Thursday, June 2, 2011

Landfill Lanny's Toxic Tax Cut

The following is a chapter from, "The Governor of Goat Hill"

            “We hear talk of kickbacks at the Capital.”
            -- Secretary of State Don Siegelman, during 1984 press conference in which he cited “hints and rumors of corruption and kickbacks” involving the operations at Emelle, the huge hazardous waste landfills owned by Waste Management.

            “He (Siegelman) said, ‘We’ll get that revenue ruling you want but those bastards are going to pay for it.”
            -- Testimony of Lanny Young, who was paid $500,000 by Waste Management after the Department of Revenue issued a secret ruling slashing the taxes paid at Emelle.

            When old-timers talk about the member of George Wallace’s family who tried hardest to cash in on Wallace’s power, it’s always brother Gerald. Though colorful Gerald gets the attention, two quieter kin -- Wallace’s daughter Bobbie Jo and her husband James Parsons – made the loudest noise at the bank. The Parsons almost certainly made more money from what my father calls “relative ability” than any gubernatorial relatives in Alabama history.
            The Parsons owe their bounty to hazardous waste.
            In 1974, the Environmental Protection Agency identified the area around the tiny Sumter County town of Emelle as among the most suitable sites in the country for a hazardous waste landfills. Emelle, with a population of maybe 100, is in central Alabama, near the Mississippi border. The EPA was drawn to the area for geological reasons. A chalky layer hundreds of feet thick provides what is said to be an impermeable barrier protecting groundwater from waste seepage.
            Clients for hazardous waste landfills include plastics manufacturers, paint makers, chemical companies and other industries that generate waste too toxic for ordinary landfills. As might be expected, such waste poses a graver threat to the
environment, is more heavily regulated, and disposal costs are substantially greater.
            Three years after the EPA report a group of Tennessee businessmen decided to make a go at Emelle. Among their first moves: Recruiting some home-grown relative ability.
            The men invited James Parsons to become a partner and awarded Alabama’s First Son-In-Law a 28-percent share -- more than anyone else in the company. The group incorporated Resource Industries of Alabama, bought a 300-acre tract near Emelle, and applied for the various permits needed before they could build
such a facility.
            Agencies like the Alabama Department of Public Health parted like the Red Sea, delivering the permits for the state’s first and still only hazardous waste landfills. The company never built a landfills. Instead, it sold the land and permits to Chemical Waste Management. The company, a subsidiary of Waste Management (for clarity’s sake that’s how the company will be identified) agreed
to pay Resource Industries 12 percent of the landfill's revenues for 20 years, then one percent a year until the landfill's closure. The Houston-based garbage giant bought an additional 2,400 acres and built the site.
            Emelle generated more money than anyone could have imagined. In its heyday it accepted waste trucked in from more than 40 states, and was the most profitable hazardous waste landfills in the country.
            The value of Parsons’ relative ability was revealed in the 1990s when he and his partners sued Waste Management for fraud. From 1981 through 1995, Emelle generated some $1 billion in revenues. Of that, Waste Management paid Resource Industries $87 million. Based on his 28 percent share, Parsons banked about $24.3 million.
            In the early 1990s, Parsons and his partners discovered that Waste Management had devised a scheme to hide revenues for the purpose of limiting the royalty payments. In 1996, a federal judge ordered the company to pay Resource Industries $91 million. Naturally, this further enriched George Wallace’s daughter
and son-in-law, by another $20 million plus.
            To slightly restate a previously expressed truism, garbage isn’t garbage, it’s money, and the more toxic, the better.

