Why Is the Government Paying Companies Fined for Pollution and Accused of Fraud?

Private corporations working in California have reaped tens of millions of dollars in new federal stimulus funds, despite previous pollution violations, criminal probes, and allegations of fraud, a California Watch investigation has found. 

Residents in Ventura County say they are dismayed that airplane and defense giant Boeing received a $15.9 million stimulus contract for environmental monitoring at the same site near Simi Valley where the company was fined for polluting a creek with chromium, dioxin, lead and mercury. A local resident and opponent, Dawn Kowalski, called the new contract “the fox guarding the hen house.” 

Watsonville-based Granite Construction received $6.4 million in stimulus contracts to work on airport runways in Salinas and Monterey, and to repair roads in San Bernadino, Riverside and Butte counties. Yet the company faces three federal probes, including a criminal investigation into whether it fraudulently overcharged the city of San Diego in the wake of the devastating 2007 wildfires. 

And a major apartment owner based in Denver, AIMCO, stands to benefit from $13 million in stimulus tax credits to rehabilitate its housing complex in Los Angeles. This federal assistance comes after the company paid $3 million in 2004 to settle a lawsuit from the city of San Francisco over complaints that it operated mold and rodent-infested buildings that posed serious safety hazards to residents. Residents continue to complain about AIMCO’s management. 

To government watchdogs, these contracts and others represent a breakdown in the massive federal stimulus program. Although every major company in America faces lawsuits and regulatory action, these government reformers say a contractor’s entire history should be considered before doling out more money to the same firms. 

“It is very upsetting that the government doesn't do more due diligence before it hands money out,” said Laura Chick, California's inspector general for stimulus funds. “We've gotten very used to handing out taxpayer dollars and not so good at overseeing to whom are we giving and how they are being spent.” 

Stimulus money has flowed quickly into California over the past year, moving from federal agencies to specific contractors that compete for projects, or through the state government and local agencies that have their own bidding processes for distributing the federal money. The process is moving so rapidly, the government is bound to overlook or ignore past problems, one government watchdog said. 

“I think we’re trying to spend money as quickly as possible, and at that point putting taxpayers’ money at risk,” said Scott Amey, general counsel of the Project on Government Oversight, which tracks contractor misconduct. 

But one major stimulus contractor with past legal troubles, CH2M Hill, said focusing on a few isolated cases would be a misleading representation of its work. The company was awarded a $20.7 million federal stimulus contract to clean up contaminated sediment from a defunct mine near Redding in Shasta County – a contract that enabled CH2M Hill to keep as many as 21 positions that otherwise would have been eliminated. 

In 2008, CH2M Hill was sued by the Los Angeles Department of Water and Power for an alleged scheme to deceive and defraud the city with spurious charges over several years. The suit was settled under undisclosed terms. The company also was fined more than $800,000 for spilling 85 gallons of radioactive waste in 2007 while cleaning up an old nuclear site in southeastern Washington, according to a report by the federal Government Accountability Office 

“We have more than 10,000 active projects all over the globe and on a rare occasion we may have an issue with an individual project,” said John Corsi, a spokesman for CH2M Hill. Corsi said both the Los Angeles and Washington projects were successful.

Clean Energy Project Questioned 

One of the biggest stimulus projects in California is a hydrogen power plant, near Bakersfield, that's getting a taxpayer infusion of $308 million. 

The project, by BP and mining company Rio Tinto, is designed to generate more environmentally friendly electricity by capturing carbon dioxide from the burning of fossil fuels. The project would bury and store the emissions underground in an oil field reservoir. 

In 2005, BP paid $81 million to settle lawsuits that its refinery spewed noxious fumes into the working-class city of Carson. The company has also pleaded guilty to criminal violations of environmental laws – for a 2005 explosion at BP's Texas refinery that killed 15 people and a 2006 oil spill in Alaska. This past October, federal safety officials fined BP $87 million, which the company is contesting, for failing to fix the hazards in Texas. Also this year, BP agreed to pay $179 million to resolve government findings that its Texas plant leached cancer-causing and ozone-depleting chemicals. 

BP referred questions to a spokewoman for the hydrogen power plant, who spoke of the project's benefits and noted that BP and its partner will provide most of the funding. Tiffany Rau, spokeswoman for Hydrogen Energy California, said the new facility is “designed to be the cleanest solid fuel power plant in the world.” The Department of Energy’s award to BP and Rio Tinto, she said, “further recognizes that the project owners have invested several tens of millions of dollars in the project thus far.” 

Another stimulus contractor, the Computer Sciences Corp., received a $5.1 million NASA contract for technological improvements at the Ames Research Center in Mountain View. The project money is for equipment and has not created any jobs. In 2008, the company paid the federal government $1.4 million to settle allegations that it ran a contracting kickback scheme. A NASA spokeswoman said the agency didn't find problems with the company's past performance. 

Boeing contract under fire 

One stimulus contract through the Department of Energy is causing consternation in the rugged foothills above Simi Valley in Ventura County. 

The toxic contamination at the Santa Susana Field Laboratory has been a painfully sore subject to locals for decades. Since the 1940s, the lab was operated by divisions of North American Aviation, which eventually became Rockwell International. It was the site of rocket engine testing and nuclear power development that lead to toxins leaching into the dirt and groundwater and a partial nuclear meltdown in 1959. 

