City Journal

Eugene Kontorovich
Why New York Can’t Build Schools
New York City spends $1 billion a year trying to get schools built and repaired, with little result. Reason: the School Construction Authority can’t do the job. Time to privatize.
Spring 1998

New York City’s schools are in a crazy catch-22. Here they are, bursting at the seams and crumbling down around pupils’ ears: photos of debris-strewn classrooms and teachers lecturing to kids in converted bathrooms fill the papers every week. And yet, despite ample funds, the Board of Education can’t get schools built or fixed. While some trace the problem back to the city’s 1975 fiscal crisis, 23 years later the city enjoys a budget surplus and spends close to $1 billion yearly to build and repair its schools, so that excuse rings false. What’s going on?

There’s a culprit for the city’s ongoing failure: the New York City School Construction Authority. The legislature created the SCA in 1988 to assume the duties of the Board of Ed’s Division of School Facilities, which had completely failed in its mission of building high-quality schools efficiently and fixing them when they needed repair. Ten years later, it’s clear that the SCA has been a disaster, too. While the authority improved slightly on the board’s track record, that’s faint praise, since the board needed eight to ten years to build a school, and organized crime dominated its construction projects. An agency as well funded as the SCA—it has already spent $6.4 billion and will spend another $1.1 billion this year—should have a lot to show for itself, and it doesn’t. By any performance measure—the number of schools built, the cost and quality of construction, timeliness in opening—the SCA flunks.

From the outset, the SCA couldn’t do anything right: its first five-year plan gave it $4.3 billion to build more than 50 schools, but nearing the end of its second five-year plan, it has built only 48. It is invariably late with new schools, three-year delays being routine, and repairs never seem to get done. "I spent the summer of 1996 screaming because the SCA was delivering unfinished buildings," says Harry Spence, an SCA trustee and Deputy Schools Chancellor for Operations. Brooklyn’s P.S. 22 is sadly typical. Having an initial completion date of March 1993, the school finally opened in September 1996, though no one could get the agency to explain the three year lag. To turn from the typical to the extreme: the authority won’t complete its reconstruction of Brooklyn’s historic Erasmus Hall High School until 1999, six years late and $70 million over budget. "I was very distressed by the laissez-faire approach to schedules and lack of concern about timeliness," Spence adds, with some understatement.

As for the schools that do get built, cracked floors, slanted walls, and temperamental heating are common. P.S. 20 in Queens promptly sank into the landfill the SCA built it on, delaying its opening three years; P.S. 43—the infamous floating school—flooded with 400,000 gallons of seawater. Repairs don’t go any better: in 1996, investigators found that a majority of recently renovated schools suffered serious flaws. In Manhattan’s P.S. 158, SCA "repairs" left behind broken intercoms, a new air-conditioning system that refused to work, and floors with missing tiles. In George Washington High School, a leaky ceiling has collapsed three times over the past four years.

The SCA has also ignored one of the big problems it was created to solve. When the agency took over from the Board of Education, the public was angry that ancient, manually stoked coal furnaces still provided heat for one of every three city schools. Years later, coal trucks continue to rumble up to more than 250 of the city’s 1,100 schools, as worried parents discovered last February when more than 70 students succumbed to anthracite vapors leaking from an open coal furnace at P.S. 127.

In January, a horrible accident threw the agency’s failures into sharp relief, when falling bricks from an SCA construction project at P.S. 131 in Borough Park killed 16-year-old Yan Zhen Zhao and seriously injured ten-year-old Barbara Drozdics. The tragedy didn’t surprise SCA watchers: a mayoral report two years ago grimly concluded: "Falling bricks are a system-wide problem." But that makes falling bricks sound like corroding pipes, an unfortunate, but natural, phenomenon. In fact, Espo Contractors, hired by the SCA to repair the school’s roof, intentionally used bricks to hold down a tarpaulin, despite strong warnings from safety experts. And on a large-scale construction site like this one, sidewalk sheds should protect passersby, as an SCA inspector told Espo months before the accident, to no avail. Zhao’s death resulted from the "laziness and not paying attention" of SCA inspectors and project managers, according to Richard Sklar, whose construction firm, O’Brien and Kritzberg, helped organize the authority and served as its official inspectors until 1996. "It’s pure carelessness—some guy ought to be hung," he says angrily. (A grand jury has just charged Espo and one of its supervisors with manslaughter.)

