Oh rats.
On March 23, Wendell Walters plead guilty to two counts of racketeering and bribery. As the assistant commissioner for development at the city’s Department of Housing Preservation and Development, he oversaw billions of dollars in city contracts to build and repair the city’s vast stock of private affordable housing. The projects only grew over the past decade as Mayor Bloomberg launched a program to create or rehabilitate some 165,000 units of affordable housing.
During that time, the kickbacks to Walters also grew, totaling some $2.5 million over the course of a decade involving at least 10 different affordable housing developers in the city. Some payments were made in coffee cups, others in thick envelopes stuffed into Walters’ golf bag as he and the builders took in a round of golf. Among the gifts received was a brownstone on 139th Street in Harlem, free renovations to the townhouse and a honeymoon in Greece.
When he was arrested last October, Walters was paraded in front of the Brooklyn Federal Court House. Like so many perps, he was caught by surprise and still wearing his morning clothes, a black fleece pullover and black sweatpants. Tall and handsome with a shaven head, the 49-year-old Walters looked shocked, embarrassed, dismayed.
So was Matthew Wambua. Appointed exactly a year and two days before Walters’ plea deal, the new commissioner of HPD looks remarkably like his former colleague—trim, tall, of clean pate. He has spent a good deal of his term trying to clean up after Walters, implementing new measures to bring transparency and accountability to his agency. With an an annual budget of more than $1 billion, HPD touts itself as the largest municipal housing agency in the country.
“I will be the first one to tell you we are not perfect—far from it,” Mr. Wambua said during a recent interview in his office overlooking the on-ramp to the Brooklyn Bridge. “But we take these matters extremely seriously and are working everyday to address them.”
But the actions of Walters and other bad actors at the agency and at its work sites has brought considerable scrutiny to HPD. It has led to exposés and editorials, hearings and harangues. The most significant consequence so far is a new bill at the City Council, Intro 730. Known as the HPD Transparency Act, the bill requires the department to make public a number of its operational procedures. Sunshine is the best disinfect.
It might also be a disaster for the department. As currently constituted, the bill would impose millions of dollars in costs on the agency and, more significantly, the firms that do the building for it. The big dog developers would have limited problems covering these costs—though it would still eat into the funds available for building new affordable housing projects—but the smaller firms, the new businesses and the women- and minority-owned firms, argue they could not afford the onerous wage reporting requirements within the bill.
“We’re about housing, but we’re also about economic development, about lifting up the community,” Mr. Wambua said of his agency. “We’re building housing in the community, and, as much as possible, we’re building it with firms from the community, we’re building it with workers from the community.”
This may become less and less the case. The bill passed the council in July, but the mayor vetoed it the following month. Today, the council is expected to override the veto, and it will go into effect on January 1.
When that happens, housing insiders fear it could open HPD up to renewed attacks from labor unions, as they interrogate the books of the department and its contractors and developers, looking for any opportunity to score political points and, more importantly, win work. The unions have never much bothered with affordable housing jobs. The work is neither very technical or sexy. But as a recession that has eviscerated the industry drags on, any job is a good one.
This may help explain why some of the city’s biggest construction union groups, including the Building and Construction Trades Council, the District Council of Carpenters and the Mason Tenders District Council, helped to conceive and deliver Intro 730 at the council. “Doesn’t it seem strange to you that unions that have never had any involvement with HPD have suddenly taken such a keen interest in it?” one affordable housing expert said. “And not just the legislation, but almost every news account, where there is a complaint about HPD, there is a union rep there doing the complaining.”
Indeed.
“Somebody has to have the courage to stand up, blow up HPD and rebuild the way we do affordable housing,” said Richard Weiss, communications director for the Mason Tender’s District Council. He was referring to mayoral candidates, but he just as soon could have been talking about his guys.