            In the 1980s, Alabama’s secretary of state sought to boost his name recognition and advance his reputation as an ass-kicking man of the people by blasting away at Emelle. It didn’t seem to matter that as the state’s top elections officer, Siegelman had no role whatsoever in the regulation of landfills. He accused Waste
Management of violating environmental laws and bribing lawmakers. Typically, he declined to identify the culprits, allowing him to appear to be going out on a limb without actually doing so.
            During his 1986 campaign for attorney general he upped the ante.
            “The first thing I will do is close that landfills,” he pledged.
            Siegelman was elected, Emelle stayed open.
            Meanwhile, Gov. Guy Hunt developed an antipathy to the landfills he believed was taking too much toxic waste from other states. In 1992 the legislature passed a Hunt-backed bill that dramatically increased the per-ton taxes for such waste, up to $103 per ton for the most toxic substances.
            In 1996 and 1997 Waste Management made a push to lower the taxes. In a series of letters, Montgomery lawyer Tom DeBray argued that since waste brought to the site was treated and rendered less toxic, it should be taxed at the post-treatment toxicity levels. The company wanted the state to slash the levy on the most common classification from $41.60 a ton to $11.60, the rate for its post-treatment toxicity.
            DeBray made his case to Wade Hope, a Revenue Department lawyer responsible for overseeing the hazardous waste tax. In a letter, Hope told DeBray the department didn’t have the authority to make the change. The legislature had passed the law defining the tax classifications, and “only the Legislature can alter
the rate through a change in the statute,” he wrote.
            The company, despite donating generously to lawmakers and employing top lobbyist Johnny Crawford, hadn’t been able to get it done in the legislature.
        After Siegelman’s inauguration, Waste Management dropped Crawford. He was replaced by Austin-Young, the Lanny pairing with Claire Austin. Out as well was DeBray, the company’s long-time Alabama lawyer. He was replaced by the ever-present Ellis Brazeal, attorney for Lanny and Paul Hamrick’s brother-in-law.
            Could the new team, with its near familial bonds with the Siegelman administration, accomplish what the old could not?


            During my Lanny studies the previous spring I talked to an old source in the garbage business who I will call – because it’s what he laughingly named himself – Deep Dump. He knew the industry upside down and backwards. He’d given me tips in the past and helped me understand the business.
            Deep Dump didn’t care for Lanny. Among other things, he said he had it from impeccable sources that Waste Management paid Lanny some extraordinary sum to win a huge tax break at Emelle. The company had been seeking the tax cut for years, with no luck. It hired Lanny and, boom, the Siegelman administration
made it happen. Crooked as hell, he said.
            Criminal or not, the deal satisfied the criteria for a story, but first I had to prove it.
            One of Lanny’s UCC loan records had seemed to confirm the tip. It showed that Waste Management had loaned Lanny $1 million in May 2000. The loan was collateralized by proceeds from what the loan record called a “consultant arrangement with Chemical Waste Management Inc.”
            Chemical Waste’s only business in Alabama was at Emelle.
            I’d reported the ChemWaste UCC in my June feature on Lanny. The story noted that the UCC didn’t identify the purpose or financial terms of Young’s consulting agreement; and that Waste Management refused to clarify. A spokesman acknowledged Young’s services as a business development consultant
for the company, but beyond that, nothing.
            I called the Revenue Department and was handed off to the agency’s lawyer, Susan Kennedy. I knew nothing of Kennedy at the time. In the coming year I was to learn considerably more about the politically connected attorney who prosecutors later designated an “unindicted co-conspirator” for her part in the tax change.
            Kennedy confirmed that Waste Management won changes in state regulations affecting the Emelle landfills. The department, though, never heard from Young, she said. Lanny, who surprisingly took my call, told readers his work for Waste Management didn’t involve hazardous waste issues. He said he’d had nothing to
do with the tax cut.
            After the feature on Lanny I asked the Revenue Department to let me review the “complete file with regard to regulatory changes made in the summer of 1999 that affected the Emelle landfills.” I sought all correspondence pertaining to the change; “any financial impact analysis performed in relation to the changes (and) any indication that the governor’s office was or was not consulted in relation to the changes.”
            Taxpayer records, whether for individuals or corporations, are, with few exceptions, private. My position was that the tax cut represented a change in the methods used by the state to tax hazardous waste, whether it applied to one company or 50. Such was the basis for my argument that the records should be public.
            The department did not agree.
            Several factors -- Deep Dump’s reliability, the UCC connecting Lanny to Emelle and the fact that there had been a tax cut -- convinced me there was a story. But I’d hit a bunch of dead ends, was busy on other fronts, and, at least for the time being, closed the Emelle file.

            By late December 2001, I’d been covering the administration for almost a year, not full-time but overtime. There was the amount and complexity of the stories, the competition from the News, and the emotionally draining battle following my verbal bombardment of Rip. I was whipped, with no strong stories in the hopper. Such was my frame of mind when I decided to make one final push on the Emelle story.
            I hoped to determine Lanny’s fee, but short of that, to confirm that Waste Management had hired him for the tax change. If I couldn’t do that there was no story.
            In late December and early January I traded phone calls and e-mails with Sarah Voss, the company’s Houston-based spokesperson. She didn’t take my questions as a personal affront – there was no, “How can you even ask such a thing of a company/politician as fine as (fill in the blank)?” The both of us realized that information decisions were made above her level. It was agreed that I would e-mail my questions, she would pass them up the ladder, then deliver the responses.
            The Lanny-Chemical Waste UCC cited a role in the transaction by Ellis Brazeal’s law firm, which confused me. Voss said Waste Management had retained Walston Wells to work on the tax change and that the firm, with the company’s blessing, had engaged Lanny as “an outside consultant.”
            With that, I had a story. The piece, which ran in early January, began:

