Arizona's Own Espresso Pundit

And Now a Word From our Sponsor

I would like to welcome the Alliance For School Choice as the first of what I hope will be many espresso pundit advertisers.  Click to enlarge the ad at the left and be sure to visit their website by clicking the link above the ad.  If you are interested in posting an ad on espresso pundit, just send me an email.

Aren't There Supposed to be Three Branches of Government?

Is there something about this lede that bothers you?

Money seized from two men who sold bogus body "enhancement" pills is now going to be used to build a much-needed Department of Public Safety crime lab.

Golly, when I was growing up, every Saturday morning I learned about conjunctions and how a bill becomes law.  My recollection is fuzzy, but I don't think the three branches of Government were the Governor, the Attorney General and DPS. 

The Public Safety Crime lab has been part of a political football game between Governor Napolitano and the Legislature for some time now.  The Legislature included authorization for the crime lab in a bill that also included immigration related items and the Governor vetoed it. 

The Governor then requested funding for the crime lab in her budget and the Legislature ignored it.  Now the Governor is standing in front of the crime lab and announcing that she and the the Attorney General are using money they seized from two guys who sold "enhancement" pills to build the crime lab.  Didn't any of the reporters at least bother to ask how she's planning to do that?

Don't get me wrong, there are indeed some funds that are not subject to appropriation.  The Tribune's Mark Flatten wrote a great series of stories in the early 1990s about abuses in gathering and spending RICO funds.  Those funds could be seized by law enforcement and spent without going through the appropriations process.  But selling "enhancement pills" doesn't sound like RICO funds.  It sounds like the Consumer Fraud fund--and the Consumer Fraud Fund is subject to Legislative Appropriation.

Here's a troubling quote from the Attorney General.  The proceeds of a case usually pay for the investigation first, but in this case the investigation was completed quickly and at low cost, Goddard said.  OK, let's say that's true.  The proceeds usually pay for the investigation first, but does that mean that if the investigation is cheap the AG and the Governor get to spend the money on whatever they want?  Not if the fund is subject to Appropriation.

Why don't we have answers to these questions?  Because the folks in the press corps didn't think to ask them.  Maybe they should have spent more time watching Schoolhouse Rock. 

Show Me the Money

You will recall that the Governor signed an executive order in 2004 giving exclusive authority over state-issued student loans to two of her biggest supporters who also happen to be the President and immediate past President of the Firefighter's Union. 

The Tribune and the New Times were working on the story independently.  Here's the original Tribune story. 

Now Phoenix New Times has managed to track the money and it seems like some of the initial accounting may have been on shaky ground. 

The IRS requires a nonprofit to list its five highest-paid employees, if they earn more than $50,000 annually, and its five highest-paid contractors, if they cross that same threshold. The idea, according to IRS regulations, is to make sure that no one person or company is enriching themselves at the company's expense — and if they are, that it's at least disclosed to the public.

AHELA's initial tax return, filed in June, indicated that it hadn't paid any company more than $50,000 in 2005.

As its amended tax form now makes clear, that isn't true. A Scottsdale company, Cology Inc., was paid $207,000 for marketing. The Greenberg Traurig legal firm was paid $150,000. And RBC Capital Markets, a division of brokerage house RBC Dain, Rauscher, was paid $712,338.

Both Cology and RBC have close ties to the loan authority. AHELA's executive director, Shelly Murphy, worked at Cology just before AHELA hired that company to do marketing. And, as New Times first reported last month, it was an officer at RBC, Chris Hamel, who had the idea of starting the nonprofit in the first place.

Hey Mister Wanna Buy a Paper II

Earlier this week, I speculated that the Republic could be up for sale soon.  Gannett owns both Channel 12 and the Republic and my understanding is that the ownership rules would need to be relaxed in order for that relationship to be maintained--an unlikely prospect with a Democratic Congress. 

Since then, I've reported on two events that have rocked Gannett.  First, Standard and Poor's cited increasing weakness in the entire newspaper sector and downgraded Gannett's debt.  Then the entire industry was rocked by the sale of the Minneapolis Star Tribune for half of the price that McClatchy paid for it a mere eight years ago. 

Gannett acquired the Republic about eight years ago.  Arizona is the fastest growing state in the nation, yet the Republic's circulation has continued to decline.  No one knows how much Gannett has lost on the Republic, but it's likely to be in the hundreds of millions.

