Revenge of the Penny Tax

Miami-Dade State Attorney Katherine Fernandez Rundle has asked the governor to appoint a special prosecutor to review allegations that the presidents of Florida International University and Miami-Dade Community College violated the state's campaign finance laws during last year's failed effort to raise the sales tax by a penny in order to create a dedicated source of funding for transportation issues.

The investigation into the so-called Transit Not Tolls campaign has been simmering for months and centers on donations made to the campaign by the nonprofit foundations for FIU and MDCC. The FIU Foundation contributed $299,000, while the MDCC Foundation contributed $150,000. Investigators are examining whether individuals and corporations were encouraged to donate money to the foundations, knowing that their contributions were going to be passed along to the Transit Not Tolls campaign. Such encouragement would almost certainly be illegal, violating the state law against using a third party to donate to a political campaign.

The state's campaign finance laws carry both civil and criminal penalties. Neither FIU president Modesto “Mitch” Maidique nor MDCC president Eduardo Padron returned phone calls seeking their comment.

“I believe that a conflict exists as to this office carrying out its prosecutorial duties,” Rundle wrote in the July 28 letter to Gov. Jeb Bush. “Therefore to avoid the appearance of impropriety, I am requesting that an executive assignment be made regarding this matter.” In an interview last week, Rundle explained that she believed she had to recuse her office from the case because she works closely with Maidique on FIU's efforts to establish its own law school.

Rundle told me she first became aware of the allegations several months ago and that the Florida Department of Law Enforcement was leading the investigation with help from one of the prosecutors in her office. At the time she considered the examination of the allegations to be merely an “inquiry,” and so she did not feel obliged to recuse herself. In recent weeks, however, Rundle said it became clear that enough questions and concerns had been raised regarding the donations to the campaign to warrant a formal investigation. Governor Bush is expected to assign the case to another State Attorney's Office sometime this week.

The revelation that donations to Transit Not Tolls are being investigated comes at a particularly inopportune moment for Miami-Dade Mayor Alex Penelas, who is entering the final weeks of his re-election campaign. Penelas was the architect of the Transit Not Tolls campaign, orchestrating what already was considered a sleazy and misleading operation. Penelas pushed to have the election held on a Thursday in the dead of summer in an effort to keep voter turnout low. Even the name of the campaign -- Transit Not Tolls -- was deceptive, since the majority of tollbooths in the county would remain in place even if the sales-tax increase passed.

Despite these tactics (some would argue it was because of them) the proposed sales-tax increase was soundly defeated. And in the end, the only people who benefited from the campaign were cronies of the mayor, who received hundreds of thousands of dollars from campaign coffers.

BVK Meka, a firm owned by Penelas's friend and confidante Herman Echevarria, received more than $280,000.

P&M Advertising, owned by Pedro Milian, was paid more than $270,000.

Knight-Perry International Group, a “public relations” firm owned by Dewey Knight III and Bill Perry III, raked in more than $150,000. (If the name Bill Perry sounds familiar, it's because four years ago he ran for county mayor. At the time many people believed Perry was planted in the race by Penelas to draw black votes away from Art Teele, Penelas's main rival in 1996. Both Teele and Perry are black. Perry denied he was acting as a Penelas stooge, but since Penelas was elected, Perry has attained insider status at county hall and has been placed in several contract deals.)

Gutierrez & Associates, owned by Armando Gutierrez, received $64,000. Strategic Edge, a political consulting firm owned by Brian May, Penelas's former chief of staff, was paid more than $40,000. Communikatz Inc., a firm owned by Penelas ally and current campaign strategist Ric Katz, received more than $32,000.

Penelas even brought in his long-time pollster, Keith Frederick of Frederick Schneiders Research, to handle all the polling for the campaign at an expense of $63,000.

The list goes on and on.

Tally it all up and the failed campaign spent more than $1.9 million. To accomplish such a feat, Penelas's political machine had to go into overdrive raising money. Word went out among engineering firms that if they wanted to continue to do business with Miami-Dade County -- and if the ballot measure passed, there would have been a lot of new road work and construction -- then they had better pony up.

