The Bush League : "Corporate welfare, tax subsidies, eminent domain, and the manipulation of public policy to private ends."
May 9, 1997
By Robert Bryce
The Texas Observer
George W. Bush loves baseball. And why not? After all, baseball has been very good to the governor.
When it comes to power, the governor is a true triple-threat. Consider his record:
(1) His initial baseball investment of $600,000 carries the current potential of a 2,500 percent return.
(2) Through savvy P.R. and political maneuvering, he and his partners have persuaded a city and the state to directly subsidize a facility for their business.
(3) Not content with taxpayer subsidies, he and his fellow owners have also successfully used the power of government to take land from other private citizens so it could be used for their own private purposes.
Yes, baseball has been very good to Bush. Moreover, the biggest deal Bush has ever done, the career-shaping transaction he boasted of on the campaign trail--the planning, funding and construction of the Texas Rangers' Ballpark at Arlington--has been largely ignored by the national media as they rush to paint Bush's presidential portrait.
Yet whether the public interest issue is taxes, size of government, property rights, or public subsidies of private sports ventures, Bush's personal ownership interest in the Texas Rangers baseball team has been wildly at odds with his publicly declared positions on those issues. And ongoing litigation over the Ballpark deal has revealed documents showing that beginning in 1990, the Rangers management--which included Bush as managing general partner--conspired to use the government's power of eminent domain to further its private business interests.
Since he took to the stump three and a half years ago to run for governor, Bush has railed against "big government." On the very first day of his campaign, November 8, 1993, Bush told supporters in Houston, San Antonio, Austin, and Dallas that "the best way to allocate resources in our society is through the market place. Not through a governing elite, not through red tape and over-regulation, not through some central bureaucracy."
But through the Arlington stadium deal, Bush, who owns 1.8 percent of the Rangers, has been personally enriched by using the "governing elite" and the "central bureaucracy" not only to confiscate land for private purposes, but to get a huge public subsidy for a stadium that generates profits for himself and the Texas Rangers. Though Bush's present ownership percentage in the team is relatively small, the asset represents a large part of his personal wealth; moreover, Bush's deal with the team includes a provision that will almost certainly multiply his future ownership interest to 11 percent.
Briefly, here's what happened on the Ballpark deal. Bush and his partners in the Rangers convinced Arlington officials to:
- pass a half cent sales tax to pay for 70 percent of the stadium;
- use the government's powers of eminent domain to condemn land the Rangers couldn't or didn't want to buy on the open market;
- give the Rangers control over what happens in and around the stadium;
- allow the Rangers to buy the stadium (which cost $191 million to construct) for just $60 million;
- finally, after twelve years as the sole occupant and primary beneficiary of the stadium project, the Rangers, a privately owned business, can take title to the most expensive stadium ever built in Texas for the $60 million worth of rent and upkeep they will have already paid the city.
Based on published estimates of his net worth, that interest represents his single most valuable asset. According to his most recent financial disclosure filing with the Texas Ethics Commission, Bush's limited partnership interest in the Rangers went into the blind trust in January of 1995. But he didn't transfer his general partnership interest because, as he attempted to explain in a brief press conference at the Governor's Mansion on April 11, that would have been an "unnecessary" change in ownership. And a change in ownership, he said, "would have required a vote of the baseball owners to do so. And it became unnecessary. We just didn't think it was necessary to get that vote. Secondly, I own it. I mean, there's no question I own it....So it's not necessary." (It's worth remembering here that the major league baseball owners as a group constitute a government-protected monopoly.)
Necessary or not, Bush's ownership interest in the Rangers may yet prove an embarrassing entanglement. The Rangers are currently arguing with the City of Arlington and the Arlington Sports Facilities Development Authority (ASFDA) over who will pay a $4.98 million jury award to the Mathes family, which owned thirteen acres of land condemned in 1991 by the ASFDA and now covered primarily by parking lots used by stadium visitors.
The jury's award, made in May of last year, now stands at $7.2 million and is growing, with accumulated interest, at $1,800 per day. A related lawsuit, known as Ramshire N.V. vs. B/R Rangers Associates Ltd., filed in 1994 in Tarrant County against Bush and the other owners of the Rangers, could force the Governor to testify under oath about the events that led up to the stadium project.
During his campaign against Governor Ann Richards, Bush took every opportunity to remind voters of his participation in the Ballpark project. "When all those people in Austin say 'He ain't never done anything,' well, this is it," Bush told R. G. Ratcliffe of the Houston Chronicle in late 1993, as he walked around the stadium.
