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Nothing Like a Grand Jury to Perk Things Up

The state had a scandal cooking the last time the Legislature worked on redistricting, in 1991, and there was something brewing in 1981, and ten years or so before that. Lawmakers knew they were going to have problems with Medicaid, but had no idea that would involve anything but money.

The state had a scandal cooking the last time the Legislature worked on redistricting, in 1991, and there was something brewing in 1981, and ten years or so before that. Lawmakers knew they were going to have problems with Medicaid, but had no idea that would involve anything but money.

As the session opened, lawmakers said Medicaid and a slew of smaller budget problems would force them to pass an emergency spending bill of around $700 million. A couple of weeks ago, they found out that further erosion in Medicaid would take another $650 million whack at the state's wallet. Legislative leaders threw together a working group to get to the bottom of the financial problems.

A week later, the lid came off of a grand jury investigation that apparently began a month ago after Appropriations Chairman Rob Junell, D-San Angelo, got some tips from state employees who smelled fish in the program. Travis County's district attorney went to the offices of the contractor—an EDS subsidiary called National Heritage Insurance Co., or NHIC—to seize paper and computer records about the company's huge contract with the state.

The allegations are spelled out in papers attached to the search warrant. The investigator who asked for the warrant said she was looking for evidence that the company and three named employees committed three felonies: Theft by Contractor, Securing Execution of a Document by Deception, and Tampering with a Government Record. The amounts listed total more than $10 million in losses to the state, but aren't specific enough that you could call them definitive accountings. Elsewhere, the warrant asks for compensation and bonus information for nearly a dozen current and former employees of the company, but except for the ones mentioned elsewhere, none of them are accused of doing anything wrong. No state employees were named in the warrants.

The warrant materials do go into some detail about what's being alleged. They start with an anonymous letter sent to a legislator, apparently Junell, and then add in a "confidential informant" within the company who helped the investigators gather information.

"Claim it was a Mistake"

One allegation is that the company falsified its general and administrative costs, certified to the State that the amounts were correct, and as a result collected nearly twice as much reimbursement as it was due. The company's pre-1998 contracts limited those G&A costs to 7 percent of the contract. A new contract signed that year lifted the cap, and the company certified its 1999 costs reached 13 percent, according to the investigator. The writer of the anonymous letter cited in the warrant claimed to have been involved in meetings where that scheme was plotted out, down to the answers the company would give if it were caught: "... the plan was for Plano [EDS headquarters] to try and justify the higher amount and, if that failed, to repay the money to the state and claim it was a mistake." That false submission, the investigator wrote, could have cost the state as much as $10 million. Some legislators privately estimated larger amounts, ranging as high as $100 million.

That amount isn't a budget-buster, but the fallout could affect the budget. It's hard to defend cost overruns in the face of a scandal, and those cost overruns are the center topic in budget discussions. Price tags of $10 million to $100 million, large as they seem to mere mortals like us, aren't big enough to wreck the state's $100-billion-plus budget. They haven't really started working on all of the implications and there's a fair chance that a grand jury won't even finish looking through the mountains of paper in this case until the Legislature has adjourned it's session in early June.

Yeah, Yeah, Yeah, but Who's Zooming Who?

In the Legislature and parts of the lobby, questions immediately arose about who would benefit from an EDS/NHIC fall. For now, it looks like this was actually started by a whistle-blower and not a competitor. To get into the business, a company has to be part bank and part data-masher, but there are a number of companies that can do those things, running everything from banks to lotteries to insurance underwriters. A couple of companies got mentioned in the back-and-forth, but it's too early to distinguish diversionary finger pointing from accusatory finger pointing.

One round of speculation germinated right there at the bottom of Junell's statement, where Bill Miller's name and phone number were listed. Hit the rewind button for a minute: Junell hired Miller to handle his press and some political work years ago, after the two clashed in a fight over money the state ended up paying to a whistle-blower in another case. Miller represented the whistle-blower, a guy named George Green, and Junell represented the cookie jar Green was trying to get to. Green got a big fat settlement; Miller and Junell settled up and have been working together since. Miller's name on the sheet also prompted speculation about other clients of Hillco, the lobby partnership between Miller and former Rep. Buddy Jones, but Miller said the company doesn't represent EDS or any firms that would compete for that Medicaid contract. One aspect of the investigation, according to Junell, centered on the 1998 contract negotiations. He said nobody but NHIC bid on it and said there are questions about whether requests were written in a way that kept other bidders out of the running.

