A nonprofit co-founded and once run by an Austin City Hall insider reaped $1 million in public money for programs he helped create, a seven-month American-Statesman investigation found.
It was possible thanks, in part, to a city procurement system that allows departments to award millions in contracts with little oversight or accountability — or even having to put the work up for bid.
The insider, mayoral aide Frank Rodriguez, once served as the city’s budget director and as a founding member of Central Health, the Travis County hospital district board.
Before joining Mayor Steve Adler’s office in 2015, Rodriguez ran the nonprofit Latino HealthCare Forum, which paid him $74,000 as its executive director and his wife $66,000 as its treasurer. At the same time, he led the city’s Hispanic/Latino Quality of Life Resource Advisory Commission, which made spending recommendations to the City Council.
Documents from 2014 show then-commission member Rodriguez sponsored two budget requests, which the City Council approved: One set aside $300,000 to boost Affordable Care Act enrollment among lower-income Austinites; the other provided $75,000 for a health care study in North Austin’s Rundberg neighborhood.
Rodriguez and his commission submitted more than three dozen budget requests to the council that year. Only those two were adopted. While neither request identified the Latino HealthCare Forum, it benefited from both.
Rodriguez denies any wrongdoing in how his charity came to win the pair of Austin Public Health contracts and related extensionsapproved by the City Council. He is set to leave the mayor’s office on Friday, citing health reasons for his departure.
That first year, the Latino HealthCare Forum received no-bid contracts for $200,000 of the ACA work and all $75,000 set aside for the Rundberg study.
Rodriguez stepped down from his commission chairmanship and his position as the forum’s executive director to join the mayor’s office in spring 2015. In subsequent years, contracts stemming from Rodriguez’s initial budget requests would net the forum an additional $350,000 in Rundberg work and potentially $725,000 for its ACA program.
All told, the Latino HealthCare Forum has received no-bid city contracts potentially worth $1.3 million from programs that stem from Rodriguez’s budget requests. Of that, about $1 million has been paid out so far. The forum is scheduled to receive an additional $125,000 for its ACA work in 2018.
The Statesman examination found little about the budget requests and contracts conformed with the city Health Department’s standard practices or city ethics rules that require commissioners to recuse themselves if votes could benefit their employer or entities in which they have a substantial interest.
A review of more than 3,800 pages of government documents, tax returns and emails shows:
• Rodriguez obtained $75,000 for the Rundberg study to fill a fundraising shortfall for a similar project by his nonprofit.
• Interviews and records show Rodriguez did not disclose the conflict to his fellow commissioners or the City Council.
• A top Austin Public Health official told the Statesman she was ordered to give Rodriguez’s charity the ACA contract after Rodriguez emailed her boss, who denied her account of events.
“He should have announced these conflicts, made them clearly public and recused himself in any and all dealings between the government and his nonprofit,” said Craig McDonald, director of Texans for Public Justice, a government watchdog group.
Rodriguez said he carefully complied with city regulations governing his relationship with his nonprofit as both commission chairman and as the mayor’s adviser.
Adler also defended Rodriguez’s actions on the commission.
“Frank made a recommendation without providing a specific vendor. He did that. I think that’s his job and his role on the Quality of Life Commission,” Adler said. “The city staff then, without direction, is supposed to find the best possible vendor to do that job. Now, I don’t know what happened in that office.”
He added, “Frank has been dedicated to public service for decades.”
After an interview with the Statesman in August, Adler renewed his push to overhaul how the City Council incorporates requests from its Quality of Life commissions into the budget. His office said the changes proposed in a Sept. 8 council message board post would restrict the ability of commissions to designate specific providers to execute the programs; Rodriguez’s original spending requests didn’t identify a specific provider.
Two weeks later, on Sept. 22, Rodriguez informed the mayor he would step down from his post.
Unproven contract winner
Under state law, social services contracts — like the ones given to Rodriguez’s charity — are exempt from competitive bidding requirements, and the city allows Austin Public Health to set its own rules and procedures for selecting the contractors to win these no-bid service contracts. It’s big business conducted with little supervision.
“A lot of the preliminary legwork to request the applications and vet the applications is done by Public Health,” said purchasing officer James Scarboro, an official in the city’s financial services department.
The department’s selection then goes to the City Council for approval if the contract exceeds $59,000. Council members typically approve contracts with little discussion.