Since I'm speculating, I might as well go further out on this limb and suggest a possible buyer.  Dan Quayle.

Many folks don't realize Dan Quayle's connection to Arizona and to the Arizona Republic.  Eugene Pulliam, the newspaper magnate who founded Central Newspapers Inc. and owned the Arizona Republic together with a dozen newspapers, was Dan Quayle's grandfather. 

Dan Quayle's family moved to Arizona in 1955 so that Quayle's father James could run the Republic.  Dan attended Kiva elementary school...which is where my kids attend now.

Under Pulliam's ownership, the Arizona Republic was robust and Conservative.  Today it's...well...not.

So what's Dan Quayle doing now?  He's buying companies, cutting costs and making a profit. 

Here's how Business Week describes Quayle's career.

...in his second incarnation -- as a globetrotting business leader working with some of the sharpest investors around -- James Danforth Quayle, 58, has proved his friends right. He has carved out a winning role as chairman of global investments for Cerberus Capital Management.

Money wouldn't be a problem.  In addition to Quayle's connections, there are plenty conservative investors who would be interested in wholesale changes at the Republic. 

But who would run the paper?  Is there a conservative out there who has media experience, political experience and is currently looking for work, someone who knows the internal working of the paper and would be able to separate the dead wood from the productive branches, someone who Dan Quayle knows and could trust to Publish the paper, someone who could really whip the paper into shape and halt its long decline,  someone who could, dare I say it, act like a bully for long enough to get things back on track?  No, I can't think of anyone either. 

I was intrigued by the name of Dan Quayle's investement company.  After all, what kind of name would you pick for an investment firm that acquires weak companies in struggling sectors and makes the hard changes that internal management would never make.  What do you call a company that dramatically cuts costs, changes management and shakes things up?  After all, to survive, indeed thrive, in the investment world, your company need to be tough and the name should reflect that. 

Quayle's company is called Cerberus.  You know Cerberus...the three-headed dog that guards the entrance to Hades in order to ensure that the dead can't leave and the living can't enter.  You may be hearing a lot about Cerberus in the future. 

Buy My House!

I had lunch with a good friend who said that when he got married, his father sat him down and said, "son, you are about to have a big wedding, that's not your deal.  Just don't be late and stand where you are supposed to stand.  She's also going to want a family...the number of kids and the timing...that's not your deal.  Oh, and she's going to want a house...that's not your deal."  I don't know what my friend's deal is, but he's been married for over 20 years and I think his father is a smart man. 

In 1990, Debbie and I bought a lovely sub-Arcadia home that was built in 1953.  We planned to live here for five or six years.  We didn't have any kids and I was making $15,000 as a State Representative.  Well, time flies, we have three kids a dog and a minivan and we've lived here for 16 years.

Fortunately, in the early years, Home Depot took direct deposit, so I could just have my check deposited there.  Then we finally broke down and spent a small fortune to put a master bedroom and bath on the back.  I love the house and would be happy to live out my days here. 

So Debbie comes to me one day and says...you need to sell our house in espresso pundit.  Naturally, I was hesitant.  For one thing, I'm just getting unpacked.  But she knew that wasn't the real reason. "Why don't you want to put the house on the website?" she asked.  I said "Because the Governor's people will know where I live.  After all, "you step out of line, the men come and take you away."  She said "Dude, you have got to get some new music."

I was going to keep arguing about it.  But...it's not my deal.

So here it goes:  For Sale, Lovely Arcadia Home.  2073 sq feet, 4 bedroom, 3 bath, wood floors, 18 inch ceramic tile, lush landscaping.  It's at 54st near Osborn which is about 15 minutes from the Capitol. 

The price is negotiable for the next couple weeks, then we are going to list it.  We are thinking $480,000.  The house down the street sold for $490,000.  It's about the same size and quality, but it has a new kitchen. 

The dog's not included, but I'd be happy to throw in the minivan.

The High Cost of Irrelevance

I predicted earlier this week that the Republic would be up for sale this year.  It's unlikely that the ownership rules that allow Gannett to own the Republic and Channel 12 will be relaxed and if Gannett is going to cut its losses, the Republic is the obvious choice. 

