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Government Good to Stevens’ Friends

Correction Appended

In 2004, two business partners of Sen. Ted Stevens (R-Alaska) sold an empty lot in Anchorage to the National Archives and Records Administration for just over $3.5 million, more than doubling their year-old investment in the property.

Stevens earmarked the appropriation for NARA to purchase a site, although there is no indication he received any direct benefit from the deal and his spokesman said the Senator had nothing to do with the selection of the specific property.

But the project is one of several valuable contracts that the developers, Leonard Hyde and Jonathan Rubini, entered into with federal agencies while Stevens was either the ranking member or chairman of the Senate Appropriations Committee — and had significant investments in several Rubini/Hyde companies.

Stevens’ investments with the two real estate magnates over a seven-year period turned him from one of the Senate’s least wealthy Members into a millionaire, according to his financial records and statements by Stevens over the years.

That relationship has prompted questions from watchdogs who say, at the least, it raises the potential for an appearance of a conflict of interest.

“It absolutely raises flags when you have a Member having a business relationship with someone who may benefit from the Member’s official actions,” even in an indirect way, said Bill Allison, a senior fellow at the Sunlight Foundation, a watchdog group that pushes for greater disclosure by lawmakers. “The way [disclosure is] being handled now is just completely inadequate,” Allison added.

Allison and other watchdogs argue the lack of adequate disclosure rules in the Senate makes it extremely difficult for the public to make an informed judgment on whether Stevens, for example, is acting appropriately, and they have called for more stringent rules.

Stevens’ relationship with the two men is rare for a Senate appropriator.

Of the 19 Senate Appropriations Committee members whose offices responded to requests for comment, out of 29 on the committee, Stevens was one of only two members who disclosed a direct business relationship between themselves or their spouses and an entity that receives federal funds — and was the only member of the powerful committee who has such a relationship himself.

The vast majority of the lawmakers said they either never had business dealings with companies that receive federal funding or broke their ties with business entities before entering the Senate.

For instance, “Sen. [Lamar] Alexander [R-Tenn.] resigned from all boards and commissions on which he served when he was elected to the U.S. Senate,” Alexander spokesman Lee Pitts said.

Aside from Stevens, Sen. Dianne Feinstein (D-Calif.) is the only panel member who responded who disclosed such a relationship. Feinstein’s husband, Richard Blum, is chairman of Blum Capital Partners, which has invested in companies, including defense contractors, that have received federal funding. Gerber, however, noted that the company has never received a specific earmark from Congress.

Unlike Stevens, Feinstein was wealthy well before entering the Senate.

A Profitable Relationship

According to published reports, Stevens’ relationship with the two real estate magnates dates back to 1997, when at the urging of his brother-in-law, lobbyist Bill Bittner, Stevens invested $50,000 with Hyde and Rubini in a new venture dubbed JLS Properties LLC.

Although he had a relatively modest 7 percent stake in the company, the investment would prove propitious to Stevens, who at the time was one of the few dozen or so Senators who did not count his personal wealth in the millions. According to a Dec. 17, 2003, Los Angeles Times article, by 2000 Stevens’ stake in JLS Properties had grown in value to some $250,000, and Stevens invested in several other of Hyde and Rubini’s land projects, including their Centerpoint development project in Anchorage. By 2003, according to his financial records, Stevens’ investments with the two had turned him into a millionaire.

In addition to the land deals, Stevens and Hyde also are co-owners of a racehorse through Alaska’s Great Eagle LLC, a company that includes many of Alaska’s most powerful businessmen, including Ed Rasmussen and former VECO executive Bill Allen.

Allen earlier this year pleaded guilty to four counts of conspiracy, bribery and other corruption charges stemming from the FBI’s inquiry into state lawmakers, including Stevens’ son, Ben Stevens.

The majority of federal funding that has made its way to Hyde and Rubini does not appear to be the result of either an earmark or direct involvement in the contract process by Stevens.

For instance, according to the most recent federal payment records compiled by FedSpending.org, from the beginning of 2005 to July 2006 the General Services Administration paid Centerpoint Financial Center LLC — one of Hyde and Rubini’s companies — $936,586 for office space leased to the Department of Interior. The offices are in the Centerpoint building — built on land that Stevens had invested in, although the lawmaker appears to have divested his interest in the property at the end of 2004, according to his financial statements. He also sold his stake in JLS Properties that year.