Boeing acquired the aerospace divisions of Rockwell International in 1996, but community activists said Boeing has been fighting its responsibility for pollution that occurred before and after the purchase. A group of local residents sued Boeing, contending that the company caused cancer, and the company settled for $30 million in 2005.  

The regional water quality board fined Boeing $471,000 in 2007 for 79 pollution violations that let wastewater and storm runoff from the site ooze toxins into various creeks, flowing downstream to the Los Angeles River.  

Boeing had discharged 118.5 million gallons of water laced with pollutants like chromium, lead and mercury.  At one point, the company exceeded the allowable concentration of cancer-causing dioxin by 6,900 times. The water board said the chronic violations created a risk to public health and, given Boeing's resources and sophistication, were “exceedingly serious.” 

Dan Hirsch, president of a California nuclear watchdog group, doesn’t believe Boeing should have been rewarded with federal stimulus money for environmental monitoring there. The contract for Boeing, which made $2.7 billion in profits in 2008, was not bid competitively. “How can one have federal taxpayer money going to a company that is responsible for the contamination and is resisting the cleanup?” Hirsch said.  

Boeing said it has made significant progress on the cleanup. “Boeing is fully committed to cleaning up the site in a manner that fully protects public health and the environment,” wrote spokeswoman Kamara Sams in an e-mail to California Watch. She said Boeing, NASA and the Department of Energy are responsible for cleaning up portions of the property. 

And Jen Stutsman, an Energy Department spokeswoman, responded by e-mail that Boeing has the expertise to perform the work and a good track record of working with the agency. “Changing contractors would only cost the taxpayer additional money as a new contractor arrived and took over the work for Boeing,” she wrote. The project was reported to have created 11 jobs. 

At the same time, Boeing is trying to overturn a California toxic cleanup law. On Nov. 13, Boeing sued  in federal court to invalidate Senate Bill 990, which holds the Ventura County cleanup to especially strict standards. Boeing claims the California-mandated standards are unnecessary and the excavation required would further destroy the “ecological habitat.” 

State Assemblywoman Julia Brownley, who represents nearby residents, said she's concerned that Boeing is getting stimulus money and “almost in the same breath” suing against California cleanup standards. “Something just seems not right in that picture,” she said. 

Under investigation 

Granite Construction picked up several stimulus contracts – which were distributed through Caltrans and various local agencies – despite being at the center of a fraud scandal in San Diego, where many residents feel the company took advantage of the city in a time of crisis.  

“As a taxpayer, I would be more than a little frustrated with that, given the track record here in this city,” said Jan Rasmussen, a San Diego resident and outreach coordinator of Rancho Bernardo United, a community group that helps victims of the 2007 wildfires. 

The city of San Diego sued Granite Construction and another company, A.J. Diani, in 2008 for separately allegedly overbilling for their debris removal services after the disaster. The city claimed both companies billed with “falsified records” that overestimated the amount of debris they had cleared, and inflated their costs. The lawsuit is on hold pending a criminal probe by the U.S. Department of Homeland Security. 

Granite also faces two U.S. Department of Justice investigations. One targets an Oregon construction project where storm runoff dumped dirt into various creeks, possibly harming the fish population. The other focuses on allegations that a joint venture run by Granite in Minnesota failed to hire enough minority businesses as subcontractors and missrepresented those efforts.  

A Granite spokesperson, Jacque Fourchy, said the company is open about its legal problems in corporate filings. The company disputes wrongdoing in San Diego. “It's unfortunate,” Fourchy said, “that this investigation continues to plague us because we really feel like we didn't do anything wrong.” 

Apartment owners sued 

The federal government has directed stimulus funds, in the form of tax credits, to create low-income housing across the state. Denver-based AIMCO – in a joint venture with the nonprofit, Foundation for Affordable Housing – was offered $13 million in tax credits to help fix up its senior housing apartment complex in Los Angeles. An AIMCO spokeswoman said the company has yet to accept the stimulus tax credit and contends the project “represents the company’s continued commitment to meeting the critical need for affordable housing.” 

But in the Bayview-Hunters Point neighborhood in San Francisco, residents have complained for years of slumlord conditions and bad management at the AIMCO apartment complexes. “We trust them as far as we can throw them – that's the general rule when it comes to AIMCO,” said Sara Shortt, director of the Housing Rights Committee of San Francisco, a nonprofit tenants-rights organization. 

The city of San Francisco sued AIMCO, saying that the company ignored more than two dozen orders to fix scores of health and safety hazards, including stairways and landings collapsing from dry rot and moldy, water-damaged ceilings and walls. Inspectors cited a blocked fire escape and lack of smoke detectors, as well as broken windows, doors, plumbing and toilets. AIMCO settled the suit for $3 million in 2004. 

Resident Dorothy Peterson said she is considering protesting the stimulus grant to AIMCO: “If they really wanted to make sure that low income housing was built properly and for residents that were going to be treated like human beings, then they would not give it to an AIMCO.” 

But AIMCO's partner on the Los Angeles project vouches for the company. “They're huge,” said Deborrah Willard, president of the Southern California-based Foundation for Affordable Housing. “When you're huge and you own this many units, you're bound to make somebody unhappy somewhere along the line.” 

California Watch is a project of the Center for Investigative Reporting with offices in the Bay Area and Sacramento. To learn more go to CaliforniaWatch.org

This story was edited by Senior Editor Robert Salladay and Editorial Director Mark Katches. It was copy edited by William Cooley.