Friday, February 27, 2004

As the Observer chronicled last August [“Rise of the Machine,” Aug. 29, 2003], the Texas Association of Business and the Tom DeLay-created Texans for a Republican Majority political action committee used about $2.5 million in corporate cash to help elect a handpicked Republican majority that would crown Craddick speaker. New evidence now makes clear that Craddick was a central figure in those efforts, and raises the possibility that the Midland Republican broke the law to obtain his long-sought victory. Read the article in the Texas Observer

Scandal in the Speaker's Office

A campaign finance scandal threatens to swallow Tom Craddick

Jake Bernstein and Dave Mann | February 27, 2004 | Features

For Rep. Tom Craddick (R-Midland), November 7, 2002 must have been one of the happiest days of his life. Not 48 hours earlier, Republicans had romped to a landslide electoral victory across the state, winning 88 seats in the Texas House. For the first time in 130 years, Republicans would be a majority in the state Legislature. Craddick, who had won his first election at age 25, was the House’s longest serving Republican. He had spent many of his 34 years in the Texas House shunted to the legislative sidelines in a lonely minority. But as the GOP rose in Texas, so did Craddick’s fortunes. For the previous eight years, he had struggled to win the coveted leadership role of speaker of the House, helping to engineer three Republican swipes at capturing the majority. Each had failed.

Now, on this Thursday, which also happened to be his late father’s birthday, a press conference had been called for a momentous announcement: Craddick had collected enough pledges from his fellow House members to be named speaker—the most powerful state official not elected statewide.

Republican partisans, members of the media, and the Capitol curious packed into the speaker’s committee room behind the House chamber to hear the news. A spokesman for Farmers Insurance, who insisted he was there just as a friend of Craddick’s, handed out media packets to reporters. When the 59-year-old Craddick entered the room, the crowd burst into applause. And Tom Craddick, a man known for his wry sense of humor and understated delivery, broke into a wide lopsided grin.

As the Observer goes to press, Speaker Craddick has recently hired one of the state’s finest criminal defense attorneys to help him respond to a subpoena from a Travis County grand jury investigating the 2002 election. In what has the potential to be the biggest legislative scandal since 1971, Travis County District Attorney Ronnie Earle is investigating an allegedly wide-ranging conspiracy to funnel illegal corporate money into legislative elections. As the Observer chronicled last August [“Rise of the Machine,” Aug. 29, 2003], the Texas Association of Business and the Tom DeLay-created Texans for a Republican Majority political action committee used about $2.5 million in corporate cash to help elect a handpicked Republican majority that would crown Craddick speaker. New evidence now makes clear that Craddick was a central figure in those efforts, and raises the possibility that the Midland Republican broke the law to obtain his long-sought victory.

The invitation to the press conference told the story. Addressed to “interested parties,” it asked recipients to “please join us for a press conference with State Representative Tom Craddick.”

But the more telling phrase on the invitation could be found at the bottom: “Paid for by Texans for a Republican Majority.”

In a recent press statement, Travis County District Attorney Ronnie Earle explained how his investigation began: “In the late Fall of 2002, in response to public boasting by the Texas Association of Business (TAB) that it had collected and contributed money from corporations to elect candidates to the Texas Legislature, this office began an investigation into possible violations of Texas law prohibiting such corporate contributions. That initial effort led to an investigation of allegations that Texans for a Republican Majority (TRMPAC), a political action committee, also illegally raised and used corporate money for political purposes.”

Craddick has publicly distanced himself from TRMPAC. In doing so, his words appear to indicate that Craddick understood early on that it would be inappropriate, and possibly illegal, for a speaker candidate to help steer a political action committee that contributed money directly to House candidates, since House members elect the speaker. In one of his starkest denials, Craddick told Austin American-Statesman reporter Laylan Copelin for a February 24, 2003, story that “most of the people over there [at TRMPAC] supported me,” but he had no direct ties to TRMPAC.

Copelin wrote, “Craddick…said he distanced himself from the group’s activities because he was running for speaker.” But Craddick’s denials ring false. In reality, Craddick was heavily involved with TRMPAC. Documents obtained by the Observer, some of which were first mentioned in The New York Times, illustrate that Craddick not only helped direct TRMPAC’s activities, but he even accepted corporate donations on behalf of the PAC and personally distributed TRMPAC campaign funds to candidates. TRMPAC sent campaign checks for 14 Republican candidates totaling $152,000 to Craddick’s district office in Midland for the speaker candidate to personally distribute. In addition, phone records indicate Craddick spoke with a TRMPAC consultant dozens of times in the two months leading up to the election. In all, the documents reveal that Craddick was at the center of a PAC that’s under investigation by the grand jury for allegedly breaking several election statutes, including the ban on corporate money.

