The Welfare Estate

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Three years into the new world of welfare, a system that once gave a lot of money to poor people has been replaced by one that gives a lot of money to the people who put the poor to work.

Welfare reform isn’t supposed to just shove welfare recipients off the dole; it’s also supposed to help all those people find jobs. To that end, the Clinton administration is in the middle of a two-year commitment to spread around $3 billion in welfare-to-work money. New York City’s total take is $88 million, with another $20 million in federal competitive grants going directly to city employment groups since last year.

The largesse has turned the trade of helping welfare recipients find work into an industry, and it’s made nonprofits change the way they do business. Welfare-to-work, with its “work-first” mandate, reroutes funds from job training toward short-term career counseling and matchmaking. After decades of focusing on the needs of job seekers, the experts are now supposed to think first of the businesses that will hire them. “The emphasis has turned toward getting people into employment rather than getting them ready for it,” explains William Grinker, a former city welfare commissioner who now runs a major welfare-to-work nonprofit. “The rules of the game have changed.”

The changes have also summoned into existence a new breed of for-profit welfare job counselors. One of the brightest stars is Richard J. Schwartz, a young entrepreneur with a small startup who has, up until now, spent nearly his entire professional life on the public payroll. But that’s no liability. In fact, Schwartz has exactly what it takes to make a living in the welfare-to-work world: government experience, private-sector smarts and a Rolodex with plenty of names from each side.

Architect of New York City’s workfare system, Schwartz left the mayor’s office in 1997 to open Opportunity America, a for-profit company that specializes in preparing businesses to hire former welfare recipients. Business looks good so far: The tiny consulting firm managed to secure contracts worth about $5.5 million in a single month at the end of last year.

His employer-first approach may be just the ticket for the new work order. It’s supply-side social service, helping the market help the poor. But the jury is still out on whether that approach actually gets people good jobs that last.

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The welfare-to-work revolution has been tough on old-fashioned job trainers, some of which have been in the game nearly a century. The business of work used to be dominated by long-term programs that teach a trade like carpentry or transcription. Problem was, those job training programs often weren’t keyed in to what employers actually needed and wanted, so people would sometimes cycle repeatedly through different programs without getting a job.

Those days are past. “Traditional vocational training like machine repair–almost all of that is gone in the city,” says Rae Linefsky, a job training and employment expert who briefly headed the city’s Human Resources Administration (HRA). “Each of the agencies has dealt with this differently. Some have reduced traditional training, or retained only the computer-based stuff.”

Now much of the funding goes to boot-camp-style “job readiness” programs that have welfare recipients spend an intense week or two shaping up the resume, learning rudimentary computer skills, and getting coached in wardrobe, approach and interview poise. Some groups, like welfare specialists Curtis & Associates, have their clients hit the streets or start working the phones after only two weeks. In this era of low unemployment, they say, attitude and persistence pay off faster than anything else.

Job placement, on the other hand, is more like matchmaking. If done properly, the process is intensely hands-on, explains Alma Cox of the small nonprofit Central Brooklyn Neighborhood Employment Center (CBNEC) in Bedford-Stuyvesant. “I have to listen to the way [the clients] talk, how they sell themselves,” she says. “I sell that to the employer, and then tell clients what they need to enhance. A lot of times, all they need is confidence and a look in the eye.” Good placement people cultivate long-term relationships with employers, and try to fit the client to the job rather than the other way around.

“We believe it’s who you know that gets you a job,” explains Lee Bowes, CEO of the for-profit America Works. “It’s not that people always lack training. Sometimes what they lack is a connection to the marketplace. Our salespeople become that network.” Building trust is crucial. Employers are, by and large, initially terrified of hiring people with a welfare history, despite the tax breaks they get under welfare reform law.

