Catastrophe (31 page)

There was so much pressure in the state that Rendell finally signed a bill to ban pay-to-play contracts in Pennsylvania in March 2009.

But before the well dried up, Rendell took the process of fleecing the public one big step further when he started paying money to his friends and political allies—not only without bidding but without any contract at all! And guess what? The firm that got the contractless money was the very one where Rendell had worked before he became governor!

The Ballard Spahr law firm, where Rendell worked, got $773,000 from
the state Department of Transportation without a contract. Why was there no bidding? Why no contract? According to Rendell, it was an emergency: the document Ballard had to sign to get paid after it had finished the work said that it had to work without a contract “due to the extreme urgency of the work required.”
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What was the cause of such “extreme urgency”? A flood? A tornado? Some other natural disaster? No. It was because the governor wanted to sell off the Pennsylvania Turnpike to private business and wanted his old law firm to do the lucrative legal work. As the
Philadelphia Bulletin
noted, “the turnpike is in no danger of disappearing or being unable to continue operations.”
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Of course, the emergency no-bid provision nicely eliminated the unpleasant possibility that another firm might get the work. But that’s surely just a coincidence—right, Governor?

And what lucrative work it was! Ballard’s chairman, Arthur Makadon, billed the state $637.50 per hour for his services, and his partners Kenneth M. Jarin and Adrian R. King, Jr., billed it $531.25 and $403.75 an hour, respectively.
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(By the way, Ken Jarin’s wife is Robin Wiessmann, who until January 2009 controlled the Pennsylvania Department of the Treasury—the office that approved the payments to Ballard, her husband’s firm. All in the family!)

In all, the Ballard firm made three quarters of a million dollars before it finally signed a contract with the state on May 24, 2007, for its future services. Since then, Ballard has billed an additional $2 million for its legal work on privatization.
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But that wasn’t the end of it: Ballard got even more money. John Estey, a Ballard chairman and Rendell’s former chief of staff, is the chairman of the Delaware River Port Authority, a state agency. DRPA has paid the Ballard firm nearly $3 million in legal fees since Rendell became governor, making it the largest outside legal contractor.
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Before Rendell was elected, the
Philadelphia Bulletin
reported that Ballard received only $25,000 in legal work from DRPA.
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Why is Rendell so good to his old buddies at the Ballard firm? Nostalgia? Not likely. The generous campaign donations he gets from the firm’s leaders might have more to do with it. The list of Ballard’s donations to the governor is quite impressive:

But these donations—totaling close to $1.4 million—may tell only part of the story. Because of Pennsylvania’s two-term limit for governors, Ed Rendell is obliged to retire as governor in January 2011. Could it be that he’s making a nice nest for his retirement by sending business to Ballard Spahr? Could the firm figure in his retirement plans?

Ballard wasn’t the only campaign contributor who got Ed Rendell’s special attention. When Boscov’s, a Pennsylvania-area department store chain, went bankrupt in August 2008, Albert Boscov asked for state help in restructuring his company.
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Citing Boscov’s “reputation” as a successful businessman, Rendell came to the rescue, pumping $35 million of taxpayer money into the company.
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Why did he do it? Was it because there were important jobs for his constituents at stake? Or was it the fact that Boscov had given him $139,000 for his campaign and that other family members had kicked in an additional $25,000?
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And then there’s the Houston, Texas, law firm of Bailey Perrin Bailey, and its Philadelphia cocounsel Cohen, Placitella & Roth. The state of Pennsylvania hired the firms without bidding to represent it in a lawsuit against
Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson. Ken Bailey donated $75,000 to Rendell’s campaign and paid for $16,000 of airfare for the gubernatorial race.
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Earlier, at another firm, Bailey had donated $25,000 to a previous Rendell campaign; Stewart Cohen, from the Philadelphia firm, gave Rendell’s campaign $12,000.
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And don’t forget the $599,000 worth of no-bid contracts Rendell awarded to the California firm DCR Financial Products, headed by David Rubin—who gave Rendell $45,000 for his campaigns.
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(Full disclosure: Dick worked for Rendell when he ran for governor unsuccessfully in 1990. Rendell’s campaign was derailed by thousands of dollars of unpaid parking tickets he had racked up in his district attorney’s car, often in front of his dry cleaner’s. But Rendell seemed like an honest sort.)

GOVERNOR BILL RICHARDSON (D-NM)

When Bill Richardson pulled out as Barack Obama’s nominee to head the Commerce Department, he was very hush-hush about his reasons. He simply made a broad reference to a grand jury investigation in New Mexico, saying that it might become a “distraction” from his duties at Commerce, and bowed out before anyone had time to ask questions.

But it appears that Governor Richardson may also have been in the pay-to-play game—and that he, like Ed Rendell, may have favored a California financial firm with some important New Mexico state business at a time when that firm’s leader was arranging to send more than $100,000 in campaign contributions his way.
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On March 19, 2004, CDR Financial Products of California—the same firm that gave Ed Rendell $45,000—was approved by the State of New Mexico to advise it on complex bond swaps. Six days later, according to the
New Mexico Independent
, its chief, David Rubin, gave the Democratic Governors Association—chaired by Bill Richardson—a $10,000 donation.
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Three months later, another firm controlled by Rubin gave $75,000 to a PAC controlled by Richardson.
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Later that same year, Rubin gave $25,000 to another Richardson PAC, Moving America Forward.
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As the
Independent
reports, “over the same time period CDR [Rubin’s firm] pocketed more than $1 million from the state.”
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Richardson hired Rubin and his firm to advise him on how to raise $1.5 billion for road and rail construction in his state. Rubin’s firm made $1.5 million (1 percent of the deal) for this advice.
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In 2006, CDR and two other firms were raided by the FBI. By January 2008, they were under investigation by the Justice Department, the Internal Revenue Service, and the Securities and Exchange Commission.
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With this investigation pending, with FBI having raided CDR, and with the money trail leading straight to the governor, how on earth could Obama even have considered him as a potential commerce secretary?

