Up two steps and through a discreet side door of an apartment building in Washington Heights, is a small, now-controversial non-profit group with a handful of employees and desks scattered with bilingual brochures.
The Upper Manhattan Council Assisting Neighbors, which claims to be one of a small number of groups in the area devoted to community service and economic revitalization, essentially is squeezed into three rooms, including one bathroom. The space is occupied by eight full-time employees and eight part-time workers -- some of whom were huddled around a chair readying a mail campaign on a recent morning.
But now, the council, otherwise known as UCAN, is looking not only to expand its programs, but also its digs. And they are doing it, in part, with tax dollars.
UCAN received a $2 million appropriation from the City Council last year to purchase and renovate a larger space that will host its offices, the area's only art gallery and a small theater, said the group's executive director, Hector Santana. While the group's relationship with Councilmember Miguel Martinez and the councilmember's sister, who recently resigned from the organization's board, has drawn extensive criticism, they claim their commitment to the community is a public service and worthy of public funding.
"The project will fulfill an unmet need," said Santana. "The city does what it has to do to ensure that dollars are spent appropriately."
Similar causes touted by other nonprofit groups have also caught the attention of the City Council.
Last year alone, the City Council appropriated nearly $160 million -- almost a third of its capital dollars -- to nonprofit or private groups that are looking to renovate, purchase or acquire not public property, but private. These line items, which were directed to more than 200 nonprofit groups in 2007, were allocated as the Bloomberg administration and the City Council committed to freezing capital funding for new projects. During that same time period, the administration and the City Council revisited rules outlining what groups could be eligible and what groups were ineligible for such funds.
While an extensive backlog and review by the Bloomberg administration and the City Council may mean that a lot of those projects may never come to fruition, the capital budget allocations represent a trend by the council to dole out taxpayer dollars to community organizations, just like it does with its expense budget. And like the council's discretionary funds, which members hand out for programs and initiatives and are the subject of two ongoing investigations, conflicts of interest and questionable connections between legislators and these groups continue to prevail -- especially because its capital budget is complicated and clandestine.
Santana's Range Rover rumbled down Broadway in the Heights, making a straight shot to the group's prospective new location. Across from the lush Fort Tyron Park, a large, vacant building owned by Acadia Realty Trust, will house a New York Police Department precinct, offices for the city's Department of Housing, Preservation and Development, UCAN and more all in one building, Santana said.
The building curves around the intersection of Broadway and Sherman Avenue, and Santana points to a small storefront surrounded by bits of graffiti, which the group hopes to call home.
UCAN's project, which will include interior renovations to transform the area into a bustling community center, will cost about $5 million, which includes $2 million from the City Council and another $2 million from the administration, said Santana. If the project’s approval moves forward, the city will end up covering the majority of the project's cost.
Unlike the council's discretionary funds, which until recently received little scrutiny from the council, capital funding, both city officials and non-profit leaders say, gets a much closer examination. Even though UCAN's connections with Martinez have been questioned -- the group started receiving city money once the councilmember's sister joined the board in 2005 -- Santana argues receiving capital funding is a far more intense and arduous process. This, some say, would make it practically immune from the type of impropriety or corruption that recently mired the council's discretionary expense funds.
But that doesn’t mean capital dollars do not raise questions.
For years, the city has doled out dollars to non-profit groups for public facilities that are not public. The more than 200 projects earmarked in the council's fiscal year 2008 capital budget were labeled as "construction or acquisition of a non-city owned public betterment." Appropriations ranged from $22,000 for camera equipment to $3 million for new construction or building acquisition. (Capital funding is allocated specifically for property or equipment, and is not given out for programs or initiatives.)
While the council's estimated $500 million capital budget primarily goes to public housing, education or recreation facilities, approximately 30 percent of it was slated for buildings the city did not own, according to a review by Gotham Gazette.
Because the city froze funding for new non-profit projects in 2007 while it reviewed guidelines for this type of funding, there could have been even more of such projects in previous years when members faced fewer restrictions on how they could allocate the money .