Several outside inspectors have taken the SCA to task for lax safety, but the authority invariably shrugs off such criticism. A 1994 study by the Senate Committee on Investigations deemed the authority’s projects "unsafe," and a mayoral commission warned in 1996 that "imminent calamity is at our door." Yet the SCA flatly denies the charges, or, on the rare occasions when it admits a mistake, claims to have addressed it promptly. But auditors question those claims—with good reason. Most recently, inspecting 150 work sites after the P.S. 131 accident, safety inspectors discovered 38 violations at 29 of them, including nine where contractors did exterior work without sidewalk sheds.

To understand what’s wrong with the SCA—and how New York can get high-quality schools built—go back for a moment to the authority’s hope-filled birth in 1988. Schools that were monuments of civic confidence and shrines to learning—Erasmus Hall in Brooklyn, say, whose grand Gothic quadrangle opened in 1896, or Manhattan’s Wadleigh High School, with its magnificent bell tower and ornately molded cornices—had long since fallen into disrepair, their grandeur as forgotten as separate entrances for boys and girls. The Board of Ed’s Division of School Facilities drew fire for what the legislature called "the deplorable condition" of city schools. And the legislature was right: the board’s lack of accountability, complex collective-bargaining agreements, and imprisonment in a straitjacket of laws governing public authorities—laws that controlled every aspect of contracting—made the division a complete bust at building and maintaining city schools.

The solution, the legislature reasoned, was to form a new agency, free from the shackles that hampered its predecessor. A little tinkering with the public authorities laws plus better management and—voilà!—you’d have an efficient, independent authority, with hardworking, accountable employees. Or so people thought. "Now, provided with first-class leadership, it has the powers to press school construction projects to prompt completion," raved Assemblyman Mark Allen Siegel in a New York Times op-ed in the SCA’s first months. We’d expect such unmeasured enthusiasm from Siegel, one of the SCA’s co-sponsors. But even Senator Roy Goodman, later one of the authority’s most indefatigable foes, fell under its spell, exclaiming that the SCA charter was "the most important single bill I’ve had the pleasure of being associated with in my 20 years in government."

But from the beginning, the transfer of responsibility for school construction from the Board of Ed to the authority was a distinction without a difference. The SCA legislation addressed none of the weaknesses of public development. The authority was new in name only.

When legislators created the SCA, they claimed the Wicks Law wouldn’t apply to it, and even today SCA defenders say the agency escapes its provisions. Wicks, a 77-year-old piece of legislation originally designed to fight cronyism in the awarding of public construction contracts but now kept alive because it is a union gravy train, requires public agencies to award four separate contracts: to the plumbers; the electricians; the heating, ventilation, and air-conditioning contractors; and the construction firm that will actually put up the roof and walls—for every project costing more than $50,000. The agency becomes the general contractor, responsible for coordinating the work of the subcontractors.

Wicks increases public construction expenses by some 30 percent, because of the inefficiencies it creates. When a private-sector general contractor oversees a project, he forces the subcontractors to make the lowest possible bid, he disciplines them, he browbeats them to do the project on time and to coordinate their work with one another. He decides how to put together its various parts most efficiently—and might do a lot of the work himself. "Every company makes its own rules," says Dale Hemmerdinger, president of ATCO Properties and Management. "If it has a good electrician on the payroll, the general contractor will handle electrical work in-house. Otherwise it can subcontract work out." Not only does flexibility lead to greater efficiency; it helps keep union demands in check. If a union drives too hard a bargain, most general contractors will just say, take a hike—we’ll do it ourselves. Since public agencies make remarkably poor general contractors, the four separate union subcontractors can usually get away with murder.

