The Chicago Housing Authority board hired Jerome Van Gorkom Thursday as the agency`s new top operating officer, confirming a decision already made by Mayor Harold Washington.
Van Gorkom, chairman of the Chicago School Finance Authority, helped bail out Chicago`s debt-ridden public school system eight years ago and is being asked to work similar magic at the housing authority.
The CHA is in the midst of the worst financial crisis of its 50-year history and is living under threat of an imminent federal takeover.
One of his main priorities, Van Gorkom said, will be to ”work out a satisfactory arrangement” between CHA and the U.S. Department of Housing and Urban Development to avoid that takeover.
In fact, several officials at the housing authority expressed hope that the appointment of Van Gorkom, a 70-year-old Republican and former business executive, would persuade federal housing officials to postpone or drop their plans to seize the CHA.
But Adolph Slaughter, a spokesman for HUD`s regional office in Chicago, indicated that Van Gorkom`s hiring would be unlikely to affect the takeover plans. ”It doesn`t have any bearing on what the issues are as far as our charges or thoughts as they relate to the housing authority,” he said.
Federal housing officials have contended that mismanagement, political meddling and financial irregularities at the housing authority have been so bad over the last eight years that the agency should be turned over to a private management team selected by and reporting to HUD. Unless the mayor does so, HUD has said it will seize the CHA and hire the team itself.
As the financial watchdog for the Chicago Board of Education, Van Gorkom is credited with improving the school board`s precarious financial situation by insisting that the board live within a balanced budget each year. His work has been so successful that two leading investment rating services said last year that the board is again worthy of credit.
But the way in which his selection was made this week raises questions about the independence of the CHA board, a major sticking point in previous negotiations with HUD.
Van Gorkom, who lives in Lake Forest, will have the title of managing director and will be paid $84,000 a year. He said he will serve for a maximum of two years and will keep his unsalaried school finance authority job.
He will replace Brenda Gaines, the mayor`s deputy chief of staff, who has been the CHA`s interim executive director since Jan. 7. As with Van Gorkom`s appointment, Gaines was selected by Washington and later approved by the housing authority board.
Gaines said she will work with Van Gorkom ”for about two to four weeks” before handing the CHA`s day-to-day operations to him and returning to her City Hall job. Rev. B. Herbert Martin, CHA chairman, said Gaines has agreed to forgo the $10,000 severance payment in her contract.
Although they were enthusiastic about Van Gorkom, several CHA board members were angered at being frozen out of the selection process until the last minute. Some said they didn`t learn he was under consideration until late Wednesday.
”The thing that disturbed some of us was the process, but we couldn`t have picked a better man,” said board member Patricia Crowley.
The board has been working since February to find a new executive director and recently agreed to work with the mayor`s advisory council on the CHA in that search.
But the procedures established by the board for that search were ignored by the mayor in selecting Van Gorkom.
For several weeks, Gaines, without the board`s knowledge, has been contacting prominent Chicago business people to find someone to take the post, CHA sources said. Philip Klutznick, chairman of the advisory council, was one of several to turn down her offer, the sources said.
Van Gorkom said he volunteered for the post during a recent conversation with Wayne McCoy, a private attorney who represents the CHA and the school finance authority.
”I`m partly to blame myself,” he said. ”When I saw from the newspapers that the system seemed appallingly managed and had been for some time, I said to him, `This thing has drifted on for so long, it`s got to be a bad management job, and I`d be willing to try to fix it.` McCoy took it from there.”
McCoy said that conversation took place two weeks ago, and he contacted Gaines immediately. He said Van Gorkom met with board members individually and in small groups on Tuesday, Wednesday and Thursday.
Gaines said she discussed hiring Van Gorkom with Washington, but she declined to give details of that discussion.
Board member Bruce Sagan said he complained to Ernest Barefield, the mayor`s chief of staff, about the way Van Gorkom`s appointment bypassed the board`s selection procedures, particularly the involvement of the advisory council.
So, at 2 p.m. Thursday, Barefield set up a meeting of Gaines, Sagan and Martin, with eight members of the advisory council, including Klutznick, to present the appointment.
Also Thursday afternoon, the mayor called Irving Gerick, one of the board members upset with the appointment process.
”The mayor called me, but he only called to make sure the decision was made today,” Gerick said.
One board member, who requested anonymity, said: ”I believe this board is independent, but there`s no such thing as complete independence. To say it would be free from political things-it isn`t. You make compromises on things and try not to go against your principles.
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”To say I`m happy with the way this has happened would be wrong. But I`m not unhappy either.”
By his own admission, Van Gorkom knew virtually nothing about Chicago`s public schools before November, 1979, when he was named chairman of a new school financial oversight committee.
And he admitted a similar lack of knowledge about the CHA.
”I confess almost total ignorance of its operation up until last week,” he said. ”Mr. McCoy did provide me with some data over the weekend.”
Van Gorkom said he met this week with Anthony Drake, the CHA`s deputy executive director for finance.
When Gaines goes back to City Hall, Drake will return to his old job as deputy commissioner for finance with the city`s Aviation Department, and Douglas Guthrie, the CHA`s deputy executive director for special housing programs, will return to his post as deputy commissioner for development with the city`s Housing Department. The mayor lent both men to the housing authority in January.
At a news conference following Thursday`s board meeting, Van Gorkom acknowledged that his new post will be ”an exceedingly difficult one.”
He said he volunteered because ”the CHA is an important aspect of this city; it affects the lives of 145,000 of our citizens. Furthermore, I have always been a strong believer in the fact that people who are blessed by God with certain talents-and I believe I have certain talents-have a duty to use those talents.
”I just want to get the job done because it needs to be done.”
Concerning the CHA`s operations, Van Gorkom said: ”This organization has operated for a long time without the most fundamental support structures to accurately manage any organization, including adequate reporting and monitoring systems that keep track of assets and liabilities and that keeps you from spending money you don`t have.
”For example, the CHA`s 1985 audit was never finished. The auditors refused to sign it because the information they needed to make a complete audit was just not available. This is an indication of a system that is very sick.”
Van Gorkom said he wasn`t referring to the way the CHA has been managed under Gaines.
One of his main priorities will be to find a new executive director for the housing authority. But he added: ”I will approach this job as if I am going to be here for the next 20 years. I`m not going to kill time.”
Despite Van Gorkom`s success with the school board, he was criticized two years ago by the Delaware Supreme Court for misjudgment in the sale of Trans Union Corp., Chicago, of which he had been chairman and chief executive officer.
Van Gorkom left Trans Union, a large lessor of railroad tank and freight cars, in 1982, two years after the firm was sold to Chicago`s Pritzker family. In 1985, the Delaware State Supreme Court, in a 3-2 decision, ruled that the sale was ”not the product of an informed business judgment” and that the company directors, including Van Gorkom, ”did not deal with complete candor” with their stockholders.
In the face of the decision, Trans Union officials agreed to a $23 million out-of-court settlement.
The decision was severely criticized as ”ridiculous” by business executives and some legal scholars around the country, who contended the court had no understanding of the workings of large corporate mergers.