Recommendations for Structural and Policy Changes

To Link Workforce Development and Economic Development:

A Practitioner View from the South Bronx Field

By Nancy Biberman, President

Women’s Housing and Economic Development Corporation

December 2001

The suddenness and severity of the layoffs that followed the September 11 attacks on New York City have shocked both the local and national economy. In New York City, it is estimated that 60% of the over 100,000 jobs already lost were of positions that paid an average annual wage of $23,000. The mass of these newly unemployed workers will now join the ranks of those still on welfare; those who left welfare for jobs that have already or will be evaporating, and those for whom five year time mandatory time limits are being reached. The “welfare” system that these unemployed workers will collectively confront is one that devolved, in 1996, from federal control to a patchwork of state and local programs, which, until now, have been shielded by prosperity and low unemployment.

The gravity of this situation demands that structural changes be made in the oversight of economic and workforce development programs and the transfer of all adult workforce programs to one re-named agency.

Organizational and structural issues matter

Under the broad umbrella of “workforce development” (welfare-to-work programs; programs for dislocated or displaced workers; vocational training; job placement and retention) we are in a brave new world.

It bears noting that even in the prosperous 1990’s, the federal welfare reform legislation was highly controversial. The law rested on two pillars: (1) that able-bodied people on welfare should work; and (2) that we were in an economy where the “work first” mandate was doable. Despite arguments about which welfare recipients should be pushed out of their doors first, and with what supports, no one seriously quarreled with the underlying assumption of the first pillar. The second pillar rested upon the assumption that a rising tide would lift all boats; that an economy in expansion with a labor market shortage offered boundless opportunities to achieve implementation of the “work first” mandate. The programmatic challenge thus became how to properly “match” the unemployed with the available jobs.

This second pillar has collapsed with the recession (now known to have “started” in March 2001) and September 11, both of which have yielded the astounding immediate local job loss, which forecasters indicate may even double that of the initial job loss during the next six months. Local government must structurally respond to this new reality. A Deputy Mayor for Economic and Workforce Development should be appointed to oversee all agency functions and with responsibility for the overarching questions of how to rebuild both the downtown and the local economy, and how to prepare a displaced, dislocated, and/or welfare workforce for employment in whatever the new economy is. There is an essential functional synergy between these two systems. The economic realities of these new times demand that we train and prepare the unemployed workforce for whatever new employment opportunities the labor market analysts forecast. The city’s economic development arm is often in the best position to know what business opportunities are likely to remain in, or be brought into, the city. If we have learned anything from the past eight years, it is that we must prepare workers for the jobs that exist. Today, we know much less about this job market, other than its shrinkage beyond anyone’s wildest imagination. City-wide and structural coordination linking workforce and economic development would help prevent a recurrence of some of the mistakes of the past: the “disconnects” between training and actual labor market needs, which so discredited the employment and training community during the 1970’s and 1980’s.

Funding streams should not drive social policy or service delivery

In part because there may be, as a result of the disaster, additional funds coming to the city for rebuilding, as well as funds now in place through the implementation of WIA and residual TANF-funded programs (more about those below) it behooves us to think about all sources of government funding which address workforce development as part of a whole cloth. It is neither rational, nor fiscally responsible, to maintain duplicative functions in different agencies because of the source of the funding. Unemployed workers will be unemployed workers, and their “status” e.g. formerly homeless, displaced, substance abusing, dislocated, illiterate, etc., should not drive the programs designed to serve them. [Their needs should drive the individual services delivered]. Creativity is required to meld together much needed changes in welfare reform at the time of its Congressional re-authorization, with other legislation and legislative appropriations for the unemployed, from whatever sources. There is no reason for any

Adult employment and training programs to remain at HRA; this includes the Special Populations contracts and even what remains of the ESP contracts (more about them below). All adult funds should be shifted back to DOE immediately, along with a face-lift/name-change for the agency: the Department of Workforce Development.

Legislative issues to be addressed and implemented

On the federal legislative front, there is no question that the federal 5- year time clock must be tolled -temporarily stopped- due to the national state of emergency (now the basis for many other formerly unthinkable things, such as broad- brush civil liberties violations, military tribunals, etc). States should be given the authority to extend welfare eligibility based upon local indicators, such as unemployment statistics. Moreover, the city administration should demand that the state expend the funds block granted in 1996, which were based upon the 1995 welfare case rolls. This is a sizable sum of money, given the draconian cuts in the welfare rolls since 1995. The current city administration has not only failed to make maximum use of state welfare reform block grants funds, but in many instances has expressly refused to participate in state funded programs utilized by the vast majority of other counties in the state. There remains a over a billion dollars of unspent TANF funds in the state treasury; currently New York state is lobbying for Congressional approval to reduce the state’s “maintenance of effort” requirement. New York remains on the short-list of states with the largest amount of unspent TANF funds, along with California, Florida, Ohio and Pennsylvania. The new city administration should utilize the city’s share of these funds and then expend those funds aggressively for the plethora of new programs that will be required, including a possible transitional subsidized jobs program, which could (and should) replace workfare. [A coalition of workforce development and advocacy organizations in the city is currently drafting a concept paper outlining a pilot subsidized transitional jobs program].