Starting the GOP Primary in Cyberspace

There's an email attempt to get U.S. Sen. Kay Bailey Hutchison to keep her title and leave the Republican governor alone. This began with the scribbling of Craig Casselberry, a political and legislative consultant who worked for Rick Perry years before Perry became governor. By all accounts, Perry had nothing to do with the letter. But it is getting some traction out there. The latest iteration we saw is from Jack Rains, the Houston lawyer who served as Secretary of State in the second Bill Clements' administration. Rains forwarded Casselberry's letter to Republicans for their perusal, urging them to put the missive in their own words and send their own version to Hutchison. Then he pulled out the big guns, sending a copy to his fellow Texas Aggies. He reminds them that "Rick is the first Aggie governor and we need to keep him in that office." In both letters, he makes a point that has some appeal to Republicans on both sides of this feud: "The net effect [of a primary] is that conservatives will spend a great deal of money funding a family fight pitting two current incumbents, put a safe seat in jeopardy, and perhaps cause a serious rift that could take years to heal."

A Slow Emergency

If they wait much longer, the DNA bill won't be an emergency anymore. Gov. Rick Perry pulled that issue out of his package of death penalty reforms and said lawmakers could consider it right away. That's basically a way a governor can make it known that something is high on his agenda. But while it's moving faster than other major legislation, the DNA bill isn't exactly on the rocket docket. The Senate has passed it and sent it to the House, and it should come up for a committee vote—make it a probability but not a certainty—within the week.

That same House committee took its first look at life without parole as an alternative to the death penalty, and you could see in the testimony why it makes politicians nervous. Gov. Perry and others have said they want the new sentence, but prosecutors—notably Chuck Rosenthal of Harris County—lined up to say the new penalty would end death penalty prosecutions altogether. They don't like that notion, and Rosenthal suggested that the arbitrary decision between a death penalty and a full-life penalty would raise constitutional questions. Guy James Gray, the D.A. from Jasper County, told House members that his fellow prosecutors are all over the map on the issue.

On a related note, Rep. Terry Keel, R-Austin, is pushing a bill that would compensate victims for expenses incurred in witnessing an execution. Keel is a former prosecutor. —Rachel Goggan

New Kinds of Democrats

It's just an observation, but has anybody else around here noticed that everyone talking about running for governor of Texas supported George W. Bush's bid for that same job in 1998?

Laredo businessman Tony Sanchez Jr. was a heavy contributor and was rewarded with an appointment to the University of Texas Board of Regents. And Marty Akins, a former football star turned trial lawyer, only recently switched to the Democratic Party after supporting Republicans, including Bush, Rick Perry and Carole Keeton Rylander, in the 1998 elections.

That's generated less conversation than you would think, partly because of another trend in Democratic politics that's certainly evident in Texas and that is worth watching on a national level: The traditional sources of money are thinning and party hacks, consultants and others increasingly are turning to people who can pay their own way. You know—rich guys.

The Democrats don't have a monopoly on that by any stretch, but they're the party that's on the outs at the moment. That freezes what might be called agnostic money—political cash that runs along non-ideological lines. There are folks out there who just want to be with the winner of a race, or who want to contribute to officeholders they know (or want to know). Those people will sometimes give to Republicans and sometimes to Democrats, but they do tend to stick with incumbents. There are no statewide Democratic incumbents; thus, the absence of agnostic dough.

That opens three avenues of attack for Democrats trying to make a comeback. First, scrape up whatever money is out there, even if it is a thin year.

Second, find some rich folks who want to run; they might win, and if they don't, they might boost others on the ballot. That's the John Sharp strategy; a free-spending Sanchez at the top of the ticket, the thinking goes, might carry Sharp into the Lite Guv's office even if Sanchez doesn't win his race.

