The Wisconsin Works (W-2) program has garnered substantial attention for revolutionizing expectations about the obligations of public assistance recipients. Less noted, however, has been the radical overhaul of the administrative structure of public assistance under W-2. If W-2 has begun to ask more of poor families than public assistance pro- grams ever have before, it also asks far more of the entities that administer programs for the poor.
Under W-2’s predecessor program, Aid to Families with Dependent Children (AFDC), private entities were prohibited from determining eligibility or performing case management functions. In practice, county workers had a monopoly on the delivery of program benefits. Furthermore, state contracts with the counties for administering AFDC were organized on a cost-reimbursement basis. That is, as long as the counties were spending money on allowable activities — benefit payments, case management services, administrative costs — the state was required by law to reimburse county expenditures. The payment structure was the same under AFDC’s work and training pro- gram, Job Opportunities and Basic Skills (JOBS). For most of the history of the JOBS program, providers were paid for offering services, whether or not those services moved a single individual from welfare to work.
This system began to change in 1994, when the state instituted performance contracting for JOBS providers in Milwaukee, and in 1995, when performance contracting was expanded to the rest of the state. Under the new regime, the state placed ever-increasing shares of each JOBS contractor’s payments in a “performance pool” that could only be earned by placing AFDC clients in a job. Through maximum job-placement performance, JOBS contractors could earn substantially more than their normal compensation. Poor performance, however, resulted in a significant pay cut. In 1994, this system contributed to a 30% increase in job placements among AFDC recipients in Milwaukee, and helped drive down caseloads statewide in subsequent years.
The success of this experiment proved a major influence on the “99 Group,” the planning group responsible for drafting the W-2 program. Drawing on the state’s experience with JOBS performance contracting, the 99 Group proposed paying W-2 vendors a flat fee for administering the program. Vendors then would be allowed to keep the first seven percent of any cost savings they could achieve on that fee, and 10% of any savings beyond the initial seven percent. For the first time in the state’s history, this system gave public assistance administrators a financial stake in the outcomes they were producing. The more quickly they moved W-2 participants into unsubsidized, pri- vate-sector jobs, the more money vendors would earn. This sort of arrangement, 99 Group members believed, would focus vendors on outcomes — namely, employment for program participants — rather than mandated inputs and procedures, as under the old system.
The 99 Group also proposed breaking the counties’ monopoly on program administration by opening the system to competitive bidding and, therefore, potential privatization. An important inspiration for this idea was the success of the state’s JOBS program, which had been operated in large part by private vendors. 99 Group members wanted to achieve some of the benefits of privatization under W-2 that the JOBS program had enjoyed. They also wanted to let the counties out of public assistance administration that wanted out, and to replace them with capable, motivated vendors. Finally, the 99 Group hoped to spur performance by putting contractors on notice that if they did not per- form to expectations, they could be replaced. None of this had been possible under the old system, which granted the counties an administrative monopoly.
An outcry from public employees over potential job loss ultimately resulted in less than complete competitive bidding. Counties were given the chance to earn the “right of first selection” — that is, to become the W-2 agent without facing competition — if they met caseload reduction, job placement, and AFDC expenditure targets between September of 1995 and August of 1996. Of the state’s 72 counties, 67 ultimately earned the right of first selection, though a handful chose not to exercise it. This left 11 of the state’s counties open for competitive bidding. Private vendors ended up winning the bidding process in nine of the 11 counties, and at the start of W-2 were handling about 70% of the W-2 caseload.
Milwaukee County was one of only five counties that did not earn the right of first selection. Milwaukee, however, also failed to bid to become a W-2 agent. Though there was some sentiment among county officials, especially the County Executive, that the county ought to be a W-2 agent, the state appears to have discouraged the county from
bidding. The state apparently did not want the county to be an agent both because of its poor record in administering AFDC and because of a potential conflict of interest; the county would be overseeing W-2 through the Private Industry Council and could not also, therefore, be an administrative agent. Milwaukee County nonetheless has re- trained an important if indirect role in W-2. County workers continue to determine eligibility and perform case management for child care, Food Stamps, and Medicaid. The county also helps oversee W-2 through the Private Industry Council and is responsible for producing 2,000 community service jobs for W-2 participants.
Despite concerns from critics, not a single public employee has lost a job as a result of W-2’s partial privatization. Though some counties in which W-2 is privately administered have eliminated positions, those workers have transferred to other county jobs, have gone to work for a private vendor, or simply have retired. In keeping with the arguments of competition advocates, the state is saving at least $10.25 million over the first two years of W-2 as a result of the participation of private vendors. This amount is the difference between what the state is paying private W-2 vendors and what it would have had to pay the counties had they earned and exercised the right of first selection. The private agencies also appear to have advantages over the counties in providing services under W-2. Not having to deal with union contracts and civil-service rules, private vendors can provide incentive pay, hire and fire as they see fit, define and redefine staff duties as necessary, and ask employees to work off-hours, “in the field,” and so on. Lacking a multi-layer bureaucracy and government regulations, private vendors can move quickly to make purchases, start new programs, hire additional staff, and change policy. Speed and flexibility of this sort are critical in a pro- gram that relies on provider innovation rather than a fixed set of inputs, and that involves constant learning. At the same time, the private providers seem to have a genuine commitment to client service, demonstrated by a long his- tory of involvement in welfare-to-work programs and by services they are not required to offer but do, though they cut directly into profits.
