After 21 months of investigation by Travis County prosecutors, deliberations by three different grand juries and skirmishes along the way that went all the way up the appellate food chain, 32 indictments of three individuals and eight corporations might seem like a small string of fish. These aren't even public officials, though they worked with top officials in the Texas and U.S. Houses.
But two charges carry potential life sentences. The indictments of corporations surprised many observers, including some of the lawyers who were chattering about the indictments for at least a week before the grand jury made its work public. And it's not over: The prosecutors say that instead of ending their work, this set of indictments marks the beginning of a new phase.
To get the measure of it, rewind a week or two. There were rumors the grand jury was stuck and would only issue a report on how the laws should be changed. There was a persistent buzz about lesser charges against bit players and an ignoble end to the whole criminal investigation. In that small circle that has been intently watching this process, the expectations went lower by the day.
Now the political class is obsessed. Prosecutors say they're not finished, and will bring in another grand jury to continue the work of the first three. The charges themselves are provocative: If it's illegal to collect and give corporate money as done by the Texans for a Republican Majority PAC, every donor and PAC in Texas has to go back through its own ledgers and make sure things are just so. And the people on this list of indictments weren't the only players in TRMPAC, or in the larger effort to win a Republican majority in the Texas House that could elect a Republican speaker and draw a new map favoring Republican candidates for Texas congressional seats. Everything worked but the autopsy.
Travis County District Attorney Ronnie Earle wouldn't say whether anyone has legal immunity in return for help, or whether anyone mentioned in the inquiry has been cleared. Specifically, he was asked whether he had set his sights on U.S. House Majority Leader Tom DeLay, R-Sugar Land, who started TRMPAC, served on its board, and later came to Austin to close the deal on a congressional redistricting map that solidifies the GOP hold on Congress and his position there. Earle was oblique: "My response has been consistent, in that anyone who has committed a crime is a target."
For his part, DeLay wasn't indicted, and told reporters in Washington, D.C. that he hadn't been subpoenaed or asked to testify. "This just emphasizes what I've been saying all along, that this investigation isn't about me. I haven't been asked to testify, I haven't been asked to provide any records, I haven't been asked to come as a witness.'' He said the charges were politically timed to hurt him and other Republicans, and dismissed their seriousness, at least publicly. The House Ethics Committee is considering what to do about a related formal complaint against DeLay by U.S. Rep. Chris Bell, D-Houston. Bell continues to push for an outside counsel, but the committee hasn't acted.
The Travis County grand jury indicted three men and eight companies in 32 separate indictments (a copy of the full set is available by clicking here.). A first degree felony carries punishments of five to 99 years or life in prison, along with a fine of up to $10,000; a third degree penalty against an individual is punishable by two to ten years in prison and up to $10,000 in fines. Corporations convicted of third-degree felonies can be fined up to $20,000, or double the amount of what the company gained or caused to be lost by breaking the law, according to the district attorney's office. Felons can lose the right to sell alcoholic beverages, potentially raising the stakes for a company like Bacardi USA.
Headed for Trial
Some of the corporations that contributed to TRMPAC companies were charged with "unlawful political contribution by corporation," a third degree felony. Eight corporations were charged: Alliance For Quality Nursing Home Care Inc., Bacardi USA, Inc., Cracker Barrel Old Country Store, Inc., Diversified Collection Services, Inc., Questerra Corporation (2 Counts), Sears, Roebuck and Co., Westar Energy, Inc., and The Williams Companies, Inc. Several other corporations that gave money were named in charges against others (see below), but those indictments were for receiving corporate money, not for giving it. Prosecutors were vague about what got one company indicted and another spared, but said there were different kinds of evidence available for different transactions.
James Ellis was indicted on one count of money laundering, a first degree felony.
John Colyandro was indicted on one count of money laundering, a first degree felony, and on 15 counts of "Unlawful Acceptance Of Corporate Political Contribution," a third degree felony. The grand jury said he illegally accepted corporate checks totaling $451,000 from Alliance For Quality Nursing Home Care Inc., AT&T Corp., Bacardi USA, Inc., Burlington Northern Santa Fe Railway (2 Counts), Cracker Barrel Old Country Store, Inc., Cornell Companies, Inc., Diversified Collection Services, Inc., El Paso Energy Service Company, Questerra Corporation (2 Counts), Reliant Resources, Inc., Sears, Roebuck and Co., Westar Energy, Inc., and The Williams Companies, Inc.
