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Joey Durel likes to describe himself as a private-sector guy. Before he was elected mayor of Lafayette, La., in 2003, Durel, a Republican, ran a chain of pet stores and several restaurant franchises. He chaired the Greater Lafayette Chamber of Commerce. Then, in his first months in office, he took what still seems to him a natural step: He agreed to have Lafayette’s municipal electric, water, and sewer utility run fiber-optic cable all the way to the city’s homes. It would compete with copper wire that Lafayette’s two commercial telecom outfits already had in place, but both had said Lafayette’s market—just over 60,000 people—was too small to justify fiber.

For private companies it has always been expensive to lay cable over mountains and across bayous, where there are often too few potential customers per square mile to make the effort worth it. Right where the suburbs disappear, the interests of telecommunications companies begin to diverge from those of residents and local politicians. Rural mayors know that to get the jobs President Barack Obama calls “insourcing,” they need not just adequate Internet capacity but the same capacity as their competitors, the metropolises. So small towns and isolated cities have started to do what their forebears did during the decades of electrification: They pay to run the wires themselves.

To Durel, the fiber-optic Internet is to Lafayette’s businesses what electricity was in the 1890s and roads in the 1950s. Durel wants Lafayette to remain a regional hub. When he ran for mayor, he says, people asked him why he’d subject his family to politics. His answer: “Because I want my kids to stay home.”

Durel and Terry Huval, who runs Lafayette’s utility, didn’t believe the city needed a new law to provide high-speed Internet access. They saw their existing charter as broad enough; the Internet, like water and electricity, was a public utility, necessary for business development. In April 2004 they readied a feasibility study and announced at a city council meeting that they would conduct a market survey.

A week after the meeting, Huval got a call from Lafayette’s statehouse lobbyist in Baton Rouge. Noble Ellington, then a state senator from Winnsboro, three hours northeast of Lafayette, was going to introduce a bill. It was too late in the session for new legislation, but Ellington would offer it as a wholesale substitution for a bill that had been filed two months earlier.

The lobbyist brought back to Lafayette a copy of what would become Senate Bill 877. It named telecommunications as a permitted city utility, then hamstrung municipalities with a list of conditions. It demanded that new projects show positive revenue within the first year. It required a city to calculate and charge itself taxes, as if it were a private company. Cities could not borrow startup costs or secure bonds from any other sources of income. The bill demanded unrealistic accounting arrangements, and it suggested a referendum that would have to pass with an absolute majority. It also, almost word for word, matched a piece of legislation kept in the library of the American Legislative Exchange Council. The council’s bill reads, “The people of the State of _______ do enact as follows … ”

According to Ellington, he substituted the bill after a lobbyist for several of the state’s cable companies approached him, concerned about Lafayette’s project. Ellington’s district did not have plans to run fiber. Nor did any other city or parish in the state. “We were just making sure that the field was level,” he says. “We weren’t trying to keep them from doing what they wanted to do, we just wanted to make sure the public entity couldn’t go in and shortstop the private entities.” Ellington is probably sincere about that. The lobbyist who came to him probably wasn’t. The bill was not designed to level the playing field. It was designed to keep new teams on the sidelines.

Ellington’s bill started life as a set of bullet points that at least two telecommunications companies recommended to a state legislator in Utah in 2001. Versions of it have become law in six states. Jim Baller, an attorney who tracks the bill and represents cities when it shows up, says it was introduced in 14 states in 2005 alone. On the fourth attempt, it passed in North Carolina this year. Incumbent telcos have shown a pattern of promoting these bills and rewarding the state legislators who sponsor them. The American Legislative Exchange Council (ALEC), is the hub from which these bills emerge. Louisiana Senate Bill 877 was written to keep Lafayette from doing what it wanted to do. It passed, and has bedeviled Huval ever since. “It looked like a green field for legal challenges from our competitors,” he says. “We were like lambs.”

 

The American Legislative Exchange Council, a nonprofit based in Washington, brings together state legislators, companies, and advocacy groups to shape “model legislation.” The legislators then take these models back to their own states. About 1,000 times a year, according to ALEC, a state legislator introduces a bill from its library of more than 800 models. About 200 times a year, one of them becomes law. The council, in essence, makes national policy, state by state.

ALEC’s online library contains model bills that tighten voter identification requirements, making it harder for students, the elderly, and the poor to vote. Such bills have shown up in 34 states. According to NPR, the Arizona bill that permits police to detain suspected illegal immigrants started as ALEC model legislation. Similar bills have passed in Alabama, Georgia, Indiana, and Utah, and have been introduced in 17 other states. Legislators in Oregon, Washington, Montana, New Hampshire, and New Mexico have sponsored bills with identical ALEC language requiring states to withdraw from regional agreements on CO2 emissions. Sound a national trend among state legislators, and often you will find at the bottom of your plumb line a bill that looks like something that has passed through the American Legislative Exchange Council.

