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Archive for the ‘OGB, Office of Group Benefits’ Category

Before privatizing, consider the real motives–political and economic–and the financial repercussions

Posted in Governor's Office, OGB, Office of Group Benefits, ORM, Office of Risk Management, Prison, Privatization, Transparency on March 27, 2011| 3 Comments »

When considering the motives behind the sudden push by Gov. Bobby Jindal to privatize so many facets of state government, one must pause and ask one simple question: if private industry can accomplish what the state has been doing for decades and do it more efficiently and at less cost, why are so many for-profit companies falling all over themselves to win the contracts?

The answer is just as simple. They see ways to make enormous profits.

If the math doesn’t work for you, you’re not alone.

But a March 17 story in Bloomberg Businessweek (click here for story) may have helped to bring into the focus the reasoning behind private industry’s salivating over running such state agencies as Group Benefits, Risk Management, state prisons, and even the state’s public education system.

A story by Bob Sloan, (click here for article) posted on the web on March 26, also shed light on the machinations of private industry’s involvement in prison administration. Neither story paints a pretty picture.

But first, some background.

The argument could be made that only one company submitted a bid on the twofold contract to serve as a financial assessment expert to assess the value of the Office of Group Benefits (OGB) and to secure a private sector buyer for the agency that is presently sitting on a $500 million surplus, about $300 of which would go to the new purchaser with the remainder going to the state’s General Fund.

That’s true enough but then Wall Street banking firm Goldman Sachs helped to write the specifications for the state request for proposals (RFP) on the contract and was subsequently the only bidder on the $6 million project, it raised more than a few eyebrows.

That was enough to get the attention of the Legislative Auditor’s office, which promptly dispatched a team of auditors to OGB to look into that arrangement as well as the issuance of a $49,999.99 contract to Chaffe Associates of New Orleans to work up some preliminary assessment figures for Jindal in time for his presentation of his proposed budget for the coming fiscal year.

The Chaffe contract was exactly one penny less than the amount that would have required approval of the Office of Contractual Review. To date, Chaffe has not presented any studies nor has it billed the state for any services.

The Office of Risk Management was privatized effective last July 1 when F.A. Richard and Associates (FARA) of Mandeville began a five-year phase-in takeover at a “maximum cost of $68 million.” Now, barley nine months into its contract, FARA has already requested a $7 million amendment to a cost “not to exceed” $75 million.

And while considerable attention has been given the proposed privatization of state prisons, the privatization of public schools has managed to fly under the radar of the state’s citizenry—with the notable exception of public educators.

In the wake of 2005’s Hurricane Katrina, the number of public schools in New Orleans has shrunk from 123 to four while the number of charter schools has gone from seven to 31, according to author Naomi Klein in her controversial book, The Shock Doctrine, The American Enterprise Institute virtually crowed, “Katrina accomplished in a day…what Louisiana school reformers couldn’t do after years of trying.”

Jindal’s more immediate concern at the moment, at least publicly, appears to be the auctioning off of state prison facilities. A Request for Information (RFI, not to be confused with an RFP) by the Department of Corrections to determine interest in attracting bidders on an RFP to be issued later for the sale of prisons in Winn and Allen parishes drew responses from six bidders, including Winn Parish Sheriff A.D. “Bodie” Little, LaSalle Management Co., dba LaSalle Corrections, of Ruston, Emerald Correctional Management of Shreveport, Corrections Corp. of America (CCA) of Nashville, TN, GEO Group of Boca Raton, FL, and Management & Training Corp. of Centerville, UT.

The Ruston-based LaSalle Management already operates prison facilities in Homer in Claiborne Parish, Richwood (Ouachita), Harrisonburg (Catahoula), Jonesboro (Jackson), Urania (LaSalle), Ruston (Lincoln), and Ferriday (Concordia) in Louisiana and four others in Texas.

Emerald runs the West Carroll Detention Center in Epps and facilities in Texas, New Mexico, and Arizona.

CCA is the largest private prison contractor in the U.S. and currently has contracts with the Immigration and Customs Enforcement (ICE) and other federal clients, and 19 state prison systems.

