Unlike his father, former President Bush, and his predecessor, former Gov.
Ann Richards, George W. Bush came straight to a powerful and influential
political job from the world of business, not long public service. So the
benefits may be the result of business deals crossing paths with a business
-friendly administration.
But a pattern emerges: When a Bush is in office, Bush 's business associates
benefit.
Through Gov. Bush, this network of investors can control or influence billions
of dollars in state money that pays schoolteachers' retirements, funds public
schools and finances the state's universities.
In the private sector, their money is anchored in some of the most valuable and
high-profile real estate in Texas, in hospitals and mental health facilities, in
broadcasting companies, as well as some of the state's most profitable sports
teams.
When asked about his associates' complex dealings with state and federal
governments, Bush angrily denied any involvement. Bush said he has sought to
bring a "higher standard" to public service and public policy.
"I didn't - I swear I didn't - get into politics to feather my nest or feather my
friends' nests," Bush said.
At the heart of this financial network is the 1989 purchase of the Texas
Rangers for $86 million by a 70-person partnership. As Bush developed the
group to buy the Rangers, he began an association with the businessmen who
would figure in many other deals - particularly Rainwater and Dallas investor
Edward "Rusty" Rose.
The Bush partnership's purchase of the Texas Rangers was completed in April
1989, about three months after Bush 's father became president.
Government actions favorable to Rainwater and Rose began almost
immediately and have intensified since Bush became governor. Some of those
actions include:
The state's teacher retirement system has sold three office buildings to
Rainwater's real estate company. The system lost $44 million making one of
the sales and wrote off $7 million in principal and $19.4 million in interest
owed by a defaulted lender to make another sale.
The trust funds for the state's university and public school systems have
invested almost $20 million in Rainwater's real estate company since Bush
became governor.
An unsuccessful Bush proposal to study privatizing state mental hospitals
could have benefitted Magellan Health Services Inc., a mental health company
controlled by Rainwater. The company was promoting its possible expansion
into managing public mental health facilities.
Democratic gubernatorial candidate Garry Mauro claims Bush vetoed the
Patient Protection Act in 1995 because it would have affected the profits of a
major hospital chain that Rainwater controlled. Bush has said he vetoed the bill
because it would have raised the cost of health care for all Texans.
Three months after the Rangers deal closed in 1989, the federal Securities
and Exchange Commission under President Bush moved against a Dallas
company that was suing Rose and others for $120 million. The lawsuit alleged
that Rose had driven the company into bankruptcy in a stock short-selling
scheme for Rainwater and the Bass family of Fort Worth. But the SEC
accused the plaintiffs of illegal bookkeeping practices.
A property tax reform bill endorsed by Gov. Bush last year would have saved
$2.5 million in school property taxes for a real estate investment company run
by Rainwater. The bill, which did not become law, would have capped
business real estate taxes, saving Rainwater millions on the property his
company owns in Houston, Austin, Dallas and Fort Worth.
A company controlled by Bush 's Texas Rangers partners will receive a $10
million bonus payment when a new Dallas sports arena is built using legislation
that Bush signed into law last year. That new arena also will enhance the value
of a hockey team owned by the financier who bought the Rangers from Bush
and his partners for $250 million.
Bush said he had never heard of most of these deals before being asked about
them by the Houston Chronicle.
"Every one of these deals you've brought up with me, and any insinuation that I
have used my office to help my friends is simply not true," Bush said.
"I don't talk to my business associates about doing business with state
government one way or another," he said.
After Bush became governor, he voluntarily set up a blind trust and put most
of his financial holdings into it. In such a trust, Bush should never know
whether his official actions were benefitting his personal finances.
Bush 's general partnership interest in the Texas Rangers never went into the
trust, and that interest, known as GWB Rangers Inc., was involved in
negotiations for the team's sale.
So through GWB Rangers Inc., Bush always knew he was in partnership with
Rainwater, Rose and others. And Texas Rangers President Tom Schieffer
kept Bush abreast of negotiations between Rose and Tom Hicks for the
team's sale when Hicks bought the Rangers this year for $250 million.
Bush also was brought into some of Rainwater's oil and gas deals, as well as
the purchase of a downtown Fort Worth office building, Continental Plaza.
Those investments all were placed in Bush 's blind trust.
About the same time Bush took office, Rainwater set up a commercial real
estate investment company called Crescent Real Estate Equities Inc.