With respect to WIA, the City has the largest amount of unexpended funds of any area of the country regardless of how this is measured, according to Stuart Saft, Chair of the NYC Workforce Investment Board (WIB). Similarly, Saft states that New York City is the only Workforce Area in the country that has bifurcated WIA funds between two agencies (HRA and DOE). [See structural change above]. Because of the failure of the city to spend its allocated funds, Congress rescinded New York’s allocation of WIA funds for the 2002 program year.

Now is the time to take a hard look at what works. The ESP contracts have failed and should be terminated.

While there is always peril in terminating a large program until a new one is in place, the ESP program is the poster child for misguided policy, arguably illegal procurement and unquestionably failed outcomes. Almost four years after their inception, and the expenditure of hundreds of millions of dollars, the performance of these contracts (by the city’s own admission) has yielded an average of seven percent employment retention at the 6- month milestone. The utter failure of these contracts (and contractors) demands that they be phased out. Any successor program, and funds that come with it, should be transferred to the new Department of Workforce Development. To ensure continuity of services for clients and the organizations that serve them, the contracts should be kept in place for an interim month-to-month period until new city policy is adopted which integrates the adult welfare population into a new workforce agency and until new contracts are in place for the seamless provision of needed services.

To ensure that the new administration’s hands are not tied in reformulating policy, the Comptroller and the appropriate people in the new administration must take steps to prevent 11^th hour contract extensions where those contracts have not expired. This problem is akin to that confronting the Legal Aid Society (see editorial in the New York Times). It appears that the current administration is seeking to extend certain un-expired ESP contracts prior to 12/31.

There is simply no credible argument for extending the ESP contracts. Staff in the current administration recognized that the model was not working; and attempted to address the intractable problems presented by both the contracts and the contractors through the recent HRA Special Populations contracts. These contracts address many of the flaws of the ESP contracts (although not all, and since most have yet to take effect, we can only comment on the promise of these contracts) by providing significant cash advances and more adequate funding, regularized reimbursements, an acknowledgment of the multiplicity of service needs that are a predicate to employment which may include allowing participants to spend five days a week in training, education or attending to important family issues.

The ESP program and contracts were never intended to result in viable jobs for welfare recipients. The rapid reduction of the welfare caseload was the public policy mandate out of which the ESP program was created

The ESP contracts were children of short-sighted social policy and privatization ideology, which have proven both costly and inappropriate in the human services sector. Standing alone, the concept of privatizing the provision of human services is not wrong-headed; indeed, community-based and non-profit organizations are most often the best place for such services to be delivered. Likewise it is entirely appropriate for government to demand accountability for the expenditure of public funds.

Unfortunately, the ESP program managed to undermine the provision of appropriate services, and made true accountability a virtual impossibility. (See implementation issues, below). The contracts were structured to provide financial incentives for “rapid labor market attachment” (the expressly stated goal of HRA Commissioner Jason Turner). Consequently, at best they provided quick job placements and woefully unsatisfactory job retention outcomes. This policy has proven egregiously myopic. The current labor market contraction has left those with the poorest skills the most vulnerable to layoffs. Had the ESP contracts been structured to enable participants to develop marketable skills before diving into low-wage dead-end jobs, perhaps longer- term retention could have been achieved. But the payment milestones in these “performance-based” contracts, coupled with WEP, forced even the most mission-driven providers into unconscionable work.

As recent and tragic events have demonstrated, government cannot, through the wholesale contracting out of essential functions involving complex and nuanced services, remain appropriately accountable for the expenditure of taxpayer funds. It is altogether appropriate for private companies to build bridges or hardware or other tangible objects in which “performance” can be easily measured by the delivery of a product with government responsible for quality assurance oversight. But it is hardly a wonder that a newly-informed public remains squeamish about flying until airport security is taken over by the government. Likewise, parents of children attending even the lowest-performing schools seem to prefer government accountability to the uncertainties of an unknown private contractor. Unlike the ESP contracts, an outraged and frightened public forced government back into the airline security business; and vocal parents have resisted the push to privatize public schools (absent significant parent input). Unfortunately, welfare recipients have rarely, if ever, commanded a powerful and organized constituency to demand a quality product that meets their needs. The failure of privatization in this arena causes no mass outrage, simply the silent suffering of the already disenfranchised. Society witnesses circumstantial evidence: an increase of people sleeping on the streets, long lines at food pantries, overwhelmed human service agencies, and yes, increased crime rates.