There are three pieces to Intro 730. The first requires HPD to post on its website the standards it uses in selecting contractors who are pre-qualified to do jobs with the department, as well as what firms have been qualified and those who have been disqualified for a myriad of issues, from bad work to bad wages. The second requires the department to list all of its projects on a quarterly basis, who is working on the project, how much subsidy it is receiving, any problems with the project and so on.
HPD has already taken steps to comply with these parts of the law, putting the information online with the plans to update it on a regular basis, though not every quarter, as currently requested by the council. As for the issue of responsible actors the bill is meant to target and root out, the department launched its Enhanced Contractor Review Procedure earlier this year. It has since identified 11 contractors who either had issues with construction quality or wage issues. They undergo increased monitoring of their work, though HPD also stresses that they are not immediately 86’d, because mistakes happen and everyone deserves a second chance.
“It’s not like we want to work with bad contractors, they’re just as bad for us as everybody else,” Mr. Wambua said. “They hurt our bottom line and our work. And we are working to root them out.”
It is the third prong of Intro 730 that HPD and its partners take issue with. It requires all contractors on the department’s jobs to file detailed wage reports for every employee on a job. This includes not only how much money is paid to every worker but also a job description, details about the work performed, what jobs are being worked on when and so forth. Despite language in the bill to suggest otherwise, this goes beyond the level of reporting required by the State Department of Labor, requiring detailed accounting from both the department and its contractors.
It is the complexity of affordable housing that makes this especially challenging. On each of the hundreds of job sites around the city, a contractor hires subcontractors to address each part of the project—demolitions, foundations, plumbing, heating, ductwork, and so on. In turn, these subcontractors may bring on additional subcontractors to assist them with different parts of their work, to speed things up. Three different subs may be used to hang drywall, and then they might hire two additional subs among them to do half that work part of the time if they need assistance.
This is done to encourage local hiring, a mandate of HPD, to keep costs down and to speed up work. For a contractor to gather up all this information would require at least one dedicated full-time accountant, constantly monitoring the wages on a site from day to day. It is a cost many of the smaller firms fear they would be able to afford.
“I’m barely competitive with my bigger peers,” Karim Huston, principal of the Genesis Companies said. “Any added costs, and I won’t be able to compete.”
According to the New York State Association for Affordable Housing, an industry group known as NYSAFAH, the new requirements could add some $40 million in costs to the field of affordable housing in the city. With 200 to 250 jobs going on a year, wage monitoring would cost about $150,000 per job, with the addition of some to track them at $50,000. “And we think that is a conservative estimate,” Alison Badgett, NYSAFAH’s executive director said. HPD predicts it would cost the department an additional $2 million a year to collect and store all this data through the hiring of new staff and the implementation of a system to track it.
The fact is, this level of reporting approaches that required for union jobs. On some of its more complex projects, known as prevailing wage jobs, HPD actually does do this level of accounting, but both the department and the contractors get additional funding from the federal government to do the work, which accounts for less than 20 percent of all HPD jobs.
Critics of the department, and particularly the labor unions, argue that a lack of reporting allows contractors to take advantage of the workers on their site. “Look, why would they be fighting this so hard if they weren’t trying to hide something,” Mr. Weiss said. “These guys are trying to cheat the system, and they’re not going to get away with it any more.”
It seems possible that as the wage requirements get closer to that of the unions, the bigger contractors may decide it is easier to simply work with them than deal with the problems of doing non-union work and then potentially being hassled by the unions, which have a history of picketing sites they find unsuitable to their standards. Think of all the inflatable rats that have been deployed across the city over the years
This is one of the greater fears of the wage reporting requirements within the bill. There is no clear explanation of what the information will be used for or even why the council wants it. The belief among the affordable housing industry is that it will allow the unions to dig through the documents looking for firms who have made reporting errors—even a simple mathematical mistake can get a firm put on a list of disqualified firms, also a new provision of the bill that would bar them from working with HPD in the future.
