State outsourced allocation of federal disaster recovery funds to firm with ties to Perry

Enlarge This Image Matt Slocum/ASSOCIATED PRESS Debris sits on a seawall road in Galveston after Hurricane Ike hit. The 2008 storm left 75 percent of Galveston's structures damaged. Enlarge This Image Enlarge This Image Rick Bowmer/ASSOCIATED PRESS Rick Bowmer 2008 associated press Workers remove mud from businesses in Galveston's historic downtown district after Hurricane Ike in 2008. State officials had planned to award grant money by 2013 but have pushed that date to 2015.

AMERICAN-STATESMAN STAFF

Updated: 8:29 a.m. Tuesday, Oct. 4, 2011

Published: 10:12 p.m. Monday, Oct. 3, 2011

The state of Texas has quietly outsourced the management of more than $1 billion in federal disaster recovery funds to an engineering firm with close ties to Gov. Rick Perry's administration, paying the Kansas City, Mo. -based firm HNTB $45 million so far to process infrastructure grants for communities damaged by Hurricanes Dolly and Ike.

The company's billings threaten to exhaust the amount budgeted for administrative and planning costs, while only 20 percent of the first round of money released to Texas to aid disaster recovery grants has been spent three years after the storms. Based on the state's original timeline, at least half those projects should have been completed by now, federal officials say.

The problems have caused officials with the U.S. Department of Housing and Urban Development to voice alarm and begin quarterly reviews in an attempt to get the program back on track.

Hiring a private firm to handle what has been termed the largest public works project in the state's history is unusual, federal officials say.

Weeks ago, the Texas General Land Office cancelled HNTB's contract, which had ballooned from $69 million to $144 million as the firm assumed more responsibility for disaster grants during a downsizing of state government. But HNTB continues to run the infrastructure program on a temporary basis at its downtown Austin offices, where about a dozen state employees also working on the program have been relocated.

Congress appropriated $3.1 billion to help Texans recover from the hurricanes that struck the Gulf coast in 2008. Fifty-five percent of the money ($1.7 billion) is for housing, and 45 percent ($1.4 billion) for nonhousing projects — everything from emergency generators to new water and sewage treatment facilities. Of the total $3.1 billion, $1.3 billion was released in the first round of funding.

Most media attention has focused on problems with post-hurricane housing assistance, which has been managed by the Texas Department of Housing and Community Affairs.

In Houston, the first new homes to replace those destroyed by Hurricane Ike were only recently completed. In Galveston, where 75 percent of the island's structures were damaged in the 2008 storm, the initial $259 million phase of rebuilding has been plagued with local delays, dissent and complaints about padded costs and inadequate inspections of rebuilt homes.

The role played by HNTB in managing grants for nonhousing infrastructure — originally the responsibility of the now-defunct Texas Department of Rural Affairs — has largely escaped public attention, but not the federal government's.

In a May letter to state officials obtained by the American-Statesman, Stanley Gimont , director of block grant assistance for the U.S. Housing and Urban Development, said that using HNTB "to administer virtually all aspects" of the state agency's work on the community development block grants "presents significant cause for concern." Gimont said that as an engineering firm, HNTB lacked experience with community development block grant programs — the funding vehicle for Ike and Dolly disaster relief.

"There are fundamental responsibilities that must not be ceded by the state to a third-party contractor," he wrote. Those responsibilities include "proper monitoring" of local grants and policy and program guidance on the proper use of community development funds, he wrote.

The letter, which also cited a half-dozen deficiencies in the housing portion of the disaster program, raised questions about the state's oversight of HNTB, including:

• The department of rural affairs was in disarray, its disaster recovery staff had been reduced from 42 employees to 10, and it had "no procedures or policies in place to oversee" HNTB's work.
• The state's contract with HNTB lacked performance measures and carried the potential for "considerable cost increases."

In June, HUD warned that the rate of spending on administrative expenses, which as of Aug. 31 totaled 92 percent of what's been budgeted, could jeopardize the processing of construction projects in the second round of funding.

