Privatization could challenge social services nonprofits

As the Malloy administration prepares to cut spending in social service agencies--part of the plan the governor released Tuesday and wants the legislature to approve today--the nonprofits that provide many safety net services for low-income and disabled residents are wondering what the changes could mean for them and their clients.

People who work with nonprofits say they could take over some state services, particularly group homes and local mental health authorities, which provide theraputic and crisis intervention programs. Private providers already operate some of both.

But some cautioned that the nonprofits themselves are in precarious financial positions and would need more state funding to take on additional responsibilities. And nonprofit leaders worry that the budget cuts could instead mean cuts in the rates private providers are paid by the state.

Terry Edelstein, president and CEO of the Connecticut Community Providers Association, said there is "unlimited capacity" among nonprofits to absorb state services--as long as there is funding for it. State funding for private providers has not increased in the past three years, and remains flat in the upcoming two-year budget.

"We're cost-effective, we're efficient, it costs us less to provide services than the state," she said. "But that doesn't mean that we're happy with what will be five years of no increases in funding...We don't want to do this on the backs of our employees, either."

Officials in Gov. Dannel P. Malloy's administration said Wednesday that it's too soon to say which services would be privatized as a result of the $1.6 billion in cuts needed to fill the two-year budget gap stemming from state employee unions failing to ratify a concession deal.

But when asked whether the cuts would increase the state's reliance on private nonprofit human service providers for things the state does now, budget director Benjamin Barnes said, "I expect that they will."

Barnes added that there are constraints on the state's ability to privatize social service functions in a short period of time, including collective bargaining and practical restrictions on relocating individuals. He said it was premature to discuss details of privatization.

In budget cuts released Tuesday, the Malloy administration assigned each state agency a financial target and suggested number of layoffs to achieve it. If the cuts come from layoffs, the Department of Developmental Services would lose 540 workers, or 14.9 percent of its workforce. The Department of Mental Health and Addiction Services would lose 486 positions, and the Department of Children and Families would lose 359.

Those types of position cuts wouldn't be possible without affecting the direct services the agencies provide, said Deborah Chernoff, spokeswoman for New England Health Care Employees Union, District 1199, which represents 7,700 state employees. That could mean reducing the level of services and staffing, transferring clients to private providers, or making program eligibility more stringent so fewer people get served, she said.

A report released in March by the state Commission on Nonprofit Health and Human Services detailed significant differences in wages and benefits between the public and private sector.

Group home workers in the private sector, for example, made $10.91 less per hour than their state-employed counterparts; over a year of fulltime work, that would amount to a $22,693 difference.

But the report also noted that less than one in five nonprofit providers had at least one month's expenses on hand, and said many are "operating dangerously close to their margins," and likely to be unable to handle unforeseen increases in expenses.

"To add on to that sort of weak foundation would not necessarily be a good thing," said Ron Cretaro, executive director of the Connecticut Association of Nonprofits.

If the administration wants to privatize social services, he said, "We essentially need to be at the table and talking to them about what financial resources would be needed."

Nora Duncan, a public affairs professional with expertise in nonprofits, noted that many nonprofits' missions are to serve vulnerable people, and said they would be happy to step up, if they receive appropriate funding and time to do it.

"The nonprofit world can't just do it because they're good citizens," she said. "They have to actually have the money to build, staff, license, et cetera."

Any privatization of social services wouldn't likely be able to happen immediately.

If nonprofits need to develop new group homes, rather than take over existing ones, it could take time to find sites for them, Duncan and Edelstein said. Although state law requires group homes funded by some state agencies to be treated like single family homes for zoning purposes, some proposed group homes have drawn staunch opposition from neighbors, and some legislators have pushed for public hearings on their siting.

And the state's flexibility in replacing social service workers with lower-paid employees could be limited, at least for the next fiscal year. District 1199's contract with the state includes protections for employees in the departments of developmental services and mental health and addiction services if the workforce is reduced because of a change to community-based programs. Affected employees would be offered employment in the same or comparable classification, at no reduction in salary grade, as long as they worked at the departments as of July 1, 2009. The contract expires July 1, 2012.

But, Chernoff said, "This language was not created with the idea that there would be massive layoffs across a whole spectrum of work titles."

Chernoff said privatization has always been a concern for the union. While people often talk about the private sector being more efficient or effective, or able to focus on particular areas of expertise, she said, "Most of that is really just disguised for 'They can do it cheaper because they pay people less and they don't give them health insurance or they give them health insurance that's so expensive that they can't afford it.'"

Many private agencies have more turnover than the state, Chernoff added, which can lead to a decline in consistency and continuity of care. Agencies also might not invest in training because of a lack of adequate funding from the state to support it, she said.

But Senate Minority Leader John McKinney, R-Fairfield, said the overlap between social services provided by the state and the private sector makes privatization of almost any social service function possible.

McKinney said the nonprofits have historically been underfunded--something he attributed to the legislature being more willing to fund state programs because they employ state workers--and said privatization would have to include increasing their funding.

"But obviously the trade-off is the state's costs go down significantly," he said. "You use some of that savings to properly fund your nonprofit providers so that they can provide the services."