The city’s health department awarded 86 no-bid social services contracts worth $37.7 million in the fiscal years 2013 to 2017, a Statesman analysis found. That includes the Latino HealthCare Forum’s no-bid contracts.
Typically, Austin Public Health requests formal bids for social services contracts, said the department’s interim director, Stephanie Hayden. However, that process takes at least four months. If a project faces time constraints, Hayden said, the department usually turns to an established provider it has worked with in the past.
The nonprofit Foundation Communities is one such organization. When council members debated budget requests from Rodriguez’s commission for the city’s 2015 budget, they focused on its $500,000 request to bolster Affordable Care Act efforts aimed at low-income members of the city’s Hispanic population. Time was critical, as the ACA enrollment period ran from Nov. 15 to Feb. 15 that year.
Then-Council Member Bill Spelman questioned the amount. His colleague, Mike Martinez, offered to make a phone call and returned after lunch break with a smaller number: $300,000.
Foundation Communities, Martinez told his colleagues, had secured $600,000 from Central Health and charitable donations for its ACA enrollment program. The city’s additional $300,000 would allow Foundation Communities to adjust its enrollment target from “5,000 (people) to 7,000-to-8,000” people.
Foundation Communities only got $100,000.
Instead, Latino HealthCare Forum landed the bulk of the money, even though it had only done $2,500 in city work before Rodriguez sponsored the Austin budget requests and ran a $38,000 ACA outreach program in 2014, records show.
What tipped the scales in the forum’s favor?
Hayden told the Statesman she was instructed to give the work to the Latino HealthCare Forum by her supervisor at the time, former Austin Public Health Director Carlos Rivera.
“He informed us that we needed to work on this contract with Latino HealthCare Forum,” said Hayden, who was an assistant director under Rivera.
Rivera denied issuing any directive and accused the Statesman of making up Hayden’s quotes.
“You’re barking up the wrong tree,” said Rivera, who left city government in 2015. “I’m an ethical and moral guy.”
Hayden said she stands by her account. She told the Statesman that Rivera’s directive came at a meeting after an email from Rodriguez, which Rivera forwarded to her.
“Both of these proposals are targeted to Latinos,” Rodriguez wrote. “Let me know if you wish to discuss further details.”
Rodriguez did not explicitly mention Latino HealthCare Forum in the message.
Yet it’s the sort of work that Rodriguez said he envisioned doing when he co-founded the forum in 2011 with the goal of improving health care access for Hispanics. Rodriguez was inspired, in part, by his own struggle to get insurance because of a pre-existing condition, he told the Statesman.
But, he said, he had no expectation of winning the $200,000 ACA contract and that he could not explain how the forum was selected, even though it had done virtually no city work previously.
“All I know is that I was approached by the city to do the work, and we were gladly going to do the work,” Rodriguez said.
A pitch, another win
The contract award for the Rundberg health care study strayed from the city’s usual bidding process and potentially violated conflict-of-interest laws, ethics experts said.
Local activists have long pushed to improve health care access in the North Austin neighborhood, which has battled poverty and crime. Rodriguez, as director of Latino HealthCare Forum, told organizers in May 2014 his group would be willing to help with a health care needs assessment of the area, according to minutes from the Restore Rundberg community meeting.
He proposed a health care study on July 10, 2014, minutes from another meeting show. Restore Rundberg organizers sent the forum’s proposal to the Austin Public Health, which jumped on board. Discussions included then-director Rivera, emails show.
According to a July 23 email, Austin Public Health officials promised $11,000 toward Rodriguez’s study, later estimated to cost $75,000. The forum would raise the difference from private sources, according to emails. By August, Public Health was working with Rodriguez to draft contract language.
Meanwhile, as chair of the Hispanic/Latino Quality of Life Resource Advisory Commission, Rodriguez sponsored and voted for a recommendation that would fund the study in full.
Documents explain why: The Latino HealthCare Forum was struggling to raise the private money and came up $44,000 short. The grant, which the City Council voted to include in the budget on Sept. 8, provided a lifeline.
Rodriguez defended the council request, saying that Restore Rundberg asked the forum to conduct the study and that he go to the City Council for the money to pay for it.
Restore Rundberg meeting minutes at the time only note Rodriguez’s application for the $11,000.
Ethics experts contacted by the Statesman described Rodriguez’s actions as a probable violation of the state’s conflict-of-interest laws.