The indictments against Warren RoBold were for "Unlawful Political Contribution By Corporation/Unlawful Acceptance Of Corporate Political Contribution", third degree felonies. The grand jury said he was involved in illegal transactions totaling $250,000 with Bacardi USA, Inc. (2 Counts), Burlington Northern Santa Fe Railway (2 Counts), Cracker Barrel Old Country Store, Inc. (2 Counts), Cornell Companies, Inc. (2 Counts), Diversified Collection Services, Inc. (2 Counts), Questerra Corporation (2 Counts), El Paso Energy Service Company (2 Counts), AT&T Corp. (2 Counts), and Sears, Roebuck and Co. (2 Counts).
Whether or not DeLay was right about the prosecutors' political intentions, Democrats who might benefit from the indictments and interest groups campaigning for finance reform and other issues found something in the announcements to promote themselves or their causes.
• U.S. Rep. Nick Lampson, D-Beaumont, called upon his opponent, Republican Ted Poe of Houston, to return $5,000 in contributions he received from U.S. House Majority Leader Tom DeLay's Americans for a Republican Majority PAC, or ARMPAC. The name is similar to Texans for a Republican Majority PAC, the outfit at the center of the grand jury indictments announced this week. But DeLay wasn't indicted and ARMPAC hasn't been part of the investigations, which have centered on Texas legislative races and Texas political action committees and officeholders. Mirroring that, U.S. Rep. Max Sandlin, D-Marshall, called upon Louis Gohmert, R-Tyler, to give back ARMPAC money.
• Texas House candidates Kelly White and Mark Strama, both Democrats, called upon their opponents, Republican Reps. Todd Baxter and Jack Stick, to return money they received from TRMPAC during the last election cycle. All four candidates are from Austin. TRMPAC was in the middle of the investigation. Baxter and Stick were both mentioned in the indictments, but not as targets of the investigation or as defendants. They were among seven Republican candidates who received contributions totaling $190,000 from the Republican National State Elections Committee after the RNSEC received a $190,000 contribution from TRMPAC. What left TRMPAC as corporate money came back as non-corporate contributions to the candidates, and two men who wrote the check and delivered it — John Colyandro and James Ellis — were charged with money laundering as a result. The seven candidates named in the indictments were only there as part of the explanatory material.
Did Republicans Invent This?
Here's a preview of the political fight in the present and future tense. The Texas Democratic Party attacked the Stars Over Texas PAC started by House Republican leaders as a carbon copy of TRMPAC and tried to scare Republican donors away from contributing to it. Republican individuals return the volley, saying neither TRMPAC nor Stars is doing anything that their Democratic predecessors in the House leadership didn't do with the Texas Partnership. That PAC was set up by Democratic leaders in the House, and they say they never used corporate money for anything but administration. Lawyers on both sides are still arguing over what's included in that category.
• Several groups that have lobbied for changes in the state's campaign finance laws — Public Citizen, Texans for Public Justice, and Common Cause — said House Speaker Tom Craddick, who was not indicted or even mentioned in the indictments, should step down from his post while the legal system works through the inquiry. Craddick and/or his lawyer have said publicly that he closely followed what TRMPAC and other groups were doing to try to win a GOP majority in the House two years ago, but contend he wasn't coordinating those efforts or directing spending. Craddick told reporters in Midland that he personally accepted a $100,000 check from the Alliance for Quality Nursing Home Care, but said he didn't even look at it and simply picked it up for TRMPAC while talking to an Alliance exec about the organization's legislative issues.
• Campaigns for People took a different tack. They praised the prosecutors and called for changes in state law to close "loopholes" in prohibitions against corporate and labor union money in elections, to set limits on contributions (federal candidates have them, while non-judicial state candidates in Texas don't), beef up the Texas Ethics Commission that oversees campaign finance laws, and require lawmakers to record all substantive votes. By their tally, one contributor gave $4 million in legal contributions during the 2002 cycle, and 15 more each gave $500,000 or more. One more stat: 57 percent of the money raised legally in that cycle came in chunks of $25,000 or more. They want unions and corporations barred from making any contributions to political action committees that aren't directly affiliated with the donors, and then only for a narrowly defined set of administrative expenses.