And in an effort to make the proposed sales-tax increase more palatable for voters, Penelas tacked on a number of additional projects that would be indirectly funded if the tax passed, including beach renourishment (designed to quiet concerns by environmentalists over the mayor's transportation plans), improved funding for child-welfare programs (designed to win the support of former Miami Herald publisher David Lawrence), tourism promotion (to placate the business community), and a slew of other items, including new scholarship programs for FIU and MDCC.

Adding FIU and MDCC to the equation allowed Penelas to strong-arm the two schools for donations to the campaign through their private foundations. No one appears willing to say whose idea it was for the two schools to donate to the political campaign.

Maurice Ferré, who was the chairman of the Transit Not Tolls committee, says he acted as a spokesman for the campaign, debating the issue on radio and television, but insists he had nothing to do with raising money or deciding how it was spent. “It was all done by Penelas and the people around him,” he says.

The treasurer for the Transit Not Tolls committee, James Reto, is a close friend of Penelas, and currently is treasurer of his re-election campaign. In fact he has been the treasurer of all Penelas's political races except one.

When I asked Reto who asked him to take part in the transit campaign, he replied, “I don't recall.” He offered only vague answers to my other questions. When I asked why he was being so coy, he responded, “Why say anything if you don't have to?”

According to minutes of FIU Foundation meetings held during the summer of 1999, the donations were presented to the foundation's governing board as a fait accompli. There appeared to be no advance discussion or even a formal vote taken to approve the $299,000 expenditure.

Paul Gallagher, who is senior vice president for the division of business and finance at FIU and oversees the school's foundation, refused to answer questions when I reached him by phone last week. In a huff he declared he was far too busy to talk to me about the school's donation to a political campaign.

No one from the MDCC Foundation returned repeated phone calls.

In addition to the investigation into possible state campaign-finance-law violations, the two schools may have placed in jeopardy the tax-exempt status of their foundations. Several sources claim the Internal Revenue Service also is investigating the donations.

If it isn't it should be.

New Times has a copy of a memo from lobbyist and Penelas ally Ric Sisser in which Sisser encourages donations to the FIU Foundation so the money could then be passed along to the Transit Not Tolls campaign. “Contributions to the “FIU Foundation' will be used for public information and research related to Miami-Dade County's proposed referendum to secure a one-cent sales tax to partially serve as a dedicated revenue source for cultural activities,” Sisser wrote. (Sisser's interpretation of the campaign as a “dedicated revenue source for cultural activities” is wildly misleading but typical of the way the entire campaign was run.)

By giving to the foundation -- with the understanding that the money would then be passed along to the Transit Not Tolls campaign -- donors could reap several benefits. First, it would allow them to hide the fact that they were giving money to the transit campaign. Such foundations are not required to disclose their list of donors.

Second, it would potentially allow them to use the foundation's tax-exempt status to write off their donations on their 1999 tax returns. If these individuals had given directly to the political campaign, their donations would not be tax deductible.

“It's money laundering,” says state Rep. Annie Betancourt, who was shocked when she learned last year that the foundations for FIU and MDCC donated such large sums to the transit campaign. Earlier this year Betancourt successfully introduced legislation she says would prohibit any university foundation from making a similar donation to a political campaign in the future. Betancourt, a Kendall Democrat, argues that the money raised by these foundations should be applied to the benefit of needy students and should not be used to fund such risky political schemes. “How many students could have been helped,” she asks, “with the money they wasted on this campaign?”

We use cookies to collect and analyze information on site performance and usage, and to enhance and customize content and advertisements. By clicking 'X' or continuing to use the site, you agree to allow cookies to be placed. To find out more, visit our cookies policy and our privacy policy.


All-access pass to the top stories, events and offers around town.

  • Top Stories


All-access pass to top stories, events and offers around town.

Sign Up >

No Thanks!

Remind Me Later >