By the late eighties, despite vigorous union support for the Wicks Law, the legislature had grown aware of its pernicious effects, which cost the state an estimated $500 million a year. Often, public works would suffer interminable delays as site managers waited for an authority-contracted plumber or electrician to show up. "Wicks has increased construction costs and delays as city officials, supervising plumbers’ and electricians’ schedules, try to keep the contracting jigsaw puzzle together," complained Assemblyman Siegel in 1988. "[It] remains the only obstacle to repairing the city’s crumbling schools."

Excitement soared when the SCA charter exempted the agency from Wicks. But the unions had fought hard to keep their Wicks privileges, and they laughed last. When scrutinized, the fine print of the SCA charter revealed that, while the SCA could now hire a general contractor, that contractor still had to award at least three separate subcontracts to the various trades. All the exemption achieved was to move inefficiency from the authority to the general contractor it hired. But the trick worked: years later, newspapers still refer to the SCA’s "Wicks exemption." Predictably, coordination problems—plastering done before roof repairs, a computer lab sitting idle for months because a security system still hadn’t been installed—plague SCA projects and make costs balloon.

The Public Authorities Law compounds the problem further. The law stipulates that the SCA, to avoid corruption, must award, with few exceptions, contracts to the lowest bidder, unless that bidder has connections with organized crime. But this seemingly sensible requirement makes less sense when looked at more closely. The lowest bidder doesn’t always end up doing the work as cheaply as he promised, or else he may do a shoddy job, as private contractors well know. Private contractors, who know the reputations of various subcontractors and know which will do good work for the right price, can reward good work with more business or refuse to use a poor subcontractor again. With public bids, though, an agency has almost no discretion over its next contract. Even if a contractor let it down before, the agency must prove it did such a bad job that it should be excluded from future bids, a time-consuming and often fruitless task.

The Public Authorities Law further hinders the SCA by demanding that it maintain a separate office to funnel subcontracting work to "Locally Based Enterprises" and "Minority/Women-Based Enterprises." And as further protection for unions, the law forces the SCA to ensure that subcontractors pay prevailing union wages, so that nonunion outfits can’t underbid union subcontractors, and it obligates the agency to steer business to firms that "maintain harmonious labor relations"—that is, that don’t use such hardball tactics against unions as lockouts or strikebreakers. Since each contracting qualification needs enforcing, the authority will be busy checking out a contractor’s wage scale or the number of minorities he employs instead of making sure bricks don’t fall on little girls’ heads.

When the SCA came into being, Meyer Frucher, a Democratic insider who helped negotiate the agency’s charter and then became Governor Cuomo’s first appointee to its three-man board of trustees, understood clearly that changing the rigid civil service and union work rules culture was critical to the SCA’s success. But the SCA’s charter subverted that goal from the outset. The legislature staffed the new agency with all the Board of Ed’s school construction personnel who didn’t choose early retirement.

This move, Frucher admits, "was a straight union payoff." Legislators cut a deal in which District Council 37, which represents board bureaucrats, would agree to the transfer of school construction to the SCA—if no Board of Ed employees lost jobs. About 150 bureaucrats just picked up and moved from Brooklyn to their new offices in Queens. These were the very employees who had bungled so badly that lawmakers had to create the SCA to do their work. Yet instead of getting pink slips, they became charter employees of the new agency—some coming in with 40 percent raises. Frucher tried to negotiate down the number of jobs collective bargaining covered, but the transplanted apparat took root and flourished in its new home.

In fact, collective bargaining and civil service rules became even more entrenched and now cover approximately two-thirds of the SCA’s 765 positions. "Titles were slowly added to collective bargaining, and it became much tougher to move, let alone remove, people," a former SCA executive says. Today, most of the SCA’s construction managers—the officials charged with ensuring that work proceeds safely—receive the protection of collective-bargaining agreements, making them largely unaccountable. No matter how SCA employees perform, it is exceedingly difficult to reward them for excellence or fire them for shirking.

