A major global investment banking firm that spent several weeks with state officials assisting in the writing of a request for proposals (RFP) from “qualified financial advisors” to assess the market value of the Office of Group Benefits (OGB) preparatory to privatizing the agency turned out to be the only one to submit a proposal, according to sources within the Louisiana Division of Administration (DOA).
Goldman Sachs, which helped write the specifications of the RFP, submitted the lone proposal that calls for the Wall Street firm to assess the market value of all tangible and intangible assets of OGB and to seek a buyer for the agency that oversees benefits for 78,000 people, including state employees and their dependants.
Under terms of its proposal, presented on Monday, Goldman Sachs would receive $6 million for its services whether or not it is successful in securing a buyer for the agency, one source said. “Even if they are unable to find a buyer, they still get the $6 million,” he said.
In another development that could raise eyebrows among members of the Joint Legislative Committee on the Budget, the Division of Administration, realizing it was short of time, retained the services of a New Orleans firm to work up an evaluation in time for Gov. Bobby Jindal to submit his proposed budget last Friday.
The firm, Chaffe and Associates of New Orleans, was awarded a contract for $49,999–one dollar less than the $50,000 amount that would have required the approval of the Office of Contractual Review. Moreover, when the contract was initially drafted, it was for $44,000 but was quickly amended to $49,999.
It is considered unusual, if not illegal, for a firm to assist in drawing up specifications for a bid proposal and subsequently bidding on—and winning—the contract for the work.
Gov. Jindal has indicated he feels he can use $150 million to $200 million of OGB’s current surplus of more than $500 million to help plug the state’s looming $1.6 billion budget deficit.
The way it would work, said the DOA source who asked not to be identified, the purchaser would discount OGB’s assets, giving the state $150 million to $200 million with the remaining $300 million to $350 million being passed on to the purchaser.
Jindal, in his budget proposal last week, called for the elimination of 149 positions at OGB, saying the layoffs would save the state $10.3 million, a figure disputed by Capitol News Service’s DOA source.
“The privatization of Group Benefits, if it goes through, will destroy health benefits for state employees,” he said.
Those sentiments have been echoed by State Sen. Butch Gautreaux of Morgan City.
“I am very concerned about the governor’s efforts to sell off OGB,” said Gautreaux, a member of the OGB board, in a recent email. “I sit on the board and attend the meetings. We’ve developed a reserve of over $500 million and again, the governor is looking at raiding those funds for short term and recurring expenses.”
He said OGB, with administrative costs of only 4 percent, is financially stable. Privatization, he said, “will be a catastrophic move.”
“The governor is getting some very bad advice,” said the DOA source. “He’s listening to people who have no insurance background whatsoever.”