EDS's roll will be to provide information, technology support, and
assistance in the implementation of W-2 programs in their respective regions. He
reiterated that Wisconsin's success can be attributed to its "up-front" planning of the
process and the collaborative approach between government and private sectors.
Mr. Ferreira acknowledged that the Texas RFP has been delayed for reasons having to do with critical policy questions being debated at the federal level. He stated those policy question have to do with the degree to which eligibility determination and certification can be privatized and becomes an issue as it relates to the food stamp program, Department of Labor programs and other programs within Health and Human Services.
Mr. Ferreira suggested that in addition to the up-front planning there needs to be adequate
phasing to insure success. Issues of control and clarification of roles and responsibilities
are very essential. He stressed that one way to get agreement is to involve as many
parties as possible in the up-front planning process. He emphasized that EDS will remain
flexible in its approaches to different processes. Part of that flexibility will include taking
each situation as it comes by hiring and retaining existing workers, developing new skill
sets, and offering competitive salaries. He stated that if workers are impacted, EDS will
look at a variety of options for transitioning them as well.
In closing, Mr. Ferreira summarized saying the keys to success are based in four critical
areas: communication, clear goals and expectations, and leadership support at all levels.
Bob Sheller, Client Executive, IBM. Mr. Sheller stated IBM's primary expertise and experience is with technology privatization. He stated that he believed that the
privatization of technology should be an integral part of any welfare reform initiative that
ultimately becomes the scope of legislation. Expanded automated support and creatively
applying technology to the new business processes being developed are not an adjunct
to a successful program, but a mandatory and integral part of it. Any technology solution
must accommodate the shift of focus from cash assistance to job placement. The
extended rules and regulations that are going to be in place to encourage that movement
will need to be supported with new technology. Mr. Sheller indicated that the development
and operations of technology solutions are best suited by privatizing. He stated the model
program has all of the hardware and software required to implement the new programs,
processes and procedures and should be provided by the private sector. In this model the
agency would responsible for policy and program guidance to the contractor during its
development and throughout the operation. The contractor who is providing the
technology solution would be responsible back to the agency for delivering a solution that
works, works on time and steps up to commitment levels for services demanded. He
stated there are three primary reasons why privatization of technology is critical. The first
is the rapid rate in which technology is changing. The second reason is that it is becoming
increasingly difficult to find and keep "good people" in the technology arena and could be
avoided by privatization where salaries and training will remain competitive. The third
reason is to create a private/public sector partnership in the implementation of the program.
Mr. Sheller proposed that with regard to technology, it would be IBM's proposal to make the financial investment required to build and deliver a solution that would achieve the goals desired for Arizona Works and not request return in the investment until the solution was proven to have met results. Payment for the technology solution would be done out of the benefits derived by the State of Arizona in terms of direct cost savings on program expenditures and improved productivity. He stated that the private sector is the "perfect place" to build a technology solution because the investment can be brought to bear and the risks controlled in its implementation.
Senator Patterson explained that the three companies chosen to make presentations were
selected on the basis of the knowledge that they were available and interested. He
emphasized that options remain open at this time and that other companies have
expressed an interest in the process.
Senator Springer stated that all three presentations made a point of not just specifying
outcomes, but integrating the process into the private sector. She emphasized that she
felt it important to allow the private sector to "take the total responsibility" and not have the
State "second guessing" how the private sector is to do their job. She expressed concern
that the State be very cautious about how its oversight is conducted based on previous
experiences.
Senator Springer asked if in the proposals, the existing facilities would be used or if the
companies are proposing to use their own or new facilities.
Mr. Ferreira responded that there was no "blanket answer" and many issues will be
resolved over a period of time. In Wisconsin, the process has included using existing
structures and new facilities.
Mr. Miller responded that in the baseline RFP the facilities costs need to be clearly
reflected. He hoped the general intent and expectations would be to use existing offices
for the convenience of clients receiving services.
Senator Hartley requested the number of states currently utilizing privatization efforts. Mr.
Miller responded that he did not have an exact number but that there were a number of
states, within legislative committees, that are discussing the issue of welfare privatization.
Senator Hartley asked if any states had considered any of the presented proposals and chosen not to participate in lieu of using their own state systems. Mr. Ferreira responded that EDS has so far been involved with three other states. He stressed that there are "degrees" of privatization with regard to welfare employment. Many states are examining the issue of privatizing and to what degree they want to privatize. He stated there are many states who will take "pieces" of a delivery system and that most are looking at some level of privatization.
Mr. Miller responded that he knows of no state that has "rejected" privatization.
Senator Hartley asked for an estimate of what a maintenance contract might be per year
and for the number of years it would be needed. Mr. Sheller responded that he did not
have a figure as it relates to specific costs because he had not yet seen an RFP.
In response to Senators Hartley and Cunningham, Mr. Miller responded that in Texas, their
administrative costs are just within the agency dealing with the eligibility, not the work
force. He explained that Texas' procurement board has basically stated that the starting
point for discussion is a 10 percent reduction. He stated there have been vendors in Texas
who have stated they believe that there will be a 20 percent savings with a fixed price
contract. Therefore the risks over time, depending on the length of the contract, rests with
the contractor.
Senator Cunningham asked if part of the costs savings would be realized by closing rural
offices. Mr. Miller responded that in Texas, assess to facilities has been an important issue
and would probably be for Arizona as well. He stated he did not foresee closing rural
offices.
Senator Cunningham asked if it would be wise for the Legislature to require that a cost
benefit analysis be conducted as a precondition to the decision for privatization. Mr. Miller
responded that Texas concluded that it was in the best interest of their taxpayers to simply
proceed, but that Arizona needed to be comfortable in the knowledge that money will be
saved and an analysis should be made.
Senator Lopez asked if any of the presenters had experience in working with programs in
rural areas. Mr. Miller responded that they did have some experience working in rural
areas.
There being no further business, the meeting was adjourned at 10:25 a.m.
Respectfully submitted,
Monica McIver
Committee Secretary
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