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4/27/1998

News > News

Money Talking

 

Florida’s billionaires want to pay less taxes and have more freedom. They do not particularly care if their freedom destroys your view of the sunset, disrupts the serenity of your street, or pollutes your river or the Gulf of Mexico. They’d even like other taxpayers -- you, for instance -- to pay them millions of dollars for not despoiling the land and water. But they have a problem.

When these rich folks and their corporate spokesmen go to the Florida Legislature and say, "Lower our taxes and repeal all the environmental regulations so we can get richer," most people -- even most lawmakers -- say, "no." So the big companies and the richest people fund the campaigns of the legislators, the county commissioners and the mayors. That gets them to "maybe."

The final, crucial step is to take the idea, "lower taxes on millionaires and repeal all the environmental laws," and dress it up to look like something everybody loves. Something like, "create jobs and growth and allow more freedom for home owners." Something like, "repeal needless regulations that destroy property values for hard-working tax payers." Something with the words "grass roots" in front, "common sense" in the middle and maybe "families" on the end. Something that comes not from the boardrooms of Florida’s largest and most powerful land owners, its biggest developers and polluters, but from a brace of university professors affiliated with a "non-profit, non-partisan public policy center."

Something like the James Madison Institute for Public Policy Studies.

If you’re like most Floridians, you’ve never heard of the Madison Institute. The 10-year-old think tank operates out of Tallahassee, its 10 staff members answering the phones, its associate scholars churning out "backgrounders" on various topics, popular and obscure. A search of the Orlando Sentinel database reveals just four mentions of the Madison Institute in the past three years: two of them mere listings of it in the vitae of state representative and former Jeb Bush gubernatorial running mate Tom Feeney, who, until his election last year to replace the disgraced Marvin Couch in District 33, was a Madison board member. The Sentinel lists Madison once as "a Tallahassee property rights advocacy group." The final mention depicts Madison, along with Bush’s Foundation for Florida’s Future, as the Republican-dominated sponsors of a legislative orientation session late last year. Tallahassee political types speak of jousting with Madison representatives in a good-natured, collegial way. A political editor at the Miami Herald pronounces Madison "respected."

But a look at the Madison Institute’s funding sources, matched with the ideas promulgated in its research papers, and finally the bills proffered and laws passed by the Legislature, reveal a compelling pattern. In short, the Madison Institute is not a non-partisan, non-political idea mill, but a sophisticated mouthpiece for five of the state’s largest businesses, including Florida’s largest land owner. The institute is also part of a national network of right-wing public policy centers pushing legislation in every state. None of which should be particularly shocking, but for this: It’s illegal.

The Madison Institute is organized under IRS rule 501c(3), meaning not only does it pay no taxes on its income, but that the money given to it can be deducted from the taxes of the donors. The institute’s tax status is the same as that of a church.

The IRS forbids 501c(3) corporations from lobbying policy positions and, if they do, reserves the right to revoke their tax-free status. So serious is Madison about maintaining the fiction of non-partisanship that John Clendinen, the institute’s spokesman, is loathe even to call the institute’s work "position papers." "We can’t take a position on legislation," he says. "It’s a pretty touchy subject. We can’t by law support any particular legislation. We hope to be a grass-roots organization."

And how’s that? "It’s kind of strange how grass-roots movements get started," Clendinen continues. "Some academicians write about an issue, then folks like [those at the] James Madison [Institute] boil it down, make it more palatable ... to legislators. Pretty soon everyone is talking about it" and, like magic, legislation appears.

"It sometimes seems like a mystical process," he concludes. "But it comes through sweat and a lot of time."

Actually, it comes through the application of single-minded ideological fervor and millions of corporate dollars.

In 1984, Ed Fuelner, founding director of the Heritage Foundation, the Washington-based granddaddy of right-wing think tanks, decided that his group’s anti-federal ideology needed a companion force to shape lawmaking in the states as federal programs were cut and responsibilities "devolved" to the state level. He envisioned a national network of mini-Heritages that would carry the gospel of "free market" and conservative reforms to state policymakers who, with smaller and less worldly research staffs -- and no countervailing ideas from the left (or even the center) -- would more likely adopt Heritage ideas wholesale. It worked.

By 1990, 74 state-level "think tanks" had set up shop in 29 states, including 55 as part of a network called "The Madison Group." So fast did this movement arise and so vast were its powers that the National Committee for Responsive Philanthropy took notice in a spring 1991 "special report," calling it the "sleeper trend of American government in the 1980s." The trend has paid big dividends in the 1990s, as the think tanks have popularized once-obscure notions like privatizing government services and school vouchers. The tanks also have served up Republican legislators and even governors to states as diverse as Florida, Michigan and Connecticut.

