Backsliding in terms of transparency: DOE fails to post list of contracts 30 days in advance of vote & refuses to allow PEP members to see them

December 1, 2024

Under every NYC Mayor, highly problematic and even corrupt DOE contracts have been awarded since mayoral control was instituted in 2002.  Just a few of the most egregious examples:

• During the Bloomberg years, a consultant named Ross Lanham stole more than $3 million from DOE in 2002 to 2008, and allowed Verizon and IBM to overcharge for school internet wiring as well. The FCC excluded the DOE from more than $100 million of federal E-rate reimbursement funds for many years as a result.
• Also under  Bloomberg, between 2007 and 2011, Judith Hederman, a high level DOE official, fixed contracts with a firm called Future Technology Associates,  colluding in a successful plot to steal $6.5 million dollars.
  
•  Under Mayor De Blasio in 2015, DOE proposed a $1.1 billion contract for a firm called Custom Computer Specialists, again for internet wiring, renewable to $2 billion over nine years, despite the firm's involvement in the Lanham scandal just a few years before. After the news broke, the contract was hurriedly renegotiated overnight, with the cost cut in half to $627 million, with no other change in terms, suggesting how inflated it was in the first place. The Panel for Educational Policy rubber stamped the contract anyway, 10-1. But because investigative reporter Juan Gonzalez continued to write about it, City Hall eventually cancelled the contract and forced DOE to rebid it, at a savings of between $163 and $727 million. 
  
•  In 2021, Eric Goldstein, head of DOE School Support Services, renewed a million dollar contract for chicken nuggets in return for a bribe, even though the product had been found to contain bone and metal fragments and posed a serious choking hazard to students. 
• In 2023,  Chancellor Banks agreed to a contract with a company called 21stCentEd after it had hired his brother as a lobbyist, triggering payments of more than $1.4 million.

Clearly, the process needs far more transparency and oversight by the Panel for Educational Policy which has the responsibility to approve contracts. And yet this administration has slid backwards in terms of transparency.  

 

As a result of the scandal generated by the inflated Custom Computer Specialists contract, which was posted only a few days before the PEP vote, the DOE agreed from then on to post all proposed contracts at least 30 days prior to allow for more public scrutiny.  See the articles about this promise in the Daily News and Gotham Gazette at the time.  However, this administration does not adhere to this promise.  For example, the list of contracts to be voted on during the December 18, 2024 PEP meeting is still not posted-- only 17 days away.

 

The ability of PEP to perform oversight has also been severely hampered by the fact that its members are denied the right to see the actual contracts before their vote. The excuse given by DOE to members is that the actual contracts are not written until after they are approved --a highly problematic way to do business.  And yet it has not always been done this way..

During the Bloomberg years, Patrick Sullivan, the Manhattan Borough Appointee to the PEP was allowed to examine proposed contracts before the Panel vote,  as he recounts in a recent memo to PEP Chair Greg Faulkner and other current PEP members.  Patrick was granted this  opportunity after then-chair of the Assembly Education Committee Cathy Nolan and Assemblymember Daniel O'Donnell wrote a letter to Chancellor Klein, stating, "We are concerned that providing only a summary of contract materials to the PEP does not allow the body to fulfill its responsibility and urge you to reexamine this policy."  Patrick's memo to the PEP is below.

Oct. 31, 2024

To: Chair Faulkner and members of the Panel for Educational Policy 

From: Patrick Sullivan, Manhattan BP Appointee, 2006-2013

Subject: Review of actual contracts by Members of the Panel for Educational Policy

As the New York state law defining mayoral control was approaching sunset in 2009, I joined advocates to ask the legislature to strengthen oversight provisions. I testified before Assembly and Senate panels asking for the PEP to have a greater role in approving contracts and changes in school utilization. I joined the president of CEC1 and advocates to make this case directly to then Assembly Sheldon Silver.

As a result of these efforts, contract approval by the PEP was greatly expanded in the 2009 law. The requirement that any contract greater than a million dollars be approved put most material contracts under our purview.

The DOE resisted complying with the law. They refused access to the contracts we were to approve and directed us to summaries they prepared. I asked Assembly member Danny O’Donnell to intervene. He was the only Manhattan member on the Assembly Education Committee and my contact for legislative matters for the public schools. 

The next day, he and Assembly Education Chair Cathy Nolan sent a letter to Chancellor Klein
him of the DOE’s obligations under the law, urging him to allow PEP members to be able to read
the actual contracts before the vote.

After that full copies of contracts were made available for my review in person at Tweed. I customarily reviewed those of interest the day before the Contracts Committee met. I also requested and received RFPs (requests for proposals) where I found areas of concern in contracts.

This review was invaluable to my oversight role. In one case, for example, my inquiries based on
my review triggered communications between fraudulent actors within DOE and a large vendor. This inquiry and the subsequent communications were cited in the SCI investigation in support
of their findings of fraud. In another case, a contract was rescinded by full vote of the PEP at my
request.

