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Calls for more scrutiny of New York State building contracts

Construction work under way on Oct. 17, 2015,

Construction work under way on Oct. 17, 2015, at a high-tech manufacturing site as part of Gov. Andrew M. Cuomo's Buffalo Billion initiative. Credit: AP / Mike Groll

ALBANY — Gov. Andrew M. Cuomo has undertaken a statewide building boom using public construction contracts to spur private-sector job growth that since 2011 has committed billions of dollars in construction funds and tax breaks to companies.

The recipients include some of the governor’s biggest campaign contributors, generating calls among some government officials and watchdog groups to intensify oversight of state contracts, including by the comptroller’s office and the attorney general. And they warn that some changes undertaken to streamline and speed state construction projects — including increasing the use of quasi-public authorities and limiting the role of oversight agencies — have resulted in fewer checks on state contracting.

A Newsday review of campaign contributors who donated $50,000 or more between 2010 and 2015 found that more than 30 construction and development companies, subsidiaries, their executives and their relatives have contributed nearly $4 million to Cuomo’s campaigns while the companies received $1 billion in state contracts, tax breaks and other benefits. Those companies have gotten at least 76 contracts and other work with the state since 2011.

Those contributions represent at least 28 percent of all contributions of $50,000 or more to Cuomo’s campaigns from 2010 through 2015 and more than 5 percent of the record $74.7 million total amount Cuomo raised from all donations during that time period.

Issues regarding state contracts and contributors also arose in a federal investigation involving parts of Cuomo’s building program, including his signature Buffalo Billion initiative to inject $1 billion into upstate development. On Sept. 22, U.S. Attorney Preet Bharara announced federal charges against two former aides to Cuomo; a top state official who has long led state government’s commitment to landing jobs in nanotechnology and other high-tech endeavors; and six others in a wide-ranging bid-rigging scheme involving state contracts. The complaint accused the former aides of soliciting bribes to use their influence to help companies get contracts and other state benefits.

Prosecutors also alleged that Fort Schuyler Management Corp. — a state-funded nonprofit entity formed under SUNY Polytechnic Institute to award hundreds of millions of dollars in development contracts — was used as a vehicle to rig contracts for preferred companies. Alain Kaloyeros, the president of SUNY Polytechnic, who has since resigned, was charged in the complaint.

Also among those named in the complaint were five executives with two of the construction and development firms that were major Cuomo campaign donors. The executives, their relatives and their companies contributed more than $350,000 to Cuomo’s campaign, according to state Board of Elections records.

Asked about the governor at a news conference after the complaint was revealed, Bharara said: “There are no allegations of wrongdoing by the governor anywhere in this complaint. That’s all I’m going to say.” Bharara spokesman James Margolin declined to comment for this story.

The governor has said he “had no idea” of any of the alleged malfeasance. Cuomo spokesman Rich Azzopardi said no allegation of criminal activity or “pay to play” involving campaign contributions was included in the federal complaint and Cuomo wasn’t mentioned.

The governor has contended the state has a thorough process to make sure there are no perceived or real conflicts of interests regarding campaign contributions and the awarding of contracts. Cuomo also says donations don’t influence his administration’s decisions.

Problems identified

Following the federal complaint, administration officials say, the governor moved major construction projects out from under SUNY Polytechnic Institute. And administration officials told Newsday late last week that Cuomo hired a consultant to look at the Buffalo Billion project to determine ways to improve the contracting process and plans to announce new procedures in his State of the State speech in January.

The consultant reported finding problems in the awarding of the contracts and recommended changes in protocol, such as checklists on any changes in costs, construction and workforce on which state and company officials must sign off. For example, the recommended protocol for purchasing property includes: “Indicate whether any individuals involved in the negotiations or sale are or were connected in any way with any federal, state, county or local elected or appointed officials or any lobbyists or counsel representing any of those individuals or entities or made any political contributions to any of them.” Cuomo said he would implement all the recommendations.

