Explainer: How the SDA Was Built — and Became Scandal-Ridden

Carly Sitrin | April 15, 2019 | Explainer
New Jersey’s Schools Development Authority is mired in controversy over its CEO’s hirings and firings. But the SDA has a history of troubling activities

The New Jersey Schools Development Authority was created with the best intentions: to completely fund construction and renovation in 31 of the state’s poorest school districts. But over the past two decades, the SDA and its predecessors have been plagued by political misconduct that is putting its future — and constitutionally mandated mission — in peril.

The latest controversy to thrust the authority into the public eye for all the wrong reasons involves current CEO Lizette Delgado-Polanco; her attempts to reorganize the SDA have resulted in mass firings, replacing employees with well-connected individuals whose qualifications are questionable, all the while schools continue to decay across the state.

Complicating matters, Delgado-Polanco has said the authority is out of money and will need more to be able to serve its purpose for New Jersey children. But given its history, convincing the Legislature to sanction more bond money for the SDA will require lawmakers to put aside scandals of the past and present.

What is the SDA? The Schools Development Authority is an independent agency that pays 100 percent of the cost, as well as overseeing the construction and design process, of school buildings in 31 so-called SDA (or Abbott) districts in the state. It also contributes grants to non-Abbott districts (known as Regular Operating Districts), paying up to 40 percent of those costs but it does not oversee construction for these.

Credit: SDA
Groundbreaking for an SDA school construction project
Its portfolio of 43 active projects is valued at approximately $2 billion — 18 capital projects, 25 emergent (emergency) projects and several ROD grants. The SDA has 232 employees.

Over its lifetime, the SDA has built 83 schools, carried out 78 major renovations and additions, and 354 health-and-safety repairs in the Abbott districts, spending nearly $9 billion in these areas and more. It has also built eight schools and done 18 extensive renovations in non-Abbott districts.

Under Christine Todd Whitman: Before the year 2000, school construction in New Jersey was handled by each district. If they needed a new building or, say, a new boiler, they would have to go to local taxpayers, find architects and contractors and handle the project within the district.

In 1997, the state Supreme Court decided Raymond Arthur Abbott, et al. v. Fred G. Burke, et al. (the Abbott IV decision) which stated that the 31 special-needs urban districts in New Jersey had school facilities that, on average, were much older than those in non-Abbott districts and required more maintenance and renovation. What’s more, these poorer communities would not have the same advantage of being able to go to the taxpayers to fund them.

Thus, in July 2000, then-governor Christine Todd Whitman signed the New Jersey Educational Facilities Construction and Financing Act (EFCFA) into law. That radically changed the way school construction finance was handled. It established a School Financing and Construction Program within the Economic Development Authority (EDA). That program took over the financing, design and building of all school facilities projects in the 31 Abbott school districts. It also covered school districts that received 55 percent or more in state funding for education and districts that were designated “Level II State monitoring” (or under state control).

But it became clear that the EDA, while adept at handling the financing for these projects, was in over its head when it came to expertise in construction, masonry, and design.

McGreevey’s effort: In 2002, then-Gov. James McGreevey issued Executive Order No. 24 which authorized the EDA to establish a subsidiary corporation, called the New Jersey Schools Construction Corporation (SCC) that would “provide a more concentrated focus and streamlined approach to the timely and efficient construction and financing of quality schools in New Jersey.” That corporation was to focus solely on building school facilities whereas the EDA had other concerns to deal with. The SCC was delegated all the responsibilities of the school construction program under the EDA other than the EDA’s power to incur debt.

Credit: NJTV News Online
There was a construction boom under former Gov. Jim McGreevey
There was a school construction boom under McGreevey, who wanted to point to school building successes in his re-election campaign. The new agency pumped $1 billion into building contracts — more than eight times the amount spent in the previous two years. The SCC also doubled the number of contracts with architects and the amount spent on acquiring land. And it went on a hiring spree from 2002 to 2003, bumping staff totals from 70 to more than 200.

But it was soon discovered that the corporation was not operating quite as smoothly as hoped.

A Star-Ledger investigation in 2005 found that the SCC had approved contract changes costing more than $500 million and paid $216 million to several project management firms — more than triple the rate local school districts paid their construction managers. The analysis of school construction in New Jersey since 2002 showed six projects under the SCC cost, on average, 45 percent more than 19 schools built without the agency’s oversight during the same period. And it found that while some of the discrepancy had to do with higher costs of construction in urban areas, much more was the “result of massive cost overruns, layers of bureaucratic oversight and an aversion to saying no to contractors and school administrators.”

