Published in the Star-Ledger, Sunday, November 13, 2005 [seems to be incomplete]
Blueprint for a $6 billion boondoggle
Sunday, November 13, 2005
BY DUNSTAN McNICHOL AND STEVE CHAMBERS
It was a raucous ovation bestowed upon the guest of honor in the summer of 2003 at a Passaic County banquet packed with 1,000 union electrical workers.
On the dais, Gov. James E. McGreevey basked in the cheers, reminding the crowd of his promise to get the unions a cut of a $6 billion urban school construction program, the biggest capital construction undertaking in state history.
The happy union workers were not the only ones with cause to rejoice. Campaign contributors, party loyalists and key political constituencies all stood to benefit from the building bonanza.
But the state's promise of more than 500 new or rebuilt schools turned out to be a hollow one. Kids in trailers and cramped, decrepit school buildings have found themselves shortchanged as the money set aside to rebuild their schools disappeared in an unregulated flood of waste, mismanagement and political favors.
Now nearly broke, with less than a quarter of the needed schools built, the state's Schools Construction Corp. has been such a dismal failure that its very future is in doubt.
To understand how the state could spend so much money with so little to show for it, The Star-Ledger reviewed hundreds of documents and interviewed more than 50 people involved with the program. Among the findings:
McGreevey, who resigned in August 2004 after admitting to a extramarital gay affair with a member of his Cabinet, has made few public statements since leaving office and refused to discuss his role with the SCC. Many others who served in his administration were reluctant to be quoted about what has become an embarrassing episode for Democrats.
But Mark Lohbauer, a Republican who helped write the legislation that created the program in 2000 and was among its first employees, called the initiative's unraveling a bitter disappointment.
"We all felt this was a significant piece of legislation," said Lohbauer, now a private consultant. "'And now it's something shameful."
GETTING STARTEDIn the summer of 2000, Caren Franzini, the longtime head of New Jersey's Economic Development Authority, was handed the reins of a court-ordered initiative -- approved by a Republican-controlled Legislature -- to replace or refurbish hundreds of aging schools in the state's poorest 30 districts.
Edward Neafsey, an assistant state attorney general who had been designated watchdog for the school building program, gave her a report to read: "Corruption in the New York City School System."
The black-bound compendium described how New York's school building program had been infiltrated by organized crime and dishonest contractors.
"I read it and I was scared out of my mind," Franzini recalled in a recent interview.
"(Neafsey) said, 'This is what we're going to avoid in the state of New Jersey,'" Franzini said. "'We need to put the processes in place before you start any of your work.'"
That caution led to thousands of background checks on contractors, a stringent oversight that weeded out undesirable companies but nearly paralyzed the project in the process.
During the first full year, the agency rejected 93 percent of the architecture and construction bids it received, losing the entire 2001 summer construction season. In the second year, the EDA solicited bids for $340 million worth of repair work, but rejected all bidders more than half the time.
The slow start offered McGreevey, making his second try for governor, an opportunity. On the campaign trail in 2001, he hammered Republicans for delays and vowed repeatedly to unions and urban audiences that change was coming.
Once elected, McGreevey moved quickly to keep his promise.
The new governor created the Schools Construction Corp. within months of taking office in January 2002 and hired a hard-knuckled veteran of the construction industry to run it.
Alfred McNeill, the 68-year-old retired chief executive officer of Turner Construction Co., was a no-nonsense builder with disdain for the red tape of public contracting.
Under McNeill, the SCC instituted overlapping scheduling that allowed architects to create final designs for schools before the state's departments of Education and Community Affairs had finished their reviews. It also let the state begin negotiating land purchases for schools that had not yet been approved.
Over the next 12 months, the new agency poured $1 billion into school building contracts -- eight times the amount spent in the preceding two years. The SCC also doubled the number of contracts with architects and increased 12-fold the amount spent acquiring land.
While lean budgets were forcing other state departments to trim personnel, the schools corporation went on a hiring binge. From 2002 to 2003, the agency's staff swelled from 70 to more than 200.
