Picking Up the TAB

The Texas Association of Business says it bought last fall's elections fair and square -- and legal

Andy Taylor, attorney for the Texas Association of Business
Andy Taylor, attorney for the Texas Association of Business

It's 1993, and Republicans are on the verge of attaining domination of statewide Texas politics -- except for one problem: A pesky Democratic district attorney has thrown a roadblock in their path. In response, GOP operatives -- led at the time by a relatively unknown consultant wunderkind named Karl Rove -- have mounted a bitter campaign to discredit that Democrat, Travis Co. District Attorney Ronnie Earle. Earle's grand jury has just indicted a Rove client, newly elected U.S. Sen. Kay Bailey Hutchison, on four felony counts of misusing state employees and equipment for personal and political purposes during her previous tenure as state treasurer.

Partisans of Integrity

Fastforward to 2003, and Republicans are now full-blown Texas Alphas, holding every statewide office and majorities in both legislative chambers. Not coincidentally, they're waging a similarly artful counterattack against Earle, who has initiated a criminal investigation of the Texas Association of Business, one of the most powerful lobbying groups at the Legislature. The DA's grand-jury probe, which began in January and will be extended for another three-month term, focuses on whether the T.A.B. may have violated state campaign-finance laws when it used, by its own estimate, at least $1.9 million in undisclosed corporate donations to pay for a massive, pro-Republican political advertising campaign during last fall's general election.

The $2 million ad blitz paid off handsomely, with a stunning GOP coup at the Capitol. But Earle's current inquiry -- a "frivolous" waste of public resources, according to the T.A.B. -- threatens to deflate the continuing celebration as well as the post-victory collection of the spoils in the form of pro-business legislative initiatives. Between the frenetic pace of the Legislature and the grand-jury investigation, it's hard to tell which effort is moving faster -- the business initiatives, or the grand-jury subpoenas targeting the creators of this new conservative agenda. In the last few weeks, the investigation has moved beyond T.A.B. and its president, Bill Hammond, a former legislator who orchestrated the corporate-funded ad campaign, to include officeholders and lobbyists high in the GOP food chain. The Houston Chronicle has reported that the inquiry may reach as far as U.S. Rep. Tom DeLay, who was involved in the planning and formation of the Texans for a Republican Majority.

Things are bound to get uglier. The GOP has never forgiven Earle for the Hutchison debacle and has since made two unsuccessful attempts to rout the seven-term liberal Democrat from office. Earle's term ends next year and Republican operatives are already assembling forces to capture the DA's office. They have long opposed Earle's oversight of the state-funded Public Integrity Unit, which has the power to investigate and prosecute state officials for ethical or criminal violations. His detractors are convinced that the prosecutor uses the PIU to wage partisan battles. (That charge rang anew last week when Earle poked his nose into possible open meetings violations by a GOP-controlled House committee; see "Tort Deform at the House," p.22). Earle is always quick to respond that he prosecuted three Democrats -- former Attorney General Jim Mattox, former House Speaker Gib Lewis, and former state Treasurer Warren G. Harding -- before he took on Hutchison and now the T.A.B.

There has been talk over the years of introducing legislation that would shift the PIU operations from Earle's office to the attorney general's office. Recently, some Capitol buzz along those lines resurfaced but has yet to materialize in the form of legislation. Rep. Jack Stick, a GOP freshman from Austin who worked for Earle as an assistant DA from 1996 to 1998, had suggested he might carry a bill that would effectively wrest control of the PIU from his former boss at the DA's office. Earle had no comment on that proposal, but former Travis Co. Attorney Ken Oden, whose office also has jurisdiction over some state ethics investigations, described moving that jurisdiction from the local prosecutor to the AG's office as "a massive change in public policy ... that would be opposed by every prosecutor in Texas."

Republicans see many similarities between the T.A.B. investigation and the 1993 Hutchison case. (The senator eventually avoided prosecution when Earle abandoned the case on the eve of trial, in anticipation of the presiding judge's exclusion of key evidence seized from Hutchison's state treasury office.) Andy Taylor, the business group's lawyer, believes Earle is "hell-bent on vilifying" his client. "We all remember how Ronnie Earle treated Kay Bailey Hutchison," said Taylor, a former first assistant attorney general under John Cornyn. "This is just an unfortunate repeat of the same trampling of rights that he visited upon her."

Earle defended his investigation: "The job of the district attorney is to investigate possible crimes," he said. "We're doing our job. If T.A.B. hasn't done anything wrong, they have nothing to worry about."

