Controversial $1M+ McKinsey Homelessness Study Canceled

Mayor doesn’t “believe anyone has been misled”

Camp Esperanza in 2021 (photo by Jana Birchum)

Update Feb. 22 9:30am: Following publication of the story below, Interim City Manager Jesús Garza sent a memo to Mayor Kirk Watson and City Council members notifying them that the city would not move forward with the McKinsey contract.

“Given the changes in participation among the partners,” Garza wrote in the memo obtained by the Chronicle, “I have concluded that the conditions for the assessment have changed such that we cannot achieve the community-wide impact originally envisioned. As a result, it has become difficult to define a successful scope, so we will not be proceeding with the contract.”

As of Wednesday, Feb. 21, city staff expected to sign a contract with McKinsey & Company, the disreputable consultant firm known for its high fees and the role it played in accelerating the opioid crisis, to conduct a broad review of the constellation of homelessness services in Austin-Travis County. But early Feb. 22, Interim City Manager Jesús Garza pulled the plug.

The McKinsey contract was initially pitched by Garza and Mayor Kirk Watson as a collaborative endeavor between the city, Travis County, Central Health, and Integral Care, with each agency kicking in funding to pay for the $2 million review. Backup materials for City Council’s Jan. 18 meeting indicated that Travis County and Central Health would each pay $400,000, Integral Care $200,000, with the city covering the remaining $1 million.

But none of the partner funding had actually been committed as of that meeting, sources told the Chronicle and documents show. In fact, the city had good reason to believe most outside contributions wouldn’t materialize. In a Jan. 2 email, Integral Care Chief Operating Officer Dawn Handley wrote to David Gray, the city’s newly appointed homeless strategy officer, to ask that Integral Care be excluded from the reimbursement scheme due to the large expense. The next day Gray forwarded the email to two of Garza’s top aides, Susana Carbajal and Laura Huffman.

Then, Jan. 16, Travis County commissioners publicly indicated concern about the $400,000 cost of participation. Meanwhile, Central Health officials didn’t learn they would be asked to contribute $400,000 to the study until the backup materials for Council’s Jan. 18 meeting went up.

“I don’t believe anyone has been misled and believe the contract should move forward.”   – Mayor Kirk Watson

It does not appear many Council members knew that most of the partner funding for the study was uncertain when they authorized staff to negotiate the contract. But, after learning of commissioners’ public hesitancy, CM Alison Alter asked at the Jan. 18 meeting if Council could reconsider the contract if partner agencies wouldn’t chip in. “If we get jammed up,” Garza responded, “we’ll get further direction if that’s necessary.”

Alter’s hesitation proved wise. The next week, Jan. 24, Central Health’s board of managers authorized the health care district to spend $150,000 on the study, not $400,000. Jan. 30, Travis County commissioners voted to participate in the study – but to contribute zero dollars to it. Meanwhile, Integral Care’s board of trustees authorized the agency to kick in $200,000 only if they had extra money leftover through an existing contract with the city, paid for with city funds.

Interim City Manager Jesús Garza in July 2023 (photo by John Anderson)

At Council’s Feb. 7 Public Health Committee meeting, CM Ryan Alter asked Garza to commit to his promise to bring the contract back to Council if the city “got jammed up.” Garza declined. Instead, Garza issued a memo, Feb. 14, outlining the months of behind-the-scenes conversations that preceded the city’s decision to award the contract to McKinsey in what staff called an “informal competitive process.”

“The review will yield the same quality deliverables as envisioned in the initial scope,” Garza wrote in the memo. But now the total cost of the contract would be $1.35 million (with the city still throwing in $1 million).

We contacted every Council office with our findings, but most declined to comment. CMs Alison Alter, Vanessa Fuentes, Ryan Alter, and Zo Qadri all said they agreed with the idea of comprehensively reviewing homeless services. But they are concerned by this contract, especially given McKinsey’s troubling history and worsening performance, and want a chance to reconsider it. “I not only support an agenda item to reconsider the contract,” Qadri wrote in a statement, “but our office is currently exploring leading on sponsoring this item.”

The mayor, however, thought staff should proceed as of Wednesday. “This contract review is essential to examine how to better coordinate efforts for the long term so that we as a community provide the best services and aren’t squandering resources,” Watson said through a spokesperson. “I don’t believe anyone has been misled and believe the contract should move forward.” In the Thursday memo, Garza reiterated his desire for a comprehensive review of homelessness services, but said that the changes in participation made it "difficult to define a successful scope."

Editor's note Thursday, Feb. 22 9:30am This story has been updated throughout following developments Friday morning.

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