The market for newspapers is like the housing market--no one knows how far it has slipped until one sells down the street, and major newspapers don't sell everyday.  However, the newspaper industry was rocked by the sale of the Minneapolis Star Tribune.  The paper sold for half the price for which it was acquired a mere 8 years ago. 

Here's how Editor and Publisher covers the story. 

Early Wednesday, Goldman Sachs became one of the first newspaper industry analyst firms to analyze the shocking announcement of the pending sale of the Star Tribune of Minneapolis by McClatchy Co. to a private equity firm. In its heading, Goldman stated it plainly: "Minneapolis valuation a Bearish signal for newspaper industry."

While McClatchy will "generate a tax benefit of about $160 million," Goldman observes, it is also taking a hit on the sale price, having paid $1.2 billion for the paper in 1998, now selling it for $530 million.

"The substantial loss on the sale is a vivid reminder of the industry's declining fortunes over the last several years," Goldman declared. "While we are intrigued that a private equity firm is showing interest in the newspaper sector, the 7.4x estimated EV/EBITDA valuation is not a Bullish indicator for the sector given a current newspaper group average 2007E valuation of about 8.7x."

Here's an interesting letter

Greg,

I saw that you pointed out gannett's ownership of ch12 on EP.  Interesting part of that is that I know someone at the newspaper who says this year's election coverage was lackluster at best.  While there isn't a formal policy or anything, my source at the Republic is under the impression that someone with Gannett decided weak political coverage in the newspaper would sell ad time on Ch12's airwaves.  After all, politicians have to go somewhere to get there message out. 

Homeland Insecurity

On February 17th of 2006, I pointed out that things were not right at the Arizona Department of Homeland Security.

In the Beginning the Earth was Void without Form...

The State Homeland Security Department was in budget hearings this week and one of the analysts said that he couldn't find the authorization for the agency in statute.

His counterpart in the executive branch admitted that there was no statutory authorization.  The State Department of Homeland Security--a state agency that receives millions of dollars in federal funds--had been created by executive order.

When asked for a copy of the order, the executive analysts sheepishly admitted that...it was a VERBAL Executive order. 

Is that cool or what?  Think of all the sunset hearings that can be avoided.  Not only can the Governor create a state agency ex nihilo, but also, she can do it by merely speaking.

Does she at least have to wave her arms and say Abracadabra?

Following that incident, the legislature called for an audit of the State Homeland Security Department and things went from bad to worse.

Here's the Republic's coverage of the Auditor General's report.

State auditors say Arizona homeland security officials haven't done enough to ensure that more than $175 million in grants issued since the Sept. 11 attacks were properly awarded and spent.

The Office of the Auditor General has determined that, in many cases, the state's Office of Homeland Security and Division of Emergency Management didn't record why projects were funded or if the money was spent for approved purposes.

In the wake of that report, State Homeland Security Director Frank Navarette chose to step aside.

Navarette and the department were criticized in a state audit this fall for lax oversight of $175 million in grants awarded to the agency since the Sept. 11, 2001 terrorist attacks. While Navarette has decided to step aside, he will continue to advise Gov. Janet Napolitano on homeland security issues.

Unfortunately, the federal government decreased the amount of Homeland Security funds destined for Phoenix and Tucson. 

On Christmas day, CBS News chief investigative correspondent Armen Keteyian had this profile of the Phoenix Situation.

(Mayor Gordon's) metropolis in the desert is now the nation’s fifth most populous urban area, the sprawling home to four million people and still growing by 100-thousand new residents a year. Yet in 2006, the Phoenix’s share of federal homeland security funds shrank by 60-percent from $10 million to $4 million, or to one dollar per person.

"I think a lot of people still think that we're a small western town, where, you know, maybe we're still in wagons."

No Phil, they don't think we're still in wagons. 

They think we are a small western town, where, you know, maybe the governor can create a major state agency using a verbal executive order and then that agency can fail to properly track the $175 million provided by the federal government. 

That's what they think...and they're right. 

Hey Mister, Wanna Buy a Paper

Have you stopped to notice that Gannett owns Channel 12 as well as the Republic?  My understanding is that this arrangement can only be maintained for a limited period of time, and Gannett was counting on Congress to relax the ownership rules...a Republican Congress that is.  The odds of that change happening in the near future have decreased dramatically. 

Hmm, looks to me like the Republic may be on the block soon.

Meanwhile, the entire sector continues to weaken.   

