When it comes to providing services, the state increasingly is looking to the private sector.

The latest proposals to overhaul the welfare system, which would diminish the benefits of millions of recipients, may end up enriching companies interested in providing services to the state.

With families likely to be limited to five years of benefits, a company offering a high-tech tracking system that would allow state officials to know whether recent New York residents already have used up their benefits as residents of other states could, analysts say, make a killing with the state as one of its clients.

Private firms expert in job placement skills, in providing child care and in setting up transportation networks for those without cars or access to existing public transportation also may benefit from the welfare overhaul.

If the reforms come to pass, they will be only the latest in a string of opportunities awaiting private sector companies able to provide government with either high-tech assistance, as in the case of the welfare tracking system, or human services expertise, as in the case of child care.

High-tech services, which sometimes prove too costly and complex for the state to provide, and human service contracts, which governments increasingly are awarding to private firms in recent years, have become the contracts of choice for companies intent on doing the people's business.

Indeed, the state has actively solicited these contracts. A Services and Technology division was established in 1994 to help search the private sector for high-tech services, and human services contracts, touching on everything from mental health and nursing home care to treatment programs for alcohol and drug abuse, are omnipresent.

And with an administration now in power in Albany desirous of downsizing government while providing growth in the private sector, opportunities for even more companies to do business with the state on a host of services are, most observers agree, just waiting around the corner.

Despite the increased interest of late in the private sector, service contracts between the state and private businesses are nothing new. A frayed ledger sitting outside the state comptroller's office includes a 1917 state service contract with Acme Construction Corporation, a Troy-based firm which, along with Atlas Plumbing and Heating of Colonie, did some precision work for state office buildings that pre-dated the edifices now dotting Gov. Nelson Rockefeller's Empire State Plaza. That same year, entries also were recorded for Atlantic Telephone and Telegraph Company, Consolidated Edison of New York, and Niagara Mohawk Corporation—all of which today provide billions of dollars in telecommunications and power services to the state.

The Depression of the 1930s brought with it commitments from the activist administrations of Franklin Roosevelt and Herbert Lehman to provide the private sector, however possible, with more jobs. The circle of service contracts that went to the private sector expanded: a road-laying contract to West Shore Concrete of Cornwall, a contract for work upgrading the West Point Military Reservation in Orange County, a contract for work on the Troy Poestenkill State Highway, a contract to turn Howe Caverns in Cobleskill into a tourist attraction by creating trails and a museum, and contracts for building bridges for the Northern State Parkway were but a few.

"Some of these contracts are still active," according to Douglas Boettner, director of state expenditures for the state comptroller's office.

Service contracts today run the gamut. Connecticut General Life has a $776 million insurance contract for a prescription drug program available to some 330,000 state workers.

Citicorp landed a $166 million contract to develop an electronic benefit transfer program which, operating like an ATM card, will provide public assistance clients with their entitlements.

Overnight mail service contracts have been awarded to three providers—one handling next-day mail by 10 a.m., another handling stranded next-day delivery, and still another handling certain out-of-state and airmail delivery requirements for documents originating from offices in Albany as well as each and every Senate and Assembly district from Long Island to Buffalo.

Enterprise Rent-a-Car secured a contract for the travel needs of officials within its service borders, while other vendors handle the needs of officials traveling beyond Enterprise's reach. Other contracts have been awarded to 37 different motels throughout the state, with a contract with national implications currently under consideration.

And then there are the service contracts with architects and construction companies to build roads, bridges and government owned buildings; the service contracts for computer testing and training; the service contracts for street cleaning and rubbish collection; and the service contracts with security guards, elevator maintenance companies and catering outfits that provide food and beverage service for all state cafeterias.

Far from being content with the breadth of services the private sector already provides, the administration of Gov. George Pataki believes opportunities for the private sector should be expanded even further. The governor, says John Melia, spokesman for Empire State Development, "believes there are functions better performed by the private sector." And, he says, an added benefit of allowing the private sector to provide public services is reducing "the number of state workers that are a drain on taxpayers."

Office of General Services (OGS) Deputy Commissioner John Stromquist says administrative efficiency is at the heart of the public-private partnerships. Dennis Tompkins, spokesman for state Comptroller H. Carl McCall, whose office reviews the contracts, says that what guides contracting from one administration to the next is "getting the best deal for the state."

