Dan Morales Indicted

Former Texas Attorney General and gubernatorial candidate Dan Morales was indicted on federal charges related to his handling of the state's tobacco lawsuit and settlement when he was AG. He was also accused of converting campaign money to his personal use, lying on a federal income tax return, and lying on a loan application.

In one set of charges, Morales is accused of moving $400,000 from his campaign accounts to his personal accounts, then using the money to buy a $775,000 home. He's charged with lying on the application for a $600,000 mortgage loan, and with signing a federal income tax return that year that said he and his wife earned less than $40,000 in joint taxable income.

The more familiar allegations stem from Morales' conduct in the state's tobacco litigation in the mid-1990s. Morales, then the attorney general, sued several tobacco companies using outside lawyers to handle the litigation. The indictments say he used his powers as AG to make the tobacco companies and the private lawyers to pay attorney fees to Houston lawyer Marc Murr, a Morales friend. Murr wasn't one of the private attorneys hired to sue the tobacco companies, but Morales said Murr was helping him personally with the case. The indictments accuse him of lying about the work Murr did in order to help Murr try to obtain a fee of more than $500 million. Murr eventually dropped his claim to any fees from the tobacco settlement.

Morales and the private attorneys he hired eventually got the tobacco companies to agree to a $17.3 billion settlement—that money is still flowing through the state budget.

The 12-count indictment against Morales includes charges of mail fraud, conspiracy, filing false tax returns and false loan applications. Murr is charged with mail fraud and conspiracy. Morales didn't immediately return our calls, but he has consistently denied any wrongdoing.

U.S. Attorney Johnny Sutton said he expects Morales and Murr to report to the FBI within a day of the indictments, and summed up the case this way: "As Texas Attorney General, Dan Morales had an obligation to the people of this state to be honest, loyal and fair. He violated that trust by back-dating contract, forging government records and converting campaign contributions to personal use."

The most serious charge, in terms of potential penalties, is falsifying a loan application. A conviction could bring a penalty of up to 30 years in prison, $1 million in fines and five years of supervised release. The mail fraud and conspiracy charges each carry penalties of up to five years in prison, $250,000 in fines and three years of supervised release. And a conviction for filing a false tax return could result in penalties of up to three years in prison, $100,000 in fines and one year of supervised release.

The tobacco-related allegations have been floating as a political question since 1998, when Morales decided not to run for reelection to the AG post. Republican John Cornyn, then a Texas Supreme Court Justice, was gearing up for a campaign against Morales and had started asking pointed questions about the settlement of the tobacco lawsuit. That continued after Morales was out of the race, and when Cornyn became attorney general, the drumbeat got louder.

Morales was out of public life, for the most part, but was widely expected to run against Cornyn for the empty Senate seat that had belonged to U.S. Sen. Phil Gramm, R-Texas. Then Morales surprised the political world by filing as a Democratic candidate for governor in last year's primary elections. He lost to Democrat Tony Sanchez Jr., but only after a bitter campaign where he attacked Sanchez for connections between a failed Sanchez-controlled savings and loan and Mexican drug lords. Sanchez pummeled Morales by picking up the questions on the tobacco lawsuit and suggesting that the former AG was running for office to protect himself from federal indictments.

After Morales lost that primary election, and before Sanchez went on to lose to Gov. Rick Perry in the general election in November, the former AG joined the governor's anti-crime task force. At the time, an aide to Cornyn said the issues over payment to tobacco lawyers "had been resolved." Morales was touted as an expert on drug money laundering laws, and before the campaign was done, he had crossed the partisan line to endorse Perry.

[Editor's Note: This story appeared in much-abbreviated form in our print edition–the indictments were announced as that issue went to press.]

All About the Money

Unadulterated budget heebie-jeebies, straight from Comptroller Carole Keeton Strayhorn: "I may have to go back and update my revenue estimate again. Money is still not coming in as we hoped and, like countless hardworking Texas families, we may be forced to tighten our belts another notch."