School Finance: Whose Ox Got Gored, Anyhow?
It's possible to get an unconstitutional result from a constitutional school funding system. Judge John Dietz ruled that the state is not funding its public schools in a constitutional way. Texas isn't putting enough money into the system to produce the quality of education the state demands in its own laws and constitution, and it's also forcing too many districts into a de facto state property tax, which is unconstitutional. Finally, the state's setup isn't efficient, a word that in this case has constitutional over- and under-tones that are discernable only by people in the legal profession and education wonks, nerds, and propeller-heads.
But Dietz didn't say the funding mechanism itself — known popularly as Robin Hood — is unconstitutional. His final and detailed ruling will be out in about a week. But from what he's said so far, it would be possible to fix the constitutional problems in school finance with more state money, less local money. Those who want to kill the Robin Hood system — which was certified constitutional by the Texas Supreme Court (in an opinion authored by then-Justice John Cornyn, now a U.S. senator) — came out of Dietz's courtroom with some ammunition to overhaul everything. But lawmakers and others who don't want to kill the current setup saw something else: The state is in legal trouble not because the system was broken, they say, but because its share of public school funding fell so low that local tax rates were forced up and education spending — and quality — were forced down.
However the lawyers settle their differences, that argument over Robin Hood and funding for schools is part of the legislative argument to come. And it might not be as partisan (on that point) as you'd expect. Republicans want local property taxes to fall, and more state money would do that. Democrats want more money spent on schools generally, and coming up with enough state money to lower local property taxes would give lawmakers some cover for spending increases.
A Fiscal and Political Bullet, Dodged
Texas teachers won't have to pay administrative fees to get to money set aside for them by the state, and won't be required to use that money solely for health insurance coverage. What's more, they'll duck those charges without forcing state taxpayers to pick up the tab. Lt. Gov. David Dewhurst and House Speaker Tom Craddick, with Attorney General Greg Abbott, have apparently extracted the state from a contract with Aetna that would have cost either teachers or taxpayers up to $18 million.
The fees would have been deducted from educators' paychecks starting this month, and state stipends that now will go straight to the teachers would have otherwise been diverted into "health reimbursement accounts," or HRAs, that can only be used for health expenses.
State leaders were starting to feel the focused anger of 600,000 current and retired educators. Last month, Gov. Rick Perry suggested using taxpayer money instead of deducting from educators' stipends. Others had suggested delaying implementation of the HRAs. But the contract with Aetna was signed, the fees set, and the Teacher Retirement System of Texas was ready to go.
A little history: Lawmakers created a $1,000 "pass-through" for teachers a couple of sessions ago. No strings were attached, but legislators suggested spending the stipends on health care coverage. Last year, lawmakers in a budget squeeze halved the stipend to $500 a year for teachers, and reduced it to $250 a year for part-timers. They also added strings, forcing educators to use the money for health coverage. Somebody had to run the new HRA system, and lawmakers directed TRS to hire an administrator, with the costs of administration to come out of the accounts set up for educators.
Aetna won the contract to run the HRAs for 600,000 people in the TRS network, to keep track of all those accounts and deductions from them each year, adjudicate claims, and then ask TRS for reimbursement as checks were paid to participants. Their pay would come from fees set at $2.50 per month, or $30 per year. Each account holder was offered an optional debit card that could be used to tap into HRA benefits electronically. That would cost another $1 a month, for an annual total of $42.
Teacher groups — looking at that concoction of smaller stipends, fewer spending options, and new mandatory and optional administrative deductions — squawked loudly. Rep. Dianne White Delisi, R-Temple, whose legislation set up the new system, spent the summer trying to delay the implementation, saying lawmakers could come back in January and choose from better alternatives that came available after the HRAs were approved. But TRS was bound by statute.
As the school year and the onset of the new system grew closer, Perry tried to save the day by asking the Legislative Budget Board for $18 million that could be used to pay the administrative fees. That would have taken educators off the hook for the fees, but would have put taxpayers in their place to pay the money owed the insurance company. The LBB didn't consider it. Dewhurst and Craddick asked Abbott for legal options. One was to cancel the contract by exercising a 90-day option to cancel for any reason. Then the lawyers discovered the HRA legislation passed by Delisi conflicted with other legislation that left the older unburdened stipends in place. The state budget, for instance, provided funding for the stipends, but not for the mandatory HRAs.
