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The Journal Gazette

Wednesday, March 16, 2016 3:51 am

Lessons of privatization taught anew

When the state lottery commission initially released bids for operation of the Hoosier Lottery in 2012, the documents were so heavily redacted they were incomprehensible.

Officials claimed the methods bidders described to hit lofty sales targets couldn’t be disclosed because they were trade secrets.

Three years after a deal was signed with GTECH, it’s clear the methods also were implausible. The lottery commission voted this month to restructure the contract, dramatically reducing those lofty goals and, ironically, reducing the penalty risk for a company selling Hoosiers games of chance.

If the Rhode Island-based company didn’t deliver on its revenue promises, it at least delivered another lesson on privatization: Be wary of outlandish claims.

Indiana still needs that lesson.

• The Indiana Toll Road lease came with assurances of a strict agreement covering not only maintenance but every other aspect of service and performance. Less than nine years into the 75-year deal, the Spanish-Australian consortium that leased the road declared bankruptcy.

The road somehow increased in value from $3.8 billion to $5.72 billion in its sale to a different group of investors, who now are promising to invest $260 million in improvements that the state’s original lease somehow didn’t cover.

• The ill-fated welfare privatization deal with IBM should never be overlooked. Sold as an antidote to "the worst welfare system in the nation," the $1.37 billion scheme managed to make the situation even worse, particularly for the elderly, poor and disabled Hoosiers the system serves. After two years of botched performance, the state finally acknowledged problems and canceled the 10-year contract, setting off a costly legal battle as both sides filed suit. In the end, the biggest winners were subcontractor Affiliated Computer Services and Barnes & Thornburg, the Indianapolis law firm that lobbies for ACS and represented Indiana in its suit against IBM.

• The Indiana Department of Correction signed a four-year, $50 million-plus contract for operation of the New Castle Correctional Facility to GEO Group, a for-profit prison company. To maximize profits, the company worked out a deal with the state of Arizona to house its prisoners in east central Indiana. Just a month after some inmates were transferred here, a riot broke out. It was blamed on GEO’s inexperienced guards, but the transfer of prisoners was halted. Complaints continue about conditions at the state’s prisons, where food operations and other services are contracted to providers who pocket more by serving less.

Private contractors perform numerous jobs for state government every day, efficiently and effectively. But grand claims always demand great scrutiny. State officials have been too eager in recent years to buy into bold promises from charter school operators, lottery companies, financiers and others whose loyalty is not to Hoosiers, but to the bottom line. As voters prepare for 2016 elections, they would be wise to consider the mixed results of Indiana’s privatization push.

And in the meantime, a reminder to state officials: If it sounds too good to believe, it probably is.