Third, do whatever can be done to lower the impact of money in the other guy's bank account. A GOP gubernatorial primary between Gov. Perry and U.S. Sen. Kay Bailey Hutchison would force contributors to spend more or to spread their money thinner. Some downballot Republicans are already gulping at the prospect of raising money in a year when there are big fights at the top of the ballot and when, because of redistricting, every House and Senate seat in the state is in play.

That makes it necessary to recruit candidates with money, and forces the ticket-assemblers to avoid thinking about the past. Plenty of wealthy people get into office, but there have been some famous flameouts in Texas over the last decade or so. Look at the list of the political dead from both parties: Clayton Williams, the Midland oilman who ran for governor, Richard Fisher, the Dallas investor who ran for U.S. Senate, Rob Mosbacher Jr., who ran for U.S. Senate, for lieutenant governor and for mayor of Houston, all unsuccessfully. Houston set some kind of record last year in a congressional race that pitted three self-funding candidates against, among others, a veteran legislator in a race for an open seat. John Culberson is now a congressman, and the guys with the thinner wallets—Peter Wareing, Ron Kapche and Mark Brewer—stayed home. Across town, Tom Reiser and Phil Sudan duked it out in an expensive primary. Both remained in Houston when Ken Bentsen held onto his seat in Congress. We're not trying to be exhaustive, just make a point: You can rarely win a political race without money, but a lot of money doesn't guarantee anything at all.

• Put Ann Utley of Dallas on the list of Democrats thinking about the 2002 races. She says she has been approached by four or five people who think she should run for land commissioner, and says she "considering it, but hasn't gotten any farther along than that." Utley was chairman of the Texas Department of Mental Health and Mental Retardation—she was appointed by Gov. Ann Richards—but hasn't run for state office before. Yes, she could probably self-fund.

• Kevin Moomaw, a former political director of the Texas GOP who left to run the state party in New Mexico, is back in Austin. He'll be the "organizational director" for Land Commissioner David Dewhurst. Dewhurst, who's still looking for a campaign manager, isn't officially running for anything, but has been telling supporters that he'll be on the 2002 ballot as a candidate for lieutenant governor.

Power Generators, Electric and Otherwise

The biggest hearing of the week—held in the largest public room in the Pink Building—wasn't really about a piece of current legislation so much as about nervousness over the electric industry. Utility types packed the Capitol Auditorium for a retro-seminar going over the electric utility law passed two years ago and over what's been happening in California for the last few months. Politicos and other state government types want to make sure problems with new regulations there aren't replicated here. But this was going to happen anyway; the electric industry, for the most part, doesn't want to reopen the two-year-old law for tinkering, but lawmakers want to be sure no tinkering is needed. That's how you get a big hearing with no particular legislation at the center of it.

Two possibly significant pieces of electric utility legislation hang over this. One, brought forth by Rep. Sylvester Turner, D-Houston, would let regulators delay next year's opening of competition.

The other one has the full support, and signature, of Speaker Pete Laney, who doesn't sponsor legislation, doesn't sign onto it, and only rarely votes. But he put his name down as co-sponsor of a bill that would exempt most of the Texas Panhandle from the new law. In spite of some concerns that that sentiment could sweep the state, this appears to be a local issue. Most of the electric power in that part of Texas is provided by one utility, which, through a series of mergers and acquisitions, is now based in Minnesota. We mention that geography solely so we can say it apparently took some screaming on the Texas end of the line to get the full attention of the people in the upper Midwest.

Here's the problem they were screaming about. Through some combination of brilliant foresight and dumb luck, the Texas operation has very low generating costs. The company never bought part of a nuclear reactor, for one thing, and the types of power plants it does own are relatively cheap to operate. The company is now in the relatively rare position of owning power plants that are worth more than it paid for them. Most of the utilities that operate in the state started this re-regulation exercise with power plants that aren't worth what the companies paid to build them.

Could Competition Raise the Price?

