Outside contractor pushed to outsource disaster recovery program

AMERICAN-STATESMAN STAFF

Updated: 9:52 p.m. Saturday, Nov. 19, 2011

Published: 9:26 p.m. Saturday, Nov. 19, 2011

The move to dismiss dozens of state employees in the Texas Department of Rural Affairs and outsource their work managing hurricane disaster recovery was promoted by the same private contractor that got the job, the American-Statesman has found.

Public records also show that state officials have redirected millions in federal funds that the state had planned to give to communities hit hard by the storms, in order to use the money to pay the firm's bills.

The outsourcing plan was outlined in drafts of documents sent by email to the executive director of the rural affairs department and Gov. Rick Perry's office by Tom Wendorf, a vice president of engineering firm HNTB . Dated Dec. 8, 2010, the "HNTB Reorganization Proposal" spelled out "HNTB functions after transition" — essentially all management of new infrastructure funded by the disaster program — and "TDRA (Texas Department of Rural Affairs) functions after transition," which were minimal. A chart showed the migration of staff funding to HNTB's side of the ledger.

Attempts to reach HNTB for comment were unsuccessful.

The documents supported an amendment to the state's disaster recovery plan that sought more money to administer infrastructure grants to Texas communities struck by hurricanes Ike and Dolly — money that was needed primarily to pay HNTB's rising costs.

The documents were part of a presentation prepared by HNTB in January on behalf of the rural affairs agency and were released by the governor's office in response to an open records request by the Statesman.

In early February, rural affairs Executive Director Charlie Stone laid off 32 employees of the disaster recovery division and handed over their responsibilities to HNTB. The firm got the equivalent of a $75 million raise, doubling the contract it already had for administering $1.4 billion in federal infrastructure grants to aid recovery from the 2008 hurricanes. Stone has retired from state employment and has not responded to requests for comment.

That contract was canceled Aug. 31 amid concerns about the rate of administrative spending — which cannot exceed 5 percent of total funds — and the slow payout for construction. The rural affairs agency was dismantled, but HNTB continues to manage the grants for the Texas General Land Office, which now runs both the housing and nonhousing disaster programs. Under three different no-bid contracts for professional services — two with rural affairs, and now a third with the land office — Texas has paid HNTB at least $48 million from the first round of Ike and Dolly funding.

The land office says it is stemming the money drain and checking HNTB's invoices closely. But it has also combined all administrative spending — the overhead for the housing component is well under budget — making it difficult to determine how much nonhousing is costing.

Meanwhile, the latest amendment to the state's action plan for the hurricane relief program details the redistribution of $37.5 million in "disaster recovery enhancement funds" — a sort of bonus earned for more innovative capital improvements that reduce a locale's vulnerability to destructive storms. States have wide leeway to spend enhancement funds how they want.

Former employees of the agency say the original plan was to return half the money to the communities whose projects qualified for the bonus and to solicit new projects with the rest. But the amendment now designates most of the supplement — $28.6 million — to pay for HNTB's various planning, administration and project delivery activities.

Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development , said that decision is "totally up to the state" as long as it meets other statutory rules, such as the mandatory 5 percent cap on administration costs.

HUD Assistant Secretary Mercedes Marquez has warned that given the large number of projects still in the pipeline, "it is unclear whether this amount is sufficient to implement the state's entire $3.1 billion portfolio of (grant) activities."

A history of expanding contracts

After the 2008 hurricanes which swept more than a dozen states, Texas got a large portion of disaster recovery funding — $3.1 billion in community development block grants for both housing and nonhousing, an unprecedented sum that is said to constitute the largest public works project in state history.

The Department of Housing and Community Affairs handled housing grants by itself. The smaller Texas Rural Affairs Department, whose biggest effort previously was dealing with

$30 million in federal grants from Hurricane Rita, needed help with the deluge of thousands of infrastructure projects. It hired extra staff and contracted with HNTB, though the firm had limited experience with block grants.

