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Games and Scoundrels

Let the Games Begin

With June on our doorstep and November elections six months away, the specter of Enron hangs heavy over the heads of Republicans. Fittingly, nowhere is this truer than in Enron's home state of Texas.

Republican Gov. Rick Perry faces a challenge from Democrat Tony Sanchez and state Democrats have made Enron and high energy prices a central issue in the campaign.

Even in energy-rich Texas, the state's utility ratepayers suffered under high natural gas and electric rates in 2000 and 2001 along with everyone else. And, with the hot summer months ahead, air conditioners will provide consumers with a monthly reminder that energy deregulation has brought nothing but higher utility prices.

The Sanchez campaign ads blame the high rates on Enron's manipulation of national energy markets, made possible by Republican political support at the state and national level.

The ads also question Gov. Perry's credibility, pointing to the governor's appointment of a former Enron executive as Texas PUC chairman just before accepting a $25,000 contribution from Enron Chairman Kenneth Lay.

Sanchez is touching a sensitive nerve in Texas politics, but one that bore fruit twenty years ago and put another Democratic challenger in the Governor's Mansion. In 1982, Democrat Mark White ousted incumbent Republican Gov. Bill Clements, by blaming Clements for high electric bills, the result, White alleged, of GOP-backed energy policies. White promised to put a suburban housewife on the state Public Utility Commission.

While Sanchez has not made a similar offer, his campaign strategists are clearly targeting the suburban female vote, which analysts suggest may hold the key to victory this fall.

"When you talk about pocketbook issues and household expenses, this is a group (suburban women) that is knowledgeable about those issues," Texas political scientist Bruce Buchanan told reporters.

Gov. Perry is trying to attract the same voters by changing the subject. Perry has focused on the rising cost of homeowner insurance.

Texas is far from the only state where Democrats are likely to taunt Republicans with Enron-like issues. Republicans will be defending 27 governorships in the November 2002 races; Democrats will have to defend only seven.

Connecticut Gov. John G. Rowland is among the GOP governors playing defense. Besides facing re-election, he is also serving as head of the Republican Governors Association. Rowland, 45, had been considered a sure bet for re-election to a third term -- that is, until Enron collapsed and cost the state over $200 million.

State voters learned that in December 2000 Rowland met with three top Enron executives. Four days later, the board of the Connecticut Resources Recovery Authority, whose directors are appointed by the governor and legislature, unanimously approved a contract in which the CRRA advanced $220 million to Enron for a trash-to-energy facility.

The state trash collecting agency has lost its $220 million. As a result, Rowland acknowledged in an interview here, the coming campaign "will be ugly."

Last Refuge of Scoundrels: Offshore

The next time you see one of those television ads with firemen and police that tout a company's post-9/11 patriotism, you might want to find out where they are incorporated. Increasingly, you will find American companies incorporating outside the US in order to save on taxes.

Most Americans who can read now know that Enron maintained over 900 offshore companies that it used to avoid taxes, hide debt, confuse regulators, fool investors and enrich a handful of insiders.

Enron's auditors, Arthur Andersen, sanctified all this fancy footwork. That Andersen saw nothing wrong with all this should not have come as a surprise to anyone. Andersen itself had moved key parts of its business offshore. The company split off its consulting arm, Andersen Consulting, renamed it "Accenture" and incorporated it in tax-free Bermuda.

Now, with political heat on auditors who also sell consulting services to its audit clients, Price Waterhouse Cooper has also moved its consulting arm offshore. PWC created two layers of tax protection by incorporating their consulting arm in Luxemburg, then "selling" it to a Bermuda-based paper corporation.

All of this is just an elaborate paperwork fiction. PWC US still controls PW Consulting and will continue to enjoy the fruits of its endeavors. They will just not have to hand as much of it over to Uncle Sam.

It's a move that brings nothing but benefits to PWC while short-changing the US Treasury. PWC can continue to be based in the United States, where it does more than half its business. And the company's stock will continue to trade on the New York Stock Exchange. The company drastically reduces its US taxes while continuing to audit US companies for the SEC, as its offshore consulting arm advises more of those companies to do as it did -- move offshore.

"If you believe in efficiency, you have to admire how the consulting industry gets three bites at the going-offshore apple," writes Washington Post columnist Allan Sloan. "First, it (PWC) gets fees for helping American companies move offshore. Second, it gets paid for lobbying against congressional efforts to close this loophole. And third, it moves offshore itself.

One would think that an administration waging an expensive worldwide war on terrorism would want to plug such an enormous leak in the US Treasury. But Republicans find themselves in an awkward position. President Bush, and many GOP House members, won office promising corporate donors large tax breaks. But Democrats thwarted those efforts. Republicans now cannot afford to be seen by corporations as aiding Democrats in shutting off a company's self-help tax cut channel offshore.

The last time the US faced worldwide conflict American companies bought war bonds and converted to war-related production. Today, a growing number of large US companies invest in patriotic TV ads while they sneak out of the country in order to cheat the national war chest of tax revenue.

Stephen Pizzo is the editor of The Daily Enron. His bestselling book, "Inside Job: The Looting of America's Savings and Loans," is now available as an ebook.

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