I strongly believe that only with the opportunity to access to the actual contracts, can PEP members responsibly fulfill their oversight responsibilities.  Feel free to contact me if you have any questions.

Patrick Sullivan

Patrick Sullivan on the DOE's acquisition of Reliant bus company: Why the PEP should vote no.

Update: The Panel for Educational Policy approved the contract 8-5, with only the borough appointees and Tom Shepherd, the appointee chosen by parent leaders, abstaining.

Patrick Sullivan, a former member of the Panel for Educational Policy, sent this email to current PEP members in opposition to the DOE contract with a shell non-profit, run by DOE, that would acquire the bankrupt Reliant bus company.  For more on this issue, see Sue Edelman's article yesterday  in the New York Post and the editorial today.  The PEP is voting on this contract tonight.  Livestream here.

From: Patrick Sullivan <patk.j.sullivan@gmail.com>
Date: Sun, Dec 13, 2020 at 7:08 PM
Subject: Vote no/abstain vote on NYCSBUS contract due to pension risk
To: <AChapman7@schools.nyc.gov>, <GChacon@schools.nyc.gov>, <ICarmignani@schools.nyc.gov>, <DDillingham@schools.nyc.gov>, <NGreenGiles@schools.nyc.gov>, <MKraft2@schools.nyc.gov>, <VLeung@schools.nyc.gov>, <GLinnen@schools.nyc.gov>, <LPodvesker@schools.nyc.gov>, <kparkprice@schools.nyc.gov>, <SWaite3@schools.nyc.gov>

 

Dear Panel for Educational Policy Members,

I am writing to express my concerns about the contract with the new NYCSBUS entity for school bus services.  I ask you to abstain or vote against the contract.

The contract is part of a two-pronged program to create a DOE-controlled busing company.  One component is the new non-profit intended to buy Reliant from its parent MV Transport.   The non-profit has a board controlled by the Chancellor and his appointees.   The non-profit will get Reliant's assets including buses owned outright and leases for both buses and bus depots.   The non-profit will also be responsible for Reliant's pension obligations.  The pension is a private one for the union's members and funded by all the bus company employers.  Like most pensions, it's underfunded.  The responsibility to make up any underfunding is with the employers.   When NYCSBUS buys Reliant, it becomes responsible for the pension.  Their share of the underfunding is about $140 million.  

I do not believe the DOE has been either comprehensive or candid in explaining the risks involved in their plans:

NYCSBUS fails to deliver services - the company only exists on paper right now so a number of scenarios could derail operations including inability to staff management, labor strife, equipment failures or pandemic restrictions.  Whether the buses run or not, NYCSBUS is obligated to ensure pension benefits to employees enrolled in the plan.  If NYCSBUS stopped operating entirely, the DOE would inherit its obligations to the pension members.  

Other bus companies go bankrupt -- the union's pension is a  private multi-employer plan where all the bus companies contribute to the union's plan to cover their employees.   When one of the private companies go banktrupt, their obligations get spread to the remaining solvent companies.  Here's the troubling scenario according to testimony to Congress by the US Chamber of Commerce:

The Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) amended ERISA to address employers leaving these plans by creating withdrawal liability, which requires an employer to pay its share of any unfunded vested benefits when the employer leaves the plan. If an employer cannot pay its withdrawal liability, for example because it is bankrupt, those liabilities are shifted to the remaining employers, which created the “last man-standing rule.” (https://www.uschamber.com/comment/comments-proposed-multiemployer-pension-recapitalization-and-reform-plan)

A series of bankruptcies could result in the bulk of the pension obligations landing on the DOE.  Meeting them would deplete classroom funding.

Underfunding of pension increases : interest rates are at record lows.  The gap between assets and payments to pensioners could grow dramatically leaving the DOE obligated to siphon operating funds for increased pension payments.

DOE and City Hall staff are asserting that the NYCSBUS non-profit is a separate entity from the DOE.  Technically that's true.  But that does not mean the DOE would escape responsibility for the  pension obligations of the non-profit.   Because the Chancellor controls its board of directors, any sort of regulatory or judicial ruling would likely find the DOE ultimately accountable financially for NYCSBUS.

The 5.5 year $900M contract you are asked to approve would allow Reliant's owner to walk away from all these risks and transfer them onto the DOE without appropriate compensation.   Rejecting the contract would likely scuttle the sale of Reliant and open up better alternatives.  One would be to create a new bus company that hired a management team, staff to operate and leased its own buses.  The new company could scale up as it demonstrated success.  While the new company would still share obligations to keep the pension solvent, the magnitude of the risk would be dramatically lower and, most important, the deep pockets of MV Transport and its wealthy owners would continue to back the pension through the coming period of uncertain state and city budgets.

Thank you,
Patrick Sullivan

Capital plan comments; $14.9 billion Capital Plan and Contracts amounting to millions approved by PEP without discussion or debate

The below comments expressing our concerns with the five year capital plan were sent to the members of the Panel for Educational Policy on May 17.  A good article about some of the flaws in the Plan and the entire school planning process was published by DNA Info here.

