The political future of Howard “Buck” McKeon, a Southern California congressman who routinely wins re-election by a wide margin, is suddenly in doubt.
McKeon, who chairs the powerful House Armed Services Committee, has left a big mark in the policy arena. From his support for the proliferation of domestic drones to his maneuvering to exclude the Pentagon and major military contractors from automatic across-the-board budget cuts next year, McKeon has been a loyal servant of the defense industry.
His corporate-friendly approach to lawmaking has also favored profit-seeking online colleges, which won access to virtually unlimited federal assistance on his watch. Almost all of McKeon’s significant legislative accomplishments involve the transfer of huge amounts of taxpayer money to quasi-private entities that are then liberated from government oversight.
Along the way, special interests have lavished the congressman with favors and gifts. What distinguishes McKeon is not just the way pay-to-play legislating has filled his campaign coffers.
Also remarkable is how he has milked his political connections for personal financial gain. This legacy is coming back to haunt him as he fends of a strong challenge from Democrat Lee Rogers this November.
McKeon’s troubles date back to the late ’90s, when, as Newt Gingrich’s star faded, McKeon weighed a bid for Majority Leader, but gave up that idea to make room for Representative Dick Armey (R-TX).
Shortly thereafter, the family cowboy fashion store, which had made McKeon a millionaire when he was first sworn into office, would file for bankruptcy and liquidate every ostrich skin boot and ten-gallon hat. The Los Angeles Times reported that in 1996, Howard & Phil Enterprises Inc. had “assets of $10.2 million and debts of $16.7 million.” Ethics disclosures forms filed with the House Clerk show that McKeon stopped earning an outside salary from the store by 1998; by 1999, his store was forced to sell off all assets.
Ironically for the congressman who worked to outlaw bankruptcy protection for millions of students (a law he helped pass in 1998 made it nearly impossible to discharge student loan debt), Chapter 11 helped keep hundreds of creditors at bay for the cowboy store.
In recent years McKeon has faced more personal financial troubles. In March and April of 2008, McKeon sold off almost every asset he owned, from index funds and other financial investments. His latest financial disclosure states that his personal debt is between $1,010,003 and $2,015,000 (ethics disclosure forms show a range, rather than a specific number). It’s a mystery why McKeon, who earns a $174,000 a year salary as a member of Congress, incurred so much debt.
Whatever the explanation for McKeon’s debt, it was long before his recent struggles that he began to use his political position for personal financial benefit.
Mortgaging His Influence
In January of this year, The Wall Street Journal revealed that McKeon was among the group of politicians and congressional staff to receive “VIP” mortgages from Countrywide, the troubled subprime lender now owned by Bank of America, as part of an effort to curry favor over housing policy.
E-mails from Countrywide from September 1998 indicate that a Mortgage Bankers Association lobbyist named Mike Ferrell recommended that McKeon receive a VIP mortgage. “Per [Countrywide CEO] Angelo [Mozilo] — take off 1 point, no garbage fees, approve the loan and make it a no doc,” read the message within Countrywide.
A call sheet recovered from a Countrywide employee summarizes some of the contact between McKeon and the mortgage company, which at the time was working Congress to increase the maximum amount for government-backed single-family home loans — a legislative change that Congressman McKeon supported. “You may call the borrower at his Washington office [number redacted] and get the Sons phone number for the appraiser contact,” it noted. “The borrower is a bit difficult to deal with. He seems on the edgy side.”
When the revelation was made earlier this year that McKeon — a “Friend of Angelo” like Senators Chris Dodd (D-CT) and Kent Conrad (D-ND), who were identified back in 2008 — was a recipient of VIP Countrywide loan that saved him thousands of dollars, he vigorously denied it. A spokesperson for McKeon’s office told the press that the congressman was “shocked and angry to hear this, as he had no knowledge of the Friends of Angelo designation.”
A letter revealed in a report published in July paints a different story. A little more than a week after mortgage industry lobbyists conspired to offer McKeon a discounted mortgage for his home, an overnight letter arrived at the McKeon household that opened, “Thank you for allowing Countrywide’s VIP team to assist you with your financing needs.” At the bottom of the page, bold lettering indicated that the mortgage document came from the company’s “VIP TEAM.” A Countrywide VIP loan underwriter confirmed to government investigators that all of the deals were made with explicit communication to the recipients about the special nature of the VIP mortgage unit.
