Gov. Daniels’ two big privatization moves during his tenure have received some negative press over the weekend. The first, which was a debacle from the word “go” was the welfare benefits eligibility privatization, turned over to friends and well-wishers of the Governor. (h/t Advance Indiana). Matea Gold, Melanie Mason and Tom Hamburger, writing for the Los Angeles Times gave the matter some national attention, noting the extremely cozy relationships between the people involved and pointing out that this isn’t just some abstract problem; it had real consequences:
Louise Cohoon was at home when her 80-year-old mother called in a panic from Terre Haute: The $97 monthly Medicaid payment she relied on to supplement her $600-a-month income had been cut without warning by a private company that had taken over the state’s welfare system.
Later, the state explained why: She failed to call into an eligibility hot line on a day in 2008 when she was hospitalized for congestive heart failure.
“I thought the news was going to kill my mother, she was so upset,” said Cohoon, 63. Her mother had to get by on support from cash-strapped relatives for months until the state restored her benefits under pressure from Legal Services attorneys.
I’ve long maintained, that to people who do not see welfare benefits as a priority, these “errors” are more feature than bug. It reduces the cost of a program these policy and law makers didn’t much care for in the first place. Win-win! And, if it will also be profitable for people you do care about, well it’s no wonder you’ll be ignoring guys like Carl Moldthan when he tries to advise you that your privatization initiative has problems.
Though the $1.37-billion project proved disastrous for many of the state’s poor, elderly and disabled, it was a financial bonanza for a handful of firms with ties to Daniels and his political allies, which landed state contracts worth millions.
. . .
Even before Daniels signed off on the privatization effort, the little-known Lucas Group started reaping benefits. Its role was not publicized at the time, but the consulting firm had a nearly $4-million contract — signed by Roob — to write the specifications by which the bidding companies would take over the system.
Like ACS, the Lucas Group had ties to former mayor Goldsmith: He served for a time as a senior consultant for the firm, which is run by a longtime associate. Goldsmith, now a deputy mayor in New York, said in an interview that he had nothing to do with the state’s awarding of contracts to the Lucas Group or ACS.
The other privatization story in the news this weekend was from Keith Benman, writing for the Northwest Indiana Times. (h/t Indiana Law Blog) who reports that, despite doubling tolls, the operator of the privatized Indiana Toll Road is running out of money.
The private operator of the Indiana Toll Road could be in danger of defaulting on its huge debt by early next year, according to a report on the news wire service Debtwire.
The May report in Debtwire, a Financial Times Group publication, stated Toll Road operator ITR Concession Co. is rapidly burning through an interest reserve account, which must be maintained to keep $4.1 billion in loans in good standing.
The lease has some protections for Indiana, but at the end of the day, a financially unstable operator can’t be good for the efficient operation and maintenance of one of Indiana’s most important roads. Maybe we won’t have to pick up any sort of tab, but how much control do we have over our road?
Ed Cates says
Re: the toll road.
Is it considered Bad Form to engage in a heartfelt round of “I told you so?”
Paul K. Ogden says
Privatization has to be about using market competition to provide services to the public more cheaply. If it isn’t, then privatization doesn’t work. Giving a company a 50 year contract for the city’s parking meters is not privatiation…it’s government granting the private sector a monopoly which is never good for the public.
Unfortuantely the theory of privatization has failed in practice because of the revolving door, campaign contributions, well connected lobbyists and law firms. If there is a way of insulating privatization from those pressures, I’m not aware of it.
I wonder which of the TBTF banks are waiting in line for those credit default swaps to pay off………assuming the underwriters of the CDS’s are liquid enough to pay even a dime when it all falls apart.
There is more to privatization than meets the untrained eye. The devil is in the details. This deal was put together when money was dropping from trees prior to the 2008 meltdown. Now three years later this consortium can’t rub two dimes together to get a nickel?
Indiana is going to get hosed on this deal. But isn’t that part of how the GOP agenda works, privatize the gains and socialize the losses.