Craddick’s press secretary Bob Richter says the speaker stands by his assertion that he wasn’t closely tied to TRMPAC. “He still feels that way,” says Richter, noting that Craddick did not serve as an officer or on the board of the organization. “He does not deny that he is very close to Tom DeLay,” says Richter. “It is possible that his relationship with Tom DeLay made it hard to distance himself from TRMPAC.”

Calls to Craddick’s criminal defense attorney Roy Minton for further clarification of the

Midland Republican’s role vis-à-vis TRMPAC were not returned. Minton is widely seen as the attorney of record for politicians in trouble.

DeLay founded TRMPAC in September 2001. He appointed one of his top political aides, Jim Ellis, to help run the committee. The goal wasn’t simply to gain a GOP majority in the House—the 2001 legislative redistricting had almost assured that—but to elect enough of the right kind of Republicans to snare Craddick the speakership and allow him to exercise near complete control over a majority of the votes.

Craddick and DeLay have been friends since they served in the Lege together in the early 1980s. Only with his good friend Craddick as speaker and a compliant House membership could DeLay force his much-desired mid-decade congressional redistricting through the Lege. Assembling a majority to elect Craddick to the post wouldn’t be easy. Five-term House speaker Pete Laney (D-Hale Center) had considerable Republican support, especially among his fellow rural West Texans. Then there was the danger that a more moderate Republican would emerge as a compromise candidate. The conventional wisdom before the election was that Craddick needed a minimum of 85 Republicans to become speaker, meaning the GOP needed to gain at least 13 seats—an enormous electoral task. The Craddick-DeLay machine also needed money for Republican primaries to ensure that victors would be beholden to it. To do all this, TRMPAC and TAB required a ton of money. Old funding sources wouldn’t suffice. They needed corporate money. The only problem is that it’s illegal to use corporate money for electioneering.

TRMPAC spent roughly $600,000 in corporate cash during the 2002 campaign (just over half the $1.5 million it raised was individual donations). Meddling with corporate money in politics puts one into risky legal territory, campaign experts say, and PACs that dip into the corporate pool must be extremely careful. Texas has prohibited corporate and union money in elections for a century. Lawmakers realized the potential for corruption if big business was able to funnel torrents of undisclosed, corporate money into the process—cash disbursements that shareholders would never be given the chance to approve.

There are, however, some narrow exceptions to the corporate prohibition. To understand the worst of TRMPAC’s potential legal violations requires a foray into the esoteric, tangled realm of campaign finance law. A PAC can legally spend corporate money on administrative expenses. What qualifies as an administrative expense? TRMPAC might argue the definition is rather hazy. Texas law defines it as any “regular” business outlay: rent, paper for the photocopier, the phone bill and so on. TRMPAC used corporate cash for all those mundane expenses. But the group also used corporate donations to pay for political consulting, polls, and phone banks—expenses that appear to be purely political, not administrative. Campaign watchdogs say those expenditures are illegal. TRMPAC insists these outlays are also administrative expenses and permitted. It’s a flimsy defense, but they’ve so far clung to it. Eventually a judge will have to decide if polls and mailers meet the legal definition of “administrative expenses.”

What has gone largely unreported in the media, though, is that Texas election statutes are clear on one particular nugget: Corporate money can’t be spent for political fundraising. This is a serious problem for TRMPAC. The PAC spent $130,000 to raise funds for the 2002 elections, according to an analysis by the Texas watchdog group Campaigns for People. Every penny of that was corporate money. TRMPAC paid DeLay’s daughter Danielle Ferro ($27,600) and fundraiser Susan Lilly ($28,500) among other consultants to collect money all over Texas to power TRMPAC’s political work. The normally toothless Texas Ethics Commission has explicitly ruled (in ethics opinion 132) that fundraising doesn’t qualify as an administrative expense, and thus can’t be paid for with corporate funds. (There is a small exception: PACs can use soft money (anything but individual contributions) to raise funds from their sponsoring employees or shareholders or those of companies that have lent administrative support in the past; that appears to offer little cover for TRMPAC, though, since it doesn’t represent a company—as opposed to, say, SBC’s PAC—and lacks any long-time contributors because it didn’t exist before 2001.) Bill Ceverha, a Republican consultant and former House member who served as TRMPAC’s treasurer, refused to comment for this story. But it seems that much of the $130,000 in corporate cash TRMPAC spent on fund-raising were illegal payments.