Good-government advocates have called on Cuomo and legislative leaders to establish “competitive and transparent contracting.” They want the comptroller to be able to review and approve all state contracts and to limit campaign contributions by any company or person seeking a state contract.

“This is not just a couple of bad apples that went rogue. This is an entire system,” said John Kaehny, executive director of the good-government group Reinvent Albany.

Administration officials have said that contracts are vetted by various agencies, including the attorney general’s office, the comptroller, federal transportation officials and regional economic development councils that Cuomo created to involve local officials and business leaders.

However, both the state comptroller and state attorney general say some of these contracts are never sent to them and, on the ones that are, they have no authority to review them for issues of favoritism or conflicts of interest.

In addition, the State University of New York was exempted from the comptroller’s review by a 2011 law pushed by Cuomo. The measure allowed SUNY’s Polytechnic Institute to work closely with companies statewide to create high-tech hubs. Prior to that law, the comptroller’s office reviewed all SUNY construction and design contracts of more than $250,000.

And some critics, including the comptroller’s office and the New York Public Interest Research Group, have a concern with the governor’s use of “quasi-public” corporations — authorities headed by Cuomo appointees — such as the Empire State Development Corp. and entities that are more flexible to work with employers with less transparency than traditional state agencies. The entities can act more quickly to meet the deadlines of employers and to adjust projects as needed without the more lengthy reviews and approvals required of projects under traditional state agencies.

The ESDC was created decades ago to be a one-stop shopping place for businesses seeking to expand or locate in New York through tax breaks and state resources and is the entity that releases grants. After the federal complaint, Cuomo took the Buffalo Billion project from SUNY and put the ESDC in charge.

Common Cause New York and other good government watchdogs say that while these entities perhaps help streamline projects, they also can legally avoid public bidding and public disclosure laws intended to serve as checks and balances of potential conflicts. For example, ESDC can legally skip the “pre-audit” required of other contracts by the state comptroller before they are awarded.

Additionally, saying it saves time and money and provides greater flexibility, the administration has expanded use of combining the design and building elements of a project and awarding the contract to the best overall bidder based on its performance record and extent of its resources. This may not be the lowest-priced bidder. The process favors large companies because few companies can handle both the design and construction of major projects.

Attorney General Eric T. Schneiderman has sought jurisdiction to investigate corruption throughout state government without requiring a referral from the governor of a suspected case of misconduct, said his spokesman Eric Soufer. But Cuomo has opposed that request, saying it would require the Legislature to change the law, even though as the previous attorney general, Cuomo had sought the same authority.

Instead, Cuomo said the Moreland Commission on public corruption that he created was a better way to root out corruption than to provide a blanket referral to the attorney general. Cuomo disbanded the commission in March 2014 after state lawmakers agreed to pass ethics reform legislation.

Earlier this year, Bharara’s office investigated whether the governor had interfered with the commission. Bharara said that although the closing of the commission was “premature,” he found there was “insufficient evidence to prove a federal crime.”

“Generally, we can only investigate public corruption if we get a referral from the comptroller or a state agency,” Soufer said. “The simple contract approval process doesn’t allow us.”

Federal case

The federal complaint accuses Joseph Percoco, Cuomo’s longtime confidante, adviser and campaign manager, of taking more than $315,000 in bribes to steer contracts to favored companies. Percoco had take a leave of absence from the governor’s office to work as a private consultant. Another key figure is Kaloyeros, former president of the SUNY Polytechnic Institute, who is charged with federal wire fraud conspiracy and faces state restraint of trade charges. Kaloyeros and Percoco deny the charges.

A ninth defendant, Todd Howe (a lobbyist who had worked for Cuomo as an assistant when Cuomo headed the federal Housing and Urban Development Department and also worked for the governor’s father, the late Gov. Mario Cuomo), has pleaded guilty to conspiracy to commit extortion, wire fraud and other charges and is cooperating with investigators.

