Thompson Hits Mayor on Education

City Comptroller Bill Thompson slammed the mayor’s education efforts this morning at a forum on fiscal accountability at Fordham University.

According to a written version of his comments, Thompson said the Department of Education “is in the midst of its third reorganization in five years. As you know, I am the chief investment advisor to the New York City pension funds. We would identify a company that had gone through three fundamental reorganizations in five years as a high-risk investment.”

He also said that after all those reorganizations, he had found “no evidence that any savings had made its way into the classrooms of the City.”

And also: “We found less than 60 percent of the savings they claimed. Where did the money go? The DOE suggested we simply didn’t understand their budget. This from a group of people who had overspent their budget by approximately $156 million in Fiscal Year 2004 alone.”

Thompson’s full remarks are after the jump.

– Azi Paybarah

THOMPSON DELIVERS SPEECH ON FISCAL ACCOUNTABILITY IN NYC SCHOOLS

New York City Comptroller William C. Thompson, Jr. delivered the following remarks, titled “Fiscal Accountability in the Public Schools,” at Fordham University’s Graduate School of Education today:

Good morning, and thank you, Dean Hennessy, for that kind introduction. I want to express my appreciation to you and your colleagues at the Fordham Graduate School of Education for bringing together both educators and elected officials in New York to discuss fiscal accountability in our public schools.

While we grapple with the details of the third reorganization of our public school system in five years…and as we prepare to see a significant increase in education funding…it is imperative that we understand clearly where our precious education dollars are being spent.

This is a subject of great concern to me, not only as a New Yorker…but because among my duties as the City’s Chief Financial officer, I am charged with promoting transparency and accountability in the fiscal management of our City.

I am responsible for enforcing many of the regulations designed to encourage fair and open competition through my audits of City agencies and my office’s role in registering City Contracts.

It’s more than just my job; I believe in competition….Competition helps protect the integrity of the contracting process and ensures that the City gets the best price for the highest quality work.

Under the tenure of this Department of Education, the use of non-competitive bids has soared out of proportion. In the year 2001, there were a total of 38 no-bid contracts, valued at nearly $15 million.

By the end of 2002, after the Board of Ed was transformed into the Department of Education, the number of those contracts doubled to 76, with a total value of over $47 million. In 2003, the number of no-bid contracts expanded to 94, with a total value of nearly $45 million.

As a direct result of pressure brought by my office, that figure was cut nearly in half the following year and has hovered at around $25 million over the past two years.

And you know…I really have to wonder how much higher it would be if it were not for my office’s stubborn vigilance and scrutiny. Much is made at Tweed about accountability, yet it often seems that they don’t wish to be held accountable themselves.

How did we get to this point? The answer to that question relates directly to the subject of today’s topic of fiscal accountability. The New York City Department of Education currently follows no formal rules when procuring goods and services, in great contrast to the stringent requirements of other New York State and New York City agencies.

Moreover, in spite of continued criticism, the DOE refuses to adopt a set of formal procurement rules similar to those followed by every other City agency – a process that is open and transparent…and subject to public comment and accountability.

Contracts at all other City agencies are subject to the Procurement Policy Board, or PPB, Rules. The PPB, comprised of three representatives of the Mayor and two representatives of my office, takes a deliberative approach to developing policies under which the City procures contracts.

There is discussion, debate, and an open forum through which the public can comment. There is in the end a public vote. This is a process that, while not always perfect, is at least transparent.

By contrast, the Law Department and the Schools Chancellor have decided that DOE contracts need not follow the same procurement rules as other agencies.

Since the Board of Education became the Department of Education, it has exploited a grey area in the law, one that allows it to treat itself as a State agency whenever it is convenient to do so, and then as a City agency when it is likewise convenient. That is neither good government nor good public policy.

I want to describe for you just a few of the questionable contracts that have been approved by the DOE as a result of this approach. As most of you know, during my first term, I reviewed the Department of Education’s awarding of an exclusive contract to the Snapple Beverage Group for vending machines in New York City schools.

My contract investigators initially suspected – and our auditors later conclusively found – that during the “procurement” process there were minimal solicitation efforts, an inadequate request for proposals package, and a defective bid evaluation and selection process.

All of these findings reflected violations of the Department of Education’s own written policies for awarding a professional service contract.

Nevertheless, at that time, the Department asserted that it did not need to follow its own written guidelines. It also made the bizarre claim that its procedures could be informally changed, and even retroactively, if they so chose.

In another recent case, as you know, the Department of Education entered into a no-bid contract with the firm of Alvarez and Marsal, ostensibly to find places to cut costs in the DOE budget.

A&M is charging Tweed a whopping $16 million for those services, including almost five hundred dollars an hour for one employee. This individual will cost the City of New York $1.9 million dollars for seventeen months of work.

The Department argues that the savings discovered by this consultant will make up for his exorbitant salary. But there is a disturbing irony here, namely that a consultant hired to eliminate waste is being paid almost six times the statutory salary of the Mayor. Of course, A&M’s role in the recent bus routing fiasco is now well-known.

Initiated halfway through the school year, the bus route changes recommended by A&M led to widespread confusion, inconveniencing, and potentially imperiling, thousands of school children and their parents.