Lawmakers from the Panhandle say they don't want the new regulations to result in higher prices in their region. They don't want the company to sell any of the low-cost plants in order to comply with the new utility law if it means the replacement power will come from a more expensive source. The principal—boiled down, oversimplified and broadly stated—is that it's better for consumers to get power from a low-cost monopoly than from a competition between two or more high-cost competitors. And in the case of what used to be the locally based Southwestern Public Service, the Panhandle lawmakers fear that forced introduction of competition would kill a golden goose.

The legislation, sponsored by Rep. Warren Chisum, R-Pampa, would install a price guarantee for electric customers in the Panhandle, forcing regulators to make sure that new competition would not result in higher prices before approving "customer choice" plans in the region. And it would prevent regulators from approving the sale of power plants for that region if customers would end up with higher electric bills as a result. There's also a section that says any proceeds from a quick sale of a power plant should be split, with electric ratepayers getting 90 percent of the profit and shareholders getting the remaining 10 percent. Among those customers, presumably, would be electric co-ops and other outfits that buy power from SPS.

The risk of that legislation spreading to the rest of the state seems small, since the economics work out differently in other places. But Laney's signature stirred some concerns. And Turner's bill looks reasonable to some members who are nervous about the things that went haywire in California. While the legislative and industry leaders on the issue say they'd rather not have a bill, they might end up with one or both of those measures before this is over.

Into the Pool, One Toe at a Time

While the legislature frets over the risks and non-risks of opening the electric business to new companies, the Public Utility Commission is sticking to the current schedule, enrolling business and residential customers in a pilot program to see how retail electric competition works.

They're signing up business customers now, residential customers next month, and they'll throw the volunteers into the mix in June. That pilot program, limited to a small fraction of the electric customers in the state, will last for seven months. Unless something changes during the legislative session, they will open the rest of the state to competition in January 2002. That's not a force play; consumers of either the business or residential stripe can stick with their current electric company. But the switchover comes about 10 weeks before the political primaries next year, which might partly explain why some of the folks in the elected class are so skittish about it.

From Yes to Maybe

It looked like a no-brainer at first, but the thickness of the state's wallet—or more to the point, the thinness of it—is restraining expansion of a popular sales tax break. Sen. Rodney Ellis, D-Houston, one of the original backers of the back-to-school sales tax holiday, wanted to make that three-day event two weeks long. But a couple of things have happened: He's now the chairman of the Senate Finance Committee and is in the business of saying No to new ways to spend money. There might turn out to be enough money for a bigger sales tax holiday, but it's tough for Ellis to fund a high visibility pet program while he's telling other lawmakers the money is too tight to take care of their babies. And the state is actually looking at a tighter budget than expected. That's why the expansion of the sales tax holiday—touted the other day by Ellis and Comptroller Carole Keeton Rylander—has shrunk to five days from two weeks. That also served to shrink the price tag. They're also proposing some additions to the list of items that can be sold without taxes during the holiday, including backpacks, car safety seats and in a bit of dated language that shows up in legislation sometimes, "sewing notions." The two tax holidays to date saved taxpayers (or, for budgeteers, cost the state) $32.6 million and $37 million. The break next August, if it's expanded to five days and if the new items are added to the list, would cost a total of $46 million.

High Tech Flotsam and Jetsam

Legislators are forming a bipartisan high tech caucus to try to focus attention on that part of the economy. That'll help them figure out what the tech folks want and don't want from government. And at the same time, the tech folks are stepping up their efforts to plug into government, which is as foreign to many of them as tech talk is to people in government.

There's a new creature on the industry side called the Technology Education Coalition, sponsored by several big computer and chip and other tech companies that are either based in Texas or have significant interests here. They started off with endorsements of legislation beefing up mathematics education in elementary and high schools, increasing the size of the Texas Grants program and turning out more computer science and engineering grads at Texas colleges.

Trent Sisemore won't run for Texas Senate, as had been rumored, but will run for mayor of Amarillo instead. He's got small kids, wants to stay home, and wants to be the mayor instead of a city commissioner, the job he's held for the last three years. The current mayor, Kel Seligson, has his eye on the Senate seat should Sen. Teel Bivins, R-Amarillo, decide this is his last ride.