Is it possible for government to contract out employment training, job placement and other human services while remaining accountable for outcomes? Of course. (See below). But it is not possible through the performance-based contracting structure of the ESP contracts.

The legality of the procurement of the ESP contracts is questionable

The new administration would be wise to shed the mantle of a program that was, at inception, fraught with allegations about a questionable contracting process, favoritism and cronyism. The “negotiated acquisition” process through which these contracts were “let” to a pre-selected group of vendors, circumvented NYC’s procurement requirements. Comptroller Hevesi sued the current administration to stop the contracts; his office prevailed in the trial court; however due to the automatic “stay” accorded to all City appellate litigation of adverse judgments, the contracts were executed while the appeal was still pending appellate review. The City ultimately prevailed in the appellate court.

Accountability between the City and the service providers: the prime contractor/subcontractor relationship precluded both the subcontractors and the city from working together to assure accountability. The prime contractors exercised no oversight over the subcontractors and functioned simply as fiscal conduits.

To put this problem in context: in 1998, HRA administered $54 million in contracts for employment services; the DOE, $67 million. There were hundreds of contractors, all accountable to the City. Today, HRA has taken over virtually the entire business, and it is spending several hundred million dollars on a relative handful of mammoth contracts. The two-tiered system administered by the “prime” contractors is designed to “assess” welfare recipients and then refer them randomly, with illogical disregard of the so-called “assessment” which might have pointed the recipient in the direction of an appropriate service provider. Prime contractors may provide services themselves; most have a handful of subcontractors. The private and for-profit contractors tend not to subcontract; the non- profit contractors do more of it. In either case, prime contractor and subcontractor financial survival is predicated upon doing as little work as possible and getting people working as quickly as possible. The city pays the primes only when they have certified that a recipient in the labor force. For the average community-based subcontractor, $1700 is received at initial placement; $1300 at 90- day job retention and $200 at 180- day retention!

Simple calculus coupled with the suspension of social mission drive the implementation of these contracts in one direction: placement only. Ninety day retention is icing on the cake and the 180 day milestone is just not worth the staff time, when it would be more lucrative to start with the next candidate. The subcontractors in these contracts are the ones losing their shirts, both in financial terms and in the mutilation of their social missions, not to mention the morale of their staffs. The primes do “cream” the better candidates; they also “skim” funding from the top of the maximum contract value for “administrative costs” even though subs submit fully documented invoices to the primes which the primes then bundle with their own invoices and submit to the city. The placement payments noted above are those for the subcontractors. The prime contractors “earn” more. [One of the most debilitating footnotes to this story involves untimely payments of the paltry funds available under these contracts. At any given time, our organization awaited at least $100,000 in “receivables” from prime contractors. We had no recourse to the city, although we tried. Indeed, when we learned that a prime contractor had already been paid by the city for work we had done, the city officials told us we should sue the prime for payment!] Moreover, other than collecting our invoices, the prime contractors with which we worked provided no oversight; indeed, they were impediments to our ability to establish a direct relationship with the city.

Honorable community-based subcontractors cannot, in conscience, work in this way; and so through philanthropic help and often at serious financial peril, they cobble together literacy assistance, social services, child care, etc. The ESP contracts have required the philanthropic community to pay far more than its share of what is genuinely a government responsibility, and for which government funds are available.

The ESP contracts represent the penultimate in “un-funded mandates.” Why have non-profits participated?

The simple answer is that we had no choice. In the early years of the current administration, most of us were operating programs in a manner designed to achieve genuine quality-of-life outcomes: careful individual assessment; literacy and/or ESL; family support services; substance abuse treatment; child care; job readiness and/or skill-based vocational training, all as appropriate. Ironically, the philanthropic community that supported this work (whatever the size of the grant) demanded far greater accountability for our outcomes, over the long term, than city policy demanded of its ESP contractors. The program participants we worked with (who received public assistance) essentially flew below the radar screen of the system.

