A Maximus Postscript

Hidden Conflicts of Rudy's Welfare Team

On December 28, 2001—just three days before the end of Rudy Giuliani's reign at City Hall—officials at the Human Resources Administration received a potentially explosive report regarding one of its key private contractors.

The seven-page memo from the city's Department of Investigation was a kind of blast from the past, dealing with issues that were supposed to have been disposed of more than a year before—conflict of interest allegations regarding the agency's commissioner, Jason Turner, and Maximus, Inc., the huge Virginia-based government services company that was awarded the lion's share of the city's welfare privatization work.

An appellate court panel had ruled in October 2000 that the allegations presented to it weren't enough to block the contracts, thus handing a major victory to Giuliani over then city comptroller Alan Hevesi, who had complained that the Maximus deal was fraught with favoritism.

But the DOI memo showed that even as the court was ruling, federal and city investigators were finding additional information that confirmed many of Hevesi's charges.

Along with other law enforcement reports obtained by the Voice about the Giuliani-era welfare contracts, the memo depicts a dramatically different picture of events involving Turner, Maximus, and its partner, former Giuliani aide Richard Schwartz, than the scenario described by the judges who found "no evidence of favoritism."

According to the DOI report, there were strong indications that Maximus employees did get, as Hevesi had alleged, advance information about the shape and scope of new city welfare programs ahead of other competitors.

Citing "internal Maximus records," the report stated that there was evidence suggesting that a Maximus consultant who was also working at HRA relayed information obtained from meetings with Turner to help Maximus draft its proposals.

But the most disturbing aspect of the DOI report was a new allegation that was never made public—until now.

Investigators discovered a previously undisclosed financial tie between Turner and Maximus, according to the report. The problem was serious enough to jeopardize federal funding for the contracts, investigators wrote. They were right. Months later, after city officials wrestled with the findings, Maximus was eased out of its city deals. Sources said the probe may also have cost Turner a high-profile job in Washington.

The conflict, in brief, was this: A top Maximus manager, while negotiating with Turner in early 1999 for city business, had simultaneously agreed to provide financial backing for a $50,000-a-year education contract with Milwaukee's public schools won by Turner's wife, Angela.

The Milwaukee project was rooted in the same conservative philosophy that guided the welfare-to-work schemes that had made Turner a national figure when he headed Wisconsin's workfare program. It called for the Center for Self Sufficiency—a for-profit company founded and owned by Turner and later headed by his wife—to provide counseling on sex abstinence to students in Milwaukee's schools. The contract required, however, that matching funds be contributed by a third party. Investigators learned that after being approached by Angela Turner about participating, Maximus had pledged to contribute up to $60,000 over a two- to three-year period, the report said.

The new finding was even more problematic because the Maximus aide who spoke to Angela Turner about the project was George Leutermann, at the time a vice president and head of the company's welfare reform division. Leutermann had already publicly acknowledged another embarrassing episode involving the Turners, whom he had known for years from welfare and job programs in Wisconsin: After a separate talk with Angela Turner, he had hired her father as a Maximus consultant. This too occurred at the same time he was negotiating with Jason Turner in New York.

The report indicates that Maximus and Turner dodged a bullet in regard to that event. Two Maximus employees initially told investigators that Leutermann had hired Turner's father-in-law "to curry favor with the Turners during the time Maximus was seeking contracts with HRA," the report said. But one of the employees later backed off that statement, and Leutermann and Maximus insisted there was no connection.

That hiring had been cited by Hevesi as a telling example of the kind of favoritism that he said permeated the $104 million in contracts awarded to Maximus by HRA under Turner. It became a prime exhibit in a battle that raged for months during 2000 between Hevesi and Giuliani. Offering a welter of reasons, Hevesi refused to register the contracts.

In addition to obtaining special access to Turner, Hevesi charged, Maximus had an added edge because of its alliance with Schwartz, Giuliani's former senior adviser and the man who had shaped the administration's welfare policies. After leaving City Hall in 1997, Schwartz had started a new for-profit firm, Opportunity America, to help place welfare recipients in jobs. Schwartz won work with government and private businesses and later also enlisted to work with Maximus on its HRA contracts. His share of the contracts was expected to be worth about $30 million, records showed.

Following Hevesi's complaints, both Manhattan federal prosecutors and the district attorney opened probes into the matter. Meanwhile, Giuliani sued to force Hevesi to sign off on the deals.

Hevesi won the first round, a supreme court ruling in his favor. But that was quickly upended by the appellate court decision, which said there was insufficient evidence of cronyism to hold the contracts up.

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