CCA and GEO, the second-largest private prison contractor, together account for more than $3 billion in gross revenue annually, according to the Bloomberg Businessweek article.

The state currently pays local sheriffs in every parish $31.51 per day for each state prisoner housed in local jails. ICE, on the other hand, pays CCA $90 per day per person to house illegal immigrants.

Given the difference of nearly three to one, why would CCA, GEO and the others be so eager to offer bids in the range of $40 per day for state prisoners?

One answer is that they are in the business of making a profit and in all probability they have their eyes on federal detainees. The question must be asked: how long before the private companies, with federal dollars shining in their eyes, tell the state to take a hike?

Another possible answer is that CCA and companies like it go to great lengths to lobby federal and state governments to adopt ever-stricter punishment for non-violent criminals in an effort to maintain—and increase—America’s already high rate of detention. At $90 per day, it’s to the best interest of the private companies to keep as many prisoners as possible.

A third alternative is to cut staff, reduce the salaries of guards, terminate rehabilitation and vocational programs designed to move prisoners back into society.

The second and third alternatives would be in direct conflict with Jindal’s stated goal of rehabilitating and training prisoners in order to release non-violent offenders and thus, reduce Louisiana’s prison population rate, which right now is the highest in the nation which in turn, has the highest detention rate in the world.

The Bloomberg Businessweek article quoted CCA critic Bob Libal, Texas coordinator for Grassroots Leadership, an anti-private prison coalition as saying the company manages to skim better-behaved (read: cheaper to control) inmates from the general population, leaving government facilities to deal with the more violent prisoners.

Another factor that is never mentioned in any RFP or contract is the fact that no matter how many state prisoners a private company may take into its care, the cost of providing medical care for the prisoners remains the responsibility of the state.

CCA, according to the article, operates facilities throughout the southern part of the U.S., from California to Georgia. Low labor costs are a major factor in that clustering, the article said.

Judy Greene, a criminal justice expert at the Brooklyn-based nonprofit research group Justice Strategies, said the private companies save money at the expense of labor. “Labor is cheap, wages are lower, and benefits are few,” she said.

GEO is not without its critics, either.

In Mississippi, a state audit in 2005 noted that GEO has reduced staffing at Walnut Grove, a juvenile detention center that houses 1,200 inmates, to a guard-to-inmate ratio of 1 to 60, compared to the national norm of 1 to 10 or 12.

And while state prison employees erect yard signs in opposition to the prison sales and protest in Baton Rouge, the bottom line is they are going up against an industry with almost $5 billion a year in gross revenue and an administration that wants very badly to accommodate them in the interest of getting a few million dollars in up-front money to help plug a gaping hole in the state budget.

A betting person wouldn’t give very good odds on the administration’s suddenly developing a conscience and changing its mind on this issue. The alliances run too deep, there’s too much money at stake, and like it or not, money is the fuel that runs the political machinery.

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Administration gives State Auditor private data on OGB study but denies access to Dept. of Economic Development records

Posted in Auditor, Contract, Contracts, Economy, Governor's Office, OGB, Office of Group Benefits, Teague, Transparency on March 19, 2011| 1 Comment »

A $49,999.99 contract between the Office of Group Benefits (OGB) and Chaffe and Associates appears to give the legislative auditor’s office complete and unfettered access to all records of Chaffe’s work for OGB, something it lacked in its recent audit of the Louisiana Office of Economic Development (LED).

Chaffe’s contract with OGB, executed on Feb. 16, calls for the New Orleans investment banking firm to prepare a “detailed report structured to provide sufficient information to permit OGB and the State Affiliated Parties (Office of the Governor and/or the Division of Administration) to understand the data, reasoning, and analysis underlying its (Chaffe’s) conclusion of value” of OGB.

Chaffe is charged with preparing and submitting a report setting forth its opinion of the current fair market value of the operations of OGB in preparation for Gov. Bobby Jindal’s anticipated attempt to privatize the office.

Capital News Service earlier reported that the Wall Street investment banking firm Goldman and Sachs was brought in for several weeks to assist in the preparation of a request for proposals (RFP) from “qualified financial advisors” to assess the market value of OGB.