Once the City’s Work First system was fully functional, ALL welfare recipients were assigned to one of the assessment “prime contractors” and thus were required to remain in the ESP system. Part of that system (and a substantial component of its failure) is workfare. Welfare recipients are permitted to be in a “job search” program for four weeks. Even during those four weeks, they are permitted to receive services and training in our programs only two days per week. The remaining three days a week are spent in mandatory WEP, or workfare. Our staff often found itself in the position of having located a good job match for a participant, only to lose track of the participant due to WEP. At an early point in the ESP process, we urged the City to give WEP supervisors cell phones; to give those cell phone numbers to us; to place our participants at WEP sites nearby, all in an effort to make quick contact with a program participant for whom we thought we might have a good job match. This never happened. Something else in the “never happened” category: in spite of millions of dollars given to large prime contractors to do “assessments,” among the over 2,500 participants in our programs over the past four years, our staff never saw a participant who came in with an assessment.

How do we move forward? How quickly can it happen?

The good news is that the proposals for change that flow from this analysis of the past are revenue-neutral or at worst, require the cost-effective expenditure of funds already available for the purposes outlined below.

· The non- profit community looks forward to an end to the adversarial relationship between city agencies and its non- profit contractors.

A good start would be to invite non- profits into the process of drafting RFPs; seek our input into meaningful outcome milestones; create intermediate milestones in employment contracts (e.g. instead of simply “placement” and “retention” include such important steps as achieving a literacy level or securing child care). These intermediate milestones represent huge amounts of staff time for non- profits, not to mention effort on the part of the unemployed worker. Interestingly, while the City was creating the RFP for repair of the Brooklyn Bridge, it solicited the expert opinions of all of the prospective engineering contractors it thought might bid, and issued its RFP on the basis of that collective expertise. Non- profits are fountains of information about real costs, and real time of the work we do. Use our expertise.

· Use data known about the relationship between skill level, training and salaries; Connect that data with local labor market data to inform and develop programs.

Different skill levels require different workforce development strategies. Utilize National Adult Literacy Survey data, which analyzes skill levels tied to specific industries and occupations, and connect this data with labor market data from the Economic Development arm of the city’s Workforce Development agency. How would this help? Data demonstrates that 31% of welfare recipients, for example, have “minimal skills” and are likely to get jobs that pay about $15,000 annually. It would take 900 additional hours of education and/or training to get these least skilled workers to the “basic” skill level, where jobs pay about $20,000 or more. For unemployed workers with “basic” skills, it would take only 200 hours of education and/or training to get them to the “competent” level where jobs pay about $30,000. Workforce development strategies should be built upon what we know about skills and salaries, and most importantly, be informed by the needs of the labor market of 21^st century New York City. A one-size approach never did fit all; it certainly does not today.

· Take a close look at potential WIA pitfalls before the system is fully operational.

For example, WIA’s “customer choice” ethic should not require multiple failures in job searches and jobs prior to permitting a participant to enroll in training or education.

· After so many years, create a child care system for unemployed workers that is seamless.

This remains one of the oldest, most understood and least addressed impediments to job retention. The interruption of child care payments for welfare recipients who lose the “training-related expense” payments for their caregivers pre-case closing, while waiting for the “transitional” benefits available post employment, accounts for the single largest cause of job loss. Too many smart people have understood this for too long. Systemic integration of these two funding streams is fundamental, essential and long overdue. Moreover, to address the child care needs of the displaced and/or dislocated workers, eligibility for child care for working families should be increased to those with incomes of at least 275% of poverty. [In New York City this would include families earning no more than $48,507 for a family of four].

· The City must be accountable for its own performance. There are numerous small steps that could be quickly implemented to speed up the procurement process and payments without circumventing city law.

This will be a short-list, but virtually every city contractor could add a point or two here: Keep Vendex information in a centralized database; where a performance-based contract requires city action (e.g. referrals) to work, make those referrals and make them timely; do wire transfers of funds after payment approvals; end contracts with both line-item budget reporting and performance-based reporting. It should be one or the other; if not, make sure that all contracts include a line item in the budget for a budget analyst’s time; allocate sufficient agency personnel time to process payments or advance contractors sufficient funds to account for the time expended by the city between submission of invoices and payment.

Conclusion

We are living in a time of severe and unpredictable economic crisis coupled with genuine anxiety for the safety of our nation. At the federal level, sweeping changes unthinkable only six months ago have taken root. Restoring New York is not simply a physical infrastructure challenge. It requires bold and creative investment in human capital, the lifeblood of this diverse and universal city.

-----------------------------------------------------------------------------------------------------------* Grateful acknowledgement to WHEDCO staff who assisted with this paper: Donna Rubens, PhD, Director of Research and Development; Rachel Miller, MBA, Vice President for Operations and Fiscal Affairs; Alexandra Warren, MPA, Senior Associate for Special Projects, and most especially to the Directors and staff of all of our workforce development and childcare programs whose daily experience informs us all.