Detroit’s Auditor General says Mayor Mike Duggan’s administration is leaving money on the table for the city’s skilled trades pipeline by under-charging fines against contractors who fail to hire enough residents on publicly-supported development projects.
A new audit found the Civil Rights, Inclusion and Opportunity Department (CRIO) didn’t collect $819,125 in potential fees from contractors between December 2016 and June 2019, representing a 11% loss in potential revenue. The fines help fund workforce training programs meant to grow the number of skilled construction workers in the city. However, CRIO Director Anthony Zander disputed the existence of lost revenue, arguing that Auditor General Laura Goodspeed misinterpreted how fines are laid out in an executive order from the mayor.
A City Council committee heard the dueling interpretations Wednesday, a month after the audit was released by the Office of Auditor General. Council members expressed concerns about CRIO potentially passing up money to improve the city’s workforce. They were also receptive to Zander’s rebuttal and praised his department for implementing other changes suggested by the auditor general.
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Council members are looking for help to decide who is right. The council passed a motion asking its Legislative Policy Division to draft an opinion on the proper way to calculate the fines within the next two weeks. The audit is the third report on compliance fees created by the auditor general’s office at the request of former Council President Brenda Jones.
“Frankly, if this goes down to interpretation, I hope the opinion we receive is to receive the most amount of money from our compliance fees for us to be able to grow our employment training programs,” said Council Member Gabriela Santiago-Romero.
Duggan said he knows the language; he issued the order in 2014 and has updated it three times since. In the mayor’s view, “it was very clear that CRIO had done it right” and the auditor general is wrong.
“I don’t even want to get into the caliber of the auditor general,” Duggan told BridgeDetroit in an interview last week. He has considered having Corporation Counsel Conrad Mallett draft a legal opinion on behalf of his administration.
“The auditor didn’t understand the language,” Duggan said. “We’ve had four CRIO administrations (and) three corporation counsels who have all agreed on how it’s to be done.”
Goodspeed is a certified public accountant and auditor who put in 15 years at the Office of Auditor General, including five as deputy, before being appointed by the City Council to run the office in April. She remained steadfast in her view of the audit’s findings in an interview on Thursday. Goodpseed said CRIO has never calculated the fees correctly, based on her reading of the law.
“It’s our responsibility to bring these issues to bear and to get the correct interpretation of the executive order,” Goodspeed said. “I’m OK with the fact that we disagree on this. I will contend the Law Department has already made up their minds. We look forward to seeing a more objective analysis.”
Goodspeed said she’s seeking clarity from the Legislative Policy Division and the Detroit Law Department on how fees are calculated and how funds can be spent.
Fees are used by the Detroit Employment Solutions Corporation to fund workforce training programs. A previous auditor general report found compliance fees were not exclusively used to prepare Detroiters for jobs in skilled construction trades as intended. Instead, auditors found some of the fees were used to train workers in industries that weren’t connected to new developments.
Goodspeed said it’s unfortunate that the disagreement over fines has “taken the limelight” when CRIO implemented a dozen or so other recommendations in the latest audit. Goodspeed doesn’t have the authority to make CRIO follow through on any of its recommendations.
“It’s a matter of getting the correct interpretation of the (executive order) and, if necessary, rewriting the executive order so that it’s clear to everyone, including the contractors,” Goodspeed said. “It shouldn’t be a bashing of who’s right and who’s wrong.
“It’s disheartening that we’re not provided the same level of professionalism we afford to the administration’s cabinet, but so be it,” she added.
The executive order applies to publicly-funded construction projects worth at least $3 million or demolition and rehabilitation projects worth more than $50,000. Contractors are required to ensure Detroiters make up 51% of the work hours or pay a fine that becomes more expensive based on how far contractors are from meeting the goal.
A total of $17.6 million in fines were collected from more than 100 projects as of May 2023, according to an online dashboard.