The deadline for bids was March 7 with interviews of bidders scheduled to begin last Monday, March 14. The problem of timing arose when the administration realized it needed preliminary figures at least in time for the presentation of the governor’s proposed budget on March 11, three days before interviews were to begin.

Chaffe was given a contract to fast track the valuation of the agency in time for the budget presentation. The $49,999.99 contract amount was for one penny less than the minimum contract amount requiring Office of Contractual Review approval. CNS first reported that the contract was for $49,999 but upon receipt of a copy of the contract pursuant to a request under the Louisiana Public Records Act, it was learned that the contract was actually for an additional 99 cents.

While the contract was signed by Tommy Teague, chief executive officer of OGM, and Chaffe Managing Director Jonathan Briggs on Feb. 16, it was back-dated to Feb. 10 and runs through June 30, according to terms outlined in the document.

The contract also gives the legislative auditor the right to audit Chaffe’s work. “Chaffe grants to the Office of the Legislative Auditor, the Office of the State Inspector General, and any other duly authorized agency of the state the right to inspect and review all books and records pertaining to services rendered under this contract,” it says.

State auditors recently complained that the Louisiana Office of Economic Development (LED) denied them complete, unfettered access to requested documents during an audit of that agency.

The audit report said two meetings were held with LED Secretary Stephen Moret and the legislative auditor also sent two letters requesting unrestricted access to records but LED, citing workload issues and legal concerns, refused to cooperate, thereby preventing auditors from knowing to what extent documentation that was provided may have been compromised or whether or not they received complete information.

LED is a public agency, supported by taxpayer dollars, while Chaffe is a private entity.

R.S. 24:513 (I) provides that the legislative auditor’s authority to audit extends to “all documents, records, and files, whether confidential or otherwise.”

While appearing to give the legislative auditor carte blanche in the examination of Chaffe’s work product, the contract also takes careful measures to protect the firm’s report and work papers from public disclosure.

“Chaffe will not release any information to any third party about OGB or this engagement without OGB’s prior written permission,” the contract says, adding, “Chaffe’s work product or other written or electronic documentation regarding this engagement does not carry with it the right of publication without Chaffe’s previous written consent.”

The last sentence might be open to legal challenge inasmuch as once the report is submitted to OGB, DOA, or the governor’s office, it is presumed to be a public document under the state’s public records law and Chaffe would have no say in any decision to make the report public. The contract does appear to recognize that contingency in the next paragraph when it says that OGB agrees to notify Chaffe in writing “prior to the production of any Chaffe work product in response to a request pursuant to the Louisiana Public Records Act or any proceeding before a court or governmental or regulatory body.”

Payment terms of the contract calls for OGB to pay Chaffe a fee of $45,000 for the report, due upon delivery. The maximum payment, inclusive of other fees, expenses and copies is not to exceed $49,999.99, according to terms of the contract.

At the March 7 formal bid opening for the state’s RFP on the “qualified financial advisor,” an RFP in which Goldman Sachs played a major role in drafting, the only bidder was Goldman Sachs.

The global investment banking firm’s bid to more fully assess the fair market value of OGB and to find a buyer for the agency was for $6 million. A spokesman for DOA said that under terms of its bid, Goldman Sachs would receive the $6 million even if it is unsuccessful in securing a purchaser for the agency.

The same source said OGB’s current surplus of more than $500 million would be discounted and the state would receive $150 million to $200 million of that to help Jindal plug the gaping $1.6 billion budget gap with the purchaser retaining the balance.

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First, help us with the RFP, then you can bid on the project

Posted in Governor's Office, House, Senate, Legislature, Legislators, OGB, Office of Group Benefits, Privatization, RFP, Request for Proposals on March 17, 2011| 3 Comments »

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.”

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Money and politics: old song, different verse

Posted in Campaign Contributions, Governor's Office, OGB, Office of Group Benefits, Public Records, Supriya Jinda Foundation, Transparency on March 12, 2011| Leave a Comment »

He insists he has the job he wants.

