By KATHLEEN CHAPMAN
Palm Beach Post Staff Writer
Compassion is meeting capitalism as big companies move into the business of caring for children and the poor in Florida.
Since the state privatized its foster-care system, it has been at the vanguard of a national trend in outsourcing social services once monopolized by government and charities.
Providence Service Corp., an Arizona for-profit corporation traded on the Nasdaq, now cares for 2,000 abused or neglected children in Palm Beach County and the Treasure Coast.
The company operates here under the name of a subsidiary, Family Preservation Services of Florida Inc., and has amassed millions in state contracts. In Southwest Florida, a nonprofit agency managed by Providence oversees the region’s network of services for children in state care.
Providence does the work once handled by the Department of Children and Families, finding homes for the state’s foster children and helping them toward adoption or reunion with their biological families. Social workers, once eligible for state pensions and union membership, now have stock options and 401(k)s.
Providence runs programs for children, welfare recipients, juvenile offenders and struggling families in 24 states and the District of Columbia. Company leaders say they are improving on state-run social services while making a modest profit.
But some critics are uneasy about the company’s involvement in Florida foster care. They worry that shareholders will demand higher earnings, forcing Providence to make cuts in programs for the most vulnerable children.
Others don’t understand how any contractor can make much money in the difficult field of social work. Nonprofit agencies in some parts of the state are struggling to break even, they say.
“If you can make a profit on anything we are doing, then that means we are doing something wrong,” said Evelyn Lynn, R-Ormond Beach, a member of the Senate Committee on Children and Families. “Because it’s not going to the children.”
Others, even some who have reservations about for-profit companies, say Providence should be judged by its performance.
“One thing is clear,” said Andrea Moore, executive director of the statewide advocacy group Florida’s Children First. “Things couldn’t continue the way that they were. Because they were only getting worse.”
Providence founder and CEO Fletcher McCusker said he hopes to gain business in Florida wherever invited. Company President Boyd Dover moved to Clearwater in 2004 to oversee operations and expansion here.
This summer, Dover stepped in to lead the Treasure Coast’s foster-care agency United for Families, after its first leader resigned.
Last fiscal year, the Providence subsidiary Family Preservation Services made $1.3 million in profits – about 7 percent of $19.2 million in revenue on state foster care contracts in Palm Beach County, the Treasure Coast, Gainesville and Southwest Florida.
The company also has a management agreement with Camelot Community Care Inc., a nonprofit agency that handles $42.8 million in contracts all statewide.
Providence takes a fixed fee or 10 percent of Camelot’s revenue to provide management services including human resources, accounting and tech support. Providence took in $3.9 million in management fees from Camelot last year in Florida, and kept $142,000 in profit.
Camelot’s biggest contract is in Southwest Florida, where it earns $23.2 million a year to oversee programs for abused and neglected children. Camelot subcontracts more than $3 million to Family Preservation Services to provide therapeutic foster families, work with families who have lost their children and manage children’s cases in Collier, Hendry and Glades counties.
Critics say that the company is essentially awarding contracts to itself, creating conflicts of interest and freezing out other qualified agencies.
McCusker dismisses that criticism as sour grapes from contractors that didn’t win state business. The contracts were competitively bid, he said, and the head of Southwest Florida’s foster-care initiative reports to a local board.
According to DCF statistics, the agency in Southwest Florida performed at or above most state measures of child safety and well-being in the last year.
McCusker says his company makes money by slashing overhead, not by skimping. His biggest concern in founding the company, he said, was how investors would respond.
“Wall Street loves profit. They love improvement in profits,” McCusker said. “But most private companies have been flashes in the pan. They enjoyed a year or so of success, but then state governments start terminating their contracts because in my opinion they just get greedy. We are trying to educate Wall Street that this is and will be a low-margin business. We are not going to make 15 percent profit.”
SLASHING CORPORATE COSTS
McCusker and Dover met nearly four decades ago while working at a nonprofit agency for foster children and single mothers. McCusker went on to found a health-care company; Dover was appointed to lead Arizona’s health and child-welfare agencies.
