Saturday, October 07, 2006

Denny Hastert's dodgy real estate deals.

by Norman Ornstein & Scott Lilly

Until last week, the broad image of House Speaker Dennis Hastert was of an affable, even grandfatherly figure. But Hastert's response--or lack thereof--to the Mark Foley scandal has suddenly put him in the hot seat, requiring even President Bush to defend him. The Speaker's reputation has taken a serious hit. Still, the image remains of an amiable guy, whose sins are more of sloth than malevolence.

Speaker Hastert, however, is no passive figure. When it comes to running the House, Hastert has, in fact, been an aggressive partisan. Recall, for instance, that he personally fired the chairman and two Republican members from the House Ethics Committee after they had the effrontery to rebuke Tom DeLay for misconduct. And when it comes to real estate, he has been a downright wheeler-dealer. Virtually overnight, the speaker's net worth went from approximately $300,000 to at least $6.2 million--thanks, in no small part, to an earmark he authored.

Hastert's real estate transactions have been reported extensively in the Chicago press and picked apart in a June report issued by the Sunlight Foundation. But they have been largely ignored in the national media. A careful examination of the facts in the case, however, leads to the conclusion that there are compelling reasons beyond the Foley case to call for the speaker's resignation from the post.

Here are the essential facts: In August, 2002, Hastert bought 196 acres of land in rural Kendall County, Illinois for $2,125,000. According to the Chicago Tribune, Hastert bought the plot in two separate transactions. The first deal gave him a house, barn, swimming pool, and 17 acres of land for $1.2 million. In the second deal, he obtained an additional 179 acres on an adjacent property for a little less than $5,200 per acre. The least valuable portions of the second deal were two fields, separated from the rest of the farm by a stream and inaccessible by road.
That was a big deal for a life-long politician and wrestling coach like Hastert, but harmless enough. Eighteen months later, however, Hastert's purchase took a new direction. The speaker entered into a real estate agreement with Dallas Ingemunson, the chair of the Kendall County Republican Party, and a campaign contributor named Tom Klatt. The three men formed a real estate trust and purchased an additional 69 acres of land adjacent to Hastert's two inaccessible fields. The trust paid $1,033,000 for the land, or about $15,000 per acre--more expensive turf than Hastert's plot in part because of its access to a road.

And here's where the deal first begins to acquire a pungent odor: The trust then added Hastert's two fields to the jointly acquired parcel and credited Hastert with 62 percent ownership apparently on the presumption that Hastert's $5,200 land was equal in value to his partners $15,000 land.

These deals coincided with a protracted battle in Congress sparked by the expiration of the 1998 highway bill. Hastert's purchase of his new home and the additional 179 acres of land took place the same month that the House Transportation Committee prepared for its first hearings on a new highway bill--a bill that would be rife with opportunities for members of congress to bring new roads to their districts in the form of earmarks, changes in infrastructure that could have a major effect on real estate values.

A new highway bill, however, didn't neatly wend its way to the president's desk. Members tacked literally thousands and thousands of earmarks to the legislation, wildly inflating its costs and provoking prolonged opposition from the administration. As the President's Fiscal Year 2003 budget warned: "The proliferation of congressional earmarking comes at a cost, in wasted dollars and in unfairness, as when a grant applicant who played by the rules and earned a place at the front of the funding line gets shoved backwards."

There was no better object lesson in the case against earmarks than the Prairie Parkway Corridor, pushed by none other than Denny Hastert. This new highway, designed to connect the counties west of Chicago to the metropolis itself, had neither the support of the public nor the Illinois Department of Transportation. Their objection: Rigid requirements in the highway bill would force the diversion of state funds that might have been used for the widening and improvement of existing roads--an approach, according to opinion polls, favored by a majority of the area's residents--or for more efficient transportation corridors to Chicago. But the Prairie Parkway did offer one important convenience: It was located just over a mile from the property owned by Hastert's trust.

Squabbling over the ballooning cost of the bill might have prevented this highway from ever coming to fruition. But Hastert played an unusually active role in shepherding the legislation, a more aggressive role than he played at any other point in his speakership. His dominance of the process was noted by an Illinois highway official, who remarked, "I think it's truly a recognition of the leadership of Speaker Hastert. Speaker Hastert was able to deliver a bill that made it through Congress that the president could sign, rather than a bill that would make it through Congress that the president would veto." Hastert himself explained at one point in the process that the negotiations had become so intense that he was no longer dealing with White House staff and had begun working directly with the president. When the bill finally passed in the summer of 2005, President Bush also recognized Hastert's efforts by traveling to his district for the bill signing ceremony. Bush also mentioned the Prairie Parkway which he said," is crucial for economic development in Kendall and Kane counties."

It was, we now know, crucial to the speaker's own economic development. In December of 2005, four months after the signing of the new Federal Highway Bill containing the $207 million inserted by Hastert for construction of the nearby Prairie Parkway, the 138 acres held by the trust were sold to a developer as part of planned 1600 home housing development. The trust received $4,989,000 or $36,152 an acre for the parcel of which 62.5 percent or $3,118,000 went to Hastert. Klatt and Ingemunson also did well. Their profit equaled 144 percent of their original investment. Hastert, however, received six times what he had paid for his investment, a profit equal to 500 percent of his original investment.

The Hastert earmark not only provided money for Parkway construction but mandated that the construction take place on the portion of the Parkway nearest his recently purchased property. While the money contained in the highway bill was sufficient to build only about one-third of the entire 36-mile road, the speaker insured that the right third would be selected by also earmarking funds for construction of a interchange in that portion of the proposed thooughfare.
The decision by the developer to build a subdivision in an area proximate to Hastert's farm had financial implications for the speaker that ran well beyond the $2.5 million profit he reaped on the sale. The Tribune has calculated that the remaining 125 acres he still owns is now worth about $4.5 million. Even counting the mortgage on the property, Hastert's net worth, according to the Tribune, appears to be more than $6.2 million. An estimate that Hastert's office does not dispute, probably because it is extremely conservative.

Hastert has responded forcefully to the allegations of venality. "I owned land, and I sold it, like millions of people do every day." The speaker's office has painted a portrait of a guy who just happened to be driving past a house he liked; he bought it and subsequently, in a straightforward transaction, sold some of the land that came with it for a profit.
The speaker hasn't exactly helped his case with his accounts of the transaction. His office has, for instance, described the Prairie Parkway as located over five miles from his property. But U.S. Geological Survey aerial photographs clearly show it to be about four miles closer than that.
We cannot say at this juncture whether the actions taken by the speaker are illegal. We can say that they do not meet the standards we expect--or should expect--from a member of Congress. And they certainly do not meet the standards we expect from the speaker of the House.


Norman Ornstein is a resident scholar at the American Enterprise Institute and co-author of The Broken Branch: How Congress is Failing America and How to Get It Back On Track. Scott Lilly is a senior fellow at the Center for American Progress.

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