A host of those deals, according to officials, have been secured in the last couple of years thanks to the 1995 Stewardship Procurement Act, which created a division within OGS for the purchase of services on a statewide scale that could then be utilized by local governments, school districts and the like. OGS, officials say, now is able to centralize buying for some 3,000 entities.

When one adds together all the state's various agencies in need of private sector assistance and the political subdivisions within the state that may lend their names to state contracts for services, one gets a purchasing power the size of some small national economies, Stromquist says. Significant leverage for discounts and added services, he says, is the result.

Since 1960, the bulk of state contracts have been arranged through OGS, an umbrella agency created, in part, to shop for the best possible buys in goods and services.

Two methods exist for requesting and awarding bids. The state may issue requests for proposals to qualified businesses on an active bidders list comprised of companies determined to be responsive and responsible. The sealed bids are then opened and recorded at a public meeting. Generally, the company with the lowest bid is awarded the contract.

Or, through negotiated bids, an agency can request proposals from specific companies that describe how they would handle a particular job. Officials then call in competitive bidders to discuss their proposals. After "best and final" bid offers, the contract is awarded on a variety of factors, including bidding price.

Unsolicited bids also can be initiated by small business owners eager to share an idea they have for serving the state. Smaller contracts may be negotiated over the phone with two or three possible vendors.

New contract opportunities are publicly announced through mailing lists, business-page advertisements and an Internet site to companies that might be interested.

Local governments that sign on to state-private sector service contracts should acquire 10 percent to 40 percent savings, according to OGS, as well as the time and labor savings of not having to shop around and research vendors. An Essex County administrator, for instance, recently called OGS wanting in on the state's contract with WestLaw, which provides on-line access to Dunn and Bradstreet and greatly facilitates research. The administrator allegedly obtained savings of more than $100 per hour of usage.

Price is not everything, however. Stromquist says vendors also are carefully assessed for quality of services provided.

Agencies other than OGS also contract out for services and in doing so frequently make use of so-called centralized state brokers. Associate Deputy Commissioner of Telecommunications Michael McCormack, for example, specializes in arranging deals for toll-free numbers, Internet access, and on-line research options such as WestLaw for multiple agencies.

For all its talk about increasing the number of contracts with the private sector, much of the administration's ambition has been bridled both by agreements it has signed with organized labor and by state regulations.

"I think ... there was a sense when [Pataki] came in that things were gong to be contracted out left and right," says Ross Hanna, director of labor relations with the 95,000-member Civil Service Employees Association (CSEA), the state's largest union. But after three months in office, the administration signed a four-year agreement with CSEA that included comprehensive protections for workers who lost their jobs as a result of contracting out. Specifically, the union won a long-coveted provision requiring that the state offer comparable jobs to state union employees replaced with workers from the private sector. If no comparable jobs could be found, the state would then be obliged to offer educational or financial assistance to anyone forced out by the contracts. A proposed change in the civil service law, which still awaits legislative approval, also would expand the scope of government's search for comparable jobs for displaced workers by making job descriptions more general and allowing for more flexibility in transfers.

"What was a good idea during [Pataki's gubernatorial] campaign in 1994 is not necessarily the same in 1996 when you've seen the full light of day," Hanna says.

Assorted state regulations, such as those mandating that the ski slopes at Gore, White Face and Belleayre mountains remain in state hands, also have tied the administration's hands. Proposals to contract out services at Gore Mountain, for instance, ran into an avalanche of criticism this year from Democrats, who run the state Assembly.

Still, the administration has, with some success, pushed the envelope containing public and private sector service contracts. The state got out of the baked goods business in 1995, when the administration closed the state bakery in Rotterdam, transferred most of its 200 employees and auctioned its equipment for $1.2 million. Some $3 million in contracts were awarded to private companies to provide bakery and food services to state institutions that care for the mentally ill, mentally retarded and state prison inmates.

Newport Alliance of Providence, R.I., in its second year of a five-year state contract to test commercial drivers for drugs or alcohol in their bloodstreams, could, should the Legislature agree in 1997 to drug testing welfare recipients as Pataki has proposed, gain an even larger contract.

A 1994 contract with Fleet Bank to process New York state income tax returns, since expanded by the administration, has attracted the interest of the Internal Revenue Service. Whereas state workers in the past were required to key millions of tax forms into state databases, the forms now are scanned instantly. Fleet's data imaging capabilities allow New York residents to receive their tax return checks 45 days earlier than they did when the state ran operations.