Also named in the federal complaint are principals and executives from LPCiminelli of Buffalo and COR Development of Syracuse.

Louis Ciminelli, who founded LPCiminelli, was charged along with two company executives with bribing Howe to land a contract for the Buffalo Billion project. Steven Aiello, CEO of COR Development, and another company executive are accused of bribing Percoco to get work on the Inner Harbor project in Syracuse. Lawyers for Ciminelli and Aiello say they will plead not guilty.

Percoco also is accused of seeking bribes from COR Development and Competitive Power Ventures, a utility company, which needed state regulatory approvals to build and operate a power plant in the Hudson Valley. Federal prosecutors said Howe was a lobbyist for each of the companies.

Competitive Power Ventures — through five company names all with the same Silver Spring, Md., address — contributed $88,316 to Cuomo since December 2009, according to state Board of Elections records. The company also contributed $50,000 in 2013 to the state Democratic Committee through the political committee’s housekeeping account, which has few restrictions on how contributions are spent, records showed.

Peter Galbraith Kelly, an executive with Competitive Power Ventures, is accused of offering to pay a bribe.

“The allegations of widespread abuse uncovered here is a troubling reminder that limited oversight creates an environment ripe for corruption,” said Jennifer Freeman, communications director for state Comptroller Thomas DiNapoli.

“There is no easy solution to prevent powerful people who are determined to enrich themselves at taxpayer expense,” she said. “But we can start by restoring the authority taken away from the state comptroller to oversee all state contracts, particularly those at the State University of New York. State spending should be on the state’s books and not funneled through back channels to diminish transparency.”

Others see the need for more fundamental change.

“New York’s campaign finance system should eliminate campaign contributions from those seeking – or receiving – government contracts, the campaign finance limits should be much lower, and a voluntary system of public financing should be established,” said Blair Horner of the New York Public Interest Research Group. “Such a voluntary system would help electoral challengers mount serious efforts, thus helping to hold incumbent elected officials more publicly accountable.”

Building job creation

Improving the state’s economy through an ambitious building program has been a big part of the Democratic governor’s agenda. In his first term, Cuomo pushed to begin replacing the Tappan Zee Bridge, along with other projects. The Tappan Zee replacement was Cuomo’s first design-build project and he used it as proof of the value of the new practice.

Cuomo wouldn’t allow bidders to contribute to campaigns during the bidding process, but state records show contractors and subcontractors working on the project contributed more than $120,000 to Cuomo’s campaign before and after the contracts were awarded. (Because the administration used a different procedure for the project, Newsday did not include the Tappan Zee in its review of contributions and contracts.)

Earlier this year, Cuomo proposed a $100 million public-spending program that would “make Nelson Rockefeller jealous,” a reference to the late governor who greatly expanded the state-university system.

Cuomo has touted his agenda as a way to use public-construction contracts to spur private-sector job growth. While still defending the Buffalo Billion project, he has said that SUNY controlled the bid process for these projects and that it “doesn’t go to the essence” of his administration.

“We do thousands of projects,” Cuomo said the day after Bharara announced the federal charges. “And we’re talking about nine charges — which are serious — but they are nine charges. So let’s keep it in focus.”

The governor’s office said it doesn’t involve itself with agencies, such as the state Department of Transportation, in awarding about 300 bids a year, most of which go to companies offering the lowest responsible bid, Azzopardi said. In addition, he said, most of the 32,000 contracts worth $258 billion since 2011 are submitted to the state attorney general’s and comptroller’s offices for approval.

Referring specifically to the state construction projects Newsday reviewed, Azzopardi said, “The largest portion of the contracts you are referencing are publicly bid and vetted by the offices of the attorney general, the comptroller and in many cases federal transportation officials.

“The others are part of a ground-up, regionally driven process with clear standards and unprecedented transparency,” he added, referring to a regional economic development council process.

But neither the Buffalo Billion nor other projects, such as the Syracuse Inner Harbor and the redevelopment of old, storied hotels in downtown Albany, were reviewed by DiNapoli’s office because they were handled by ESDC.