When the legislature created the SCA, the Board’s Division of School Facilities didn’t close down, so bureaucratic confusion and buck-passing flourish. The division still writes the SCA’s five-year plans, setting its budget and telling it what to build, and it still has responsibility for routine school maintenance. Each agency aggressively guards its turf and, if something goes wrong, blames the other. Since the SCA does repairs while the division’s custodians do maintenance, confusion is inevitable: it’s hard to say where one jurisdiction ends and the other begins.

The Erasmus Hall fiasco perfectly illustrates the endemic buck-passing. When board architects surveyed the nearly century-old school in 1985, they estimated it would cost $22 million to renovate it. But they didn’t notice the rotting metal supports for the terra-cotta facade, so, when the SCA did its own survey between 1990 and 1992, it estimated renovations would cost $62 million. This estimate was still $30 million short, since the SCA didn’t notice that Erasmus’s Gothic towers were collapsing. The SCA was five years into the renovation of Erasmus Hall before it finally got a fix on the building’s condition. But instead of accepting responsibility, the SCA just blamed the board.

The SCA is indiscriminate about where it passes the buck. At Erasmus Hall, for example, the agency and the Fire Department blamed one another for placing holding rooms designed to protect handicapped people during a fire in a dangerous place, where they might not escape. The authority is equally energetic in fighting to keep other agencies off its turf. After the SCA had dragged its feet for years, a 1996 bond act gave the New York State Power Authority $125 million to replace coal boilers throughout the state’s schools, most of them in the city. But the SCA refused to issue the permit that would allow the rival authority to do the work, fiercely guarding its right to carry out repairs—though it still didn’t remove the boilers. Only when the Power Authority let SCA personnel oversee the actual construction work did the SCA relent—over a year later. The SCA cynically held children’s health hostage to ensure a monopoly over a job it had shown no inclination to do. As Meyer Frucher observes, "School construction is New York’s Bosnia."

It’s often said that a strong leader can make all the difference at a public authority through sheer force of will. When the SCA’s first president, Major General Charles Williams, a veteran of the Army Corps of Engineers, assumed office, newspapers hailed him as a savior. "The general has quickly established a reputation for a kind of spit-and-polish  discipline and for wresting command of construction from the bureaucrats," gushed a New York Times profile in May 1990. "Not a single job is behind schedule, he says, and several are ahead of schedule."

Hardly. With a $4.3 billion agency under him, Williams developed almost overnight the imperious habits of a big bureaucratic boss. Trustees first got nervous when he sought to install an executive gym, private bathroom, and study—for himself. When trustees shot down this scheme, the general still installed bulletproof windows in his office, though scores of schools had windows with rotting frames. Williams greatly exaggerated the progress and grossly understated the cost of the SCA’s construction projects, misrepresentations that eventually caught up with him. Just over two years after he took command of the SCA, nearly a year before his contract ended, the authority’s three unpaid trustees forced the general out.

The idea that a single forceful personality can fix the SCA dies hard. When architect Martin Raab became SCA president in November 1996, excitement again ran high. Here was a man with 40 years of private-sector experience. A few months later Raab, too, was out, and the SCA had its third president in less than three years, Milo Riverso. Changes at the top of a fossilized system mean little.

It is instructive to see just how the SCA’s defects translate into cost overruns, faulty work, and drop-dead indifference. Start with design. Its key is meticulous detail, for an unscrupulous contractor can use design ambiguities to take unwarranted shortcuts or force "change orders," those emendations of a contract that always cost much more than if the same work had been part of the original deal. The in-house design team, one of Gotham’s largest, drafts most of the SCA’s designs, but its architects produce inferior work and regularly fail to detect errors made by firms they contract with for those designs they don’t do themselves. "Designs would go out incomplete, so the contractor had room to fudge," recalls former outside inspector of the SCA Richard Sklar. "The SCA was getting screwed on the change orders." During a project at P.S. 152, design problems required 59 change orders, accounting for $1.2 million of the $57 million renovation cost. Every former SCA official I interviewed—even those who defend the agency’s performance—agreed: junking the design department would be a boon.