Since no money was technically appropriated for the services Aetna was contracted to provide, TRS can cancel the contract, freeing teachers and taxpayers from the $18 million price tag. (Aetna will likely get an estimated $1 million to $2 million for what they spent setting up the system and starting a San Antonio processing center with three dozen employees.) Aetna officials were caught off-guard and didn't have immediate comment on the turn of events.
Teacher groups applauded the decision, as you might expect. The Texas Federation of Teachers followed their applause with a call for restoration of the $1,000 stipend that was in place before the last legislative session. The president of the Texas State Teachers Association, Donna New Haschke, said her only regret is that Abbott doesn't have the power to restore the stipend to $1,000.
Next session, lawmakers will take another look at the system to decide whether to put a modified HRA in place, to use health savings accounts, or to let the teachers have the money and the power to make their own decisions about health care.
• Whatever the grand juries do, money is still in the bloodstream of the Texas body politic. Look at the opener on a fundraising pitch from the Texas Civil Justice League, sent out two days after a Travis County grand jury sent a chill through the capital by issuing 32 campaign finance indictments: "Just remember it is a whole lot cheaper to re-elect a good judge then it is try to remove a bad one. So quickly we forget the battles in the earlier 1990’s for the Texas Supreme Court. We spent millions fighting to reform the Texas Supreme Court — now that we have excellent jurists, we can’t turn our back on them. We know budgets are tight — so please dig a little deeper and show your support for Justice Scott Brister who is facing a serious challenger in November." That's an invite to a luncheon featuring Lt. Gov. David Dewhurst, with suggested donations of up to $2,500.
• You might have missed a report in The Dallas Morning News that was on the other side of the front page from the stories about campaign finance indictments this week, but it bears notice: The paper looked at a 30-month period and found that 137 of 509 Texas children who died of abuse or neglect in that period had been investigated previously by the state's child protective services agency. That operation has been under fire for months because of holes in the safety net for kids that first appeared in South and Far West Texas.
• The Texas Farm Bureau caught us with our cursors down last week, when we left a letter out of the website address for their AGFUND political action committee. The correct address for that spot, which lists all of their endorsements, with explanations: www.txfbagfund.org. They've added some endorsements since last we wrote, too. They like Republican Becky Armendariz Klein of Austin in CD-25, where the incumbent is U.S. Rep. Lloyd Doggett, D-Austin. In Texas House races, the PAC likes a few challengers: former Rep. Billy Clemons, R-Groveton, over Rep. Jim McReynolds, D-Lufkin, in HD-12; Charles "Doc" Anderson, R-Waco, over Rep. John Mabry, D-Waco, in HD-56, and Jeffrey Hibbs, R-Waco, over Rep. Jim Dunnam, D-Waco. (Waco is also where the Farm Bureau is based.) Two incumbents with serious challenges got their nod in the latest round: Patrick Rose, D-Dripping Springs, and Ken Mercer, R-San Antonio. In a couple of hotly contested open seats, the farmers split their bets, favoring Stephen Frost, D-Atlanta, over H.E. "Pete" Snow, R-Texarkana, in HD-1, and Republican Roy Blake Jr. over Democrat Robin Moore in HD-9 (both candidates are from Nacogdoches).
Political People and Their Appointments
Gov. Rick Perry appointed Calvin Stephens of Dallas to the University of Houston System Board of Regents. Stephens runs SSP Consulting, and a is UH grad who got his graduate degree at Southern Methodist University in Dallas. He's got other college gigs, serving on the advisory board of the business school at the University of North Texas, and on the associate board at SMU...
The Guv named Hector Delgado of Dallas and Kenneth Harris of Austin to the state's Finance Commission, which regulates financial institutions operating with state (and not national) charters. Delgado is an attorney and CPA and one of the founders of the law firm of Delgado, Acosta, Braden & Jones. Harris is a finance executive at Dell, Inc...
While we're talking about the middle office, Dan Shelley is back in the Pink Building. The former lawmaker returns as legislative director for the governor, replacing Patricia Shipton. Shipton came from the lobby three years ago to work for Perry and is going back; Shelley was in the lobby and is coming back to the Capitol. He was legislative liaison for Gov. George W. Bush until 1996, when he became a lobbyist. Before that time in the governor's shop, he was a state senator, and before that, a member of the House, where his tenure overlapped Perry's...