Bush got into the Rangers deal in March 1989, when he helped arrange a syndicate that purchased the team for $89 million from Fort Worth oil man Eddie Chiles. Bush invested $600,000, which bought him a position as one of the two managing general partners of the Rangers' organization, a job that paid him $200,000 per year. In addition to the money, of course, Bush brought other major assets to the table: his presidential name and Texas political influence.
But Bush also had a huge incentive to raise the value and profitability of the Rangers franchise. According to a May 8, 1994 article published in the Houston Chronicle, under the terms of his agreement with the Rangers, once his partners recoup their investment, Bush's share of the club will jump from less than 2 percent to more than 11 percent. The Rangers organization declined to confirm Bush's current ownership percentage.
Over the past few years, the value of the Rangers franchise has surged, in large part because of the lucrative arrangement the team made for the Ballpark at Arlington. After the stadium was completed in September of 1993, the value of the Rangers jumped from $106 million to $132 million, according to the annual assessment of major league sports franchises done by Financial World magazine. The magazine's most recent valuation, in May of last year, put the franchise's value at $138 million. If Bush's ownership is now 11 percent, his share of the club is currently worth $15.18 million, a 25-fold return on his original investment in just eight years. The Rangers say they have not yet paid any dividends to the team's twenty-nine owners. Thus, Bush's stake in the club is likely still 1.8 percent, currently worth $2.48 million--a four-fold return on his original investment.
The stadium deal came about because the Rangers were determined to get out of Arlington Stadium, a former minor league ballpark--which had once been sufficient to lure them away from their old home of Washington, D.C., where they played as the Washington Senators. The Rangers owners began talking to other cities about the possibility of relocating the team in exchange for a new stadium. Eager to keep the team in Arlington, Mayor Richard Greene agreed in October of 1990 to a deal that included increasing the local sales tax by a half-cent. In January of 1991, Arlington voters approved the sales tax increase--which will raise $135 million of the stadium's $191 million price tag--by a margin of almost 2 to 1.
But local approval wasn't the only hurdle the Rangers had to clear. They needed legislative approval to create a financing authority that could issue bonds. In April of 1991, the Rangers shepherded through the Legislature a bill written by Arlington State Representative Kent Grusendorf, which would create the Arlington Sports Facilities Development Authority, a quasi-governmental entity endowed with the power of eminent domain. Shortly after the bill was signed into law by former Governor Ann Richards, three parcels of land located near the stadium, nearly thirteen acres in all, were condemned by the ASFDA. The land was owned by two companies, Ramshire and Clairwood, created for the benefit of a series of trusts. Those trusts, in turn, benefit the heirs of television magnate Curtis Mathes.
Among court documents is an unsigned Rangers memo by a team representative, discussing the history of the Mathes tracts. The representative notes that in his first contact with the Mathes family concerning the land, on November 6, 1990, "I was not well received." The memo goes on to say that the ASFDA's appraiser assigned the land a value of $3.16 per square foot, for a total value of $1.515 million. "An offer was made by the Authority at this price. This offer was rejected & the Sellers countered with $2,835,000.00 for all three tracts, i.e.: $5.31 p.s.f." In mid-December, the ASFDA offered the Mathes heirs just $817,220 for the three tracts, far below even what the ASFDA's first appraiser had suggested. The Mathes family refused to sell, and the ASFDA seized the land through eminent domain.
Glenn Sodd, a Corsicana attorney who represents the Mathes family, says he has found little evidence that Bush was directly involved in the decisions to condemn the property for the stadium. But he adds, "What happened to my folks was pretty audacious. It was the first time in Texas history that the power of eminent domain had been used to assist a private organization like a baseball team." Last May, a Tarrant County jury found that the sports authority's offer of $817,220 for the Mathes property was too low, and it awarded the Mathes heirs $4.98 million, plus accumulated interest. For the past year, the city of Arlington and the Rangers have been arguing over who will pay the tab.
Arlington Deputy City Manager Bill Studer, who also serves as executive director of the ASFDA, told Metroplex reporters in March that the city expects the Rangers to pay the jury award. But Tom Schieffer, the president and current general partner of the club, thinks differently. "Our position is, that is a judgment that's against the sports authority, not against the city or the Rangers," he told the Observer. "The sports authority has to pay that." Yet Studer appears to be in no hurry to talk to the Rangers about the dispute. On April 3, nearly a year after the Tarrant County jury decided the Mathes heirs were owed $4.2 million more than the ASFDA offered, Studer told the Observer, "We haven't discussed it at all with the Rangers at this point."
