A Change in the Pecking Order
Oh, how the mighty have fallen.
The nation’s financial crisis has already taken down Lehman Brothers, AIG, and Washington Mutual. Now one of Texas’ most influential tycoons has hit hard times. Pilgrim’s Pride—the country’s largest chicken producer, owned by East Texas chicken magnate Lonnie “Bo” Pilgrim—filed for Chapter 11 bankruptcy protection on Dec. 1.
Besides massive chicken feedlots, Bo Pilgrim is famous for his financial largesse when it comes to funding Republican candidates and lobbying for legislation that favors his poultry business. In 1989, the silver-haired millionaire infamously handed out $10,000 checks directly to lawmakers on the floor of the Texas Senate to smooth the passage of a workers’ comp bill. The incident spurred the creation of the Texas Ethics Commission in 1991 and led to new ethics rules, including a ban on lobbyists talking with lawmakers on the Senate and House floors. More recently, Pilgrim gave $100,000 to Gov. Rick Perry and the Republican Governors Association to push through a federal waiver on corn ethanol production, which Pilgrim believes is causing higher grain costs.
The high cost of grain has hurt the Pittsburg, Texas-based Pilgrim’s Pride. Also contributing to the company’s financial problems were the illegal immigration crackdown, a glut of chicken on the world market, and Pilgrim’s $1.5 billion takeover of competitor Gold Kist Inc. in 2007.
Pilgrim’s Pride filed for bankruptcy in U.S. Bankruptcy Court, claiming $3.7 billion in assets and $2.72 billion in debts. Clint Rivers, president and chief executive officer of Pilgrim’s Pride, tried to put a positive spin on the bankruptcy in a press release. He said that the company’s board determined that a Chapter 11 filing was the best way to continue financing regular operations. “We expect to emerge from this restructuring a stronger, more competitive company that is well positioned for growth and enhanced profitability,” Rivers said in the release.
Pilgrim’s financial woes have other chicken producers ready to, um, pluck the company from its depths. Several business journals have reported that the nation’s No. 2 and No. 3 chicken producers, Sanderson Farms and Tyson Foods, are both considering a buyout of the nation’s top producer.
While Pilgrim’s business may be in the doldrums, the millionaire—and his personal fortune—shouldn’t be counted out yet as a political player, says Craig McDonald, executive director of the nonprofit Texans for Public Justice. “Despite Pilgrim’s financial troubles, I don’t think it will lessen his political clout around the statehouse,” McDonald says. “He’ll still be spreading his chicken feed around the capitol.”
—Melissa del Bosque
PERRY: GREENHOUSE GAS CUTS WOULD RUIN TEXAS
Gov. Rick Perry and the leaders of the state agencies that grapple with energy and environmental issues sounded like they were arming for a two-front war on Nov. 25 when they warned that proposed federal limits on greenhouse gases would cripple the Texas economy.
Their foes? The lame-duck Bush administration’s Environmental Protection Agency and the EPA under construction by President-elect Barack Obama’s transition team.
Perry said the EPA’s plan to regulate the emissions of carbon dioxide would be an unprecedented over-reach. He warned that the effort would threaten not only Texas’ mammoth petrochemical industry but could potentially harm the state’s small farms, factories and even its churches.
“The methods under consideration by the EPA will punish innovation, cost jobs and drive investment out of Texas and overseas,” Perry warned at a pre-Thanksgiving news conference where he was flanked by Railroad Commission Chairman Michael Williams, Public Utility Commission Chairman Barry Smitherman and Bryan Shaw, head of the Texas Commission on Environmental Quality.
The EPA has been exploring strategies to regulate greenhouse gases since the U.S. Supreme Court last year ruled that it has the authority to take steps to curb carbon dioxide emissions from new cars and trucks. A spokesman for the federal agency has said that the EPA was not nearly as far along in its planning for regulating greenhouse gas emissions as Perry and Co. are suggesting.
Perry also fretted that the incoming Obama administration would take a more aggressive stance because of his campaign promise to do more in the fight against global warming.
No sooner had the governor’s event ended then two proponents of greater carbon dioxide regulation were ready with a rebuttal. Tom “Smitty” Smith, who heads Texas Public Citizen, and Cyrus Reed, with the Lone Star Chapter of the Sierra Club, said Perry and the agency heads were missing a larger point. Intensifying the development of renewable energy sources and reducing pollutants at factories and from cars and trucks would “create more jobs than we’d lose,” Smith said.
Perry said the EPA should cut Texas some slack, both because of the dominant role the state plays in traditional energy production and for its aggressive pursuit of clean energy sources.
“No one agrees with the concept of fully developing all of our domestic energy resources, including renewable energy, more than Texas,” Perry wrote in a letter to EPA administrator Stephen Johnson. “In fact, our actions speak louder than others’ when it comes to fostering these new technologies.
“Texas installed more wind generation than any other state and all but three counties,” the governor wrote.
Reed and Smith applauded the Perry administration and Texas industries for their efforts. But they noted that the strides in renewable energy production should not be chalked up solely to the benevolence of those industries and Perry’s policies.
“Regulation, or the threat of regulation, is what drove the private-sector changes the governor bragged about,” Smith said.
A STATE LAWMAKER JOCKEYS FOR A RACING LICENSE
It’s not every day that the Texas Racing Commission does business with someone who exercises influence over the agency’s own purse.
Seeking personal help with a racetrack license, state Rep. Yvonne Davis, a Dallas Democrat, showed up at an October Racing Commission meeting. Adding to the magic of the moment, Davis was escorted by former state Rep. Ron Wilson—who served as Speaker Tom Craddick’s handpicked parliamentary assistant during last year’s mutiny against Craddick’s rule.