After Cuomo took office in 2011, he successfully negotiated with the State Legislature to eliminate comptroller approval for construction projects through the State University of New York, The City University of New York, SUNY hospitals and the SUNY and CUNY construction funds. The governor argued that avoiding what he considered an unnecessary oversight step would save time and taxpayers’ money.

Cuomo said he could speed long-delayed projects, such as the replacement of the Tappan Zee bridge, by dispensing with some prior reviews of plans and contracts. He contended the work would still be subject to review afterward.

Cuomo also has increased the use of authorities as the means to complete major construction faster with savings to taxpayers. Public authorities, run by his appointees, can borrow with state taxpayers’ backing without requiring voter approval, as when the state holds a referendum for a major bond act for transportation or environmental projects.

“When funds are spent off-budget or flow through to entities setting their own rules, the potential for abuse of taxpayer dollars increases,” Freeman said. She said the office isn’t sent the losing bids and nothing in the contract process requires campaign contributions from bidders to be reported or considered. The comptroller also isn’t authorized under law to look for favoritism or steering of contracts.

Instead, the comptroller is limited to evaluating the numbers — spending and expenses — of the winning contract to make sure they add up and meet the scope of the work.

“We may raise questions and reject a contract if broad competition wasn’t sought, but our office’s review is limited to the process, not examining campaign contributions or other actions that could suggest favoritism or steering of contracts,” Freeman said. “That’s the role of law enforcement.”

Reviewing contracts

The comptroller has “post-audit” authority to review decisions, but that is often two to three years after contracts are awarded. At that time, the comptroller has the power to withhold funding on these projects, which usually take many years to complete.

The comptroller also has the option to review contracts worth more than $1 million before they are awarded, under a recently passed law, but the legislation didn’t provide more funding for that task, according to Freeman, the comptroller’s spokeswoman.

“We do plan on reviewing more public authority contracts,” she said, noting the office has already called for review of the proposed contract for Cuomo’s planned major expansion to the Jacob K. Javits Convention Center. “Recognizing that we have limited resources, we are selective on the public authority contracts that we review.”

Schneiderman’s office also has a limited role in reviewing contracts, according to spokesman Soufer. The office is charged with ensuring the terms within the contract are clear, signatures are in place, start and end dates are correct, and that there are no liability clauses that work against the state. He said there is nothing in the routine reviews that might expose possible favoritism.

Working under a cooperative agreement with the U.S. Attorney’s Office, Schneiderman has filed related state charges against Albany-area developer Joseph Nicolla. Nicolla’s Columbia Development is accused of collusion with Kaloyeros to make sure Columbia landed contracts with the state college. Schneiderman called the case “a blatant and brazen abuse of taxpayer dollars and the public trust.”

In September, Guidepost Solutions, the company Cuomo hired to do an internal review of the Buffalo Billion project, recommended changes in contracting protocol.

The protocol still calls for projects to go through public authorities that do not have extensive oversight by the comptroller or attorney general. The new protocols apply only to the ESDC, the state Dormitory Authority and “any other applicable agency” specifically for the Buffalo Billion and Nanotech projects, said Cuomo spokesman Azzopardi.

“Our extensive reviews of payment and performance issues found problems with the approval, review and inspection processes for the authorization for release of New York State funds relating to the Buffalo Billion and Nano Projects,” stated the memo from Guidepost Solutions to the executive chamber. “Frequently, required processes and procedures were not followed; required documentation was incomplete; and, review procedures were either not in place or not being followed to what we believe was the necessary level."

