March 24, 2012 06:15 PM
Milk money: Clout-heavy family got $162 million in contracts
The McMahons supplied milk to Chicago Public Schools for years, and also ran electrical and plumbing companies that secured big government contracts.
By BGA and the Chicago Sun-Times
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Last month, Evanston Township High School District 202 paid 22.8 cents for each half-pint carton of chocolate milk it bought. The state's second-largest school system, Elgin U-46, paid a penny more.
That same carton of milk costs even more in Chicago, where kids in the state’s largest school district drink more milk than anywhere else in Illinois — nearly 75 million cartons every school year.
Still, the Chicago Board of Education paid 24.5 cents last month for each half-pint of chocolate milk.
Each extra penny adds up for the politically connected business that supplies the milk for Chicago’s public schoolkids.
"Do the math," says Tim Cawley, Mayor Rahm Emanuel’s chief administrative officer for Chicago’s schools. "A penny is $700,000."
The beneficiary of those extra pennies is a joint venture of former competitors that, rather than continue to compete with each other, banded together under the name C&M JV1 Co. C&M has held the Chicago school milk contract for nine years, delivering milk to more than 600 schools.
Its revenues keep rising as federally funded school-meal programs have added breakfast and snacks. Last year, it was paid $16.2 million. This year, it’s to be paid as much as $20 million.
The joint venture has no employees, no equipment and no trucks. It subcontracts all of the work to other businesses — including three that have been involved in milk-contracting scandals in Chicago’s schools over the past two decades, a Chicago Sun-Times and Better Government Association investigation has found.
The joint venture is controlled by McMahon Food Corp., a Little Village company owned by members of the McMahon family. Longtime friends of Chicago Ald. Edward M. Burke (14th), the McMahons are among the handful of families that have held a stranglehold on Chicago school milk contracts for two generations now.
The milk business has been very good to the McMahons. But it’s not their only government business. They also have electrical and plumbing companies that do business with governments in Chicago and the suburbs. Altogether, since 2005, the McMahon family companies — McMahon Food Corp., Windy City Electric Co. and Plumbing Systems Inc. — have been paid more than $162 million by the Board of Education, the city of Chicago, Cook County and other governments.
McMahon Food and Windy City operate out of a warehouse at 2110 S. Marshall in Little Village owned by Frank J. McMahon, 64, of Chicago.
In all, McMahon, his younger siblings, other family members, their companies and business associates have given more than $1 million in campaign contributions to dozens of politicians since 1995. Burke — the powerful chairman of the City Council Finance Committee — has gotten the most: $164,100.
One of McMahon’s brothers, Anthony P. McMahon, 59, of Park Ridge, is a precinct captain in Burke’s ward organization. Anthony McMahon’s wife and sister-in-law own Windy City Electric, which is fighting an effort by City Hall’s inspector general to ban the company from getting city work, citing allegations of past fraud involving city contracts set aside for women-owned businesses.
Burke’s law firm has won property-tax cuts for McMahon’s warehouse.
Hired Chico’s firm
A former member of Burke’s City Council staff, attorney Gery Chico, heads a law firm that helped the McMahons and their partners strike their last two milk deals with the Chicago Public Schools — in 2008 and 2009.
Chico was the president of the Board of Education under Mayor Richard M. Daley from 1995 to 2001. In 1999, McMahon Food was involved in a minority-contracting scandal at CPS, refused to comply with subpoenas from the school system but continued to provide the schools with milk and never was disciplined.
Chico’s law firm represents the C&M joint venture between McMahon Food and C & C Dairy Inc., of Markham — both of which have been certified by government agencies as businesses that are owned and operated by women, a designation that allows them to get work set aside for women-owned firms.
The joint venture buys milk from Dean Foods and Bareman’s Dairy Inc., of Holland, Mich., and it hires four companies to deliver it:
- McMahon Food, founded by McMahon’s father, now owned by McMahon and his five children — two of whom are assistant Cook County state’s attorneys. Daughter Bridget McMahon Healy, 29, has been company president since 2007, when she replaced her then-90-year-old grandmother, Catherine McMahon.
Frank McMahon’s lawyers say his mother or daughter has run the company for years. But, in a 1999 deposition, Frank McMahon testified that, even though his mother was the president of McMahon Food, he actually oversaw its day-to-day operations.
More recently, several politicians have identified Frank McMahon as "president" of McMahon Food in identifying him on campaign contribution records. Also, McMahon and his daughter both use his personal email address as a contact on government contracts.
"They have never seen a need to change the email address that they have used since the company started using email" in the early 1990s, McMahon’s lawyers say.
McMahon’s daughter is also secretary of the joint venture — a post she took in 2004, the year she graduated with a political science degree from DePaul University.