He insists he does not plan to run for president in 2012, though he has not mentioned the vice presidency or even the U.S. Senate.

There is no Democratic opposition anywhere on the horizon to his re-election to the governor’s office next fall. Republican State Treasurer John Kennedy, though, is sounding more and more like a candidate with each passing day.

Part of the reason for the lack of opposition is the massive war chest Jindal has at his disposal. To date, he has $9 million and counting.

Running for governor of Louisiana is not cheap. In 2007, some $26 million was spent by three candidates with Jindal accounting for $11 million of that.

So perhaps that is the reason that Jindal has been traveling all over the country to attend fundraisers instead of staying in Baton Rouge and focusing his attention to the looming $1.6 billion deficit facing the state.

Campaign expenses, as any political observer knows, long ago removed government policy decisions from the best interests of the rank and file citizenry to the New York corporate boardrooms of oil and pharmaceutical companies and Wall Street bankers.

The office of the governor of Louisiana, sadly, is no exception. It’s for sale just like any other political office.

For proof of that, one need only look at the correlation between contributions to the Supriya Jindal Foundation for Louisiana’s Children and fat state contracts.

While the motives of Jindal’s wife may well be above reproach, any corporate CEO worth his bonus can readily see the advantage of making a generous contribution to the foundation. Take Northrop Grumman, for example. Northrop Grumman made a generous contribution of $10,000 to the foundation. Was it coincidence that Northrop Grumman soon received a three-year, $11.4 million contract with the Department of Social Services to provide support services for the statewide software network.

Blue Cross/Blue Shield of Louisiana got an even better return on its investment of $100,000. Blue Cross/Blue Shield subsequently was awarded a $400 million contract to provide health coverage for state employees and retirees in a bidding process that attracted the attention of a Baton Rouge judge.

Humana had held the contract and promptly filed suit, saying that the contract awarded Blue Cross/Blue Shield was not what was bid on. Mike Caldwell, a judge in the 19th Judicial District, agreed and ordered the state re-bid the contract.

AT&T also reaped benefits from its contribution, getting several contracts for providing cellular phone service for state-issued cell phones and for telecommunication services for the state’s land line system.

All these factors make campaigning for office a high-stakes game and leaves politicians beholden to their benefactors. And that runs up the costs of running for office. That, in turn, leaves small contributors out of the loop when it comes to policy making. It certainly gives credence to the old but bitter joke about having the best government money can buy.

Just last week, Jindal was out of state once more to attend yet more fundraisers.

Attempts by Louisiana Voice to obtain travel records for Jindal during 2010 were at first ignored for nearly two months. Emails to Jindal spokesman Kyle Plotkin went unanswered. Finally, earlier this month, the governor’s office responded that it did not keep records on campaign travel costs. Those records are kept by Jindal’s campaign, his office said.

The only problem with that response is financial records were never a part of the request–not that they won’t be at some point in the future. But this time, the only thing being sought was the number of days the governor spent on travel. Those records have yet to be made available.

So much for his claims of having the most-open, most-ethical administration in Louisiana history. So much for his claims of strengthening the state’s political ethics.

The latest fundraisers, in Dallas and Houston, are part of a continuing trend of out-of-state fundraising by the governor that has left some clearly dissatisfied with Jindal’s repeated absences from the state. It might even appear that some of the luster has faded from the Jindal image of boy wunderkind.

One person, responding to the latest soiree into another state to raise campaign funds, said, “I can’t wait to learn who is running against him so I know who I am voting for.”

Said another: “So nice that Texans care so much about Louisiana to donate.”

A third asked the rhetorical question, “Who knew Texans cared who is our governor? Here’s an idea: they can have him.”

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Administration takes first steps to privatize another agency (and maybe pick up a spare $500 million in the process)

Posted in Budget, Governor's Office, House, Senate, Legislature, Legislators, OGB, Office of Group Benefits, ORM, Office of Risk Management, Privatization, RFP, Request for Proposals, Transparency on March 3, 2011| 4 Comments »

Gov. Bobby Jindal’s Privatization Express keeps rolling along. This time he has set his sights on one of the most financially stable state agencies, the Office of Group Benefits (OGB).

