1 sep. 2008

Sarah Palin and the Mat Maid Scandal: A Final Proof of Incompetence

In the summer of 2007, Matanuska Maid, the 70-year-old dairy the state had taken over in the 1980’s, was probably beyond saving. The rising cost of milk, and price competition from national brands, made it unlikely the struggling dairy would ever make its way back to profitability. Alaskans are practical, independent and a little sentimental. The Matanuska Maid logo was a treasured icon in southern Alaska. As one of the few buyers of local milk, its closing would have ripple effects throughout the local agricultural community. But giving out precious tax dollars so a few well-connected dairy farmers could make products most Alaskans couldn’t afford to buy didn’t make much sense to the Creamery Board, the Board of Agriculture and Conservation(BAC) subcommittee that had direct oversight of the state-owned company. So they refused a $600,000 state grant to keep Mat Maid going, and did what they felt they had to do as responsible overseers: put the troubled dairy out of its red-ink-drenched misery.

Palin was outraged at this callous disregard for the well-being of local farmers, and insisted the dairy simply needed to be properly managed. Radical measures clearly needed to be taken. Palin fired the whole BAC. The new Board Palin appointed quickly designated itself as the new Creamery Board. This group of local notables was much more likely to keep Mat Maid alive: it was composed solely of relatives and associates of the dairy farmers most likely to benefit from continued milk purchases by Mat Maid.

But the farmers’ political connections went even deeper: Franci Havermeier, Director of the Division of Agriculture, was the real estate agent for BAC/Creamery Board chair Kristen Cole. This connection was apparently sufficient to qualify Havermeier, a housewife, as Director over a well recognized agriculture industry expert and a UAF Professor with a degree in agricultural economics. Franci’s father in law, Bob Havermeier, was one of the dairy farmers to benefit from the continued payouts by Mat Maid.

We shouldn’t be surprised that Havermeier was as unqualified as she was well-connected. None of Palin’s appointees to the BAC had any actual expertise in the dairy field, either, just family or business ties.

Once the new Board was seated and the death sentence on Mat Maid lifted, Palin immediately authorized paying out the $600,000 state grant to Mat Maid. The money disappeared into the corporation’s general funds, where it was used to fund operations. Payments to the well-connected dairy farmers continued uninterrupted, even as other bills piled up. In my last post I mentioned how raising the price of milk Mat Maid paid to dairy farmers only made Mat Maid’s economic predicament worse. The Creamery Board’s lack of experience running a dairy might explain such a violation of basic business sense, if it weren’t for the fact that the beneficiaries of the continued payments were the Board’s own friends and relatives. By ignoring the taxpayers’ interests and putting her own people in place, Palin was able to keep state funds flowing to thefavored few in her hometown of Wasilla and nearby Palmer.

Of course, this naked money grab needed camouflaging. So the new Board spent several months, and tens of thousand of dollars, investigating the prior Board’s behavior, hiring an accounting firm (Mikunda, Cottrell and Company) to review the financial records of Mat Maid and look for the classic mismanagement trinity: waste, fraud and abuse. No significant improprieties were found.

In August, Palin and the Board claimed Mat Maid was profitable again for June, making $62,000. Seven days later, the Board revealed that Mat Maid had suffered the worst financial loss in July in over twenty years, almost $300,000. The June profit was also reduced to $2,000. By September, the Board regretfully decided to close Mat Maid down, the same decision the prior board had come to three months, and about $900,000, earlier.

The assets of Mat Maid now had to be disposed of, and some arrangement made for those long-suffering dairy farmers that would no longer have an outlet for their milk. A group of local dairy farmers, including Kyle Beus and Bob Havermeier, came forward as the Southcentral (sic) Dairy Joint Venture and proposed leasing Mat Maid equipment and taking over many of its operations if no outside buyer could be found. Other dairy operations, such as Northern Lights Dairy, were also interested, but had no chance to get involved: Franci Havermeier (who supervises the state’s assets manager, Ray Nix) went so far as to meet with her father in law and the Southcentral Dairy group in her office, a violation of conflict of interest rules but nothing out of the ordinary in an administration where Sarah Palin’s husband would often sit in on official government business. Havermeier was later alleged to have threatened an employee who was suspected of disclosing these activities.

The Board decided that fall to discontinue operations at Mat Maid in December, based on the Southcentral group’s assurance that they would be in a position to purchase and process milk from local farmers by then if the whole company couldn't be sold intact. Once the outside buyer option vanished, a favorable lease deal on Mat Maid equipment was made behind closed doors, and an additional state grant of $200,000 was dispensed on the understanding the group would be up and running by December. This money was used to compensate farmers who, having no outlet for their product, were forced to dispose of it.