“I think that’s a conflict. I truly do,” said Buck Wood, a longtime ethics attorney in Austin. “He’s using his city position to fund his own project, which he was obviously being paid for.”
McDonald of Texans for Public Justice, agreed: “You can make the case he had an interest in the nonprofit and was steering funding to the nonprofit.”
Adler defended Rodriguez’s actions as appropriate.
“There was an attempt to meet this need through the money that the city had available, plus private donations, and it didn’t make,” Adler said, adding that Rodriguez “says, ‘Hey, this need still exists. … We need the money to be able to do it.’”
The contracting problems highlighted by Rodriguez’s budget requests are not new. Over the years, the city auditor’s office has detailed in piecemeal fashion how City Hall’s department-driven contracting system has struggled to manage contracts and to police potential conflicts of interest.
Austin taxpayers feel the cost of these failures when needed services aren’t delivered or when projects run late or over budget.
The Statesman’s investigation could not identify a part of the city bureaucracy charged with preventing potential conflicts of interest or ensuring departments, like Austin Public Health, follow their own contracting processes or respect the City Council’s intent.
The city’s purchasing department, which manages bids and contracts for many smaller departments, simply records and executes Austin Public Health social services contracts.
The city’s law department is not required to review draft contracts for conflicts of interest or to ensure the council’s intent is followed, a city spokesman confirmed.
Instead, policing contracts falls to the city auditor’s office, which investigates allegations of wrongdoing when complaints are filed.
The auditor’s office — part watchdog, part accountant and part think-tank — examines the effectiveness of city policies, recommends ways to improve efficiency and investigates complaints. It also polices the city bureaucracy and its $3.9 billion budget with 26 people and $4 million a year. It’s a big job made more difficult by poor record-keeping.
“It can be very difficult for our office (to investigate) when we receive allegations related to where certain contracts have originated from,” said Nathan Wiebe, who runs the auditor’s investigations unit. “Putting together the pieces can be difficult and time-consuming.”
For instance, the city’s online checkbook offered no details about the initial Latino HealthCare Forum contracts — $200,000 for ACA enrollment and $75,000 for the Rundberg study — that erroneously were recorded as spending for an anti-littering campaign. No information existed on when the City Council approved them or the source of funding. A spokesman explained the miscategorization as an apparent paperwork error.
The result is a slow-moving, after-the-fact, watchdog process. For instance, two conflict-of-interest complaints Wiebe filed with the Ethics Commission in July stemmed from votes taken a year earlier by Quality of Life commission members.
The Ethics Commission issued an admonishment in one case, Wiebe said, while a case involving the Hispanic/Latino Quality of Life Commission is set for a preliminary hearing on Nov. 8. The second case is not directly related to Rodriguez’s actions.
City Hall’s contracting problems — cataloged department by department, in auditor report after report — run deeper.
A 2014 audit of Neighborhood Housing and Community Development found the department “authorized some payments that were not in compliance with contract terms or were not fully supported by appropriate documentation.” It added, “(W)ithout consistently enforcing all contractual requirements, there is no reasonable assurance that the city is getting all services paid for under its contracts, or that city funds are being prudently safeguarded.”
Two earlier examinations turned up major failures at the health department.
An October 2011 auditor’s report deemed Austin Public Health’s management of social services contracts — the same type Latino HealthCare Forum received — as “insufficient.” The shortcomings, auditors said, hinder “the department’s ability to provide reasonable assurance that services are delivered … and that city funds are not misused.”
Investigators found Public Health staffers failed to perform required on-site monitoring, failed to confront a contractor that inappropriately commingled money and failed to address oversight shortcomings discovered during a 2009 fraud investigation.
In 2012, auditors found contract oversight in Austin Public Health’s HIV services program did “not provide assurances that services are delivered and funds are used in accordance with contractual agreements.”
Meanwhile, oversight issues continued to persist with the Latino HealthCare Forum’s ACA contract, the Statesman found.
The public health department did not ask the forum or Foundation Communities to report how many people the health insurance effort enrolled in ACA plans in 2016, even though it required the figure in both 2015 and 2017.
WHAT WE REPORTED
American-Statesman reporter Nolan Hicks spent seven months investigating how public funds from the city of Austin were distributed for no-bid contracts. According to the Statesman’s examination of more than 3,800 pages of government documents, tax returns and emails, a nonprofit founded by a City Hall insider benefited from budget requests for social service contracts in a system not set up to police conflicts of interest.