Paul Weyrich started the council in 1973 with a group of Republican state legislators. Weyrich also founded the Heritage Foundation and coined the phrase “moral majority.” More than 2,000 state lawmakers belong to ALEC; each pays $50 in yearly dues. A look at former members now on the national stage suggests the organization is a farm team for Republicans with ambition. There are 92 ALEC alumni serving in the U.S. House, 87 of them Republicans. In the Senate, eight Republicans and one Democrat are ALEC alumni, according to information found on ALEC’s website in April that has since been removed. According to the Center for Media and Democracy, a Madison (Wis.) research group, four sitting governors were members, including John Kasich of Ohio and Scott Walker of Wisconsin.

Ron Scheberle, the council’s executive director, is not a legislator. He spent 30 years as a lobbyist for Verizon (VZ) and GTE. He declined a request for an interview. ALEC is open and helpful about some parts of its work and quiet and evasive about others. It tends to withhold information that might shed light on its corporate members, the ones that pay almost 99 percent of the council’s $7 million budget.

Corporations, think tanks, and trade groups can join ALEC, too. Currently, about 300 are members. They pay up to $25,000 in yearly dues and can spend more to sponsor the council’s meetings. At ALEC’s 2010 annual meeting in San Diego, three companies—AT&T (T), pharmaceutical manufacturer Allergan, and cigarette maker Reynolds American (RAI) —each paid $100,000 to be “president level” sponsors. Eleven other donors, including Pfizer (PFE) and the Institute for Legal Reform, the U.S. Chamber of Commerce arm that advocates for jury award limits, wrote checks for $50,000 to become “chairman level” sponsors, according to documents distributed at the meeting that were given to Bloomberg Businessweek.

ExxonMobil (XOM), for example, used its foundation to donate $30,000 to ALEC in 2005 and again in 2006, according to the foundation’s tax forms. Alan Jeffers, an ExxonMobil spokesman, says the company paid $39,000 in dues last year and sponsored a reception at the annual meeting in San Diego for $25,000. The company spent $45,000 to sponsor a workshop on natural gas in New Orleans, he says.

Corporate members can also donate to each state’s “scholarship” fund, which reimburses legislators who travel to meetings. The scholarships can more than pay back a legislator’s yearly dues. A statement of economic interest from William J. Howell, speaker of the Virginia House of Delegates and a former member of ALEC’s board of directors, shows that he got a little more than $1,800 from the council for travel to San Diego for the 2010 annual meeting.

Corporate members can also pay from $3,000 to $10,000 for a seat on a task force. ALEC’s nine task forces, divided by subject, develop the bills that become ALEC models, such as the one Noble Ellington sponsored in Louisiana in 2004. Each task force has a private chair and a public chair and can move a piece of legislation on if two separate majorities have agreed to it, the state lawmakers and the private-sector members. The structure effectively gives corporations a veto.

ALEC does not share a list of the model bills that become law or the full text of any of its model bills. Until the Center for Media and Democracy published the entire library earlier this year, it was hard to figure out which state laws might have come from the council’s library. The council also doesn’t share a list of its members, complicating any attempt to figure out which members—legislators or companies—might have brought the legislation to ALEC in the first place.

Each year, says Raegan Weber, an ALEC spokeswoman, the council’s board of directors sets priorities. For this year she cites a few bills, including the Freedom of Choice in Health Care Act, which ALEC drafted to prevent states from enforcing the new federal health insurance coverage mandate. It was passed in 10 states. (Weber has since left ALEC.)

As for the rest of the roughly 1,000 bills introduced this year, Weber and other staffers refer to the council as a library service, available to companies and legislators. “They see what they want,” says John Stephenson, director for ALEC’s telecommunications and information technology task force. “They don’t need me to access the legislation.” In a conversation at the annual conference in New Orleans, he and his legislative counterpart, North Dakota State Representative Blair Thoreson, frequently use the word “constituents.” They are describing an idealized process in which a citizen comes to a legislator, who turns to ALEC for help.

This doesn’t seem to be what actually happens. The broader ALEC library includes bills that limit how much a parent company might have to pay for asbestos-related injuries or illness caused by a company it acquired, another that bans cities and counties from requiring restaurants to post nutrition information or food ingredients, and a bill that would shift the tobacco tax burden from big cigarette makers such as Altria Group (MO) to smaller chewing tobacco companies. One could argue that these things are good for the general citizen, maybe, but it’s not likely that many citizens are asking for them.

None of this is illegal. And it’s effective. It allows companies to work directly with legislators from many states, rather than having to lobby in each state individually to get language into a bill. ALEC says its mission is to help state legislators collaborate around the Jeffersonian principles of free markets, limited government, federalism, and individual liberty. It does this, and something else, too. It offers companies substantial benefits that seem to have little to do with ideology. Corporations drop bills off at one end, and they come out the other, stamped with the imprimatur of a nonprofit, “nonpartisan” group of state legislators. Among other things, ALEC is a bill laundry.

 

“I am so excited,” says Noble Ellington, “to see so many chairs and tables set up.” It’s August, and he’s onstage in the grand ballroom of the New Orleans Marriott on the edge of the French Quarter, in front of about 500 people eating lunch during ALEC’s annual conference. Ellington still serves as a legislator in Louisiana, and his involvement with ALEC has only deepened. This year he chairs the council’s board of directors, about 23 legislators who sign off on model bills and set national priorities. More people came to this year’s conference than ever, he says. Ellington yields to a video screen of taped messages to past conferences. When Ronald Reagan starts talking, standing next to a bust of Thomas Jefferson, the crowd awakes and applauds.