For years the council's member items -- expenses doled out for specific programs at a member's discretion -- have been released in a large document called Schedule C. While the council's capital budget is printed and given out the day the budget is passed, it is far more confusing and far less transparent. For example, you cannot receive an electronic copy of this inch-thick, 212-page document. Apparently, no one has one.
In last year’s council capital budget, informally known as ResoA, appropriations are unclear. For instance, one line item labeled “Education, Misc.” is not earmarked for any group. A council spokesperson said that $2.5 million there is for members to cover education projects’ shortfalls throughout the year. This appears similar to "holding codes" found in the council's expense budget, which included funding given to programs in the middle of the fiscal year . That practice came under question during the council's budget scandal earlier this year and has since been discontinued.
Other projects do not have descriptions at all, such as a $1 million earmark for the SAFE Foundation, a drug treatment and counseling center in Brooklyn. That allocation, an inquiry to the organization found, is for a building renovation.
Some of these projects have already been rescinded and found not eligible for funding, like $500,000 for Mosquito Spraying -- which was both the group name and description of an allocation.
Like the council’s expense budget, the capital budget also offers opportunities to curry favor with members’ communities – or dole out favors to friends, family or former staff.
Several organizations in the capital budget, including UCAN, have been targeted as groups with close ties to particular members.
In last year’s capital budget, LIBRE, a group run by Councilmember Hiram Monserrate’s former staff, was allocated $500,000 for a community center building. Allegations have linked LIBRE to the council member's campaign for State Senate. Elsewhere, the Northeast Bronx Redevelopment Corp., which has ties to Councilmember Larry Seabrook, was allocated $1.25 million for a “intergenerational center.” The Village Voice has reported that city officials froze funding for the group in 2006 because they couldn't figure out where the money was going. For years, the group operated at the same address where the councilman has his district office, according to the paper.
Beyond ties to the groups themselves, some council members said the city’s capital funding, like its expense funding, can be given out more generously to certain members who are in leadership positions, have seniority or are close to the City Council speaker.
Councilmember Vincent Gentile, who joined the body in 2003, received $4.15 million in capital funding for groups in his Bay Ridge district, compared to Councilmember John Liu, who is chairman of the Transportation Committee and received $6 million. Liu said he was always “competing” for more as well.
Some members refused to disclose how much funding they received last year for fear it would be less than what others may have received -- a so-called indication of their success or failure at bringing home the bacon for their districts. Several members said even they are not informed about the overall budget. Schedule C -- the tally of member items -- lists which council member requested what item. ResoA does not. Members know what projects are theirs, but have no clue what projects were funded by their colleagues, borough delegations or the speaker.
This year, though, that will change. Come June 30 – the deadline for a budget approval – names will appear next to individual projects in the capital budget, revealing who got what. A similar initiative was rolled out last year for the council’s discretionary expense items, and Councilmember David Weprin, chairman of the Finance Committee, was dubbed the "King of Pork".
Before 2007, there were relatively few criteria for the distribution of capital funding to city nonprofits -- despite the large amount of money. As a result, just because a group received an appropriation in the council capital budget, did not guarantee it funding. In fact, groups, including UCAN, never see a dime until the project is done, the paperwork is signed and they receive a certificate of occupancy to move in.
That process, according to city officials, was, and may continue to be, arduous and complicated. Because few standards existed in the council, problems often arose when a city agency took over the contracting and approval of a project. According to a 2007 memorandum of understanding between the administration and the City Council, "significant legal questions" had emerged over the funding of such projects -- from religious affiliations to the feasibility of the proposal.
With all of this confusion and backlog, in May 2007 the city called it quits -- sort of. It froze the funding for new projects and drafted guidelines that would apply to any new capital funding allocation for a building not owned by the city. But that didn't stop the council from giving almost a third of its capital budget to these projects last year. The agreement between the administration and the council included exemptions for projects already in the works and for housing preservation, cultural institutions and projects for which there was a significant public need .
The Bloomberg administration and council staff created a task force to review the criteria for the funding of capital projects on private property, and it announced guidelines in March. The guidelines will take effect in the coming fiscal year.