The Ledger also found that the SCC was a haven for well-connected political appointees and the influence of South Jersey Democratic political boss George Norcross.

“There’s no question that some people in the McGreevey administration saw that the greatest value of the Schools Construction Corporation was political and not actually building schools,” Rick Thigpen, a former executive director of the Democratic State Committee who was hired to help the SCC improve its community outreach told the Ledger in 2005.

In January 2003, it was discovered that the program was completely out of money. And with a budget crisis in full swing, there was no way it would be able to make up its multibillion-dollar shortfall.

Then, McGreevey resigned in 2004.

Investigating the forerunner of the SDA: On the heels of the Ledger story, McGreevey’s successor Richard Codey ordered an investigation into the SCC by then-state inspector general Mary Jane Cooper. Her report found waste, mismanagement, fraud and abuse of taxpayer dollars at the corporation.

“An inquiry initiated on February 14, 2005 by the New Jersey Office of the Inspector General has revealed that the SCC as currently structured and constituted suffers from a wide range of internal weaknesses that not only threaten to defeat its core mission, but also make the agency vulnerable to mismanagement, fiscal malfeasance, conflicts of interest and waste, fraud and abuse of taxpayer dollars,” Cooper wrote.

As a result of that investigation, Codey’s administration suspended the awarding of new contracts under New Jersey’s school construction program.

The SCC functioned on a severely limited basis until August 6, 2007, when legislation was enacted that established the New Jersey Schools Development Authority (“SDA”) within the Department of Treasury, and revised its powers of governance and accountability.

Lobbyists at work: At the same time, the legislation abolished the SCC and transferred all its functions, responsibilities and employees to the SDA. Again, however, the EDA retained the power to incur debt. The new legislation put in writing the SDA’s capacity to plan school construction projects and added safeguards that would enable the SDA to acquire land for school sites at fair market, non-inflated, prices.

But then-Assemblyman Joseph Malone (R-Burlington) who sponsored the school construction financing bill in 2000, said the 2007 legislation was watered down and fell victim to lobbyists. Malone said he had pushed for more accountability measures and standard building plans so that costs would be minimal and predictable for each school project. But, he said, powerful lobbyists from architecture and contracting firms shut that down and it never made it into the final bill.

“It haunts me to this day,” Malone told NJ Spotlight.

“We kept asking ‘what are you spending the money on? It’s not going to kids or schools, it’s going to everything else,’” Malone said. “It frustrated the hell out of me for my remaining 12 years in office and I still think about it several times a week.” (Malone served in the Assembly representing District 30 from 1994 to 2012 and was the Assembly’s Budget Officer from 2004 to January 2011.)

But the bill passed and in July 2008, legislation was enacted authorizing $3.9 billion in additional funding for the SDA. Of that, $2.9 billion would go for the 31 Abbott districts and $1 billion would be set aside for construction in Regular Operating Districts (RODs), which included $50 million for vocational schools. The reason why that ROD money was included in the legislation, Malone explained, was because the bill would never have made it out of committee if it didn’t have something in it for every district. No one would vote for legislation that would only give money to a select few districts.

Credit: Amanda Brown
Marc Larkins
When Chris Christie took over the governorship in 2010, he put all new SDA contracts on hold and installed Marc Larkins as chief executive of the authority. Larkins saw the dire financial position that the SDA was in and immediately began taking austerity measures. He pared down the organization’s staff by 30 percent. He also re-did the way the SDA did business and moved to a design-build model rather than the previously used design-bid-build model.

Attempt at greater efficiency: The change was pivotal in making the SDA’s process more efficient and cost effective. Under the old model, the SDA would put a bid out to architects, and they would submit plans. The SDA would pick the architect and design plans and would then go to bid those plans to builders who would say how much it would cost and pick their contractor. The problem with this method, Larkins discovered, was that once a builder went to build the facility, there would inevitably be numerous change orders as construction reality would not always line up with neat architectural blueprints. Larkins found that the SDA was paying huge sums for those change orders — close to $3 million per contract, by some estimates. In some cases, like the Burlington City High School project, change orders amounted to more than $18 million.