Guidepost recommended a number of changes:

  • The construction protocol would involve checkoffs for elements of the project, including “work completed to date” and “certified payrolls,” but also would include a box for “Review for any inconsistencies or questionable correspondence notes.”
  • The “grant compliance certification review protocol” would require true or false notations for receipt of grant money from the ESDC or Dormitory Authority along with employment levels required by the grants. One part states: “Neither the grantee nor any of the members of its Board of Directors or other governing body or its employees have given anything of value to influence any official act or the judgment of any person in the award of the grant or the performance of any of the terms of this agreement.”
  • The protocol for purchasing property also would requires disclosure of any brokers who helped arrange meetings for the deal and determining “whether recent prior owners had any connections to local development authorities or government officials or other political figures present possible conflicts of interest or other ethical issues.”

The attorney general’s office, which had not received the Guidepost Solutions memorandum and recommendations, said it needed more time to evaluate the proposals before commenting.

“There is nothing in it about independent oversight,” said Horner of NYPIRG, saying enforcement is the key to what he called a checklist of standards issues. “The thing that struck me is, why wasn’t this being done already?”

The comptroller’s office declined to comment because Cuomo hasn’t submitted the Guidepost contract, which is estimated to cost as much as $450,000, for review and approval. Cuomo cited the firm’s expertise in hiring it in May as a “sole source” for the job, meaning there was no competition for the contract.

Cuomo and ‘design-build’

Since Cuomo became governor in 2011 and vowed to revive the long moribund upstate economy, he has changed the way the state does large construction contracts.

Cuomo has increasingly relied on and expanded the “design-build” process that was used in the Buffalo Billion project. Design-build allows the administration far more flexibility in choosing contractors without having to abide by the traditional criteria of choosing the lowest bidder.

The state has two dozen design-build projects underway or planned despite opposition by some unions, architects and the state comptroller, who wants further study of its effectiveness before more agencies are allowed to use the design-build process.

It seeks the “best value” from companies that the administration pre-qualified as bidders and favors large companies and consortiums of companies because small companies don’t have the resources, workforce, borrowing power or proven record of handling major projects.

The use of design-build has grown from one project in 2011 to 10 approved last year. Another seven design-build projects are in the pipeline, according to the state Department of Transportation. Cuomo said it saves time and money, cutting government red tape.

But others such as DiNapoli point out potential flaws.

“Unlike design-build authorizations in most states, New York’s design-build law contains no reporting mechanics and no requirements that benefits be substantiated — or even quantified,” DiNapoli said in 2013. The comptroller said that while there may be cost savings and efficiencies under design-build, “greater transparency and accountability should also be required to ensure that the use of these alternative procurement methods is justified.”

For this story, the governor’s office provided a breakdown of some contracts that included little or no contributions to the governor’s campaign, noting that of the 43 companies that applied in 2015 to manufacture and dispense medical marijuana, 13 companies and their business leaders contributed to Cuomo’s campaign for a total of $319,807. Of the five companies selected by the state Department of Health, only one was a contributor and donated $12,000 to Cuomo’s campaign, Azzopardi said.

Contributions and contracts

The 30 companies and their executives examined by Newsday as among Cuomo’s top campaign contributors include some of the subjects of federal and state investigations, but most of the firms haven’t been accused of wrongdoing.

LPCiminelli is one of Cuomo’s biggest donors — giving more than $100,000 through subsidiaries and relatives of the company owner, Louis Ciminelli. In the Buffalo Billion project, ESDC chose LPCiminelli to develop and build a solar panel factory in Buffalo — a $750 million project.

In addition, Ciminelli’s brother, Paul Ciminelli, once served on the ESDC board, although he abstained from votes regarding the Buffalo Billion. LPCiminelli chose John W. Danforth Co. of Buffalo to install pipes for the project. Danforth CEO Kevin G. Reilly gave $60,000 to Cuomo’s campaign in 2013-14, when bids were being awarded for the project.

Last fall, the company in a statement told The Buffalo News: “Buffalo has had no better friend than Andrew Cuomo since DeWitt Clinton dug the canal.” The company said its owner, Louis Ciminelli, is “proud to have supported [Cuomo] for many years and fully intends to continue doing so.”

Another of Cuomo’s initiatives is a $350 million development of hotels and other commercial projects for Syracuse’s inner harbor on Onondaga Lake.