The guidelines will try to weed out some of the legal issues cited by the Law Department, like questions of religious affiliation or the funding of private schools. Non-profits now will have to privately fund at least 50 percent of a project if the total cost exceeds $2 million, and they must already have a record of service with the city. Under the new agreement, City Council members, the city’s Office of Management and Budget, and the Law Department will all review projects to ensure their legitimacy.
City officials say much of the scrutiny is justified.
"I think the paperwork involved is very onerous, but perhaps necessarily so to make sure that all the t’s are crossed and the I’s are dotted so that taxpayer money is going to the right purpose," said Liu.
Such oversight, some believe, can prevent the difficulties that have arisen over the member items. Corruption in the capital budget is "less likely because the agency looks in some detail at exactly what the public dollars are paying for," said Councilmember David Yassky. "I think part of the problem with the expense funding is the agencies that disperse the funds don’t look in any detail at the services that the funding is being used for."
Some nonprofits, though, have taken issue with the city's objections for their capital funding. Although they understand why oversight is necessary, they see the city as putting too many roadblocks in the way of worthy projects.
For example, a source said the Law Department has raised objections to funding organizations that house Alcoholics Anonymous meetings because the 12-step program includes giving oneself over to a higher being. This apparently raised the issue of city funds being used for religious purposes.
Some council members claim even small capital items, like a handicapped accessible van for a local senior center, get held up in the process, no matter how badly they are needed.
And sometimes, projects are just abandoned entirely. Councilmember Jimmy Vacca of the Bronx had requested and appropriated $1.5 million to the Northeast Bronx Senior Center last year for a new facility. Currently, Vacca said, the center is hosted in a church basement that is not handicap accessible. Now, Vacca said it is unlikely the project will ever go forward, because it would be on private property.
"Many times when council members seek to fund projects on non-city owned land it has become a bureaucratic situation that cannot be ironed out," said Vacca. "The roadblock is that the city is telling us they want capital money used on city owned land."
Every council member interviewed for this story said allocating capital funding for non-profit facilities was legitimate and served the city . Some, like Councilmember Simcha Felder, said they would like to see the city increase the funds. "It's about time the city woke up and smelled the coffee," Felder said. "It should be increased every year."
Small, poorly staffed institutions may have the most trouble navigating the bureaucratic system of capital funding.
At the other end of the specturm, the Kaufman Center, a music and arts oriented non-profit with two schools -- one public -- and a renowned theater has not run into roadblocks – at least yet.
As a dozen children circumnavigate hand-painted trees, singing and giggling as they prepare for a choral concert that evening, the Kaufman Center’s executive director, Lydia Kontos, wandered through its recently renovated space. She points to a piano and nearly floor to ceiling windows, where students, both public and private, practice their musical abilities.
The $15.5 million project received $1 million from the city for classroom and studio space. While it has not received the funding yet, the center is confident it will see the city’s contribution eventually.
"It would be foolish to say $1 million doesn’t matter,” said Kontos. “It’s not like our tongues are hanging out."
Smaller non-profits that received funding in the past, though, fear new regulations will hinder their abilities to acquire city help in the future. The East Williamsburg Valley Industrial Development Corp. received a $1.5 million appropriation last year to acquire industrial space and keep it for affordable manufacturing. In an area being taken over by luxury condominiums, the appropriation from Councilmembers Yassky and Diana Reyna would help keep jobs in the community, said executive director Leah Archibald.
Because the group is relatively small, Archibald said it is unlikely they will be able to repeat similar projects. They would not be able to finance 50 percent, she said.
The new criteria could, some nonprofit leaders say, detract from the initial purpose of funding these types of projects, which was to mobilize and energize smaller groups who needed public backing.
Under the new guidelines, the community center, theater and art gallery envisioned by UCAN would not meet city requirements for funding. The Kaufman's Center multi-million dollar renovation, though, still would.
For two weeks, advocates and organizations have flocked to City Hall's steps to make their final pleas for funding. Instead of debating what new initiatives or programs to fund, some officials in this time of morose economic predictions are simply trying to hold on to what they have.