- C & C Dairy, owned by Christine Stajszczak, of Palos Park. She’s also president of the joint venture. In 1990, her husband, Michael Stajszczak — then the company’s general manager — was indicted by a federal grand jury in a bid-rigging scheme involving CPS milk contracts. His case ended with a hung jury. The company was found not guilty.
- Krystal Dairy, owned by Mary Hrascinski, of Homewood. Her husband, Bruce Hrascinski, was its president when, records show, the U.S. attorney’s office granted him immunity from prosecution in the 1990 bid-rigging investigation. Krystal is also certified as a woman-owned business.
- Bob’s Dairy, of Franklin Park, owned by Robert Leonard, who’s been delivering milk to schools on Chicago’s North Side and Northwest Side since 1970, first as a contractor to the school system, now as a subcontractor to the McMahons.
Frank McMahon’s first cousin, Daniel T. Frawley, filed a "whistleblower" lawsuit in federal court last July accusing McMahon Food, C & C and Krystal of actually being run by men, even though the companies are certified as being women-owned and -operated. As a result, Frawley says McMahon Food was able to obtain multimillion-dollar deals with Cook County government, including supplying dairy goods to the Cook County Juvenile Temporary Detention Center.
McMahon Food also has a $2.5 million-a-year subcontracting deal to supply milk to the Cook County Jail.
Frawley, 60, of Westchester, is awaiting sentencing after pleading guilty last year to a $4.4 million bank fraud.
Frank McMahon’s attorneys say Frawley’s claims are "not true" and amount to "an attempt to once again defraud someone out of something."
Both McMahon Food and Windy City Electric were part of the CPS inspector general’s investigation of milk contracts in 1999. The companies refused to comply with that office’s subpoenas, prompting a lawsuit by the Board of Education, then headed by Chico. A judge ordered the McMahon companies to comply with the subpoenas. The McMahons appealed but then dropped the case.
The inspector general wanted to bar McMahon Food from future CPS business, but the school system’s law department refused.
Also coming under scrutiny in the CPS investigation was Ronald J. Blackstone, an African-American businessman who owned RJB Properties Inc. RJB had school milk contracts worth more than $18 million between 1993 and 2000 — "but instead acted only as a broker, arranging for other companies to produce and deliver milk to CPS," including McMahon Food, according to court records.
"We didn’t have any trucks. We were doing some marketing, what I call government relations, those kinds of things," Blacksone, now 74, recalled in a recent interview. "We didn’t get much money for it."
During the time he had the school milk contracts, Blacksone — who was never charged nor faced any disciplinary action — was living with Blondean Davis, 62, then a high-ranking CPS administrator.
Chico — whose firm would go on to represent the McMahon-led joint venture after he left the school board — says he has "no recollection of the specific allegations" against Blackstone and that "no recommended actions" came of the inspector general’s probe.
When Blackstone bid on two janitorial contracts with the school system in 2003, after Chico’s departure, the school board rejected his bids, citing the inspector general’s milk investigation.
RJB sued the schools in federal court in 2003 — and lost — but has resumed doing janitorial work for CPS. In the last two years, the company has been paid $17 million, records show.
The same year that Chicago’s schools refused to do business with RJB, the McMahons formed their joint venture with C & C Dairy.
McMahon’s lawyers say creating the joint venture that now delivers milk to Chicago schoolkids "was suggested, proposed and encouraged by CPS . . . . CPS explained that they thought they could get better pricing and service if they made one award to one vendor for the entire city."
Yet, last month, CPS was getting charged more for milk than several suburban school systems, a Sun-Times-BGA sampling found.
Among the districts paying less was Oak Park Elementary District 97, which buys its milk directly from Bob’s Dairy, one of the McMahon-C & C subcontractors in Chicago. Oak Park was paying Bob’s Dairy 22.8 cents for a half-pint of skim milk, 23.2 cents for 1 percent milk and 24.2 cents for fat-free chocolate milk.
In Chicago, the milk that Bob’s Dairy delivered to schoolkids — as a subcontractor for the joint venture — cost more: 23.69 cents for a half-pint of skim milk, 23.83 cents for 1 percent and 24.54 for fat-free chocolate.
The Board of Education can renew the milk deal for the next two school years. But Cawley says he’ll review the contract "to make sure we’re getting a good price.
"If we are paying more on a comparable basis, we’re going to dig into that and figure it out," he says. "We’re energized to look at this . . . and drive this cost down."
This report was compiled by Andrew Schroedter and Robert Herguth of the Better Government Association, and Tim Novak and Chris Fusco of the Chicago Sun-Times. To reach the BGA, call (312) 821-9035 or email email@example.com.