NYC’s Biggest Shelter Contractor Makes Millions, Offers Shoddy Facilities

Annie was already retired when she lost her apartment. With no source of income save for her Social Security work benefits, it wasn’t long before she ended up in the New York City shelter system. That’s where she would learn the name Acacia Network.

Acacia is the largest provider of homeless housing in New York’s metropolitan area, but it is not just a shelter operator. Over the decades, Acacia has built a small empire with connections running up the ladder of city government. It has amassed a web of interconnected nonprofits and for-profits that offer shelter, affordable housing, addiction and medical services, and security. According to the city’s Department of Homeless Services website, Acacia manages “750 individual family units and four buildings for approximately 550 homeless adults.”

Annie, whose name has been changed for this article, has been living in one of these for the last several years. But right away, she knew things were askew—and it wasn’t just that another resident had threatened to murder her. She would soon come to realize that the problem was multi-tiered: a pattern of mismanagement that left the shelter understaffed, undersupplied, and dangerous for its residents.

“No nurse practitioner is ever there to give out the medication. The staff has to give out the medication,” Annie tells Sludge, noting that this leaves residents frequently out of sync with their individual treatment regimens with some dire consequences. Every other day, she sighs, “the ambulance seems to be there for one reason or another.”

Compounding the issue, she says, is a lack of adequate security—something online reviews of the establishment have touched on. One reviewer says they never “felt safe” while living there.

“They’re supposed to have a guard on every floor,” Annie explains. “That rarely happens because people are always calling out. So one guard usually has to do two floors or sometimes three.”

On one occasion, Annie tells us someone at the shelter was hit over the head with a lead pipe smuggled in from a nearby construction site. Another time, she says, someone got hot water thrown on them in the dining room.

There are other issues caused by Acacia not sufficiently treating residents, Annie says. This past summer, she explains, there was a string of toilet backups due to people flushing entire rolls and other objects.

Frustrated, Annie notes that the shelter tends to respond to these incidents in ways that hurt residents. After the hot water attack, for example, management removed hot water for tea and coffee from the dining room altogether. To address the toilet problems, the shelter’s cleaning staff stopped stocking rooms with toilet paper as soon as the facility’s annual “Callahan” inspection—named for the 1981 court case that established the “right to shelter” in New York City—had completed.

“When you need toilet paper you have to go down to the front desk and they give you a wad…and you have to ration,” she laments.

What Annie describes is a complete culture of neglect, which doesn’t square with the large amount of money Acacia rakes in from the city. In the 2019 fiscal year alone (July 2018 through June 2019), it received $259 million in contracts from the Department of Homeless Services (DHS), which accounted for 18.5% of the department’s contracts that year. Acacia gets additional funding from the Department of Social Services and the Department of Housing Preservation and Development. Since the 2011 fiscal year, it has received over $1.1 billion worth of city contracts.

The Acacia Empire

Acacia has seen its funding increase since Mayor Bill de Blasio took office. As luxury condominium developments rose and more of the city’s available housing stock was left empty, de Blasio found himself facing a simultaneous rise in homelessness. In response, he set out to increase the number of homeless shelters in the city. In 2017, he announced a plan, called “Turning the Tide on Homelessness in New York City,” to close unsafe and expensive cluster-site and hotel shelters and build 90 new shelters over five years.

Acacia and its multiple linked entities have been the biggest beneficiaries. In total, 10 Acacia entities have received roughly $1.17 billion in city funding since 2010.

The inflow of cash has proven a windfall for Acacia’s senior management. In 2017, Acacia CEO Raul Russi netted $816,000 in total compensation. His salary increased by over $300,000, or 62%, over the four-year period from 2013 to 2017, according to tax records reviewed by Sludge. Chief Operating Officer Pamela Mattel took in $488,000 in 2017, a 66% increase, since 2013. A third official, David Glasel, who was chief legal officer until mid-2018, earned $401,000 in 2017.

