A Guaranteed Loss

At the end of March, the state's prepaid tuition plan was $226 million in the hole, primarily because the money invested by parents was doing the same thing everybody's 401k has been doing. And with the Legislature's decision this year to deregulate tuition, it'll be that much harder for the fund's investments to keep up with the cost of higher education in Texas.

A report from the State Auditor's Office says the hole might have been even deeper. According to the auditors, the board that runs the Texas Tomorrow Funds — a board chaired by Comptroller Carole Keeton Strayhorn — has been too optimistic about earnings and hasn't kept up with rising tuition rates at the state's colleges. They contend that a more realistic earnings estimate would put the tuition plan's deficit at $318 million as of the end of March. That's without tuition deregulation.

Officials with the Texas Tomorrow Funds (there's a separate college investment plan administered by the same folks) say the numbers have improved, but are still negative. By the end of June, the state's "unfunded liability" was down to $108.6 million, by their estimate (it would be higher using the auditors' lower estimates of investment returns). The actuaries who work for the fund will put out a detailed report on the condition of the investments in January. In the meantime, the official version is that the Texas operation is in better shape than most of its peers around the U.S. and that the numbers are just a reflection of the fluctuations in the markets where the fund's $1.7 billion is invested. The fund ran surpluses, officials say, until the stock market began to slump in 2000. And they've always had the money available to pay the tuition bills of kids whose contracts have already matured.

The deficit is not a problem for the people who bought prepaid tuition contracts, or for the people who'll go to school on the proceeds. They locked in their prices when they signed up, and a few years ago, Texas voters added a constitutional guarantee to the deal, promising that the state would make up the difference between what the tuition investments actually produce and what the colleges are charging when the little rug-rats pack up their MP3s and head off to school.

But the deficit could become a concern to state lawmakers, and to the same taxpayers who approved the constitutional amendment putting the state's full faith and credit behind the fund.

It's a particular problem because of what happened after that March 31 deficit was already on the books: The Texas Legislature deregulated college tuition, freeing the state's universities to raise rates to market levels, or at least closer to market levels. In response, the tuition plan's board decided (informally, which earned another wrist slap from auditors who think they should have voted) to suspend sales of new Tomorrow Fund contracts until they figure out how tuition rates will land now that the schools are in charge. That'll increase the cost of new contracts, when they start selling again, to a point that could put a damper on sales. When people saw deregulation coming earlier this year, they kicked Tomorrow Fund sales to levels unseen since the program's inception.

Everyone expects tuition and fees to rise more quickly now than they were rising when lawmakers were in charge of prices. And few expect a sudden spike in investment income to match the rise in school costs. In the short term, that means the gap — which would have to be filled with tax dollars — will get bigger. Over time, the managers of the funds hope investments and new contracts will come into line with tuition costs. But lawmakers, who had hoped to shift some of the financial burden of public college education from taxpayers to students, might eventually be forced to cover part of the education costs for the current contract holders, whose number exceeds 21,000.

Half Full or Half Empty?

Land Commissioner Jerry Patterson is pushing ahead with the idea of selling water beneath Texas lands to a private outfit made up of energy and tech people from Midland and Austin. The group, Rio Nuevo, wants exclusive rights to water under the General Land Office controlled lands in Far West Texas. Patterson has been talking to them since this summer, and says he has no intention of seeking bids on the project or of letting loose the details of conversations that contain what he calls proprietary information. Patterson says his job is to use state property to earn as much money as possible for public schools, and he says a water deal could help. He also says this exercise could end with no deal.

Ranchers and local officials in West Texas are going nuts. Agriculture Commissioner Susan Combs wrote a scorching op-ed article tearing into Patterson for not opening the process to the public.

And now, Lt. Gov. David Dewhurst is on the verge of naming an interim committee that would hold hearings on the idea. That wouldn't impede Patterson in a legal sense, but noise from public hearings could put a smell on the deal that would force him to slow down. It might still go through after public hearings, but it would make what has been largely a private process a public one.