Bush became an investor in Crescent when Rainwater rolled Continental Plaza
into Crescent's real estate portfolio. Bush 's trust manager sold his interest in
Crescent in January.
There were other strong financial ties between Bush and the managers of
Crescent.
Rainwater is chairman of Crescent. The vice chairman, John C. Goff, and
president, Gerald Haddock, were limited partners in the Texas Rangers with
Rainwater and Bush .
Crescent's vice president for administration is William D. Miller, the lawyer
who put together the financial package for the Ballpark at Arlington.
As the sole shareholder of GWB Rangers, Bush named his own corporate
officers. After Bush became governor, he named Schieffer as the president of
his general partnership interest in the team, and Miller became the
secretary/treasurer of GWB Rangers.
Bush said Miller was put in that position only because he was the Texas
Rangers' lawyer.
"This guy was the lawyer of the Rangers. He was just there to make sure the
paperwork got done," Bush said. "The guy running it was Tom Schieffer, not
Bill Miller."
Several state actions during the past three years have benefitted Crescent.
The Teacher Retirement System of Texas sold two office buildings, and a
mortgage on a third building, to Crescent. Two of the deals were done without
public bids. On the third deal, the TRS has refused a public records act
request to release the initial bids it received on the property.
In one deal, reported by the Chronicle in January, TRS lost $44 million in
1996 when it sold an Austin office building known as Frost Bank Plaza to
Crescent for $35 million after investing more than $90 million in the foreclosed
property.
In another private deal, Crescent bought the mortgage to the Trammell Crow
Center for $162 million from TRS and the California Public Employees
Retirement System, known as Calpers for short, in 1997.
The Trammell Crow center was owned by a partnership headed by the
influential Trammell Crow family, which had contributed more than $100,000
to President Bush 's 1988 campaign. Family members also contributed
$27,000 to George W. Bush 's 1994 gubernatorial campaign, even when the
family's business was in deep financial trouble.
TRS and Calpers had each lent a Crow partnership $85 million on the
Trammell Crow Center in December 1994.
After the Crow partnership stopped making payments on the Trammell Crow
Center because of financial difficulties, Calpers told TRS in 1996 they wanted
to foreclose on the property.
TRS set a foreclosure date on the Trammel Crow Center for January 1997
unless the Crow partnership agreed to restructure the debt.
At that time, the Crows began looking for a buyer for the building. Harlan
Crow wrote TRS on Jan. 2, 1997, saying Crescent Real Estate Equities
would buy the property in a deal that would allow the Crow partnership to
continue its "tax-deferral on the building."
But the deal was at least $20 million less than what TRS and Calpers wanted
for the property.
"I fully understand your need to do the appropriate thing for your fund, but I
believe strongly that the Crescent REIT offer is so close to the proposal which
was made previously by your fund that this difference can be bridged in such a
way as to make a transaction possible," Crow wrote.
A previous letter from Crescent President Haddock to TRS officials said the
deal could not be done if the building was sold on the open market.
"We believe that a marketed transaction . . . will result in our losing our ability
to structure the 'tax-friendly' transaction with the current owner that enables us
to offer the price reflected in the attached term sheet," Haddock wrote.
TRS Chairman Ronald Steinhart said in a Jan. 22, 1997, letter that the offer
reflected Dallas real estate values and urged fellow directors to accept
Crescent's offer instead of foreclosure. Steinhart, chairman of Bank One
Texas, had been appointed to the board by former Gov. Ann Richards and
was made chairman by Bush in 1995.
"Though this sale would not be the result of an open-bid process, I believe the
very generous price that we are receiving eliminates the need," Steinhart
wrote.
(In another example of the small world of business and politics, a national
board member of Bank One overseeing Steinhart's operations was Richard L.
Scott.
(Rainwater tapped Scott as president of Columbia/HCA Healthcare Corp.,
another of Rainwater's major investments. Scott also was a limited partner
with Haddock, Rainwater and Bush in the Texas Rangers. Scott was forced
out as the company's president last year amid a national investigation of the
company for possible Medicaid fraud.)
The sale of Trammell Crow Center to Crescent was completed in February
1997. In selling the building, TRS wrote off $7 million in principle and $19.4
million in interest that it was owed by the Crow partnership.
Despite those write-offs, TRS officials say the retirement fund made an 8
percent return on its investment because $84 million in interest payments had
been made before the Trammel Crow Center's default.