The contract-winning consortium, COR Development, contributed $25,000 in a single check to Cuomo’s campaign in July 2013, records show. COR’s president, Steven Aiello, individually gave $65,000, and his wife contributed another $25,000. Jeffrey Aiello, a COR executive, donated $55,000. Joynt Ventures, which is part of the COR consortium, contributed $60,000 to Cuomo. The owner, Paul Joynt, gave another $10,000.

In Albany, Columbia Development has had a major role in a downtown project and a proposal to build a dormitory for the SUNY Polytechnic Institute. Columbia was the sole bidder to build the dorm — a project now caught up in a related state-filed criminal complaint — and has received about $5.2 million in aid from ESDC and other state programs for the downtown renovation.

Cuomo has received at least $146,000 in contributions from Nicolla, Columbia’s president, his wife, a related limited-liability company and another associated developer.

Nicolla faces state restraint-of-trade charges in a scheme that Schneiderman said involved Nicolla using inside information to buy properties where a SUNY dorm would be built. Nicolla has pleaded not guilty to the state charge.

Among other projects and contractors Newsday reviewed:

  • CHA, an Albany-area engineering firm formerly known as Clough Harbor, has won about $39 million in state contracts; the company and its associates have contributed about $195,000 to the governor. Percoco also listed in his financial disclosure forms receiving between $20,000 and $50,000 from CHA.
  • Steiner Studios is building a new soundstage at its film and TV production studio in the Brooklyn Navy Yard, after receiving up to $5 million in state grants in July. The Steiner family of New Jersey has contributed more than $100,000 to Cuomo’s campaign.
  • In rural Wayne County, the state has granted $300,000 worth of tax breaks to help Motts expand an applesauce and juice factory. The company and associates have contributed about $95,000 to the governor’s campaigns.

“As someone who lives and works in Central New York, $500 million coming to this area has an impact that most people can’t appreciate,” said Michael P. Falcone, CEO of the Pioneer Cos., a development firm based in Syracuse that had developed apartment buildings, retail space, hotels, industrial sites and senior living facilities. “The bigger developers are the ones that tend to have the wherewithal to do the bigger jobs, so you can’t give some small-time first-time developer a big check to do a project that they have never done before because you can’t be sure it will get done. So what do you do? You go with the people who have done it for years and have a very good track record.”

On April 26, 2011, Empire State Development approved of a $1 million grant and a loan of up to $2 million for a company created by Falcone’s Pioneer Cos. to build an office building and parking garage in Syracuse and create 300 jobs.

Falcone and his wife, Nicole Ruvo Falcone, also founded a company that this year was one of 43 seeking a state license to grow and sell medical marijuana. Their company wasn’t among the five chosen.

Falcone’s company contributed the corporate maximum $5,000 to Cuomo’s campaign, in a check in 2012. But Falcone, his brother Mark, and their father, Mike, who founded the business, combined to contribute more than $100,000 to Cuomo’s campaign since 2010.

Michael P. Falcone said he’s never been asked, encouraged or required to contribute to Cuomo. “No, never, never, never,” said Falcone. “I haven’t seen it, it never happened with me.”

Syracuse Mayor Stephanie Miner, a Democrat who has sparred with the governor, has called Cuomo’s economic development practice one of “press, promises and payouts” with a “troubling coincidence between tax breaks being given to campaign contributors.” Miner has moved to delay Inner Harbor project and potential stop COR’s contract because of her concerns about the company as its top officials face criminal charges.

Common Cause New York has said the governor shouldn’t accept campaign donations from those seeking state grants or contracts.

“There needs to be clear disclosure and conflict of interest rules,” Susan Lerner, the group’s executive director, said. She noted that New York City has a database that links subsidiaries to their parent companies and the state could do the same to identify big donors. That allows officials and the public to identify when campaign donors receive city contracts and benefits.

With Yancey Roy and Ann Choi


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