Follow the money

Audit: NYC issued $2.7 billion in noncompetitive education contracts — and often violates its own rules

PHOTO: Alex Zimmerman
City Comptroller Scott Stringer criticized the city's ability to keep track of education technology in July.

The city’s education department routinely violated state law and its own policies in issuing contracts worth billions of dollars — mostly awarded without a competitive bidding process.

That’s according to a blistering audit released Friday by city Comptroller Scott Stringer, the first major audit to scrutinize contracting by the de Blasio education department. It found that the department issued $2.7 billion contracts without a competitive process in fiscal year 2016, or roughly 64 percent of all spending on contracts.

The education department routinely failed to properly oversee its vendors, paid them late, and often directed them to begin work before proper paperwork was filed with the comptroller’s office, according to the audit.

“This investigation shows that DOE acts as though the rules don’t matter,” Stringer said in a statement which included 20 recommendations to fix the process. “When it comes to contracting, this is an opaque agency that refuses to accept responsibility, that often uses inaccurate arguments to defend backwards organizational practices.”

Some highlights:

  • Out of 521 “limited competition” contracts, the city directed vendors to begin work before filing appropriate paperwork on 85 percent of them. In one case, a contract was filed two and a half years after the vendor began work.
  • The education department did not correct sloppy oversight of vendors, despite a 2015 audit that urged them to do so. In some cases, “there was no evidence the DOE conducted performance evaluations, as required by the DOE’s own procurement rules,” the audit found.
  • The DOE spent $2 million to pay for “goods or services that had already been improperly purchased in violation of DOE’s procurement rules.”

Stringer’s findings come less than a month after the comptroller blasted the city’s management of education technology in a separate audit that found the education department has lost track of thousands of computers and failed to create an appropriate tracking system for them. Stringer’s harsh criticisms of Mayor Bill de Blasio’s education department come shortly after endorsing the mayor’s re-election bid.

The Bloomberg administration also faced sharp criticism for awarding contracts without soliciting competing bids. The administration’s critics said the mayor was inappropriately applying business practices to public spending. But Joel Klein, Bloomberg’s longest-serving chancellor, dismissed the criticism, saying he’d “never seen [an audit] that didn’t say you couldn’t follow procurement rules a little closer.”

Will Mantell, an education department spokesman, said the city’s procurement process is “rigorous” and “many of this audit’s conclusions are incorrect.”

“We perform background checks on all vendors and post them online, maintain the appropriate documentation on procurements, and recently implemented an electronic performance evaluation system,” Mantell added.

Dividing the dollars

Millions of extra dollars go to Indianapolis magnet schools that have fewer poor students

PHOTO: Shaina Cavazos
School 91 is one of several IPS choice programs that are getting extra money from the district.

Indianapolis Public Schools leaders recently overhauled school budgets in a bid to give more money to schools with poor students. At the same time, they quietly sent more than $6.5 million extra to 17 schools — including the district’s most affluent campuses.

That money went to special programs that often attract middle-class families in the form of about $700 extra on average per student, according to a Chalkbeat analysis. That’s substantially more than the $500 bonus the district gives to schools for each student in poverty.

Those dollars are significant in a district strapped for cash: Spread out evenly, the $6.5 million could send all schools about $250 more per student.

The bonuses also highlight a challenge district leaders often face when trying to make school funding fairer: not alienating families at schools that have long received different resources — and who might otherwise choose private schools or the suburbs.

Critics say the bonuses could work against the district’s goal of directing more resources to schools that need the most help.

“If you put more money into higher-achieving schools, your budget strategy, whether you will say it out loud or not, is to expand the achievement gap,” said Marguerite Roza, a Georgetown University professor who studies school finance.

District leaders defend the extra money as essential for special programs — which have focus areas such as Montessori, the arts, or career and technical education — because they cost more to run and would be harmed if they lost funding.

“We did not want to adversely impact the operations of those programs,” Superintendent Lewis Ferebee said.

But giving schools funding based on their programs is one thing that IPS’s new budget system was supposed to prevent. Until this year, the district awarded funds to schools based on an assortment of reasons, including the programs schools offer. In theory, the new student-based budgeting process, on the other hand, is supposed to funnel money to schools based on the needs of individual students.

Read: IPS’ new budget plan is supposed to give more money to poor schools. Here’s how it works.

The district designed some extra money to be temporary under the new budget plan so that schools wouldn’t experience a sudden drop in funding. But officials have not said whether the bonuses to special programs will lessen or disappear over time.

The 17 schools receiving extra money run the gamut. Their demographics vary, and some of the schools are low-performing. But on average, the passing rates on state tests are significantly higher than district averages, while the average poverty rate is far lower — 58 percent versus 78 percent. The amount of money they receive also varies widely.

(Click here to see Chalkbeat’s full analysis, which combined choice programs that do not receive extra money with the district’s other campuses. The projected poverty rate provided by the district does not include students in prekindergarten or self-contained special education classrooms, though those students are included in the total enrollment.)