Tough times call for tough choices, said several city commissioners this week. Not every program or nonprofit will see the same funding in 2009 as in 2008 (If you want to learn how to get a hold of city funding, try our new game: The Budget Maze).
"This wasn't a good year for new needs funding," said Department of Parks and Recreation Commissioner Adrian Benepe at a budget hearing on Thursday. "For every dollar we spend, there is probably $5 you could spend on additional projects."
Some experts, though, say this pessimism remains unwarranted. Last week, the city's Independent Budget Office came out with an analysis of the mayor's executive budget, which was more upbeat than predictions elsewhere.
Its conclusion: The fiscal picture is brighter than expected, at least in the near future. While the office recognizes budget deficits loom for 2011 and 2012, the city could come out of the next two years relatively unscathed.
Given that analysis, some groups may argue for spending increases, especially in education, or immunity from cuts for particular departments. Others warn that the city should tread carefully, given Wall Street's volatility and the approaching threat of job losses.
Earlier this month, Mayor Michael Bloomberg revealed a plan for fiscal year 2009 that halted increases in city spending and cut about $1.3 billion. He called the economic forecasts "scary" and urged New Yorkers to pray for Wall Street's speedy recovery.
Now, the Independent Budget Office sees a slightly different economic forecast. Though its report predicts job losses at nearly 60,000 over the next year, it also sees $1.2 billion more in tax revenue than the administration's predictions for 2010 and a $4.6 billion budget surplus by this fiscal year's end.
This outlook may not be entirely optimistic when compared to recent years, but it is slightly more upbeat than the mayor's projections earlier this spring. "The mayor needs to be appropriately cautious, but with the benefit of a few more weeks of information, we put out projections that we think are as accurate as we can be," said Doug Turetsky of the Independent Budget Office.
The Independent Budget Office also came out with rosier revenue projections than the mayor's office following the release of the preliminary budget earlier this year. In its executive budget, the administration revised earlier predictions, increasing those revenue projections.
Caution is still key to some officials and watchdogs. As befits his reputation for "prudence," Bloomberg often releases gloomier than expected economic predictions that tend to brighten as the fiscal year moves forward. Whether a political tactic -- as some observers claim -- or an economic one, it can keep city spending tighter.
"The mayor's job is to be more conservative," said Councilmember David Weprin, who heads the Finance Committee. "The Office of Management and Budget is often very conservative with the hope that things get better. I don't think that's unusual."
Whether the administration's projection is overly pessimistic is not the only item up for debate. While the city's education funding has monopolized the spotlight (see related story) other areas of city funding have drawn the attention of some officials and advocates.
Weprin is particularly disappointed at the administration's failure to streamline funding for some City Council priorities, like education, the Administration for Children's Services, sanitation pickup in the outer boroughs and libraries. During good times, he added, the administration and the council had an agreement to end the budget dance -- a process where the mayor cuts funding with the expectation that the council will restore it. Now it seems that agreement is over.
"Frankly, it's a little disturbing, because these baseline items are not huge items in the overall budget," said Weprin. "We're back to the budget dance."
During a hearing on the Metropolitan Transportation Authority's capital budget, officials said the economic climate was forcing the authority to reevaluate its priorities, from subway station upgrades to major projects like the Second Avenue Subway, according to a press release from Councilmember John Liu.
Council members also have questioned the impact of program cuts, inlcuding those within the parks department, which is facing a decrease of $17.2 million from fiscal year 2008. That budget also did not restore the council's playground associates initiative, which funds full-time employees to oversee the city's playgrounds. Advocates and council members questioned whether this cut would threaten quality, maintenance and safety at the city's public parks.
"The city's parks, once the most celebrated and unprecedented public works program in the nation, have become dumping grounds and havens for drug use, prostitution, the homeless and criminal activity," said Geoffrey Croft, the president of NYC Park Advocates, in a prepared statement at Thursday's hearing. "Their maintenance and safety have plummeted under the weight of crippling budget cuts."
Despite recent cuts, said Benepe, the department's capital budget has doubled in the last five years.
The administration and the City Council have until the end of June to approve a budget agreement -- a proposal that now reaches toward $60 billion. That's 35 days and counting.
