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As New York rental aid program ran dry, contractor boasted of ‘38 percent margins’

In leaked video, CEO of Guidehouse touted earnings on $115 million contract as the program was running out of funds

New Yorkers protest for pandemic rent relief. The state's emergency rental aid program was managed by the consulting firm Guidehouse. (Star Max)
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The chief executive of the consulting firm running New York’s emergency rental assistance program told employees the company made “38 percent margins” on its contract with the state, triggering alarm among state officials, who called the chief executive statement’s “beyond troubling.”

Scott McIntyre, chief executive of Guidehouse, congratulated employees in a November presentation on doing a strong job of running the program and touted that the firm had earned $115 million in fees over six months, according to a video of the presentation obtained by The Washington Post.

“We’ve earned $115 million in six months, with 38 percent margins, and we have a significant extension that is currently pending,” he said in the presentation, which was recorded by the company and made available for employees to view online.

New York’s rental assistance program is part of a national effort to distribute $46.5 billion in federal funds to struggling renters nationwide. Guidehouse, based in McLean, Va., began managing New York’s program in May, after winning a no-bid contract under Gov. Andrew M. Cuomo (D).

New York’s program struggled out of the gate, as it failed to get any of the $2.4 billion the state was allotted to renters until August, according to the Treasury Department. It then dramatically increased its pace, making more than 108,000 payments on behalf of the state’s families. It has since run out of funds, prompting a lawsuit by a tenants’ groups against the state.

Scott McIntyre told Guidehouse employees that the company had made “38 percent margins” on its $115 million contract with New York state. (Video: Obtained by The Washington Post)

Gov. Kathy Hochul (D), who entered office in August after Cuomo resigned, has praised the program for its rapid progress since she took over.

But upon reviewing the transcript of McIntyre’s comments provided by The Post, Justin Mason, a spokesman for the agency overseeing the contract, issued a statement saying: “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 said the agency, the Office of Temporary and Disability Assistance, will examine the company’s profits and compliance with state contracting rules. Guidehouse has also asked the state for a contract extension that would pay the company an additional $30 million. That request is pending, according to the state.

“This Administration has been working to ensure that Guidehouse increases its efficiency and that the funding that helps tenants in need is maximized. Please be aware that New York State has not signed an extension of the contract while negotiations are ongoing to ensure these goals are met,” Mason said.

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Guidehouse issued a statement saying McIntyre’s comments did not mean that Guidehouse made 38 percent profits, which would mean the company made roughly $43.7 million on the $115 million contract.

“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.”

Jarrett said the project’s “actual profitability” is “in line with our historical metrics and is consistent with our publicly reported competitors of approximately 13-16 percent.”

But two former Guidehouse executives said they were surprised McIntyre would use the 38 percent number if it did not reflect actual profit margins because, in their experience, Guidehouse generally accounted for the cost of delivering services before calculating margins.

“You take the total revenue generated from the contract, and deduct payroll, project overheads and corporate costs to calculate gross profit,” said one of the former executives, who spoke on the condition of anonymity to preserve professional relationships. 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.

Guidehouse is one of many consulting, legal, accounting or technology companies nationwide that have won lucrative contracts managing slices of $4.5 trillion in emergency spending the federal government has approved since the start of the pandemic. Dozens of states, under pressure to rapidly deliver aid, quickly signed agreements that all but guarantee payments to the contractors but don’t always ensure that money will reach the people they’re meant to help. Other programs — such as the Paycheck Protection Program — dashed out billions of dollars quickly to businesses, only for some of them to lay off employees anyway.

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Guidehouse received the contract after the state, under Cuomo, canceled a competitive bidding process aimed at selecting a company to manage the state’s $2.4 billion in federal funds.

According to records obtained by The Post, the state initially began seeking bids Jan. 13 of last year and received proposals from eight companies.

But later that month, the state canceled the bidding process and on May 3 awarded the $115 million contract to Guidehouse. The state made the emergency declaration to “assist Households that are unable to pay rent and utilities due to the covid-19 pandemic,” according to the contract.

The program was slower than programs in almost all other states to get started. Guidehouse agreed to the contract May 4, 2021, according to a copy of the deal, but 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).

Guidehouse focuses on government clients in the United States. It was a unit of PricewaterhouseCoopers until it was spun off into its own company upon being purchased by Veritas Capital in 2018. A Veritas spokeswoman declined The Post’s request for comment.

