N.Y. Budget Chief’s Exit Prompts Inquiry Into Covid Contract Deals

As the April 1 deadline drew near for New York State’s massive $220-billion-plus budget, a curious personnel announcement was made: Sandra Beattie, the acting budget director who assembled the proposal, was being replaced.

The move could not have come at a more critical time for Gov. Kathy Hochul or the budget, which is now two weeks late and counting.

But Ms. Beattie’s abrupt exit has triggered another potential problem for the Hochul administration: a state investigation into tens of millions of dollars in taxpayer money used for no-bid contract expansions that went to private consultants under pandemic emergency decrees.

The inquiry by the state inspector general was requested by Ms. Hochul’s office shortly after Ms. Beattie’s departure. Upon leaving, Ms. Beattie turned in a cellphone that had been wiped clean — making it difficult for investigators to discover if she had used it to hide potentially damaging communications. Ms. Beattie said she had nothing to hide.

The phone was unconnected to the state’s mobile device management system, two people with knowledge of the investigation said. It was given to Ms. Beattie by the state’s chief technology officer, Rajiv Rao, who worked closely with Ms. Beattie, the people said. Days after her exit, Mr. Rao handed in his resignation. He said no one ever told him he had done anything wrong.

In separate interviews with The New York Times, Ms. Beattie said she was never told why she was pushed out, and Mr. Rao said that once his department informed him of the inspector general investigation, he decided to go on vacation and eventually resign.

The inspector general’s review of whether no-bid Covid contracts followed procurement guidelines, first reported by The Times Union, has resurfaced criticism — which dogged Ms. Hochul during her closer-than-expected race against Lee Zeldin last year — that politically connected companies looking for state business get special treatment in her administration. Hochul aides strenuously deny that charge.

“We are eager for the Office of the Inspector General to complete its investigation into these matters, much of which predate our administration,” said Julie Wood, a spokeswoman for the governor.

As part of the probe, state investigators have requested lobby filings from the Commission on Ethics and Lobbying in Government related to activities by RedLand Strategies, a firm founded and led by a former Republican state senator, Michael Balboni, according to two people with knowledge of the investigation. A commission spokeswoman declined to comment, citing agency confidentiality rules.

Publicly available filings show that Mr. Balboni directly lobbied Ms. Beattie and Mr. Rao on multiple occasions on behalf of Deloitte Consulting, which is one of the two firms whose state contracts are under review by investigators. The other company whose contracts are being looked at is Boston Consulting Group, the sources said.

A heavily redacted version of the Boston Consulting Group contract, released on Friday as part of a Freedom of Information Act request by The Times, shows that the original amount of the procurement was $32 million, but that it has since ballooned to $177 million, with $126 million spent so far. The Deloitte contract began at $27.5 million but has shot up to $87.5 million, with $75 million spent, comptroller records show.

Neither Mr. Balboni nor the two consulting companies have been accused of any wrongdoing. Boston Consulting Group did not immediately respond to requests for comment. Jonathan Gandal, a spokesman for Deloitte, said procurement officials determined that contracting with the company was “in the best interest of the state.”

“We are proud of the work we have done for the state of New York over many many years, particularly during the public health emergency when we supported the state’s efforts to keep New Yorkers safe and kick-start the economic recovery,” Mr. Gandal said.

A spokesman for Mr. Balboni, Michael McKeon, said the former state senator did not lobby for no-bid contract expansions.

If regulators or the news media “or disappointed competitors or anyone else is looking at public filings, we aren’t aware of it or concerned about it,” Mr. McKeon said. “RedLand retains outside counsel to handle lobbying compliance and routinely discusses its activities with counsel to make sure the company is fully compliant.”

Ms. Beattie said she followed all procurement guidelines, and Mr. Rao said all his interactions with lobbyists, including Mr. Balboni, pertained to evaluating the technology, and not to any state purchases.

“I can’t influence procurement,” he said. “I make those recommendations of what technology works and does not work for the state.”

Ms. Beattie said that she was twice blindsided by the executive chamber in a matter of days. The first surprise came on Feb. 27 when she was told by two of Ms. Hochul’s top aides that she would not be made the permanent budget director. Instead, Ms. Hochul hired a veteran of previous budget battles, Bob Megna, to take the helm of the powerful Division of Budget.

Gov. Kathy Hochul asked the state inspector general to look into Ms. Beattie’s use of an unauthorized cellphone.Credit…Cindy Schultz for The New York Times

The next day, Ms. Beattie said the governor told her that she had done all that was expected of her in her role as acting budget director. But Ms. Hochul said she faced a fight with the Legislature on the budget, and wanted Mr. Megna to be in charge of waging it for her, Ms Beattie said, describing the encounter as an emotional moment that ended with a hug — and no talk of her leaving the administration.

The governor’s aides, however, said that Ms. Beattie had previously made it clear she would leave the administration if she didn’t get the director job.

Ms. Beattie says the tone changed on March 6 when Mr. Megna told her during a previously scheduled budget meeting that there was no place for her in the administration. Later that day, Ms. Beattie handed in her state cellphone after wiping it clean in a factory reset. That’s when officials discovered it was not registered on a mobile device management system as required by state regulations, and determined that Mr. Rao had gotten it for Ms. Beattie, the sources said.

Ms. Beattie’s unregistered phone, along with questions being raised about consulting contracts — including for projects Ms. Beattie and Mr. Rao worked on together — prompted Ms. Hochul’s office to call in the inspector general, Lucy Lang, to conduct an investigation, according to the governor’s office.

Investigators have tried, so far unsuccessfully, to recover text messages and possibly other data that may have been destroyed when Ms. Beattie reset her phone, the sources said.

But Ms. Beattie, who hired two lawyers and tapped a public relations professional to help her navigate issues surrounding her departure and the state inquiry, told The Times she followed proper procedures for acquiring her work cellphone and said her former assistants should have all the passwords to recover any text messages or data. She said she wiped the phone because it had sensitive personal information, like her driver’s license and credit cards, on it.

“No one from the administration or Division of Budget has told me there is an issue with my phone,” Ms. Beattie said, adding she was unaware of the mobile device management system or that there was “anything wrong with my government-issued phone.”

As for Mr. Rao, the Office of Information Technology Services was preparing to admonish and potentially fire him for the unauthorized use of multiple cellphones, and for giving one of them to Ms. Beattie, but he resigned instead, according to two people familiar with the terms of his departure. His resignation was submitted on March 20 and took effect on March 24, officials said.

Mr. Rao said in the interview that no one ever admonished him about unauthorized phone use or told him he would be fired. He said his department provided phones to state agencies and employees but it wasn’t something he did personally, adding, “It’s not like I gave somebody a phone.”

“Nobody has told me anything about that other than, ‘Hey, you should take a little time off because of some ongoing investigation,’” Mr. Rao said. “I just wanted to leave because I wanted to go on and do something different.”

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