Perry Mines Texas System to Raise Cash

By NICHOLAS CONFESSORE and MICHAEL LUO

Published: August 20, 2011

Two years ago, John McHale, an entrepreneur from Austin, Tex., who has given millions of dollars to Democratic candidates and causes, did something very unusual for him: he wrote a $50,000 check to a Republican candidate, Rick Perry, then seeking a third full term as governor of Texas. In September 2010, he did it again, catapulting himself into the top ranks of Mr. Perry’s donors.

Enlarge This Image Travis Dove for The New York Times Gov. Rick Perry, campaigning in Florence, S.C., has doled out state aid to his most generous supporters and their businesses. Enlarge This Image Graphic Tracking the Flow of Money

Mr. McHale, a Perry spokesman said after the initial donation, “understands Governor Perry’s leadership has made Texas a good place to do business.”

Including, it turned out, for Mr. McHale’s business interests and partners. In May 2010 an economic development fund administered by the governor’s office handed $3 million to G-Con, a pharmaceutical start-up that Mr. McHale helped get off the ground. At least two other executives with connections to the firm had also given Mr. Perry tens of thousands of dollars.

Mr. Perry leapt into the Republican presidential primary this month preceded by his reputation as a thoroughbred fund-raiser. But a review of Mr. Perry’s years in office reveals that one of his most potent fund-raising tools is the very government he heads.

Over three terms in office, Mr. Perry’s administration has doled out grants, tax breaks, contracts and appointments to hundreds of his most generous supporters and their businesses. And they have helped Mr. Perry raise more money than any politician in Texas history, donations that have periodically raised eyebrows but, thanks to loose campaign finance laws and a business-friendly political culture dominated in recent years by Republicans, have only fueled Mr. Perry’s ascent.

“Texas politics does have this amazing pay-to-play culture,” said Harold Cook, a Democratic political consultant.

Mark Miner, a spokesman for Mr. Perry, said there was no connection between Mr. McHale’s contributions and the grant to G-Con. He said that the purpose of the state money was to create jobs and that it was appropriate for Mr. Perry to appoint people who support his vision and policies to state oversight posts.

“These issues have been brought up in previous elections to no avail,” Mr. Miner said.

Mr. Perry is not the first governor to have taken contributions from contractors or appointees to state commissions and boards, which oversee many of the agencies that in other states are controlled directly by the governor.

But because he has been in office more than a decade, he has had greater opportunity than any of his predecessors to stock the government with loyalists — he has appointed roughly 4,000 people to state posts — while enacting policies that have benefited allies and contributors.

And Mr. Perry has been much more aggressive than any past governor in soliciting money from them. According to a study last year by Texans for Public Justice, a watchdog organization, Mr. Perry has raised at least $17 million from more than 900 appointees or their spouses, roughly one dollar out of every five that he has raised as governor.

Among the state boards that have generated the most campaign contributions for Mr. Perry, the study found, were the State Parks and Wildlife Commission and the board of regents of Texas A&M, Mr. Perry’s alma mater. Those appointees have donated more than $4 million to his campaigns for governor.

“I know that at least some of the people who were initially approached to be regents have been later turned down because they didn’t pass what I would call a loyalty test,” said Jon L. Hagler, a prominent A&M alumnus and a major donor to the university.

Mr. Perry has also drawn scrutiny for two of his signature economic development efforts, the Texas Enterprise Fund and the Texas Emerging Technology Fund. The enterprise fund, which is intended to be a deal-closing tool for the state as it competes for jobs, has dispensed $435 million in grants to businesses since 2003. The technology fund, which has doled out nearly $200 million to companies since 2005, has a similar job creation mandate.

More than a quarter of the companies that have received grants from the enterprise fund in the most recent fiscal year, or their chief executives, made contributions to either Mr. Perry’s campaign dating back to 2001 or to the Republican Governors Association since 2008, when Mr. Perry became its chairman, according to an analysis by The New York Times.

The award to G-Con is just one example of state money paying dividends for Perry benefactors. The company is working with the Texas A&M university system on a pharmaceutical manufacturing effort toward influenza vaccines.

Among G-Con’s officers, according to records filed with the Texas secretary of state, is David M. Shanahan, who also has a significant ownership stake in the company. He is also the founder and president of Gradalis, a biotech firm based in Dallas that received a separate $1.75 million grant from the state’s technology fund in February 2009.