The other big change is a new emphasis on retention: making sure that a client who gets a job keeps it. To push this agenda, the federal government now makes almost all contracts “performance based,” meaning that a job broker won’t get paid in full until a hiree has been employed for as long as three or six months. Keeping a recently hired former welfare recipient in a job often requires diligent follow-up, like negotiating worker-boss conflicts, fixing bureaucratic snags, finding child care, or dealing with the transportation or housing problems that can get in the way of work.

Just as the new emphasis on employer relations favors groups with business acumen, performance-based contracting can be tough on nonprofits: No new hires means no money. “It can be a problem for lots of agencies. Even large ones have problems with cash flow,” explains Bill Forrestor, deputy executive director at Goodwill. Little nonprofits may give up on contracts altogether, and turn to foundations instead.

Or start looking for investors. Facing high start-up costs and deferred returns, welfare-to-work agencies may fit better into a for-profit structure, contends Bowes. To start up a job-placement program you need capital. Capital requires investors, and investors want a return. “I didn’t go into [the business] for profit,” Bowes says. “But there was no other way to get the money.”

But the biggest change is probably the most subtle. Under welfare reform, the emphasis shifted from training the jobless to coaching the employer. The problem is, nobody knew really what that meant, or how to do it–until Richard Schwartz made it his business.

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Schwartz was only a few years out of Columbia University (Class of 1980, B.A. in History), when then-City Councilmember Henry Stern hired him as chief of staff. When Stern was made Parks Department Commissioner in 1983, Schwartz followed, eventually becoming assistant commissioner for capital projects. “He’s very energetic, very intelligent,” Stern says. “He’s one of the most able people I’ve met in government.” Stern reports that Schwartz was accepted to Harvard Business School in 1992, “an extraordinary honor for someone whose only experience was in government. But he has instinctive private-sector skills.”

Instead, Schwartz made a smarter business decision. He turned down Harvard for Rudolph Giuliani. He worked on Giuliani’s first mayoral campaign as issues director, and his reward was a job as the new administration’s capital projects guy. The job soon evolved into privatization guru. “I think we’ve figured it out,” Giuliani said in early 1995. “[Schwartz’s] title is enhanced senior policy adviser.”

By coordinating city privatization efforts like the sale of WNYC radio and television, Schwartz became anathema to New York City’s liberals. But that was just a warm-up act for his next venture-designing the system that would put tens of thousands of the city’s welfare recipients into public-works jobs, sweeping streets, emptying garbage cans and doing clerical work at city agencies.

The ideological underpinning of Schwartz’s Work Experience Program (WEP), now 5 years old, was to get welfare recipients into a workmanlike mindset-waking up early, showing up on time, submitting to routine. Its critics charged that the program was rigid, inflexible and treated its clients like criminals, requiring them to undergo an intimate process of verification and review. For the mayor, however, it accomplished a very pragmatic goal by clearing hundreds of thousands off the welfare rolls, an accomplishment Giuliani still brags about as one of the biggest of his administration.

Then, on February 11, 1997, at age 38, Richard Schwartz announced he was leaving city government. The next day, he founded Opportunity America. His specialty would be corporate matchmaker, the missing link to help private-sector companies hire welfare recipients. But he promised in The New York Times that he wouldn’t take advantage of his government experience to win consulting contracts with New York City.

The business was intended “to create a bridge between employable welfare recipients and available jobs in order to help companies and government agencies move the greatest numbers of these individuals into employment at the lowest possible cost,” Schwartz said at the time.

Translation: Opportunity America would help set up workfare programs for mayors looking for their own success stories and assist civic-minded businesses in navigating the confusing world of regulations and tax credits and overcoming the logistical difficulties of screening thousands of welfare recipients for a few specific jobs. Schwartz also joined the city’s conservative policymakers at the Manhattan Institute and positioned himself as a national expert on welfare-to-work. And he’d sell his success in the administration–putting lots of people to work quickly–to businesses and government through Opportunity America.