The idea first came to the General Land Office more than a year ago, when Dewhurst was the land commissioner. He was running for election and had other things on his plate, and left the issue for his successor. The original idea was to pump the water out of the ground and into the Rio Grande River, so it could flow downstream and be pulled out of the river hundreds of miles away. Alternately, it could be used to replace water taken from that river further upstream in, say, El Paso. Patterson says that idea is not acceptable to him and isn't part of the discussions anymore.

He did criminal background and business background checks on the principals in Rio Nuevo, he says. After hearing rumors that House Speaker Tom Craddick was part of the group, he said he asked and Craddick told him he wasn't involved.

Patterson says he talked to "two or three" other groups about the idea and found that they weren't interested. He's now convinced, he says, that nobody else would bid on the project if he opened it to bidding, so he's decided not to do that. He adds: "If we put it up for bid, that runs up the price, and if the ultimate consumer is a consumer in El Paso, that's anti-consumer." On the other hand, he says his job is to get the highest price for the Texas school children that benefit from the profits.

He says a bidding process might give political cover, but doesn't think there's a practical reason for it: "If you're doing this for public policy reasons, you don't need to do the politics to cover your ass."

He says he'll have a number of safeguards in place. He won't give up many specifics about the discussions between his office and the investors, but says Rio Nuevo will have to go through public hearings when they seek permits from local water authorities after they've signed the state lease. If they don't start production within five years, the deal is off and the rights would revert to the state. And, he says, the local water districts would also be in a position to say the water supply is insufficient or that to take the water Rio Nuevo wants — about 50,000 acre-feet annually, or about 16.3 billion gallons — would wreck the environment in the Chihuahuan Desert lands under discussion.

Rio Nuevo would have to get the lease from GLO, ground water permits and other approvals from locals, and then would have to find a buyer for the water.

Defending his actions so far, Patterson says he could have done this without taking it to the state land board, which he chairs. And he says this wouldn't be the first water deal for the state, pointing at contracts worked between GLO and the City of Presidio and at leases signed for water under land owned by the Permanent University Funds. The land office plans a public hearing in about two weeks in Van Horn, but isn't promising any contract details. Other officeholders are watching nervously. The Senate study under consideration would put a committee on the issue with the mission of studying this between sessions. They're not saying they want to stop Patterson, or that he's got a bad idea. But they could start hearings right away, before GLO and Rio Nuevo reach a deal, and that could slow this down. Patterson's ready for that: "We could probably give pretty good testimony."

A Date and a Change of Venue

The three federal judges who'll rule on the legality of the Legislature's new congressional redistricting maps will go to work in Austin on December 8 and then will start a full trial on the maps on December 11. At that first hearing, the judges will decide whether to kill the map outright; opponents have argued that lawmakers shouldn't have reopened the redistricting issue in the first place, and have asked that the maps die on that basis alone. If the federal judges — Patrick Higginbotham of Dallas, who is on the 5th Circuit Court of Appeals, and trial judges Lee Rosenthal of Houston and T. John Ward of Marshall — decide to tear into the legal arguments over the maps themselves, they'll do so in the trial starting on the 11th.

The hanging question: When candidates start filing for office on December 1, what maps will they be using? The court has not said whether next year's congressional elections should proceed under the new maps, or under the maps currently in place. They haven't even said whether they want the congressional primaries held at the same time as the regular primaries, or delayed to give them more time. The judges gave the lawyers until the end of the week to file arguments on those questions.

That's not the only big deal in redistricting set for the first half of December. In the U.S. Supreme Court, lawyers will be arguing a Pennsylvania case brought by Democrats who contend the redistricting done in that state was too partisan, even for redistricting. The high court agreed to hear the case on December 10, and some lawyers speculate the justices could be ready to set a standard for the amount of partisanship that should be allowed in this most partisan process.

Democrats in Texas and elsewhere are crossing their fingers in hope that the court will leash the Republicans who've been redoing maps. Lawyers for the Texas congressional Democrats have filed briefs with the Supremes supporting that position,

Even if the Democrats get their wish, however, it could come too late. The Supremes don't have any particular reason to rule before the March primaries in Texas, and judges don't like to interrupt elections in process. A high court decision in the Pennsylvania case (it's called Vieth vs. Jubelirer, if you're curious) would probably fall between the Texas party primaries and the general election next November. Changing maps at that point would interrupt the elections.