And projects were finally getting under way. After launching just 12 in 2002, the SCC started 67 new schools or additions in 2003.
"McGreevey wanted to get schools built as quickly as possible for the kids and so he would have something he could crow about in a re-election campaign," McNeill said in an interview.
The increased output drew rave reviews from urban school officials who had grown weary from years of inaction.
And it pleased McGreevey, who made attendance at ribbon-cuttings and groundbreakings a staple of his public appearance circuit in 2003.
But as the money rolled out the door, problems were already beginning to emerge.
POLITICSMcNeill said that when he took the SCC job, he shook hands with McGreevey and extracted a promise:
"I said, 'I'll try to get the thing set up. You keep the politics out of it. Then you can get rid of me and do what you want to do,'" he recalled.
While McNeill insists McGreevey never foisted contractors on him, he concedes he was ordered to fire Lohbauer, the SCC's director of communications and the highest-ranking Republican in the program.
The order, Lohbauer said, originated with George Norcross, a prominent South Jersey backer of McGreevey's, who had a long-standing feud with Lohbauer stemming from local Camden County politics.
"It sounds small-minded, but I guess the South Jersey machine can't abide someone who is a Republican being in a job like that," McNeill said in an interview. "It didn't make sense to me, but I guess that's how things work in a state like New Jersey."
McNeill, who said he only intended to keep the job for a year, resigned in September 2003. Less than a month later, two Democratic Party political operatives were awarded a $1.5 million contract to help the SCC improve its community outreach.
Rick Thigpen, former executive director of the Democratic State Committee, and Idida Rodriguez, a former staffer for Assemblywoman Nellie Pou (D-Passaic), won out over seven other bidders -- five of whom offered lower prices.
The pair were given the contract despite the fact the SCC already had 40 employees on staff charged with the exact same duties -- attracting minority contractors and smoothing relationships with urban mayors.
Thigpen, in an interview, defended the contract, saying he and his partner landed it fairly. But he conceded the SCC -- and its billions of dollars -- became an increasingly attractive vehicle for rewarding friends and advancing McGreevey's political agenda.
"There's no question that some people in the McGreevey administration saw that the greatest value of the Schools Construction Corporation was political, and not actually building schools," Thigpen said.
Before McGreevey took office, the schools program had issued only 11 professional consulting contracts, worth a total of $37 million. But after McGreevey took office, the program issued 90 such contracts worth a total of $438 million.
A typical series of deals took place in early 2003, when the SCC decided to hire 24 engineering firms to perform "site investigations" of properties being considered for schools.
Forty companies submitted bids for the work, which was advertised on March 20, 2003, the same day the Senate voted 34-1 to limit campaign contributions from state vendors.
By the time bids were opened three months later, companies seeking the work had contributed $246,350 to the Democratic State Committee, campaign finance reports show.
And when the winners were announced in September, the 24 companies awarded the $192 million in contracts had given $214,500 of that $246,350. The 16 firms left on the sidelines, by contrast, had contributed just $31,850.
Though McNeill and other SCC officials insist politics played no role in the awarding of contracts, one state assemblyman says it is no coincidence the most generous contributors won most of the work.
"When it was taken away from Caren Franzini, the whole thing was designed to be a political situation," said Assemblyman Joseph Malone (R-Burlington), a sponsor of the original school-building bill. "It was not designed to put schools and kids first. It was designed to put McGreevey and his re-election front and center."
The politically connected also benefited from no-bid contracts awarded in connection with the financing of the schools program, state records show.
Since 2000, the state has issued $4.7 billion in long-term bonds to pay for the schools projects, generating about $95 million in fees for attorneys, underwriters, banks and investment advisers.
Until this year, the state's bond counsel for the school work was almost exclusively the law firm of Wolff & Samson, whose partner David Samson was McGreevey's first attorney general. Through January, Wolff & Samson had earned $315,886 handling six school bond issues for the state.
The bond counsel for its last two school borrowings, in April and October this year, was DeCotiis, Fitzpatrick, Cole & Wisler. Until McGreevey resigned last year, Michael DeCotiis, a partner with the firm, was McGreevey's chief counsel, and dealt directly with the SCC.
