How the Latest DHS Scandal is Just the Tip of the Iceberg

This article appeared in the Fall 2019 issue of Thinking Minnesota. To receive a free issue send your name and address to [email protected].

Minnesotans of a certain age will always recall the Land of 10,000 Lakes as that squeaky clean, good government state personified by the still-famous August 1973 Time magazine cover of plaid-shirted DFL Governor Wendy Anderson hoisting a trophy northern pike. As Time wrote back then, “Minnesota is a state whose politics is almost unnaturally clean— no patronage, virtually no corruption.”

Perhaps Minnesotans can be forgiven for holding their state in such high esteem. After all, U.S. News & World Report ranks Minnesota as the third best state to live in, and the website 24/7 Wall Street has ranked Minnesota as the fourth best-run state from sea to shining sea.

However, the reality is Minnesota government no longer lives up to Time’s idyllic description as “the state that works.” While Minnesota’s lakes and trees are as beautiful as ever, a long list of state government scandals and failures over the past few years has tarnished Time’s Norman Rockwell image of the state.

Almost weekly, the 10 o’clock news leads with another investigation at the Department of Human Services, another horror story coming out of Driver and Vehicle Services or cronyism at the Iron Range Resources and Rehabilitation Board. Taken together, these scandals and failures reveal a public sector increasingly incapable of providing basic services to citizens but more than capable of taking care of its own.

“Some of the problems are due to complacency and resting on our reputation and some on partisan gridlock that makes change difficult,” said David Schultz, a political science professor at Hamline University and former president of Common Cause Minnesota. “However, much of the problem is that the State of Minnesota has failed to update and reform its institutions and processes to reflect the reality and needs of governance for the 21st century.”

The Department of Human Services (DHS) is the state’s largest government agency. Its 7,300 employees serve more than one million residents with a budget of $18 billion. Recent developments suggest the mammoth agency may no longer be manageable. There are revelations of employees escorted from the premises, officials who won’t talk to investigators and threats of retaliation against whistleblowers.

“There’s a cultural problem, it’s the work environment,” said an anonymous county official with extensive experience working with DHS. “You can see the strain in their faces. You can hear it in their voices, you can tell in their email responses. It’s sad to see there seems to be a culture, more and more, of fear.”

It starts with the revolving door at the top of the agency. Throughout 2019, the turmoil and turnover in DHS’s leadership has spiraled out of control. DHS Commissioner Tony Lourey resigned after only six months on the job. Deputy Commissioner Charles Johnson resigned and then unresigned. Deputy Commissioner Claire Wilson resigned, then unresigned, only to resign again. Then Assistant Commissioner and Medicaid Director Marie Zimmerman quit. Along the way, Chief of Staff Stacie Weeks also left. Meanwhile, Inspector General Carolyn Ham was paid $42,000 for doing nothing while on leave for four months before being reassigned temporary duties while awaiting an investigation into her conduct in office.

“There have been problems at the Department of Human Services as long as I have been at the legislature,” said State Senator Michelle Benson, who was first elected in 2010, at an August oversight hearing. “Program integrity, eligibility, project management, transparency, accountability.”

Governor Tim Walz’s dismissal of turmoil at the state’s biggest agency with “I don’t do drama” conjures up the image of Lt. Frank Drebin dispersing the crowd in front of the exploding fireworks factory in The Naked Gun, “move along, nothing to see here folks.”

At no time have government officials explained to citizens what’s going on at DHS, although new DHS Commissioner Jodi Harpstead pledges “to get to the bottom” of the agency’s long list of issues.

In a 2018 review of DHS’s child care assistance program, Legislative Auditor Jim Nobles was unable to estimate how many millions of taxpayer dollars were lost to fraud in the Child Care Assistance Program (CCAP).

“Fraud is a serious problem in the CCAP program,” he testified at a March legislative hearing. “And we also revealed to you that internal controls are so lacking that it really isn’t that hard to steal money from that program if that’s your intent.”

Yet, fraud often takes a back seat to outright incompetence. In three blunders likely to cost taxpayers more than $100 million, DHS has admitted to overpaying some vendors by tens of millions of dollars, while failing to collect tens of millions of dollars from health insurance policy holders—all from the agency with aspirations of implementing single-payer health care.

In two of those 2019 incidents, DHS made mistaken payments for drug treatment services. In August, the agency admitted to overpaying the Leech Lake Band of Ojibwe and the White Earth Nation by $29 million above the federal government’s reimbursement rates. Within days of that revelation, a bigger bombshell burst with the disclosure that DHS had overpaid more than 100 chemical dependency treatment providers more than $48 million in what appears to be a complete loss to taxpayers.

Last year, DHS acknowledged its failure to collect more than $30 million in premiums from consumers buying insurance policies through the MNsure health insurance market exchange, but wrote off the entire amount rather than making any effort to recoup the funds. More on MNsure later.