Perry Sandler, principal of P.S. 145 in Queens, discovered firsthand how lax SCA’s designs could be three years ago. The agency had renovated the school over summer vacation and had installed a $300,000 wheelchair ramp that ended up directly under a basketball hoop in the gym. "A kid who went to do a layup would wind up on the wheelchair ramp," Sandler told me. "At that point I went ballistic—this was done by an architect who just didn’t know what a gym was supposed to do." Just as galling, Sandler adds, the contractor never questioned the SCA designer’s judgment, prompting Sandler to say, charitably, "The workmen must never have seen a basketball game before." The unfazed SCA justified the ramp’s bizarre location: after all, it was in the plans, bureaucrats said.

The agency brings the same fecklessness to supervising the actual building or repair of schools. "Construction is a very simple, mundane, penny-pinching business," says Dale Hemmerdinger. "It doesn’t take a rocket scientist, but it requires a lot of attention to detail. You have to have someone who cares that the job comes out on time and on budget." SCA officials, protected from rewards and punishments by civil service rules, collective-bargaining agreements, and bureaucratic buck-passing, have no incentive to care, and they usually don’t. When he acted as watchdog, Richard Sklar couldn’t get SCA officials to bargain with contractors: "The mentality of the public employees was not to be tough on contractors," he says. Often, too, project managers don’t know the business well enough to keep contractors from outsmarting them. They frequently approve excessive change orders and accept delays, while failing to ensure quality and safety.

How easy is it to bilk the SCA? Just ask GNA Paint and Construction. In 1995, the authority hired the company to paint classrooms. GNA got paid by the square foot—so it inflated square footage. Since paint jobs that go higher than 12 feet above the ground require expensive scaffolding, the contractor added a few inches to the real height and billed at the scaffolding rate, though no scaffolding ever went up. Amazingly, GNA got away with this obvious rip-off until a disgruntled painter blew the whistle. Comptroller H. Carl McCall’s 1996 audit revealed that this lack of supervision was no fluke: in 85 percent of the negotiated change orders he looked at, the SCA made no effort to discover the reasonableness of the contractor’s estimate.

The SCA can’t even save money when it sets fixed-fee contracts, since it just disregards them, to its own disadvantage. The agency hired a firm to supervise building at West Queens High School, agreeing to pay a fixed $588,000 fee. But the SCA later signed follow-up agreements, giving the company an extra $233,000 for performing services agreed to in the first contract. Reason: the firm claimed higher payroll costs—so the SCA gave it a bonus for either hiring more people or paying its workers more money to do the same job. The company not only had no reason to keep costs down, it had incentives to maximize them, since the SCA was footing the bill.

SCA rules dictate that a project officer evaluate a contractor’s work before the agency makes its final payment, but in 93.5 percent of audited projects no final quality-control evaluation took place. In other words, the SCA doesn’t care if the job gets done right. This failure to evaluate affects not just current projects but also future ones, for inferior work doesn’t stop contractors from getting rehired. The SCA once gave an $18.7 million contract to a firm that drew complaints from three of the four schools where it had worked. But even when the agency does catch shoddy work, the law’s requirement to award contracts to the lowest bidder makes it hard to ban substandard contractors from future work. Several times, the SCA gave new contracts to firms whose work the agency itself rated unsatisfactory. Since quality costs money for a contractor, such perverse incentives invite poor-quality work.

It’s hard not to sense an almost arrogant indifference on the SCA’s part to its customers—the school principals and, ultimately, the taxpayers. The authority doesn’t ask for input or feedback from principals and superintendents, who complain that they don’t even know how to contact the SCA when they encounter delays, poor workmanship, or mistaken designs. In this spirit, the SCA bestowed an industrial-arts classroom on P.S. 217 that it then had to redesign, because the school doesn’t teach industrial arts.

Even a journalist soon runs into the SCA’s arrogant indifference. I asked Deborah Perry, Senior Manager for Government-Community Relations, how much the SCA spends and how long it takes to build a school. She didn’t know and didn’t want to find out. I persisted: how many schools has the SCA built? How many are you working on? Unembarrassed, Perry admitted she "didn’t know off the top of my head." When she called the next day, she still had no answers. "Complying with your request was not as efficient in terms of my time and energy as I thought," she explained.