Similarly, starting in fiscal 2003, Hyde and Rubini have had a long-term lease agreement with the National Park Service for its new office building in Anchorage. Operating through their 5th Avenue Development LLC company, Hyde and Rubini have received more than $7 million in rental payments from the federal government.

Hyde and Rubini also have leased an apartment to the Department of Interior, although those payments appear to total less than $10,000.

In several instances, Stevens has been directly involved in projects that ultimately have ended up benefiting his business partners. In the 2003 Los Angeles Times story, Stevens acknowledged lobbying the Air Force to award a multimillion-dollar housing contract to Hyde and Rubini.

The Archives Project

Stevens, in that same period of time, was taking a lead role in setting aside funding for a NARA facility expansion project in Anchorage that would eventually net his partners millions in federal funds.

According to a review of federal, state and local records and interviews with Hyde and federal officials, the project in Anchorage resulted in the two developers netting $2 million in profits from the sale of land they had purchased weeks before Stevens inserted the first earmark into an appropriations bill in 2002.

The money for the purchase, according to Stevens’ office, came from two earmarks worth $6 million that Stevens had included in funding bills in 2002 and 2003.

NARA’s 2004 decision to purchase the land from Eagle River Center LLC, a company owned by Rubini and Hyde, was the high- water mark of federal spending on the new archives project.

NARA officials began the process of securing a new facility for documents in Alaska in 1998, making the project one of their top priorities, according to federal officials.

That same year, Stevens — who at the time was chairman of the Appropriations Committee — and local officials began working on what city officials dubbed the “Midtown Commons” project, which was a redevelopment plan for a largely unused area of Anchorage.

As part of that plan, officials proposed having the federal government purchase a piece of undeveloped land owned by a group of retired schoolteachers through their company, the 40th Street Investors, for use as the new archives facility. The spot made some sense: It was an undeveloped area that could be bought as opposed to leased and was located near a public library that serves as an archival facility for many historical documents.

To begin the process of securing land for a new facility, Stevens set aside $875,000 for a site selection study and in 1999 he set aside another $900,000 for additional studies, according to Rick Judson, who oversaw the project for NARA.

But despite NARA’s stated need for expanded space and local support for the selection of the site, neither NARA nor Stevens’ office ever contacted the 40th Street Investors or their real estate agent, according to a source involved in the issue at the time who asked not to be identified. Congressional interest in the project appears to have dropped off almost completely for the next few years until around the time Stevens’ business partners agreed to purchase the property in 2002.

On May 21, 2002, Hyde, Rubini and the 40th Street Investors entered into an “Agreement to Purchase” the site, according to a timeline of the purchase that Hyde provided to Roll Call. On June 19 of that year, Hyde and Rubini formally incorporated Eagle River Center LLC and transferred interest in the agreement to that company.

On July 11, 2002, the Senate Appropriations Subcommittee on Treasury and General Government passed by voice vote a fiscal 2003 spending measure that included a $3.75 million earmark for NARA to purchase property for a new facility in Anchorage.

In 2003, at the urging of NARA staff who indicated additional funding would be needed, Stevens inserted in the fiscal 2004 Treasury spending bill an additional $2.25 million.

At the beginning of May 2003, the GSA released a request for bids, which according to Hyde’s timeline Eagle River Center responded to on May 5, despite the fact they would not formally close on the property with the 40th Street Investors until June. Then, on June 2, 2003, according to state land records, Eagle River closed on the properties, paying the retired teachers some $1.5 million for the 8-acre parcel.

On Jan. 21, 2004, the GSA informed Eagle River that it had selected its property for the new NARA location, and negotiations on the final price began.

By March 1 of that year, Hyde and Rubini had entered into an agreement with the GSA to sell the property to the federal government for $3.5 million on June 8, 2004 — putting the closing on the sale just past the one-year trigger date for avoiding what would have been a significant capital gains tax hit.

Aaron Saunders, a spokesman for Stevens, said that while the veteran lawmaker was involved in the NARA project and has supported it for years, he had no role in the site selection process and never spoke with either Hyde or Rubini about the deal.