The bus route disaster revealed the risk we take in following the advice of outside experts who don’t understand our school system. It also underscored the fundamental problem of the original decision to hire A&M without a competitive bidding process.

Sadly, there are other examples of problematic contracts, which go directly to oversight and management of the contract itself. For instance, the City hired the company Platform Learning to tutor New York City school kids under two consecutive contracts totaling $7.6 million spanning the years 2003 to 2008.

Incredibly, for Platform’s services through September of 2006, the company ended up earning in excess of $62 million – almost nine times the amount in their contract. And the contract still has two more years to go.

The DOE provided very weak oversight for the work performed by the company, a fact that is especially disturbing in light of findings by the City’s special commissioner of investigation that the firm used enticements like gift certificates and tickets for sporting events to persuade local schools to use their services.

So imagine my amazement when my office received a letter from the Chancellor’s office last month that stated – and I quote – “the fact that the estimated value of these contracts has been exceeded is irrelevant.” With that statement, the department abdicates its responsibility to follow procedures that ensure reliable financial reporting.

In the wake of our efforts to call attention to the Department of Education’s sloppy contracting process, I met with Department to propose changes to their procurement procedures.

To be fair to the DOE, a few of our recommendations were followed. For example, the Department now discloses on its web site, and in the City Record, the contracts that are being proposed outside of the competitive bidding process.

At our suggestion, the DOE also now includes a statement that it is willing to look at other contractors who wish to be considered, and includes names of individuals to contact and dates by which the contact should be made.

In one recent case where we learned in the City Record of the Department’s intention to award a no-bid contract to the firm KPMG, we asked the department to reconsider that decision, which they have done. However, the department must have clear rules it is required to follow. To date, it has refused to promulgate such rules.

When we first brought the issue of no-bid contracts to light, as I mentioned at the top of my remarks, the value of these contracts had tripled from $15 million in 2001 to $45 million in 2003.

In May 2004, I recommended State legislation to make the Department subject to the same procurement rules as every other City agency. Rather than pass a new law, elected officials in Albany encouraged the DOE to work in good faith with my office to resolve the problem voluntarily.

Despite the best efforts of my office, in the past two years the DOE has processed approximately $25 million each year outside of the competitive bidding process.

The sheer size of those exceptions shows that it’s time to reconsider State legislation. We are pushing for a new bill in Albany to make the New York City DOE transparent and accountable once and for all.

New Yorkers have a right to expect that the billions they pay in taxes are being spent through an identifiable, documented and fair process.

This problem goes to the heart of the challenge now confronting the City Department of Education, which as I noted above, is in the midst of its third reorganization in five years.

As you know I am the chief investment advisor to the New York City pension funds. We would identify a company that had gone through three fundamental reorganizations in five years as a high risk investment.

The people of New York City have a right to expect better fiscal management from those who run our educational system. They also have a reason to be cynical about claims that the new reorganization will lead to savings and improvements.

In response to the Chancellor’s claims that they had saved the City $250 million between 2002 and 2004 and redirected that money into the classroom, my office conducted a review in which we could document only $140 million in savings during that period, and that’s being generous.

We further found no evidence that any savings had made its way into the classrooms of the City. Despite the addition of math and literacy coaches, we found a net loss of 2,023 teachers during this time frame. We were provided with no documentation by the Department to verify spending on a core curriculum and some 8 million books.

We found less than 60 percent of the savings they claimed. Where did the money go? The DOE suggested we simply didn’t understand their budget. This from a group of people who had overspent their budget by approximately $156 million in Fiscal Year 2004 alone.

I would add that since our review, the Department’s accounting procedures have not noticeably improved. Despite our initial attempt to work with Tweed to correct the problems we cited, the DOE has shown little interest in continuing those efforts.

As many of you know, the budgets of City agencies are subdivided into Units of Appropriation, or U of A’s. The more U of A’s, the more transparency and the more accountable an agency must be in its spending priorities.

As I testified before the City Council last week, the Department of Education is particularly opaque. It has one U of A that is $5.1 billion – larger than the entire budgets of most City agencies.

At a time when Tweed is demanding more accountability from our superintendents, our principals and our teachers, we are demanding accountability from them.

Tweed is fond of invoking the idea of a corporate model. Yet, when a company provides poor or negligent service to its customers, the management team responsible for damages and the loss in confidence is held accountable.

Mistreated consumers have the right to demand their money back. Unfortunately, parents and students do not.

In the wake of corporate scandals in recent years, American companies are held to a higher level of accountability than ever before. CEO’s are both ethically and legally required to guarantee to shareholders that their books are accurate. Why should our Department of Ed be held to a different standard?

The record I have laid out today suggests that the Department has a lot of work to do. They must earn our confidence by embracing a more transparent, responsible, and coherent style of fiscal management.

The CFE case clearly established that we have no money to waste in the effort to bring a sound education to every child in New York City.

A tough and renewed focus on fiscal accountability in the management of our public schools is the first and best place to begin in charting a new course in our quest to provide students with a truly sound education. Simply put, accountability begins at the top.

I hope my comments this morning have been constructive as we confront this critically important issue. Once again, I want to thank Dean Hennessy and the Fordham Graduate School of Education for giving us a forum to discuss and debate this topic.

Thank you very much.