Both internal and external efforts to bring reform to the troubled agency meet with stiff resistance, thwarting efforts for greater accountability and transparency. A veteran agency compliance officer pulled the curtain back at an August state senate oversight hearing to expose what life is like for reformers inside the embattled agency. Faye Bernstein told of being escorted from DHS headquarters in July after raising questions about repeated mistakes in contracts with her superiors. Bernstein said she was advised by DHS that testifying could jeopardize her career.

“I was contacted by DHS and informed on the repercussions of speaking today,” Bernstein told the committee, choosing her words carefully. “…The person who provided that information is someone who I greatly respect and I appreciated the information. However, the content, the words saying that I could be discharged for this, that is threatening.”

She’s far from the only DHS staffer with a story to tell. Dr. Jeff Schiff, former director of the state Medicaid program, was abruptly let go in June after complaining of policy decisions being made without consulting medical professionals.

“When I raised my concerns about these examples and other clinical issues to the health care administration leadership, they were hostile and dismissive,” Dr. Schiff wrote in a letter to Governor Walz and other state leaders.

The elimination of Dr. Schiff’s position drew swift reaction from DHS’s own Opioid Prescribing Work Group. Expressing “astonishment and dismay,” the working group went as far as to say Schiff’s departure “puts patients’ lives at risk.”

Virtually every Minnesotan has encountered state government’s inability to deliver the most basic public services. If you’ve tried to schedule a driver’s exam for your teen, buy an individual health insurance policy on MNsure or you’re one of the thousands of Minnesotans subject to a DHS data breach, you have your own horror story to tell. It’s as if the state is conducting its own public relations campaign for smaller government, albeit at your expense.

Nothing better illustrates the performance gap in state government than a series of gaffes in the rollout of three high-profile customer service systems developed by MN.IT Services, the state’s in-house cabinet-level department that sets “IT strategy, direction, policies and standards” for Minnesota’s executive branch of government.

Now by-words for failure, MNLARS, MNsure and METS are three large state-developed IT projects that all debuted over budget, behind schedule and unable to perform as advertised to the detriment of virtually every Minnesota resident and community.

First approved in 2008, the Minnesota Licensing and Registration System (MNLARS) was intended to replace the state’s existing 30-year-old vehicle and driver’s license computer system. Initially expected to cost $48 million and go live in 2014, Minnesota taxpayers have spent more than $100 million on a system that is still not fully functional.

When it finally debuted three years late in 2017, the damage caused by MNLARS quickly piled up. New car owners waited 79 days to receive their license plates. Drivers caught in the 380,000 strong back-log for registration renewals received a “doctor’s note” from Driver and Vehicle Services (DVS) to show law enforcement in case they were pulled over in lieu of their actual license tab stickers. The true hit-and-run victims are deputy registrars, public and private sector vendors who provide driver and vehicle services through retail outlets around the state. Deputy registrars will split $13 million in compensation from the state to offset but a fraction of their losses. Deputy registrar offices run by cities and counties will pass their uncovered losses on to local taxpayers. But so far only two state officials have lost their jobs over the debacle, and one of them received a $45,000 payment from taxpayers in exchange for not suing for wrongful termination. The taxpayers’ tab remains open as the state has just approved spending another $33 million to scrap MNLARS and start over with a private sector vendor paid for by increased license and registration fees. Meantime, the Walz administration has rebranded the system VTRS (Vehicle Title and Registration System) in an awkward attempt to put the scandal behind them.

Yet MNLARS looks like a bargain in comparison to the MNsure health insurance exchange. The system intended to implement Obamacare in Minnesota crashed within minutes of its much-hyped launch in October 2013. During the meltdown, MNsure Executive Director April Todd-Malmlov was located vacationing in Costa Rica. Her abrupt departure from state government left Todd-Malmlov as the scapegoat for a project whose “failures outweighed its achievements,” according to a scathing state legislative audit.

But the biggest IT scandal most Minnesotans have never heard of involves an obscure but vital software system known as the Minnesota Eligibility Technology System (METS). The statewide system enables county human service departments to determine eligibility for the state’s Medical Assistance program (Medicaid), which provides health care and benefits for about 1.1 million Minnesotans.

Since its 2013 debut, officials have openly questioned whether the system should be scrapped due to perpetual performance issues and high maintenance costs. Rather than streamlining the verification process, the slow and cumbersome software created additional work and $30 million annually in additional expense for counties to operate the system.