The taxpayers of Alaska, in other words, were now paying top dollar to pour thousands of gallons of raw milk into the ground.

Throughout the last painful days of Mat Maid’s terminal illness, Palin and the Board’s intention was never to minimize the state’s losses from Mat Maid and to realize the greatest return possible from a disposal of its assets. The comical attempt to auction off Mat Maid whole, a fiasco resulting in no bids at all that I covered in my last post, was most likely a delaying tactic to allow the Southcentral group to organize. From that point on, only a few local parties were kept in the loop, and benefited from the decisions made. Outside parties were actively discouraged from any involvement. Alaskan auction firms, with specific knowledge of the Alaskan market, were even excluded from bidding on the right to hold the Mat Maid asset auctions, which were finally conducted by out of state firms: apparently in this one instance just being local wasn’t good enough.

The pattern here, of incestuous insider dealing and total disregard of public interest and fiduciary responsibility, is monotonously repetitive and clear as a glacial lake. Corruption runs so deep in Alaskan political culture it looks as natural a part of the landscape as moose and snow.

As it turned out, Kyle Beus and the Southcentral group were still setting up and learning how to operate their new machinery in December. Actual purchases of local milk didn’t begin until March, by an entity now known as Matanuska Creamery. The $200,000 mentioned earlier was paid out anyway, in violation of the prior understanding. The farmers who directly benefited had meanwhile made no capital commitment of their own. As Halcro puts it, they had "no skin in the game". The "skin" came exclusively from state taxpayers.

Mat Maid’s books were officially closed in March 2008, even though they contained outstanding debts and pending law suits, in order for the Palin Board to claim the dairy had closed "in the black" (thanks mainly to cash remaining from the $600,000 and $200,000 state grants). The state was then left to pick up any additional payouts that might result. But the prolonged agony of Matanuska Maid was finally over.

As Palin and her friends might have proclaimed: Mission Accomplished.

So who really came out on top, in the end? Obviously not the state of Alaska and its taxpayers. One primary beneficiary of the Mat Maid closing was Kyle Beus, at one time Alaska’s largest dairy farmer. According to press reports he now owns the Matanuska Creamery with Mat-Su Borough Assemblyman Robert Wells, who is also president of Alaska Farmers and Stockgrowers Inc. There is some question about legal ownership. A blogger on Halcro’s site claims that, while a search revealed no "South Central Dairy" entity of record and no business license in that name, it did turn up a business license for a "Valley Dairy", issued January 8, 2008 to Kyle Beus as sole proprietor. The Southcentral Dairy Joint Venture was possibly all along simply a front organization that Kyle Beus used to take over Mat Maid’s dairy operations, lending a faux-populist flavor to a personal power play. The involvement of yet another local politician (Wells) in the whole sordid affair is just one more tile in a depressingly familiar mosaic.

Beus has a spotty record at best as a businessman. The same blogger quoted above had this to add about him:
"This is the same guy that the ARLF [Agricultural Revolving Loan Fund] charged off approximately $500,000 in a Deed in Lieu of Foreclosure Settlement (public information) AND currently has a IRS lien for over $40,000 (public record)."

Beus’ spotty record for financial acumen and integrity, however, doesn’t seem to bother those Alaskan politicians, from Sarah Palin to Ted Stevens, who continue to shower him with state and federal largesse. Beus has personally received significant grant money in recent years. In April 2007 he received a $175,000 Federal grant for an ice cream production facility in Wasilla that was part of a $22 Million grant Ted Stevens arranged to support Alaska’s dairy industry. Stevens also arranged a $634,000 USDA grant for Beus’ new venture Matanuska Creamery in March of 2008.

Thanks to Palin and Stevens, U.S. taxpayers have now stepped in to prop up a well-connected, if not totally trustworthy, local, in a business likely doomed to failure without additional infusions of taxpayer support. Alaskan taxpayers, exhausted after many months of carrying Mat Maid and politician’s relatives and cronies, must be breathing a deep sigh of relief that Uncle Sam's deep pockets are now open wide.

A final, rather comical note: in order to raise money to pay farmers for milk before they had any actual product to sell, Kyle Beus and Robert Wells entered into an agreement with several local mining concerns to sell "cheese futures" – people would pay now to receive Matanuska Creamery cheese products several months later. According to a 7/31/08 Halcro post, however, "Matanuska Creamery has 30,000 pounds of cheese sitting in their cooler that the DEC[Department of Environmental Conservation] has found to contain e-coli, listeria and staph." Having sold $250,000 in cheese futures without any insurance, Halcro wasn’t sure how Beus and Wells were planning to get out of another fine mess of their own making.