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Unexplained overruns a pattern in Pittsburgh Housing Authority records

Sunday, February 18, 2001

By Mike Bucsko and Timothy McNulty, Post-Gazette Staff Writers

Two years ago, the Housing Authority of the City of Pittsburgh accepted a $297,200 bid from a South Hills contractor to replace and repair sidewalks at two public housing developments in the Hill District.

By the time the work was done at the end of 1999, the Housing Authority had paid Tony Baiano Construction Co. Inc. $1.52 million, more than five times the original bid.

The cement contract is among several projects, large and small, in which the Housing Authority has significantly gone over budget in the past few years.

Pittsburgh Housing Authority executive director Stanley Lowe: "We didn't know how bad the problems were."

In an examination of five years of authority finances and contracting, the Pittsburgh Post-Gazette found a pattern of overruns on major projects, dozens of "professional services" contracts that were not publicly bid and went over budget, and contracts for extensive legal work, including payments of more than $4 million to one firm alone, that were awarded without competition.

In addition, Housing Authority staffers routinely broke work into smaller contracts to avoid bidding requirements or board review.

The Baiano contracts and other findings from the newspaper review are subjects of an audit under way for the past year by the U.S. Department of Housing and Urban Development's office of inspector general. A report on the audit by the inspector general's civil division is in the draft stage and is expected to be completed in six to eight weeks.

Investigators from the criminal division of the inspector general's office were also present during the audit last year but have not begun a formal inquiry.

Robert Brickley, special agent-in-charge of the criminal investigative division at HUD's Mid-Atlantic District in Philadelphia, would not comment on his office's activities.

The Housing Authority's executive director, Stanley Lowe, said in a recent interview that the financial overruns in various authority projects were largely the fault of managers who were unfamiliar with HUD regulations and who provided lax oversight of the contracts.

Lowe said he didn't learn of projects that were over budget until after work was done or nearly done. For example, Lowe said, he learned of the Baiano contract situation only after he was asked last year by a federal auditor to produce all the Baiano records.

"We didn't know how bad the problems were," said Lowe, who has been in charge of the Housing Authority since August 1994.

Related story
Budget was exceeded on Housing Authority projects both big and small

Records provided as part of the Baiano contract listed 71 instances in which the contractor requested additional funds between June and November 1999 for the concrete work at Bedford Dwellings and Bedford Additions. The items are listed by number and amount only, with no detail about why the extra costs were necessary.

The changes were approved by the former director of the Housing Authority's modernization and development department, who Lowe said did not closely review the requested changes before approval.

Baiano, whose business is located in West Mifflin, did not respond to several requests for comment.

The Post-Gazette began its examination of the Housing Authority's operations a year ago, when it found that the agency went over budget when it spent more than $2.4 million to renovate and furnish a building it leases on Washington Boulevard for its police headquarters.

The Housing Authority took seven months -- from May to December -- to provide the newspaper with records requested under the state's Right to Know Act. Some of the records provided were incomplete, such as a blank contract for the cost of legal services of authority general counsel Michael H. Syme.

The authority did not provide complete invoices for the payments to Syme. But by piecing together available documents, the Post-Gazette determined Syme received more than $670,000 from December 1997 through December 2000.

Before Syme left the law firm of Meyer Darragh Buckler Bebenek & Eck in early 1998, the firm received the lion's share of the Housing Authority's outside legal business -- $4,324,001 between January 1995 and May 1998, according to agency disbursement records.

The Housing Authority's private auditors determined the agency was not properly contracting for legal services because the contracts were being awarded on a piecemeal basis that bypassed HUD's procurement requirements for professional services. Consequently, one law firm ended up with most of the agency's legal business.

The piecemeal contract practice is also part of the inspector general's review of the Housing Authority's operations.

In late 1998, the authority changed its no-bid legal procurement procedures and instituted a policy that allowed a number of law firms to bid for different slices of the agency's work through the submission of proposals.

The Housing Authority did not provide information requested for legal bills from Syme's current law firm, Cohen & Grigsby, which handles the authority's workers' compensation cases.

In addition to the outside legal contractors, the authority has its own legal staff of four lawyers and a paralegal to handle internal agency legal questions.

Cutbacks and re-evaluation

The reviews of spending procedures come at a time of significant cutbacks -- in budget, personnel and housing units -- at the authority.

Demolition of nearly a quarter of the authority's housing units citywide, forced by Congress for largely vacant developments, will require more than 800 people to move and will obliterate most of the Arlington Heights development.

Students learn to use computers at the Development Opportunity Center on the North Side. (Gabor Degre, Post-Gazette)

In 1999, the authority announced it was faced with a 20 percent budget cut from HUD and a $7.2 million deficit. Lowe told some 700 Housing Authority employees that he was implementing an early retirement package that could be accompanied by layoffs. The agency laid off 43 workers last year and lost another 50 jobs through attrition.

The budget problems prompted an agency re-evaluation of its internal operations, particularly the financial division. The result, largely due to the problems with project cost overruns, was a wholesale change in both the agency's structure and personnel, Lowe said.

"People weren't as versed, people weren't necessarily as knowledgeable, people weren't necessarily practicing the HUD rules and regulations to the depth that they should have been," he said.

The authority has had three finance directors in the past few years and eliminated and replaced personnel in other top jobs responsible for overseeing contracts. Lowe said the authority implemented new policies in July designed to monitor spending and crack down on contract overruns.

