The V.I.P. Room

It’s difficult to describe Phil Wilson’s profession. Over the past decade, Wilson, 44, has slid through six very different jobs in Texas politics. In chronological order, he has worked as Gov. Rick Perry’s director of communications and then deputy chief of staff; he helped oversee the governor’s controversial job creation programs—the Texas Enterprise Fund and Emerging Technology Fund; he was appointed Texas secretary of state, where he directed voter registration and elections; he served as a lobbyist for a major energy company with ties to Perry; and, most recently, he was named executive director of the Texas Department of Transportation.

The jobs require different skills and expertise. There is only one common thread connecting Wilson’s eclectic career choices—Rick Perry.

Wilson is an example of a new breed of power broker that has come into its own under Gov. Perry: friends, supporters, and former staffers of the governor who circulate from state appointments to high-paying lobby jobs and back again, people whose influence appears to come not from their background or knowledge, but from their political connections.

Wilson’s resumé illustrates the nexus of politics, government and the private sector among Perry’s friends and allies. He began his career as an aide to then-U.S. Sen. Phil Gramm, a Texas Republican. After more than a decade with the senator, in 2002, Wilson joined Perry’s office, where he served under Mike Toomey, a former Perry chief of staff who now works as a high-powered and high-priced lobbyist for some of the biggest corporations doing business in Texas. Wilson also worked under Toomey’s successor Deirdre Delisi. Delisi later became chair of the Texas Transportation Commission—she announced Wilson’s appointment as TXDOT executive director—until she resigned to work full-time on the Perry presidential campaign.

In 2008, Wilson resigned as secretary of state after only a year to become a lobbyist himself: senior vice president of public affairs at Luminant, a behemoth of the Texas energy industry. A component of Energy Future Holdings (formerly TXU), the company is one of the largest power generators in Texas. Perry has been good to the company, trying unsuccessfully to fast-track permits for the company’s coal plants and defending the company when it’s run into trouble with the Environmental Protection Agency standards. Wilson, who refused to comment for this story, was a registered lobbyist for Luminant during the 2011 legislative session.

In late September, Wilson made a splash when he was appointed to run the Texas Department of Transportation. Wilson is the first non-engineer to hold the job. (Until 2009, when the Legislature changed the law, only engineers could head the agency responsible for building the state’s roads and bridges.) While the TXDOT board—the Texas Transportation Commission—has historically been composed of political appointees, agency heads have typically come up through the ranks of TXDOT.

In his new role, Wilson runs the day-to-day operations of a state transportation agency with a $20 billion biennial budget that deals extensively with outsourcing and high-dollar contracts.

The Transportation Commission raised the position’s salary by more than $100,000, to make it commensurate with Wilson’s income as a lobbyist. Wilson told the Dallas Morning News he’s had no contact with the governor’s office about his new job.

It’s important to note that TXDOT has long been criticized for an insular culture that observers say has led to frequent corruption, and some applauded Wilson’s appointment as an opportunity to shake up the agency with an outsider perspective.

But critics have pointed out that Wilson’s presence at TXDOT gives the governor an ally in a key post—with oversight of millions of dollars worth of contracts. Perry allies at other state agencies have handed out lucrative state contracts to certain companies—the ones that, coincidentally or not, hire lobbyists with ties to Perry or donate money to the governor’s political funds. That’s the way state government has operated in the Perry administration. From the outside, it appears to be a pay-to-play system in which Perry appoints campaign contributors or former staffers to key government positions from which they can direct contracts or institute policy that reward select companies and lobbyists.

“It’s like they control every cog in the wheel,” said one longtime Republican lobbyist. He said that while there’s always been political favoritism in the governor’s office, regardless of who holds it, Perry doesn’t bother to hide his transactions. “It used to be all this stuff would take place in the dark of night,” the lobbyist said. “They’ve taken this cronyism to a whole new level.”

Since the governor announced his bid for president, there’s been no shortage of stories about Perry’s willingness to do a favor for a friend. National reporters have reprised the greatest hits. There was the time the governor established a commission for his biggest funder, homebuilder Bob Perry (no relation); the Texas Residential Construction Commission was created ostensibly to regulate the homebuilding industry, but in practice largely hindered consumers in their disputes with builders. There was the time, when Perry’s biggest policy goal was the Trans-Texas Corridor, when Spanish company Cintra hired Perry’s friend and former staffer Dan Shelley to lobby for contracts; sure enough, the company walked away with $5 billion to build three highways. Perhaps most famously, there was the time Perry mandated that all girls in the state receive an HPV vaccine—a move that would have benefited the vaccine-maker Merck, one of Toomey’s clients.