According to Saunders, the only site Stevens had backed — a parcel of land located just off the University of Alaska’s campus — was rejected by federal officials for security reasons very early in the process and the selection process involved state, local and federal officials and was the result of a competitive bid process. “It is factually inaccurate to state National Archives officials selected the final facility site based on a recommendation by Sen. Stevens because this conclusion ignores the arduous process by which the site was selected,” Saunders said.

Saunders said that while Stevens also had initially worked with local officials on the Midtown Commons project, the reason funding dried up from 1999 to 2002 had nothing to do with who owned the property. Rather, according to Saunders, Stevens from the beginning had decided to take a largely hands-off approach to the deal and only appropriated money when NARA staff requested it. In 2002, NARA aides came to the Appropriations Committee and requested funding, Saunders said, adding that Stevens was “just responding to appropriations requests.”

Saunders also said Stevens never talked about the project with Hyde or Rubini. “Sen. Stevens and his staff never, at any point, discussed the proposed National Archives’ land acquisition with Mr. Rubini, Mr. Hyde or anyone representing them,” he said.

Hyde also indicated neither he nor Rubini at any point called on their business partner Stevens to assist them in the purchase.

“I’ve never spoken to Senator Stevens about this issue,” Hyde wrote in an e-mail.

Funding Lags for Project

Since the land deal was finished, federal funding has slowed significantly for the project. Despite a price tag of at least $29 million in construction costs, Stevens appears to have taken only modest interest in securing funding for the project since the land transfer. Stevens set aside $3 million in 2005 for site preparation, while the archives earmark diminished to just $1.9 million last year.

However, according to a May 11, 2007, Anchorage Daily News story, $290,000 tagged for the construction has been reprogrammed for a new speed-skating-rink project being planned next to the NARA land. Stevens also secured a $940,000 earmark specifically for the skating rink in 2004, according to the story.

NARA’s Judson said that while plans for the new building are complete — and that NARA has a standing contract with a non-Alaskan contractor to construct its facilities — the project has fallen behind schedule, largely because of a lack of funding, and he said it was unclear why further money has not been forthcoming. “We haven’t seemed to be able to get in the queue for money,” Judson said.

Saunders said that while Stevens supports the project, it is unclear whether any future funding will be earmarked for the construction of the archives building. “While it is safe to say that Sen. Stevens continues to support this project, he and his staff will consider future National Archives funding requests on a case-by-case basis,” Saunders said.

Watchdogs argue that regardless of whether Stevens took any inappropriate actions on behalf of his business partners, his relationship with them highlights the need for significant revisions to Senate financial disclosure rules.

Last month, Taxpayers for Common Sense and the National Law and Policy Center proposed a series of ethics rule reforms that in part address the question of lawmakers’ business relationships. The watchdog groups argue that Members should be required to provide the public with greater information on their business dealings, including detailing whom they enter into business relationships with. In a letter to Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Speaker Nancy Pelosi (D-Calif.) and House Minority Leader John Boehner (R-Ohio), the groups argue that “While current rules call for disclosure of assets of the lawmaker, there is no requirement that co-ownership of closely held investments be disclosed. There have been numerous examples in which special interests have curried improper favors with elected officials by including the official in a purported investment. In these cases, the officeholder typically receives an extraordinary return on investment with little or no risk.”

“There ought to be complete transparency of these types of relationships,” the Sunlight Foundation’s Allison said, arguing that lawmakers should be required to disclose the names of their business partners in addition to simply disclosing their investments. While “you’re always going to have situations where Members have a vested interest in things they’re doing” in the Senate, greater disclosure would help limit the appearance of wrongdoing, Allison argued.

Allison also said a second step should be a more robust — and fully transparent — recusal process. “I think Members should recuse themselves from more things than they do,” Allison said, arguing that the Senate should drop the secrecy that now veils the process.

“All these arrangements should be open,” he said.

Emma Dumain and Bryce Bauer contributed to this report.

Correction: July 12, 2007
The article incorrectly reported that the husband of Sen. Dianne Feinstein (D-Calif.), Richard Blum, works for a defense contractor. Blum is chairman of Blum Capital Partners, which has invested in companies, including defense contractors, that have received federal funding.

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