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One of the first official responses to the New York City Council's use of phantom non-profit organizations in its budget process came from City Comptroller Bill Thompson. He sent a letter to Council Speaker Christine Quinn outlining a number of actions he will take. They included his own review of council discretionary funds and an independent audit of the council's discretionary fund budget process.
His stated aim: to "strengthen budget transparency and help restore trust and confidence to our city's residents." Others might see a political motive at work as well since both Quinn and Thompson are likely candidates for mayor in 2009.
The dubious budget process at the council had apparently gone on for some years, so it is natural to wonder why the comptroller's office -- or other city offices, including the mayor's -- failed to notice the problems first reported in New York Post and under investigation by the U.S. attorney. The scandal, then, is not simply embarrassing for the council, but raises fundamental questions about how well fiscal and managerial oversight works in this city.
The city comptroller's audit role is clear enough and his work is readily accessible on his Web site. His office provides two key summaries of its auditing work, a city-charter mandated yearly report, which gives an overview of audits during the previous fiscal year, and a convenient listing of all audits during the most recent calendar year.
There were 69 audits in calendar 2007 alone, and they reveal any number of financial and managerial problems: in mayoral agencies, at the City Council and in for-profit and non-profit agencies that receive funding or other assistance from the city. But a review, over time, of some of the issues raised by these audits makes it clear that while the comptroller's findings may identify problems, they do not necessarily solve them.
The annual report, in particular, shows how many audited public and private agencies apparently minimize or simply ignore the audit findings. The New York Yankees, for instance, have made a habit over more than 10 years of ignoring audits and repeatedly trying (unsuccessfully, thanks to the audits) to shortchange the city on their rent payments.
Interestingly, a September 2007 comptroller audit of City Council budget procedures anticipated some of the problems now generating such a furor. The audit of the City Council's $14.3 million other-than-personal service (OTPS), or non-personnel, expenditures, for instance, shows that the council "did not comply with the City Charter, [contracting] rules, comptroller directives..., and its own purchasing procedures when making OTPS purchases."
The council paid approximately $1.67 million for printing, almost all of which went to only five vendors. The charter and contract rules state that any purchases over $5,000 must be competitively bid, but the council broke up its purchases from the five vendors into units under the $5,000 threshold to circumvent the bidding rules. In a separate finding, the speaker's own Central Office violated its rules as well as city contracting rules in not obtaining bids on its own expenditures.
The bulk of the comptroller's audits are focused mayoral agencies, through which most of the city's $60 billion budget flows. One of Thompson's most sweeping findings during his tenure covers several mayoral agencies (including parks, economic development, and Information Technology and Telecommunications) that manage franchise, concession, license, and lease agreements granted to private organizations. A recent summary audit notes, "Between January 1, 2002 [as Thompson took office] and June 30, 2006, the Audit Bureaus have completed 41 audits of [such] entities....These audits resulted in the assessment of [$23.8 million] in additional revenue due the city."
One of Thompson's first audits, released on May 30, 2002, went further back and reviewed the city's agreement with the New York Yankees, overseen by the parks department. During the four years, 1997 through 2000, the Yankees paid $18.8 million in rent to the city, but because they overstated rental credits (they can deduct these valid maintenance costs from the rent due the city) and underreported revenues, the Yankees owed the city $367,000.
Years later, the Yankees were still overstating their rent credits: over $1 million in 2002, and approximately $400,000 in each of calendar years 2004 and 2006. Invalid claims for credit for certain labor expenses showed up three times in 2007/2008 quarterly audits, even though they were specifically prohibited by the parks department in 1996. (From 1997 to 2000, the Yankees went so far as to not count as revenues -- although they already had the money -- "rain-check" tickets that were never redeemed when games were canceled and rescheduled.)
Overall, from fiscal years 2002 through 2007 the comptroller has conducted 578 audits and special reports that have generated a total of $211 million in actual and potential revenues and savings.
A review of recent audits of other mayoral agencies shows some of the difficulties in getting agency managers to resolve identified problems. The audits also serve as a useful complement to the mayor's own management reports, which tend to focus more on lists of performance indicators than discussions of management issues.