The SCA’s indifference seems limitless. In 1994, it told state senate investigators that it had completed repairs at ten Brooklyn schools, but when the investigators contacted the schools, they discovered repairs hadn’t even begun at three and remained incomplete at a fourth. Worse still, the 1994 audit by the comptroller’s office discovered that of the thousands of minor capital-improvement projects the Board of Ed turned over to the SCA in 1991 and 1992, the agency had no record of 17 percent of them. In other words, it just misplaced, forgot, or threw away 17 percent of its business.

The SCA builds too few schools for too much money, wastes tax dollars wantonly, and treats its customers, from principals to the public, with disdainful arrogance. Is it surprising, then, that ten years since it took over from the Board of Education, frustration mounts? "People say, get rid of the SCA," Deputy Chancellor Spence told me. "Well, what the hell is going to replace it?"

Not another public agency, that’s for sure. If there’s one thing we can learn from the SCA’s debacle, it’s that transferring responsibilities from one government agency to another accomplishes nothing. That’s why Assembly Speaker Sheldon Silver’s call for a state commissioner to monitor the SCA is without merit, too. After all, it’s not which agency or level of government takes care of school construction, but what rules and incentives guide it. The SCA’s liabilities—the Wicks Law, bidding restrictions, collective-bargaining agreements, and the bureaucratic blame game—will find no internal cure without radical legislation from Albany. But that’s highly unlikely, given the special interests involved: "I’d love it if the SCA wasn’t under civil service rules and collective bargaining," Spence says. "As a matter of political feasibility—it’s extraordinarily slim."

An alternative exists. Private firms can do everything the SCA does, so why hold the city captive to this one agency? Instead, the Board of Education could use the so-called turnkey model of public contracting. The board would offer the SCA’s role to a private developer for a set number of years. The developer would want to do good work, since exit clauses would allow the board to fire him easily. If he did well, the board would renew the contract. The board would give the developer a list of what needed doing, but he’d hire the designers, builders, and other workers as he saw fit. After the schools got built, he would turn over the key to the board—hence: the expression, "turnkey." This private-sector alternative has already been successful in New York, since the Division of School Facilities uses it for leasing buildings, saving 50 percent over the SCA’s costs, despite a major bogus-billing scandal two years ago. And Niagara Falls’s Board of Ed recently hired Honeywell, Inc. to coordinate construction of a new school, so the idea may be catching on.

A common objection to privatizing any public contracting operation is that it would invite corruption. Certainly, the SCA’s inspector general has been successful at fighting mob influence, blacklisting potential contractors who have even a whiff of Cosa Nostra about them. Crime runs deep in the construction industry, but while the SCA has had occasional cases of kickbacks and bid rigging, graft is rare in its operations. The anticorruption effort comes with a high price, though. The SCA employs a garrison of crime fighters, including more than 50 full-time investigators and prosecutors who work directly for the inspector general and 15 prosecutors on call from the attorney general’s office, adding up to about 8 percent of administrative overhead.

Is blacklisting the most effective means to eliminate corruption? A large body of research says no. A developer shouldn’t care if a contractor’s cousin is a wise guy; he can avoid being swindled through careful supervision. Private developers don’t hire people who’ve cheated them in the past, and they supervise contractors to make sure they don’t get cheated in the present.

Another obstacle to privatizing school construction is that the legislature may well handcuff private contractors who take over that responsibility with many of the same restrictions that bind the SCA. As Spence warns, "You would go into the legislature with a good clean model, and they would layer it with so many protections for the unions and building trades. The legislature would hand you back junk." Reformers who seek privatization will have to watch carefully to make sure they get the right kind of privatization.

"It’s about time we run a competition for school construction," Spence says. "Let’s see what the private sector can do without the encumbrance of 7,000 restrictions." After a decade of the SCA’s dereliction, that sure makes sense.

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