But the appearance of cronyism and pay-to-play culture in Austin is more common even than most media reports have revealed. Rarely can we know what actually happens behind closed doors, and whether there are explicit deals, winks and nods or anything else. But in Texas, companies with the right friends and well-aimed political contributions often wind up with lucrative contracts, or benefit from new policy. The patterns aren’t hard to see. Many former Perry staffers join the lobby ranks; The Huffington Post—one of the few national media outlets, along with Rolling Stone and The New York Times to delve deeply into the issue—counted 40 lobbyists who’d previously worked for Perry.

But sources say only a handful have the clout to shape policy. Toomey, for instance, currently lobbies for 23 clients and makes up to $2 million annually from his contracts. (The Texas Ethics Commission provides ranges for contract values rather than exact numbers.) Luis Saenz, another former Perry staffer who’s joined the lobby, makes as much as $1.5 million from his 22 clients, while Perry-allied lobbyist Cliff Johnson has the same pay range with only 17 clients. And the money can really add up. In 2010, Toomey’s clients had a total of $2 billion in state contracts, while Johnson’s had a total of $2.2 billion.

Companies and individuals seeking to show their support for Perry can give campaign contributions or donate money to the Republican Governors Association, where Perry has served as president and finance chair in the last three years. Many companies benefiting from state contracts are donors.

The system can make a lot of money—for the Perry cronies in state appointments, the Perry-connected lobbyists, and the companies looking for contracts. But these arrangements aren’t always beneficial for non-politically connected Texans. Whether it’s how we pay for Medicaid, which companies get Enterprise Fund money, or when disaster recovery construction occurs, the implications of pay-for-play policymaking are enormous, and felt throughout the state. When projects—implemented more because of political favoritism than policy making—have gone awry, thousands of Texans have been harmed.

“[Cronyism] is not an element of state government,” says one Austin lobbyist who works with both parties. “It is state government.”

 

The policy implications of such governance aren’t hard to find. Take the state’s latest efforts to privatize Medicaid drug benefits.

Tucked away in a Medicaid bill that the Texas Legislature passed in 2011 is a provision that received little attention, but could have widespread impact. The provision changed how people on Medicaid—the poor, the elderly, and the disabled—receive prescription drug benefits. Lawmakers, facing a budget shortfall of unprecedented size, wanted to save money.

An alliance of companies soon formed between pharmacy benefit managers (PBMs), health maintenance organizations (HMOs), and others, promoting a managed care approach to prescription drugs. That would mean handing over Medicaid prescription drug negotiations to a for-profit company that would ostensibly save money for the Medicaid program by negotiating lower payments to pharmacies. Advocates argued the state could save as much as $100 million. Independent pharmacists would likely bear the brunt of such savings, losing the money they made serving Medicaid clients. And if pharmacies went out of business in poor and rural areas, where mail-order drugs are hard to deliver, Medicaid clients might have trouble accessing their prescription drugs. Meanwhile, much of what drug profits remained would go to companies located out of state.

“This is an example of big business profiting at the expense of people in poverty,” said Democratic Sen. Leticia Van de Putte, a longtime pharmacist. “They sure like making money off of poor people.”

There were arguments to be made on both sides; proponents contend that managed care would improve people’s access to Medicaid. But ultimately the fight came down to HMOs on one side and pharmacists on the other.

But one side had an advantage: The top HMOs had the right lobbyists, at least six of whom were former staffers for Rick Perry. The Texas Association of Health Plans hired 11 lobbyists, including Victoria Ford, who formerly worked as a healthcare specialist in the governor’s office. Ford didn’t reply to an interview request from the Observer, but told The Huffington Post that while she was careful not to emphasize her relationship to the governor’s office, “there are others [lobbyists] that take a different approach—that walk in with their resume first.” She also noted that she never saw evidence of cronyism while she worked for Perry, calling the allegations “overblown speculation.”

But Ford wasn’t the only staffer-turned-lobbyist with clients on the side of managed care. Ann-Marie Price, lobbying for Amerigroup, had served as a health policy advisor to Perry. UnitedHealth hired one of the biggest guns in town: Mike Toomey. UnitedHealth had also contributed heavily to the Republican Governors Association for the previous three years.