"We simply will not have power on the national level until we declare war on state legislatures," said Don Eberly, president of the Harrisburg, Pa.-based Commonwealth Foundation for Public Policy Alternatives, in an address to the Heritage Foundation in 1990. The Commonwealth Foundation is a member of the Madison Group (now called The State Policy Network, with 54 members), and, like other members, by law "does not attempt to aid or hinder the passage of any legislation."

The Heritage Foundation has long scoffed at the prohibition. Founded in 1973 with $250,000 from Joseph Coors and $900,000 from Richard Scaife (whose several hundred million dollar fortune derives from the Mellon oil and banking fortune), Heritage was conceived as a strategic marketer of right-wing ideas. In 1980 Heritage delivered a 3,000-page policy blueprint to President Reagan, who in the next 18 months implemented some two-thirds of its ideas, according to Fuelner. The IRS said nothing.

In fact, despite increasing boldness on the part of these institutions (including, this year, a concerted attack on the IRS itself), the IRS has never revoked or even seriously considered revoking the non-profit status of any think tank. Even the flagrant use of non-profit "educational" organizations as part of an election campaign machine -- as House Speaker Newt Gingrich did -- brings no sanction. Indeed, so tattered is the "non-partisan" fig leaf that most think-tank directors have long since abandoned their pretensions of objectivity. At least when among fellow believers.

Earlier this month, the annual Conservative Political Action Conference was held in Washington. As always, one of the speakers was Feulner, of Heritage, who bragged to assembled guests about a new law imposed upon those who testify before Congress, called Rule 12. "We call it the ‘Heritage Truth in Testimony Rule,’" Feulner crowed. From now on, people who testify to congressional committees must divulge what company or organization they work for, and how much federal money that entity received in the previous fiscal year.

Good idea, right? But what about a rule requiring that those who testify before legislators must divulge the private sources of their organization’s funding? Who, for example, funds Madison?

"That’s not a disclosable fact," says Clendinen. "I don’t believe by law we have to [tell you]. I can tell you it is a rich mixture of individual contributions down to the $25 level. We have some corporate donors."

He sure does.

According to the institute’s IRS schedule 990, between 1989 and 1992 the Madison Institute received $35,000 from Lykes Brothers, Inc., the secretive cattle-citrus-sugar-gas and shipping company with about $850 million in annual revenues. Fortune magazine ranked Lykes Brothers 113th among America’s largest corporations in 1994, while the Lykes family was placed by Forbes among America’s 400 richest families. The institute also pocketed $45,000 in those years from Clewiston-based U.S. Sugar Corp., whose annual sales exceed $300 million; and $30,000 from the George Jenkins Foundation, whose money derives from the fortune generated by Publix Supermarkets, with about $7.5 billion in sales last year. Additionally the form shows $25,000 from the Fruehauf Foundation, a Michigan charity with $5 million in assets stemming mostly from stock in the giant Georgia Pacific and Louisiana Pacific lumber and paper companies; Fruehauf specializes in right-wing religious causes, dispensing money to entities from the Orlando-based Campus Crusade for Christ to Jerry Falwell’s "Old Time Gospel Hour" to the "Christian Anti-Communist Crusade."

The Institute’s largest single benefactor was the Alfred I. DuPont Foundation, which is the charitable arm of St. Joe Corp., the storied former paper and railroad company and the state’s largest single land holder with 1.2 million acres. That property includes more than 70,000 acres of undeveloped timberland, 30 miles of prime beachfront property on the Panhandle, and 250 miles of river and intracoastal waterway frontage. The DuPont Foundation gave Madison $81,000. Significantly, this year St. Joe Corp. converted itself into a land development company of unprecedented scale. With assets worth more than $2 billion -- and under pressure from investors to increase its dividends -- St. Joe in January hired a former Disney executive, Peter Rummell, to run the company. Rummell had been head of Disney’s Florida development arm, having guided Disney World’s 15,000 hotel-room expansion and the creation of Celebration. "I don’t think it's an overstatement to say that St. Joe will have an enormous impact on what will become the ultimate landscape of the state of Florida," Todd Mansfield, a Rummell protegé at Disney, told the Wall Street Journal.

Together, these five donors contributed almost one-third of the Institute’s $702,922 in total reported revenues for those four years. Since then, the Institute’s annual budget has ballooned from $158,389 in 1990 to more than $1.4 million in 1995. By 1994, the last year for which figures have been acquired by the Orlando Weekly, those same benefactors were still serving as sugardaddies, although increased giving by others had dropped their percentage of the whole down to less than 25 percent.