Both eventually worked for Youth Services International, the publicly owned juvenile justice company that McCusker says made 20 percent to 25 percent profit in its heyday.
In 1997, McCusker started Providence with $50,000 and $500,000 in loans from family and friends.
Providence won state contracts to provide therapy and case management to children with behavior problems and families on welfare or struggling with mental illness or drug abuse, and acquired similar companies all over the country.
The company went public in 2003 and reported $97 million in annual revenue for 2004. Providence expects to take in at least $137 million this year.
Many of Providence’s predecessors made their money off state contracts in part by dumping state pension plans and slashing or freezing wages for workers. A recent study requested by Florida legislators found that for-profit contractors pay workers who guard and mentor juvenile offenders about $18,000 a year, $2,000 less than nonprofit contractors.
“If you look at other for-profit companies,” McCusker said, “you will find there is an undercurrent of greed, and outrageous executive compensation.”
But he said that Providence will not cut caseworker salaries or programs for children. Like most social service agencies, he said, Providence relies on a young, enthusiastic workforce. The company pays caseworkers an average $32,000 to $35,000 a year, comparable to state workers and local nonprofits.
The company makes its money by lowering overhead and “blowing up the corporate office,” McCusker said. Its main office in Tucson has seven executives and three support employees.
McCusker makes $250,000 a year, and owns 5 percent of the company.
DOOR OPENS TO FOR-PROFITS
When Gov. Jeb Bush introduced his plan to privatize foster care, he pitched it as a way to involve local communities. He touted a model program in Sarasota, where local nonprofits banded together to provide better care for foster children. He called it “community-based care.”
The regional agencies that oversee foster care services must be nonprofits to receive federal money. But when legislators privatized foster care statewide, they left the door open to for-profit companies as subcontractors. And as counties faced deadlines to privatize, they found there were not many local nonprofits able to back large start-up costs, or risk large losses.
Providence, which registered to do business here in 1998, had plenty of capital. It offered hundreds of thousands of loans to fledgling foster-care agencies.
Robert Barker, who founded Child and Family Connections, the private nonprofit foster care agency for Palm Beach County, said he initially had a bias toward nonprofit agencies. But when nonprofits such as Girls and Boys Town declined to take on big financial risks, he turned to Family Preservation Services.
The company gave Palm Beach County’s foster-care agency a $125,000 loan and a line of credit.
Child and Family Connections paid back the loan and secured its own line of credit. Family Preservation Services still contracts to provide case managers for about half of the 2,000 Palm Beach County children in state care.
Leaders in the Treasure Coast, Fort Myers and Gainesville made similar decisions. And the effort that was touted as a way to give more control to local communities brought in board members and caseworkers who report to corporate headquarters in other states.
Family Preservation’s local employees are dedicated and professional, Barker said, and the company is held to high standards.
The company’s contract in Palm Beach County requires one caseworker for every 19 children, and imposes fines if key positions are vacant for more than 30 days.
PROFITS MAKE SOME UNEASY
In an era where corporations are taking over charter schools, hospitals, juvenile lockups and psychiatric programs, some say it is inevitable that the care of the state’s vulnerable children would fall to a for-profit company.
But some find it distasteful that a company would be allowed to profit on the care of foster children.
Nonprofits have overhead and administrative expenses too, said Palm Beach County United Way President Scott Badesch, but their primary responsibility is to the community, not to shareholders.
“I just kind of get in knot in my stomach when I think that we don’t have enough money to serve kids and somebody is making a profit,” Badesch said. “Let’s not make profits off the kids in this society.”
Others said the company should be measured by results.
“I have no problem with a for-profit, if they do a good job and are accountable for the public dollars that are being spent,” said Nan Rich, D-Sunrise, a member of the Senate Committee on Children and Families.
The Associated Press contributed to this story.
Copyright 2005 The Palm Beach Newspapers, Inc.
Palm Beach Post (Florida)
November 28, 2005 Monday
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