On July 1, Perry moved oversight of disaster recovery to an elected official, General Land Commissioner Jerry Patterson, "to provide more accountability." About a dozen employees of the department of rural affairs, which the Legislature abolished at Perry's request, and 51 from the department of housing and community affairs — all working on disaster recovery projects for those agencies — were transferred to the land office's payroll.

"I'm taking a hard look at the whole program," said Gary Hagood , deputy commissioner of financial management at the land office. "I look at every dollar that goes out of here."

His priority, he said, "is to get stuff done in a timely manner. Every contract will have timelines. They had no timelines before — they just set it on the back burner."

Hagood canceled HNTB's contract as of Aug. 31, four years before it was to expire, and split the disaster recovery work into two parts, engineering services and grant management. The land office posted a request for companies to submit their qualifications to finish the job. Hagood said 10 to 12 firms have responded, including HNTB, and that future work might be contracted out to several vendors in coming weeks.

For now, HNTB continues to run the program. Tom Wendorf , HNTB vice president in San Antonio, said that with some adjustments to the scope of work and the new oversight under the land office, "we fully expect to continue to work toward completion of the infrastructure projects" in 2015. State officials originally expected to have the entire $3.1 billion in federal funds spent by 2013.

Long ties to Perry

According to its website, HNTB was founded in 1914 as a railroad bridge design firm and has designed "a significant portion" of the interstate highway system. Its headquarters are in Kansas City, Mo.

Almost all of the firm's business is with public agencies, said Wendorf, and during Perry's administration its presence in Austin has grown.

It was the principal consultant for Perry's first — and largest — pet project as governor, the proposed $184 billion Trans-Texas Corridor, which succumbed to widespread public opposition in 2010. Since 2008, the Texas Department of Transportation has paid HNTB $109 million for engineering consulting services, according to records with the state comptroller. Ray Sullivan, communications director for Perry's presidential campaign, has been a lobbyist for HNTB.

The firm is one of 139 major "crossover donors" identified by Texans for Public Justice who have contributed substantial sums to Perry and the Republican Governors Association, which Perry has twice chaired. According to campaignmoney.com, HNTB and its executives have given more than $500,000 to the association, which has sent $4 million to Perry's political campaigns.

By most accounts, the Department of Rural Affairs — a 70-employee agency that normally dispensed less than $100 million in grants to rural communities each year — was overwhelmed in 2009 when it got the job of managing $1.4 billion in disaster-related public works projects. The department hired 40 new employees, expanded its offices and turned to HNTB to manage the anticipated deluge of 6,000 community development block grants.

Exactly how HNTB was chosen is not clear; because its contract was for professional services, it was not subject to a bid process. State records show the firm was paid $45 million under the contract before it was canceled.

Counting a $3 million contract with the land office for post-Ike debris removal and an earlier $8 million contract with the Department of Rural Affairs for assessment of hurricane damage, HNTB has earned $56 million for its hurricane-related services to the state in the past three years.

In 2010, the Obama administration began looking closely at overhead expenses for community development block grants nationwide and found that Texas was rapidly spending down the money budgeted for administrative and planning costs for disaster-related infrastructure grants. Federal guidelines set a limit on such expenditures.

In February, rural affairs Director Charlie Stone laid off a number of upper-echelon employees and assigned more responsibilities to HNTB. That raised concerns on the part of federal officials that the result was "a significant gap in the agency's ability to interpret, understand and comply with" federal grant requirements.

Critics have questioned whether some projects approved in the first round of funding met the federal criteria of serving areas with the greatest unmet need and replacing infrastructure that was damaged or functioned inadequately as a result of the storms.

Many infrastructure grants were made to buy emergency generators. Lufkin, unharmed by the storms, is doubling the size of its civic center, which served as a temporary shelter for Ike and Rita evacuees.

And in other East Texas counties far from the coast, new roads, water lines and community centers are planned.