Strayhorn, the keeper of the only numbers that count, put that tag on the latest sales tax results, which showed February's results were as bad as January's. No comptroller has lowered numbers during a session since the 1980s oil bust, and that resulted in a record tax bill. Strayhorn already doubled her estimate of the gap between state spending and revenue projections for the next two years, to about $10 billion. And state agencies have been testifying ad nauseum about the effect of that size of a cut on their budgets. By their accounts, it's already grim. And worse news from the comptroller, if that's what is coming in the next few months, would beget worse news from them.

Pair it with the No New Taxes promises from the leadership, and budgeteers are up the creek. While they're searching for the line separating efficient government from ineffective government, they're also building the budget so they'll know what to do with any money they find. The so-called "building blocks" they're using let them know what's possible at any given level of funding. If somebody catches a leprechaun and gets his gold, the budget will be built to expand accordingly.

With this unfolding, you can still find conversations about a one-year budget. It's not a new idea—it's been done at least once in the last 40 years. The Legislature would pass a one-year spending plan instead of a two-year plan. They would come back in special session to work on the other half. And if they really needed new money without a tax bill, they could borrow from the second year to finance the first one, by making year-end payments late and by booking year-end receipts early.

If you like that sort of thing, you like it because it gets you out of the current fix without a tax bill, and you don't have to solve the problem for 12 months, during which time the economy could improve and cut the size of the tax bill you need. It also suits you if you think the budget will require a tax bill and that a real fix to school finance will require a tax bill. A one-year budget would give lawmakers time to synchronize the two issues so that those two revenue problems could be wrapped into one package with a card saying "The End of Robin Hood."

And we've heard talk of a variation on that idea, which would accomplish some of those same things in the guise of a two-year budget.

What if proposed cuts in the state budget weren't made in programs, but in time? What if lawmakers decided that the shortfall of $10 billion or more should just be cut from the back of the budget—counting back from the end of the next budget period in August 2005. The initial budget filed by the Legislative Budget Board would spend $124.6 billion over the next two years, or about $5.2 billion a month. If the comptroller says she can't find the last $10 billion needed to fund that, the state would be in position to pay for 22 months of its current programs instead of the 24 months it needs. But the Legislature will be back before the summer of 2005, when those unfunded months roll around, and could figure out then—hopefully in the midst of a better economy—how to keep things going.

Like a one-year budget, that would let Republicans come out of this session having kept their tax promise. It would give them time to roll school finance and the state budget into one solution with an Education label on it, and it would let them do all of that with no immediate ill effects on programs in the big areas of state government like schools, prisons, health and human services, and transportation.

Running for Coverage

Several senators assembled by Lt. Gov. David Dewhurst say they've reached a tentative agreement on changes to homeowners' insurance regulation in the state. They don't have anything on paper yet, but they want a 15 percent rate rollback, limits on the use of customers' credit records in pricing insurance, and a new rig for setting rates on those policies. Insurance companies say the deal goes too far. Consumer groups say it doesn't go far enough. And if the senators can stick together, there's no assurance the plan will have support elsewhere in the Pink Building.

And there are already signs of trouble in the Senate, where some of the Democrats who stood in line when the deal was announced are clamoring for new terms, including some strong limits on geographic and racial redlining by insurance companies who, they say, won't sell policies in some areas that are both poor and dominated by racial minorities. That could easily be a deal-breaker.

Senators haven't written their pact into the form of a bill, and some holes were apparent in their announcement. For instance, they said they'd roll back rates, but had no deal on what rates they would roll back. If they peg the cuts to future rates, insurance companies can simply charge more before then so that the rollbacks roll off their backs. If they peg the rollbacks to rates that were in effect when voters started to complain loudly—a year ago or more—the companies say they'll be locked into money-losing prices and will have to stop selling policies.