But the stakes are much higher. METS is on the front line of the state’s effort to verify enrollee eligibility and combat outright fraud. A 2016 legislative audit estimated the cost to taxpayers for ineligible and fraudulent enrollees in state programs could be as high as $271 million. Yet, it’s not clear anyone in state government has been held accountable for a system described by two top county officials in a 2018 Star Tribune op-ed as “broken, inaccurate, unreliable and expensive.” All told, Minnesota has spent $609 million developing and operating the combined MNsure and METS system. Adding insult to injury, Minnesota could have avoided the MNsure fiasco altogether by joining the majority of other states in utilizing the federal insurance portal at no cost to taxpayers.

The state’s carelessness extends to more than your tax dollars. It’s your personal data, too. In a series of alarming data breaches over the past 13 months, the Department of Human Services allowed personal information of 35,000 individuals to be compromised. In the largest of these incidents, DHS delayed telling victims for up to four months after their social security numbers and other vital data were left unprotected. The Met Council’s Metro Mobility program admitted in September to the latest data breach involving 15,000 customers of its transit service for people with disabilities—some of the state’s most vulnerable citizens. But who will be held accountable?

In what would have shocked Time magazine readers of 1973, Minnesota has suffered numerous episodes of corruption and cronyism. Type the words “Minnesota cronyism” into Google and literally the first result involves the Iron Range Resources and Rehabilitation Board (IRRRB). Founded in WWII as a vehicle for distributing iron mining tax revenue to northern Minnesota communities, the troubled agency has gained a reputation as the employer of last resort for failed DFL congressional candidates.

Unsuccessful 2018 congressional candidate and former state legislator Joe Radinovich was hired by the agency in February 2019 for a senior position. The IRRRB posted the six-figure position for less than 24 hours, passing over a more qualified female candidate in tailoring the job description to fit Radinovich’s resume and listing him on its official org chart before the opening was even advertised. After the backdoor deal was exposed by The Timberjay newspaper, Radinovich was gone before the winter snow had a chance to melt. But the brazen incident produced nothing more than a letter of mild rebuke from Governor Tim Walz to his IRRRB Commissioner Mark Phillips.

It’s not just questionable personnel moves. The agency has been called to account for a number of dubious investments of taxpayer dollars. From $3 million blown on a failed chopsticks factory to $44 million lost through ownership of the isolated and little used Giants Ridge championship golf course, the agency has a lengthy history of failed economic development efforts.

None have been as openly partisan as the IRRRB’s handling of a $625,000 loan to a Dialing for Democrats phone bank. Under the guise of creating 70 call-center jobs in Eveleth, the agency loaned money to a private firm whose business was fundraising for Democratic candidates. The business fell short on job creation and shut down during the 2014 campaign, resulting in a $250,000 write-off. To keep the dollars flowing to Democrats, the IRRRB sold the call-center equipment back to the company’s former owner for ten cents on the dollar.

Endemic cronyism goes far beyond a single state agency. The guest list in 2016 to two luxury suites controlled by the Minnesota Sports Facilities Authority (MSFA) at the $1 billion U.S. Bank Stadium read like a “Who’s Who” of DFL bigwigs and donors. The MSFA was already in hot water for employing two well-connected DFL insiders, Executive Director Ted Mondale and Chair Michele Kelm-Helgen, for a combined $300,000 to oversee one stadium. In the backlash over the scandal involving the $200,000 per season suites, the agency was only able to claw back $21,000 from event attendees to reimburse taxpayers.

In another scandal involving familiar DFL names, former Party Treasurer Bill Davis was sentenced to four years in federal prison in May 2017 for defrauding state agencies as head of the nonprofit Community Action of Minneapolis. Davis misspent taxpayer money meant for the non-profit’s lowincome clients on trips to the Bahamas, spas, golf and excess bonuses. Not providing adequate oversight was the non-profit’s celebrity board which included then-Congressman Keith Ellison, State Senator Jeff Hayden and several Minneapolis city council members. A related ethics complaint filed against Senator Hayden for his role in the scandal was never resolved.

No wonder the Center for Public Integrity, a left-leaning good government group, downgraded Minnesota from a D+ to a D- in its most recent rankings, noting the state’s “squeaky clean image hides a nest of ethical problems.”

“The budget process, the structure of the state agencies, and how we legislate reflect a set of values and ways of doing things that are becoming, if not already, obsolete,” Schultz said. “In many ways, Minnesota still operates with a set of institutions and processes designed for a horse and buggy era, seeking to make them work in a global, Internet-connected era.”

To bring Minnesota government into the 21st century, state leaders will need to get behind a comprehensive reform agenda. However, based on the results of our Thinking Minnesota Poll, there appears to be no sense of urgency among voters.

To make state government live up to the high regard voters still hold it in, reform needs to become a priority. Without pressure from the public, it’s unlikely government will act to fix itself. It falls to the media, policy organizations like the Center and elected officials to educate the public on the need for more accountability and transparency in state government and to create the environment for reform to flourish.