The Profits For Running New York's Rent Assistance Program Were Too Damn High
Last year's federal emergency rent assistance program was seen as an absolutely vital tool to keep people from being evicted when the pandemic eviction moratorium ended. The state of New York's share of the funding was some $2.4 billion that was aimed at keeping people in their homes. But there were problems getting the New York program up and running. Guidehouse, the consulting firm hired to manage the program, got a no-bid contract in May 2021, but help to renters didn't actually start flowing until August.
Then in November, the Washington Post reports, Guidehouse CEO Scott McIntyre bragged to employees in a video presentation that they'd not only done a terrific job, but that the company had done quite well for itself, too.
“We’ve earned $115 million in six months, with 38 percent margins, and we have a significant extension that is currently pending,” he says in the presentation[.]
A 38 percent profit margin is pretty darn good pay for keeping some people off the streets! Way better pay than any of the renters make, to say nothing of the folks who were left up Eviction Creek when the program's money ran out.
The Post story explains that New York originally solicited bids to run the program in January of last year, and eight companies submitted proposals. But in May, then-Gov. Andrew Cuomo cancelled the bidding process and the state granted the contract to Guidehouse. But even after Guidehouse got the contract on May 4, New York's program was one of the slowest in the country to actually get payments to renters. The Post found that Guidehouse
did not make any payments for renters in May, June or July, and hardly sent any funds in August, according to the U.S. Treasury Department, which distributes the money to states and municipalities under the federal Emergency Rental Assistance Program (ERAP).
Once the payments started going out, at least, the money got to lots of people pretty quickly — particularly after 19 members of New York's congressional delegation complained about how slowly the state was getting help to people who'd been promised help with back rent. The group, which included Senate Majority Leader Chuck Schumer, Sen. Kirsten Gillibrand, and Rep. Alexandria Ocasio-Cortez, wrote a sternly worded letter to the state on August 5 asking why the payments weren't going out yet.
Guess the letter did its job!
Guidehouse and the state then kicked the program into gear, fixing technical problems that had plagued application intake early on. They ultimatelyprovided $1.35 billion to pay renters’ bills and approved another $661 million to be distributed, according to the state’s data.
In his November speech, McIntyre praised Guidehouse employees for the bang-up job they'd done of delivering "over $1 billion of loans and fees rather in three months, to help people stay in their homes across New York.” He also seems to have stretched the truth just a wee bit, saying the rent relief program got off to a "real rocky start," but that the rocky bits happened "before we got involved."
Maybe he meant the months between January and May, before Guidehouse got the contract. But again, no payments went to renters and landlords for roughly the first three months once Guidehouse was involved. Getting the $45 billion in rent and utility assistance authorized by Congress to actual renters was a problem throughout the country, but the Post notes that Treasury Department records show only two states, New York and South Carolina, took until August to even start processing payments.
This is where we'll note that Guidehouse issued a statement saying that when McIntyre talked up that "38 percent margin," he somehow didn't actually mean the company made a profit of 38 percent on the $115 millioncontract, heavens no! The Post explains Guidehouse's explanation:
“This number represents a Guidehouse-specific internal management reporting metric,” the statement, issued on behalf of spokeswoman Joy Jarrett, said. “It does not represent actual profit for a project because it does not include the total costs for delivering the engagement, such as information technology, finance, facilities, human capital, and management in addition to the broader organizational costs of labor and expenses across multiple business segments that participated in the project.”
Instead, the statement claimed, the contract's “actual profitability” was totally “in line with our historical metrics and is consistent with our publicly reported competitors of approximately 13-16 percent.”
See, it was a margin of 38 percent of something, just not 38 percent of the full contract. Maybe that's even something that'll be substantiated by some kind of documentation! It would be rude not to take the company at its word, or at least its January 2022 word over the CEO's November 2021 word.
That said, the Post spoke with two anonymous former Guidehouse executives who said nah, it would be weird for McIntyre to say 38 percent if the real profit margin had been something else.
“You take the total revenue generated from the contract, and deduct payroll, project overheads and corporate costs to calculate gross profit,” one of the former executives said. [...] Those profits are then distributed to partners, executives and other shareholders such as the company’s private equity owners, Veritas Capital.
The other former executive said that had he been at the meeting, “My takeaway would be that we made 38 percent out of $115 million.”
He said Guidehouse typically considered overhead costs ahead of time in determining margins. “I would expect all of that stuff to be baked in before they calculated the 38 percent,” the former executive said.
As we say, SO RUDE to question the perfectly reasonable 38 percent really means 13 to 16 percent explanation.
Justin Mason, a spokesman for the New York Office of Temporary and Disability Assistance, which oversees the rent assistance program, said in a statement that
It is beyond troubling that a company partially responsible for recurring technical issues in the processing of applications and payments for New York’s Emergency Rental Assistance Program would allegedly boast of its success in profiting off the misfortune of tens of thousands of New Yorkers adversely affected by the pandemic.
Mason added that his agency would take a look at Guidehouse's profits and whether it operated within state contracting guidelines.
The Treasury Department wouldn't comment on the New York program, but the Post notes that the Department and its inspector general have the power to look into contractors and make sure federal funds get to people who qualify for them, please take a hint, everyone involved on the Treasury side, ahem.
Oh, yes, WaPo also mentions that New York's rental assistance program ran out of money in November, which kind of sucks for people who couldn't work because businesses started shutting down when the Omicron wave came along. The state shut down applications for aid, and now it's being sued by people who might have qualified for the program but were shut out when New York stopped taking applications. Earlier this month, a state Supreme Court judge ordered the state to start taking applications again.
Gov. Kathy Hochul requested another $906 million from the Treasury department, but Treasury said only a fraction of that was available, just $27 million. Well sure, get that to New Yorkers who need it, and maybe choose another contractor, too.
Good news for Guidehouse: At least it had nothing to do with shutting down the applications back in November, so it's not named in the lawsuit. The poor consulting firm has plenty on its plate already. Let's hope a Treasury investigation is dropped on that plate soon, too. Rude, but seems like a good idea.
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