For instance, the comptroller issued a report last summer on the Department of Youth and Community Development's monitoring of one of the council's favorite programs, the Beacon Centers, an after-school program. The June 2007 audit found that the agency "is not adequately providing oversight and monitoring of Beacon Program contractors." The program represented 13.5 percent of the youth department's approximately $307 million operating budget.
The problems at the department included weaknesses in program record-keeping, including measuring outcomes. The audit notes that in 2003, the department contracted with an outside vendor to "design an agency-wide outcome measurement and tracking program," but the contractor failed to perform and the contract was canceled. At the end of the auditing period, in 2006, the agency still had not adopted a system.
The auditors' work is not without drama. Tussles with Department of Education staff provide an unusually vivid example of how difficult auditing can be. For instance, a June 2007, 54-page
audit of special education management found that the department "is not monitoring, tracking or documenting the provision of [special education] services in an effective manner, as shown by documentation that is incomplete, inaccurate or lacking altogether."
In all audits, the subject has the opportunity to respond to the initial findings. Education officials objected both to the auditors' methodology and their findings. For their part, the auditors said, "We strongly disagree with DOE officials' arguments about our methodology, which appear to be self serving and correspondingly misleading."
Auditors' prose tends to be dry and technical, but the education department's response apparently touched a nerve, because the audit report goes on: "DOE's methodology is a transparent attempt to reinvent this audit in terms that obscure DOE's inability to monitor and track the provision of services through a reliable and consistent system of documentation."
It continues: "It appears that DOE paid no attention to the numerous and various items of correspondence detailing our requests and communicating our audit results. We can only conclude that our expectation of DOE's good faith at the outset of the audit was misplaced."
A more recent audit of the department's operations, a March 2008 follow-up audit of expenditures within its Regional Operations Center for Regions 6 and 7, was less contested, but illustrates that even a follow-up doesn't resolve problems. The basic issues involved following rules on contracting and purchasing. The follow-up audit looked at how well seven recommendations in a May 2005 audit were carried out in fiscal year 2006.
The new audit determined that three recommendations were implemented, but that the other four were only partially implemented. Moreover, the audit identified three new issues, including the centers not following rules on certification of purchase deliveries. Then, further complicating resolution of the original issues, the audit notes that the regional offices were dismantled in July 2007, and oversight was transferred to another office.
The one other follow-up audit released this calendar year is a January 2008 report on Department of Homeless Services controls over computer equipment. A June 30, 2003, audit had found "widespread problems with [the department's] inventory controls over computer equipment. .... [It] could not account for $1,640,180 of the $1,841,015 in computer equipment purchases." Homeless Services countered that it had accounted for all but 325 purchases with a value of $333,003 by the end of that initial audit.
The follow-up audit acknowledged the department had implemented two of three recommendations but also noted that "major weaknesses still exist in DHS inventory-management process. Moreover, the inventory management procedures do not fully address Department of Investigation inventory standards." In addition, the audit found several new problems in the implementation of a software package purchased in 2002 to automate the computer inventory process, including a failure to use the system "to its fullest capacity."
The comptroller's audit function is invaluable in preserving the city's fiscal integrity, but even a short review of recent audits makes it clear that more oversight of the city's budget process is needed. A case could certainly be made for expanding the comptroller's auditing staff. But the mayor and council could also do much more.
A case could also be made for a charter review of the roles played by all the actors in the budget process. In a city with such a powerful mayor, the most important countervailing institution on fiscal integrity -- the comptroller -- has limited powers. The audits demonstrate that the comptroller works in a political as much as a fiscal world. Mayoral agencies and council offices are not always cooperative. Audit findings do not necessarily bring about change. Friction exists between the auditors and the agencies they review.
City Councilmember David Yassky, who hopes to replace the term-limited Thompson in 2010, in fact, said in an April 29
New York Post op-ed on the council funds scandal that he had "often felt there is an unspoken bargain between Mayor Bloomberg and the council: We get complete discretion to allocate some $100 million worth of 'earmarks'; in return, the rest of the mayor's $59 billion budget sails through without significant changes."
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â