It’s bad enough that Richardson’s name had surfaced in connection with a pay-to-play scandal involving bond issues. But he may really have crossed the line if it turns out, as has been alleged, that he tried to corrupt the state auditing process—the very protocol that is intended to prevent corruption in the state’s bookkeeping.

From 1998 to 2003, before Richardson became governor, the firm of Meyners & Company handled a quarter of a million dollars in state auditing work. After Richardson’s election, however, the firm’s fortunes took a turn for the better. From 2003 to 2008, it won “nearly $7.8 million in public auditing contracts,” according to the
New Mexico Independent
.
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How did Meyners manage to collect such a windfall of new work? Ask the head of the firm: Bill Richardson’s friend Bruce Malott, who served as the treasurer of Richardson’s 2002 gubernatorial primary campaign. Another principal at Malott’s firm, Reta D. Jones, had served as his campaign treasurer in the 2002 general election; she filled the same position in his 2006 reelection campaign and his 2008 presidential campaign. Jones is now chair of the State Lottery Authority; Malott has been appointed to the New Mexico State Retiree Health Care Authority, the Education Retirement Board, and the New Mexico Public Accountancy Board (from which he retired at the end of 2008).
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In all, Malott’s firm conducted almost one hundred audits of state agencies, passing out clean bills of health to nearly every one. But some of the recipients of Malott’s firm’s blessing were later found to have been knee deep in corruption.

For example, Meyners failed to notice that the Region III Housing Authority, a state agency it audited, was so shaky financially that it defaulted
on $5 million in bonds it owed the state.
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It also failed to notice abuses at another state housing agency—abuses so extensive that they’ve led to a grand jury investigation by the state attorney general. A 2006 State Investment Council report “revealed widespread misuse of the bond money [by the housing agency,] a number of questionable expenditures and transactions and an extreme lack of documentation for financial records—documentation that was never kept or was taken or destroyed,” according to the New Mexico media.
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But Malott and his firm somehow missed all that.

So buried was this apparent corruption that Bill Richardson ran for president in 2008, participated in all the debates, and was actually nominated by President Obama to be secretary of commerce before these scandals emerged. Imagine how it would have affected the country if Richardson had been confirmed—as secretary of commerce, of all things!—or even been elected president!

GOVERNOR JENNIFER GRANHOLM (D-MI)

Now that Illinois governor Rod Blagojevich has been impeached and removed from office, there’s no doubt in our minds as to who the worst governor in America is. Hands down, Jennifer Granholm of Michigan gets the nod. Under her, Michigan has racked up a notable pair of firsts: in 2007, it became the first state in the nation to enter the current recession/depression, and with a February 2009 jobless rate of 12.0 percent it ranks first in unemployment nationwide.
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And that’s not all: when she faced a huge budget shortfall, Granholm threatened to shut down state government unless she got a huge tax increase—a levy that pushed Michigan further into deficit and depression.

But it’s not just her intellect that falls short. Her integrity leaves a lot to be desired also. She and her husband, the consultant Daniel Mulhern, received nearly $300,000 in no-bid contracts from Wayne County government in the months after Jennifer left as the county’s corporation counsel to become Michigan attorney general.
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Mulhern claims that there was no ethical conflict because he “did not work for the county while Jennifer was there.”
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But the six contracts he got right after she left, and while she still had plenty of clout as the incoming
state attorney general, certainly make one suspect that politics might have been at work.

A month after Jennifer left, Mulhern solicited a contract from one of Granholm’s “top allies,” Airport Director David Katz. He got a no-bid $7,500 gig to provide “management coaching” for the director.
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Even when he had to bid for a contract, Mulhern could rest content in the knowledge that even if he lost the bid, he’d still snag the contract. A few months after his wife’s departure from the county government, Mulhern’s firm, Pioneering Management Possibilities (PMP), bid $140,000 for a contract to train airport personnel.
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He lost the bid. In fact, he was the highest bidder. The competing firms bid between $30,000 and $74,000. But, no matter, the airport evaluation team, headed by his reliable friend David Katz, chose PMP anyway.
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(Katz later surfaced as the campaign manager for Granholm in her successful race for governor.)

When his wife ran for governor, Mulhern decided the PMP contract could be politically embarrassing for her and he pulled out of the project. But Mulhern’s other contracts with Wayne County followed fast and furious:

• A two-day, $15,000 gig at a retreat for a hundred of the county’s executive staffers.
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• An eight-month contract for $64,000 to put on a Leadership Development Program for forty county executive staffers.
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• A monthly leadership program for three top county officials costing $14,000.
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Nice work if you can get it!

ACTION AGENDA

It’s time for change. Don’t think that this kind of corruption is inevitable and can’t be stopped. It can be and in a very important—and formerly corrupt—field it has been. Stopped cold.

The single most corrupt area of state and local government used to be the awarding of lucrative contracts to underwrite bond issues. The underwriters got huge fees. Historically, they had usually been selected by competitive bidding, but in the late 1980s and early ’90s, more and more of these underwriters won their contracts without bidding, Increasingly, they got their contracts from the elected state comptroller or treasurer. These state officials went out of their way to avoid competitive bidding, citing the complexity of the bond issues or their urgency to justify awarding them without bidding.