Unlike neighborhood schools, families choose them, and the vast majority accept students by lottery.

Ferebee said he does not see spending more on choice programs as taking money away from other schools. He noted that the district also gives extra money to schools that have historically struggled. Several schools in a district-led turnaround effort called a transformation zone, for example, also get extra funding.

Plus, all families in the district have access to choice programs, he added.

“I would be more concerned if we didn’t open those programs up to all students, and didn’t provide transportation to all students,” Ferebee said. “But we do.”

The district has also worked to make sure less affluent families have access to choice programs. Last fall, the IPS board reduced the number of families who get priority because they live near a school and reserved seats for families who apply later in the year because data showed low-income families were more likely to apply late.

But for now, many of the schools that get extra money for choice programs are far more likely to educate middle-class students.

That’s likely a reflection of a key challenge for IPS and other urban districts. In states like Indiana, where schools get more money for each student they enroll, winning over parents is essential to staying financially viable. But the kind of programming — such as Montessori and International Baccalaureate schools — that can attract families who might choose private schools or move to the suburbs can be expensive because it often requires extra staff or training.

Carrie Stewart, cofounder of Afton Partners, which consults with districts on financial strategies. She said it is common for districts to give extra funding to schools with special programs.

Schools that offer the IB program, for example, must meet strict staffing and training requirements. “It’s very hard to run them at the same price tag as a typical school,” she said, which means they need more funding.

“Is that fair? I mean, I don’t know,” she added. But if the district doesn’t offer the programs at all, it could lose families to private schools, Stewart said. “Then everybody loses because the district will lose money.”

Budget Wish List

New York policymakers call for $1.6B hike in school funding, as fiscal uncertainties loom

New York’s top education policymakers asked for a 6 percent hike in school funding Monday — a less ambitious request than last year, which reflects the deep fiscal uncertainties currently looming over the state.

The state Board of Regents’ call for a $1.6 billion increase in its annual school-aid request was less than the $2.1 billion raise it sought last year. The request is meant to inform lawmakers as they head into a new legislative session where they will hash out their spending plan for next fiscal year. But they aren’t bound by the proposal; last year, the state boosted education spending to $25.8 billion — $1 billion short of what the board recommended.

In creating its wish list for the 2018-19 school year, the Regents had to account for serious fiscal challenges facing New York: a $4.4 billion projected state deficit, the looming threat of federal spending cuts, and a Republican tax overhaul that is expected to deal an economic blow to high-tax states like New York.

“In the context of virtually every place where funding comes in, we are seeing substantial cuts,” said State Commissioner MaryEllen Elia during the board’s monthly meeting.

The bulk of the board’s suggested increase — $1.25 billion — is for “foundation aid,” a formula created in the wake of a school-funding lawsuit alleging that New York was shortchanging districts with many poor students. The formula, which provides nearly a third of New York City’s state education money, allocates extra funding for high-poverty districts. (About 37 percent of the city’s overall education budget comes from the state.)

The proposal includes $85 million in additional funding to support students who are not native English speakers. In addition, the board is seeking $25 million for career and technical education and $20 million for prekindergarten programs.

The request also includes funding to carry out New York’s plan under the federal Every Student Succeeds Act, which spells out how the state will evaluate and intervene in schools. That set of recommendations includes $10 million to monitor school culture and bullying.

The Regents’ request is more modest than the $2 billion increase called for by the Educational Conference Board, a coalition of statewide organizations including the state teachers union and groups representing school boards and superintendents. The coalition has said that a $1.5 billion increase is needed just to maintain educational services at their current levels.

Even though the Regents’ request fell short of what the coalition sought, the teachers union praised the board’s proposal on Monday.

“The Regents’ state aid request is a clear statement of support for what New York’s public schools need — a substantial increase in state aid so they may continue their clear progress toward providing every child with an excellent education,” said New York State United Teachers President Andy Pallotta in a statement.

At the board’s meeting last month, state officials signaled that they might temper some of their requests in light of funding uncertainties at the federal and state level.

New York residents are expected to be hit hard by a federal tax overhaul, which is likely to curtail state and local tax deductions. In response, state and local governments may face pressure to reduce their tax rates — which could cut into school funding. The state is also bracing for the federal government to reduce spending in order to fill the $1.4 trillion hole that would be caused by the proposed tax plan.

At the same time, New York is staring down its own projected $4.4 billion budget gap next fiscal year — which begins April 1 — due to a shortfall in tax revenue. It’s possible that some high-earners are choosing to defer some of their income until Congress finalizes the tax overhaul, said Mark Johnson, spokesman for state Comptroller Thomas P. DiNapoli.

The board’s request must be formally approved at the full board meeting on Tuesday.

The state legislature will vote on its spending plan next spring. If lawmakers heed the board’s request, state education spending would reach a record high of $27 billion this year.