One has to wonder however, if his motivation is really in a more efficient, more streamlined state government or does he perhaps have an eye on OGB’s $552 million surplus as a means of making himself look like a financial genius by using the money to plug one-third of the looming $1.6 billion deficit.

A couple of coups like that, coupled with the recent dramatic upturn in the price of a barrel of oil, which always enriches the State Treasury, and Jindal the Boy Wonder would take on the aura of financial wizard and (he hopes) give his presidential aspirations a needed boost with the national media other than Fox, Rush Limbaugh, and the Washington Times, who already adore him to the point of nausea.

The deadline to respond to a Request for Proposals (RFP) for the services of “a qualified financial adviser” preparatory to the private takeover of OGB is Monday with finalist interviews scheduled to take place a week later, on March 14, according to DOA’s Feb. 4 RFP.

The financial adviser to be selected will be charged with assessing the market value of the tangible and/or intangible assets of OBG and to negotiate for and on behalf of OGB to help the agency “explore alternative methods of providing health coverage through contracts” with a private administrator, the RFP said.

In March of 2010, it was announced that the Office of Risk Management would be taken over in phases by F.A. Richard and Associates (FARA) of Mandeville at a cost to the state of $68 million. The Worker’s Compensation section was transferred to FARA last July and the last sections are scheduled for transfer by July of 2013.

Proposals were received for the privatization of the state’s Buildings and Grounds Department but each of those proposals were ultimately rejected.

There appears to be more opposition to the privatization of OGB because of its financial stability and its low (4 percent) administrative costs. State Sen. Butch Gautreaux (D-Morgan City) has gone on record as opposing the privatization of OGB.

“I am very concerned about the governor’s efforts to sell off OGB,” Gautreaux said. “I sit on the (OGB) 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. This will be a catastrophic move,” he said.

OGB presently maintains a self-insured and self-administered health and accident benefit plan (PPO plan) with its own network of contracted providers. OGB also has a contract with Blue Cross/Blue Shield of Louisiana to administer a self-insured HMO plan and United HealthCare administers a self-insured consumer-directed (high deductible) health plan with a health savings account. Vantage Health Plan is also contracted with OGB for a pilot program to provide a fully-insured medical home HMO plan in the northeast region of the state, the RFP says.

In addition, the LSU System, through an interagency agreement with OGB, administers a separate consumer-directed health plan with a health reimbursement account available to employees and retirees of LSU and the Louisiana Legislature.

The RFP also stipulates that the financial adviser provide recommendations to OGB for contracting in light of the assessment and negotiations and will also assist in the drafting and final execution of any contract resulting from the assessment and negotiations. The financial adviser who is ultimately chosen will also be called upon to provide testimony before any committee of the legislature conducting hearings on the proposed privatization.

Those submitting proposals will be required to have a minimum of 10 years experience in the valuation and sale of entities in the health insurance market with enterprise values exceeding $150 million, the RFP said.

OGB ended Fiscal Year 2009-2010 with total assets of $552 million, including $529.5 million in cash and $22.5 million in premium receivables, according to the RFP. Such a financial windfall would be tantamount to a Jindal slush fund.

If OGB is ultimately privatized, the state would enter into a contract with an administrator much as it did with FARA for the ORM privatization. The state would pay the amount stipulated in the winning proposal and in return the administration would have access to the $552 million surplus, ostensibly to help plug an anticipated $1.6 billion budget deficit.

Like the proposals for privatization, when that RFP is issued, the proposals by financial advisers submitting proposals would be graded on a point basis. In the case of the financial advisers, a 1,000-point system will be employed with service approach and coordination strategy having a potential maximum of 350 points. The highest possible score for qualifications and experience of the proposer will be 300. The qualifications and experience of assigned staff carries a maximum possible score of 200 and cost of services 150 points.

No timetable has been set for the issuance of an RFP for the actual privatization of OGB.

The agency has more than 450 employees who could be affected by the privatization through the loss or interruption of retirement and their own health benefits.

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