Razzle Dazzle
Klein Contracts Some Agita

By RICHARD STEIER

It was clear that Alvarez and Marsal, the firm brought in under a no-bid contract to transform the Department of Education, wasn't doing its job when Mayor Bloomberg referred to critics like Betsy Gotbaum as "people who have no experience in doing anything."

Schools Chancellor Joel Klein, it should be remembered, had no experience in doing anything pertaining to public schools - other than attending them as a boy in Queens - until Mr. Bloomberg appointed him. It could be argued that this was why Mr. Klein needed an outside consultant to tell him how to make the school system more efficient.

There are three other reasons that government officials like to use consultants. They tend to be generous campaign donors, but that's not an applicable motive for Mr. Bloomberg. What are more likely explanations in this case is that they allow officials to be free of the strictures that are imposed by civil service rules and union contracts, and - in theory, anyway - they make it somewhat more difficult to hold those officials accountable when something goes wrong.

Savings Not Worth the Aggravation

FEELING THE CHILL: Schools Chancellor Joel Klein is under siege for the problems plaguing the school bus transportation program at a time when he is trying to sell parents on other major changes he intends in the education system. United Federation of Teachers President Randi Weingarten said the recent fiasco will cause many to ask, 'If this is happening to the buses, what's going to happen to the whole restructuring?'

That theory got run over in this case, however. A&M's recommended overhaul of the school bus transportation system, which it estimates will save $12 million a year, has cost the Mayor and Mr. Klein considerably more than that in heartburn. And as much as they tried to characterize parents' outrage as being the result of a few growing pains coupled with shrieks from those whose children shouldn't have been getting free bus service to begin with, the public mood solidified against them.

"What's happening is the Mayor, because his management style is to let managers run the agencies, didn't have any sense of the anger out there towards the school system right now," United Federation of Teachers President Randi Weingarten said Feb. 8, the day after Mr. Bloomberg lit into Ms. Gotbaum and his critics at the City Council. "You have eight or nine days of this, and where the Mayor in the past has been lucky, this time he ran into a situation where it's the middle of winter and the weather didn't cooperate."

Ms. Weingarten contended that the controversy has merely brought to the surface problems that are common, and in some cases have been exacerbated by the departure of senior Department of Education staff.

"This is symptomatic of what parents as well as the union have often found with the school system: you call somebody, you can't get anything done, you call somebody else, you still can't get anything done," Ms. Weingarten said.

The A&M contract had been under fire since last fall, when City Council Members - high on Mr. Bloomberg's "no experience in doing anything" list - questioned why the firm was awarded $15.8 million without competitive bidding.

Deputy Schools Chancellor Kathleen Grimm said during a November hearing, "A&M had the breadth and depth of experience even my distinguished colleagues at [the Office of Management and Budget] didn't have."

This was how Ms. Gotbaum, responding to the Mayor's blast, summed up that experience: "The firm managed to make a mess of the school bus system in St. Louis."

And when the new bus routes proved an immediate disaster, Ms. Weingarten said, the "brain drain at Tweed" in recent years made it harder to adjust to the problems.

'Didn't Know the Neighborhoods'

"What has been lost," she continued, "is a huge amount of institutional knowledge and experience in how to run a big public system. You need that depth of knowledge, particularly when there is something going wrong, and neither the consultants nor anybody else knew the neighborhoods where the problems were the worst. And they had limited the routes by laying off [more than 100] drivers."

During its work in St. Louis, A&M also advocated eliminating a significant number of bus routes as an economy measure. It recommended the closing of 16 schools, the paring of 1,400 jobs - while hiring more managers at six-figure salaries - and the canceling of school-supply orders.

A&M, whose principals are Antonio Alvarez and Bryan Marsal, first got its reputation not for making schools operate better but for turning around the fiscal fortunes of corporations. Its clients ranged from the Timex watch manufacturers to the bakery company that gives us Hostess Twinkies and Wonder Bread.

Along the way, it's trimmed a few ethical hedges. Business Week in 2004 reported that when A&M was dismantling the accounting giant Arthur Andersen in the wake of its facilitating the Enron scandal, it hired six of the firm's turnaround specialists, prompting charges that it was gobbling up the assets of a bankrupt client. In 1996, Mr. Marsal's plan to have A&M receive an equity stake in another troubled firm led the Chief Judge in U.S. Bankruptcy Court in Manhattan to accuse him of having "abandoned the debtors' interest in order to advance his own personal wealth."

Ms. Weingarten remarked, "The consultants may or may not have an expertise somewhere else, but A&M has a very mixed record when it comes to schools."

Twice the St. Louis Rate

During last November's hearing, Council Education Committee Chairman Robert Jackson noted that, in contrast to its having the city school contract handed to it with no competition, A&M got the St. Louis schools contract by outbidding 10 other firms. And so the sweetheart arrangement - A&M was also paid, at a reported hourly average of $400 per employee, more than twice the rate it received in St. Louis - was sure to be used as a club against Mr. Klein and the Department of Education if anything went wrong.

It is hard to imagine how a firm with "the breadth and depth of experience" described by Ms. Grimm - a top official in both the Finance Department and the State Comptroller's Office before coming to DOE - could have miscalculated so badly.

Start with the decision to change the bus routes in the middle of winter, rather than in September, when the tales of hardship for 6- and 7-year-olds would not have included standing in brutal cold for as much as an hour while waiting for their buses. Continue with giving children that age MetroCards and expecting them to fend for themselves, cross major intersections to get to their bus stops and know where and when to change buses - and to not lose the MetroCards somewhere in their travels.

