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More than $360 million into the state’s largest private contract, Indiana faces uncertainty about how it will rebuild from its failed welfare privatization attempt and what it has actually gained.
The state’s Family and Social Services Administration also faces the task of replacing its dinosaur of a core computer system down the road – a cost that had not even been included in the IBM contract.
Gov. Mitch Daniels announced Thursday he was firing IBM Corp. as administrator of the state’s food stamp, Medicaid and welfare benefits and that the state would assume IBM’s role at the helm of a “hybrid” system.
The hybrid system – the details of which remain unknown – will combine successful elements of the old welfare delivery system and the modernized system. In general, that means more face-to-face time with clients and a case-based, rather than task-based, approach to processing applications, Daniels said.
Although the administration claims the proposed hybrid system will still save tens of millions of dollars annually, it is important to distinguish the starting point for that assessment.
Jane Jankowski, spokeswoman for the governor, said FSSA previously projected the cost of upgrading and modernizing the system on an in-house basis as opposed to hiring a private vendor.
The agency determined the state would spend less using an outside vendor.
Those savings are based on comparing cost projections of in-house modernization with those of the IBM coalition proposal.
A chart on the FSSA Web site shows the cost of the contract was also supposed to be less than the projected cost of continuing on the old system if no major upgrades were made.
A projection from fiscal year 2007 – before the IBM system was implemented – showed FSSA’s baseline cost was $150 million, and that without upgrades, the annual cost would rise to about $225 million in fiscal year 2016.
Under the IBM-led modernization, the cost would have been less than $150 million in fiscal year 2016, while an internal modernization would be about $220 million, the projection said.
Daniels intends for the cost of the new hybrid system to fall between those two numbers, Jankowski said.
Jankowski said the administration could not provide a cost-per-client comparison between the old system and the IBM-led system because there are too many variables.
To date, the state has spent $361 million on the contract. Of that, about $163 million was the state’s share, with the remainder from federal sources, according to data the FSSA provided the state budget committee last month.
To some, a frustrating lack of details remains in determining what the state received for its money and how much money the state saved during the two years since the first counties were brought into the new system.
Allen County and most northeast Indiana counties joined the new system in mid-2008.
Because the state halted the implementation of the IBM-led system in January, only about a third of the state’s public assistance clients were being served by the new system. But the state was on track to pay as if the program had been completely implemented. In less than three years, IBM had been paid about a quarter of the contract’s original $1.16 billion sum.
Rep. Peggy Welch, D-Bloomington, took a stab at what she called “back-of-the-envelope” calculations when the state’s answers didn’t satisfy her. Welch said she and her legislative assistant, using numbers provided by the state’s auditor, calculated the state was paying about $140,000 a day to IBM during the first eight months of this year for services not rendered.
Also frustrating to some was the lack of an apples-to-apples cost comparison of the IBM system and the old system.
“We’ve never been able to get the administration to say, ‘What did it cost before?’ ” said Nancy Griffin, an advocate working with welfare recipients.
In any case, Griffin is ready to focus on what’s to come. Replacing the state’s antiquated computer system should be part of any discussion to modernize Indiana’s welfare programs, she said, because such an upgrade would go a long way toward improving service and reducing errors.
Griffin believes the looming cost should have been included in the IBM contract in the first place.
“It avoids the big issue,” she said. “Let’s do the right thing and really get some bang for our buck.”
FSSA spokesman Marcus Barlow said including a computer system upgrade in the IBM contract was never part of the plan because Indiana was trying to learn lessons from a failed privatization in Texas. Barlow said Texas changed its core computer system, causing many problems for the state.
Even in the minutes after Daniels’ announcement Thursday, critics expressed skepticism that the new plan will solve the problems of poor customer service.
“Until we see details, we’re very skeptical that this will solve the problem,” said Cecilia Perry, a public-policy analyst for the American Federation of State, County and Municipal Employees, AFL-CIO, which represents FSSA employees.
One of the most criticized subcontractors will retain its work with the state.
The Associated Press reported last week that Affiliated Computer Services Inc. sought permission from the FSSA to use the state’s welfare data to screen job applicants for fraud or other welfare program violations. The federal agency that oversees the food stamp program objected when it learned from FSSA in July that the state agency might share the data.
The participation of ACS in the private coalition had been criticized from the beginning because Mitch Roob, the FSSA secretary who led the agency when the contract was signed, was a former executive at the Texas-based technology vendor.
Soon after FSSA entered into the contract, Daniels appointed Roob commerce secretary and chief executive director of the Indiana Economic Development Corp. Roob’s salary increased from $130,000 to $150,000 with the job change.
Daniels said Thursday he does not regret the IBM contract.
“It was a concept that looked user-friendly and looked efficient on paper, and sometimes those things don’t work when you take them out on the road,” he said.
That concept had its detractors from the beginning, though, and now those who vocally criticized the contract hope the administration will pay more attention to the suggestions of caseworkers and others on the front lines.
Rep. Welch said she and many Statehouse colleagues will seek legislative oversight and insight from county caseworkers. “If we learn from our lessons here, we could have the best human-services delivery system in the country,” she said.
Niki Kelly of The Journal Gazette contributed to this story.