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Luckily for Schwartz, just as he founded Opportunity America a compatriot was going into the business of social investing. “Government had just passed the largest piece of legislation affecting poor communities and was expecting employers to step into the gap,” says Kathryn Wylde, who herself had just been hired to head the New York City Investment Fund, a new economic development venture capital fund founded under the auspices of the New York City Partnership, the city’s Chamber of Commerce. “But there was not anyone who was positioned to help employers, to take them on as a client. That was our interest in the Opportunity America model.”

Eight months after Schwartz started up Opportunity America, Wylde’s fund bought a 20 percent equity stake in the company, then worth about a quarter of a million dollars. It was a good match. Wylde was quite familiar with the power of leveraging corporate connections and government money for social purposes. She perfected the art in the 1990s while doing low-income housing development for the Partnership, which had been lobbying the city to privatize well before Giuliani moved into Gracie Mansion.

Wylde and Schwartz had crossed paths before, working on housing, employment and economic development projects as part of a loose federation of New York City empowerment brokers skilled in moving between city government, quasi-public institutions and the private sector (see “Six Degrees of Richard Schwartz”). This alliance has quietly designed and directed many of the city’s major economic development programs of the last decade.

Early on, Wylde recruited a young investment banker named Deborah Wright to the Partnership’s housing wing. They started up a minority contractors program that eventually spawned the Neighborhood Entrepreneurs Program, one of the city Department of Housing Preservation and Development’s main strategies for rehabbing and selling off city-owned housing. That project also spawned CBNEC, which has helped the Partnership win a $5 million U.S. Department of Labor competitive welfare-to-work grant last winter. Its primary partner? Opportunity America, which was promptly promised a $2.9 million chunk of the money.

After a brief stint as head of the city housing agency, Wright landed a job directing the Upper Manhattan Empowerment Zone, probably the city’s biggest public/private economic development venture. Who’s now coordinating EZ job development? Opportunity America.

But only one of Schwartz’s contracts comes close to being a true conflict of interest. Last December, Opportunity America won a one-year contract for $537,795 from the city Department of Employment to put 100 unemployed people–not necessarily welfare recipients–through a training and placement program. That performance-based contract was arranged through negotiated acquisition, meaning that it was not open for competitive bids.

But the city’s investigation bureau apparently doesn’t think it’s a problem. Around the same time, that department conducted a formal investigation into Schwartz’s business as part of a “consortium proposal to HRA.” The department refuses to explain why the firm was investigated or release any information on its findings except to note that Opportunity America was cleared. It may be completely legal, but it’s also true that with the DOE contract, Schwartz broke his promise not to do business with the city.

Not every contract he wins has an old friend attached to it. Opportunity America is also getting $1.9 million to work in Yonkers, Mount Vernon and White Plains for the Westchester County Department of Social Services. “They’re engaged with us to aggressively do job finding, job placement and retention services,” says Jewru Bandeh, the department’s deputy commissioner. But Schwartz thinks bigger than just the ‘burbs: He’s said he wants to find out if there is a market for welfare reform overseas.

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One persistent criticism of WEP from the start has been that it does nothing to help people find real jobs. “Richard Schwartz knew nothing when he worked for the city,” says one top city welfare adviser. “WEP was clever as it related to morality and reflecting the mayor’s point of view. But issues of job readiness were for shit. He knew nothing about placement programs, and to do employment is one of the most difficult things to do.”

And, apparently, Schwartz hasn’t yet worked all the bugs out of his business. It’s impossible, through public records, to get a formal evaluation of Opportunity America’s performance, and he would not respond to repeated requests for an interview. So City Limits instead asked the ultimate evaluators–the women in welfare-to-work programs who are relying on Opportunity America to help them find jobs. After all, getting people off the dole and into work is why government is investing in welfare-to-work.

Some were very impressed: “They went out and did their all for you,” says Victoria Bell, who found work at a catering company, a job she says she loves. “You can tell who is there to actually help you, and those who are there for their paycheck. They really tried to do their best.”