Took the Wrong Tone

In that context, the Mayor's instruction to parents still experiencing problems to call 311 sounded less like helpful advice than a command to quit their whining. And Mr. Klein found himself continuing to play defense at a time when he was beginning meetings with parents throughout the city to explain the major changes - some of them about-faces - he has in store for the schools.

The clumsy handling of the controversy kindled memories of Mr. Bloomberg's first couple of years in office, but letting a consultant lead him down a dark alley was hardly characteristic of his operating style. In overseeing most city agencies, Mr. Bloomberg has showed a refreshing confidence in their staffs, reducing the amount of contracting-out that they do because he believes city personnel are at least as talented and unquestionably less expensive than those who would handle the work if private contractors were imported.

'Likes to Work Within'

"The Mayor looks to work within," Ms. Weingarten said. "When you look at virtually all these other agencies, you see a 'contracting-in' and an effort on the Mayor's part to develop public management."

The policies that have resulted are in striking contrast with those of ex-Mayor Rudy Giuliani, who sought to privatize wherever possible, clearly looking to burnish his standing with the national Republican Party, and, perhaps, greasing the skids for the days when he might have been named "of counsel" to some of the vendors who benefited from his largess while in office.

Ms. Weingarten sees similar tendencies on Mr. Klein's part, although she attributes them to a reluctance to work with the unions rather than a campaign toward future employment.

"There's a reflexive approach to privatize anywhere he can privatize," she asserted. "It failed when Klein tried to do it to custodial services - that's why they never showed you the result of the pilot program."

Bush Overindulges

The Bush Administration is the exemplar of the right-wing prejudice in favor of the private sector at the expense of public (and therefore largely unionized and civil service-protected) employees. It has often seemed to operate by the credo: When in doubt, farm it out.

The results have been spectacular for President Bush's corporate backers, but the American public has gotten its pockets picked. In an article last week that stated that under Mr. Bush, "contractors have become a virtual fourth branch of government," the New York Times outlined the mess that shift has created.

It noted that investigators from the Government Accountability Office determined that the Army had spent 25 percent more than it had to because it awarded no-bid contracts to use private guards to protect military facilities 80 percent of the time. Screening was so lax, according to the GAO, that 61 private guards were hired despite having criminal records. Yet, the story noted, the Army paid more than $18 million in incentive bonuses to those contractors.

Deal Reeks Of Conflict

More recently, and just as stunningly, the story revealed, the General Services Administration retained CACI International to investigate possible wrongdoing by other Federal contractors. Beyond the obvious conflict of interest this posed, there were two other shocking aspects to the award: CACI would be paid $104 an hour for each worker assigned to the reviews, and the firm was probed three years ago for supplying interrogators to the notorious Abu Ghraib prison in Iraq.

In recent weeks, there has been growing anger expressed by Senators in both parties over the administration's use of private collection agencies to dun those who owe back taxes to the IRS. In addition to the potential privacy violations involved, the firms are promised 24 cents of every dollar they recoup for the Federal Government. Given that in-house IRS staff save the government $13 for every dollar spent on them, the cost of using the private collectors makes the interest most citizens pay on their credit-card debts seem a pittance.

What is most remarkable about the cost-benefit ratio of the in-house IRS collectors is that they aren't working on commission.

The argument in favor of using the private sector is that the profit motive leads it to attract the best people and pay them well in order to maximize production.

Incentive to Cut Corners

The problem with that theory is that the profit motive sometimes leads firms to cast aside quality if it might be injurious to the bottom line. The contractor looks at the work with an eye toward satisfying his customer, the employer, and getting paid; in the case of government, the vision ought to stretch beyond keeping the public happy in the short term. The bus-route changes don't even manage that, making it that much more difficult to convince the skeptics that the rest of A&M's agenda for what ails the schools can have a long-run positive effect.

"If this is happening to the buses," Ms. Weingarten remarked, "what's going to happen to the whole restructuring?"

Mr. Bloomberg and Mr. Klein have been under siege for the past couple of weeks from parents, who have found the media all too ready to take up the cudgel on their behalf. For the Chancellor, it is a distinct change of pace from his clashes with the school unions, in which he can generally count on editorial writers to rally to his side, readily accepting his spin that the problem rests with labor contracts and those they protect.

It's those employees and their unions, however, who possess what A&M - as well as Mr. Klein and much of his top staff - lacks: extensive experience in the system and a consequent knowledge of how it works and where it doesn't. And where A&M regards DOE as just another pit stop along the road to bigger, more-lucrative contracts, those working in the school system have more than their pensions invested in it. Except for the most jaded employees, no one is going to be happy with a status quo they know isn't working; most of them would be energized by changes they believed could improve conditions, for them and the students.

Spin or Out of Touch?

And so when the Mayor and Chancellor brush off the calls of the UFT to focus part of the added state money for education resulting from the Campaign for Fiscal Equity case on reducing class size, you have to hope they don't really believe their suggestion that the union is just looking to get more Teachers hired and increase its dues collections. If they doubt that smaller classes matter, particularly in the middle schools, then they either haven't spoken to many Teachers, or believe that all of them have been brainwashed by their union.

Ms. Weingarten in the past has wondered whether Mr. Klein's reluctance to work collaboratively reflects an aversion to sharing credit if his program is successful. Letting a consultant rather than the union do part of your thinking allows you to stand alone in the spotlight.

On the other hand, it also leaves you rather isolated when the bus goes off the road and you, rather than the consultant, have to face the public and explain why.