It sounds like a good idea: Replace state employees with a high-tech contractor to more efficiently screen thousands of applications for state support, and save taxpayers millions. 

That’s what Texas and Indiana policy-makers thought. But early results of a privately run social services project in Texas and troubles with the bidding process in Indiana have caused both states to put their bold privatization plans on hold. 

Last year, Texas chose Bermuda-based high-tech consulting firm Accenture to run the entire eligibility process for Medicaid, food stamps, Temporary Aid for Needy Families (TANF), long-term care and Children’s Health Insurance Program (CHIP). In January, the state launched a pilot privatization program in Travis and Hayes counties near Austin. 

The plan was to expand it county-by-county, with rollout completed by December 2006. But computer glitches and procedural problems cropped up immediately.

Some 27,000 kids in the pilot program inadvertently were dropped from health insurance coverage, and poor, elderly and handicapped applicants routinely were put on hold for more than 20 minutes, with more than half of all callers hanging up. Thousands waited longer than federal rules permit to find out whether they qualified for urgently needed state assistance, according to state officials. 

And in a highly publicized gaffe, Accenture employees mistakenly faxed more than a hundred long-term care applications containing Social Security numbers and sensitive medical information to a Seattle warehouse. 

Texas officials are optimistic they can correct the problems and eventually expand the project. But for now, expansion is off indefinitely.

“We recognize that modernizing a system of this size and complexity is never easy,” Texas Health & Human Services Commissioner Albert Hawkins said. “But we remain focused on implementing a system that finally allows Texans to choose how they want to apply for services, is built on modern technology and makes the most of limited state resources.” 

The pilot program will continue, and most problems already have been corrected, says agency spokeswoman Stephanie Goodman. The 27,000 kids scheduled to lose CHIP coverage were reinstated before they lost service, telephone wait times have been cut to less than two minutes and state workers have taken over processing new applications to allow Accenture to catch up on its backlog, she said.

The state will cut Accenture’s contract fee by approximately $50 million because of work not completed between January and June, Goodman said. 

Meanwhile in Indiana, Gov. Mitch Daniels (R) put the brakes on his state’s search for a social services contractor amid charges of favoritism.

Daniels took over decision-making authority for a proposed 10-year, $1 billion contract last month to quell accusations of preferential treatment by the state’s Health and Human Services chief, a former employee of Dallas-based Affiliated Computer Systems, one of the bidding companies. 

Indiana state employees complain that Daniels’s call for privatization jeopardizes their futures, despite his promise that no state jobs will be eliminated. And advocates for the poor say the secret bidding process, initiated by executive order, leaves no opportunity for public comment and undermines public accountability. 

Texas Gov. Rick Perry (R), up for re-election this year, has heard similar complaints.

Independent gubernatorial candidate and state comptroller Carol Keeton Strayhorn has called for a probe of Texas' privatization contract, and Democratic gubernatorial hopeful Chris Bell has joined a chorus of critics demanding a return to public welfare screening.

Since 1995, when the federal government revamped most welfare programs, states have been free to hire private firms to administer social service block grants and entitlement programs as a cost-cutting measure. But until now, states have given businesses only a limited role, such as providing debit cards for food stamps and developing computer systems to track welfare applications.

Advocates for the poor worry that putting too much responsibility in the hands of profit-motivated companies could endanger the vulnerable people the programs are intended to help. Federal rules require state employees to make final decisions for some entitlement programs, but letting a private contractor make the initial eligibility cut could have a profound effect on welfare outcomes, they say. 

Supporters of privatization argue that antiquated state eligibility systems no longer are cost-effective, and say improvements best can be accomplished by a high-tech, profit-motivated contractor with incentives to operate efficiently.

Texas policy-makers say their plan not only will save taxpayer dollars but modernize the social services eligibility process, allowing people to apply for support over the Internet, by fax, through call centers and at self-serve kiosks. Currently social services applicants must travel to their local social service offices during business hours and wait in line to talk to a caseworker.

Daniels, who left his post as Bush’s top budget advisor to run for governor in 2003, grabbed headlines this year when he privatized an Indiana toll road, granting a 75-year lease to a foreign consortium for $3.8 billion.

Most agree that the state welfare eligibility process – with long lines, limited office hours and error rates in the 25 percent rage -- needs improvement. But advocates for the poor argue that the problems result from underfunding and understaffing, not lack of expertise. 

“The only people with experience in the complex and sensitive work of determining welfare eligibility are state workers. Why would you hire a high-tech company to do that?” asks Stacey Dean of the Center on Budget and Policy Priorities, an advocacy group for the poor.

Other privatization critics argue that transferring public services to private companies has been plagued by quality-of-service problems for the last two decades. The concept makes sense and state policy-makers always are eager to save money, but in practice, privatization has failed more than it has succeeded, says Mildred Warner, a privatization expert at Cornell University. 

In an analysis of privatization of state and local services over the last 20 years, Warner concluded that the majority of projects failed because of deteriorating quality of service. And in more than half the cases, the projects did not save taxpayer dollars, she said.