Campaign finance records show that Mr. Shanahan contributed $10,000 to the governor in November 2009. The following month, G-Con filed its application for an enterprise fund grant, said Lucy Nashed, a spokeswoman in the governor’s office. (Mr. Shanahan also donated $5,000 in 2007.)

State records from a network of firms associated with G-Con also list Mr. McHale, the longtime Democratic donor, as an officer.

Patricia Haigwood, a spokeswoman for G-Con, said Friday that Mr. McHale, who did not return messages asking for comment, was one of the original board members of G-Con. But she said he left the company in late April 2010 and had not made an investment in G-Con.

Gradalis, however, controls 10 percent of G-Con, corporate records show. And Mr. McHale and James R. Leininger, a San Antonio businessman who has given more than $230,000 to Mr. Perry, have minority interests in Gradalis, Ms. Haigwood said.

Gradalis’s technology fund grant came under scrutiny last year when The Dallas Morning News revealed that Mr. McHale and Mr. Leininger, both major Perry donors, had significant financial interests in the company.

Ms. Nashed said that grants from both funds must be approved by the speaker of the Texas House and the lieutenant governor and that all recipients go through rigorous reviews.

Mr. Perry has also drawn criticism for his appointees to the board of the Teacher Retirement System, a $110 billion pension fund that is among the nation’s largest. In recent years he has appointed at least four top donors or fund-raisers to the board. Mr. Perry’s trustees leaned on the fund to invest more money with hedge funds and private equity firms, as many public pension funds have in recent years. But in some cases, the appointees appear to have pushed for firms whose investors, officers, or partners were Perry donors.

In 2009 an investment manager at the fund, Michael Green, wrote to a board trustee saying that the fund’s chief investment officer had pressed him and other employees to set aside their objections to such investments, including allocations to two firms whose partners and former partners have donated more than $1 million to Mr. Perry’s campaigns.

When Mr. Green complained about the pressure, a superior dismissed his concerns. Mr. Green’s boss, he wrote to the trustee, told him: “This is the way business is done.” An internal investigation concluded that no rules had been broken.

Philip Mullins, a trustee, said, “I think the concerns that were raised were based on a feeling that the chairman and some other people on the board were trying to set up a fund-raising campaign for the governor of Texas.”

Another instance of political donations to Mr. Perry seeming to dovetail with his policy decisions came in 2005, when the TXU Corporation, a utility based in Dallas, sought permits to build coal-fired power plants. That October, Mr. Perry issued an executive order for a review panel to fast-track the application.

In the months that followed, current and retired TXU executives, as well as the company’s political action committee, sent Mr. Perry more than $100,000 in donations, including one check dated the same day as Mr. Perry’s order. Mr. Perry’s office said at the time that the order was unrelated to the contributions. A state judge later blocked the order, ruling that Mr. Perry had overstepped his authority.

In 2003, after a rash of mold-related lawsuits against home construction companies, Mr. Perry championed the creation of a state board, the Texas Residential Construction Commission. The new commission was a priority of Mr. Perry’s most generous contributor: Bob Perry, a homebuilder who has contributed more than $2 million to the governor over his career. (The two men are not related.)

The legislation creating the board also sharply limited the rights of homeowners to sue contractors for faulty construction, shunting most disputes to the commission. After its passage, Bob Perry and his wife sent two $50,000 checks to the governor’s campaign. Three weeks later, the governor appointed an executive of Perry Homes, Bob Perry’s company, to the commission, which was abolished in 2009.

In 2009, as Mr. Perry was running for re-election, José Cuevas Jr., a restaurateur and the governor’s appointee as chairman of the Texas Alcoholic Beverage Commission, used a personal e-mail account to solicit donations for Mr. Perry from the owners of dozens of restaurants and bars overseen by the board.

In an interview last week, Mr. Cuevas said he saw nothing wrong with asking the owners, many of them business contacts, for donations. It was important, he said, for Mr. Perry’s appointees to support his broader mission of smaller government.

”When you personally know someone,” Mr. Cuevas said, “and know their abilities and vision, you’re willing to raise as much money as hard as you can for that person.”

A version of this article appeared in print on August 21, 2011, on page A1 of the New York edition with the headline: Perry Mines Texas System To Raise Cash.