Travis County District Attorney Ronnie Earle
Travis County District Attorney Ronnie Earle (Photo By John Anderson)

The GOP antipathy toward Earle runs deep and wide across Texas. "I don't know of any Republican who thinks that Ronnie Earle's investigation into T.A.B. isn't purely political," observed David Guenthner, managing editor of the conservative newsletter The Lone Star Report. "The whole idea of the post-election campaign against T.A.B. was to identify and harass the donors to the T.A.B. campaign."

But it's not free speech that T.A.B. and the corporate donors are really concerned about, argued an attorney involved in one of several civil suits that grew out of the ad campaign (see "Who's Suing Whom," p.24). Rather, he said, they're fighting to guarantee the corporations' anonymity, thus foiling attempts to connect the dots to determine direct links between the big corporate donors and the politicians who benefit from their generosity.

Show Us the Money -- Not

On the face of it, the charges brought against Hutchison a decade ago seem like minor infractions beside the allegations regarding the T.A.B. ad campaign. (It's a campaign that is variously described as "vintage Karl Rove" or "Rovesque." That makes sense, given Rove's current exaggerated reputation as the sole architect of Republican Texas. "Karl Rove is to politics what Fidel Castro used to be to revolution," observed Kelly Fero, a state Democratic consultant. "There was a time that whenever a brushfire broke out anywhere in the world, Fidel would be blamed for it. Now, whenever a Republican defeats a Democrat, Karl gets the credit for it.")

At the outset, the investigation focused on the group's refusal to disclose the names of the corporations that paid for certain "voter education" fliers attacking Democratic candidates. The mail pieces either praised a candidate as pro-business (based on a previously compiled T.A.B. record-vote scorecard) or portrayed the opposing candidate as anti-business, pro-tax, or secretly funded by (horrors!) trial lawyers. T.A.B. President Hammond has argued that these are "issue ads" -- that is, ads that do not explicitly advocate either the election or defeat of a candidate -- and are therefore constitutionally protected free speech, not subject to campaign-finance disclosure laws.

If Hammond is proven right, corporations will be able to make anonymous and effectively limitless donations for "educational" or "issue" campaigns that could (as the last election showed) drastically alter the political landscape -- for better or worse. T.A.B. attorney Taylor argues that the courts have already affirmed that process. Comparing the T.A.B. situation to the NAACP -- which in 1958 successfully challenged the state of Alabama's attempt to obtain the state chapter's membership list -- Taylor said the law is structured to "protect the biggest of the biggest or the weakest or the smallest, because everyone has the right to speak their mind. If you begin to start saying, well, they're big and mighty so they ought to have less speech," Taylor argues, "then I think you've lost the point of the First Amendment."

"Since when does the First Amendment protect criminal behavior?" asks Cris Feldman, an attorney representing three of the plaintiffs (including defeated Austin Rep. Ann Kitchen) in one of the lawsuits filed against T.A.B. "The law as written was set up to protect the sanctity of the democratic process. What the T.A.B. is proposing is the utter corruption of state government."

Campaign-finance reform advocates roll their eyes when Taylor refers to the NAACP for a precedent. Like the NAACP in 1950s-era Alabama, Taylor argues, "We have a constitutional right to freely associate with our members, and our donors are exempt from public disclosure and certainly don't deserve any retribution, any more than the NAACP members do." Maybe not -- but NAACP members literally feared for their lives, while the T.A.B., campaign-finance reformers say, is more concerned about the consequences of finagling corporate dollars to win elections. "It's incredibly arrogant for these rich, white guys to put themselves in the position of the black sharecropper in Alabama in the Fifties," said one. "Talk about making your hair stand on end."

But the T.A.B.'s determination to keep the issue squarely focused on First Amendment rights gained support Monday from two unlikely bedfellows: the Texas ACLU and the Texas legal counsel for the League of United Latin American Citizens. ACLU attorney David George has filed a friend of the court brief supporting T.A.B. motions to quash the subpoenas of T.A.B. leaders. At Monday's press conference, Taylor, George, and Hammond each delivered a statement before fielding questions from a roomful of Capitol reporters. "The ACLU is very troubled by the district attorney's attempt to make an end run around the First Amendment," George said. He said the civil liberties group is not taking a position on the content of the ads, but is asking the court to rule first on whether the mailers are protected "issue ads" before it requires T.A.B. to produce its membership and donor list. LULAC issued a similar follow-up statement the next day.

T.A.B. mailer attacking House Dist. 50  candidate Jim Sylvester
T.A.B. mailer attacking House Dist. 50 candidate Jim Sylvester

In a statement issued Monday afternoon, Earle said he welcomed the participation of the ACLU and LULAC and agrees that the issues "involve grave questions of constitutional stature." "Chief among those issues," he continued, "is the threshold question of whether the public, acting as the state, has the right to investigate allegations of potential criminal conduct or must take the word of those under investigation that no crime was committed." Issue ads are constitutionally protected free speech, he wrote, "but it is clear that such ads cannot be corporate contributions in disguise."

