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REPORT ON THE PORTALS INVESTIGATION
AND RELATED MATTERS:
Committee on Commerce
At the direction of full Committee Chairman Tom Bliley and Subcommittee on Oversight and Investigations Chairman Joe Barton, Committee staff prepared the following report with respect to the Committee's investigation into the circumstances surrounding the planned relocation of the Federal Communications Commission to the Portals.
In November 1997, Time magazine reported that Mr. Franklin Haney, a Tennessee developer with close ties to Vice President Gore, acknowledged making a $1 million payment to Mr. Peter Knight, shortly before Mr. Knight took over as the campaign manager for the Clinton-Gore reelection campaign in May 1996. In that same article, Mr. Haney described the fee as payment to Mr. Knight for his "general legal work on the [Portals) project" -- a highly controversial commercial development project in southwest Washington, D.C., that was to be the new home of the Federal Communications Commission (FCC), despite the Commission's longstanding and vigorous opposition.
Based on Mr. Haney's disclosure, a related Associated Press article from November 1997, and an October 1997 Business Week article entitled "Did Gore Open A Door?" -- which contained allegations of political favoritism on the $400 million Portals deal coupled with significant campaign contributions -- the Committee formally launched an investigation in November 1997 into the circumstances surrounding the planned relocation of the FCC to the Portals. In particular, the Committee sought to learn the nature of Mr. Haney's fee arrangement with Mr. Knight, and whether it was a contingency or performance fee for successfully obtaining GSA lease changes or the FCC's commitment to relocate to the Portals. Due to the risk of improper influence arising from such arrangements, Federal contractors are required under Federal law to certify that they did not retain anyone to assist in obtaining their contracts on a contingent fee basis.
After the Committee initiated this investigation, Mr. Haney quickly changed his public position with respect to the $1 million fee, stating through his spokesman that the payment was for Mr. Knight's work over three years on multiple projects, not just the Portals. Yet the evidence developed by the Committee over the past year strongly suggests that Mr. Haney was telling the truth the first time -- before the Committee's public investigation began -- and that the $1 million payment to Mr. Knight was an unlawful contingency fee for his assistance in securing key amendments to the GSA-Portals lease, as well as for his successful efforts to gain the FCC's cooperation in relocating to that site.
The Committee's investigation also revealed that Mr. Haney paid two other Washington representatives similarly large payments following the successful closing of the Portals deal, both of which appear to be unlawful contingency fees as well. These two men Mr. James Sasser, the former U.S. Senator from Tennessee who chaired the Senate committee with jurisdiction over GSA, and Mr. John Wagster, who served as a staff director under then-Senator Sasser for the Senate subcommittee with oversight of GSA -- received payments of $1 million and $500,000, respectively, under arrangements in which they would be paid only upon the successful closing of the Portals deal, including the necessary agreement by GSA to make specific changes to the existing Portals lease. These three representatives brought significant political clout to Mr. Haney's Portals team. In addition to Mr. Sasser's and Mr. Wagster's GSA-related background, Mr. Knight had served as a top aide to Vice President Gore for over a decade, had been a senior official on the 1992 vice presidential campaign and deputy director for personnel on the presidential transition team, and had political connections with officials at both GSA and the FCC. Specifically, Mr. Knight had a long acquaintance with Barbara Silbey, chief of staff to then-GSA Administrator Roger Johnson, as well as with FCC Chairman Reed Hundt and Robert Peck, the FCC political official handling the Portals issue whom Mr. Knight had assisted in securing employment with the Commission. Mr. Haney and his representatives both used and flaunted this political clout, in efforts that did not go unnoticed by officials at GSA and the FCC.
Haney's Efforts to Secure Key Amendments to the GSA-Portals Lease
"We need changes in the lease."
Remarks of Peter S. Knight at Meeting with Top GSA Officials
The evidence shows that, beginning in June of 1995, Mr. Haney and his Washington representatives began a concerted effort to persuade GSA officials to agree to specific changes to the existing Portals lease in order to facilitate his financing scheme -- a scheme that depended upon Mr. Haney's ability to sell bonds backed by guaranteed GSA rental payments on the Portals. Mr. Haney sought these changes as a condition for his agreement to make a loan to the Portals partnership to finance construction of the building.
In a series of meetings and communications with GSA officials in 1995 and early 1996, Mr. Haney and his representatives sought GSA's agreement to these lease changes, elevating the matter to the highest political levels of GSA when they believed it necessary to do so. Indeed, at one critical point in the negotiations, Mr. Haney sent a letter to Mr. Knight advising him that "delay in GSA's approval could ... kill the deal," and urging him to take action: "Please continue to use your significant resources to move GSA in the right direction." At another critical point, Mr. Wagster informed the reluctant GSA contracting officer that a key lease change sought by Mr. Haney fixed rent start date -- already had been agreed to by his GSA superiors at an earlier meeting at GSA headquarters.
