TEXAS WELFARE PLAN BLOCKED; UNIONS PRESS CLINTON TO FIGHT BID FOR PRIVATE ADMINISTRATION OF PUBLIC ASSISTANCE.

Byline: Sam Howe Verhovek The New York Times

The Clinton administration has blocked a plan that would give businesses a significant new role in administering social-service programs in Texas, aligning the White House with unions and against companies' seeking profits from the privatization of such programs nationwide.

But Texas Gov. George W. Bush says the state may proceed anyway with several aspects of his plan, under which private companies would interview applicants for $8 billion in benefits and help determine their eligibility.

The decision by the White House, relayed to Texas officials earlier this month, is the first indication of how much control it is willing to allow the private sector to exercise over safety net programs that offer billions of dollars' worth of social services to the needy and now provide about 200,000 jobs nationwide to public employees.

President Clinton made the decision after an Oval Office meeting with four national labor leaders, one of whom said he had told the president that approval of the Texas plan ``would set an incredibly dangerous precedent all across the country.''

Clinton later rejected a compromise plan from three of his senior advisers, including Health and Human Services Secretary Donna Shalala, that would have allowed Texas to proceed in a limited way.

Bush, a Republican who is widely seen as a potential aspirant for the presidency, derided the decision as a capitulation to union bosses.

``This administration boldly proclaimed, `We will let the states free to exercise their best judgment on delivering compassionate welfare,' '' Bush said in an interview. ``But on this issue, when they recognize the external politics, the union politics, they crater. They wilted.''

Texas plan

Under the Texas plan, the boldest step that any state has so far proposed for privatizing social services, as many as 5,000 state employees could lose their jobs. Across the nation, public-employee unions are concerned that many more jobs could be lost if the concept takes hold.

Bush said enlisting corporate partners to run the state's welfare, Medicaid and food-stamp programs would save the state at least $10 million a month, an amount he pledged to reinvest in programs for the poor. But opponents of the idea argue it would erode public control of vital government services and leave poor people at risk of losing food or medical aid.

In the long run, the opponents also worry that states may add incentives for private companies that ``contain'' the costs of benefit programs. Such a move could involve finding ways to deny benefits to people who are entitled to them or to discourage people from applying for help.

``When I think about privatizing the very door that clients walk through to get health and human services, that's of deep concern,'' said Marcia Kinsey, senior policy analyst at the Center for Public Policy Priorities, an Austin-based private organization that is an advocate for poor people in Texas.

Companies face roadblock

For now, the administration's decision could pose a formidable roadblock to two giant companies, Lockheed Martin Corp. and Electronic Data Systems Corp., which were set to compete for a five-year contract worth as much as $2 billion. The two companies have established major beachheads in Austin, hiring former state human services officials from across the country as lobbyists and advisers.

The whole issue is not just a matter of huge dollars in Texas but is also seen as setting the precedent nationwide for many other state privatization proposals.

``Everybody is watching the Texas situation,'' said Roger Still, a spokesman for EDS Corp., the information technology company that was founded by Ross Perot and helped make him a billionaire through processing Medicaid and other government insurance claims.

Although the state may yet put out some kind of a contract for bid, as Bush vows he will do, it is quite possible that the federal authorities will block the effort.

Regulation interpretation

The issue rests to some degree on interpretation: current federal regulations clearly require that government employees decide on eligibility for many social-service programs, including Medicaid and food stamps. Texas was seeking a waiver from that provision, which the White House has so far denied.

But now McKinney, the health commissioner, and other Texas officials say they may go ahead anyway, arguing that although private companies would take all information from potential clients and inform them about benefits, it would be state employees who supervised the process and were thus ultimately responsible for determining eligibility.

The privatization issue has become deeply embroiled in politics, with Clinton so far firmly siding with unions, which were a major source of help in his two presidential campaigns and which could also be instrumental in advancing Vice President Al Gore's own presidential ambitions in 2000.

Wednesday, Gore told a gathering of the American Federation of State, County and Municipal Employees, ``I can assure you that this administration will do what is best for recipients of public assistance and that this administration will look out for the interests of the workers who devote their lives to helping those recipients.''