One workaround would be to delay the congressional primaries until next summer, when the Supremes have ruled and the maps are settled. But that would put Texas state legislators who want to run for Congress in a pickle: They'd have to decide whether to run for reelection to the statehouse or to take a chance that they'd be running for Congress on a map that favors an opponent.

Some of lawyers we asked said the court could easily disregard what the U.S. Supreme Court is looking at until the court actually does something. The law's in place until it changes, and there's always somebody out there asking for changes. Why wait?

The General in his Labyrinth

Less than two years after 330,873 Texans said they wanted him to be their next governor, former Attorney General Dan Morales was sent to jail for four years. He pleaded guilty to mail fraud and filing a false income tax return. In addition to the prison time, he'll have to pay $190,000 in fines and court costs and another $146,000 in back taxes. He was initially investigated on allegations he and another lawyer — Marc Murr — tried to claim part of the state's $17.1 billion tobacco settlement for themselves, by describing Murr as a private counsel to then Attorney General Morales. That investigation yielded indictments on other charges: That Morales diverted campaign funds to his own use, that he lied on a federal tax return, that he falsified mortgage documents when he bought his home. Murr, who pleaded guilty to a mail fraud charge, will be sentenced in December.

Party Animals, Final Round

The State Republican Executive Committee ignored the endorsements of the state's two national representatives and elected Houston attorney Tina Benkiser as the interim chair of the Texas Republican Party on a 36-27 vote. National Republican Committee members Tim Lambert and Denise McNamara were backing Gina Parker, an attorney from Waco.

Benkiser said she'll try to put the Republicans in control of county offices in Texas, where Democrats still dominate. She also hopes to build up local party organizations, recruit minorities into the GOP in Texas and raise money, particularly on the Internet and from young people.

Some in the GOP saw the race as a redux of the battles between the grassroots conservatives who made Tom Pauken of Dallas the party's chair in the 1990s, and the crowd — more connected to the party's elected officials and financiers — who got Susan Weddington of San Antonio elected to succeed him. Benkiser, herself a member of the SREC, was the favorite of the second bunch, while Parker — a former state party treasurer — was tied to the first.

Benkiser and Parker will apparently have a rematch in June. Parker said after the meeting that she plans to run again at the state convention. The whole party will vote then — instead of just the SREC. That won't be the only thing up for grabs: Lambert is term-limited in his NRC post and a successor will be elected by the same summer convention that elects a permanent chair. McNamara, who also backed Parker, will be up for reelection.

A Bang for Your Buck

So far, Toyota, which is opening a manufacturing plant near San Antonio, has signed up to contribute $150,000 to a state-run foundation that will promote economic development, a donation that will get somebody from that company a briefing, a meal and a hunting trip with Gov. Rick Perry. Introgen will write a $50,000 check. Yates Construction and American Electric Power and the Texas Association of Mexican-American Chambers of Commerce have signed up to contribute $10,000.

Perry has been talking publicly about the fund for a month, but didn't say his company would be the lure for raising the $5 million. Contributors at "Tier One" will give $50,000 annually for three years, and will get a seat on the advisory committee that directs the TexasOne marketing effort, participation in an annual quail hunt with Perry, lunch at the Governor's Mansion, an invitation to briefings, inclusion of their corporate logo and name recognition at events.

For $25,000 a year, contributors get everything but the advisory council seat and the Guv hunt. At $10,000, they lose their lunch at the Mansion, and Tier Four members who give $5,000 a year don't get their logo on the marketing brochures. Finally, for $1,000, members get the briefing and none of the other goodies. The non-profit foundation will try to find deals that could then be closed with money from the newly created $295 million economic development fund in the governor's office.

Democrats slammed Perry for the sales pitch, which was hand-delivered to about three-dozen prospects around the state, saying he was trying to mix his political fundraising with state business. His aides say similar pitches have been used by governors of both parties in other states, and they, and the Republican Party of Texas, accused the Democrats of being against economic development.