Sabina Omerhodzic of CEC 30 also attended the hearing at the May 18 PEP meeting at Long Island City HS, and made an eloquent speech about the inadequacy of the capital plan.  Nevertheless, the $14.9 billion five-year plan was unanimously approved by the Panel members, without a single question or comment.

The same was true of the proposed contracts, about which Patrick Sullivan and I submitted many questions and serious concerns  on behalf of the Citizens Contract Oversight Committee, well before the hearing.  Every contract on the list, totaling millions of dollars,  was unanimously approved without any discussion or debate.

Comments on March 2016 Capital Plan by Leonie Haimson

The city's use of a non-profit to pay irresponsible preK vendors and get around the procurement rules

Sue Edelman of the NY Post reports on how the Mayor’s office asked a city-related nonprofit called the Fund for the City of NY to cover the costs of preK providers who had evaded taxes, engaged in fraud, failed to hire sufficient qualified staff and/or exhibited other unspecified problems.

Now the DoE is asking the NYC Comptroller to retroactively approve these contracts so the city can reimburse the Fund  to the tune of $1.36 million, in an apparent end run around the  procurement rules.

What the story doesn't mention is that the DoE continues to ask the Panel for Educational Policy to approve payments to preK and/or Special Education providers before background checks are complete- and to approve contracts with vendors where investigations have already revealed serious issues in the past.

This behavior is of questionable legality and risks taxpayer funds and kids' lives.

More details about the problems with these preK vendors  is revealed in the Addendum of this month’s RA's.  Patrick Sullivan and I, on behalf of our Citizens Contract Oversight Committee, highlighted these in our comments sent to the PEP before the vote, as well as other unresolved questions, pertaining to the Amazon contract and special education vendors who were found to have spotty records.

In terms of the Amazon contract, we had pointed out that there was no cost-benefit analysis of how much it will cost to provide e-readers to hundreds of thousands students if they are to receive 30-40% of assigned readings digitally, as the DOE plans; no analysis of the risk to student privacy if teachers will now be able to track student behavior online; and no analysis of how Amazon may access to their digital profiles to engage in targeting advertising to students and enlarge the corporation's massive market share, which further enables their monopolistic and abusive practices, protested by publishers and authors.  Finally, there was no mention of the fact that numerous studies have shown that students who access their reading assignments through digital devices comprehend and retain significantly less.

In terms of the special education and preK contracts, there continues to be a troubling lack of care in the DOE’s practice of rushing these contracts through without sufficient information in advance, or even after background checks have shown them to have engaged in activities that would bar them from other city contracts.

Yet not one PEP member brought up any of these issues during this month’s Contract Committee meeting or during the PEP meeting itself.

I have been told that there are backroom discussions where PEP members privately air their concerns to DOE officials, but the public doesn't have the chance to hear the questions asked or the responses.  The private nature of these discussions sidesteps the open transparent process that is supposed to prevail for a governmental board, and deprives the public of their right to know.

Sue Edelman asked me if the contracting process was better or worse under Bloomberg.  I said that I thought it was about the same because a lot of rotten contracts were also approved during those years. 

Yet at least from 2007 onwards, when Patrick Sullivan served on the PEP as the representative of the Manhattan Borough President Scott Stringer, he consistently challenged the DOE’s decisions and forced officials to respond to questions in a public forum.

In 2009, as part of the effort made by the Legislature to improve accountability when Mayoral control was renewed, the PEP was given the authority to approve DOE contracts, because of all the abuses that had occurred as a result of corrupt and wasteful spending.  Patrick was frequently supported in his challenges by the Queens rep Dmytro Fedkowskyj, the Brooklyn rep Kelvin Diamond and the Bronx rep Monica Major.

Yet never did the PEP actually vote down a contract during the Bloomberg years, as it was controlled by the Mayoral supermajority and the Staten Island rep which together served as a reliable rubber stamp.  The Panel did retroactively rescind a contract awarded to the tutoring company Champion Learning Center, after the NYC comptroller's office had rejected it due to an ongoing federal investigation.

Neither has the PEP voted down a contract since de Blasio took office, to my knowledge. Even the outrageously inflated $635 million contract for Custom Computer Specialists was approved 10-1, though the company had previously engaged in a corrupt kickback scheme.  Only Robert Powell, the Bronx rep, voted against it. Luckily, this contract was so outrageous and the media attention so intense that City Hall rejected it after the PEP vote.

Patrick resigned from the PEP in 2013, as neither the new Manhattan BP nor the Mayor would re-appoint him, and Robert Powell recently left the PEP as well.

Even so, we remain intent on publicizing the flaws in these contracts and in the DOE’s procurement process because not a dollar should be wasted when hundreds of thousands of NYC children are still crammed into overcrowded schools with classes of 30 or more, with the city claiming they can’t afford to do anything to address these issues.

If you want to volunteer for our Citizens Contract Oversight Committee, or have a tip to share, please email us at NYCschoolcontractwatch@gmail.com  Thanks!