Another Philly corruption scandal unfolding – DRPA federal grand jury investigation

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April 5, 2013
By Peter Samuel

2013-04-04: The Philadelphia Inquirer’s Paul Nussbaum reports this morning that there’s a major federal investigation of crimes allegedly committed in the name of “economic development” involving the Delaware River Port Authority (DRPA) the bistate agency that operates the four major toll bridges linking Philadelphia with the south Jersey suburbs on the east bank of the Delaware River. It also operates a big lossmaking rail transit line to south Jersey and has lost money on an array of socalled economic development projects and social and civic sponsorhips.

The Inquirer reports that Zane Meminger the US Attorney for Philadelphia and the east of the state recently served a subpoena on DRPA to preserve records needed for a criminal investigation. DRPA chief executive John Matheussen confirms the receipt of the subpoena and a DRPA spokesman is saying the agency will “cooperate fully.” A memo was sent to all employees in recent days ordering them not to destroy any records relating to “economic development” projects supported by the authority.

Where the Pennsylvania Turnpike has been a spoils system based on a Republican and Democrat or bipartisan sharing, the bistate DRPA apparently has been based on New Jersey and Pennsylvania spoils sharing, spoken of within DRPA as “bi-state parity.”

According to Nussbaum’s report federal investigators have focussed on DRPA’s dealings through a Philadelphia Industrial Development Corporation in which the Mayor of Philadelphia and the president of the local chamber of commerce were involved. $13m in DRPA funds provided in 2010 to PIDC supposedly acting as its agent in forwarding money to “small, emerging and new businesses” seems to have gone to large, established and old businesses of the politically connected.

The New Jersey state comptroller’s office led by Matthew Boxer last year documented huge malfeasance at DRPA over many years. Boxer’s report found that DRPA in contravention of its charter had ignored a backlog of bridge work in order to fund so-called economic development projects – subsidies to developers. And it was engaged in disbursing funds to favored civic groups under the rubric of a “Social and Civic Sponsorship Fund.”

When there wasn’t generated sufficient surplus from tolls DRPA simply issued toll revenue bonds to generate the political slush money. Use of the funds was purely a drain on the toll bridges, Boxer said.

Such projects were approved with little due diligence or documentation, the NJ Comptroller wrote, and without regular reporting on the results.

Against the advice of a financial consultant DRPA moved in recent years from loans to grants, making the accountability worse.

The so-called “Social and Civic Sponsorship Fund” made grants without any objective selection criteria, with little information on its proposed use in  an “informal manner.” p7

The report found:

“The majority of funds went to organizations linked to DRPA commissioners and executive employees; and… the funds largely went to organizations that provided a personal benefit to DRPA officials in exchange for a contribution (e.g., tickets to galas, dinners and sporting events).” p7

Official says she was talked to “like I was dealing with the fucking Mob or something”

Boxer’s report also found that DRPA had schemes for favored insurance brokers and other service providers to  form rings that shared contracts and  commissions. This enabled them to jack up prices well beyond what a competitive procurement would have set.

Minority and disadvantaged business preference was also used to limit competition for work and open the way to high pricing by supposed minorities or disadvantaged companies. p20 The Orwellian nature of such language is clear in that these companies were in fact being ‘advantaged’ by preferential treatment. Their membership of some ethnic group was all that gave them ‘disadvantaged’ standing.

“True-ups”

Under a spoils system harmony was maintained with ‘true-up’ grants by one crony business to another. Mary Rita D’Alessandro an official at DRPA told the comptroller’s investigators of her frustration with senior staff over the corrupt nature of ‘true-up’ arrangements between favored brokers as follows:

“I have been beating this drum with Matheussen, Joyce and Gross (all DRPA senior officials) and all I ever got was a closed door meeting where I was told ‘you don’t want to get in the middle of this’ like I was dealing with the fucking Mob or something.”

She says she was told the ‘sharing’ arrangements among favored brokers went “further above your head than you know.”

On DRPA’s involvement in “economic development” Boxer’s report says:

“Over the last two decades, DRPA has engaged in a massive economic development campaign with money it did not have, and funded this campaign through a pattern of borrowing that was imprudent and detrimental to its financial standing. This course of borrowing also violated the terms and spirit of DRPA’s charter, which called for spending on economic development projects only with ‘funds available after appropriate allocation for maintenance of bridge and other capital facilities.’

“Moreover, DRPA failed to follow its own policies and procedures in administering its economic development program. Its project application and approval process was informal, apparently relying in large part on personal relationships with individuals associated with DRPA. Similarly, DRPA’s project monitoring process did not properly safeguard DRPA’s economic investments. In addition, over the last ten years, DRPA shifted its economic development focus from awarding loans to outright grants, requiring and resulting in even less due diligence and oversight. Lastly, DRPA violated the terms of its charter by failing to update its Master Plan to include any new economic development projects since 2005, thereby depriving the public of required notice of these projects and an opportunity to provide scrutiny and feedback….”

“In total, DRPA has expended almost a half billion dollars on economic development projects since the 1992 Compact amendment. The spending initially decreased after John Matheussen became DRPA’s CEO in 2003, yet, ironically, dramatically rose in 2008 once DRPA publicly proclaimed its intention to curtail such projects. In 2010, the Board passed a resolution ending the funding of any new economic development projects.”

The Boxer report found rampant abuse of free E-ZPass accounts, not only by commissioners and staff making free trips unrelated to their work but “more than 50 individuals with no affiliation to DRPA.”

Subsequently the free E-ZPass program has been shut down, then revived by the DRPA board, the revival being vetoed by NJ Gov Christie. Then it was revived again by a labor arbitrator on the grounds that free E-ZPass (called ‘NON-REV E-ZPass) was part of the union contract and the Governor’s veto constituted breach of contract.

Once an E-ZPass account at DRPA was ‘NON-REV’ an unlimited number of actual transponders could be linked to that account allowing the NON-REV account holders to spread the benefit to family and friends and beyond.

Finances

DRPA’s latest annual report (for 2011) shows it had revenues of $300m (tolls being $268m of that), operating expenses of $140m (rounding the numbers). Against the $160m operating surplus it charged $50m for depreciation and $90m in other costs, mostly interest on debt, for $20m net.

It counts $1,836m as total assets and $1,669m as total liabilities. That leaves net worth of $170m.

A Port Authority with no port EDITORIAL

DRPA is an entity of dubious legitimacy. Based on a solid revenue stream from its four toll bridges it represents itself as getting involved in various other businesses for the public benefit. But its selection of projects to be supported is based not on what consumers value and which will generate a return on investment, but on projects or causes favored by the political appointees to the authority board.

The benefits of productive infrastructure like toll bridges could be distributed to citizens who own those facilities by granting them tradable shares in DRPA. Instead the profits are diverted by politicians and their underlings to projects and services that can’t or don’t pay their way. A politically sponsored and politically accountable entity like DRPA, is constitutionally disposed to practice this kind of crooked crony capitalism.

Plus its very name proclaims its bogus character. It has never had any real port. The Delaware River is a lousy shallow and confined river for modern shipping. No docks in Philadelphia can compete with serious ports like those quite nearby in Newark NJ and Baltimore MD.

A ‘port authority,’ it is, without a port.

Pork authority would be more apt – editor.

Click to access report_drpa_032912.pdf

earlier on Boxer report:

http://www.tollroadsnews.com/node/5844

TOLLROADSnews 2013-04-04

Further Reading

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“If we desire respect for the law, we must first make the law respectable.” – U.S. Supreme Court Justice Louis D. Brandeis

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