By Steve Weinstein
By Devon Maloney
By Tessa Stuart
By Alison Flowers
By Albert Samaha
By Jesse Jarnow
By Eric Tsetsi
By Raillan Brooks
On December 28, 2001just three days before the end of Rudy Giuliani's reign at City Hallofficials 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 beforeconflict 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 publicuntil 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 Sufficiencya for-profit company founded and owned by Turner and later headed by his wifeto 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.
Giuliani hailed that ruling, saying it proved that politicsnot ethics or corruptionhad always been the real problem, and that Hevesi's opposition was rooted in liberal hostility to welfare reform.
The great Maximus controversy ebbed after that. The law enforcement probes closed, with no charges filed. In the midst of the mayoral campaign of 2001, Hevesi tried to revive interest when he got hold of a separate DOI memo he called "a smoking gun." That memo revealedfor the first timethat before he became commissioner, Turner had worked as a private consultant for Schwartz's company. The memo also described failures in earlier work done by Schwartz's firm, which resulted in a penalty against it. Hevesi accused Giuliani of hiding the Turner-Schwartz relationship and said the performance problems should have been enough to block the Maximus/Opportunity America deals.
Giuliani brushed those findings aside, saying Hevesi was the one who was "ethically challenged."
And there the matter rested until the December 2001 report landed with a thud on desks at HRA and, a few days later, on those at City Hall, where the new Bloomberg regime was setting up shop.
Every word in the DOI report was carefully couched. Maximus's funding of Angela Turner's Milwaukee project was described as "de minimis," meaning it didn't rise to the level of criminal activity. Nevertheless, the federal Department of Labor, which was providing almost half of the funding for the Maximus contracts, had strict rules regarding conflicts of interest. And the evidence regarding Turner and Maximus had been uncovered by the labor department's Office of the Inspector General for Labor Racketeering and Program Fraud, which had reported it to federal officials.
As commissioner, Turner was "responsible for the administration" of the Maximus contracts, the DOI report stated, hence "Turner's activities may have risen to the level of a conflict of interest, in violation of [federal regulations]." Federal labor investigators used even tougher language in a separate, sum-up report written a year later, in December 2002. "The evidence collected by [the Office of the Inspector General] supports that George Leutermann, acting in the capacity of Maximus's vice president, directly and indirectly gave Commissioner Turner, his wife and his father-in-law things of value while being provided access to HRA during the development of the [welfare-to-work] solicitations and before the contract award."
How to deal with the situation became an early headache for Bloomberg's staff. Turner at the time was trying to keep his job as welfare commissioner, and the new mayor's first step was to turn thumbs down on that request. Instead, he appointed Verna Eggleston, executive of a nonprofit group.
Under Eggleston, HRA took the next step, ordering in March 2002 that Maximus's contracts be cut from $104 million to just $16 millionwithout citing any problems with the firm.
Five months later, in October, there was a faint echo of the great Giuliani-Hevesi battle when HRA announced that it was not renewing its contracts with Maximus. A spokesperson for HRA said then that "things hadn't worked out."
Even today, HRA officials refuse to acknowledge that any punitive steps were taken against the company, saying the cuts were only part of a general reduction in welfare programs.
The only public announcement of the probe's findings was contained in a little-read semiannual report issued last year by the U.S. labor department's inspector general. "Among the potential conflicts of interest [found by its investigation] was Maximus's giving things of value to a high-level official at HRA," the report said. "After the results of the investigation were released to the City of New York, the contracts were reduced to approximately $16 million."
Today, Maximus insists its departure from New York was unrelated to the probe.
"As far as we knew, the decision was not performance related," said Rachael Rowland, a spokesperson for Maximus. "We cooperated with all the investigations that were under way, the district attorney and U.S. attorney's office. We are pleased they were closed without any criminal charges."
After all was said and done, Maximus received few of the millions it had hoped to earn here. The court battle stalled its contracts, and by the end of last year, the firm had collected about $1.4 million in total.
None of the key players in the controversy were happy to be reminded about these events, nor eager to hear about the law enforcement findings.
Leutermann retired from Maximus in 2001 at the age of 54a voluntary departure, he said. He now runs a nonprofit group in Milwaukee and lives in a suburb on Lake Michigan less than a mile from the Turners. The allegations in the reports were "all bogus," he said.
He acknowledged, however, that Maximus had chipped in for the sex abstinence program after he was approached by Angela Turner, a longtime acquaintance. "She indicated they were doing this and would we be interested in it. We bought services for the school. Programming around abstinence," he said. "I have no idea if Angela Turner made a profit from that," he added.
"This has all been over and done with for a long time. It was very confusing. My intention was to bring quality services to the city. We had no more access to Jason Turner than any other [firm] working in New York City."
Angela Turner still operates the Center for Self Sufficiency but she declined to discuss her work. "I have never received funds from Maximus," she said. "All of that [regarding the report] is completely inaccurate. At this point in time I am not prepared to go into detail. This whole matter has been closed for some time."