A third deal between TRS and Crescent, for the October 1997 purchase of
the downtown Dallas office building, leased to Bank One as its state
headquarters, was clearly a money-maker for the retirement system. The
purchase price exceeded the system's original investment, and the system's
total positive cash flow on the building was $65 million.
A partnership of Crescent and TrizecHahn Office Properties bought Bank
One Center for $238 million.
TRS officials have refused to release the 16 initial bids that they received for
the property. They will say only that the bids ranged from a low of $154
million to a high of $211 million, with the Crescent/TrizecHahn partnership
buying it as a result of subsequent negotiations.
Haddock said the governor's office was not involved in any of the deals
between TRS and Crescent.
"It is outrageous to suggest that there is any connection between any
transaction we have had with the state of Texas and George Bush ," Haddock
said.
"We're going to do business with the state of Texas. . . . We're in business to
buy assets. If they're selling assets we should have as much opportunity as
anybody else in the state to buy assets," Haddock said. "I see absolutely
nothing wrong with that, and we should do it all day long."
Haddock said the Trammell Crow Center and Bank One Center were two of
the most expensive pieces of real estate sold in Texas in recent years.
Officials in the governor's office and TRS said there is no record that Bush or
his aides were involved in the Crescent deals with TRS.
But a July 1995 letter from TRS acting executive director John R. Mercer to
Bush showed the Bush administration's interest in TRS activities. The letter
noted that the TRS board, at the request of Bush 's chief of staff, had delayed
selecting a new executive director until Bush could make appointments to the
TRS governing board.
Those appointments included Steinhart as board chairman.
Bush said he was completely unaware of any of Crescent's business dealings
with the TRS until disclosed to him by the Houston Chronicle.
"I have never ever discussed anything that you are talking about with Gerald
Haddock or anybody else," Bush said.
Steinhart said in a written statement issued in response to inquiries from the
Chronicle that there "was no conflict of interest" in any of the TRS deals and
that he never discussed the deals with Bush , Rainwater or their staffs.
In addition to the retirement system activities, since Bush has been governor,
the state's Permanent School Fund has invested more than $10 million in
Crescent stock.
The Permanent University Fund, a separate fund that manages money for the
state's universities, has investments in Crescent exceeding $8.9 million. The $9
billion university fund's investments are managed by the University of Texas
Investment Management Co., whose chairman is Tom Hicks, owner of the
Texas Rangers.
Haddock said such investments are minor compared with some institutional
investors that have bought more than $500 million in Crescent stock.
In addition to the Crescent/Crow deal, the Teacher Retirement System also
was involved in another real estate transaction involving the Crows and a
private investment fund managed by one of Bush 's former business associates
from Harken Energy Corp., the oil company Bush helped manage.
TRS had financed the expansion of the Anatole Hotel in Dallas for one of the
Crow family partnerships. TRS took possession of the hotel tower in 1991
when the Crow partnership defaulted on more than $73 million in loans for its
constructions. The Loews Hotel Corp., on contract to the Crows, continued
to manage the entire hotel.
After foreclosing on the hotel tower, TRS invested almost $11 million in
upgrades.
A series of negotiations began in 1994 over whether the hotel should be resold
to the Crows or sold on the open market. After Bush became governor, TRS
sold the hotel tower without taking bids to a partnership made up of the Crow
family and the Harvard Management Co.
Harvard Management is the investment arm of Harvard University. Harvard's
venture capital company is headed by Michael Eisenson, who served on the
board of directors of Harken Energy with Bush . Harvard had become a
major investor in Harken less than 60 days after Harken bought out Bush 's oil
company in 1986.
TRS sold the Anatole tower to the Crow/Harvard partnership for $27 million
less than the retirement system had invested in the building. But TRS officials
said the system made a profit of $54 million when the building's sale price is
added to loan income before default and operating income received from the
hotel after default.
Steinhart seconded the motion to sell the property to the Crow/Harvard
partnership.
Steinhart became one of the state's leading bankers in the late 1980s and early
1990s through a firm called Team Bank. Team Bank grew rapidly by
purchasing the assets of failed banks from the Federal Deposit Insurance
Corp., which at the time was under the administration of President Bush.
Steinhart's activities with Team Bank were financed in part by a $27 million
investment from the Harvard Management capital venture firm headed by
Eisenson. Harvard made a $47 million profit when Steinhart merged Team
Bank with Bank One in 1992.
One government action that benefitted a Bush partner occurred within three
months of the 1989 purchase of the Texas Rangers during the first year of the
Bush presidency.