The dispute between CRIO and the auditor centers around whether the fine should be calculated with the total number of work hours on a project or just the hours that fell short of the 51% requirement. Using the total number of hours, as suggested by the OAG, results in a much larger fine.
Zander said CRIO has historically calculated fines using the number of work hours that the contractor falls short. He was appointed to lead CRIO by Duggan last May.
“We stand by that this is more accurate than what the (auditor general) has presented,” Zander said Wednesday.
Council members said they had two main concerns: Making sure fines are creating a path to good-paying careers in skilled trades and that CRIO is enforcing rules properly.
“You don’t want people to feel like we passed this legislation to make sure Detroiters are going to get a job and through some loophole, once again, Detroiters aren’t getting what they deserve,” Council Member Coleman Young II told BridgeDetroit after the hearing. “At the same time, we want to make sure we’re following the law. That’s why this compliance is so important.”
Meanwhile, Duggan said he’s looking into whether increasing the fees will ensure better compliance with the law.
“We’ve got too many people that are just paying the fees and not making the effort,” Duggan said. “(If I raise the fees) I will get a lot of grief from people who say construction costs are too high. So I’m balancing that right now.”
Putting Detroiters to work
Byron Osbern, business representative for International Brotherhood of Electrical Workers Local 58, said unions are benefitting from a partnership with the city to increase Detroit apprentices. Contractors who hire unions partnered with the city have a better chance of compliance with the executive order.
Four unions are listed as partners in the Skilled Trades Employment Program. A CRIO dashboard shows 247 more Detroiters took union jobs from 2016 to 2020. Osbern said construction projects are an opportunity to train new apprentices and bring people into the industry.
“If we don’t get the work, we can’t pull in the apprentices,” Osbern said. “We’ve got huge projects coming up. Detroit is trying to attract businesses and residents and there’s construction happening, which requires skilled trade workers.”
However, Osbern said construction projects happening outside the city also use Detroit’s talent pipeline. That has an effect on the ability of local projects to hire residents.
“A worker can become a union electrician today and they may work in Lake Orion tomorrow,” Osbern said. “You can see all this work in Detroit; that doesn’t mean a worker will work in Detroit.”
The audit expressed concern with a “misguided tone” in the executive order when describing the financial penalty as “contributions” instead of compliance fees. Goodspeed says this misleads CRIO management and construction contractors, and may result in contractors opting to pay the compliance fees instead of making more of an effort to hire Detroiters.
“Former management believed and stated that building up good relationships with the contractors could help Detroit’s job market regardless of whether they complied with executive order or not,” the audit states.
Duggan said it’s a “mixed bag” – some developers make a good faith effort to hire more residents and others likely include fines into their overall project cost.
“It’s a work in progress,” Duggan said. “We’ve got carpenters who made a tremendous commitment; we’ve got a number of other trades that haven’t seen this as something they want to do. At some point, I may have to look at raising the fees that are charged.
The mayor said the Department of Public Works and Detroit Water and Sewerage Department threatened to stop working with contractors that did not make the “necessary effort” to hire residents.
“You can have a policy on one hand, but the people who are actually awarded the contracts have to be bought in,” Duggan said.
The audit also identified a handful of other issues which have since been addressed, Zander said. The audit found CRIO previously failed to monitor the workforce training fund and consistently complete compliance reports and that CRIO lacked a process to monitor all projects subject to the law. Goodspeed said CRIO relies on other departments to alert them of projects that are subject to the executive order.
Zander said CRIO has regular meetings with other city departments involved in development projects, which helps the office keep track of what’s coming. Zander said CRIO started meeting monthly with the Detroit Employment Solutions Corporation in 2022 to monitor projects from start to finish.
Young said the council will continue to look at ways to improve enforcement of the hiring goal.
“People are going to be held accountable if they continue to not hire Detroiters, that cannot stand,” Young said. “We’ve got to put Detroiters to work.”