AP Exclusive: Kerry blocked Big Dig provision, then got large donations
By John Solomon, Associated Press, 2/4/2004
WASHINGTON -- A Senate colleague was trying to close a loophole that allowed a major insurer to divert millions of federal dollars from the nation's most expensive construction project. John Kerry stepped in and blocked the legislation.
Over the next two years, the insurer, American International Group, paid Kerry's way on a trip to Vermont and donated at least $30,000 to a tax-exempt group Kerry used to set up his presidential campaign. Company executives donated $18,000 to his Senate and presidential campaigns.
Were the two connected? Kerry says not.
But to some government watchdogs, the tale of the Massachusetts senator's 2000 intervention, detailed in documents obtained by The Associated Press, is a textbook case of the special interest politicking that Kerry rails against on the presidential trail.
"The idea that Kerry has not helped or benefited from a specific special interest, which he has said, is utterly absurd," said Charles Lewis, head of the Center for Public Integrity that just published a book on political donations to the presidential candidates.
"Anyone who gets millions of dollars over time, and thousands of dollars from specific donors, knows there's a symbiotic relationship. He needs the donors' money. The donors need favors. Welcome to Washington. That is how it works."
The documents obtained by AP provide a window into Kerry's involvement in a two-decade-old highway and tunnel construction project in his home state of Massachusetts. Known as the "Big Dig," it had become infamous for its multibillion dollar cost overruns.
Kerry's office confirmed Wednesday that as member of the Senate Commerce Committee he persuaded committee chairman John McCain, R-Ariz., to drop a provision that would have stripped $150 million from the project and ended the insurance funding loophole.
The Massachusetts Democrat actually was angered by the loophole but didn't want money stripped from the project because it would hurt his constituents who needed the Boston project finished, spokeswoman Stephanie Cutter said.
When the "AIG investment scheme (came) to light, John Kerry called for public hearings to investigate the parties involved and the legality of the investment practices. However, he firmly believed cutting funding for the Big Dig was not the answer," Cutter said.
Instead of McCain's bluntly worded legislation, Kerry asked for a committee hearing in May 2000. Kerry thanked McCain at the start of the hearing for dropping his legislation and an AIG executive was permitted to testify that he believed the company's work for the Big Dig was a good thing even though it was criticized by federal auditors.
"From the perspective of public and worker safety and cost control, AIG's insurance program has been a success," AIG executive Richard Thomas testified.
Asked why Kerry would subsequently accept a trip and money from AIG in 2001 and 2002 if he was angered by the investment scheme, Cutter replied: "Any contributions AIG made to the senator's campaign came years after the investigation. Throughout his career, John Kerry has stood up to special interests on behalf of average Americans. This case is no different."
The New York-based insurer, one of the world's largest, declined to comment on its donations to Kerry, simply stating, "AIG never requested any assistance from Senator Kerry concerning the insurance we provided the Big Dig."
The project has become a symbol of government contracting gone awry, known for its huge cost overruns that now total several billion dollars, and its admissions of mismanagement.
During the 1990s, Sens. Kerry and Edward Kennedy, D-Mass., helped win new federal funding for the project as its costs skyrocketed and threatened to burden the state's government. In 1998, Kerry was credited with winning $100 million in new federal funding.
But in 1999, the Transportation Department uncovered a financing scheme in which the project had overpaid $129.8 million to AIG for worker compensation and liability insurance that wasn't needed, then had allowed the insurer to keep the money in a trust and invest it in the market. The government alleged AIG kept about half of the profits it made from the investments, providing the other half to the project.
Outraged by the revelations, McCain submitted legislation that would have stripped $150 million from the Big Dig and banned the practice of allowing an insurer to invest and profit from excessive premiums paid with government money.
"Any refunds of insurance premiums or reserve amounts, including interest, that exceed a project's liabilities shall be immediately returned to the federal government," McCain's legislation declared.
But Kerry and Kennedy intervened, and McCain withdrew the legislation in 2000 in favor of the hearing.
At that hearing, the Transportation's Department inspector general made a renewed plea for a permanent federal policy banning the overpayment of insurance premiums and subsequent investment for profit -- what McCain had proposed and Kerry helped kill.
"The policy is needed to ensure that projects do not attempt to draw down federal funds for investment purposes under the guise that they are needed to pay insurance claims. It is that simple," the inspector general told senators.
In September 2001, Kerry disclosed to the Senate ethics office that AIG had paid an estimated $540 in travel expenses to cover his costs for a speech in Burlington, Vt.
A few months later in December 2001, several AIG executives gave maximum $1,000 donations to Kerry's Senate campaign on the same day. The donations totaled $9,700 and were followed by several thousand dollars more over the next two years.
The next spring, AIG donated $10,000 to a new tax-exempt group Kerry formed, the Citizen Soldier Fund, to lay groundwork for his presidential campaign. Later in 2002, AIG gave two more donations of $10,000 each to the same group, making it one of the largest corporate donors to Kerry's group.
The insurer wasn't the only company connected to the Big Dig to donate to Kerry's new group. Two construction companies on the project -- Modern Continental Group and Jay Cashman Construction -- each donated $25,000, IRS records show.
Rep. James McGovern, D-Mass., a Boston area lawmaker, credited Kerry for getting McCain's legislation blocked in favor of a hearing, saying Massachusetts lawmakers "were on the side of good government here but also concerned the language might go too far and put more of a burden on a Massachusetts project."