Clendinen says the institute’s growth came mainly from its Dec. 30, 1994, merger with the Center for World Capitalism, founded by Winn-Dixie grocery magnate A.D. Davis. When Davis died in June 1995 the family recommended gifts to the Institute in lieu of flowers. Tax records show it acquired a building that month worth more than $1 million.

The Institute saw its assets balloon by $300,000 as a result of the merger, but the real growth spurt had come two years earlier, in 1993, when grants, gifts and contributions increased more than ten-fold, from $70,550 to $773,160. That year, the institute’s total income rose from $236,988 to $954,799.

That’s also the year Florida saw the battle over "property rights" heat up -- a battle that, in 1995, produced a landmark law aiding property owners in disputes with the state.

Even while funding the institute, some donors lend executives to its board of directors. In 1995 that board included Hoyt Robinson Barnett, vice president of Publix Supermarkets; the late A.D. Davis, of the Winn-Dixie chain; and Jacob C. Belin, the former chairman and still a director of St. Joe. As representatives of some of Florida’s most powerful businesses, these men have parallel interests in such timeless principles as reduced taxes on the rich, privatization of government services and weaker land regulation.

As if by some "mystical process," the Madison Institute’s advice pushes primarily for those things. But instead of Jacob Belin telling legislators what he wants, Randall G. Holcombe does it for him. Holcombe is chairman of the Madison Institute’s Research Advisory Council and an economics professor at Florida State University. He is an "expert" whose opinion on matters like taxation, presumed to be the result of pure scholarly inquiry, carries more weight than that of a mere rich guy. In effect, the think tanks allow some of Florida’s, and America’s, wealthiest special interests to cloak their policies in the garb of scientific reason, common sense and populism. And they get a tax write-off for doing it.

"Truth in Testimony," indeed.

Although not every Madison Institute position paper is draft legislation serving the interests of Big Land, the institute has taken the lead in putting several issues before the Legislature.

For example, after reading a Holcombe research paper, Sen. John Ostalkiewicz (R-Orlando) filed a bill to repeal an obscure tax on "intangibles" -- mostly stocks and bonds and accounts receivables over $20,000. The 66-year-old tax raised about $750 million last year, but it has two elements that rich folks dislike. First, it requires them -- 618,000 of them, according to the Florida Department of Revenue -- to fill out a form and send it in. ("It’s a precursor for an income tax!" asserts Clendinen.) Second, it’s a tax on wealth.

"It’s bad because it discourages investment in the state," says Holcombe. He has targeted the tax purely on ideological grounds, he says, as a result of research he’s done into the Florida tax code. One argument is that it taxes a business on money it is owed, not cash in hand or merchandise in stock. That is indeed absurd.

But instead of correcting that problem, Holcombe calls for outright repeal and tries to universalize the tax with some specious claims. For example, by dividing the number of taxpayers by the state population, and assuming an average household size of four people, Holcombe claims "one household in seven" pays an intangibles tax. Sounds pretty common, right?

Yet a better way of considering the burden would be to analyze who pays the most tax. Although more than 20 percent of Americans own stocks or bonds, as of 1992 the richest 1 percent owned 49 percent of all publicly held stock and 78 percent of all bonds. Fewer than 5 percent of Americans have more than $20,000 invested in stocks and bonds; even in retiree-heavy Florida, less than 5 percent of the population pays this tax. A look at income and wealth distribution makes it plain that less than 2 percent of the state’s taxpayers are likely to be paying more than a thousand dollars a year. And those folks are millionaires.

"It’s a tax on the rich," says Mary Barley of Orlando, the widow of developer George Barley and an Everglades activist who pays the tax. "It’s not a big deal."

Ostalkiewicz, a diamond importer, won’t say if he pays it. "You don’t?" he asks, as if everyone has a $20,000-plus portfolio.

He stresses the loss of economic growth imposed by the intangibles tax, citing -- by way of Holcombe -- Ford Motor Credit Corp.’s decision last year not to locate 800 jobs in Florida. "These are good jobs that we need in this state," he says, adding that "there isn’t a defensible position for keeping (the tax) on the books. No one has defended it."

While that’s true, Holcombe has appeared "several times," he says, to testify before legislative committees.