While the two stadium allies contemplate liability, both sides in the lawsuit have appealed the verdict. Sodd's clients are claiming the land should never have been taken in the first place. If the appeals court agrees with them, they could seek millions of dollars from the ASFDA and the city for the loss of the use of their property. In addition, since their land was part of the collateral upon which the bonds were issued, the whole deal underlying the stadium could fall apart.
Meanwhile, the city of Arlington is appealing the verdict. Jeanene McIntyre, assistant city attorney, said "The appeal is based on our belief that the judgment given to the Mathes family was excessive."
Property Rights Foul Ball
Of all the issues surrounding the stadium construction, the issue of governmental power and eminent domain is the most troublesome. The Republican Party has long advocated less government intrusion into the property rights of citizens. Bush actively campaigned for governor on a property rights agenda. In October 1994, he told members of the Texas Association of Business, "I understand full well the value of private property, and its importance not only in our state but in capitalism in general, and I will do everything I can to defend the power of private property and private property rights when I am the governor of this state."
But evidence in the Mathes case suggests that the Rangers owners were planning to condemn the Mathes' land and other tracts at least six months before the ASFDA was created. In an October 26, 1990, memo to Tom Schieffer, Mike Reilly, an Arlington real estate broker and part owner of the Rangers, said of the Mathes property, "In this particular situation our first offer should be our final offer....If this fails, we will probably have to initiate condemnation proceedings after the bond election passes."
Reilly's memo was written nearly three weeks before the Arlington city council called for a referendum on the sales tax proposal for the stadium, and a full three months before the referendum went before voters, yet it assumes the proposal will pass and condemnation will be a legal option. In his memo, Reilly also suggests that Schieffer should inform Arlington city officials that the team owners will expect also effective control--by city ordinance--of any neighboring land they won't own outright. Reilly wrote, "The Rangers want the City to establish development standards...that you can have input on. By doing this, no one within a certain radius of the ballpark development could get a plat or building permit approval without the City's approval. The 'development standards' established by ordinance would give you a tremendous amount of 'quiet' control over the land parcels you do not own in this area" [emphases in original].
On November 7, Reilly wrote another memo to Schieffer regarding the Mathes property, saying he had spoken to Jane Mathes Kelton, and since she was not being cooperative, in Reilly's judgment, he believed "the City will have to condemn her land," and therefore Schieffer should "get the City" to hire condemnation attorneys. Apparently wary of any competition for the land parcels, Reilly also advised Schieffer to tell Bob Bennett, the president of Six Flags Over Texas, that the Rangers "plan to condemn this land so he will not waste his time" talking with the Mathes family about buying the property. (The Mathes' land sits next to land owned by Six Flags, and family members had spoken to Six Flags officials about acquiring their property for use in the amusement park.)
In his memos, Reilly appears confident that the Rangers were used to calling city hall to "get the City" to do the team's bidding--and expecting the local media to cooperate. In the November 7 memo, he reminds Schieffer "to get Greene [Arlington Mayor Richard Greene] to get some clean up crews out on the property under my supervision...so people can see how beautiful it really will be. It could help us pass the election and I'm sure some newspaper person could tour the site with you and a nice story would result."
Asked about the Reilly memos, Schieffer said, "Mike Reilly is not the Rangers. Reilly was a person we were using to try to option up land. Whatever Mike Reilly's thoughts or opinions were, were not necessarily the opinions of the Rangers."
In defense of their actions, Rangers officials and city officials insist that the stadium is a "public use"--akin to a roadway, school or city hall--and thus, condemnation was an appropriate use of governmental power. The Fifth Amendment to the Constitution provides that citizens may not be deprived of their property "without due process of law; nor shall property be taken for public use, without just compensation." The Texas Constitution, Article 1, Sec. 17, follows the federal statute, saying "no person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation." So at least two questions should be answered by defenders of the stadium project, including Governor Bush: (1) Is the stadium truly a "public use" of sufficient public benefit to justify condemnation of private property for stadium construction? (2) Were the property owners, whose lands were seized by eminent domain, granted due process and just compensation?
For the Ballpark at Arlington project, the city and the ASFDA condemned the land, yet the Rangers ball club, a private corporation, receive all future revenues to be generated from that same land. The Rangers now own development rights over the entire 270-acre complex, including an amphitheater, office buildings, shops and restaurants. In addition, the master agreement between the City of Arlington and the Rangers gives the team control over almost everything that occurs on the property. "The Rangers shall collect and retain as their income all concessions, parking, signage, sublease revenues, naming allowances, and any and all other revenue produced within the Facilities," says the agreement.
