Feds to states: Don't privatize food stamps

U.S. officials point to problems in Texas, Indiana.

Six years after Texas embarked on an ambitious social services outsourcing project that hit major problems, the federal agency in charge of food stamps is warning states against such efforts.

"These projects encountered severe problems in meeting critical performance standards and many eligible (food stamp) applicants have suffered as a result," says a Nov. 20 letter from the U.S. Department of Agriculture to the states. "We do not support furtherance of such projects, and believe that they put public funds and our clientele at risk."

The warning comes as the food stamp program is experiencing a recession-related surge across the country — and as Texas is negotiating a new contract with a private company that is already handling some aspects of enrollment. State officials said they don't expect the contract to be affected.

The message from federal officials to the states: We know these are tough times, but privatization isn't the answer.

The Nov. 20 letter from department Undersecretary Kevin Concannon to Texas Health and Human Services Executive Commissioner Tom Suehs and his counterparts across the country says that several states have outsourced significant portions of the application process to for-profit groups. The letter does not name the states, but a spokeswoman for the federal department confirmed that they are Texas and Indiana.

In October, Indiana ended a more than $1 billion welfare eligibility deal with IBM Corp. because of problems "including lost documents, delays in benefit approvals and poor service," according to an Associated Press report.

Texas in 2005 hired a group of companies led by Accenture LLP to run call centers enrolling Texans in programs such as food stamps and Medicaid. But the project, which stemmed from the 2003 legislation, hit training and technology problems — call center workers couldn't answer applicants' questions, and applicants got letters saying they hadn't submitted required paperwork, even though they had.

In 2006, Texas officials, saying they'd turned over too much of the work to the contractors, reduced the scope of what had originally been a five-year, $899 million deal. But the state and Accenture never agreed on final terms for the revamped contract, and the entire deal was scrapped in 2007.

Since then, the food stamp program has grown significantly. From August 2008 to August 2009, food stamp rolls nationwide increased by 7 million people, from 29.5 million to 36.5 million, according to the federal department. In Texas in the same period, enrollment increased from 2.7 million to 3 million, federal officials said.

The federal letter says that although states are experiencing "unprecedented caseload growth," it's important to meet federal processing deadlines: 30 days for regular applications and seven days for emergency applications. The department, Concannon wrote, "is very concerned about the adequacy of administration of (food stamps) in many States."

Texas was warned in September that its food stamp funds are at risk because it has failed to meet those deadlines. In October, Texas processed 58.8 percent of applications on time, according to state data.

A Nov. 24 Department of Agriculture report said the Texas food stamp program reached 55 percent of eligible people in 2007, one of the lowest rates in the country.

Texas is negotiating a three- to five-year deal with Maximus, which in June tentatively won a contract to continue running call centers in Austin, San Antonio, Midland and Athens. Maximus is a former Accenture subcontractor that has been running the call centers since the state and Accenture parted ways.

Stephanie Goodman, a spokeswoman for the Health and Human Services Commission, said that Maximus' work is more limited than Accenture's was, involving behind-the-scenes tasks such as document scanning.

Texas' new Maximus contract will need federal approval.

"We don't anticipate any problems with that because (the U.S. Department of Agriculture's Food and Nutrition Service) already approved the division of roles and responsibilities between the state and vendor in the request for proposals," Goodman said.

Celia Hagert of the Center for Public Policy Priorities, which advocates for low- and middle-income Texans, said she hopes federal officials "will really scrutinize this contract" to ensure a clear division of responsibilities between the state and contractor and "to make sure that the problems that came up in the Accenture debacle aren't repeated."

cmaclaggan@statesman.com; 445-3548