Labor unions, which heavily backed McGreevey's campaign, also benefited.
In creating the SCC, McGreevey required the use of union laborers on any school job of more than $5 million, in exchange for the pledge not to strike. McGreevey officials insisted such arrangements -- known as Project Labor Agreements -- saved the SCC money by ensuring labor peace, but critics say they increased costs by shutting out nonunion companies.
A draft of a state Labor Department study estimates the agreements have added at least 7 1/2 percent to the cost of construction work in New Jersey -- enough money in the SCC's case to build 20 elementary schools.
"With the construction industry in a downturn around the country, the SCC was a nice buffer," Wyatt Earp, a union representative who attended the electricians meeting in Passaic County, said in a recent interview. "It brought needed projects, but it also kept our people gainfully employed."
STRUCTURALLY FLAWEDFor all its early promise, the agency McGreevey hoped would play a major role in his re-election plans was in many ways a runaway train. Reformers later brought in by acting Gov. Richard J. Codey said they were shocked to discover the SCC lacked the most basic fiscal controls.
"What we are dealing with at school construction is an organization that had virtually no financial organization, no chief financial officer, no budgeting plan," said Alfred Koeppe, the former Public Service Electric & Gas president who has chaired the SCC's board of trustees since May.
"They were essentially an organization that was task-oriented in terms of building schools without a real sense of what the budget was that would be required to build those schools," Koeppe said in an interview.
One ostensible safeguard was to hire one construction company to oversee the work of another. In theory, the system would enable the state to manage its construction work in a cost-effective manner. But in execution, the model proved flawed.
The Project Management Firms (PMFs), as they were called, were not barred from taking on construction work themselves, so a company charged with overseeing contractors on one job would find the roles reversed elsewhere.
For example, McNeill's old firm, Turner Construction, is scheduled to collect more than $35 million overseeing projects in Hudson County, where one of its subcontractors is URS Corp. URS returns the favor in South Jersey, where Turner subcontracts for URS.
As state Inspector General Mary Jane Cooper pointed out in a scathing report issued earlier this year, "PMFs are inherently conflicted."
Since the fees the PMFs earn are based on the value of work they oversee, the companies have little incentive to keep costs down. In her report, Cooper said the arrangement helped contribute to more than $540 million in cost overruns and change orders.
Other safeguards also were lacking.
Districts picked the school sites and wrote their own design criteria, based on what they deemed to be their own particular educational needs. But unlike wealthier districts, where voters are asked to approve projects, there was no mechanism for keeping costs in check.
A story in The Star-Ledger on Sunday Feb. 12 found that SCC projects were costing 45 percent more than ones built in the suburbs during the same time period.
Architects on SCC jobs collected fees almost double the industry standard, The Star-Ledger found, while PMFs hired by the state were compensated at triple the rate local officials paid construction managers.
In one instance highlighted by the inspector general, the SCC hired temporary professional staffers at pay rates triple that of state employees. The 2003 contract, canceled after just nine months, paid 17 part-time workers more than $100,000 each, including one part-timer who got $175,000, or $10,000 more than the SCC pays its chief executive officer.
Even the Legislature's most basic cost-control formula -- a maximum price per square foot -- was ignored by SCC and the Department of Education, which approves all projects. Adjusted several times for inflation, the allowable cost now stands at $149 per square foot, which also includes land and design costs.
Based on the state's formula, the new 183,257-square-foot First Avenue School in Newark should cost $27.3 million, for example. But when the SCC approved the project this summer, it earmarked $43.6 million for the job -- or $232 a square foot.
The result is far fewer new schools -- only 11 to date, according to the SCC -- than was hoped. By the time the $6 billion is gone, the agency says it will have erected 63 new buildings, made major renovations or additions to another 55 and spent more than an $800 million on emergency repairs -- still far short of what was promised.
"You can't give an insatiable monster all this money," Malone said. "It will just gobble it up and have nothing to show for it."
LAND WOESFrom the beginning, one of the S
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