Countdown

The Buying of the President 1996

Richard G. Lugar

The fact that Indiana Senator Richard Lugar is not generally considered to have a real chance of winning the 1996 Republican nomination for president doubtless says more about the process than the candidate. Lugar, like many of the other candidates, has all the traditional qualifications of a serious contender, but is widely perceived as lacking enough money, charisma, and the high profile necessary to make the first tier. Lugar is the quiet and scholarly candidate at a time when even bombast is considered low-key.

Lugar has been on the cusp of higher office before. On three occasions, Lugar’s name appeared on the vice presidential short lists of Presidents Richard Nixon, Ronald Reagan, and George H.W. Bush, but each time his colleagues were tapped for the position. Bush’s 1988 selection of Dan Quayle, the junior senator from Indiana, was particularly embarrassing for Lugar, who had held office much longer than his younger and less experienced cohort. Yet Lugar voiced no public animosity over the choice. Time’s Margaret Carlson described the event by saying, “He survived that indignity with grace.”

Lugar was born in 1932 in Indianapolis. Just after attending Ohio’s Denison University in 1954, he became a Rhodes scholar, got married, and then enlisted in the Navy to serve as an intelligence officer. But after working at the Pentagon for a little over three years, Lugar made the trek back to Indiana in 1960 — back to his family-owned farm and food machinery firm, Thomas L. Green and Co., which was founded in 1893 by his grandfather.

Lugar first got the itch to plunge into public affairs at the age of 32, and promptly won a seat on the Indianapolis school board. It took him only three years to become the city’s mayor, an office he then held for seven years. His novel approach to local governance — through a combination of initiatives, including the merging of city and county governments called the Unigov system — and his call for fewer federally funded programs for city governments earned accolades from President Nixon. The president dubbed Lugar his favorite mayor in America. In 1973, Lugar made Nixon’s list of potential vice presidents after Spiro Agnew resigned the office.

The Nixon association proved disastrous when Lugar made a run for the U.S. Senate in 1974 — the year of Watergate and Nixon’s resignation. He lost a fairly close race to incumbent Democratic Senator Birch Bayh. Within two years, however, Mayor Lugar overcame his lone electoral defeat to beat the other Democratic incumbent senator, Vance Hartke. Though his next Senate race in 1982 was tight, the following two saw Lugar winning by landslides. He is the only senator from Indiana to win four terms in Washington.

In the Senate, Lugar has established himself as a foreign policy expert. He became a trusted voice for the Reagan administration in the early 1980s, convincing the White House to press Philippine leader Ferdinand Marcos to step down after Lugar said he observed Marcos’s theft of the election against Corazon Aquino in 1986. Aquino later said that if it had not been for Lugar, “There would be no Philippine-U.S. relations to speak of by now.” A few years later, Lugar became an advocate of imposing sanctions against South Africa for its apartheid system of government. President George Bush also heard from Lugar on international matters when the Indiana senator took the lead in pressing for a strong U.S. response to Iraq’s invasion of Kuwait in 1990. Lugar’s knowledge of foreign affairs landed him on the Senate Foreign Relations Committee, where he served as chairman in 1985-1986, when the Democrats regained the majority.

On the agricultural front, Lugar has been a prevailing voice on farm issues, working very closely with former Senate Agriculture Committee Chairman Patrick Leahy, a Democrat from Vermont. Lugar took over the job in 1995. But his service on the committee has been unusual in that he has consistently tried to reduce the amount of direct and indirect subsidies that farms and agricultural companies receive from the government, arguing that market forces would be a good thing for the farm industry. Though Lugar still owns an Indiana farm that received more than $40,000 in federal subsidies between 1989 and 1995, and he received more than $50,000 from agribusiness PACs between 1988 and 1992, he advocated the reduction of the program, a move that would cut into his own profits.

Despite his association with agricultural matters, only two of his top 10 donors over the past 15 years are related to agribusiness. Half are PACs based in Washington, D.C. One of the more intriguing financial backers is the only one from his home state, Eli Lilly and Company of Indianapolis.

Eli Lilly

Eli Lilly and its employees have been Lugar’s most generous donor since 1979. The pharmaceutical manufacturer’s contributions to Lugar’s senatorial campaigns and leadership PACs exceeded $82,000 between 1979 and 1994.

Started in 1876 by Colonel Eli Lilly, a pharmacist who fought with the Union in the Civil War, the drug maker has become one of the nation’s most influential pharmaceutical companies. Known in the 1920s for the introduction of insulin, Lilly has now gained prominence for its top-selling drug Prozac. The Indiana company and Lugar have had a close relationship dating back to Lugar’s years as Indianapolis mayor. The relationship is so close, in fact, that there has been a revolving door between Eli Lilly, its charitable foundation the Lilly Endowment, and Lugar’s mayoral, senatorial, and presidential campaign staffs. Terry Holt, Lugar’s campaign press secretary, explained the practice by saying that “Indiana is fairly intimate.” At least four Lilly employees have gone on to work for Lugar in some political capacity. They are members of what the Indianapolis Business Journal called the “Lugar Club.” One of them is Lilly executive Mitch Daniels, a former political adviser to President Reagan, who in 1995 was selected to manage Lugar’s presidential bid. Daniels also served as Lugar’s first Senate chief of staff and has been an individual campaign contributor. “Mitch cut his teeth in politics in Lugar’s mayor days,” Holt told the Center for Public Integrity.

