By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
Published online November 14, 2006, 3:30 p.m. MST
COPYRIGHT 2006, Phoenix New Times
Two years ago, Governor Janet Napolitano gave sole rights to tens of millions of dollars in bond business to a group of politically connected retired firefighters with zero experience in the field, New Times has learned.
And then she vetoed a plan that would have given them competition.
Although the group is charged with making student loans, not one of its officers is involved with higher education, college financial aid, or even bonds.
The group's president, Pat Cantelme, ran the firefighters union in Phoenix for 20 years. Its vice chairman is a criminal-defense attorney. And its secretary/treasurer is Billy Shields, who now runs Cantelme's old union.
As it turns out, Cantelme got the idea to start the Arizona Higher Education Loan Authority from a bond broker, a local Democrat with his own political connections. That broker, Chris Hamel, and his firm have since been paid hundreds of thousands of dollars as the group's sole broker-dealer and underwriter for $227 million in bonds. (Of that total, $186 million were allocated to Cantelme's group by the Arizona Department of Commerce, which means they are tax-free.)
The agency is a nonprofit. Cantelme insists that neither he nor his board members have profited one cent, or will.
No one is accusing them of wrongdoing. But that doesn't mean that someone closely tied to AHELA's creation isn't already cashing in.
After all, there is money to be made in this deal. A lot of money. In the bond business, underwriting and brokerage fees can easily run in the millions of dollars. And just because this is a nonprofit doesn't mean that underwriters aren't paid fees. They are.
The firm that employs Chris Hamel, the guy who gave Pat Cantelme the idea to start the group, has already earned $1.29 million, according to bond records.
Amazingly, Napolitano's spokeswoman, Jeanine L'Ecuyer, defends the inexperience of Cantelme's group by noting that Hamel was part of its start-up team. And he's highly experienced.
But L'Ecuyer's defense makes one thing very clear: The only guy with experience was the guy who planned to profit from the venture.
The federal government allows states to sell bonds as a tool to finance big projects. The bonds are exempted from federal taxes.
The feds allot Arizona approximately $475 million in bonds every year. And, under Arizona's rules, 20 percent of the total is earmarked for student loans.
For 22 years, the nonprofit Arizona Educational Loan Marketing Corporation, or AELMC, was by and large Arizona's only designated seller of tax-free bonds to underwrite student loans.
But in October 2004, AELMC's parent company was sold to Sallie Mae, a for-profit company in Virginia. It was getting out of the tax-exempt-bond business.
And Pat Cantelme wanted to get in.
Cantelme is a soft-spoken, well-liked Phoenix native who became a legend running the United Phoenix Fire Fighters union. As union president, Cantelme turned the firefighters into a political force and dodged every bullet that came his way, including a former police chief's ill-executed attempt to smear him with a charge for dealing cocaine. (The evidence, as it turns out, was virtually nonexistent.)
Perhaps the only thing that really tarred Cantelme's legacy was his ill-fated decision to introduce the guy managing money for three unions to Fife Symington a connection that resulted in Symington's defaulting on a $10 million loan, and the union pension fund holding the bag.
In his retirement, however, Cantelme has become adept at maxing out his political connections for business opportunity.
His political consulting firm won business from Phoenix City Hall, even as it ran campaigns for council members. And the ambulance company he co-owns, PMT, has been winning 911 contracts in part because of support from his union brethren even as a rival company is actually unionized under the International Association of Fire Fighters. It's drawn him some criticism, since Cantelme's former union "brothers" stand to lose their jobs if his company is successful (see "Ambulance Chasers," October 27, 2005).
Cantelme refused to tell New Times how he even knew that the state's bond nonprofit was closing up shop, much less that the work was up for grabs.
But Chris Hamel admits it. It was he who gave Cantelme the tip even as, he admits, he's the guy who's profited from it.
Hamel was a senior assistant to Governor Bruce Babbitt in the 1980s. But he left politics and carved out a lucrative career as a bond salesman. Now a director at RBC Dain, Rauscher, one of the nation's top bond firms, he's helped many municipalities in the Valley sell bonds to finance construction projects.
Hamel says that the idea to start a loan authority "sort of emerged in a conversation between Pat Cantelme and myself. It was one of those conversations I was discussing that a not-for-profit needed to be started to fill a void, and Pat picked up the idea and developed it."
After all, Hamel couldn't just apply to do the work. He knew that the bonds must go to a nonprofit company. That's the law.
Cantelme confirms that he approached Napolitano's deputy that fall and asked if he could start a nonprofit to be designated Arizona's new student loan bond seller. And Napolitano agreed.