Governor Andrew Cuomo spent much of the last week making public appearances and delivering speeches to build support for his avowed goal of enacting a mandatory minimum wage of $15 per hour for every employee, public or private, in the State of New York.
But an agency that he directly controls, the Battery Park City Authority (BPCA) appears to be disregarding this policy by paying security guards $12.50 per hour, which is significantly less than guards working for the same company earn when assigned to do the same work for other State agencies. At the same time, the Authority is paying the firm that employs these guards a richer margin of profit than that company earns for the same work at other State agencies.
In a February 18 “telephone town hall” meeting to promote his push for a $15-per-hour wage, Governor Cuomo reflected, “the basics — rent, food, clothing — come to about $30,000, which is what $15 per hour gets you to. Paying for the basic essentials of life, that’s $15 per hour. If you take the minimum wage from the 1970s and index it to the rate of inflation, just inflation since 1970 brings you to our $15 hour proposal. This says, ‘let’s restore fairness in the economic system.'”
Governor Cuomo has already ordered both the executive branch of State government (in November) and the State University of New York system (in January) to comply with this policy. He could have followed suit and demanded that the BPCA (another agency he directly oversees) to do the same. But he has not, and as a result the Authority recently dismissed dozens of Parks Enforcement Officers (PEPs) who were paid a minimum of $17.41 per hour, and replaced them with guards from security firm AlliedBarton, which pays these guards 28 percent less than PEP officers and 17 percent less than the $15 standard to which the Governor has showcased his commitment.
A review of other bidders for the contract won by Allied Barton also shows that several competing firms had promised to pay their staff in line with the “prevailing wage” for security guards set by State regulators, but these bids were rejected in favor of the lower-wage proposal submitted by AlliedBarton. That company was owned (until recently) by the Blackstone Group, a multinational private equity and investment banking giant, where Bill Mulrow (now Governor Cuomo’s most senior aide) served as a managing director before joining the Cuomo administration.
|Governor Andrew Cuomo, speaking in November at a rally held in Lower Manhattan to generate support for his initiative to require a $15-per-hour minimum wage for all New Yorkers. In spite of this high-profile push, the Battery Park City Authority (an agency directly controlled by the Governor) has signed a multi-million dollar contract with security firm AlliedBarton that pays guards $12.50 per hour, which is less than the same company pays guards its provides to other State agencies, and less than the Authority pays to guards provided by another security firm.|
A spokesman for Mr. Cuomo told the Broadsheet, “the Governor’s call for a $15-per-hour minimum wage includes a multi-year phase-in period. By executive order, all state workers now receive this benefit and the Governor is actively pushing to make $15 an hour the minimum for everyone in this state. However, until it is law, independent companies can buy in voluntarily. But requiring some and not all similarly situated employers to do so would create a competitive disadvantage in contracting and in the marketplace. We want to see a livable wage for every New Yorker and will continue to fight for its inclusion in the budget.” When asked specifically why the Governor was permitting higher-wage security personnel to be displaced by those earning significantly less than his proposed $15-per-hour minimum, at an agency Mr. Cuomo directly controls, this spokesman declined further comment.
|BPCA spokesman Kevin McCabe|
BPCA spokesman Kevin McCabe responded, “the contracted salaries for AlliedBarton are in line with the Governor’s recently announced raise in minimum wage for State workers. The Allied Barton employees earn an hourly wage of $12.50 to $15.00 depending on their experience level, plus a significant benefits package that is Affordable Care Act-compliant, among other things. Our AlliedBarton contract provides for a review of services at the end of one year, at which point we will assess our overall experience with the Ambassador program.”
This statement appears to be at odds with the terms of the contract between AlliedBarton and the BPCA, which says nothing about paying guards a range of salaries based on experience. Instead, the contract stipulates a flat, hourly wage for every category of non-supervisory personnel (safety ambassadors, guards on bike patrol, and staff at the command center) of $12.50 per hour, regardless of their experience. The only exceptions are AlliedBarton supervisors (who earn $15 per hour) and the account manager (who earns $26.44 per hour).
Joe Puleo, president of Local 983 (the union representing PEP officers) said, “I’ve dealt with government for 20 years, but I have never seen anything like this. The Battery Park City Authority lies and gets caught, and then continues to lie. The Authority is run by a billionaire, Dennis Mehiel, who doesn’t even live in the community, and has shown time and again that he is going to do whatever suits him. And the rest of the Authority board is just a rubber stamp for anything he says.”
Mr. Puleo continued, “the BPCA gave up a decades-long relationship with uniformed law enforcement officers, so they could subsidize AlliedBarton and commit this fraud on the public. It appears that somebody is getting greased.” He added, “it may not be possible for Governor Cuomo to review in advance every contract negotiated by every State agency, but the BPCA definitely knew what it was doing. The question is, what will the Governor do now that this has been exposed?”
An analysis of the agreement between the BPCA and AlliedBarton reveals that a combination of paying its employees less than it does at other New York State Government facilities, while billing the Authority more than it charges for the same work at other State agencies, will net the firm a windfall of tens of thousands of dollars in additional taxpayer money during the first year of its contract. (The surprisingly lavish compensation for the company appears to contradict the BPCA’s cost-cutting justification for its controversial recent decision to hire AlliedBarton and dismiss the PEP officers who had safeguarded the community for decades.) This divergence will additionally result in AlliedBarton guards being paid almost a quarter of a million dollars less than they would earn under directly comparable circumstances, while also lagging behind several relevant benchmarks — most importantly, Governor Andrew Cuomo’s promise to implement a $15 minimum wage.
This analysis begins with a review of the margins that Allied Barton will earn above the wages it pays to its “security ambassadors,” as the BPCA calls the new guards. While the contract mandates that the firm will pay its guards $12.50 per hour, the same agreement allows the company to bill this service back to the BPCA at $17.09 per hour. This is a markup of 36.72 percent.