And at a three-hour hearing on Tuesday, District Judge Mike Lynch heard arguments from attorneys concerning T.A.B.'s motions to quash grand-jury subpoenas of the business group's records. Lynch asked lawyers for more information before he rules on April 3. Earle had sought to expedite the process, telling Lynch "time is of the essence [because] the Legislature is in session and voting on some of these same pocketbook issues [affecting taxpayers]. They have a right to know whether those lawmakers are voting in the interest of taxpayers or the interest of the [T.A.B.]."

Following the Money

In the meantime, conspiracy theories surrounding the ad campaign continue to run at full throttle. One popular theory points to several coincidences in the timing of the state's settlement with Farmers Insurance Group, which came shortly after an election that transformed the Capitol into an industry-friendly institution -- thanks in large measure to the efforts of the T.A.B. Everyone following the T.A.B. investigation has heard the rumor of Farmers kicking in one of the largest T.A.B. contributions, with various six-figure amounts placing the donation anywhere from $100,000 on up to $800,000.

Hammond himself helped fuel the rumors of insurance money figuring heavily into the T.A.B. effort. Last August, he sent a "voter education" letter to insurance industry leaders outlining T.A.B.'s plan to target 24 legislative races "through an aggressive direct-mail program." Noting the high cost of each mailing -- $17,500 a pop -- Hammond wrote, "there is no doubt that this is a real opportunity to make a difference in the political climate in Austin." He urged industry leaders to encourage their colleagues to write corporate checks for $50,000 or $100,000. "Contributions for this are not reportable," he wrote, attaching a letter from ethics lawyer Ed Shack that addressed corporate expenditures for voter education programs. (While state law generally allows wide-open, unlimited personal contributions to political campaigns, the sources of direct campaign contributions must be reported publicly.)

Successful GOP election results also produced the rise of Republican Tom Craddick to the position of House speaker and the ouster of veteran Speaker Pete Laney, a moderate Democrat. Craddick was able to assemble a transition team of industry lobbyists: Bill Miller, president of HillCo Partners, who represents Farmers but says he no longer speaks for the firm; Bill Messer, a lobbyist for State Farm Insurance; and Bill Ceverha, who served as treasurer of the political action committee, Texans for a Republican Majority, a group to which Farmers contributed $150,000 three weeks before the election. If Miller, the Farmers' lobbyist, feels uncomfortable about the public scrutiny, he doesn't show it. "I don't get antsy one bit," he said. "I'm just living and dying at the Capitol."

As it turns out, Texans for a Republican Majority and another lobby group, Virginia-based Law Enforcement Alliance of America, are also figuring into the T.A.B. investigation. Prosecutors are trying to determine if T.A.B. coordinated its efforts with one or both groups. For example, TRM apparently distributed at least one mailer produced by the T.A.B. That circumstance raises additional questions about the possibility of coordination between one or more of the groups and individual campaigns.

Prosecutors are logistically hamstrung in their investigation of the Virginia group, and for that reason are committing most of their resources closer to home. But one peripheral component of the investigation does center on a complaint about LEAA ads aired on behalf of Attorney General Greg Abbott, a Republican who won a bitter campaign against former Austin Mayor Kirk Watson. The law enforcement group did not disclose who underwrote the ads, which prompted a complaint to the DA's office from Austin Police Association President Mike Sheffield, a Watson supporter, who filed the complaint on behalf of the Combined Law Enforcement Associations of Texas.

T.A.B. mailer attacking incumbent Dist. 48 Rep. Ann Kitchen
T.A.B. mailer attacking incumbent Dist. 48 Rep. Ann Kitchen

T.A.B. attorney Taylor, who served on Abbott's transition team, says he knows of no direct link between the T.A.B. mailers and the Virginia group. As for the mailer sent by the Texans for a Republican Majority PAC, formed last year to promote Craddick's elevation to the speaker's post, Taylor said, "We're trying to determine how that ad ultimately became a [Republican Majority PAC] ad."

Honor Among Thieves?

Before this week's turn of events, the inquiry focused on resistance to a prosecutors' subpoena demanding billing information and related documents from Chuck McDonald, a public relations consultant who created and produced the T.A.B. ads. McDonald has already testified once before the grand jury, with limited immunity, and is expected to make a second appearance. In seeking the billing information, prosecutors asserted that the business group and McDonald "may be attempting to hide evidence of other criminal conduct, namely, illegal corporate in-kind contributions." In other words, prosecutors are investigating whether McDonald may have been paid by T.A.B. to create political mailers distributed by both the business group's PAC and the Texans for a Republican Majority. State election laws prohibit corporations, including nonprofit corporations like T.A.B., from making political contributions or political expenditures.