Texas has been outsourcing aspects of Medicaid since the 1990s, using managed care, a system in which HMOs serve as middlemen offering a network of doctors and health-care providers to Medicaid recipients. The state pays HMOs per recipient, and many HMOs make a profit by paying the health-care providers in their network a lower rate. Pharmacies, however, have largely been immune to Medicaid managed care, since pharmacists can dispense drugs only as directed by doctors. Under the proposed plan, a pharmacy benefit manager would serve as the middleman between HMOs and pharmacies (essentially a middle-middleman). Since most PBMs are for-profit, they’d make their money by reducing payments to pharmacists and pocketing some of the money from the state. Advocates of managed care say that due to negotiated payment rates, the plan would ultimately save the state money.

Since the legislative session ended, troubles are already appearing. While the state is still waiting for federal approval to begin the managed care model for drug benefits, Van de Putte says one major for-profit PBM, Navitus, sent pharmacies letters demanding they sign contracts that would cut pharmacy dispensing fees by 80 percent. Most businesses can’t handle an 80-percent rate cut. Pharmacy Choice and Access Now commissioned a study by economist Ray Perryman projecting that the shift to manage care would result in 770 pharmacies closing. That’s particularly problematic in South Texas, where many Medicaid recipients could be left without access to a pharmacy.

Van de Putte says pharmacy closures wouldn’t be entirely bad news to HMOs and PBMs. They will still make their money. Texans on Medicaid may have trouble getting their medications, but the companies that hired Perry-connected lobbyists and donated to the Republican Governors Association stand to make tidy profits.

 

Perhaps more disturbing, some of these same companies have a history of poor service in delivering state programs.

UnitedHealth, one of lobbyist Toomey’s longtime clients, has worked with Texas for years as the state has increasingly handed over Medicaid management to private and for-profit companies. UnitedHealth subsidiary Evercare helped implement a pilot program in Houston. Later, when Texas moved to expand the managed care Medicaid model in 2007, the state brought in some HMOs, including Evercare, to expand the approach to other parts of the state.

The problem was, Evercare’s network didn’t seem to include any doctors. Medicaid patients had nowhere to go and little recourse. While the state fined the company millions, change didn’t come fast enough. By 2009, the state had suspended Evercare’s contract. One particularly damning story from The Dallas Morning News, headlined “Is Texas Looking Out for You?”, noted that between UnitedHealth and its subsidiaries, the Texas Department of Insurance had levied more than $10 million in fines for “violations involving claims payouts, reporting requirements and other problems” since 2000. The story also stated that since 2003, the company had been paid more than $1.2 billion to offer services to more than 255,000 Texans.

But UnitedHealth isn’t just a company with a bad track record—it’s a company with a shrewd political strategy. UnitedHealth, which owns Evercare, has donated almost $500,000 to the Republican Governors Association over the past three years. It currently employs as lobbyists a number of Perry allies, including former aide Chris Cronn, former campaign manager (and assistant secretary of state) Luis Saenz and Toomey. Toomey started lobbying for UnitedHealth almost immediately after he left his position as Perry’s chief-of-staff.

Less than six months after he left the state’s employ, Toomey approached Executive Commissioner of Health and Human Services Albert Hawkins outside a House subcommittee hearing room and, according to the San Antonio Express-News, told Hawkins, “Goddammit, Albert, I told you you should have rolled this [HMO shift] out before the session.” While Texas law allows former state officials to begin lobbying as soon as they leave their state jobs, aides to the governor are barred from lobbying the governor’s office and staff for a year and one regular legislative session. At the time, a Perry spokesman told the Express-News that the policy did not apply to appointees, like Hawkins. Hawkins said Toomey was joking.

Toomey denies saying anything at all about the policy, and says that he has no ethical quandaries. In an email response to questions from the Observer, Toomey wrote, “political enemies have nothing better to do than make up stories about me.” He had previously dismissed questions from The Texas Tribune about his relationship with the governor and his lobbying practice, saying allegations of impropriety were “nothing more than recycled rumors, innuendo and lies.”

Meanwhile, six years after the incident, UnitedHealth and Evercare continue to make money off the Texas Medicaid program. The state canceled an Evercare contract in 2009, but as of 2010 the company still had a managed care contract for $1.2 billion, as well as two others totaling more than $200 million.

It helps to have friends in high places.

 

UnitedHealth is hardly the only company to find favor with political donations and powerful friends.

CGI Group is an international company specializing in information technology management. It’s the kind of outfit bound to be competing for a number of government contracts dealing with data management and the like. CGI had been giving to the Republican Governors Association before Rick Perry became the chair, donating between $40,000 in 2007. But when Perry came to the head of the association table in 2008, CGI stepped up its giving. It gave $95,000 in 2008 and found itself with three contracts including a two-year, $660,000 contract from the Texas Commission on Environmental Quality the following year.

