Hidden Branch. Corporate Mega-Contracts in California State. Government. A California Bottom Line Report. Research from SEIU Local 1000.

Transcription

1 The February 2012 Hidden Branch of Government Corporate Mega-Contracts in California State Government A California Bottom Line Report Research from SEIU Local 1000

2 State Contracting With Private Corporations Is Big Business Every year, the state pays private industry billions of dollars to provide services. Between 2003 and 2011, the state signed some with the nation s corporate giants worth about $210.6 billion. Ideally, these should be reasonably termed agreements that allow the state to drive down costs through competitive bidding. As expire, the state should use that opportunity to reassess and scrutinize the performance of the vendor and evaluate whether taxpayers are truly served. Instead, massive long-term contractual relationships between corporate vendors and the state are often marked by repeated extensions without competitive bidding. 1 In an attempt to see how well the state represents taxpayers in contracting, SEIU Local 1000 downloaded more than 500,000 records from the state database to look at the state s track record on contract spending and to identify the largest private vendors. These results along with examination of other sources show: ¾how densely the state s business is concentrated among a few handfuls of super-sized with large corporations, ¾the relative size of the private hidden branch of government to the State budget, and ¾ how this corporate branch of government reduces competition and accountability to the public. The California Bottom Line

3 State Contracting is a Formidable Share of State Spending The state set up the State Contract and Procurement Registration System (SCPRS) in In the period from 2003 to 2011, all new state for both goods and personal services totaled $210.6 billion, according to the database. 2 As shown on Chart 1, all state budget items totaled $1.7 trillion including general, special and federal fund expenditures during the same time span. That means state made up close to 13 percent of all budget spending in the eight-year period. Personal services, at $130.6 billion, were about 8 percent of the total state budget spending during that same time period. 3 Chart 1: Comparison of State of California Expenditures on All Contracts and All Budget Items, FY , in billions. Contract Expenditures Combined Budget Expenditures $ billion Personal Services $130.6 billion $1,657.7 billion Personal Service Contract Spending Clusters Around a Few Corporations The top contractors providing personal services to the state are like a list of Who s Who in corporate America: IBM, Bank of America, Hewlett Packard Co. and Deloitte Consulting. Of the active still in force, there are 11,714 personal service worth $11.7 billion. Looking at the total dollar value of all personal service, 64 percent is spent on the top 25 vendors. 4 In Table 1, the top 25 vendors are ranked based on total dollar amount of their. The four top vendors, IBM, Corrections Corporation of America, Hewlett Packard and Maximus, have current state worth $5.2 billion in state. In Chart 2, all current personal service are grouped by dollar amount to illustrate the high degree of concentration in the state s current practice of contracting. Even though $11.7 billion is spent on 11,714, 44 percent of all personal-contract spending $5.2 billion is spent on just 13, such as an eight-year contract for $223 million Table 1: Top 25 vendors of personal services by dollar amount of their current RANK VENDOR beginning in February 2003 between the state Department of Health Care Services and Hewlett Packard for public health administration. Another contract worth $1.1 billion, the state s largest, is a six-year contract beginning in December 2010 between IBM and the state s Health and Human Services Agency for information technology services. Adding Through Amending CONTRACT TOTAL 1 IBM $2,378,095,863 2 Corrections Corporation of America $1,315,023,163 3 Hewlett Packard Company $1,110,693,791 4 Maximus $439,426,862 5 DynCorp International $282,423,616 6 Geo Group $238,427,064 7 Bank of America $204,592,514 8 Walden House $179,132,014 9 Deloitte Consulting $152,491, Center Point $109,570, Just In Time Staffing $107,116, R.L. Klein & Associates $99,394, Computer Associates $93,730, Alvarado Hospital $91,000, Drug Consultants $87,953, SAP Public Services $87,807, Rubin Postaer and Associates $75,000, Lead Staffing Corporation $73,628, Right Choice $70,099, ACS State & Local Solutions $69,322, Spectrum Services Group $69,219, WestCare California $66,592, Solix $65,734, ACS Med. Corporation $64,660, Bay Area Doctors $64,641,507 A key part of understanding how state contracting for personal services has evolved into a concentrated mass involves examining the link between the contract s size and the number of times the contract has been amended during what could be a considerable length of time. The cumbersome state database, SCPRS, however does not provide a way to easily analyze the overall volume of contract amendments. SEIU Local 1000 Research Department

