Transferable Skills, From the Private to Public Sector: A New Look into the Recent NYCHA Corruption Charges

Photo via the NYCHA Journal

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On February 6th, federal prosecutors in Manhattan brought bribery charges against 70 current and former New York City Housing Authority (NYCHA) employees. These employees are accused of accepting kickbacks for handing out construction contracts to select firms tasked with handling NYC’s much-needed affordable housing repairs. 

The kickbacks are a byproduct of a policy implemented by NYCHA several years back to decrease repair wait times for residents. It was intended to streamline repair approval for the 300+ developments under the jurisdiction of NYCHA. The agency has a vetting process for firms who want to perform repairs and construct new affordable housing facilities. This process is long and drawn out, and the average wait time for non-emergency repairs exceeds 65 days, well above NYCHA’s target of 15 days. Repairs and new constructions often require mountains of paperwork that allow the organization to unlock the necessary funding and receive project approval. 

NYCHA not only struggles to streamline repairs, but also to develop new units. Completing a new affordable housing unit, from start to finish, can take anywhere from 5-7 years. Much of this time is spent in the predevelopment period, where firms are tasked with navigating menial paperwork, developing the project, and negotiating prices. This time frame is over five times longer than the average time needed for similar multifamily buildings to be constructed in the private sector.

According to the National Association of Homebuilders, constructing a multifamily unit in the private sector takes about 12 months. That includes the time needed to receive approval and negotiate contracts. 

Part of the reason affordable housing development processes take so long is because affordable housing requires several extra steps that the private sector is able to circumvent. Affordable housing units are intended to be operational indefinitely. This requires an extra layer of developmental preparation, such as the required economic and environmental analysis, before any project is even allowed to enter the construction phase. 

In an attempt to address the repair crisis NYCHA has been coping with for decades, the organization implemented a process that allows development managers to circumvent normal regulatory bidding and administrative procedures. This allowed NYCHA officials to hand out construction bids without a competitive bidding process as long as the contract did not exceed $5,000. This practice was originally rooted in good faith, as it was aimed to help bring quick repairs to residents and address the staggering $80 billion in repair costs that NYCHA properties are plagued with.  

The process is known as “micro-purchasing,” and it was originally intended to give development managers more flexibility in addressing repairs. However, because this process circumvented normal bidding and administrative systems, NYCHA was susceptible to corruption. Due to the nature of the policy, only low-level employees engaged in the corruption, and NYCHA administrators were not implicated.

The issue with the recent NYCHA corruption case is that prosecutors fail to acknowledge the big picture. The reality is that corruption is pervasive in the United States construction industry. Back in 2018, the Manhattan District Attorney investigated a “pay to play” scheme carried out by a contractor tasked with renovating the Bloomberg offices. This investigation was part of a much larger crackdown on corruption in the industry. At the time of the investigation, investigators suspected fraud in NYC construction to total around $100 million in extra revenue for firms. In the case of the Bloomberg offices, the company overpaid by over $1 million for the renovation of its Lexington Avenue Offices. 

Cases like the Bloomberg kickbacks are not uncommon in the construction industry, especially in New York City. In the city, interior construction alone is a $9.4 billion-a-year industry. Construction as a whole in NYC is estimated to be an $84 billion-a-year industry. There exists a long, drawn-out vetting system for new firms to get approval to operate in the city, and even after firms are approved, they have to gain the confidence of their clients, which comes after years of several successful projects. This results in a significant barrier to entry for new firms, resulting in longstanding relationships driving contract negotiations—a prime breeding ground for corruption. 

The limited number of construction firms makes the already corruption-prone industry more corrupt. Construction has several inherent characteristics that make pay transparency difficult to enforce, and thus corruption flourishes. Further, construction relies on complex transaction chains that utilize a decentralized labor process. Hundreds and even thousands of subcontractors are employed within every large construction contract to complete any project. This decentralization, combined with the scale of large projects, makes it easy to conceal bribes and kickbacks. Large-scale, multi-million dollar projects make it incredibly difficult to sift through subcontractors’ payments, and kickbacks can easily go unnoticed, especially as seen in the NYCHA case, when the kickbacks are a fractional percentage of total project costs. The only kickback schemes that make the news are the ones that fail to hide their transactions in the mountain of paperwork. In January 2024 alone, NYC has seen several large-scale kickback schemes unveiled. 

Many of the recently unveiled schemes involve affordable housing at some point in the process. A few of the cases brought by Manhattan District Attorney Alvin Bragg involved corruption schemes that centered around public housing projects. While this might seem like a greater issue with the ethics code enforced by NYCHA, it should be seen as an inevitable byproduct of construction. Construction is known to be corrupt; NYCHA employees are forced to navigate corruption while also trying to increase housing access to those in need. It should be no surprise that corruption schemes are regularly uncovered. These projects are essentially thrown into the lion’s cage that is NYC’s construction industry. 

This widescale corruption only appears more prominent at NYCHA because corruption schemes within public housing projects are extremely susceptible to exposure. The nature of public housing projects requires heightened levels of labor and payment documentation. This makes the kickback schemes considerably more exposed.

With public housing projects under significantly more scrutiny, the question arises: why do kickback schemes still occur? The answer becomes quite clear: kickbacks and corruption schemes are commonplace in the construction industry. Thus, it’s only natural that they carry over to the public sector. Public housing agencies are poised at a significant disadvantage when it comes to constructing and maintaining properties. They are required to impose significantly more stringent conditions in their contracts and thus present contractors with less-than-ideal terms. This forces NYCHA employees to bend the rules to maintain good relationships with construction firms, often leading many NYCHA employees to the tried and true practices of the private market. Kickbacks, bid rigging, bribery, and collusion thus become commonplace. Construction firms are more likely to work on public projects when they’re guaranteed a contract, and housing agency employees are able to make an extra buck while still supplying the necessary repairs to the city’s units. As a result, corruption flourishes. 

Such a phenomenon is only a natural progression, given the severe underfunding of NYCHA and the lack of support by legislation and public opinion. This fact is so widely accepted that NYCHA residents have become accustomed to the corruption. According to the people directly impacted, this reality isn’t surprising to them: the New York Times quoted a tenant’s response to the recent corruption charges, “‘That’s how housing works,’ said Michael Jones, 37,” a tenant in NYCHA’s Chelsea development, “‘It’s all about money. The people running it always want to get a kickback.’”

The case brought against 70 NYCHA housing employees is a step in the right direction, but it fails to address the systemic issues that public housing in NYC faces. A severely underfunded agency is forced to operate in an industry permeating with corruption. Unsurprisingly, NYCHA has faced several corruption charges in the last few years; corruption in the agency results from employees trying to put themselves on a level playing field. Employees take the corrupt practices of the private industry and implement them at NYCHA. It’s nearly impossible to win a game when you’re held to high compliance standards, and your competitors are allowed to break the rules of fair play. 

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This article was edited by Naolin Crosthwaite-Gonzalez and Marielle Bianchi.

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