That is a much richer margin of profit than AlliedBarton earns when it provides guards to New York State agencies, such as the BPCA, elsewhere. In a 2013 contract with the State’s Office of General Services (OGS), which remains in effect through 2018 and provides guard services for a broad range of New York State agencies, AlliedBarton agreed to pay its guards more generously and take a slimmer margin of profit on their work. Under that contract, AlliedBarton guards are paid between $14.93 and $17.96 per hour (depending on the region of the State where they work), and the firm adds to this a markup of between 25.7 and 27.9 percent. The markup of 36.72 percent that AlliedBarton is getting from the BPCA is greater than one-third more lucrative for the firm than its work for other State agencies.
Contrasting AlliedBarton’s deal to that of another security firm retained by the BPCA reveals a similar disparity. The Authority pays Summit Security to provide guards for its Community Center at Stuyvesant High School. This service is covered by another contract, negotiated between the State’s OGS and Summit, which is in force through 2017. Under that OGS contract (which is governed by the “prevailing wage” standard set by State regulators), the starting salary for a security guard in Manhattan is $13.35 per hour, plus a “supplemental benefit” of $4.76 per hour, for a total hourly wage of $18.11 per hour. But although Summit is required to pay the guards it supplies to the BPCA more than AlliedBarton does, its margin of profit on these guards is narrower than AlliedBarton’s. The OGS contract with Summit limits that firm’s markup to 25.78 percent over its hourly wages.
(It may be worth nothing that the BPCA could have opted to “piggyback” onto the existing State OGS contracts with either Summit Security or AlliedBarton, both of which would have kept the Authority in compliance with the Governor’s demand for a $15 per hour minimum wage, and at the same time lowered the markup it paid, but the Authority chose not to.)
The result of these divergent numbers is that AlliedBarton will derive a windfall of many tens of thousands of dollars in taxpayer money above what it would earn under other, comparable circumstances. The firm’s contract with the BPCA requires a minimum of five guards on duty within the confines of Battery Park City, 24 hours per day, seven days per week, for a total of 840 hours per week, or 43,680 man-hours per year. (For the sake of simplicity, these calculations omit wages for supervisors, and charges for “extras” such as vehicles.) If AlliedBarton were limited to the slimmest margin of 25.7 percent that it is permitted to mark up this service at other State agencies, it would earn $15.71 (per guard, per hour), or a total of approximately $686,212 for guard services in the first year of its contract. If AlliedBarton were allowed to charge to the widest margin of 27.9 percent that is permitted under the OGS contract, it would earn $15.99 (per guard, per hour), or approximately $698,443 in the first year of its contract. But, under the 36.72 percent markup provided for in AlliedBarton’s contract with the BPCA, it will instead earn $17.09 (per guard, per hour), for a total of approximately $746,491 in its first year. This constitutes a windfall of slightly more than $60,000 in additional public funds compared to the 25.7 percent margin that AlliedBarton is authorized to charge other State agencies, or a bonus of just over $48,000 in more taxpayer money, relative to the 27.9 percent margin.
The upside for AlliedBarton’s owners, however, is dwarfed by a corresponding downside for its employees. If AlliedBarton were required to pay its personnel the range of $14.93 to $17.96 per hour that the OGS contract mandates for the company when it provides guards at other State agencies, each of the “safety ambassadors” would earn between $4,422 and $9,937 more in the first year of the firm’s contract with the BPCA.
(In either of these hypotheticals, AlliedBarton personnel would continue to earn less than the BPCA pays to Summit guards, but this would still be a life-changing difference: AlliedBarton’s safety ambassadors are slated to make slightly below $23,000 per year for working full-time in Battery Park City, based on a 35-hour week — an income level that puts a household of four people below the Federal poverty line.) These figures translate into a combined loss of wages for all of the AlliedBarton guards who will work in Battery Park City of as much as $238,492 in just the first year of the contract, depending on what salary (in the range of $14.93 to $17.96 per hour) is used for comparison. At a minimum, the gap between what AlliedBarton guards are actually paid, versus what Governor Cuomo’s call for a State-wide minimum wage of $15 per hour would pay them, will come to $109,200 in lost wages in the first year alone.
Moreover, all of these gaps may grow much wider. Each projection outlined above assumes that AlliedBarton guards will work the minimum number of hours required under the contract with BPCA. But the Authority’s board voted in October to authorize paying AlliedBarton as much as $2.1 million per year. In that scenario, AlliedBarton’s first-year upside from the enhanced margin it is allowed to charge the BPCA could grow to more than $100,000 in taxpayer money, above the profit it would make for comparable work at other State agencies. And the wage shortfall that its employees will suffer could approach half a million dollars per year.
Under other circumstances, some of these losses could be made up in benefits paid to AlliedBarton security guards. And, as Mr. McCabe pointed out, the BPCA’s contract with AlliedBarton does mandate that guards who work more than 30 hours per week will receive benefits such as paid vacations and holidays, along with medical, dental, vision and life insurance. But these costs will be borne by the public, rather than coming out of AlliedBarton’s enhanced margin of profit.
The firm’s contract stipulates that the BPCA will reimburse AlliedBarton for the value of all of these benefits, on top of its 36.72 percent markup on wages. Beyond that, AlliedBarton is entitled to bill the BPCA an additional “handling fee” of additional five percent of the cost of these benefits. This appears to be another respect in which AlliedBarton’s deal with the BPCA is surprisingly lavish. For comparison, the State OGS contracts with AlliedBarton and Summit contain no provisions for the price of benefits (or an additional “handling fee”) to be billed back to the taxpayer. Instead, in both cases, the contractor is responsible for these costs.