en Streusand has long been fascinated with politics. In the Houston offices of Home Loan Corp., the mortgage-lending firm he heads, hang signed letters by Winston Churchill and Theodore Roosevelt. A large man with a jovial smile, Streusand has worked for years as a Republican fund-raiser in Houston. He is the kind of essential cog in the Texas Republican political machine that links the elected officials with their corporate contributors. On October 12, 2002, about a month before the election, Streusand sent a letter addressed to: “Tom Craddick, Texans for a Republican Majority.” Enclosed was a $5,000 check from Aegis Mortgage Corp. to TRMPAC. Streusand wrote, “Dear Tom: Rick Thompson is the President of Aegis Mortgage, a nationwide lender headquartered in Houston. Next time you are in town I would like you to meet him.”

Streusand declined to respond to four calls seeking comment.

Since a number of corporate privateers and other special interests cashed in on the 78th Legislature, it stands to reason that Streusand would get his piece as well. And indeed, Streusand has benefited nicely from the efforts of Craddick, DeLay, and TRMPAC. He’s running for Congress in the newly redrawn, ultra-conservative 10th district that runs from north Houston to Austin. He’s leading in the polls and favored to beat his seven Republican opponents in the primary, which in that district, essentially hands him a U.S. House seat. As for Craddick, his acceptance of at least $5,000 in corporate money on behalf of TRMPAC doesn’t square with his post-election claims that he wasn’t involved with the PAC.

Craddick didn’t just receive TRMPAC money; he handed it out too. On October 18, 2002, as the machine was scrambling to shift money into key races, TRMPAC executive director John Colyandro e-mailed TRMPAC accountant Russell Anderson with specific instructions for cash disbursements for Craddick to hand out. The e-mail’s subject line was “Hard $ checks.” Colyandro wrote, “You should receive a check from Jim Leininger [a San Antonio right-wing campaign cash cow] today. I have another $100,000 that I will give you this morning. You need to cut checks for the following totals and have them Fed Ex’ed for Monday delivery to Tom Craddick at the following address.”

Colyandro’s e-mail then listed 14 Republican candidates and how much they should each receive. The 14 checks totaled $152,000. Colyandro instructed Russell to send all 14 checks to Craddick at “500 West Texas, Suite 880, Midland, Texas, ATTN: Susan Wynn.” That’s the address of Craddick’s district office, according to the 2002 Texas State Directory. Wynn heads Craddick’s district office.

It’s unseemly, and possibly illegal, for a speaker candidate to distribute PAC money to the very House candidates who may elect him. By handing out TRMPAC checks to House candidates, Craddick may have run afoul of the Texas law designed to prevent outsiders from influencing a race to elect the House speaker.

The last major scandal to thoroughly roil the waters of state government started in the beginning of 1971. What would later be known as Sharpstown—a name in Texas that is as evocative of political scandal as Watergate is for the nation as a whole—began as a bribery scheme whereby an influential businessman attempted to buy legislation beneficial to his bank by giving lawmakers access to stocks on which they could make a quick profit. By the time the scandal had run its course, Speaker of the House Gus Mutscher, Jr. had been tried, found guilty of a felony, and sentenced to five years’ probation. The scandal eventually brought about the electoral defeat of the lieutenant governor, the attorney general, and the governor.

Sharpstown resulted in a number of needed reforms dealing with campaign reporting, ethics, lobby registration, open meetings, and open records as well as a number of consumer protections. “The whole point of this stuff was to go back and say ‘look, there are some important principles’, one of which is that we ought to know who is paying for the campaigns in the first place,” says Sam Kinch, who covered the Legislature as a journalist for 40 years and co-authored a book on the scandal. (One of the areas the Travis County DA’s inquiry may reveal is which special interests bankrolled the Republican takeover of the Legislature in 2002.)

As part of the post-Sharpstown reforms, lawmakers established rules for the race for House speaker. “Back in the old days, the lobby was the most overwhelming influence in the election of the speaker,” says Kinch. “In the pre-Sharpstown reform days, the speaker actually could be a dictator if he wanted to be.”