4 But a look at a few individual cases suggests that a non-competitive amendment process allows these to balloon in size without public scrutiny. 4 For example, IBM s contract, #31091, with the Health and Human Services Agency dating from January 1992 and still in force, has paid the company $1.1 billion so far. It has been amended 26 times. 6 In another case, Geo Group acquired contract #R after it purchased Cornell Corrections of California Inc. The original contact, which ran from October 2005 through June 2010, cost $20,294,330. On the very day the contract began, though, it was amended three times, increasing the contract cost by another $9,512,860. Of the amended add-ons, $6,343,987 was statutorily exempt, meaning added without public review. 7 Before the contract was set to expire in June 2010, the contract was amended a fourth time with what is known as a non-competitive bid, which extended the contract by five years, doubling its original duration and boosting the contract cost again by $34,566,412 for a total cost of around $64 million. 8 The Business of Privatizing State Services Some of the biggest corporations who contract with the state also frequently spend liberally on lobbying state officials. Of the state s top 25 current personal services contractors, 12 reported spending a total of $12.7 million lobbying in Forty-four percent of all current personal services contract spending $5.2 billion is spent on just 13. California from 1999 to 2010, according to records from the California Secretary of State s office. 9 In some cases, massive lobbying budgets are understandable. Some of the companies with the largest lobbying budgets such as Hewlett Packard and Bank of America, are either headquartered in the state or have a considerable presence in the state beyond state contracting. Chart 2: Concentration of personal services contract spending Corrections Corporation of America, though, spent $1.5 million on lobbying in that time span even though the company is based outside the state and does little other business besides private prison management. 10 In the first three quarters of 2011, Corrections Corporation of America, ranked second in the top 25, poured $370,000 into lobbying on one sole issue: the state budget affecting the out-ofstate prison bed program. 11 Geo Group, another contractor providing prison services, has $428.5 million in with the state. 12 In November 2007, four of those were awarded to GEO during a year the company spent $201,000 on lobbying, focusing solely on the budget. 13 In 2008, the company upped its lobbying budget to $423,000, targeting the budget and the California Department of Corrections and Rehabiliation on prison beds and mental health services. 14 Another state contractor is apparently hoping to expand its lucrative ties with California state government through new federal healthcare legislation requirements. Maximus, ranked fourth in the top 25 vendors with the state, specializes in Total value of (in billions) $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $ billion $1.0 $0.5 1 contract 4.1billion billion billion billion 10,899 $1 billion + each $100,000,001 to $1,000,000,000 each $10,000,001 to $100,000,000 each $1,000,001 to $10,000,000 each Dollar amount of each contract $1 to $1,000,000 each The California Bottom Line

5 administering government programs such as Medicaid and has about $800 million in current, including $360 million not reported in SCPRS. In July 2010, the company announced it was launching new services to help states meet new federal requirements under the federal Affordable Care Act. 23 By the first half of 2011, Maximus had spent $60,000 in California to lobby for Senate Bill 703, which was introduced in February The bill would assign all administration of the health insurance exchange, required under the federal health care law, to the state s Managed Risk Medical Insurance Board which already awarded $361 million in current to Maximus. One of the, for the Healthy Families program, has been extended without going out for bid since SB 703 is on hold in the Assembly Appropriations file, but it is eligible to be revived in the 2012 session. With government personal services now big business, corporations go further than just lobbying to obtain individual. Corporate vendors are also working to shape state laws through groups like the American Legislative Exchange Council (ALEC) to benefit their business and to ensure their services remain vital to government. For example, Corrections Corporation of America representatives were at the ALEC meeting where an immigration policy was formulated, which later became a controversial law in Arizona. Corrections Corporation of America has targeted immigrant incarceration as its next biggest market. 26 Large mergers in recent years have increased the financial power of the corporations doing business with state governments, increasing their political power as well. 27 [Corrections Corporation of America] is the fifth-largest corrections system in the nation, behind only the federal government and three states. The Case of Solix: S A Loss of Citizen Control The State of California is always obligated to spend citizens tax dollars wisely, but with the state facing an ongoing budget deficit, that obligation is even more critical. 15 A clear, transparent spending process is the best way to guard against waste and corruption and ensure that tax dollars are spent prudently. How public money is used, particularly billions of dollars, must not be obscured from public scrutiny. The state sacrifices significant oversight whenever it extends with private corporations without competitive bidding and regular evaluations for performance and value. What the state needs is a user-friendly way to track the state s contracting, including amendments, with private corporations SEIU Local 1000 Research Department Without it, the state could forge cozy, unchecked relationships with deep-pocketed corporations, whose primary interest of long-term profits may well fail to coincide with the state s goal to provide quality services through responsible use of tax payers money.