Indeed, GSA eventually agreed to all the changes sought by Mr. Haney, including a fixed rent start date regardless of whether the building was occupied or even occupiable. While GSA officials insisted that these lease changes were commonly agreed to by GSA in securitized deals of this kind, there also is universal agreement among those officials that the Portals project presented an unprecedented situation given the earlier GSA default, the history of litigation between the parties, and the unwillingness of the intended tenant (the FCC) to cooperate with the building design and relocation to that site. Agreeing to a fixed rent start date, for instance, certainly was a highly questionable decision in this context, as the chief contracting and legal career officials involved with the project clearly recognized at the time. The decision to agree to a fixed rent start date of July 1997 cost GSA and the American taxpayers more than $17 million in rent on a building that was empty until November of this year.
There also is substantial reason to believe that Mr. Haney and Mr. Wagster made false and misleading statements under oath before the Subcommittee with respect to the nature of their communications with GSA officials on the lease, and that these statements were made with an intent to deceive the Committee and obstruct its lawful and legitimate fact-finding processes.
Haney's Efforts to Gain FCC Cooperation in Relocating to the Portals
Although Mr. Haney stated in his sworn testimony that he did not care whether the FCC would relocate to the Portals site, his own actions -- and those of his paid representatives -- strongly suggest that securing the FCC's cooperation in relocating to that site was of particular interest to his partnership and financing plans. While Mr. Haney stated that he may not have cared whether the Portals tenant was, in his words, "the FCC or the Bureau of the Prison," a willing and cooperative tenant -- any tenant -- was something that the investment community and potential purchasers of his Portals-backed bonds certainly would view as important in deciding whether to provide financing. Thus, Mr. Haney had a strong interest in making sure that the intended occupant of the Portals, the FCC, ceased its opposition and delay tactics, and he and his representatives took steps to ensure that outcome (however fleeting that cooperation ultimately may have been).
The evidence shows that, even before meeting with GSA officials, Mr. Knight arranged meetings in May and June of 1995 with FCC political officials so that he and Mr. Haney could discuss the agency's opposition to the move and seek its future cooperation. The evidence also suggests that thereafter FCC political officials agreed to cooperate in the relocation, marking a significant change in the agency's position prior to that time. While the FCC consistently espoused the view at least officially -- that it was willing to relocate to the Portals if its space and other demands were met, the FCC also had made clear to GSA officials its determination to resist moving to "that part of town" because it was "too far away." To these GSA officials, the Portals' location appeared to be the key obstacle, even after a 1994 court decision ordering GSA to proceed with the Portals procurement.
In November 1995 -- following several additional meetings between the Haney team and FCC political officials, including an October 10, 1995 meeting between FCC Chairman Reed Hundt and Mr. Sasser -- the FCC formally, and for the first time ever in the long and tortured history of this matter, accepted assignment to the Portals. Despite the Commission's current public claims that its November 1995 acceptance was consistent with its prior position on the relocation, GSA officials viewed this formal acceptance of the Portals space as quite significant and a milestone in this longrunning saga -- leaving just the details to be worked out, according to the top GSA official at the time. Likewise, those at the Commission who had long been involved with this matter believed that, prior to Mr. Haney's involvement in the project, there was a sense among the career officials that the move would never take place, but that by late 1995 or early 1996, that had changed dramatically -- at least in part because of Mr. Haney's relationship to Vice President Gore.
To GSA officials, the change in FCC's attitude came "top-down." That is, it came from the FCC political officials who had been meeting with Mr. Haney and his representatives, as opposed to the career officials ostensibly in charge of the relocation issue. Indeed, when the top agency career official with day-to-day responsibility on the Portals project proposed to FCC Chairman Hundt's chief of staff that the FCC withdraw its prior acceptance of the Portals space because of the actual terms of the Haney-inspired lease supplement, the chief of staff overruled him. Notably, that same career official was never, at any time, invited to or even informed about the numerous meetings that the FCC's political officials had with Mr. Haney and his representatives regarding the Portals -a fact that he believed to be highly unusual based on his 24 years in government service and his continuing responsibilities for the Portals matter.
Further, the Commission's recent public claim that it was "committed by law" to move to the Portals since the August 1994 court decision requiring GSA to resume the procurement process also is highly misleading. In fact, the agency's legal view at the time was exactly the opposite namely, that the court decision did not require either GSA to award the procurement to Parcel 49C or the FCC to relocate to the Portals site. This contemporaneous view is supported by not only key witness testimony, but also by both contemporaneous and recent Commission documents, as well