The company continued giving to the Republican Governors Association, and at the beginning of 2011 CGI got a new contract, this time for $8 million from the Texas Health and Human Services Commission, to help manage Medicaid payment data.

Two days before the company received the contract, it had hired Robert Howden as its lobbyist. CGI had employed lobbyists for a while, but Howden had governor’s office credentials; he’d served as Perry’s communications director before Perry appointed him staff director of the politically important Texas Tax Reform Commission. Nine months after hiring Howden, in mid-October of this year, CGI Group received one of the governor’s Enterprise Fund grants, to the tune of $1.8 million in taxpayer money, in exchange for a promise to create 350 jobs. Neither the company nor Howden responded to requests for comment.

Enterprise Fund grants are meant to lure prospective job-creators to Texas. The program is largely administered by the governor’s office and hands out tens of millions of dollars each year. Perry calls it an impetus for growth. Critics call it a slush fund used to reward political donors.

An October report from Texans for Public Justice found that of the 90 companies that have received grants from the fund, nearly half had donated to the Republican Governors Associa-tion or Perry’s campaign directly. Forty-three companies gave a combined $7 million, and received $333 million in Enterprise Fund money. That’s 76 percent of the fund’s awards going to less than 50 percent of the grant-receiving companies.

“Having the government give out public money to private companies is inherently controversial,” Texans for Public Justice research director Andrew Wheat told the Observer when the report came out. “If indeed a government is going to have this kind of program, it would seem to be prudent to have it heavily insulated from the political process, which this one definitely is not.”

Some recipients had also hired former Perry staffers to lobby. In September 2006, Perry announced Lockheed Martin would receive an Enterprise Fund grant, worth more than $5 million, eight months after hiring former Perry staffer Dan Shelley as its lobbyist. The company has donated more than $282,000 collectively to the governor and the Republican Governors Association.

Lockheed Martin couldn’t follow through on its job-creation targets—the central justification for the Enterprise Fund. In fact, just 26 percent of Enterprise Fund recipient companies created the promised number of jobs in 2010, according to Texans for Public Justice.

Another politically connected company, the construction firm HNTB, has had problems fulfilling its $45 million state contract for disaster recovery work. The Austin American-Statesman reported in October that HNTB had failed miserably to oversee the disaster recovery from Hurricane Ike, after the state had turned over almost the entire effort to the company—more than $1 billion in federal funds. HNTB spent 90 percent of the funding budgeted for overhead and had completed only 20 percent of the projects. At a hearing to investigate the matter, state senators discovered that normal contracting practices had not been observed in drafting the contract. The General Land Office has canceled the contract as more complications arose.

How did HNTB get so much state money with so little oversight? Well, it isn’t your average company. For nearly six years, HNTB employed Ray Sullivan as its lobbyist. Sullivan is one of Perry’s closest allies. He worked for the governor from 1998 through 2002. Less than a year after leaving the governor’s office, he began lobbying for HNTB. That first year with Sullivan on board, the company got two contracts with the Texas Department of Transportation worth $74 million, according to state records. Between 2004 and 2009, the year when Sullivan returned to the governor’s office, the company scored at least 20 contracts, worth a total of at least $300 million. During that same period, the company donated a combined $180,000 to Perry’s state campaign fund and the Republican Governors Association.

Asked about the HNTB contracts via emailed questions, Sullivan responded: “I’ve worked in government and politics for 24 years, for three members of Congress, two Texas governors and more than a dozen legislative, judicial, congressional and presidential campaigns in Texas and around the country. My PR, political consulting and lobby practice was based on those decades of experience and knowledge of political and government processes. My lobby work between 2002 and 2009 was fully disclosed to the Texas Ethics Commission and performed with the highest ethics. … The post-hurricane disaster management contract was competitively bid by the Texas Department of Rural Affairs. I was not involved in that competitive procurement.”

At press time, Perry’s prospects for the presidency look bleak. But whether or not he attains the White House, his governing philosophy remains in place here at home. Power brokers inside and out of his office can quash policy efforts they dislike—either with help from Perry’s veto pen or by using allies in state agencies to alter how certain policies are implemented. As debacles like the HNTB contract continue to unfold, those looking to reform the culture of pay to play in state government will likely bump up against the gatekeepers who have benefited from the system for years. As long as the system endures, those Texans furthest from Austin’s power hubs will pay the price.