Asked if the stadium was a public use, Mayor Greene replied, "There was a public benefit to building the ballpark project. The land needed to support the project had to be acquired for the project....It's not different from any other condemnation project. This project is for the direct benefit of the Rangers and the community. There's a mutual benefit in this project, and it's well accepted and well established in law that this project was eligible for that public purpose."
During an interview with the Observer, Schieffer compared the stadium several times to the Dallas-Fort Worth Airport. "If we didn't have that airport, we wouldn't have an airport that employs 68,000 people," he said, adding that stadiums should be looked at as "infrastructure and as engines that pull other development."
Whether or not the stadium project is a public use may be debated; moreover, several recent studies of the economic impact of sports facilities--including the Arlington stadium--fail to support Schieffer's claim that the stadium generates broader local prosperity. But court records and press reports show that the Rangers owners clearly understood the profit-making potential of developing the land around the stadium. Court records show that Craig Stapleton (a cousin of Governor Bush) sent a letter to Schieffer shortly after the stadium deal was announced, saying that he was willing to "advise" the team on the "residual real estate" around the stadium. Stapleton went on to say "I think we have quite a play."
On October 27, 1990, Bush was quoted in the Fort Worth Star-Telegram about the Rangers' real estate plans, acknowledging "the idea of making a land play, absolutely, to plunk the field down in the middle of a big piece of land. That's kind of always been the strategy." While Bush insisted on April 11 that he was "not aware of the details" in 1990 regarding plans to condemn the Mathes' property, he clearly did know of the plans to exploit that land-- "making a land play"--for commercial purposes that would benefit himself and the owners of the Rangers.
In recent years, the use of eminent domain in Texas has grown more common. It was used to acquire land near the Texas Motor Speedway in Fort Worth, and for a controversial shopping center built in Hurst. The trend has caught the attention of Republican Senator David Sibley of Waco, one of Bush's closest allies in the Legislature. While the Senator would not comment directly on the deal that allowed Bush and his partners to obtain the land around the Ballpark, Sibley said he is worried about potential abuses of eminent domain. "I will tell you as a butt-kicking conservative Republican, I am very concerned about it, I really am," he said. "It causes me problems."
Tom Schieffer remains unapologetic about the condemnation of the Mathes property, and he's angry that the family was able to get such a high jury award. "The thing that is quite disturbing about this whole process is that the Mathes family and Glenn Sodd were able to get $11 per square foot for their property." he said. "The highest priced land for the [rest of the] project was $2.67 per foot. It is amazing to me that the legal system could work so poorly." It may sound ironic coming from a representative of the Rangers, but in Schieffer's opinion, the Mathes family had "managed to manipulate the system."
During the current legislative session, Governor Bush has made tax reform his first priority. In his State of the State speech he declared, "property taxes are too high," and the tax plan he presented to the Legislature was intended to lower property taxes for homeowners and businesses. Although the Ballpark at Arlington, because it is still owned by the city, is currently tax exempt, Bush's tax-cutting efforts could be helping his future personal business interests. When the Rangers take possession of the stadium, they will want to pay the lowest possible property taxes. And any tax reduction the governor can get on commercial property will be a direct benefit to him and other owners of the Rangers.
While the stadium is directly subsidized by a half-cent local sales tax, taxpayers across the state were also unwitting contributors to the ballpark project. Due to a 1995 ruling by Comptroller John Sharp, the stadium project was allowed to escape state sales tax. That ruling, which Sharp said was based upon legislative intent, exempted $12 million worth of taxes that likely should have been collected on materials used in construction. Yet Section 151.341 of the tax code states that when a non-profit development corporation (like the ASFDA) leases or sells space to a for-profit entity (like the Rangers), the for-profit entity is not tax exempt.
It's Outta Here
Taxes lie at the heart of another conflict between Bush's public positions and his private interests. When asked why some of his ownership in the Rangers went into a blind trust and some didn't, Bush volunteered that "the reason why we put assets in blind trusts is to avoid conflicts of interest." But Bush's ownership of the Rangers certainly presents at least a potential conflict of interest. The city of Dallas wants to build a new stadium for the Mavericks and the Stars. Financing such a stadium will be very difficult without revenues from sales taxes. Dallas has already exhausted its own sales tax potential and is limited by the state sales tax cap, which stands at 8.25 percent. Bush has repeatedly stated his opposition to an increase in the sales tax cap.