The closeness between the company and the senator, however, encompasses more than merely sharing a common talent pool. During the volatile debates over President Clinton’s health care reform proposal, Lilly launched a massive lobbying campaign to torpedo the plan, which contained provisions threatening to control the price of pharmaceuticals. Lugar, for his part, vowed to fight the Democratic plan, specifically saying he would not support reform measures that contained price controls on drugs. In mid-August 1994, Lugar, along with fellow Indiana Republican Senator Dan Coats, appeared at a Washington, D.C., rally thrown by an Indiana group that hoped to see the health care bill fail. Lugar, who promised to block the Democratic bill, was presented with “filibuster survival kits” by the group, complete with throat lozenges and cotton-ball earplugs to block out the protests of the Democrats.

The bill was pronounced dead in November 1994. Eli Lilly’s stock rose three-eighths of a point after the news broke. During the two years the health care bill was being formulated and debated, the Eli Lilly company, as well as its employees and their spouses, donated more than $42,000 to Lugar’s Senate campaign. Holt said he did not know if Lilly had lobbied Lugar, but that the senator’s opposition to the health care reform legislation had more to do with ideology than campaign contributions.

Lugar’s support for Eli Lilly has come in varied forms throughout his political life. In March 1992, Lugar voted against a cost-containment measure for drugs, which would have penalized companies with the loss of tax credits for their Puerto Rican plants if the drug makers increased their pharmaceutical prices more than the rate of inflation. Democratic Senator David Pryor of Arkansas, who proposed the bill, said drug costs had been increasing at three times the rate of inflation. The bill failed, 61-36. Lilly had a stake in the bill; at the time it had in excess of $300 million in capital investments in Puerto Rico and that year had announced a $65 million expansion of its Puerto Rico facility. The Associated Press estimated that Eli Lilly stood to lose tens of thousands of dollars if the tax credits — exempting Lilly from paying U.S. income tax on profits earned in Puerto Rico — were scrapped. A trade publication, Institutional Investor’s Portfolio Letter, said Eli Lilly would be hurt by Pryor’s legislation.

In 1991, Lugar asked Brazilian President Fernando Collor de Mello to meet with Eli Lilly President Sydney Taurel to discuss pending Brazilian patents legislation that American pharmaceutical companies believed could adversely affect them. Taurel was head of the Pharmaceutical Manufacturers Association delegation to Brazil at the time. The Brazilian legislation never went anywhere because President Collor resigned under a cloud of corruption charges before the plan got underway.

In 1986, Lugar made the announcement that Eli Lilly CEO Richard Wood, another Lugar contributor, had been tapped by President Reagan to join the president’s Export Council. Of the appointment, made public by Lugar’s office, Lugar said in a statement, “Dick Wood and Eli Lilly have been leaders in expanding America and Indiana’s export potential.” With respect to Lugar’s helping Wood get the appointment, Lugar’s campaign press secretary, Terry Holt, said, “Lugar, as a senator, has a certain responsibility.”

In 1985, Eli Lilly received a special foreign trade sub-zone provision for its Indiana plants, which at the time produced most of Lilly’s $350 million in annual exports. The sub-zone designation exempted Eli Lilly from customs duties on items it used in making the exports. Lugar, who again made the announcement along with Quayle, said: “The duty benefits of a trade zone also encourage companies to continue manufacturing in this country. This is good news for Lilly.”

The Center for Public Integrity contacted Eli Lilly and Company and asked about its relationship with Lugar. The company did not respond. Terry Holt, however, said: “If people have given Lugar money over the years, it’s been because of the decisions he made. The idea [that his vote can be bought] is absurd.”

Lugar told the Center for Public Integrity he believes that campaign contributions from any one source rarely have any impact on the way a legislator behaves because federal campaign financing laws, which cap donations, dilute the influence of any one company or PAC. “There is a lack of specific indebtedness,” Lugar said, citing the contribution limits. He said it is difficult to try to single out and remember those who made large contributions when dealing with millions of dollars. “It is hard to remember precisely the proportion that anyone [gave],” he added.

That may be the case, but during the course of a long career in public office, Lugar has quite clearly recalled at least one other Indiana patron.

The Marott Hotel

When Lugar was a child, he thought Indianapolis’ historic Marott Hotel — where famed actress Betty Grable and other well-known personalities used to live — was quite impressive. He got to know it pretty well when his grandmother lived there. “It was a beautiful place,” Lugar recalled in a 1995 interview. Over the years, however, the old hotel had fallen on hard times and needed a serious makeover.

In 1982, Indianapolis developer Kenneth Puller decided it was time to restore some of the grandeur of the building and spearheaded a project to convert the hotel into upscale apartments. But in order to finance the renovation, Puller needed a loan from the Department of Housing and Urban Development. That’s where his friend Dick Lugar came into the picture.