BTW, Aaron Renn over at Urbanophile was astute to discover that Mitch’s Major Moves has ran out of cash on the NW Corridor Plan. The new funding for it is coming in disguised as an initiative for mass transit. Now you know what the big push for mass transit is all about. It’s a bait and switch and the greenies are too dumb to see it. My understanding is nearly 90% of mass transit money will go to road contruction NOT mass transit.
Correction: North East Corridor not NW
Did you know that the same Spain based company has a 99 year lease on the Chicago leased Skyway? If Spain defaults on its debts (they borrowed to lease these roads), who will get these assets….the highest bidder?
“Spain” does not own the Skyway or Indiana Tollroad. A default by the government of Spain has nothing to do with a default by the private company that owns the Skyway and Tollraod.
I don’t know anything about the welfare privatization, nor do I care, but I do know a lot about the Tollway. This is all related to the Obama economy, and lack of economic growth. If we had a robust recovery, the privatization would be a non-issue. The Tollroad is hardly the only entity suffering in this economy.
Economist Charles Taylor is predicting another recession next year. Fasten your seatbelts, the ride is going to get bumpy.
Doghouse Riley says
Buzz, if you don’t care how a billion-dollar state contract was handed out and managed, then recuse yourself from any further discussion of state finances.
And, y’know, unless you’re a Fortune 500 company the economy was in the crapper for the entirety of the Naughts, and the Toll Road excuse-mongering began well before the (Bush-era) global financial shenanigans, with the complaint that the interest on the Big Payout wasn’t what was expected (so we were going to have to pay to build I-69 after all). As if no one could have anticipated bond market fluctuations over a 75-year period.
DR, I don’t have the time to invest in the welfare issue, quite frankly. And it really doesn’t interest me. I’m already a Mitch skeptic.
Read the Hammond Times article. The deal was structured with a savings account, essentially, to get them through tough times. Unfortunately, the current downturn has been more severe than they expected. My guess is that the timing of this recession, so soon after the privatization, also hurt, in that they didn’t have much time to build up the rainy day fund.
It’s really too bad, because we need to be doing more of this kind of privatization. We are really behind what other countries in Europe and Asia do, and we could free up a lot of money to pay off debts.
Mitch and Mitch and company didn’t have time to invest in learning about the welfare system either, Buzz, which is why it’s in the shitstorm of a mess it’s in. I’m glad you’re a Mitch skeptic because everyone should be. The man’s a fiscal fraud.
I don’t quite get your defense of the toll road privatization and not having enough money (about not having enough money saved, etc.). Shouldn’t they have made sure money was available regardless of ANY situation which may arise? Anybody who has studied history even a little had a good idea a major economic downturn was coming at some point back in 2005-6 (within 5 years of the deal). What idiots involved with that process didn’t have a contingency plan in place? These idiots. Better yet, they didn’t give a crap about any of it — they saw $ in their eyes and damn the torpedoes! they saw a way to show what an “innovator” Mitch is without really knowing what they were getting into.
Where in Europe and Asia do they do this sort of privatization to pay-off debts that has an economy and government structure similar to the US’s where it would work for us and not blow-up in our faces?
If you are in 2005, you are living in the midst of “The Great Moderation”. There was nothing as severe as we have been through over the last 3 years on your horizon, no.
As for privatization, Europe is at the point where pretty much everything is being privatized: airports, roads, bridges, even train routes. Will it blow up in their faces? If the economy continues to suck this bad, I’m sure it will.
So, that’s seems to be 0-2 for the ole Governor. Missed on budgeting for the Bush war, and missed on the Toll Road long term financials too. Good thing the Mrs. and the girls wouldn’t let him run for President after all, for all our sakes.
Paul K. Ogden says
Point of order. I believe the State of Indiana has already been paid in full for the toll road. The company might have borrowed to make the lump payment to the State, but we don’t really care if they default on their own debt, except for the problem that another contractor might assume the contract down the road.