Even for developers and contractors willing to spare the expense of compiling all the necessary wage statistics, the threat of having your work stalled and even being disbarred from working with HPD almost makes it not worth the trouble. Especially when working with a unionized shop would simply solve that problem. But is it really worth it to give in?
Former Comptroller Bill Thompson, who is running for mayor next year, believes the idea is to complicate matters for everyone but the unions. “It just doesn’t make sense why you would want to add additional red tape, especially during difficult financial times,” he said in an interview. “Why add to that burden at this time?”
There are two cardinal arguments for excluding unions from affordable housing. One is that it will cost more. Union labor generally costs a 30 percent premium over non-union jobs. This means either fewer projects are built or building the same number costs more money. HPD insists that it is not seeking to underpay anyone, but simply the jobs are less technical, and even more problematically, union work rules make it hard to hire all the subs to get the projects done in the time frame required. “When we are spending public funds, we ought to get the best value for our money,” Mr. Wambua said.
The other issue is diversity. “I want people on these sites who look like me,” Mr. Wambua said. “Frankly, the unions do not have a good habit of hiring locally, of hiring minorities, of hiring women. I see that as as much a part of my mission as building affordable housing, to help these people find work and get jobs.”
The unions argue from the other side. Better wages are better for workers, and their workers provide a level of quality not found on non-union jobs. (Mr. Weiss also bridled at the notion that his workers were not from the community. “At least 50 percent of my guys are minorities,” he said.)
This issue of quality has been the underlying argument for the bill. A number of developments have been revealed to have suffered from poor craftsmanship, particularly some associated with the Wendel Walters schemes. There are particularly problems with a number of home-ownership projects. Owners have had problems with leaky roofs and cracked foundations, issues that have gotten considerable play in the press. But they only account for some 598 units. That is 11 percent of all home-ownership developments (though it happens to be largely contained to three troubled developments), but also less than 1 percent of the 141,000 units HPD has developed over the past decade.
The unions argue that wage reporting will help put a stop to such construction problems. “Bringing transparency to projects that receive enormous sums of public funds and tax breaks will promote better housing construction, safety and economic opportunity for tenants, taxpayers and workers,” Building and Construction Trades Council president Gary LaBarbera said. But so far no one has explained how knowing whether a guy gets paid $12 and hour rather than $13 an hour to hang sheet rock will ensure better construction.
“We’re the ones who have to fix these mistakes, so it is an issue for us,” Mr. Weiss said. The question is, are things really as bad at HPD as he and his union buddies insist, or are they capitalizing on a few bad actors, like Wendell Walters, to win entree to billions of dollars in construction jobs.
“The whole place is corrupt,” Mr. Weiss insisted.
In July, the council voted unanimously for Intro 730, but reservations persist about the wage reporting issues. A number of council members spoke about the potential for adversely affecting minority and women owned businesses, but they voted for it anyway. After all, Council Speaker (and mayoral hopeful) Christine Quinn strongly supports the bill, and the unions play a critical role in city elections.
“These are not people you want to cross, especially with the elections coming up next year,” one City Hall source said.
In a statement, Speaker Quinn dismissed complaints about the bill: “It’s preposterous to suggest that requiring developers to report payroll information that they’re already required by law to collect and keep would hurt small businesses. The Council voted unanimously to bring transparency to how taxpayer dollars are spent on affordable housing. We will override the mayor’s veto on Monday.”
HPD maintains that the reporting standards go beyond those required by law, nor would they somehow ensure quality work is done. When asked about this, a spokeswoman for the Ms. Quinn only said that more transparency would lead to more accountability.
So is this transparency for transparency’s sake? The mayor has already said he may challenge the bill in court if it becomes law. In the meantime, the little guys are scrambling.
“I guess we could try and partner up with some other guys and muddle through,” Mr. Huston said. “But you have to wonder what’s in it for them? And what’s in it for me if I’m not the one calling the shots anymore.”
Matt is The Observer's real estate editor. Follow Matt on Twitter or via RSS. mchaban@observer.com