These figures include sometimes eye-popping bonuses for a public charity, especially one that’s almost entirely funded with taxpayer dollars. In 2017, Russi scored a $171,000 bonus. Mattel got $70,000. Acacia’s president, Hector Diaz, took home a $65,000 bonus, and Chief Financial Officer Milton Derenzio got $61,000.

Overall, named top officers at Acacia earned nearly $4.2 million in total compensation in 2017, almost three times the 2013 amount.

And yet, despite the money, Annie reports that her shelter’s basic infrastructure is in disrepair. Its two elevators, she says, are “always out.” This is not an isolated issue. In August, the New York Post reported that inspections of Acacia’s hotel shelters had revealed hazardous and unsanitary conditions including faulty wiring, broken carbon monoxide detectors, and damaged plumbing. As of Aug. 31, Acacia buildings had hundreds of open violations. A 2018 Master’s thesis by then-journalism student Ben Foldy found that conditions at buildings where Acacia manages all units worsened over time.

Annie also says her shelter is chronically undersupplied, noting that for hundreds of residents, there is only one microwave. “It’s where the fights usually start—in the line for the microwave—because food is cold nine-tenths of the time,” she says.

But where the supply problem is most clearly reflected, according to Annie, is on the menu. Shelters have a legal mandate to adequately feed their residents, who have their food stamp benefits reduced accordingly. Acacia, Annie says, falls short of that responsibility.

“In the last two weeks, we’ve had like hard-boiled eggs seven times for the first time ever,” Annie complains. “Always it was powdered eggs…Waffles? Oh, we have syrup, no butter. Pancakes? We have butter this week but no syrup. For three weeks there’s no tea. But for two weeks before that, there was no coffee.”

Compounding these problems, Annie alleges, the staff has little patience for residents. She tells us a story that after she broke a crown while eating—she calls the food “inedible”—no accommodations were made for her. She also notes that the shelter provides a number of bag meals for residents who don’t make it to the dining room in time for dinner, but they’re limited in number and once they’re gone, they’re gone.

“Either they’re mean or rude for no reason or they’re mean and rude for no reason,” Annie says. “People have been fired for saying things like ‘Well, this is what you’re getting. Don’t eat this, you don’t eat nothing!’”

Annie also reports that individual members of the staff have stolen property from residents and on occasion have sometimes gotten physical. She says she’s seen them “throw women to the floor and march them out [of their rooms] barefoot in their bras and panties.”

These abuse allegations are not the first Acacia has faced. Another Acacia shelter resident, Felix Guzman, recounted similar events. He said that the first thing he noticed when he got to his Acacia shelter was the “unprofessional staff.”

“You could tell they hired people based on imposing figures,” claimed Guzman. “It wasn’t about having people with professionalism. It was basically young guys. They were fresh out of high school or in their early teens to twenties, and they had the power to abuse situations. And they did.”

Guzman called the staff “heavy-handed,” noting that “one operations person was known to—at random—use her power to get people to [pack up their belongings] in the middle of the night, or you know like, kick them around, yelling out loud, ‘I’m going to pack you up!’”

Because shelters work with residents to help place them in more stable housing, getting “packed up” would be disruptive to that process. As Guzman noted, “all your paperwork is at the one shelter, and when you go to the next one they have to start the process all over.”

Like Annie, Guzman says the shelter staff did little to accommodate residents, alleging that despite his known respiratory problems, he was placed in a room with a smoker who sold drugs. Guzman claims staff members were also selling drugs and would routinely steal property from residents. One night he woke up to a member of the operations staff trying to take his phone.

Other Acacia residents have filed complaints against SERA Security Services, the private firm Acacia contracts with to provide security at its shelters. SERA and another private contractor used by city shelters, FJC Security, faced 21 lawsuits over violence as of mid-2018.

According to New York City Councilman Ben Kallos, the City Council is probing the abuse allegations from Acacia residents.

“I’ve had the opportunity to meet with several people who have stayed in Acacia Network scattered site housing and shelters and was concerned with their personal stories and what they went through,” Kallos told Sludge. “We met with them as well as investigators from the City Council, and if the allegations are true it gives rise to serious concerns. And we are actively looking into it and have reported it to the proper authorities, including referrals to the Department of Investigation.”