            In June 1999, a law firm for the company that operates Alabama’s only hazardous waste landfills hired a friend and major supporter of Gov. Don Siegelman to help win a significant change in the way the state taxes such waste.
            A Mobile Register review shows the change that Clayton L. “Lanny” Young was hired to help bring about has saved the company about $1 million in less than two years.
            “It was for consulting on getting tax relief for this site, and it was contingent upon the success of the issue they had hired him to help with,” Sarah Voss, a spokeswoman for Houston-based Waste Management Inc., said of the arrangement involving Young…
            Voss said Young received one payment from the law firm “that was based on his achievement of the goals set when he was retained.”

            Readers were told that Waste Management declined to provide “copies of the contracts involving the company, the law firm and Young; identify the amount of the payment to him; or say whether Young had been due further payments.”
            By this stage Lanny was radioactive, and the relationship was not one Waste Management was keen on discussing.
            The piece summarized previous reporting on Lanny, and reported two relevant contributions in 1999 to the lottery foundation – $10,000 from Brazeal’s firm and the other, for $50,000, from Waste Management. That latter was to figure
years later in the case against Siegelman.
            Lanny wasn’t to be found, but I had his old statement denying involvement in the tax change, and used it.
            Siegelman’s old friend Jim Hayes was Revenue Commissioner when the change was made and had signed off on it. Hayes, who had since departed the administration, provided a second level of confirmation of Lanny’s efforts on the tax change.
            He said he had never heard of Lanny Young until Nick Bailey called to see if he had met with Young. Brazeal joined Young and did most of the talking, Hayes recalled.
            “They laid out a case that the fees at Emelle were so high that the taxes for the state were dropping precipitously,” said Hayes.
            Brazeal and Young said that if the taxes were lowered, the site would do more business and that would generate increased collections for the state. Hayes agreed to consider the matter, and assigned a department lawyer to the situation.
            Over the next couple of weeks Hayes received periodic calls from Young. He said he had no idea that Lanny was being paid on a contingency basis to get the change made, and was embarrassed and not a little disgusted to learn so when I told him.
            If anything our story presented Waste Management’s request -- that waste brought to Emelle should be taxed at post-treatment toxicity levels – as reasonable. But there’s no shortage of companies, industries and interest groups with compelling arguments for new or altered laws, including tax changes. Generally
they must present their case to the legislature, as difficult, unwieldy and polluted a process as that may be.
            I wanted to show readers that it was different – and worse – for lobbyists to ply their trade at the Revenue Department, as opposed, say, to the highway department. Taxpayers, individual and corporate, often hire lawyers to engage the department in tax disputes, and there’s nothing wrong with that. But lobbyists?
            I called Jim Sizemore, a respected former revenue commissioner, who told readers that during his five years at the agency, lawyers routinely represented clients with tax disputes, accountants did as well, but never once could he recall
a lobbyist doing so.
            Subsequent records dispelled one of the primary justifications for the change: the prediction that lower taxes would make Emelle more competitive, generate more business, and produce greater revenues for the state. In the first four years
after the change, the state took in more than $1 million less in revenues from Emelle than from the prior period.