State workers now State-union contracts labor alongside temporary workers hired by Fleet for the high-volume tax season, according to Kevin Quinn, spokesman with the state Department of Taxation and Finance. But within the next several years, Fleet will process all 10 million tax returns the state receives annually. The company also plans to employ 5,000 workers to do the labor at abandoned IBM buildings in Kingston.

The arrangement has been vehemently opposed by Democrats, however. The current Fleet contract amounts to $200 million over 10 years and requires some 3,000 workers to move from the Democratic stronghold of Albany to Republican-friendly Kingston. Moving the workers, Democrats say, amounts to geographic patronage on the part of New York's Republican governor.

The administration has inherited other strains of criticism that hounded its predecessors. Its human service contracts with the private sector, opponents charge, provide diminished client care. "When you're dealing with mentally ill people, for example, people who provide care are like families," says Sherry Halbrook, a spokeswoman for the research department of the Public Employee's Federation (PEF), the state's white-collar union. "They become very emotionally important. Having a lot of turnover, a trademark of the private sector, under mines that."

According to Halbrook, private sector handling of the state's mentally ill population, much of which occurs in independent group homes and counseling clinics, also is teeming with underpaid disillusioned employees who often quit soon after being hired, and with disinterested executive officers to whom profit margins, as opposed to compassionate care, are the bottom line.

But defenders of placing the public's health in private hands say Halbrook and other critics are all wet. Halbrook, for one, represents a union whose membership has been threatened with downsizing under Pataki's watch. Any and all proposals on the governor's part to replace the state's workforce with private sector labor have been resoundingly attacked by PEF and other unions.

Others say it is the public sector, lacking the competitive edge that is so much a part of the private sector, that has a history of providing clients with slack human services. The most important thing is that there be competition, says David Schaffer, a spokesman with the Business Council of New York State. "Competition provides improvement," he says.

Others fault the administration, like its predecessors, for the way in which it awards the service contracts. Chuck Cohen, president of the Pearl River-based C-Tech—an eight-person company that manufactures products for the blind and visually impaired—has had a state contract to provide the company's products for schools across New York. But when the state recently announced plans to hire four companies to build and service large-print computers and software for the visually impaired, Cohen saw all four contracts go to out-of-state vendors. "You'd think they'd offer at least one of the contracts to an in-state company that pays taxes to the state," says Cohen, who faults the request-for proposals process for being too vague.

"That's GATT," OGS's Stromquist says, referring to the General Agreement on Trade and Tariff used to create a level playing field internationally as well as on the state level. Though in some cases instate vendors will win contracts if their bid is only slightly higher than that of an out-of-state firm, in Cohen's case the bid was not close enough, Stromquist says.

Still others worry aloud about the relative lack of oversight of contracts entered into by the state's authorities and local governments, which do not face the same approval process that state agencies must undergo before the state comptroller's office. "Who's checking on the contracting of the authorities?" asks Tom Fox, counsel to Brooklyn Democrat Anthony Genovesi, who has been considering a bill ensuring that political subdivisions comply with competitive bidding practices.

The perennial question of potential private sector contractors contributing to political campaigns also has dogged the Pataki camp. Medco Containment Services pharmaceuticals, for instance, which was up for a bid for a $250 million prescription-providing contract covering more than 300,000 state and local government workers, gave $25,000 to the Republican State Committee housekeeping account.

Delaware bank MBNA, which recently won the rights to use state tourism logos on its credit cards, gave the committee $50,000. "People who want contracts make contributions," says Frank Mauro, executive director of the Fiscal Policy Institute and former director of the New York City Charter Commission, which led the effort to revolutionize New York City's contract-procurement process in the late 1980s.

Undeterred by the criticism, the administration is moving forward with plans to contract out additional services. Leasing the 2,000-acre Stewart International Airport in Orange County, administration officials say, would result in better services to passengers and cargo carriers, and provide the state with a strong return on its investment.

Growing numbers of independent automobile dealers are generating registrations at their places of business—a process that used to require tremendous paperwork and trips to the Department of Motor Vehicles.

Plans also are in the works to sell a 90,000-pound capacity food processing center at the state's Rockland State Hospital. Now running at only 15 percent capacity, the operation, says Empire State Development's Melia, is "a total drain on the state."

 Lynn Brezosky is staff researcher for the Newsday Albany Bureau.