At the time of the sale, Texas Rangers general partner Rose was facing a $120
million racketeering lawsuit that accused him of engaging in a 1983 conspiracy
to harm financially a Waco company so that he, Rainwater and the Bass family
could profit from a stock short-selling scheme. Stock short-sellers profit in
deals when stock prices drop.
The Solar King lawsuit included evidence showing a Rainwater employee -
who later became a minor shareholder in the Texas Rangers - had asked Rose
to plant negative stories about Solar King with national financial writer Dan
Dorfman. Dorfman in recent years has been controversial because of
allegations that he allowed stock promoters and short-sellers to use his reports
to drive stock prices up and down.
The lawsuit also included allegations that Rose planted a negative story on
Solar King with the Wall Street Journal to drive company stock prices down,
and that Rose lobbied half a dozen congressmen and senators to eliminate a
federal tax credit favorable to Solar King. The conspiracy, the lawsuit said,
drove the company to seek bankruptcy court protections in 1986.
But in July 1989, shortly after Rose became partners with Bush , the federal
Securities and Exchange Commission filed its own lawsuit against Solar King,
accusing the company of bad bookkeeping practices in 1983, 1984 and
1985. The lawsuit asked for an injunction requiring Solar King to follow
general accounting practices.
Rose's lawyers - who said the American Solar King lawsuit made "reckless
factual allegations" and was "frivolous" - immediately used the SEC lawsuit in
an attempt to get the case dismissed. Eventually, the case ended in 1991
without resolution when Solar King went out of business.
American Solar King's former president, Brian Pardo of Waco, told the
Houston Chronicle that while he cannot prove anything, SEC officials told him
in 1989 he would not be sued if he would drop his lawsuit against Rose.
"The SEC was pressuring us to drop the litigation," Pardo said. "They filed the
suit against us to try and quash the RICO action that we had that named Bush
's partners and to cleanse Rusty Rose's reputation.
"It's easy to say Brian Pardo in Waco, Texas, is a bad guy. Who knows Brian
Pardo? But a partner to the governor or a partner to the president's son is a
different manner," Pardo said.
Pardo, who now runs a company that purchases life insurance benefits from
people with AIDS, was sued again by the SEC in 1994 for illegally selling
securities. Pardo won that lawsuit.
Rose declined to discuss the Solar King lawsuit other than to say the SEC
intervention in no way involved the Bushes.
Gov. Bush said he had not heard of the case before last week.
"If you're question to me is: 'Did I know about this incident? Did I talk to my
dad or the SEC about it?' The answer is absolutely not," Bush said.
Bush was directly involved in one state action that indirectly benefited
Rainwater.
A sports facility financing bill that Bush signed into law last year ultimately will
result in a $10 million bonus payment being made to Crescent from Ross
Perot Jr., the majority owner of the Dallas Mavericks basketball team.
The bill Bush signed allowed cities to levy new taxes such as levies on rental
cars to finance the building of new stadiums.
While the bill was before the Legislature, Crescent had bought a $400 million
real estate portfolio from a Dallas businessman that included a 12 percent
interest in the Dallas Mavericks and a pledge that Perot would pay Crescent a
$10 million bonus once a new arena was built within 75 miles of Dallas.
Bush signed that bill into law in June, setting the stage for final negotiations on
an arena deal between the city, the Mavericks and the Stars. Dallas voters in
January approved construction of a $230 million sports arena, the completion
of which would trigger the bonus payment to Crescent.
In the six months after that bill was signed, Bush 's political fund received
$37,000 from Hicks, $11,000 from Crescent President Haddock and $5,000
from Perot Jr.
Haddock said with Crescent holding $9 billion in assets, a $10 million
payment from Perot on the arena deal "is not a top priority" in the overall
picture of the company's business deals.
"George Bush knew absolutely nothing about any of these purchases. It's
never ever been discussed with him," Haddock said. "I don't see any
conceivable way the dots can be connected."
Bush said all he knew about Crescent's purchase of a share of the Mavericks
came from "the sports pages." He said he did not know about the bonus for
Crescent.
Bush said Dallas Mayor Ron Kirk lobbied him on the bill, but most of the
pressure for its passage was from Houston. Bush said he never talked to his
business associates about the legislation.
While the new Dallas arena will enhance the value of Perot's basketball team,
a sports finance bill was not the only way Perot Jr. benefited from the Bush |