            Six months after the story, in late July 2002, the Dansby lawsuit – one of the two Lowndes County cases against Lanny and Waste Management brought by Susan Copeland and Doyle Fuller -- produced public records gold. Copeland, God bless her, had filed a portion of a transcript from a court hearing during which Lanny’s fee for the Emelle change was divulged.
            It was $500,000.
            How many years, dear reader, did it or will it take you to make $500,000?
            How many hours might you put in before hitting the half-million dollar mark?
            The fee was grotesquely excessive and decidedly story-worthy. The money originated in Houston, at Waste Management; was transferred to Walston Wells’ account in Birmingham; and from there to Goat Hill, Ala., and into Lanny Young’s bank account.
            Walston Wells, while not a large firm, is prominent, very Republican respectable. The firm, it seemed clear, had acted as accessory, as launderer of Waste Management’s dirty money. I suppose the firm looked the other way so it wouldn’t have to see it that way. I felt this was serious enough to go above Brazeal to one of the name partners, Vernon Wells. He said I needed to talk to Ellis, since Waste Management was his client. I called Brazeal. He was polite but nervous. He declined comment, citing attorney-client concerns.
            I called his client, or rather, Sarah Voss. I told her what I’d learned, and that I expected to shortly be in possession of the 1997 correspondence between Tom DeBray and the Revenue Department back in 1997. I e-mailed questions. The main parts are as follows:
            That (1997) letter, I’m told, will state that the department determined that only the Legislature could make the change being sought by Chemical Waste. It appears that Chemical Waste then hired Ellis Brazeal and, along with him, Lanny Young, and they
succeeded where DeBray had failed.
            My questions:
            To the ordinary reader, $500,000 will obviously seem like a very considerable sum. Could the company provide, with some degree of specificity, an explanation of what Lanny Young did to assist in this matter?
            Were Young’s personal and political connections with Gov. Don Siegelman and members of his administration, including former Chief of Staff Paul Hamrick, a factor in the decision to hire him?
            Were administration officials involved in the decision, or was it handled completely within the Revenue Department?
            Did anyone recommend to the company that it should hire Young and/or Ellis Brazeal?
            How much has the company saved as a result of the change?
            This story may or may not contain information from a transcript of a separate hearing in the Dansby case, in which it’s stated that Young would have been paid $2 million by Waste Management if he succeeded in negotiating a lower tipping fee at the proposed Lowndes County landfills.
            It may be, though, that this arrangement will be reported in a later story. In the event I include it in this story, I want to go ahead and ask my questions:
            Does Waste Management regularly use consultants and/or companies to handle the permitting and political processes required for new landfills in a way that hides the company’s role in such plans?
            Does Waste Management consider it ethical to off er sums as high as $1 million or $2 million to such companies/consultants in return for their success in lowering tipping fees that Waste Management will later pay to host governments?
            Has Waste Management or its subsidiaries been contacted by law enforcement authorities in connection with the investigation into Lanny Young and members or former members of the Siegelman administration? Has the company been served with subpoenas relating to this investigation?
            Sarah, I guess I’m not giving away any secrets when I say I ask questions that I don’t necessarily expect will be answered. However, as a general practice, I do like to let our readers know that we have asked questions, even when we have not received responses.

            The company declined comment, beyond what it provided back in January. The story reported Lanny’s fee, Waste Management’s failed 1997 attempt to win the change, and summarized the salient points from the first story.
            The AP picked it up and the Birmingham News published an editorial declaring that the “way the change came about, greased by Young’s half-million dollar efforts, smells as bad as any landfills.”
            I’d taken it as far as I could. I couldn’t compel people to talk to me or produce records, but was proud of my efforts and hopeful that, in time, more would come out.
            That time came in 2006, at Siegelman’s trial.
            Claire Austin testified that in spring 1999, Young rented a private room at the Vintage Year, an upscale Montgomery restaurant. The purpose was for Lanny and Claire to introduce their Waste Management clients to Alabama’s new governor. Company officials Chuck Campagna and Tom Herrington came to Montgomery to dine with Siegelman, Hamrick and Bailey.
            “In our business, it’s all about who you know and what access you have. That’s a pretty impressive dinner, when you have the governor come by for dinner,” Austin told jurors.
            Hardly a shocking revelation, but it’s through such details that the curtain gets pulled back for ordinary folk.
            Young testified that Waste Management first broached Emelle with him in late 1998 or early 1999, after which he discussed the matter with Bailey, Hamrick and Siegelman. Then, in late June 1999, the company put all its eggs in one basket
and went for it.
            On June 24, Brazeal filed a petition with the Revenue Department. He demanded a refund of more than $4 million in taxes he claimed his client should not have been compelled to pay. His client would sue if the state didn’t return the money; or, a second option, cut the taxes on the most common classification of
waste from $41.60 per ton to $11.60. I believe the petition was filed to alarm Hayes, the commissioner, who was not a tax professional; and to provide political cover to the administration should this
drastic cut in hazardous waste taxes be discovered. The administration could claim –as it subsequently did -- that Waste Management had the state against a wall.
            Maybe the company would have sued, but there’s a big difference between filing a lawsuit and winning one. If the case was so strong, the company should have sued for the refund and the tax cut.
            Four days after threatening to sue, Waste Management entered into its secret arrangement with Lanny.
            Trial exhibits and Young’s testimony cleared up a few things.
            For example: It hadn’t made sense for a paid up contract to serve as collateral for the $1 million loan identified by the UCC. It only made sense if Lanny was due more money. And he was. He was to receive as much as $1.5 million more  – or $2 million total – with the sum depending on the amount Waste Management
saved as a result of the tax change.
            Most interesting was another condition of the contract: From the day of its signing, Lanny had 30 days to get the tax reduced. If he couldn’t deliver in a month, he didn’t get paid.