The agency's procurement policy has not changed -- contracts of more than $10,000 require seeking three bids or proposals and Lowe's approval, and contracts of more than $50,000 require approval of the authority board. Lowe acknowledged the agency regularly issued piecemeal contracts just below those thresholds that avoided competitive bidding and extra scrutiny. Tighter management policies will attempt to eliminate the practice, he said.

The inspector general's pending audit -- Lowe said he expected it to be critical -- follows another HUD report in October 1999 that determined the agency misspent $887,914 from Drug Elimination Grant programs in 1994, 1995 and 1996. The agency announced three weeks ago that it had justified $176,200 in spending but that HUD intended to deduct $711,714 from the authority's Drug Elimination Grant program for the next fiscal year, which begins Oct. 1.

Included among the questionable expenditures uncovered in the audit 18 months ago was $115,482 for 53 computers and other equipment for what was called the Manchester Technology Center, which is in rented office space on Western Avenue. The inspector general concluded that the computers were not a legitimate expense because the center was set up to benefit only public housing residents in Manchester and not the rest of the city.

Those computers are now in two adjoining row houses in Manchester that the authority began renovating in 1998 for a computer and home-ownership training center open to all residents of public and subsidized housing administered by the Housing Authority.

That renovation has gone 100 percent over budget.

Through 2000, the authority spent at least $1,480,937 on the Liverpool Street facility -- double the original $738,236 bid to perform the renovation project. That spending is more than nine times the $160,000 the authority initially paid for the structure in 1997, when it bought 1205 Liverpool St. from the Manchester Citizens Corp., a North Side community organization that Lowe used to run.

Costs for the facility, now called the "Development Opportunity Center," include handmade ornamental iron curtain rods in a second-floor administrative office, custommade bookcases and more than $60,000 in fees to architects and interior designers, who occasionally met with Lowe to review the art, draperies and other details of the project. The buildings were expanded in the rear; an elevator was added.

The $1.4 million does not include the costs of furniture around the facility, some of which is still in plastic, or the artwork on all three floors, including mobiles hanging in a second-story atrium; several framed photographs of Louis Armstrong, Miles Davis and other jazz greats; and prints by Diego Rivera and other artists.

The authority did not provide invoices for those purchases as requested last year by the Post-Gazette. Documents to explain the construction overruns were not provided.

Lowe said some of the overruns were due to foundation problems from water in the soil beneath the Liverpool Street building.

The main task of the center is to provide computer classes and home-ownership training to residents who want to move out of public housing. Of the 10,000 eligible households for the home-ownership program citywide, 168 people, mostly from Manchester, are enrolled in the program, administrator Jack Lewis said.

The authority followed a similar spending pattern during the renovation of its administrative offices on the ninth floor of the John P. Robin Building, Downtown. Many documents on the 1998 project requested from the authority a year ago were not provided, including invoices by the interior designer, the architect and asbestos abatement contractor, but the costs reached at least $340,000, more than 60 percent above the bid.

The costs included custommade oak veneer doors; mahogany tables and desks; custommade frosted windows; wood blinds; stereo equipment; valances; draperies and other furnishings.

In addition to those costs, Housing Authority employees racked up 476 hours, including 297 hours of overtime, working on the ninth-floor renovation. The overtime costs, which included union carpenters who made furniture, were $6,402.

The authority also paid other contractors, big and small, more than their contracted amounts.

D&Z Landscape was awarded a $178,910 contract for work at Homewood North Family Investment Center in 1999 and was paid $242,962 total, or 36 percent more than the bid.

One partner of D&Z is Olivia Doswell, 75, a past president of the Homewood North Tenants Association, and the company is headquartered at her Mohler Street home in the public housing development. The other partner is John Zottola, who owns a 30-year-old landscaping company that received $6.5 million in Housing Authority contracts from May 1994 through December 1999.

Unlike Zottola Landscaping Inc., D&Z lists itself in bid documents as a minority- and woman-owned business, which helps the Housing Authority meet Minority Business Enterprise/Woman Business Enterprise contracting goals.

The company qualified as a resident-owned business under HUD rules, which means it is supposed to provide 51 percent profit for the resident, Doswell, and 49 percent for the partner, Zottola.

Doswell declined to answer questions about how much money she received as her share of the profit, and the payments were not reflected in documents obtained by the newspaper. Zottola said he had a vague recollection of his partner and their company.

"I don't remember," Zottola said when asked about D&Z. "I don't know. We were partners or something."

Overall, construction of the Homewood North Family Investment Center was supposed to cost $1,193,000 but went over budget by more than $86,500 for a 7 percent increase overall. As with the other projects, the Housing Authority provided no detail in documents about the reasons for the cost overruns.

When he took over in 1994, Lowe said, he inherited an agency that was full of problems and that faced imminent placement on HUD's troubled list. Since then, the Housing Authority has received high marks on HUD's performance ratings and has begun the slow process of demolishing traditional public housing and rebuilding housing in public-private partnerships.

As the head of the agency, Lowe said, he is ultimately responsible for the authority's problems. But, he said, he has relied on his subordinates to do their jobs and that hasn't always been the best thing.

"I'm not saying this out of the context of me being responsible," Lowe said. "I am. [But] when you have as many employees as we have -- at one time it was up to 800 and now we're down to 550 -- there is a certain level of belief that you have competent people. And there's a certain belief that a lot of them are here to do good. It is difficult to keep remembering that in some instances you're stuck with the deck you were handed."

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