In the presentation, McIntyre said the program’s “real rocky start” happened “before we got involved.” But New York was one of two state programs in the country, the other being South Carolina, that was unable to get any funds to renters until August — three months after Guidehouse began work — according to Treasury.

Senate Majority Leader Charles E. Schumer (D), as well as Sen. Kirsten Gillibrand (D), Rep. Alexandria Ocasio-Cortez (D) and 16 other members of New York’s delegation to Congress wrote to the state on Aug. 5 raising concerns about the program’s failure to process payments.

Guidehouse and the state then kicked the program into gear, fixing technical problems that had plagued application intake early on. They ultimately provided $1.35 billion to pay renters’ bills and approved another $661 million to be distributed, according to the state’s data. McIntyre praised the work in his presentation to staff.

“We did over $1 billion of loans and fees rather in three months, to help people stay in their homes across New York,” he said.

Guidehouse reiterated the program’s fast disbursement of funds in its statement.

“Guidehouse worked intensely with our client, devoting a team of more than a thousand professionals to successfully deliver over 100,000 payments totaling more than $1.3 Billion to New York State households despite significant risk and complexity, demanding service level agreements, a massive workload and a tight timeline,” the statement said.

Leading tenant advocates said McIntyre’s comments should concern state officials as they manage the program moving forward.

In defending its work, Guidehouse referenced a report from a tenants’ advocacy group, the National Low Income Housing Coalition, showing that New York had the highest per-household spending in the country.

But after hearing of McIntyre’s comments, the group’s president and chief executive, Diane Yentel, issued a statement saying that “having potentially significant amounts of these funds go to for-profit firms with no grounding in local communities is deeply problematic.” The report found that state funds reached only 3 percent of the 1.6 million households in which low-income people pay more than 30 percent of their earnings to housing — a population that is at particular risk of eviction.

Yentel added that in general some for-profit consulting firms “can be reluctant or unwilling to implement proven best practices for serving the lowest income or most marginalized people because doing so cuts into their profit margins.”

The Treasury and its inspector general both play roles ensuring payments made by grantees reach the intended populations.

In response to questions about McIntyre’s comments, Treasury Department spokeswoman Dayanara Ramirez declined to comment on the New York contract directly, but issued a statement saying the agency “expects grantees to implement appropriate safeguards and processes to ensure rental assistance funds are reaching the intended recipients to keep families safely in their homes.”

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“The Department has issued detailed guidance on best practices for delivering funds to renters and will continue to provide oversight of these valuable taxpayer dollars,” she said.

New York’s rental assistance funds began to run dry in mid-November, weeks before the omicron variant of the coronavirus began spreading through New York, prompting another wave of business slowdowns.

The shortage prompted Hochul to seek an additional $996 million from the Treasury Department. Hochul asked for $906 million for renters and $90 million for “administrative costs.”

“While New York accelerated getting rent relief out the door and moved from the back of the pack to the front amongst other states, there are still many individuals in need of assistance,” Hochul said in a news release.

Given the shortage, the state announced Nov. 15 that it would stop accepting applications to the program. Less than a month later, tenants and renters’ advocates represented by attorneys from the Legal Aid Society, in New York City, filed a lawsuit against the state’s Office of Temporary and Disability Assistance.

Plaintiffs in the case include renters who live in the Bronx, Brooklyn and Queens who say they are eligible for aid but who applied after the state stopped accepting applications.

Maria Hidalgo of the Bronx worked at a church until the pandemic forced her to leave, according to the complaint. She paid her rent using unemployment benefits for much of last year, but when they ran out, it was too late to apply for renters assistance. She owed $8,844 in back rent through the end of the year.

Amelia Camacho and Sergio De Jesus lived with their son in Brooklyn, but both lost their jobs in 2020, according to the complaint. Their landlord began eviction proceedings seeking $18,000 in back rent, and the couple was unable to apply in time.

The suit prompted a state Supreme Court judge in January to require that the state begin accepting new applications again. Guidehouse is not a defendant in the case, which is ongoing, and did not make the decision to cut off applications.

The Treasury Department responded to Hochul’s request by saying it could provide only $27 million, about 3 percent of what the governor requested, according to an affidavit filed in the class-action case by a state official.

In an email to the state, Treasury officials wrote that the amount of funds requested by grantees “was far greater than the funding available to distribute.”