The city of Arlington, however, still has a half-cent left under the cap; coincidentally, there is plenty of land adjacent to the Ballpark at Arlington available for additional development. Local boosters are suggesting that the city use its additional room under the sales tax cap to finance a stadium for the Mavericks and the Stars. If that stadium is built, it would have a direct benefit to the Rangers, due to increased parking revenue and potential development by hotels, restaurants, and other service-related industries.
Mayor Richard Greene, who handled the early negotiating on the Ballpark deal, says putting an arena in Arlington near the Rangers stadium or elsewhere in the city has been in discussion for two and a half years. "Our position has been if Dallas can't work out a deal for an arena project, we'd like to be considered as an alternative for them."
Democratic Senator Royce West of Dallas says the use of a sales tax is the "desired method" of financing for Dallas. But he says, "If we don't level the playing field, Dallas could be at a disadvantage in getting the necessary finances of the kind to build a stadium." The playing field, that is, may not be quite level between Dallas, Arlington, and the governor; but West refused to judge whether or not the governor had a conflict of interest. "You're not going to get me into a fight with the governor," he said.
A Strong Bullpen--Or Just Bull?
"We must change a welfare system that has created dependency on government," Bush said on the campaign trail in 1994. "I know full well, like most Texans know, that dependency upon government saps the soul and drains the spirit."
But today, stadiums have become the most visible example of private entities using government money and authority to make them more profitable. In mid-March, Lieutenant Governor Bob Bullock discussed the current stadium funding battles in the Legislature, saying, "Tremendously wealthy people own these franchises and they're looking for public moneys to build a stadium where their franchise can play in that stadium. It's just corporate welfare."
When asked by the Observer if the governor was among those who have benefited from corporate welfare, Bullock vacillated. "Well, I've teased him about that in a good-natured way," said Bullock. "I just do not think that frankly, we should use taxpayer dollars to build sports facilities [for] sports franchises." Asked to respond to Bullock's comment, Governor Bush says the Rangers are not getting "corporate welfare." Why not? "Because the Ballpark at Arlington was a decision made by the citizens of Arlington to support a half cent sales tax," said Bush. "They voted overwhelmingly to do so. It was laid out in front of everybody....So the citizens decided this."
Not so fast, says Jim Runzheimer, an Arlington attorney and longtime critic of the stadium deal. Runzheimer claims that the pro-stadium forces spent more than $130,000 to pass the sales tax referendum (not including, one assumes, the cost of friendly photo-ops with the mayor at the stadium site). Opponents raised only $3,000. Calling the stadium project "a basic perversion of government, "Runzheimer says that Arlington's city officials "used government and its taxing authority to benefit a small elite of powerful and privileged people." Those benefits could be direct; Runzheimer points out that Arlington city councilmembers and other city officials receive free tickets and use of a skybox at Rangers' home games. Thus, they had a big incentive--and possibly a conflict of interest--in promoting the new stadium.
Arlington citizens did vote for the stadium, but Bush's project was backed by the same "governing elite" that he excoriated on the campaign trail.
When Bush helped arrange the deal to buy the Rangers, he was the eldest son of the sitting President, a connection that didn't hurt his prospects. He also got help from Peter Ueberroth, an influential Republican who was at the time the commissioner of baseball. Ueberroth helped Bush line up deep-pocketed Texans, like billionaire investor Richard Rainwater, to buy the Rangers. Rainwater brought in another investor, Rusty Rose. And Bush also relied on his Ivy League connections. Roland Betts, the Rangers' biggest shareholder, is Bush's roommate from Yale. The bill that allowed the Rangers to build the stadium and acquire the power of eminent domain was crafted by some of the most powerful business people in the state, including Ray Hutchison (husband of U.S. Senator Kay Bailey Hutchison), who acted as bond counsel to the Rangers throughout the stadium deal.
By getting help from the governing elite, Bush's team now owns the most profitable stadium in major league baseball, according to Financial World. And while Bush and his partners can argue that many other cities have given huge subsidies to attract or keep pro sports franchises, Bush is the only governor in the country who got this kind of deal. And he is also the only owner of a major sports team lining up a bid for the White House.
Given the financial history of the governor's Ballpark at Arlington, one might expect Bush at least to cool his rhetoric condemning people who abuse welfare. And as the Bush presidential train continues to roll, one might expect a few state and national reporters to begin asking tougher questions about the accomplishment that the coy candidate proudly insists qualified him for his current job. Some of those skeptical questions might touch upon such matters as corporate welfare, tax subsidies, private property rights, and the manipulation of public policy to private ends. Those are hard questions. But before the governor gets promoted to the Majors, he might consider working on a few fundamentals. ¤
Robert Bryce is a Contributing Editor to the Austin Chronicle.
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