6 Endnotes 1. California Department of General Services, Procurement Division. SCPRS Data and escprs Data. State Contract & Procurement Registration System (SCPRS), Public Access Data. (Accessed April 2011). Since the launch of escprs in March 2009, the SEIU Local 1000 Research Department periodically downloads and analyzes data to document new. The new escprs system replaces an old data system, increasing our ability to accurately track new for personal services. escprs uses the United Nations Standard Products and Services Codes (UNSPSC) to itemize. Each contract has an eight-digit UNSPSC identifier which describes all the itemized component services and goods that make up an agreement. With over 40,000 available codes, the UNSPSC system provides detailed descriptions of goods and services for most industries. Our method for tracking the state s new personal services relies on the high level of detail in the UNSPSC system. We reduced the 40,000-plus UNSPSC identifiers to the approximately 1,400 identifiers that describe typical state services. Matching contract codes with those 1,400 service codes indicates the contract involves personal services. We then tally the itemized totals for each matched record for a total of the state s personal service during a given time period. Lastly, we combine the old SCPRS database and escprs databases to track new personal services. We filter out that are transfers of state and federal funds, that are inter-agency transfers among state departments, and state and federal funds (including ARRA funds) for counties, cities, other local government and public agencies. We also filter out agreements for Architecture & Engineering and for the management of MediCal services. For more information on our methodology, contact the SEIU Local 1000 Research Department. 2. California Department of General Services, Procurement Division. SCPRS 3. Ibid. 4. Ibid. 5. Information not typically available through escprs was obtained from documents from public records requests 6. California Department of General Services, Procurement Division. SCPRS 7. Defined as such under the acquisition method field category of the SCPRS Data; the procedures for exempting from competitive bidding are defined in the State Administrative Manual, Management Memo and Attachment C. 8. California Department of General Services, Procurement Division. SCPRS System (SCPRS), Public Access Data. (Accessed June 2011) 9. California Secretary of State, Cal-Access. (Accessed November 2011) Corrections Corporation of America. The CCA Way defines the corporation s mission as an adult corrections company. 11. California Secretary of State, Cal-Access, Lobbying activity for Corrections Corporation of America. (Accessed November 2011) Lobbying/Employers/Detail.aspx?id= &session=2011&view=activity 12. California Department of General Services, Procurement Division. SCPRS 13. Ibid; Lobbying information: California Secretary of State, Cal-Access, Lobbying activity for Geo Group. (Accessed November 2011) Lobbying/Employers/Detail.aspx?id= &session=2007&view=activity 14. Ibid. 15. State of California Standard Agreement Amendment, California Public Utilities Commission and Solix Inc. Agreement No. 05PS5522, Amendment No. 6, term of agreement Jan. 3, 2006 through Oct. 14, 2011 (signed May 15, 2011). See also Amendment No. 5, term of agreement Jan. 3, 2006 through June 30, 2011 (signed January 29, 2011). 16. California Secretary of State, Cal-Access. Lobbying Activity for Solix, Inc. (Accessed November 2011) Employers/Detail.aspx?id= &session=2005&view=activity 17. Low Income Oversight Board meeting minutes, summary of California Lifeline Program presented to the board, Sept. 5, Ibid. 19. Ibid. 20. California Public Utilities Commission, Efforts to Improve California LifeLine Program Accessibility, January E47A4C47-C BF2E-A10062BBB18D/0/CalLifelineProgReportfinalPDF.pdf 21. Ibid. 22. California Secretary of State, Cal-Access. Lobbying Activity for Solix, Inc. (Accessed November 2011) Employers/Detail.aspx?id= &session=2005&view=activity 23. Maximus news release, United States: MAXIMUS Launches Health Insurance Exchange Solutions, July 27, home/ /en/maximus-launches-health-insurance-exchange-solutions 24. California Secretary of State, Cal-Access, Lobbying activity for Maximus. (Accessed November 2011) Employers/Detail.aspx?id= &session=2007&view=activity 25. California Department of General Services, Procurement Division. SCPRS 26. Sullivan, Laura. Prison Economics Help Drive Arizona Immigration Law. NPR, NPR News Investigations. Oct. 28, 2010, npr.org/templates/story/story.php?storyid= For example, in recent years Hewlett-Packard acquired Electronic Data Systems and Saber Consulting, Inc. all of which contract with State of California. Hewlett Packard news releases: Saber Government Solutions Re-branded as EDS, an HP Company. HP Completes $13.9 Billion Acquisition of EDS, press/2008/080826xa.html. In April 2010, Geo Group bought Cornell Companies, both correctional companies that contracted with the State of California. Dealbook. nytimes.com, GEO to Buy Cornell Companies for $685 million, April 19, dealbook.nytimes.com/2010/04/19/geo-to-buy-cornell-companies-for-685-million/ The California Bottom Line