The Countrywide VIP refinance deal helped McKeon pay down a loan on a ranch he owned, while providing him with $46,894 in cash. The lowered interest rate saved McKeon about $3,000, and he was able to avoid an undisclosed amount of “garbage fees” associated with the loan.
Why the Countrywide loan scandal still has not resulted in any federal indictments is a mystery.A recent report from the House Oversight Committee found that the special mortgages were designed to influence policy and were personally tailored to suit McKeon, but so far the mounting evidence has not led to any conviction for wrongdoing.
In any case, McKeon is the last incumbent lawmaker seeking re-election with a clear paper trail showing that he received special favors from the company best known for inflating the housing bubble and crashing the financial system.
The McKeon family must have needed cash, because it wasn’t just Countrywide that came knocking. The year after McKeon accepted the discounted mortgage, his wife Patricia began working as a lobbyist.
Disclosures show that Patricia, employed by a firm called Tongour & Scott, worked on a 1999 contract for CSX Corp., the railroad company. Records indicate that the lobbyists were hired primarily to influence CSX’s proposed buyout of the Consolidated Rail Corporation, a government-backed network of aging Northeastern railways. That year, the firm also countedamong its clients the city of Lancaster, California, the US Telecom Association, an electronics company called Trimble Navigation, and twelve other clients.
Although she lacked any experience in policy, Patricia’s connections to her husband appeared to be a boon to her company. A year after her firm was hired to lobby on federal appropriations for the city of Lancaster, Patricia’s husband helped secure over $102 million for highway funds, part of which was used to connect Antelope Valley, where Lancaster is located, to Santa Clarita.
The Nation reviewed ethics disclosures from the time period, and McKeon failed to disclose that his wife earned income as a lobbyist in 1999.
Two years after her stint as a federal lobbyist, McKeon began paying Patricia handsomely as his campaign treasurer. A review of records shows that Patricia McKeon has received $588,284 since 2002 from her husband’s campaign committee.
“My wife, Patricia, has been an essential component of my campaign,” said McKeon in astatement this year defending the practice of paying his wife with his campaign funds.
Enabling Profiteers, for a Price
McKeon has been almost as cozy with the for-profit college industry as he has with the weapons industry — and it turned out he had a personal financial interest in the very education companies his policymaking affected.
In 2006, McKeon and Boehner slipped only eight lines of legislation into a budget bill that helped create a new industry of predatory school companies. The pair helped eliminate the so-called 50 Percent Rule, which limited federal assistance to students enrolling in for-profit online universities. The law instantly propelled companies like the University of Phoenix into Wall Street cash cows. Once they qualified for virtually unlimited taxpayer assistance, many universities in the for-profit industry set tuition at exactly the amount a student could expect in federal aid, using programs like Pell Grants and Stafford loans.
In less than four years after the 50 Percent Rule was abolished, enrollment for online for profits grew from 1.2 million students to nearly 2.5 million students in fall 2010, according to Eduventures, a research and consulting firm. The school companies, which spend far more in marketing than on education services, are plagued by allegations of fraud.
While enabling their skyrocketing growth through legislation, McKeon speculated in the industry. As the Huffington Post’s Chris Kirkham reported, McKeon “held and sold stock for Corinthian Colleges Inc., a for-profit college corporation, during the time he was crafting policies for the industry on the House Education committee.”
McKeon’s latest policy crusade has nothing to do with education, but fits his pattern of funneling billions of taxpayer dollars to unworthy private interests.
In 2011, McKeon ascended to the rank of chairman of the House Armed Services Committee. In that role, protecting military contractors from budget cuts, McKeon has violated nearly every principle supposedly held by the modern GOP. Only months after his party set up rules banning the practice of earmarks last year, McKeon established a $1 billion fund for member-directed pet projects — a clear violation of the Republican Party’s celebrated rules. Notwithstanding his party’s mantra that government spending doesn’t create jobs, McKeon argued last November that any cuts to the military budget would increase the unemployment rate.