The governor named John Shirley, an elementary school counselor from Richardson, to the State Board for Educator Certification, which oversees standards and certification of public school teachers...
President Bush appointed Susan Moore of Austin to be an Alternate Representative of the US to the next session of the United Nations. Moore, a consultant who was general counsel to former Lt. Gov. Bob Bullock, will get a one-year term if the Senate approves.
Political People and Their Moves
Robert "Sam" Tesson, the executive director at the state's Office of Rural Community Affairs, is resigning from that post at the end of the month and told the staff there he's headed for a new job in the private sector. He's been the chief at ORCA since the beginning of 2001, when the agency was formed. They're launching a search for a replacement...
Patricia Hayes is leaving the Independent Colleges and Universities of Texas for the Texas Education Agency, where she'll run the new office coordinating public and college education (it's the P-16 program, in wonk-speak). The state wants high school grads to be ready for colleges, and for the colleges to be ready for them. Hayes, who was a legislative liaison with ICUT, will be the director...
Bryan McMath is leaving the offices of Sen. Kip Averitt, R-Waco, where he's been the legislative director, for the offices of Sen. Kel Seliger, R-Amarillo. He'll be Seliger's chief of staff, replacing Eric Woomer, who resigned this summer to take a stab at lobbying. McMath was with Averitt for almost six years, starting as his committee director in the House...
Vicki Goff worked for the state for 33 years, and for the Secretary of the Texas Senate for the last decade, but she's outta there. She's taken a job with lobbyist Mignon McGarry...
After six years at the helm of the Texas Freedom Network, Sam Smoot says she'll leave at the end of the year. The advocacy group doesn't have a replacement lined up (they're starting a search) and Smoot says she wants to decompress for a bit before getting to work on something new...
Cullen "Mike" Godfrey, who was the vice chancellor and general counsel for the University of Texas System just a few days ago, is now a partner with the Jackson Walker law firm. He was Fina Corp's. general counsel before joining UT, will work in the Dallas firm's Austin branch...
After nine years at Bracewell & Patterson, Mindy Ellmer has decided to open her own lobby shop. Some of her existing clients are going with her, and she and the firm say all is amicable...
Rob Schneider is leaving the Austin office of Consumers Union for the New York office. The insurance specialist got a two-year gig working on a national prescription drug reform project...
Quotes of the Week
Travis County District Attorney Ronnie Earle, announcing indictments in a campaign finance inquiry: "Additional allegations continue to arise from the mass of information gathered by the grand juries that have investigated various aspects of this matter. What has emerged is the outline of an effort to use corporate contributions to control representative democracy in Texas."
House Speaker Tom Craddick, quoted in the Austin American-Statesman on personally accepting a $100,000 contribution to Texans for a Republican Majority from the Alliance For Quality Nursing Home Care Inc., which was indicted for making that donation: "I wasn't down there collecting anything [for TRMPAC]. I was just down there visiting with these people on their issues — election issues — and they gave it to me... I don't even know if I looked at it, to be truthful."
U.S. House Majority Leader Tom DeLay, R-Sugar Land, on the campaign finance indictments: "This has been an investigation that has been underway for nearly two years, and 40 days before the election they've suddenly taken action. You do the political math. I'll reiterate what I've said before and today's action emphasizes: I have not been subpoenaed, I have not been asked to testify, and I have not been called as a witness. They've made clear this investigation is not about me."
Irving ISD Superintendent Jack Singley, telling The Dallas Morning News that it'll be some time before Judge John Dietz's ruling on school finance trickles down: "Our budget didn't change just because a judge made a decision."
U.S. Sen. Kay Bailey Hutchison, quoted by the Houston Chronicle on school finance: "Even if this is appealed and the state won, we can't let our schools be second-tier, second-rate. I think the Legislature and the leaders of our state should be focusing on doing what's right, not being forced by the courts. We know that we don't have a system that is fair in taxation. We don't have a system that produces a quality education for every child in Texas and that should be our goal."
Texas Weekly: Volume 21, Issue 15, 27 September 2004. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2004 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.