Larkins switched to a model that meant the SDA only went out to bid once and would ask contractors to pair with architects to submit a design plan and cost estimate at the same time. All the design defects would then be their issues to fix rather than the SDA’s and the authority largely stopped paying for change orders.

During the retooling process, actual construction slowed down significantly, and the SDA built hardly any new schools. In 2013, Larkins was moved into the state comptroller position and Charles McKenna became head of the SDA.

After McKenna took over, the authority slipped into relative obscurity. Attention occasionally was paid to it, as when community members raised concerns when high schools in Trenton and Camden were torn down. But for the most part, the SDA went about its business with little to report.

That was until Delgado-Polanco entered the picture in 2017.

How the SDA operates day to day: The SDA deals with three types of projects: capital projects, emergent projects, and ROD grants. Capital projects include construction of new schools, large-scale additions, and major renovation projects. Emergent projects deal with repairing things like roofs, windows, plumbing, electrical systems and anything that poses potential health and safety risks. And ROD grants go to non-Abbott districts to address health-and-safety issues, overcrowding, special education needs, or full-day kindergarten requirements (such as building additions or making sure space is available if that district has been mandated to provide the service.)

The Department of Education is tasked with reviewing all applications for all projects and deciding which schools will get each category. Some sources close to the SDA system have decried this process as the DOE does not have engineers or contractors in its employ and may not be best suited to make such decisions. Regardless, the SDA must oversee the funding, planning, design, and construction of all these projects.

Credit: NJTV News
Lizette Delgado-Polanco, CEO of New Jersey Schools Development Authority
And though the SDA audits 100 percent of its projects that cost more than $10 million, the authority is not required to conduct a survey of all school facilities in its purview — which means the condition of all school facilities in the Abbott districts is largely unknown. Delgado-Polanco sought to solve this problem through statewide site visits and community outreach, a method that has won her loyalty and support from advocates who say they’ve never dealt with the SDA so intimately as they are now.

What next for the SDA? The authority is once again mired in scandal which makes its future uncertain. Delgado-Polanco said at a budget hearing last week that, after borrowing more than $12 billion — in its first funding round when it was established — to build new schools the authority, is finishing the last of those projects and has $60 million left for emergency repairs, a sum that will only cover projects for the next six years. But the Legislature will likely have a hard time voluntarily pouring more money into an authority with a deep history of mismanagement that’s under the microscope again. At the same time, some education advocates are pushing the state to re-evaluate the Abbott district status altogether, arguing that districts like Hoboken no longer need the support they did in the late 1990s when the court decision was handed down.

Senate President Steve Sweeney (D-Gloucester) has made it clear he would prefer folding the SDA back into the EDA, which some sources said could be disastrous for school construction in the state. What would happen in that case is the EDA would likely be used as a funding mechanism and districts would have to handle the construction themselves, something that could potentially lead to a lot of waste as not every district — regardless of wealth — has the construction knowledge or capacity to employ it. Others, however, said that requiring state oversight for the Abbotts but not the RODs is inherently discriminatory; they suggested that giving back control on contracting to every district may level the playing field.

In the end, legislators are faced with big problems revolving around the SDA: They sought to bond $1 billion last July to fund school construction upgrades. However, that amount was knocked down to $500 million by November when Murphy conditionally vetoed the bond authorization, expressing concerns about New Jersey’s significant debt burden.

Meanwhile, schools are crumbling and the SDA needs by some estimates, a minimum of $8 billion ($4 billion for capital and emergent projects and $4 billion for ROD grants) to keep its head above water and continue to finance new school construction projects. All the while, Delgado-Polanco is mobilizing communities to pressure lawmakers to fund her authority for the good of the state’s children.

Former Assemblyman Malone said he doesn’t see significant reform in the authority’s future.

“Unless you have people willing to be accountable you won’t change it one bit,” Malone said. “Taxpayers suffer and kids suffer. It’s a tragedy of the highest magnitude.”

Delgado Polanco has since resigned as CEO of the SDA and Manuel Da Silva has been acting as interim CEO. The Murphy administration released three investigative reports on July 24, 2019 that resulted in the firing of 30 state employees, 27 of whom had been hired by Delgado Polanco. None of those hired during Delgado Polanco’s tenure remain on staff at the agency.

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