After former Wisconsin governor Tommy Thompson was named secretary of Health and Human Services by President Bush, there was expectation in Washington that Jason Turner would join him there in a top post. Turner had overseen welfare programs for Thompson, and his accomplishments had been heralded nationally. The appointment never came, however, and according to federal sources the Maximus controversy was part of the problem.
Turner is now a fellow at the Heritage Foundation, a conservative think tank, dealing with welfare policies. But he declined to return numerous calls to his office and messages left with his wife.
Rudy Giuliani briefly discussed the many ethics scrapes that erupted around Turner in his book, Leadership. In a section titled, "Embrace Those Who Are Attacked," Giuliani wrote, "Jason was the victim of those overly eager to find something to drive him out of city government."
The only allegation against Turner that ever stuck, the former mayor said, was a finding against him by the city's Conflicts of Interest Board. The panel found that Turner had violated city rules by renting an apartment from a subordinate and using city time and equipment for his own outside consulting work. Turner paid a $6,500 fine. His top aide, Mark Hoover, who had bought several Long Island City apartments and then rented rooms to Turner and several other HRA aides whom Turner had imported from Wisconsin, was hit with an $8,500 penalty, the largest fine the board had ever imposed.
Those problems also never registered with Giuliani. "I decided that Jason had done nothing essentially wrong," he wrote.
There was one other postscript to the Maximus controversy, also buried in a little-noticed report. In a report filed with the Securities Exchange Commission last year, Maximus stated that it had acquired Richard Schwartz's company, Opportunity America. The firm paid $780,000 for the company, booking 90 percent of that cost to "intangible assets" and "goodwill."
Schwartz, today the editor of the Daily News' editorial page, said the sale had been handled by others, and that it was a simple business transaction, not a reflection of any special treatment for him by Maximus.
"I know to you that sounds like a lot of money, and it is, but this is not that kind of deal. It is a moderate deal," he said.
Schwartz said he had no clear recollection of the contract problems detailed in the earlier DOI report, the one circulated by Hevesi during the 2001 mayoral campaign.
The press focus at the time was on the Hevesi-Giuliani war of words, and the report was just a one-day story leaving no room for details about other issues raised by DOI. The agency found that while Schwartz's Opportunity America and a co-venture partner, the New York City Partnership, were performing a $2.4 million work preparedness contract for needy New Yorkers, they had failed to supply required job training. Moreover, the report stated, "The vendor failed to provide HRA with information about this matter for about two months." When the partners finally did arrange job training, it was for only one day a week, not the required two days. As a result, the contract was cut "by over one million dollars and these funds redistributed to other HRA projects."
Again, DOI stressed that it did not uncover "any evidence of criminality" in the matter or in other complaints it received regarding Schwartz's company. But it rapped his firm for providing "misleading information" and noted that there were "similar problems" found in another Opportunity America/Partnership grant from the federal Department of Labor, adding: "DOI advised HRA to closely monitor Opportunity America/NYCP's performance under the federal grant to ensure that the vendor fulfilled its commitments."
"I don't really have a complete recollection of that project and that situation," said Schwartz in a telephone interview last week. "We did scores of projects in this area. This DOI report was obviously written by design to question everything about my company and the issue with Jason. They were looking for anything negative. There were no actions taken against me. Not every project goes perfectly."
Schwartz, who served as Giuliani's welfare expert during the mayor's first term, left the administration in February 1997. He said he first dealt with Turner some months later when city officials in San Francisco, where he was seeking work, urged him to team up with Turner to put together a welfare initiative. The pair worked on that project, and later, a few months before Turner became New York City's welfare commissioner, Schwartz listed him as a consultant on a proposal to HRA.
When Turner's name surfaced as a potential city welfare commissioner, Schwartz said he was asked by City Hall officials to provide a reference for him. Schwartz refused to give details, but said he wasn't the first to recommend his business associate to Giuliani. "They didn't need me, [Turner] was on the front page of The New York TimesSunday magazine," said Schwartz.
As he was leaving the Giuliani administration in 1997, Schwartz told Times reporter David Firestone that he would not pursue any city contracts. Asked about that statement, Schwartz initially said his answer could have been "more precise." A day later, a News spokesman relayed a written statement in which Schwartz said: "That obviously wasn't binding but it was my preference. But the situation evolved. Once we had partners, investors, and most importantly employees it was unfair to shut them and the company out of the local marketplace. So we decided to seek work where appropriate while complying with all the conflict of interest rules."
Since he went to the Daily News in 2001, Schwartz's editorial page has fiercely criticized the ethics of others in or around government. It has called Assembly Speaker Sheldon Silver "a walking conflict of interest" for carrying on legal business, which is permitted by state rules. It has blasted Brooklyn's judicial screening panel for "blatant conflicts of interest," and castigated the U.S. Olympic Committee (after it selected New York City as its choice for the 2012 games) as "tangled in conflicts of interest."
Schwartz was asked whether his own performanceas a former top City Hall aide who profited from the policies he helped shapefell short of the ethics standard to which he now holds others.
"Just a second," he said, putting the call on hold for several seconds. "The answer is no," he said when he came back on the line.