Standard & Poor's on Friday cut its ratings on Gannett Co. citing worsening operating results as the newspaper sector weakens.

"Operating results have been adversely affected by the challenging newspaper operating climate in both the U.S. and the UK," S&P said in a statement.

However, "this has been tempered by the television operations' significantly higher political revenues in this election year," S&P said.

Gannett, the publisher of USA Today, in October reported a lower quarterly profit and missed revenue forecasts on Wednesday because of weak advertising, setting the stage for a downbeat earnings season for newspaper publishers.

The Salmon Run

The Business Journal is reporting that Matt Salmon is considering running against Harry Mitchell.

Salmon said Thursday he is considering moving into Mitchell's congressional district to run against the Democratic freshman. Salmon currently lives in Mesa but said he has roots within Scottsdale/Tempe district.

The Republican previously represented parts of the district when he served in Congress from 1995 to 2001. Arizona congressional district lines were redrawn in 2001, creating the current fifth congressional district that includes closer-in eastern suburbs of Phoenix. Salmon said his parents live in Mitchell's district.

I'm sure that Mitchell's camp will view Salmon's run like the Salmon run pictured above, but I wouldn't be so sure.  Salmon has good relations with the party faithful and he has access to plenty of DC money.  After all, nothing says "electability" like being a former Congressman.  Of course the words "moving into the district" don't sound good.  But folks forget how far Salmon's old district used to extend into Phoenix.  I live in Arcadia and Mitchell is my Congressman now, but Salmon was my Congressman from 1994 to 2000. 

The article goes on to list Michelle Reagan and Hugh Hallman as possible opponents.  I've mentioned them before and I think that Reagan would be especially formidable.  She's got a great name and it would be hard to portray her as a bully.  Plenty of folks sent me emails to say that they didn't think a pro-choice moderate could get through the primary.  Of course, if she's running against 3 or 4 middle aged conservative white guys, it's going to get easier.

Speaking of middle aged conservative white guys, here's a name for you (and it's a long one)--Schweikert.  I left Schweikert's name off my original list because I assumed he would want to serve a second term as Maricopa County Treasurer.  I assumed he would get re-elected in 2008 and then plan to make a run at the new seat that Arizona is going to get in 2012.  However, I think he's at least considering a run. 

Actually, Schweikert has been running for that seat since high school.  He represented North Scottsdale and Fountain Hills in the Legislature and he ran against Hayworth for the seat in 1994.  He ran an impressive race for County Treasurer in 2004, and he has the best grassroots Rolodex that I've ever seen. 

Mitchell is going to be a tough candidate.  The Democrats are going to give him an opportunity to shine.  Political junkies will recall that after the 1980 redistricting, Jim McNulty and Jim Kolbe ran for the new seat that became District 8.  The Democrats in Congress wanted to protect McNulty so badly that they let him run a bill that President Reagan vetoed and then Congress overrode the veto.  McNulty may still hold the record as the only freshman who sponsored a bill that overrode a veto.  But Kolbe defeated McNulty the next year and then held the seat for 22 years. 

Arizona has plenty of examples of one-term fluke Democratic Congressmen.  Mitchell may join Jim McNulty, Karen English and Sam Coppersmith as part of the one-termer club. 

Sunday Square Off

I'll be on Sunday Square Off with Congressman Jeff Flake and Mike Newcomb this Sunday morning at 8:05 following Meet the Press. 

We recorded it this morning and topics include:  US Policy toward Cuba, Iraq troop levels, Congress under Democratic control and on the lighter side, the new "Hustler" store opening in Tempe. 

Square Off ends with a 30-second "final thought" and I still haven't figured out how to read from a teleprompter without sounding like a robot.  Sunday will be no different.  Here's the text of my final thought. 

"Some people think there is a war on Christmas.  Well, I don’t think that there really is a war on Christmas, but I do believe that in many parts of the world, there is a war on religion.  France for example, has banned people from wearing certain religious attire in public. But that type of religious intolerance isn’t reserved for the Europeans. Arizona Republic Editorial writer Linda Valdez wrote a column for the Republic in which she voiced support for the French ban on "Islamic headscarves, Jewish skullcaps and large Christian crosses."  Linda Valdez claims that this “Religious exhibitionism” undermines civil society. So while there may not be a war on Christmas, don’t forget that there is a war on religion and some of its most dedicated soldiers are based right here at home."