Capital Goods - March 2010

More than just a bubble burst
By Scott Mooneyham

Ponder this: Mike Easley might be a victim of the housing bubble. No, I don’t have any knowledge of the former governor’s personal finances. I don’t know how much of a bath he and his wife, Mary, might have taken — even with a $137,000 discount — on their now infamous purchase of a coastal lot near Morehead City. And, no, I’m not lumping the Easleys among the millions of home buyers who, through no fault of their own, woke up one day to find their houses worth less than they owed on the mortgages.

Easley appears to have been caught up in a rush of land speculation along the North Carolina coast. In fact, he — and the state Democratic Party, when he was governor — became an investment of a clutch of coastal real-estate developers who, according to testimony before the State Board of Elections last fall, found ways to put their money to work in his administration. Understanding commerce better than most politicians, he seems to have realized that business people invest with an eye on return. Allowing developers to sidestep lengthy reviews for critical permits, he ensured they got one.

Prosecutors don’t see it that way. His coziness with developers has led to criminal charges against a top aide and remains the focus of scrutinizing the two-term governor’s affairs: Did regulators, responding to pressure, let the good times roll for coastal land developers? Based on subpoenas from a federal grand jury, the investigation is wide-ranging. There’s the $170,000-a-year job his wife landed at N.C. State University, plus the free use of cars and flights on private planes that never showed up on disclosure forms. But repeatedly, the scandal circles back to developers who were Easley donors seeking to score as the value of waterfront property soared through most of the decade.

In 2003, some of them complained about the time it took to get environmental permits, and Easley listened. Understanding that time was money, the governor created an expedited permitting process for those willing to pay extra. The change in policy wasn’t intended as a way to skirt environmental review, he said at the time, but to speed up the process at no additional expense to taxpayers. Maybe that was the idea, but by his second term, the governor was doing more than heeding developers’ concerns. He was buying property from them.

In late 2005, he got a bargain, buying a choice lot in a waterfront development called Cannonsgate, on the mainland side of Bogue Sound across from Emerald Isle. The sale was recorded at $549,880. The Raleigh News & Observer later determined that the real price was closer to $313,000, thanks to a hidden 25% discount. The project was crawling with people who had ties to Easley. He appointed one of the developers, Randy Allen, to the N.C. Wildlife Resources Commission. McQueen Campbell, who brokered the land to Allen, went on the N.C. State University Board of Trustees, where he became chairman. A key financier, Lanny Wilson, sat on the powerful state Board of Transportation.

Easley has denied that the appointments were paybacks. Some occurred before he bought the lot. But the indictment of Ruffin Poole — described as his go-to guy — on 51 federal public-corruption charges and testimony at the Board of Elections hearing indicate that developers had a lot of pull in his administration. When they ran into regulatory resistance, the indictments allege, they contacted Poole, who pressured bureaucrats to back off. A lawyer whose primary job was vetting appointees to state boards and commissions, Poole made some shrewd investments of his own. With Wilson’s help, he was an investor in Cannonsgate and another coastal development, making $55,000 after contributing $200,000, according to the indictment.

His wasn’t the only cash sloshing around. Developer Gary Allen, Randy’s brother and partner, wrote two $50,000 checks to the state Democratic Party. At the time, he was negotiating with the state over a permit for a boat ramp at another coastal development. Wilson wrote a $10,000 check. He told the Board of Elections that he understood the money would benefit Easley’s campaign — which campaign and party officials have denied. Such a deal would have violated campaign-finance laws.

In February, if you had checked online, you would have found that roughly a quarter of the foreclosures in Carteret County were in Cannonsgate. Some lots in the subdivision were listed for less than $40,000. A lot of people got hurt when the real-estate bubble burst. One saw something else pop — his political legacy.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.