About half of the 15 women City Limits spoke with didn’t think Opportunity America was helpful, or said simply that it had no bearing on their job search. “Their goal was just to find you a job, but they would not target your qualifications,” says another client, who had worked before as an accountant. “I was sent to a cleaner’s, a supermarket, any low-paying job, just to make themselves look like they were doing what they were supposed to be doing.”

Opportunity America has never promised to do the kind of personalized hand-holding that some placement groups do. Their role is to provide business connections. But most of the women contacted who were working said they got their jobs through another program, from local job listings or the old-fashioned way: through friends, networking and persistence.

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The truth of the matter is that the work business is not easy. At CBNEC, less than 30 percent of its clients get a job and keep it through the first 90 days. Of those, only 70 percent stay for at least six months. The success rate may sound terrible, but Tref Wolcott, executive director of the Tiger Foundation, which underwrites a broad portfolio of job-training programs, says it’s respectable, about average. “You have to expect an 80 percent graduation rate [for a training program], then 75 percent placement rate after that,” she says.

That’s why the dirty little secret of welfare-to-work is creaming–finding a way to get clients who are more talented, better educated or more motivated than the general pool, and thereby boosting a program’s success rates. Everybody accuses everybody else of doing it. But nobody will own up to it, and it’s very hard to prove. Some nonprofits do it outright, by requiring a GED or high school diploma, and call it “screening.” But there are also more subtle ways, like making the program so torturous in the beginning that only the most motivated–or desperate–candidates stick around to get counseled and placed. America Works gets hit most often with that criticism. “They cream by motivation, which I think is just as bad,” says one program evaluator. “I bet those people could get jobs on their own.” (see sidebar).

The post-reform system, with all its emphasis on accountability and retention, may be making the practice worse, says Wolcott. “Performance-based contracting leads to skimming,” she maintains. “If you already have staff, you don’t want to lay them off, so you’re dependent on these contracts. You’re going to skim, and it’s contrary to what the public policy is trying to achieve.”

But now, several years into welfare reform, much of the “cream”–the people with the best prospects for employment–is gone from the welfare rolls. Many of the people still getting welfare checks are classified as “difficult-to-serve”–people without much English, who only read at a 7th-grade level, who have a criminal record or drug problems, or are sickly. Not exactly an employer’s first choice.

Those people will need a lot more help getting off welfare than short-term counseling classes and job placement experts are able to provide, and welfare experts say that’s where the gap between the profit motive and the social services mission could get ugly.

It’s an issue that for-profits dismiss, charging that nonprofits just don’t like the competition. But it may not be that simple.

One job-placement worker at America Works says she was thrilled to be working there–at first. She says the business is “exciting,” with unique vitality and an honest and respectful attitude toward the welfare recipients that came in looking for jobs. But she also noticed that many of the women who do well at America Works were already doing pretty well on their own. “It helps a certain segment of the population a lot, especially women that already had things going for them–they were attractive, or had some education, or a really good attitude,” she says.

She says she began wondering about the people who needed more serious help, and suspected that the company’s entrepreneurial structure–in which she and her colleagues get paid bonuses for finding people jobs and keeping them there–doesn’t always work in the clients’ best interests. “You’d be talking somebody into keeping their job, even when there were some sleazy employers,” she says. “Sometimes, I’d be hurting myself, because I wouldn’t do it, and I’d lose my bonus. That’s where the for-profit and human services motives conflict.”

It’s something that Schwartz and all his competitors will have to plan for, especially when this windfall of welfare-to-work money runs out. As the business gets tougher, entrepreneurs may not be able to continue doing well by doing good.

Wolcott worries about that future. “I think some for-profits do a really good job,” she says. “They do serve the people without as many issues–it’s easier to serve people who just need a kick in the ass, or a good personnel service. Our mission is to deal with more complicated issues. I don’t think for-profits deal with other social ills as well. That’s not what they’re in business to do.”