“I remember Mr. Puller and his wife were contributors to my campaigns,” Lugar told the Center for Public Integrity. “And I think they contributed in more than one instance. . . . They were active in the Indiana Builders [Association] and people who were doing work for the builders.” Puller and his wife contributed $6,000 to Lugar between 1981 and 1982 and $3,000 to the Republican Senatorial Committee when Lugar ran it in 1983 and 1984. Between 1979 and 1994, the National Association of Home Builders PAC gave Lugar $29,500, making them his No. 4 top career patron.

Lugar’s aides, with the senator’s approval, lobbied HUD officials in Washington, D.C., to approve the loan, despite the fact that the Indianapolis HUD branch had initially rejected the project. Lugar told the Center for Public Integrity that he had sent a letter to HUD on Puller’s behalf. In a letter to The Louisville Courier-Journal, Lugar explained: “A member of my Senate staff worked with the city of Indianapolis and with HUD to convince the latter to take a longer term view and to support the project. These staff conversations occurred by telephone at a relatively low level.” At the time, Lugar was chairman of the Senate Housing and Urban Affairs Committee. Two weeks after the Indiana office rejected the Puller loan, a Lugar supporter and campaign contributor, Martha Lamkin, was appointed to take over the Indianapolis HUD office. She and her husband gave $2,455 between 1979 and 1994. Lamkin told Newsday that she was instructed by the regional HUD officers to approve the loan immediately.

Puller was successful in securing a nearly $13 million HUD loan. But by early 1989, despite the fact that most of the apartments in the renovated Marott Hotel were occupied, he was forced into default on the loan after higher-than-expected construction costs rendered Puller unable to pay back the debt. HUD wound up buying back the mortgage, costing taxpayers millions. The hotel was sold at auction in January 1994 for $2.5 million.

Lugar has admitted his involvement in the matter, but says he does not regret helping to revive the hotel. “I’m still delighted the Marott Hotel was resurrected,” he told the Center for Public Integrity. During a press conference in the days immediately following news of his efforts in Newsday, Lugar said, “I think that my intervention was appropriate, and I would say at no time did I visit with the secretary of HUD or other higher officials with regard to this.”

Lugar also helped Puller in the early 1980s when the senator wrote to HUD officials asking that Puller be admitted into a new HUD program called “co-insurance.” The program replaced HUD staff with private entities that would receive fees for processing loans for housing projects “by selling securities backed by the Government National Mortgage Association,” according to Newsday. If the private lenders defaulted, the government would assume 80 percent of the cost. Puller’s company was the first to participate in the program, where he eventually developed $400 million worth of HUD-backed projects, with the potential for Puller to earn tens of millions of dollars. However, in 1989, HUD indefinitely suspended Puller’s contract.

Lugar told the Center for Public Integrity that he helped another campaign contributor, J. Irwin Miller, the chairman of Cummins Engine Co., and other citizens of Columbus, Indiana, obtain HUD financing for a development project there. Lugar actually visited then-secretary of HUD, Samuel Pierce, to discuss the matter. Miller, whom Lugar described as “one of the patron saints of the country,” has donated $4,850 to Lugar’s Senate campaigns.

Despite Lugar’s entanglements with Eli Lilly and developer Kenneth Puller, he has generally been regarded as a “clean” member of Congress, one who is not overtly interested in the fast-paced race for cash and who is more concerned with policy questions. But it is Lugar’s involvement with the politics of money that has spawned the relatively sparse negative publicity Lugar has received throughout his career. Even though he failed to land a VP spot on various GOP tickets, Lugar was not deterred from getting further involved in the highly competitive arena of partisan politics, particularly the monetary aspect of it. In 1979 and 1980, Lugar got a firsthand feel for a national political race when he managed the short-lived presidential campaign of his friend, then-Senate Republican leader Howard Baker. Though Baker’s effort was unsuccessful, he later rewarded Lugar by handing him the reins of the National Republican Senatorial Committee (NRSC), which Lugar held between 1983 and 1984, and later the Republican Majority Fund, Baker’s one-time leadership PAC that became Lugar’s in 1987. Though the PAC has not raised any money since 1990, Lugar did raise $515,846 for the Republican Majority Fund between 1987 and 1990, as well as $81.6 million for the NRSC in his two-year tenure as its chairman.

A 1989 Common Cause study showed that of all the senators receiving honoraria between 1983 and 1987, Lugar kept the most — $238,076 — and came in second for the most raised with $399,135. Other Common Cause studies showed that Lugar several times ranked among the top senators for most honoraria received. Most of that money came from agricultural interests and financial institutions.

Lugar has also fared well in fundraising for his senatorial campaigns, raising more than $9.5 million between 1979 and 1994.

To become the nation’s chief executive, Lugar will have to do much better than that to catch up with the money leaders in the 1996 presidential race. “I can’t say we have been hobbled by a lack of money,” Lugar said in the summer of 1995. “. . . We’re going to be competitive.”