"I went down and talked to the [Senate Ways and Means] committee actually twice," Holcombe says. As a presumably disinterested professor (whose FSU faculty position is funded by a Tallahassee developer), Holcombe’s opinion -- as ensconced in research papers, testimony and, this month, an op-ed piece sent to Florida newspapers -- is designed to sway votes. His work under the auspices of the Madison Institute, however, carries this disclaimer: "Nothing in The Madison Op-Ed Series should be construed as necessarily reflecting the views of The James Madison Institute or as an attempt to aid or hinder the passage of any legislation."

In its 10-year quest to not aid or hinder legislation, The Madison Institute's most significant victory was its role in placing "property rights" on the state’s legislative agenda, defining the problem of "takings," and unearthing and repeating horror stories about ordinary home owners besieged by government regulation.

Before Madison began amplifying the corporate-backed, pseudo populist "takings" message here, it was well understood that expanded "property rights" was an agenda of big business alone.

"The $3 million drive for the 1994 property rights constitutional amendment was financed largely by U.S. Sugar Corporation and other members of the Florida Legal Foundation," FSU law professor and economist Sylvia Lazos Vargas noted in a analysis last year of the 1995 property rights law, officially known as the Bert J. Harris Jr. Property Rights Protection Act. "These corporations held among them at least 2.1 million acres of undeveloped private land. ... St. Joe Paper Company, U.S. Sugar Corporation, Lykes Brothers, Collier Enterprises, and A. Duda & Sons were among the most public of the corporate supporters of the property rights movement in 1994." But she seems to have missed the role of the think tank in popularizing discontent with land use law, claiming in her paper that "the property rights experience in Florida and other states reveals the continuing power and breadth of the populist movement."

The result of months of political wrangling and compromise, the new law codified a process by which land owners who believe a government action has deprived them of the value of their property can recoup their losses. Previously, they had to file a lawsuit, a long and expensive process. Now the law provides a mediation system.

Such property rights acts have been described as a "revolution" by think-tank writers; at the moment, at least 12 states have a similar law. Mostly these acts are described as common-sense measures to protect the little guy from "big government." And in some cases, they do.

Florida is perhaps unique among states for having a rich diversity of plants and animals in need of protection, plus a gargantuan growth rate fueled by middle-class retirees. Some of these retirees bought home plots 20 years ago, when environmental constraints and growth management laws did not exist. A few of these people subsequently ran into such things as minimum lot sizes and drainage requirements that would effectively scuttle their modest projects. So far, two or three of the six cases mediated under the Harris Act involve exactly this type of "vested interest," says Tom Taylor, assistant director of the Florida Conflict Resolution Consortium in Tallahassee. More than a dozen cases are pending.

"Before this, the only thing [regulators] ever looked at is how many feet you own and its distance from the road, the river and all the zoning regulations," Taylor says. "And they have never considered your rights as a property owner at all. [The law] allows them to open that up a crack to look at something else, and make a decision based on that."

But in a state with arguably out-of-control growth and fast-disappearing open space, the Harris Act also did this: Just as land management, planning and environmental laws began to really work, it prevented those laws from being enforced.

"I have not spoken to a planner or staff member who doesn’t think they have to issue every permit that comes to them because they’re afraid they’re going to get sued," says Richard Grosso, director of the Environ- mental and Land Use Law Center and supervising attorney of the Civil Law Clinic at Nova Southeastern University. "The law changed virtually nothing about the land use laws. But because of the hype, every non-lawyer thinks [developers’ wishes all must] be passed."

Even the process by which these small home owners can get satisfaction is flawed.

Tampa Attorney Thomas W. Reese is suing the state challenging the constitutionality of the Harris Act after his environmental group, ManaSota 88, Inc., was locked out of negotiations in a Manatee County case. That case involves a retired couple who wish to build a house and boat basin on 5.5 acres of mangrove they own bordering the Terraceia Aquatic Preserve. The Department of Environ- mental Protection, following state statute, denied the request but said they could build on higher ground and put a pier over the mangrove. Not wanting to walk 700 feet to their boat, the couple sought relief under Harris.

"The issue is, the statute says you’re not supposed to be filling wetlands if you have alternatives," says Reese. "They could build on the upland acre." Instead, the couple named a mediator, who locked them in a room with the DEP administrator and over-ruled the DEP. No outside observers were allowed in, despite the law’s intent that the proceedings be open.

For Reese, the outcome (since challenged in court) is a stark illustration of the law’s ability to intimidate or force state regulators to bend over for selfish interests. "It’s just intimidated [them]," Reese says. "Citizens say we want lower density or something, and the board (of county commissioners or zoning) says ‘we can’t do that, we’ll get sued.’ I’ve seen it in Lee County, Manatee County. It’s the standard answer now."