The overhead money went fast. Texas has spent down almost all the budget for administering and planning the first round of Ike and Dolly nonhousing projects — emergency generators, drainage improvements and the like — while seeing only a third of the 1,977 projects to completion.

Headquartered in Kansas City, Mo. , HNTB has close ties to Perry's administration through Ray Sullivan, Perry's former chief of staff and now his presidential campaign communications director, and Reggie Bashur, a Perry adviser. Both have lobbied for the company, which, like most large civil engineering firms, relies on government projects and has been buffeted by layoffs in recent years as public-sector spending shrinks.

HNTB was the lead consultant for Perry's proposed Trans-Texas toll road system, which was later canceled. The firm has earned at least

$160 million from the state over the past four years, primarily for highway engineering services.

The company has proven adept not just at getting state contracts but making them grow. Its first contract with the rural affairs agency, to assess hurricane damage in 2008, grew from $8 million to $16 million. The contract to administer the disaster grants started at $69 million and expanded to $144 million, and was also amended to make HNTB the environmental service provider for grant recipients, adding untold thousands to its fees.

After that contract was canceled, an earlier contract with the General Land Office for engineering services allowed HNTB to continue managing infrastructure grants. That deal was recently extended to the Texas Department of Public Safety. Under it, HNTB stands to take in even more revenue for providing disaster planning services to DPS, through whic h hundreds of millions of dollars in disaster money from another source — the Federal Emergency Management Agency — flowed last year.

Conflicting plans of action

Through regular communications, Perry's office has closely monitored the disaster program since its inception, at times quelling disagreements beween Stone's former agency and the housing and community affairs department.

"I am fed up with the bickering between the two agencies, and it needs to end immediately," said Perry's deputy chief of staff, Kathy Walt, days before Wendorf's documents — which detailed the outsourcing plan and made the case for shifting more grant money to planning and administration — were circulated.

However, Walt said the plan was not approved by the governor's office in advance, "nor was approval required." She said the office raised "numerous questions and concerns about the proposal," including the increased administrative expenditures, but that TDRA "had determined to pare down its staff and expand HNTB's role."

In fact, agency emails show that Stone's own staff repeatedly proposed a different course of action: keeping most of the state employees, who worked for wages substantially below HNTB's average billing rates of $190 an hour, and cutting back the firm's contract instead. (Salaries of those working on the disaster program, both public and private employees, were paid with federal funds.)

Though the state employees were hired only for the duration of the disaster program — initially three years, which lengthened to five as the number of projects grew and delays mounted — they were well-versed in the community development block grant process.

"We had to have somebody who could go to work today — we didn't have to time to train people up," said Randy Young, a former deputy director of rural affairs.

However, the HNTB/rural affairs presentation circulated by Wendorf in January predicted dire consequences if more planning and administration funds were not forthcoming and if the state kept running the program. The next phase of projects would not be completed for eight to 10 more years, if at all, it said.

According to the document: "TDRA Disaster Recovery Division staff members are all temporary employees for the duration of the Ike/Dolly Recovery Program and have little to no incentive to complete the program on or ahead of schedule. HNTB has demonstrated multiple times during the contract the ability and desire to complete activities ahead of schedule."

That assessment struck a nerve with former employees like Young.

"That's pretty comical — it was just the opposite," he said. "I can't tell you how dedicated the people were in my division. I had absolute confidence in my directors and managers — they had years of experience."

As for HNTB, he said: "I thought we could control the job — we were paying them — but it was scope creep to the max. There was no creep about it. It was runaway."

A Statesman investigation continues to examine the role of a politically connected engineering firm, HNTB, in administering hurricane recovery money. The federal government has been critical of how Texas is handling $3.1 billion designated for hurricane relief. Nearly all the money budgeted for managing the first round of grants for infrastructure has been spent, but only one-third of the projects are complete.