Billy Clayton, who served as House speaker himself from 1975 to 1983, remembers that the goal of the speaker’s statute was to make it harder for outside influences to control the race for the speaker. “[The statute was created] so that there wouldn’t be a lot of big dogs throwing money in after it,” he remembers. “It was to try and keep it within the covey.”

The statute establishes the rules of the game for the House speaker race. It protects House members by forbidding speaker candidates from offering their fellow representatives anything in exchange for their votes. It also describes who can contribute to a speaker candidate’s campaign and for what the money can be used.

Although both Clayton and his successor Gib Lewis were touched by scandal to different degrees during their speakerships, in neither case was it on the scale of Sharpstown. By many accounts, the next speaker, Pete Laney, tried to keep some distance between his office and the business lobby. Laney also promoted an atmosphere of bipartisanship for those who played by his rules. This more consensual model forced lawmakers to form coalitions, communicate, and keep their legislative maneuvers more or less in the open.

By the late 1990s, a number of forces were conspiring to dethrone Laney and end the Texas tradition of bispartisanship. The state was steadily turning Republican. The GOP and certain elements within the business lobby felt that the speaker had not been as receptive to their interests as they would have liked. In 2000, Texas Republicans watched their governor go to the White House, yet they were still unable to capture the Legislature. Meanwhile, influential GOP strategists like Grover Norquist encouraged state Republicans to destroy their Democratic counterparts, espousing such slogans as “bipartisanship is another name for date rape.”

“When bispartisanship broke down, I think you unleashed some forces that inched you back closer to the way things were during Sharpstown, in the sense of more concentrated control in the hands of the speaker,” believes Kinch.

Tom Craddick had long yearned for the House speakership. When the mud salesman from Midland first entered the Texas House in 1969, he was one of just eight GOP legislators in a body the Democrats had dominated since 1869. But as Republicans asserted themselves in Texas under the leadership of Karl Rove and others, Craddick became more actively involved in trying to shape the Texas Legislature.

For years, speculation on whom Republicans would choose for House speaker if they were to gain the majority centered on Craddick. He has been one of the caucus’ most conservative, dedicated, and long-standing members. In 1987 he ascended to House Republican caucus chair. More importantly, Craddick helped lead the effort to capture the Texas House.

By the 1995 session, the state was tipping more Republican. The year before, the Democrats’ edge in the House shrank to 87-63. In the next election cycle, state Republicans launched a “76 in 96” campaign. It would be the first of three efforts to win a majority of House seats by snatching them from vulnerable incumbent Democrats. In 1998, the GOP targeted 16 races but won a measly three.

Two years later, Craddick and the GOP tried to topple Laney for the third time. The effort turned into a debacle due to a surprising lack of funds. A Republican operative explained it to the political newsletter Quorum Report at the time. “The Hammer (DeLay) had too many balls in the air and somehow lost control of the Texas effort,” he said. DeLay is a key source of Republican campaign funds both in Texas and nationally. Without the expected help from DeLay, Republicans came nowhere near the $4 million they had hoped to raise. In the two months before the election, the Republican rank and file was rife with disorganization, and the GOP gained not a single seat in the Texas House. It was an especially bitter defeat for Craddick. He was determined that 2002 would be his year.

While the Republicans owed part of their failure to conquer the House to their own bumbling, Laney and the Democrats slowed the GOP ascent with their own stash of campaign money. The Laney-led Texas Partnership PAC was founded in the early 1990s as a kind of trust fund for incumbent Democratic House members (the committee never tried to unseat incumbent Republicans). Unlike TRMPAC, however, the Partnership didn’t send checks directly to Democratic campaigns in 2002, according to campaign finance reports. Instead it made large contributions to the Democratic Party, which distributed the money. These efforts, along with Laney’s support among rural Republican reps, helped stave off Craddick’s grabs for the speakership.

In the previous Republican attempts to snare control of the House, Craddick hadn’t formerly announced his candidacy for speaker because his prospects of winning were so meager. But seeing his dream within reach in 2002, Craddick filed as a speaker candidate with the ethics commission a year before the election. His entry into the speaker race meant Craddick needed to be extra prudent about his campaign activities to stay on the right side of the law.