The Senate deal would let the insurance companies file rates with regulators and then put those rates into effect if the regulators do nothing or take too long to act. That's called "file and use," and insurers have sung its praises in prior legislative sessions. It's a little like those Book of the Month Club coupons; if you don't respond, you get the book. If the regulators don't respond under the proposed system, the new rates would take effect.

Consumer advocates were pushing for a return to tighter regulation, when the state held hearings to see whether proposed rates were justified before allowing the companies to raise their prices. That's called "prior approval" of rates; the senators and the lieutenant governor said their proposal includes prior approval, but what they outlined is just a variation on the setup the industry prefers. That change in labeling was apparently put in to bring Democrats into the deal; the Democrats in the Senate had said earlier they would push for the stronger form of regulation. The best line came from a player who asked not to be named: "It looks like a duck, and it waddles and quacks, so we're calling it a cow."

Leash the Hounds

The election advertising allegations against the Texas Association of Business won't be a topic for the House General Investigating panel; the chairman of that committee says he talked to prosecutors and then concluded a House investigation would interfere with an ongoing grand jury inquiry.

Rep. Kevin Bailey, D-Houston, says he talked to Travis County District Attorney Ronnie Earle and that the prosecutor was concerned that public testimony could disturb the non-public proceedings at the grand jury. The subject of all this is an ad campaign coordinated by the association at the end of the election cycle. They sent out truckloads of mailers blasting Democratic candidates in contested races and exalting Republicans, all without specifically using "magic" words like "vote for" and "vote against." They argue that they were running issue ads that didn't direct voters' choices. The campaign was funded with corporate money, and the question at stake is whether corporate money was used to get people elected to the statehouse. If it was, then it was illegal. If corporate money was used for issue advocacy and the fallout was the shift in the House, then it probably wasn't illegal.

The former head of the House committee, Rep. Pete Gallego, D-Alpine, asked Bailey to look into the TAB allegations since the integrity of the House might be at stake. But Bailey says he wants to stay out of Earle's way, and also has concerns about the appearance of a bunch of Democrats chasing down a business group that helped Republicans take over the Texas House.

Stopgaps and Expirations

That House plan to put an expiration date on school finance is back on track, this time with the signatures of the chairmen of Public Education, Appropriations, State Affairs, Ways & Means and Local Ways & Means. This vehicle has more under the hood than the bill that burst out of committee and then went dormant earlier in the session.

It includes the 2005 expiration, but also would add about $1.2 billion to what the state spends on education now (they'd raise the money by delaying one of the state's payments to school districts by one day, pushing it into the next budget period). School districts would get $100 per student during the first year of the biennium and then $200 per student in the second year.

Rep. Kent Grusendorf, R-Arlington, says the money won't be enough to hold off court challenges to the current school finance setup, but says the combination of that and the sunset date of September 2005 ought to be enough to convince the courts that the Legislature is about to do something.

The plan's co-sponsors include Grusendorf and the chairmen of the committees mentioned above—all of the members, in other words, of the informal "working group" on school finance put together earlier in the session by House Speaker Tom Craddick, R-Midland. Grusendorf left the new idea pending in committee but expects to have it to the full House for a vote this month.

What a Concept: Vote No for Judge

Tom Phillips is still pushing for big changes in judicial elections, but says he'll have the support of prominent Republicans and Democrats this time. The chief justice of the Texas Supreme Court isn't saying just who will be popping up in favor of his ideas, but promises big names and more momentum that he's had before. Until then, he's outlining the plan he says those folks will support. Judges, in Phillips' plan, would be appointed by the governor, confirmed by the Senate, and then stuck in retention elections every few years to allow voters to dump judges they don't like. He's backing legislation filed by Sen. Robert Duncan, R-Lubbock, and Rep. Elizabeth Ames Jones, R-San Antonio, which would put judges from the district courts to the top into a retention election system.

