New Jersey School-Building Agency Seeks Billions, But Its Future Looks Murky

(Bloomberg) -- As a New Jersey agency seeks to borrow billions of dollars to build more schools, its operations are under assault. The trouble may worsen today when its former chief of staff, accused of sexual assault, is asked to address a mystery that even Governor Phil Murphy says he hasn’t solved: Who hired you?

Created in 2007, the Schools Development Authority was meant to signal a fresh break from a predecessor agency that had wasted hundreds of millions of dollars complying with a court order to replace decrepit buildings in the state’s 31 poorest districts. Having nearly exhausted more than $12 billion in borrowing, the authority is leading a public-relations campaign for another funding round.

The agency’s future, though, has turned murky in recent weeks. Questions about its operations are so serious that New Jersey’s highest-ranking state lawmaker says the agency may be a liability to the state’s frail fiscal health -- and should be folded into the Economic Development Authority.

“Who’s going to lend us four or five billion?” Senate President Steve Sweeney said in an interview in his Trenton office, referring to a potential bond reauthorization total. “We’re in a real tough spot. We have a court order that says you have to build.”

New Jersey’s credit, second to Illinois’s for worst among U.S. state governments, had eleven downgrades by the three major ratings companies under Murphy’s predecessor, Republican Chris Christie. After Murphy presented his $38.6 billion spending plan for fiscal 2020 on March 5, he said in an interview that it could take years for the rating to improve, even with his planned back-to-back budget surpluses of more than $1 billion each and pension payments totaling $7 billion over two years.

Assault Allegations

The SDA’s financial image is only part of the problem. Its chief executive officer, a Murphy ally, is under scrutiny for personnel decisions that critics say amounted to a patronage hiring spree. And at a hearing in Trenton today, a legislative panel will try to sort out an earlier, unrelated staffing move: Who hired a former Murphy campaign worker to be the authority’s chief of staff, despite allegations of sexual assault against the aide.

The select oversight committee expects to question Albert J. Alvarez. He resigned in October, as the Wall Street Journal was readying a report alleging that Alvarez had been accused of sexual assault, though he was never charged. The accuser, Katie Brennan, chief of staff for the New Jersey Housing and Mortgage Finance Agency, said the incident had taken place in April 2017, when the two were campaign workers.

Citing reports of its “improper hiring and promotional practices,” Murphy’s administration set a March 15 deadline for its state-run peers to detail three years of their own staff changes. A champion of the #MeToo movement for survivors of sexual abuse, Murphy has expressed empathy for Brennan. In the wake of her story, he enacted rules about how the state handles sexual-misconduct reports.

In December, Brennan told lawmakers that she had reported the matter to law enforcement and transition officials, and even contacted Murphy. Still, she said, Alvarez had been hired. He then resisted the administration’s eventual request for him to resign and left only when her story was about to be published.

Wrongdoing Denied

Alvarez has denied any wrongdoing. Prosecutors in Hudson County, where the assault was reported to have taken place, declined to file criminal charges. The Middlesex County Prosecutor’s Office, which reviewed the Hudson investigation by order of Murphy’s attorney general, in January also declined, citing “a lack of credible evidence and corroboration that a crime was committed.”

At today’s hearing, Alvarez isn’t expected to testify about the Brennan matter, according to Senate Majority Leader Loretta Weinberg, co-chairwoman of the legislative committee. He will be asked, though, who hired him.

Murphy has said he doesn’t know, as have some of his most trusted advisers, including Jose Lozano, who was his transition’s executive director; Pete Cammarano, Murphy’s former chief of staff; and Peter Verniero, a former New Jersey Supreme Court justice whose law firm was hired by Murphy to review hiring practices, including who elevated Alvarez.

“It’s an educated guess on my part,” Weinberg said. “But if anyone knows, it’s Alvarez.”

©2019 Bloomberg L.P.