On February 4, 2009, the new Secretary of the Interior in the Obama Administration Ken Salazar cancelled these leases.

Tied in with this is the scandalous way the government is compensated for these leases (see also item 172). Since 1982, the government has allowed the oil industry to make royalty payments through the Mineral Management Service (MMS) under its Royalty in Kind (RIK) program. Rather than paying cash, oil companies pay royalties in the form of crude oil and natural gas which the RIK then sells. This is not a small enterprise. The RIK handles around 150,000/bbls of crude oil and 800 million cubic feet of natural gas a day and does about $4 billion in business a year. It is also totally corrupt.

On September 10, 2008, the Department of Interior Inspector General released 3 reports online which detailed activities within the RIK program. These were based on investigations that took nearly two years and cost $5.3 million. One describes how three senior officials who had been with the RIK since its creation under Reagan colluded together to award two of them post-retirement six figure consulting salaries. Lucy Denett was associate director of the Minerals Revenue Management which was a subsection of the MMS which oversaw the RIK. She retired during the investigation on January 31, 2008. Jimmy Mayberry was a special assistant to Denett from 2000 to his retirement on January 3, 2003. On his retirement, he formed a consulting company Federal Business Solutions (FBS). Milton Dial was the assistant program director for the RIK 2001-October 2003 and retired September 2004. Basically, what happened was that Denett asked Mayberry (with Dial’s help) to write up a work proposal which both Denett and Dial knew FBS would bid on after Mayberry’s retirement. Dial then helped steer the contract to FBS, and Denett approved the deal. On his own retirement, Dial went to work for FBS and got his own big salary consulting for the RIK through the FBS contract. In August 2008, Mayberry pled guilty to criminal conflict of interest and was awaiting sentencing. Denett’s case was referred to the Public Integrity Section of the Justice Department but this being the Bush Administration, they declined to prosecute.

The second report concerned Gregory Smith who was deputy program director for the RIK 2001-2004, its director from 2005 until he was detailed out in January 2007. He retired in May 2007 during the course of the Inspector General’s investigation. Smith got approval for paid outside consulting work on technical issues. This was a misrepresentation because what he was really doing was pitching the company for which he was consulting to companies he was doing business with in the RIK. MMS resources and employees were used in furtherance of these aims. Smith also received gifts from these companies in excess of government limits. In addition, he had sex with two of his subordinates, one of whom was his secretary from whom he bought cocaine 4-5 times a year. This was sometimes delivered to him at his office. It came out as well that Smith had lied to OIG investigators previously and that he had instructed other RIK employees to do so. The Inspector General referred his case too to the DOJ’s Public Integrity Section and they declined to prosecute this one as well.

The third report looked at other employees of the MMS. It noted that the MMS was based in Denver but was not overseen by the local director but by an inattentive Denett back in Washington. This led to what the Inspector General called a “culture of ethical failure.” Those who worked at the RIK thought the normal rules did not apply to them. Nearly 1/3 of them socialized with or accepted gifts from oil industry representatives in contravention of government rules and, as the report relates, “When confronted by our investigators, none of the employees involved displayed remorse.” Two RIK marketers liked to party so much with industry reps that they were given the name the “MMS chicks”. They got so drunk at one event that they had to be put up at a company lodge rather than being allowed to drive back to their hotel. One had a sex toy shop as a sideline for which she passed out cards. Both used other drugs and had sexual encounters with oil company personnel. Government employees are supposed to keep their contacts with private industry at arms length but as the report somewhat archly notes, “Sexual relationships with prohibited sources cannot, by definition, be arms-length.” It says a lot about the mindset of those at the RIK that one of the marketers responded to this that she did not consider a one night stand to be a relationship.

Although employees at the RIK often stated that they did not think they had done anything wrong, they did sometimes try to hide or downplay the nature and extent of their socializing with oil industry representatives. At one point in 2006, they even discussed forming a group to write up special ethical rules which would legitimize their activities. The Inspector General left to the Secretary of the Interior what actions and sanctions were to be taken against those still employed in the MMS but indicated that firing would be appropriate for some.

Lack of oversight and the overly business friendly stance of the Bush Administration promoted an atmosphere of corruption, cronyism, and criminality at the RIK/MMS. This was facilitated by industry representatives who should have known what the legal limits were even if their government contacts did not but had no problem involving themselves and their companies in a “pay to play” scheme that was little more than bribery.

On February 4, 2009, Milton Dial received a minimum sentence of probation and a $2,000 fine for violating conflict of interest laws. The judge actually apologized to Dial saying that “high executives” in our government go unpunished although they break this law all the time. Apparently the judge’s argument is that the small time thieves in the Bush Administration deserve our sympathy because they didn’t steal as much as others. This is accountability we can not believe in.

The reasons are obvious: infrastructure (in transportation, we are talking about highways, airports, seaports, railroads and pipelines, primarily) as an asset class, particularly in the U.S., offers very stable long-run returns at medium risk.

The idea is if you want to play (or drive), you have to pay.

USDOT is increasingly attracted to the potential benefits offered by the growing move to a direct user fee model in which a willing private sector can bear large amounts of financing and system management risk.

To this end, he has written model laws for states to create private toll roads and got Congress to approve $15 billion in tax exempt bonds for them.

Duvall is another Bush free market ideologue with no background in transportation. He got his first job at Transportation in 2002 as he describes it as “It was a friend of a friend of a friend sort of thing.” He has been aided by the Department’s General Counsel D.J. Gribbin who got his job through his father’s connections to Dick Cheney and Halliburton and his own to Ralph Reed’s Christian Coalition. A GAO study reported that private toll roads charge more than their public counterparts because they have to generate profits for investors. The nation’s infrastructure should be something more than an “asset class.” This is what happened to crude oil and we saw how well that turned out.

As reported on July 15, 2008, Payne was asked to resign from his DHS advisory position.

A June 22, 2006 report of the Education Department’s Inspector General found rampant mismanagement and conflicts of interest. 16 panels had been set up to review applications for funding by states. These were supposed to be balanced with members from 4 designated groups (the Department of Education being but one of these). However, 15 of the 16 panels had majorities drawn from Department of Education nominees. 7 of them were made up only of them. It just happened that these panels favored one commercial product McGraw-Hill’s Direct Instruction/Reading Mastery. It also just happened that members of these panels and the Reading First program had business and academic ties to Direct Instruction.

Before coming to Reading First, then Director Chris Doherty had been responsible for bringing Direct Instruction to Baltimore schools in 1996. As Director, he was asked about stacking the review panels, he replied, “Stack the panel?’…I have never *heard* of such a thing….<harumph, harumph>”  In an email discussing another product, Doherty wrote, “They are trying to crash our party and we need to beat the [expletive deleted] out of them.” He also referred to them as “dirtbags”.

Despite its problems, Reading First was touted as a good program which improved the comprehension of young readers. Until now. An Institute of Education Sciences report released May 1, 2008 found “Reading First did not have statistically significant impacts on student reading comprehension test scores in grades 1-3.” I’m guessing that while Reading First didn’t help anyone, the $6 billion it cost did.