Critics, like the Republican Party of Texas, say the changes would take away voters' ability to choose judges. But Phillips says most judicial races now are unopposed and that nearly half of the judges in the current system start off as appointees to the bench rather than as the winners of contested elections. The retention elections would be non-partisan, "yes-no" affairs, but Phillips admits that those retention elections can "get quite dirty." Opponents of a particular judge could mount a campaign in favor of "no" in the retention election, then lobby to get someone they like appointed by the governor. But all of that's possible in the current system, which also features nasty fights.

The legislation filed by Duncan and Jones is backed by some polling they presented that shows most Texans—75 percent—prefer elected judges over appointed ones. But the same poll said almost two-thirds like the retention idea and that 84 percent think voters ought to get a change to register their opinions on whether to switch to retention elections or to continue with the current system.

Phillips says the changes would let judges out of the race for campaign cash—at least on a large scale—and would restore some faith in a system where most Texans believe judges can be swayed by campaign contributions from lawyers or interests who come before them in court. He told legislators that a recent court decision that allows judges to campaign on issues—taking sides before they handle cases on particular subjects—will further erode confidence unless the system is changed.

"This year, you can offer the people of Texas a judiciary where no client will have to ask their lawyer, 'How are you with the judge?'" he told them.

In his State of the Judiciary speech to lawmakers, Phillips also took the opportunity to ask them to redistrict state district courts to distribute the workload evenly. He says the state can save money by doing that, and can straighten out problems that have developed over the decades since the lines were last overhauled, in 1883. The lines for appeals courts haven't been overhauled since 1927, and there are overlaps and other problems that could be fixed in redistricting, he says.

An Object at Rest Tends to Remain at Rest

Want to bug a Republican? Remind her that more than half of those people in the Texas congressional delegation are Democrats. Of 32 slots, Democrats occupy 17. Meanwhile, Republicans hold each of the 29 statewide offices, 88 of 150 seats in the House, and 19 of 31 seats in the Senate. But look at the state's biggest counties, and the partisan differences in the delegations to Austin and Washington are much less dramatic. More than half of the state's people—about 56 percent—live in the ten biggest counties. And in those counties, the partisan splits in the Texas Senate and in the state's congressional delegation are balanced, no matter how you count.

In raw numbers, the top ten counties in Texas are represented by 24 senators and by 24 U.S. representatives. And even though the Legislature drew a Senate map that favors Republicans overall, 12 Republicans and 12 Democrats represent the top ten counties in the Texas Senate. A panel of federal judges drew the congressional map now in use, and Democrats hold the majority in the Texas delegation. But in the top ten counties, the 24-member delegation is evenly split between Republicans and Democrats, just like the Senate.

Count another way, so that a state senator or a federal representative with a foot in more than one county gets counted for each foot, and the numbers still match. Like this:

Bexar County sent 3 Republicans and 7 Democrats to the Texas House (state reps districts in big counties don't cross county lines), 1 Republican and 3 Democrats to the state Senate, and two of each flavor to the U.S. House. Dallas County's count: 10 Republicans and 6 Democrats in the Texas House, four Republicans and one Democrat in the Senate, and three Republicans and two Democrats in Congress. El Paso County has five Texas House members and one is a Republican. Two senators have turf there and both are Democrats. It has two representatives in Congress—one from each party. Harris County? Eleven Democrats and 14 Republicans in the Texas House, 3 Democrats and four Republicans in the Senate and four of each in Congress. Tarrant County sends two Democrats and eight Republicans to the Texas House, three Republicans to the Senate and one Democrat and three Republicans to Congress. Travis County's Texas House delegation is split with three Democrats and three Republicans, split in the Senate with one each and split in Congress with one each.

Collin County sent 4 Republicans to the Texas House, two to the Senate and three to Congress. There are no Democrats in any of that county's delegations. Denton County sends three Republicans to the Texas House, three to the Senate and one to Congress. Like neighboring Collin, Denton doesn't elect Democrats. Fort Bend County has two Rs and one D in the House, two Ds and one R in the Senate, and one of each in Congress. Hidalgo County is wired with opposite polarity, sending four Democrats to the Texas House, two to the Senate and two to Congress.