Possible Self-Dealing

The shortcomings of Acacia’s facilities raise questions about how the nonprofit is spending its money. There is currently an ongoing investigation into the company for potential self-dealing. Of particular interest to the city is its relationship with SERA, which has been the nonprofit’s top contractor over the past several years and is allegedly run by top Acacia officials. The Wall Street Journal reported in July that New York City’s Department of Investigation had opened a probe into Acacia because it may have improperly reported its business affiliation with the security firm to the city. SERA’s relationship with the affiliated nonprofit PROMESA had already been highlighted in a 2015 state audit.

From 2013 to 2017, Acacia paid SERA nearly $40 million, according to Sludge’s review of tax documents. In 2017, the year of Acacia’s most recent publicly available tax return, the nonprofit’s payments to SERA rose to a high of $12.4 million.

Acacia CEO Russi founded SERA and allegedly still has a direct role in managing its staff. Recently, he claimed that Acacia selected the firm through a competitive bidding process. Meanwhile, Jose Rodriguez, Acacia’s chief legal officer, is SERA’s CEO, according to the firm’s most recent filing with the city. (SERA itself gets modest city contracts, having received $16,000 since the 2017 fiscal year.)

In August, the city expanded its probe to investigate another for-profit affiliate of Acacia, Distinctive Maintenance, which Acacia paid $17.1 million from 2015 to 2017 for cleaning and maintenance at its shelters and rehab centers. Acacia didn’t disclose its relationship with Distinctive Maintenance to New York City or in its federal tax records. The for-profit company’s managing director is Ruben Medina, the former CEO of Acacia affiliate PROMESA.

In tax records, Sludge identified one more connected for-profit company, property manager Distinctive Affordable Housing Solutions, of which Medina is CEO. The company reportedly uses Acacia’s letterhead and office space. The Promesa Housing Development Fund Corporation, which contracts with the Department of Housing Preservation and Development, paid Distinctive Affordable Housing Solutions $251,851 for consulting in 2016. In 2012, the company was the only major contractor of South Bronx Community Management, which paid the firm $228,250 that year.

After the initial Wall Street Journal article on the Acacia investigation, Kallos called for a City Council hearing on the possible self-dealing.

Councilmember Stephen Levin, who chairs the General Welfare Committee, which oversees the Department of Homeless Services and the Department of Social Services, told Sludge that the links between Acacia and the for-profit firms “certainly raise a lot of questions around governance.”

“Not-for-profits are very well regulated in New York state and have to be in compliance with both city and state entities. An organization of that size really ought to have clearer governance structures so that something like this, whether it is impropriety or the appearance of impropriety, shouldn’t really be happening at a nonprofit that size.”

For its part, Acacia denies any wrongdoing. A spokesperson for the nonprofit provided Sludge with a statement, which we have included in full:

Our service to New York began a half-century ago in the South Bronx. Since then–day in and day out for fifty years–we have worked tirelessly to improve the lives of our neighbors. Today, the hundreds of women and men in the Acacia Network family continue to dedicate their lives to creating a better place for all.

We’ve built affordable homes, provided shelter for people who are homeless, and created social service and health care systems for the underserved throughout the state. We’ve treated the addicted, supported the unemployed, invested in and fought to preserve Latino community-based organizations. We’ve touched countless lives of people in need over the years.

We are proud of our work. All of us at the Acacia Network strive for transparency and have always acted with the utmost integrity to serve our neighbors.

The Department of Homeless Services did not initially return to Sludge’s request for comment on the conditions at Acacia’s shelters, the nonprofit’s executive salaries, its relationship with its contractors, or the overall cost of sheltering the homeless. After this story was published, Isaac McGinn, spokesperson for the both the Department of Homeless Services and the Department of Social Services gave Sludge this statement:

“As part of our effort to transform a haphazard shelter system that developed over decades, we’re squarely focused on holding our providers to higher standards and strengthening oversight. Following several misrepresentations that were brought to our attention recently, we are re-reviewing all disclosures in coordination with the Mayor’s Office of Contracting Services (MOCS) and have referred this matter for further investigation.”