They plan to take corporate site selectors and CEOs to one-time events like the Super Bowl in Houston next year, the opening of the Alamo movie in San Antonio, and the Final Four basketball playoffs in San Antonio (they left out baseball's All Star Game, set for Houston next year), and to annual events like the Byron Nelson golf tournament. The annual budget? $1.6 million.

• Aides to Gov. Rick Perry say the official visit of Mexican President Vicente Fox was paid for, mostly, out of private funds. Fox came to Texas to talk about water and trade and other issues and was feted at a big official dinner and a big official lunch. State money got spent on Texas government staff time, and on security. But the rest of the money, we're told, was raised by the Secretary of State Geoffrey Connor from private sources.

Political Notes

Early Bird Special: Agriculture Commissioner Susan Combs says she is interested in running for Comptroller of Public Accounts in 2006, but only if the current occupant, fellow Republican Carole Keeton Strayhorn, is running for something else. Combs says she won't challenge Strayhorn.

• Houston beer distribution exec John Nau won't host a December fundraiser for the comptroller, apparently because of her feud with the governor, but she's got a replacement. The Houston funder will be at the home of financial star Fayez Sarofim, who has done well enough to get himself on the Forbes list of rich folks in America.

• The Rick Perry-friendly Texas Citizens Action Network, or Texas CAN, put a poll up on their website to get a measure of Perry v. Strayhorn now that the two are throwing elbows. They start by raking Strayhorn over the polls, then invite readers to vote on this question: "Do you agree with comptroller Strayhorn's inter-leadership attacks on Gov. Perry?" Either they got hijacked or their members like the comptroller. She was the leader on their website all week long. "No, Strayhorn is out of line!" got 18 percent of the vote, while "Yes, Strayhorn should keep it up!" got 82 percent of the vote. They didn't return our calls inquiring about it.

• Former Amarillo Mayor Kel Seliger resigned his spot on the Texas Alcoholic Beverage Commission to position himself for a Texas Senate run should Sen. Teel Bivins, R-Amarillo, quit to become the U.S. Ambassador to Sweden. He says he won't run if Bivins remains. Bivins is up for appointment to the ambassadorship, but it's not official yet, and he's characterized talk of it as premature. The feds are doing the background checks on him, however, and he's a member of the Rangers and Pioneers for George W. Bush as a result of his fundraising for the president. Put Seliger on your list, if a vacancy opens up. In the meantime, the Guv is looking for a new TAB commissioner.

• He was tire-kicking last time we scribbled, and now he's buying the bus. Ted Poe, who quit his job as a state district judge in Houston, will run for Congress and told Houston reporters he'll officially announce in the next couple of weeks (he's apparently trying for three stories in one, and may get them). He'd run in CD-2, which is on the eastern end of Harris County, leaving the CD-10 race to other candidates, a number of whom have already lined up. One who's looking: Sen. Jon Lindsay, R-Houston, and a former county judge. If he lost, he'd get to keep his Senate seat, because his term doesn't expire for two more years.

• U.S. Rep. Tom DeLay, R-Sugar Land, will face Democrat Richard Morrison in next year's elections. Morrison describes himself as an environmental and consumer rights lawyer. By the numbers, it's DeLay's to lose, but a Democrat running against a national leader can sometimes attract national money, which could make things interesting.

• Rep. Phil King, R-Weatherford, has been the subject of election rumors for a year, but he is now saying officially what he's been telling lobsters and reporters all along: He's running for reelection next year to the Texas House. Not for Congress. Not for Senate.

• The Texas Association of Business rated state lawmakers on their performance in the last legislative session and the results are up on their website, at www.texbiz.org. The group's ratings two years ago served as the basis for TAB's massive and controversial direct mail campaign in last year's elections. The ratings became the basis for the campaign that's now being investigated by Travis County prosecutors, who think it might have crossed a legal line between political information and actual campaigning. It's illegal to use corporate or union money to promote a candidate's election. TAB, which bragged it had helped elect almost two dozen Republicans to the House last year, contends its materials fell short of electioneering.

• Former state Democratic Party Chair Bill White and former Houston City Councilman Orlando Sanchez made the runoff for mayor of Houston, squeezing out Rep. Sylvester Turner. They spent enough to run for governor in most states, but didn't get the yield you might expect. Comparative Election Day turnouts: Houston 373,731; Kentucky, 1,077,862; Mississippi, 867,891.