Parity, Kinda

The ten biggest counties in Texas send 48 Republicans and 38 Democrats to the Texas House. And by this count, they send 19 Rs and 14 Ds to the state Senate and 19 Rs and 14 Ds to Congress. The delegations from those counties constitute majorities in both the House and the Senate, but don't have local pressure to "fix" the congressional maps to make things right at home.

Also, it pinpoints the difference between what the five-member Legislative Redistricting Board did two years ago and what the panel of three federal judges did. Every one of the seven senators without a footprint in the state's ten largest counties is a Republican. But among the eight members of Congress who represent the other 44 percent of Texans are five Democrats—Max Sandlin, Marshall; Jim Turner, Crockett; Chet Edwards, Waco; Charlie Stenholm, Abilene; and Solomon Ortiz, Corpus Christi—and three Republicans—Larry Combest, Lubbock; Mac Thornberry, Amarillo; and Ron Paul, Surfside. If the GOP had enough support in the Senate for redistricting—it doesn't—the first four Democrats on that list would be the targets.

Cows, Cults and Other Calamities

While his office was telling state agencies to chop their budgets, Gov. Rick Perry was pledging $10 million in state money to the National Institutes of Health for that group's work on the genetic makeup of cattle. The Cow Genome Project will start its work in September if all of its funding comes through. Sen. Teel Bivins, R-Amarillo, a cattle rancher who is also the head of the Finance Committee, told the Austin American-Statesman that the funding would be "a pretty hard sell." The Texas Democratic Party took aim with a press release headline that parodies one of President George W. Bush's slogans: "Putting Cows First."

• The Ethical Society of Austin is a religious organization for purposes of taxation, according to the 3rd Court of Appeals, but Comptroller Carole Keeton Strayhorn says she'll appeal that decision again. The group was denied tax-exempt status, sued the state, and has won at every level. Strayhorn was deeply respectful of their views in a statement promising an appeal: "Otherwise, any wannabe cult who dresses up and parades down Sixth Street on Halloween will be applying for an exemption."

• The chairman of the House Appropriations Committee sent out a memo of sorts giving that panel's subcommittees some ground rules for pulling a budget together. The note from Rep. Talmadge Heflin, R-Houston, has a new term in it: Initial General Revenue, or IGR. That's the amount of money the comptroller said will be available for the next two-year budget. But Heflin is either expecting or hoping for some movement. "Initial" GR has always been GR before this year. Some of the guidelines: Agencies can't get more money unless other agencies in the same part of the budget lose the same amounts; agencies that generate revenue can't make cuts that would endanger that incoming money and aren't allowed to spend more if their revenues are higher than expected. Agency requests for higher salaries for exempt workers will be kicked to the Article IX subcommittee, which handles wish list items; that same committee is looking at per diem payments for agency commissioners and board members, and also has control over travel spending caps.

The folks in charge say the House should be working the budget on the floor in the first week of April, about the same time they've done it in the past. According to the unofficial historians around the Pink Building, the House budget came out in mid-April in 2001 and in 1999, and in mid- to late-March in 1997 and in 1998. The Senate started the budget two years ago, passing it on March 28 before sending it to the lower chamber. The House goes first this year.

• AARP wants insurance rate rollbacks of at least 35 percent during this legislative session, and the group says rates have risen 55 percent over the last two years. That group hand-delivered letters to the offices of Gov. Rick Perry, Lt. Gov. David Dewhurst and House Speaker Tom Craddick calling for the cuts. In the letter to Perry, for instance, the group praises him for putting the issue on the emergency agenda, notes his stated position on lower rates (he likes them) and asks for support.

• Lawyer/legislators would be banned from practicing before agencies in an ethics bill filed by Rep. Steve Wolens, D-Dallas. That proposed legislation would also kill legislative continuances, which allow lawmakers to delay court cases while they're in session (and allows litigants seeking delays to hire lawmakers for that sole purpose); prevent legislators from voting on issues if members of their immediate families are lobbying on those topics; and adds email and the Internet to the list of advertising media that candidates have to report.