Davis is part of a group trying to buy the Longhorn Downs horse-racing franchise and build a track outside Dallas. To do it, they need the Racing Commission’s OK. This lawmaker jockeying for a track license also sits on the House Ways and Means Committee, which oversees state revenues upon which the Racing Commission feeds. Acknowledging that her dual roles had prompted “a lot of innuendos and conversations about who, what, why,” Rep. Davis told the commissioners that she had a letter from the Texas Ethics Commission “saying there’s no prohibition for me to be part of this application.” Rep. Davis’ foray into the highly regulated racing industry isn’t necessarily prudent, but neither is it illegal.
The reason for Wilson’s presence wasn’t precisely clear. But the delicacy of Davis’ group’s request for a horse-track license seemed to require Wilson’s parliamentary prowess—or perhaps someone with close ties to the speaker.
To buy a track license, Rep. Davis teamed up with David Alameel, a wealthy Dallas dentist who owns the Jefferson Dental Clinics chain. If the Racing Commission approves the deal, Rep. Davis would have a 5 percent stake in a track license now controlled by the Austin Jockey Club, Ltd. Alameel’s family would own the rest.
Investors from San Antonio’s Retama Park racetrack control Austin Jockey. Further complicating this license transfer, San Antonio Republican Rep. Joe Straus III and his father—who chairs Retama’s board—each own stakes in Austin Jockey, according to Racing Commission records. Lacking industry experience of their own, Alameel and Davis have proposed hiring Retama’s management to help run a track that they want to build outside Dallas.
Nonetheless, Rep. Straus criticized Davis’ appearance before the Racing Commission. “The issue of gaming and licensing from the government is a public-trust issue,” said Straus, a former Craddick ally who recently distanced himself from the current House leadership. “I would never appear before a government regulatory body as a sitting lawmaker to make a request such as that.”
Austin Jockey owns the 19-year-old license for the so-called Longhorn Downs track, which has never been built.. Efforts to put a track in Pflugerville flopped in 2005. After that, Austin Jockey ostensibly sold its track license to a company called Dallas City Limits, although regulators have yet to approve the transfer. The investors behind Dallas City Limits included the Alameel family. The company asked the City of Dallas for $20 million in subsidies to build a racetrack entertainment complex near the Dallas Convention Center. In 2006, city officials openly questioned if Dallas City Limits investors had enough money to take this project to the finish line. A similar pitch in nearby Irving has yet to fly.
In the end, the Dallas City Limits deal fell apart. Investors sued each other over competing claims to the track license. Alameel and Davis are still in district court feuding with three Dallas City Limits investors led by Houston trial lawyers Michael Gallagher and Russell Serafin. Serafin confirmed the litigation. Alameel, Rep. Davis and their attorneys did not return calls seeking comment.
During this mess, Alameel and Davis applied to the Racing Commission this July to transfer the Longhorn Downs license into their names. The Department of Public Safety is conducting a routine background check to determine if the applicants have enough cash to get a track running, as well as a clear claim to the license, which is clouded by the litigation.
The recent Alameel-Davis application proposes building a track south of Dallas—in the city of Lancaster. But hurdles remain. The proposed site is about 20 miles from the existing Lone Star Park track in Grand Prairie. With racetrack revenues falling statewide, why would the state approve a new track so close to an existing one?
Alameel and Davis apparently want to postpone these issues for another day. Nobody has initiated track discussions with the City of Lancaster, according to the office of Lancaster Mayor Marcus Knight. In October, Ron Wilson urged the Racing Commission to first approve the transfer of the Longhorn Downs license and later determine where the track would be located.
The Racing Commission will soon celebrate 20 years of spending state funds on a license that hasn’t yet left the gates and has spawned more litigation than race results. Maybe the track will eventually open—with an assist from some Austin power brokers. But don’t bet on it.
On Second Thought
RECESSION SLOWS THE RUSH TO PRIVATIZE
For a decade, Texas’ penchant for privatizing everything from the building of roadways to administering food stamps was growing as fast as the national debt. These days, however, the nation’s financial crisis is putting a damper on Texas’ love affair with privatization, according to government accountability advocates.
Private companies are finding it difficult to raise the amount of cash that used to woo government officials to sign over their publicly owned infrastructure, says Melissa Cubria, a policy advocate with the nonprofit Texas Public Interest Research Group.
“Texas still has a somewhat sound economy, but no states are going to be jumping into big privatization deals like before,” Cubria says. “Investment banks just don’t have the kind of money they used to have.”
All over the country, privatization deals are falling apart due to a lack of capital. In Pennsylvania, government leaders quashed the idea of privatizing a turnpike after a private company said it could only raise $10 billion instead of $30 billion for the project. In Missouri, a plan to privatize bridge repairs fell through after the private company said it would have to rely on more public money than previously planned.
In Texas, the nation’s economic instability has not yet affected any privatization projects, Cubria says, but it has government officials thinking twice about going forward with large projects like the Trans-Texas Corridor. Cubria warns that the financial crisis illustrates that private companies are not always better equipped to manage financial risk.
“Financially troubled private toll operators might neglect maintenance and demand a bailout from taxpayers,” she wrote in a recent policy paper for state leaders. “The state would be required to hire expensive lawyers to recoup its losses.”
While the struggling economy puts the brakes on some privatization projects, cash-strapped officials may still be willing to take the bait, says Phineas Baxandall, a senior analyst for the U.S. Public Interest Research Group. Investment banks like Goldman Sachs will continue sending envoys to cash-strapped states in an effort to ink privatization deals, Baxandall says, because investment in public infrastructure is still considered a safe investment during these financially murky times.
“Private companies are less able to provide a lot of cash, but then states are more desperate and more likely to take a bad deal these days,” Baxandall says, “which will more than likely end as a bad deal for the public.”
—Melissa del Bosque