The mayor’s office did not answer specific questions posed by Sludge. After this story was published, Laura Feyer, deputy press secretary for De Blasio’s office told Sludge, “When doing business with the City, all vendors must be transparent in their representations, in accordance with the law. We expect our partners to live up to and uphold the standards we set—and the City investigates any misrepresentations or omissions thoroughly to hold them accountable.”

The Revolving Door

Potentially complicating any investigation into Acacia are its close government connections and its executives’ campaign donations, which may have allowed it to grease the wheels in its favor over the years.

One highly paid Acacia employee, Maria del Carmen Arroyo, joined the nonprofit as senior vice president of administration in January 2016 just after vacating her spot on the City Council representing District 17, a South Bronx area that is home to a number of Acacia facilities. Arroyo took home $284,000 in compensation in 2017.

Acacia higher-ups and affiliates have contributed a total of $5,300 to the campaigns of Arroyo’s mother, former housing administrator Carmen E. Arroyo, who is still a State Assembly member representing the South Bronx. In addition to her daughter’s donations, Arroyo’s campaigns received $1,250 from Russi; $800 from Acacia President Hector Diaz; and $2,500 from Sera Security.

While in government, the junior Arroyo reportedly “repeatedly tried to use her position to benefit other nonprofits,” including the South Bronx Community Corporation, of which both she and her mother had been executive directors.

Since 2016, four Acacia officials—del Carmen Arroyo, Diaz, Russi, and Rodriguez—have donated a total of $1,680 to the campaigns of City Councilmember Rafael Salamanca, Jr., who took over del Carmen Arroyo’s District 17 seat. Salamanca, who spoke at an Acacia event in mid-2019, sits on the Council’s General Welfare Committee.

The councilmember has championed legislation favored by homeless advocates and Acacia. In October 2018, he introduced a bill that would require developers who receive city financial assistance for rental housing to set aside at least 15% of their units for the homeless. Salamanca held a press conference on the day of the bill’s introduction and was joined by groups in favor of the legislation including Acacia and homeless advocacy nonprofit Coalition for the Homeless.

Over the past two decades, Acacia officials have also donated heavily to the campaigns of Bronx Borough President Ruben Diaz, Jr. ($8,380 from 11 Acacia officials since 2010); Assembly member Robert J. Rodriguez, who represents East Harlem, where Acacia has facilities ($8,200 from 10 Acacia officials and SERA Security since 2010); former City Council Speaker Melissa Mark-Viverito, who was speaker while Acacia became the biggest shelter contractor in the city ($6,250 from 10 Acacia officials from 2009-2019); and the city comptroller, Scott Stringer ($4,625 from six Acacia officials since 2011).

“The Comptroller scrutinizes each and every contract that comes to our office to ensure thorough oversight and accountability,” Hazel Crampton-Hays, Stringer’s press secretary, told Sludge. “No donation of any size influences any action, period. Our office has long raised concerns about safety issues at Acacia shelters, and we’ve demanded answers from DHS about Acacia’s financial entanglements. Open and honest government is what taxpayers deserve, and it’s what we fight for every day.”

A spokesperson for Mark-Viverito told Sludge, “As an elected official Melissa has never, nor will she ever, let any contributions dictate her policy decisions. She is fully committed to serving the people of the Bronx and will continue to be transparent as she tackles the housing crisis.”

Diaz, Jr., Rodriguez, and Salamanca did not respond to Sludge’s requests for comment.

Arroyo’s shift from politics to major city contractor isn’t the only such move among Acacia’s top brass. Diaz was previously a seven-term State Assembly member and the Bronx County clerk. Russi held positions in Governor Andrew Cuomo’s and Mayor Rudy Guiliani’s administrations before his Acacia career, as did Acacia Vice Chair Milagros Baez O’Toole. Acacia hired Ronald Rosado Abad as senior vice president in June 2018; Abad had worked for the Department of Homeless Services for eight years until mid-2015, overseeing shelter budgets and contracts.