But despite the attention focused on that one aspect of the law, hardly anyone has noticed a court claim made by Coastal Petroleum, an oil speculation company, that eventually could cost Florida taxpayers tens of millions of dollars. Key to the claim is both a liberal interpretation of "takings" law and -- perhaps -- a little-noticed bill currently pending in the Senate Judiciary Committee that would expand the Harris Act.

Coastal Petroleum is a subsidiary of a shell company in Bermuda called Coastal Caribbean Oils and Minerals, Ltd.. Though a going concern since the 1940s and founded by such prominent folks as William F. Buckley Sr., father of the conservative publisher, Coastal is so small that, if you call its Tallahassee office, often you’ll reach not a secretary but an answering machine. For the past three years the company‘s operating expenses have come primarily from Lykes Brothers, which invested at least $2.6 million. The investments are purely to sustain the lawsuits the company has against the state.

Coastal Petroleum has never earned a dime or produced a drop of oil. It wants permits, which the governor has blocked, to lease oil drilling sites more than seven miles off of Florida’s west coast. And it wants compensation for rights it retained in 1976 to royalties for drilling within four miles of the Florida coast from Naples all the way up the Panhandle to Apalachicola.

Florida outlawed oil drilling that close to shore in 1990. Thus, although Coastal has never sunk a well or even explored the possibility of doing so in the disputed area, the company claims the ban amounts to a "taking" of potential royalties. Its lawsuit does not specify damages, but a lawyer for Coastal has pronounced them "substantial." A good measurement might be the $6 million stock offering that Coastal made last year to continue the legal fight. Think of these stocks -- and the Lykes Brothers’ investment -- as high-stakes lottery tickets. The Tampa Tribune estimated the potential payoff in the tens of millions of dollars.

The company has lost its case twice; the appeal continued with oral arguments earlier this month in the 1st District Court of Appeals. And although lawyers for both sides claim not to know it, a bill on file in Tallahassee just might cinch the deal for Coastal.

The bill filed by Sen. Charles Williams (D-Live Oak), SB 1146, is short and to the point: in every spot in the Harris Act that says the law applies to government actions taken since the act’s passage in 1995, Williams would insert the year 1990 -- just about the time Florida outlawed offshore oil drilling.

"We’re trying to get a vote on it," says a Williams aide. "It might not be a high priority for the leadership."

Neither Williams’ aide nor a committee aide could say why Williams picked 1990. And despite numerous requests, Williams could not be reached for comment.

One possible scenario: Drag the dispute on until 1998, when Republicans hope to install Jeb Bush as governor; Bush, presumably, would be approached to settle the case for a large cash offering. Or perhaps allow oil drilling to resume.

Whether or not Williams’ bill intends to grease the transfer of millions in public funds to Lykes and other investors, the Madison theory of property rights -- laundered and disseminated with Lykes money and that of other big land owners -- now forms the "common sense" principles with which legislators approach environmental regulation. The potential costs to the state, both in cash and environmental degradation, are incalculable -- whether Madison’s scholars admit it or not.

"We don’t want to be perceived as a political organization or a lobbying organization," says Clendinen, the Institute’s spokesman. "We’re about principles, timeless principles. The public, I think, has a distaste right now for partisanship. We are able to in some sense rise above it."

That these "timeless principles" -- free markets and frugal government, except when the sponsors want something else -- might be neither seems not to have occurred to anyone.

Clendinen pauses a long time when confronted with the funding connections. "It’s sort of a chicken-and-egg, or a glass half full or half empty kind of argument," he says, finally. "Do we stand for the positions because people pay us to, or do people pay us because we stand for these things?"

Actually, it’s a what’s-the-difference kind of argument.

Clendinen says there have been "lots of times" when Madison scholars produced ideas that upset the main sponsors. But J. Stanley Marshall, the $75,000-a-year president of the institute, thinks not. "I can’t remember a time when any organization of note has said, ‘you’re hurting us,’" he says. "I think I would remember it if a contributor had made such a call."

Marshall, a former president of FSU and a 1986 candidate for education commissioner, concentrates on educational issues. Not surprisingly, he’s a big fan of "choice" -- meaning private school vouchers paid with public money. He says he will continue pushing these ideas in the coming year, even though "at least one of our directors doesn’t agree that that’s the way to go." Watch for an attack on public education the likes of which the state has never seen, and watch "the market" offer the solution.

The Heritage Foundation has a slogan, which it says exemplifies its business and separates it from what it regards as liberalism’s intellectual bankruptcy: "Ideas Have Consequences," the think tank says. But there’s another slogan, just as true, that perhaps attaches better to the ideas of Heritage and the Madison Institute:

Money talks.

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