At the height of his political power, Charles Keating commanded a private meeting with five U.S. senators from four different states, stopped the Arizona State Legislature from passing astonishingly popular legislation against artificial lakes, and bullied the Phoenix City Council into doing his bidding over a bitterly contested zoning case--the same council that was forced to pass voluntary campaign-contribution limits amidst charges it'd been bought by Keating.
In the past few years, the head of American Continental Corporation showed he was skilled at throwing his weight around--and he was proud of it. In fact, K-e-a-t-i-n-g became a new way to spell controversy in Arizona. Just last week, Governor Rose Mofford signed a bill aimed at stopping developers like Keating from using a "rent a cow" tax dodge. His Citizens for Decency Through Law, one of the nation's major anti-porn groups, was a dominant force in the election of such controversial officials as former Maricopa County Attorney Tom Collins.
Keating's financial empire crumbled last week with the filing for bankruptcy protection and the federal takeover of his huge California savings and loan. Many are gloating that his political power has been emasculated, too.
WHEN CHARLES KEATING asked politicians to jump, they would say, "How high?" The prime example was a private meeting on April 9, 1987, in the D.C. offices of Arizona Democratic Senator Dennis DeConcini. Arizona's Republican senator, John McCain, also was there. So were three other senators: John Glenn of Ohio, Donald Riegle of Michigan (the head of the Senate Banking Committee) and Alan Cranston of California. So were a squad of officials from the Federal Home Loan Bank Board, which for two years had been investigating Keating's major asset--Lincoln Savings and Loan Association, a California-based thrift. Keating bought Lincoln in 1984 and used its deposits to finance his real estate empire.
There were two ways to judge the clout in that room that night. One was the power of the five men elected to the country's most exclusive club. The other was the generosity of Keating to their election campaigns: McCain, $112,000; Riegle, $70,000; DeConcini, $43,000; Cranston, $41,900; Glenn, $34,000. (A year later, when the Detroit News broke the story of the meeting, Riegle returned the money.)
According to notes kept of that meeting, the bureaucrats sat through a long lecture led by Glenn and DeConcini. The gist was just what Keating wanted to hear: The feds should either charge the guy with banking irregularities or get off his back. (At a news conference called this week to explain the bankruptcy, Keating again blamed the feds and their probes of Lincoln as the source of his problems.)
But the warning signs of a financial collapse were posted at that meeting, as it turns out. The senators were told by the banking officials that Lincoln was using "unsafe and unsound" lending practices, that Lincoln was "flying blind on all of their different loans and investments." Glenn noted not everybody conducts business by the book, but he wondered, "Is their judgment good?" One of the federal officials replied: "That approach might be okay if they were doing it with their own money. They aren't. They're using federally insured deposits." When Riegle pushed for the bottom line, asking, "Where's the smoking gun?" a bank board official replied, "This is a ticking time bomb."
McCain would later say he was uncomfortable with the whole thing: "I wasn't sure what was going on. I stayed awake worrying about the appearance of impropriety." But DeConcini characterized the meeting as typical: "Just another example of elected representatives going to bat for a constituent who appeared to be getting pushed around by bureaucrats."
STATE SENATOR JOHN HAYS remembers the "constant pressure" from Keating's hired guns to stop the artificial-lakes bill in 1986. The Yarnell Republican wasn't sure at first that anyone could seriously defend using precious drinking water for a decorative lake when the state's new groundwater law demanded water conservation. His bill would have allowed developers to fill their lakes only with undrinkable water and would have closed a loophole that allowed developers to buy farmland and pump groundwater for lakes.
Opinion polls showed as many as 80 percent of the citizens said they wanted this squandering stopped. But Keating was the most devoted disciple of using lakes as a selling tool.
"He wanted to continue building artificial lakes with any kind of water that he wished, to use mainly potable drinking water," Hays recalled last week. "I guess his morals are great, but in business he's ruthless on stepping on you or running roughshod. He's not overly sensitive about other people's views and would do whatever was necessary to intimidate legislators."
Hays says he can't even guess how much Keating spent on the "hotshot lawyers" he hired to kill the lakes bill in 1986. But he got what he paid for. The bill didn't pass the legislature until 1988, after Keating had completed the major lakes he wanted (although those projects are now endangered by his bankruptcy).