To further advance its agenda, Acacia has paid hundreds of thousands of dollars to corporate lobbying firm MirRam Group, which was founded by Roberto Ramirez, a former Assembly member and chair of the Bronx Democratic Party, and Luis Miranda, Jr., a former official in several New York City mayoral administrations who once chaired the board of the nonprofit Audubon Partnership, which merged with Acacia in 2013.

Mark-Viverito employed MirRam Group as a campaign consultant in 2013, and the firm lobbied her in 2016 on behalf of Acacia, according to Foldy’s report. That year, Mark-Viverito directed $2 million in discretionary funds to an Acacia development project in her district.

‘On the Wrong Track’

Annie’s life at the Acacia shelter has convinced her that the city is on the wrong track when it comes to solving its homelessness problem.

“They have no proposal, no plan for moving people out of shelters into permanent housing even though they have the resources for it,” she says.

New York is the wealthiest metropolitan area on the planet and yet, in 2018, it was home to 14% of the country’s homeless individuals. Meaningful solutions have been hard to come by because they rub up against entrenched interests. Recently, a proposal for a pied-à-terre tax, aimed at the city’s nearly 250,000 empty apartment units, died at the state level following opposition from New York’s powerful real estate lobby and luxury developers.

In the fiscal year of 2019, according to the most recent Mayor’s Management Report, the city spent more than $45,000 to shelter a single adult for the year. For adult families, it was $58,000. For families with children, $74,000. The city pays the majority of the costs for adults, while New York state pays most of the costs for families with children.

These costs have risen rapidly over the last five years; since FY2015, the per-diem costs for single adults, adult families, and families with children have all risen by over 50%.

A number of communities have found that providing homes to the homeless is cheaper than the alternative. Studies have indicated that permanent supportive housing can save money on overall public spending, as people with homes tend to use emergency services less often.

Stringer’s press secretary told Sludge, “The Comptroller has long argued that the city’s current approach to homelessness is not reaching those who need our help most, as the population of New Yorkers experiencing homelessness continues to rise despite homelessness spending doubling in five years, and proposed a fundamental realignment of the City’s plan to focus affordable housing development on the lowest income households.”

According to the Coalition for the Homeless, de Blasio’s policies are exacerbating homelessness and failing to provide adequate permanent housing for the lowest-income adults in the city. These findings were echoed in a 2018 report from homeless-led civil justice organization Picture the Homeless, which castigated “the city’s backwards priorities.”

“While New York City couldn’t find the resources to invest in housing affordable to residents of extremely low income in areas with high rates of shelter entry,” reads the report, “it could easily dedicate resources to expanding [costly] shelters…in the same neighborhoods.”

Councilmember Levin supports de Blasio’s shelter expansion plan because of substandard conditions at many of the current shelters, especially converted hotels.

“For the length of time people do remain in shelter, they need to have adequate facilities, especially for their own children. The idea of not being able to cook your own meal or have a place to have any recreation [at the hotel shelters] is just heartbreaking.”

But Levin says that providing housing to the homeless is ultimately cheaper than relying on shelters, especially with a focus on buying existing buildings.

“I support the plan to set aside 24,000 units of the mayor’s affordable housing plan for people in the shelter system. I think that would make a really big dent in this issue,” he said. The House Our Future NY campaign, organized by the Coalition for the Homeless, is calling on the de Blasio administration to build 24,000 new affordable units, providing a total of 30,000 new affordable homes for currently homeless people.

Levin cited the purchase of 90 Sand Street, a large building in Dumbo, Brooklyn, by the nonprofit group Breaking Ground, with money from the city. The building, which is in “pristine condition,” will contain 300 supportive housing units for those leaving shelters and another 200 affordable units.

“If you ask the city, they’ll say that the root of the homelessness problem is the lack of available affordable housing, and that’s largely true,” said Levin. “We have to be able to adapt and work within that reality. I don’t [support] building housing for people making $100,000 a year—I think that we need to be supporting people that are coming out of shelter.”