Political People and Their Moves

The noise about the appointment of Republican Geraldine "Tincy" Miller of Dallas turned out to be more bluster than buster—the Texas Senate voted 24-6 to approve Gov. Rick Perry's nomination of Miller as chair of the State Board of Education. That means, among other things, that there is now a presiding member to call a meeting and the board, which hasn't yet met this year, can now do so.

Two more appointees skated right through without any opposition: Rebecca Klein and Julie Parsley were both appointed to the Public Utility Commission. With the Senate's okay, Klein, who chairs the PUC, will serve until 2007. Parsley will serve until 2005... The newest Railroad Commissioner, Victor Carrillo, is in office and has staffed up: Kay Molina will be his general counsel and chief of staff, David Williams will handle legislative stuff and communications, and Connie Sanders is his new executive assistant. All three had worked previously at the General Land Office, where Carrillo worked before going back to Abilene to run for Taylor County Judge... While we're on the subject of the RRC, one of the best hands at that agency—attorney Carole Vogel—is taking retirement. She had been working for Commissioner Charles Matthews—who wouldn't talk about her departure—and also had put in a number of years at the Public Utility Commission. That experience might have been handy if the two agencies are merged, as has been proposed this year...

The newest director of the Texas Lottery—a job at least as secure as the last cold beer at a fishing camp—is former Bexar County District Clerk Reagan Greer. Greer, a Republican defeated in last year's elections, was the governor's favorite for the job and won it after the Lottery commissioners changed the job requirements to make him eligible for the post. He's the fifth director of the lottery...

Deaths: Wade Anderson, one of the state's (and the country's) preeminent tax experts and a truly honest and wonderful man, of complications following heart surgery. He was 62.

Quotes of the Week

Bedford third-grader Oshada Silva, describing for the Fort Worth Star-Telegram just how one 8-year-old feels about the state's standardized achievement tests: "Like I have worms in my tummy."

Rep. Arlene Wohlgemuth, R-Burleson, after House Democrats held a press conference decrying suggested spending cuts in health and human services programs: "While I respect their right to speak freely, it's way too early in the appropriations process to be reaching conclusions. What's more, interjecting partisan politics into the mix at this point is counterproductive to reaching a resolution that meets the needs of our neediest Texans."

Augustin Rivera, the attorney defending State District Judge Terry Canales, who is on trial after three women accused him of sexual misconduct, as reported by the San Antonio Express-News: "A judge has never been removed from office for two hugs and a kiss, and that's what this case boils down to—a swearing match."

Local Police Sgt. Joe Snyder, telling the Wichita Falls Times Record News why minorities in that city—who get stopped about as often as Anglos—get searched far more often once they're stopped, according to state racial profiling statistics: "We have active, violent black gangs. We have active, violent Hispanic gangs. We do not have any active, violent white gangs in Wichita Falls."

Sen. Robert Duncan, R-Lubbock, announcing his reincarnated proposal for judicial election reform: "Our current system tags Texas as a redneck state where justice is for sale."

Chief Justice Tom Phillips, asked why his State of the Judiciary speech to the Legislature did not include a plea to merge the Texas Supreme Court with the Court of Criminal Appeals in the interest of efficiency: "I was told the members [of the Legislature] value their time."

Rep. Ron Wilson, D-Houston, telling the Associated Press why he thinks college athletes ought to be paid more than just scholarships for their services: "You could make the same argument about the farmer who buys feed for the hogs and gives them antibodies to keep them healthy and then makes sure they have enough space so they can grow and in the end slaughters them. 'Those ungrateful pigs—they should have been happy.'"

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Texas Weekly: Volume 19, Issue 35, 10 March 2003. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2003 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (800) 611-4980 or email biz@ texasweekly.com. For news, email ramsey@ texasweekly.com, or call (512) 288-6598.

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