But phony lakes weren't the only loophole Keating exploited. He also discovered, as have many others, that you could escape large property taxes if you just pretended that farmland you were holding for a future subdivision was still being used for agriculture. The tax break for farmland was intended to help farmers stay in business. But when that farmland was sold for development, it was supposed to jump in value unless the new owner could prove that fields were still planted or livestock were still being raised.
That's where the phrase "rent a cow" comes in--some developers would put a cow or two on land when the county appraiser came around. Some, like Keating, didn't even bother going that far.
The public was shocked to learn last year that Keating was paying only about $4,100 in property taxes on his 1,000- acre planned housing-commercial development in Mesa called The Crossings. The Maricopa County Assessor's Office later said he should be paying about $628,000.
But Keating announced he would fight the higher bill, claiming he legitimately deserved the farm tax break. He announced that he intended to plant water-demanding barley, even though the property had no water rights. While everyone else laughed, Keating's people didn't flinch in announcing they intended to let natural rainfall take care of the crop.
THE PHOENIX CITY Council has a chummy history with Charles Keating.
Keating was the largest single contributor to the election coffers of the "reform" council that took office in 1983--a council pledged to "open the doors of City Hall" to more than just developers. But the "shining knight" of the reform movement, first-time mayoral candidate Terry Goddard, was labeled a hypocrite by Keating shortly before the election. Some say Goddard will never erase that stigma.
Goddard, who had led the successful citizens' initiative to change Phoenix elections from at-large to a district system, was running for mayor against the business community's favorite son, ex-lawmaker Pete Dunn. In an infamous news conference, Goddard announced Dunn was in Keating's pocket because he'd accepted $20,000 in contributions--something Goddard would never do under his self-imposed $5,000 per-contributor limit. Then, using a bit of theatre, Goddard parroted the well-known slogan for the company Keating then owned, saying if Dunn were elected, Keating's reception at City Hall would amount to "Continental, welcome home."
A week before the election, Keating called his own news conference to drop a bombshell: At the behest of DeConcini and others, he'd pledged $20,000 to Goddard, but the checks weren't supposed to arrive until just before the election--too late to list them in the last campaign report before the vote. Of course, Keating announced, he wasn't giving the pup the money now.
Keating's generosity to practically all council candidates became a major embarrassment to City Hall. Before the 1985 election, Mayor Goddard pushed through a "voluntary" campaign limit. But Keating and his associates were again the single largest source of campaign money and within weeks of that election, the council blatantly showed Keating special treatment.
Keating wanted instant rezoning on 1,100 raw desert acres he envisioned as a "new town." The land, closer to Carefree than to the urban areas of Phoenix, had just been annexed a year earlier. Instead of the 1,300 homes he could build on the land, Keating wanted new zoning so his "Foothills" project could have a resort, shops and homes for 15,000 people.
The Foothills was the largest single project the Phoenix City Council had ever considered. In September 1985, it said it couldn't rezone the land without some basic planning. It gave the city's planners only six months--they wanted a year to eighteen months--to evaluate Keating's ideas and develop a preliminary plan of development. The council also appointed a citizens group to review all the plans. Yet just 49 working days later, with Keating arguing that "time is money," the council "reconsidered" its short delay. It set the Foothills project for a council vote on December 18, the last council meeting of the year--and the final meeting for outgoing councilmember Barry Starr, whose "yes" vote was crucial to the project.
No other developer had ever been so accommodated by this council. That haste looked even more suspicious considering this: The Phoenix Planning Commission had voted to reject Keating's rezoning and was never allowed to review the thrown-together preliminary plan, and the citizens committee held its first meeting the day after the council rescheduled the zoning case and never was allowed to review anything. Scottsdale and Carefree fought the rezoning, and the state Department of Land said it couldn't believe Phoenix would move so quickly on a project so enormous.
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There were strong suggestions at the time that Goddard had cut some kind of "deal" with Keating so the developer would allow his land to be annexed to Phoenix, rather than to Scottsdale. Although Goddard vehemently denied it, one councilmember, who requested anonymity, told New Times it was "common knowledge" at City Hall that there was a deal.
Keating got his rezoning, but he later sold the land to another developer.
In 1987, Charles Keating called a news conference to say that if the city council weren't kinder to him in the future, he'd leave town.