Prosecutors and attorneys for McDonald and T.A.B. had been expected to fight this one out in court last week but settled the matter privately, with McDonald agreeing to give prosecutors a limited number of documents pertaining to the ad campaign. Taylor called the agreement a victory for the defense, illustrating the prosecutors' lack of evidence to support allegations of illegal transfer of corporate funds. Prosecutors had no comment, but there is some speculation that McDonald -- in another political era an aide to Democratic Gov. Ann Richards -- may have rolled over on T.A.B. president Hammond, who oversaw the direct-mail campaign. And McDonald's testimony to the grand jury could have potentially pointed prosecutors beyond Hammond to state officeholders.

Prior to the election season, it was no secret that T.A.B. was gearing up to spend millions on campaign ads. The association's PAC also directly underwrote a large share of the ads in statewide races -- fully disclosed as campaign PAC expenditures when they explicitly endorsed or opposed specific candidates. Kelly Fero, a strategist in the Democratic campaigns for governor and lieutenant governor, said that even he was contacted by lobbyists with close ties to Republican leaders. According to Fero, the lobbyists told him that John Sharp, candidate for lieutenant governor and the only Democrat to win a T.A.B. endorsement, might want to participate in the ad blitz.

As Fero recalled, "A number of lobbyists with knowledge of T.A.B.'s direct-mail campaign in [Sen. John] Cornyn and other statewide races called to tip us off that our campaign should make sure not to be left off this gravy train. Their argument," Fero continued, "was that Hammond was spending millions on statewide races for other candidates the group had endorsed and shouldn't be allowed not to include Sharp in the effort, since he had also been endorsed by the group. We had heard that Perry and others had expressed their displeasure with Hammond for endorsing Sharp and that Hammond would be happy if our campaign didn't ask him for anything."

Hammond has freely acknowledged that, for the PAC effort, lobbyists were contacted to encourage their clients to contribute to the fundraising effort. Interestingly, the PAC raised roughly $100,000 -- a pittance compared to the nearly $2 million raised for the unregulated "voter education" program. No one, at least not publicly, claims to have first-hand knowledge of a direct tie between the lobbyists and the latter fundraising effort, but there are plenty of red flags to warrant prosecutors looking into that possibility.

We're Not Responsible for Our Great Victory!

When questions were eventually raised about the T.A.B.'s undisclosed corporate donors and possible illegal coordination with candidates, T.A.B. leaders righteously defended the group's constitutionally protected free speech.

But in the immediate aftermath of the election, the business group may have hurt itself with its own bravado. On the one hand, Hammond went to great pains to insist that collecting and spending the unregulated soft money on the direct-mail pieces was completely legal because the ads did not expressly advocate any candidate's election or defeat. But late last year Hammond told the Chronicle that the mailers were part of T.A.B.'s intensive effort "to defeat those who didn't support us on business issues." And immediately following the election, the business group published self-congratulatory adulations in its newsletter and on its Web site, bragging that its effort "blew the doors off the Nov. 5 general election using an unprecedented show of muscle. ..." Winning candidates, like Corpus Christi Rep. Gene Seaman, contributed written testimonials. The direct-mail pieces, Seaman wrote in one, "absolutely won the race for me."

We can probably expect more indignation from the Republicans over Earle's investigation -- and much more litigation should the investigation generate any indictments. Andy Taylor says that the T.A.B. will defend this fight through the appeals process, all the way to the U.S. Supreme Court if necessary.

On the other hand, some observers are wondering just how far Ronnie Earle, in the end, will be willing to pursue this battle. "I don't know," said one Democrat who is not enamored with the district attorney's record in the Public Integrity Unit. "Am I going to put my money on him? Hell, no. We're all rooting for you, Ronnie, but you always seem to stumble right at the goal line."

Andy Taylor believes Earle is already looking for an exit strategy. "I'm going to demand that Ronnie Earle put up or shut up," Taylor promised before Tuesday's court hearing. Should Earle fold and T.A.B. prevail -- and successfully defend all the lawsuits -- that conquest may well be attributed to Karl Rove. But rest assured, Bill Hammond will be crediting his own genius, not Rove's, for the victory.

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  • More of the Story

  • Who's Suing Whom

    The battle over the Texas Association of Business political ad campaign is also being fought in the courts
  • Campaign Finance Glossary

    Here's a handy guide to the major questions concerning campaign-finance law in Texas

    The T.A.B. Timeline

    Reviewing the major events in the ongoing controversy of T.A.B. expenditures during last fall's campaigns

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