New York's $600 Million Fraud Shows Privatization
Mischa Gaus | July 27, 2011
How did New York City plan to prevent time theft by city
workers? By hiring contractors who would, it turns out,
steal $600 million from the taxpayers. One of their
crimes, prosecutors allege, was to file bogus timesheets
claiming extra hours.
The payroll and timekeeping system called CityTime was
originally supposed to cost $63 million but ballooned to
$750 million over the last decade. It introduced
biometric palm scanners to ensure city workers punched
in and out appropriately. Only rank-and-file workers
were subject to the electronic surveillance, however;
managers--and contractors--were exempt.
The fraud came as no surprise to Jon Forster. Secretary
of AFSCME Local 375 representing city architects,
designers, and planners, Forster filed complaints five
years ago. The union uncovered documents showing that
CityTime was incurring $100 million price spikes each
time the no-bid contract changed vendors.
Local 375 told the city's then-comptroller of the huge
hikes, Forster said, but he declined to pursue action
because he deemed the contract too complicated.
Now, 11 people have been charged in the profiteering
scheme. Two have fled the country as federal prosecutors
scrutinize bank accounts, emails, and timesheets to see
how deep the fraud goes.
Prosecutors allege that the lead consultant convinced
the city's project manager (a former co-worker) to
change the contract in 2005 so that cost overruns became
the city's responsibility.
Soon after, costs skyrocketed as the ringleaders
fattened the payroll with unneeded consultants, inflated
the price charged to the city, and filed padded
In exchange for kickbacks, the contractor at the center
of the scheme directed work to a subcontractor, who then
created shell companies overseas to launder tens of
millions of dollars.
"This is the patronage agenda of corporate America, to
evade the rules and regulations of merit and fitness
that civil service established to limit patronage," said
Arthur Cheliotes, president of Communications Workers
Local 1180, which represents the clerical workers who
used to keep the city's timecards.
The city has requested $600 million in repayment, but
probably will get only a few hundred million.
LESS WORK FOR MORE MONEY
Forster says the fraud hasn't taught city leaders
anything about contracting out. Even if there had been
zero fraud, privatizing still cost the city buckets of
CityTime consultants each made $400,000 annually,
Forster said, while city employees who do the same work
Now the work is being handed back to those city
employees (and 90 of them are doing the work of 200
"We had the capability to do this in-house from day
one," he said. "But this mayor doesn't accept the
incredible technical know-how of the people on the city
Technology contractors, in particular, work to protect
their privileges, Cheliotes said, by refusing to train
city employees on their specific software, which
virtually guarantees that their contracts get renewed.
Mayor Michael Bloomberg, a billionaire who owns the
giant software and media firm that bears his name, has
made shifting public services into private hands a
hallmark of his three-term administration--despite
mounting evidence that it costs the city much more.
Forster's parent union, AFSCME's District Council 37,
has identified rampant overspending in New York's 18,000
contracts, which now chew up half of all the city's
A study the union released two years ago showed that New
York pays two and three times as much per hour for
nurse, IT, and call-center contractors as it does for
comparable city workers.
Technology contracts stand out for the large disparities
in pay between the privatized workforce and city
employees. The city's Department of Information
Technology and Telecommunications pays a consulting firm
$175 per hour, while the hourly rate for unionized city
tech workers is $47 per hour, including benefits.
DC 37's report says bringing back that contract, and
another nine with similar overcharging, could save the
city $130 million per year.
Union appeals to chop the contractor fat fell on deaf
ears during this year's city budget battle, in which
Bloomberg slashed $1 billion from services and announced
1,000 layoffs in transportation, parks, and children's
welfare--after extracting another $60 million in
concessions from teachers. Schools will see 2,600
teaching vacancies go unfilled as well.
Bloomberg had threatened for months to fire 4,000
teachers, shutter 20 fire companies, and slash 16,500
slots in publicly funded child care centers.
Council member Charles Barron, who cast the only vote
against the budget, said the threats were a con--and if
Bloomberg wanted to save the city money, he ought to
monitor his administration's fraud-choked contracts.
"There's something deeply contradictory happening when
we can waste $600 million and threaten to close
firehouses and fire teachers," Forster said.
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