However, Craddick and TRMPAC may have violated two provisions of the speaker statute. The law expressly forbids any political action committee from lending “money or other things of value” to aid or defeat a speaker candidate. On the surface, TRMPAC’s cutting checks worth $152,000 for Craddick to distribute to a specific set of candidates appears to qualify as “aiding” his campaign for speaker.

The speaker statute also outlaws so-called “legislative bribery.” It’s illegal for a speaker candidate to promise a chairmanship, passage of legislation or a campaign contribution to a House member in exchange for a vote in the speaker’s election. During the 2002 election, rumors circulated that TRMPAC and perhaps Craddick were doling out campaign contributions in return for pledges to vote for Craddick in the speaker’s race. Craddick’s handing out of $152,000 to 14 Republican House candidates raises the possibility that Craddick bought votes. Craddick strenuously denies this. While he admits handing out checks, Craddick has said the money wasn’t tied to speaker race votes. “There was no quid pro quo,” Craddick’s press secretary Bob Richter has insisted to the media.

Nevertheless late last week, Travis County District Attorney Ronnie Earle subpoenaed for the grand jury documents from Craddick’s office related to the speaker’s race. In a statement, Craddick promised to cooperate with the investigation. “I am satisfied that I, and all other candidates for Speaker of the House of Representatives for the 78th Legislature, conducted our races appropriately,” he said.

What’s clear is that TRMPAC’s use of corporate money provided DeLay and Craddick’s PAC a huge advantage. TRMPAC spent a total of $1.4 million on the election, grossly outpacing the Partnership’s $835,420. That’s partly because it appears Laney’s Partnership accepted no corporate or union money in 2002, according to campaign records. Meanwhile, TRMPAC utilized corporate cash for almost all its administrative, fundraising, and entertainment expenses, and most of its political work such as polls and consultants. That freed up more hard money (legal individual donations) for TRMPAC to donate directly to campaigns. Consequently, even though the Partnership had more hard money on hand, TRMPAC’s use of corporate largesse allowed it to spend a much higher percentage of its hard money (79 percent vs. 40 percent) directly on its Republican candidates. In 2002, Laney was finally overrun.

Now it is ultimately up to Earle to untangle this morass of campaign cash and determine if the law was broken. The current grand jury term expires at the end of March. Many political insiders expect Earle might hand down indictments before the term ends.

If in fact TRMPAC and by extension Craddick are found guilty of wrongdoing, it will be a painful irony for the speaker from Midland. He has served in the House long enough to know the speaker statute by heart. As a longtime rebel against a Democratic majority, Craddick was part of the reformist pack of legislators known as the “Dirty Thirty” who helped pass the very law he may have broken.

Like Sharpstown, this scandal has tentacles that spread throughout the state government, only this time they also lead all the way to Washington, D.C. In order to get his mid-decade redistricting passed, Tom DeLay needed more than just an ironclad Legislature. He needed the approval of the state attorney general. Before the Legislature could redraw the congressional districts in 2003, the AG had to issue an opinion that the Lege could legally redistrict in mid-decade. The AG also had to defend the redrawn map in federal court. Had a Democrat been elected attorney general, DeLay’s remap would have gone nowhere. In 2002, GOP candidate Greg Abbott was locked in a tight race for the office of attorney general with former Austin Mayor Kirk Watson. The outcome was far from certain.

As TRMPAC director Colyandro was busily raising corporate money for legislative campaigns, he was also a consultant for Abbott. The ultimate victor of the contest, Abbott was also the beneficiary of undisclosed campaign funds. In the 10 days before the election, a shadowy third party group called the Law Enforcement Alliance of America (LEAA) entered the race on behalf of Abbott. The group, initially formed by the National Rifle Association, embarked on a $1.5 million attack campaign against Watson. Colyandro has denied that he recruited the LEAA to get involved in the race, according to the Austin American-Statesman.

Other names that have surfaced as being players in this multi-faceted campaign include Governor Rick Perry’s chief of staff Mike Toomey, and Kevin Brannon, a former aide to U.S. Senator-turned-lobbyist Phil Gramm. Craddick’s top legislative lieutenants have also been subpoenaed as part of Earle’s inquiry.

If in fact Ronnie Earle’s investigation reveals a conspiracy that showed a blatant disregard for the law, the blame can be placed on the oversized ambition of two Republicans named Tom. And the roots of the scandal were laid bare in an invitation to a press conference in November of 2002.