Political People and Their Moves

First Lady Anita Perry is taking a job with the Texas Association Against Sexual Abuse. She'll be on contract to promote public awareness, raise money and build grassroots support for the group. Aides to the governor said the TAASA group gets two grants from governor-controlled funds that were already in place before conversations about the job took place. That's not a partisan outfit: Its previous executive director was Sherry Boyles, the Democratic Party's candidate for Railroad Commissioner last year...

Claire Arenson took the early retirement bonus at the Texas Commission on Environmental Quality and will go to work in the private sector, with that agency's former executive director, Jeff Saitas. He came up on the air side of the agency and her background is in water, giving them some complementary skills to pitch. Arenson is an attorney and a former hearing examiner at TCEQ...

Donna Geiger moves from the Public Utility Commission — she's an aide to PUC Chair Becky Klein — to the governor's policy office. She'll focus on utility issues...

Mark Miner moves up to communications director for Lt. Gov. David Dewhurst, replacing David Beckwith, who has gone back to Washington, D.C. after this third run in Texas politics. Miner was press secretary for Virginia Gov. Jim Gilmore, for the Republican National Committee, and for California gubernatorial candidate Bill Simon before coming to Texas to work for Dewhurst...

Tracy King (formerly Tracy Wurzel, if you knew her that way) is the new regional vice president for public relations for AT&T's Western Region, which covers most of the states that lost interest in the baseball playoffs when Chicago and Boston fell out of the running. She'll handle public policy issues, PR, and some politics in 19 states. King, formerly a top aide to Comptroller Carole Keeton Strayhorn and, before that, to then-Land Commissioner David Dewhurst, replaces Vincent Salas...

Appointments: Gov. Rick Perry put two new people on the Texas Building and Procurement Commission, the agency formerly known as General Services. Victor Leal, a businessman and restaurant owner from Muleshoe, and Brenda Pejovick of Dallas, a CPA and business owner, get terms that run through January 2009. Leal is the mayor of Muleshoe and the president-elect of the Texas Municipal League. Pejovick is on the board of the Texas Public Policy Foundation...

House Speaker Tom Craddick named three state reps and two normal people to the newly created Study Commission on Water for Environmental Flows, which is supposed to report to lawmakers on balancing water development and environmental needs by the end of next year. Reps. Robert Puente, D-San Antonio, Bill Callegari, R-Katy, and Scott Campbell, R-San Angelo, and Dr. Ben Vaughan IV of San Antonio and David Herndon of Austin will join five Senate appointees on that board. Puente and the ranking senator on the committee will co-chair. Vaughan is an assistant economics prof at Texas Lutheran University and a specialist in property rights; Herndon is an Austin lawyer who's served on a number of state boards...

Quotes of the Week

Democratic presidential candidate Howard Dean, asked by the Des Moines Register about his position on firearms: "I still want to be the candidate for guys with Confederate flags in their pickup trucks. We can't beat George Bush unless we appeal to a broad cross-section of Democrats."

Al Sharpton, quoted in the Washington Post before Dean apologized: "He was explaining to me that he was not condoning the flag, but reaching out to them. I was explaining that you cannot reach out to people waving a racist flag and say that you want to be their candidate. Imagine if I said that I wanted to be the candidate of people with helmets and swastikas. That is not a big tent strategy."

State Rep. Sylvester Turner, D-Houston, blaming the shortcomings and the race of outgoing Mayor Lee Brown for his own loss in the Houston mayoral contest: "I'd have been a heckuva mayor for this city. My biggest challenger was the incumbent and the present administration. Because I'm an African-American, people assume it means you get more of the same."

Federal Judge T. John Ward, quoted in a Dallas Morning News story on a redistricting hearing, telling GOP lawyers that the newly drawn maps can't be used just yet: "The state's plan is not yet legal. You're asking us to assume that y'all are pre-cleared."

Texas Weekly: Volume 20, Issue 21, 10 November 2003. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2003 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 biz@ texasweekly.com. For news, email ramsey@ texasweekly.com, or call (512) 288-6598.