Name a weapons program the Pentagon doesn’t want, and its likely McKeon has gone to bat for it. Earlier this year, McKeon produced language in the defense budget that included a new missile defense shield for the east coast — a multi-million dollar program derided by General Martin Dempsey as unnecessary. McKeon led a campaign to demand that the government fund a second engine program for the F-35 — at a cost of $450 million a year — over protests from the Pentagon that the program had no use it all. McKeon is also pressing for additional purchases of F-35’s, against the wishes of the Obama administration, despite the fact that the fighter jet is shaping up to be the most expensive weapon in human history, with a lifetime cost of $1.45 trillion.
His other military lobbyist-backed ventures have riled those concerned with civil liberties. In 2009, McKeon helped establish the Unmanned Systems Caucus in Congress, better known simply as the “Drone Caucus.” A trade association that largely represents lobbyists for military drone manufacturers later confirmed that it helped set up and direct the activities of the caucus.
In February, Congress adopted language from drone lobbyists “word-for-word” to allow domestic drones in the United States for law enforcement and commercial use. An FAA official estimates that the change could mean 30,000 drones flying through the sky over the next eight years. McKeon’s hand could be seen in the shift. As chair of the drone caucus, he was there for a celebratory event with drone lobbyists shortly after the bill passed. “I want to thank you all for what you’re doing,” McKeon told the attendees.
While many Republicans have voiced concerns about the potential for domestic drone spying, McKeon has continued to champion the industry with little regard for civil liberties. Senator Rand Paul (R-KY) grumbled that lobbyists who are “making money selling this drone technology” are seducing his pro-drone colleagues.
Now McKeon is leading the effort to stave off $492 billion in automatic cuts to the Defense Department as part of the sequestration planned over the next decade. The cuts are part of the debt limit deal negotiated by House Republicans last year. Budget chairman and Republican vice presidential nominee Paul Ryan has reneged on the deal, and worked alongside McKeon to take the Defense cuts off the table.
As McKeon has promoted Pentagon pork, he has been rewarded with enormous amounts of campaign cash. He is now the top recipient in Congress in funds from Lockheed Martin, Northrop Grumman, General Dynamics, General Atomics and Boeing.
But the defense contractors’ and drone-makers’s largesse doesn’t even stop there. Earlier this year, Patricia McKeon made an ill-fated bid for California State Assembly. She ran on two issues: repealing the ten-cent bag tax in Los Angeles County and fighting “special interests” in Sacramento. But a review of campaign finance records reveals that much of her money came from defense contractors and lobbyists with ties to her husband.
Lockheed Martin provided Patricia with a $3,000 check, Raytheon’s PAC provided $2,000, a Wisconsin-based military truck manufacturing executive pitched in $500. Beau Boutler LLC, a DC lobbying firm that represents a drone company, gave as well. General Dynamics, a company that has worked with McKeon to block the Pentagon’s request to end a $3 billion effort to refurbish tanks the military does not need, gave her $3,900. Even the congressman’s legacy connections were there to help fund his wife. Bruce Leftwich, a lobbyist who represents online for-profit universities, was one of the first to donate to Patricia’s campaign.
Patricia ultimately lost her campaign for state office, but earned a raise in her job on husband’s campaign. Records show that — despite being fined in March for missing an FEC deadline — Patricia went from making $5,081 a month to $5,331.
Though McKeon maintains the swagger of a comfortable incumbent, new district lines implemented this year make his position slightly more competitive.
Few Democrats have run an anti-corruption platform this cycle, preferring instead to focus on core issues like Medicare and creating jobs. Lee Rogers, McKeon’s opponent, has attempted to chart his own path, making McKeon’s ethical troubles front in center as he explains why he Washington is broken.
He says in his first 100 days, he will introduce ethics reform legislation to improve transparency and curb nepotism. Though the law could have wide-ranging effects on Washington, Rogers conceded to The Nation that it helped to have the “poster boy for pay-to-play politics” as his opponent this year.
Lee Fang is a reporting fellow with The Investigative Fund at The Nation Institute, now known as Type Investigations, now known as Type Investigations.