• This next item is apropos of nothing. Now that we've declared the value of it, consider the fact that there will be a full moon on March 9. That's also the last day to file bills without permission and the first day—here's the key—that legislation can be considered without the governor first declaring it an emergency. It's the day the Legislature really goes to work.

Political People and Their Moves

The Texas office of the National Federation of Independent Business has been headless since Robert Howden left for the governor's office, but the lobby group for small businesses is naming Jeff Clark to the job. Clark has been at Public Strategies in Austin for the last year or so; before that, he was at the Texas Association of Business and Chambers of Commerce... Kathryn Keller, who ran the Governor's Business Council for that fella who moved to Washington, D.C., is moving over to the Technology Network, or TechNet, to work on Texas fundraising and organizing. Margaret Lauderback had been doing that, but is spending more time on national issues and needed help on the Texas front... Former Rep. Layton Black has gone into the lobby business, signing on to work with Bob Kelly, the former House parliamentarian and director of the Texas Legislative Council. Black had been working for the state and switched to the private sector at the beginning of the month. Separately, Kelly—known widely as the last regular smoker in the House—is being fined by one of his clients. The City of Austin has a non-smoking ordinance that's apparently being violated whenever Kelly lights up in his office, since it shares a ventilation system with other offices. Those fines run, we're told, $2,000 a day... Donna García Davidson, who worked at the Texas Agriculture Commission when Rick Perry was the chief there, then worked for Gov. George W. Bush, and finally again for Perry when he was Lite Guv, has hired on at Potts & Reilly, an Austin-based law firm. She'll be Of Counsel there... We missed this somewhere back there, but J. McCartt signed on with Hillco as a lobbyist. When last we left him, McCartt had just left Perry's employ to strike out on his own as a lobster. Now, he are one... Lora Bennett, who lived through a mess of chief state executives working in the governor's appointment office, has retired. She worked for Bush, Ann Richards, Bill Clements (twice) and Dolph Briscoe... Heather Harward, who most recently worked for Sen. David Sibley, moves to Dow Chemical Corp., where she'll be on the Austin lobby team... And of course we left someone off the list of Pollie Award winners. The American Association of Political Consultants gave The Strategy Group for Media a prize for a television ad the firm did in an Alabama race. The GOP firm, based in Austin, is headed by Brian Berry... Appointments: As expected, Gov. Perry tapped Ric Williamson, a buddy, former roommate and former colleague in the Texas House as one of three transportation commissioners. That announcement was accompanied by a couple of high-level reappointments. Perry says he'll keep Don Gilbert at the Health and Human Services Commission, which oversees several huge social services agencies, and Jose Montemayor as commissioner at the Texas Department of Insurance... Perry also made Rebecca Olivares the chairman of the Texas Workers' Compensation Commission, moving Burt Terrill back to a regular spot on the board. That move doesn't require Senate approval...

Quotes of the Week

House Appropriations Chairman Rob Junell, laying out details of a grand jury investigation of alleged fraud by the EDS subsidiary that operates Texas' Medicaid program: "The information I have gathered from the process is alarming and leads me to believe that the contract and its implementation is an extraordinarily bad deal for the State of Texas."

Lt. Gov. Bill Ratliff, on a proposed tax cut: "I think we have to keep our powder dry for a little while. It's not a real good session to be giving money away."

Suzy Woodford of Common Cause, on having practicing lawyers raise money to hire lobbyists to represent appellate courts in the Legislature: "I would not want to be a client of an attorney who does not show up... [with] a $3,000 check, facing an attorney on the opposite side who did."

National Rifle Association President Charlton Heston, recalling a line from the Long John Silver character he played in a movie and cautioning President George W. Bush in the process: "Set the course, and we'll steer it—it's a thirst for liberty that fills our rusty cups! But let down your mates, sir, and you'll face the plank!"

Texas Weekly: Volume 17, Issue 33, 26 February 2001. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2001 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (800) 611-4980 or email For news, email, or call (512) 288-6598.

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