The Water Crisis Next Door
A Newark Corruption Scandal Shows That Fixing Global Problems Often Starts at the Local Level, Say Former New Jersey Comptroller Matthew Boxer '95 and Columbia University Economics Professor Brendan O'Flaherty
New York, April 5, 2016—The depth of corruption in a Newark water agency was “astonishing, even by New Jersey standards,” according to former New Jersey State Comptroller Matthew Boxer ’95, who discussed the unraveling of a multimillion-dollar kickback scheme at the now-bankrupt Newark Watershed Conservation and Development Corporation (NWCDC) in a March 23 event sponsored by Columbia Law School’s Center for the Advancement of Public Integrity.
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| Matthew Boxer '96 (left) and Brendan O'Flaherty discuss local issues and global consequences. |
Boxer was joined by Columbia University economics professor Brendan O’Flaherty, a former finance director for the City of Newark. Since 2010, O’Flaherty has served as an adviser to the Newark Water Group, a collection of citizen activists who first noticed the agency overseeing water reservoirs for Newark and its surrounding suburbs had been turned into a cash cow for crooked officials. A subsequent investigation by Boxer’s office substantiated the group’s claims and uncovered further conflicts of interest, nepotism, and the payment of improper bonuses.
“This is a massive fraud, which is still being uncovered as we speak,” said Jennifer Rodgers, executive director of the Center for the Advancement of Public Integrity (CAPI) and a former federal prosecutor. “It’s bad enough when it involves public officials stealing money for their own private gain, but it becomes really dangerous when it involves people who can influence the delivery of basic services like water.”
Water source for 500,000
Newark established the NWCDC in 1973 as an independent entity to manage and protect 35,000 forested acres the city owns in the mountains of northern New Jersey. The area is home to five reservoirs, which supply water to more than 500,000 people in Newark and other municipalities.
NWCDC’s original mission was to guard the water supply, manage the land, and issue fishing licenses. But the agency’s status as an independent corporation removed NWCDC from many of the rules that regulate public entities, O’Flaherty explained. He said he became involved with the Newark Water Group when city officials tried to turn NWCDC into a municipal utilities authority, which would greatly expand the agency’s borrowing powers while leaving it largely unaccountable to the public.
“What’s the difference between the NWCDC and a municipal utilities authority?” asked O’Flaherty. “The easy answer is several hundred million dollars.”
The MUA proposal came as the city was reeling from the collapse of tax revenues in the aftermath of the financial crisis. In 2010, Newark laid off nearly 1,000 employees, including more than 160 police officers. That same year, Boxer’s office later discovered, NWCDC’s executive director Linda Watkins-Brashear was treating 20 guests to a lavish feast during the annual League of Municipalities conference in Atlantic City. In December 2015, Watkins-Brashear pleaded guilty in federal court to soliciting $999,000 in bribes from agency vendors and contractors between 2007 and 2013. She now faces up to 17 years in prison.
Following the red flags
The Water Group successfully lobbied the Newark City Council to reject the administration’s attempts to transform the NWCDC into a municipal utilities authority. But at that time, O’Flaherty recalled, it was unaware of the web of corruption that would eventually lead to the indictments of several high-ranking NWCDC officials. A number of red flags had been raised.
"We started out by asking questions of the city council,” O’Flaherty said. “We got back answers that were totally off the wall. We asked, ‘What is the executive director‘s salary?’ The answer we got back was, ‘The executive director’s salary is what the executive director gets paid.’”
Through the Open Public Records Act, the state’s equivalent of the federal Freedom of Information Act, the organization found some “bizarre” records of no-bid contracts. “The executive director gave a $330,000 contract to her ex-husband for interior decorating of the new [municipal utilities authority] office before the [municipal utilities authority] had even been established,” Flaherty noted as an example. The Water Group turned over its documents to the New Jersey State Comptroller’s Office, and, Flaherty said, what the Comptroller’s Office found shocked even his group’s most jaded members.
More ‘alarming’ discoveries
“Alarming” was how Boxer described the facts uncovered by his office, starting with the executive director’s compensation. “What we found was that over a seven-year period the executive director had received literally hundreds of thousands of dollars of compensation that were improper, that were above what her stated salary was,” he recounted.
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“She then received a $167,000 severance payment even though she didn’t actually leave employment with the NWCDC,” Boxer said. “Later, when she did actually leave, she received a $433,000 severance payment that she wasn’t entitled to.”
A brokerage account had been set up with NWCDC money, and it lost about $500,000 through trading on margin. Another $250,000 went to charitable institutions associated with people connected to NWCDC. Employees received bonuses and petty-cash payouts for personal household items like diapers.
How did Watkins-Brashear get away with all of this? She simply wrote herself checks, Boxer said. “This was not high-tech stuff.” His office then turned over the evidence of wrongdoing to prosecutors.
NWCDC was reorganized and returned to its original mission. Boxer left the Comptroller’s Office at the end of his term in December 2013. He then joined the law firm of Lowenstein Sandler as a partner and chair of its corporate investigations and integrity practice.
The importance of acting locally
Citing Columbia Law School’s commitment to global issues, CAPI deputy director Gabriel Kuris asked Boxer and O’Flaherty, ”Why should students here be thinking about careers involving local issues?”
“How many of you drink water?” O’Flaherty replied. “The basics of life in this country and most countries are done by local government.”
Boxer agreed: “Almost every global issue has its genesis at the local level. If you’re going to solve global problems, you have to start by looking locally to understand those problems.”
While some might view the NWCDC scandal as an isolated case of local corruption, Boxer and O’Flaherty said the ramifications were widespread and lingering. O’Flaherty believed a similar local focus will prove particularly important in such developing nations as China, India, and Indonesia.
“For the next 30 years, those countries are going to add a metropolitan area the size of New York every two or three years,” Flaherty said. The way basic services are provided by local officials to these growing populations will have a direct impact on the countries’ economic sustainability, not to mention quality-of-life.
Boxer said the corruption of a utility that supplies clean water to hundreds of thousands of people in New Jersey has become a textbook example of what can happen when autonomous public-benefit corporations take over government services. “And that is something that is happening more and more.”