            Before our first story, Waste Management said it hired Walston Wells to seek the tax change; that the firm hired Lanny; and the company blessed it. The actual contract, dated June 29, 1999, showed otherwise, that the arrangement was between the company and Lanny, though, “all payments to Young shall be made
through the trust account of Walston, Wells, Anderson & Bains.” The firm was just the conduit for paying Lanny.
            With 30 days to get the job done, Lanny moved fast.
            The day after signing the contract he asked Bailey to set up the meeting with Jim Hayes, and Nick did as asked.
            There was, however, a problem. Wade Hope, the department attorney who oversaw hazardous waste taxes, wasn’t budging from his long-held position that only the legislature could alter the tax, and he said as much to Hayes. “I told him,
‘Commissioner, this is the same thing that’s come up before. We can’t do that,’” Hope testified at trial.
            The administration solved the Hope problem on July 5. That day Siegelman appointed Susan Kennedy, a friend of Hamrick’s and Lanny’s, as the department’s new general counsel. She thus became the first political appointee to serve as the tax agency’s top lawyer in state history. Longtime general counsel Ron Bowden,
who supported Hope on the Emelle matter, was demoted.
            (After the first Emelle story I wrote several pieces on the circumstances of Kennedy’s departure from the Revenue Department. Prior to leaving in June 2001 she arranged millions of dollars in legal contracts for a law school friend, Pam Slate. While still with the department Kennedy formed a two-person law
firm with Slate. The day after she left the tax agency she began billing on the contracts she’d helped direct to Slate. The firm Slate Kennedy LLC was paid $4.6 million by the Revenue Department from those contracts.)


            In mid-July 1999, Hope, the department lawyer, was summoned to the commissioner’s office for a meeting with Hayes and Kennedy. He restated his position on Emelle. Kennedy told Hope the matter was no longer his to decide. The ruling was going to be made at the commissioner’s office level. She subsequently directed Hope to draft a cover letter to Brazeal informing him that
the department had agreed to cut the taxes.
            At trial, Bailey testified that Siegelman called Hayes and told him that the tax change was important to the administration. The day before the ruling, Lanny met Siegelman at the governor’s office.
            “He said we’ll get that revenue ruling you want but those bastards are going to pay for it,” Lanny testified at trial.
            On that day the lottery vote was less than three months away. Siegelman was obsessed with its passage and was hitting up donors as never before. He told Lanny to tell the folks at Waste Management that he expected the company to donate $50,000 to the lottery foundation.


            Soon after the meeting with Hope and Kennedy, Hayes, the Revenue chief, authorized the tax cut at Emelle.
            Eleven days later, Waste Management wired $500,000 from Houston to the Walston Wells firm in Birmingham. That same day, Ellis Brazeal signed a Walston Wells check made out to Lanny Young for $500,000.
            Three days later, Young gave some of it back, paying $50,000 to the firm. At trial, prosecutor Steve Feaga asked Young why “Paul Hamrick’s brother-in-law’s law firm” paid him, and not the company.
            “That is the method that Waste Management chose to use to get the money to me,” Lanny answered.


            Shortly after the tax change, Miller Matthews, an Atlanta-based Waste Management executive, asked Young to get him a copy of Siegelman’s resume. Matthews wanted to familiarize himself with Siegelman before calling the governor. Lanny procured a resume from Siegelman and faxed it to Matthews.
            On Sept. 7, Lanny escorted Chuck Campagna and another Waste Management official to the lottery foundation headquarters, a home near the mansion that was co-owned by Nick Bailey.
            One of the Waste Management guys handed Siegelman a $50,000 check made out to the foundation. The politician who had years before railed at Waste Management for Emelle-related kickbacks accepted it.


            On July 15, 1999, Siegelman presented Young with a framed picture of himself. On it was a handwritten note. The picture was introduced into evidence at trial. Lanny was asked to read the note to the jury, and did so.
            It read: “Lanny, You are something. I really appreciate your friendship and look forward to us spending more time together. You are special, Don.”
            One supposes that Siegelman routinely gave friends and supporters autographed pictures of himself with nice notes. What made this keepsake an effective piece of evidence is that July 15 was the same day the Revenue Department issued the ruling slashing the taxes at Emelle.


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