This is the first annual conference since the 2010 midterm elections. Republicans didn’t just flip the House in November 2010. They also won from Democrats 675 state legislative seats and now control both chambers in 26 states, up from 14 before the election. ALEC membership has grown by 25 percent this year. Sitting out there are new state legislators, and they’re looking for something to do in the fall.

As Ellington speaks, Nancy Collins slips in and finds an empty seat near the back. She has driven all morning from Tupelo, Miss., which sent her to Jackson as a first-term Republican senator after a special election in January 2011. Collins, a 63-year-old with perfect silver hair, has never held office before. She was sworn in, told her new office was her desk on the senate floor, and handed a stack of bills and the rules of order. “I thought there would be a manual,” she says. She’s reading everything she can. Everyone told her to come to the ALEC conference.

Ellington introduces a speaker from the Pharmaceutical Research and Manufacturers of America (PhRMA), a trade organization for pharmaceutical and biotechnology companies. PhRMA has paid for the lunch. “All of you lead these laboratories of democracy,” he says. “We understand laboratories.” Members of PhRMA, including Bayer, GlaxoSmithKline (GSK), Johnson & Johnson (JNJ), and Pfizer, sit on ALEC’s 24-member Private Enterprise Board, an all-private-sector counterpart to Ellington’s board of directors. The speaker from PhRMA quotes both Obama and Mitt Romney on the importance of innovation, then looks up at the ballroom. “ALEC members,” he says, “have shown that they get it.”

In an interview, Ellington concedes that he had been concerned at the start of the recession that ALEC, like other nonprofits, might see its funding dry up. “As it works out,” he says, “I think more people, both private and public, just looked at what ALEC was about.” Membership in ALEC, among both legislators and companies, has increased. In its member brochure for the 2011 annual meeting, ALEC listed 82 companies as sponsors, almost double the 42 sponsors from 2010. Those companies included Altria, BlueCross and BlueShield, and BP America (BP), all $50,000 chairman-level sponsors, according to ALEC’s website.

Officially, ALEC says it has nothing to hide about its corporate members. In conversations and in its mission statement, it stresses the importance of involving the private sector in public policy. Unofficially, the council makes it hard to figure out who those private-sector members are and what they contribute. In New Orleans, ALEC printed a separate single-sheet conference agenda for nonmembers that did not include the names of the presenters, the lists of legislative and private-sector board chairs, and the meeting’s corporate sponsors. The multipage book that went to members, however, included detailed descriptions of every workshop, devoted several pages to conference sponsors, and listed the legislators and companies that served on the board of directors, led the task forces, and acted as state chairmen.

Outside the lunch, 10-foot-high panels feature the logos of the conference’s sponsors, among them UnitedHealthcare (UNH), J&J, and Altria. ALEC is certainly not the only organization to secure conference sponsorships or to have companies pay for lunch. Still, when bloggers from a liberal website, ThinkProgress, tried to photograph the panels, they were hustled out of the conference by security guards. Another blogger from the website AlterNet was denied credentials and then kicked out of the hotel’s public lobby two days in a row for tweeting the names of ALEC members who passed by him.

Back in the grand ballroom, the PhRMA executive yields to Bobby Jindal, the governor of Louisiana. Jindal dismisses conspiracy theories about Obama’s birth certificate, then draws applause when he says, “Defeating the President is crucial to defending our economy” and “Obama has been a disaster.” He plugs a balanced-budget amendment. More applause.

After lunch, Nancy Collins from Tupelo has trouble getting a seat in “Rationing By Any Other Name,” a workshop about a feature of 2009’s health-care legislation that will limit growth in Medicare benefits. She moves next door, to education reform. “I never thought I’d be sitting in front of a room like this,” says Derrell Bradford as he takes the floor. “I’m a Democrat. But I’m crazy about school reform.” This gets wild applause. Bradford, an education reform advocate from New Jersey, explains that he will defend Chris Christie, the state’s governor, “to the death” on education. “I have watched Democratic governors,” he says, “throw kids under the bus.”

In the back of the room, Collins takes notes like she’s in college. She shushes some latecomers. By the end of the workshop she has marked in her schedule the next day’s education subcommittee meeting, which will consider moving some legislation from Indiana into the model bill library. An ALEC staffer reminds the room about travel scholarships for a meeting on education reform to be held in San Francisco in the fall.

Collins and Bradford confirm ALEC’s preferred vision of itself. The council is, as its mission statement attests, preparing a new generation of political leaders and encouraging impassioned conversation about policy. Its workshops are open to the press.

The council’s task force meetings, however, are closed. There, corporate members were busy. Macquarie Group, an Australian investment advisory firm that specializes in energy and infrastructure, proposed two bills that would encourage more government investment in infrastructure, while the U.S. Chamber of Commerce proposed requiring that all high school students take a class in “free enterprise” as a condition of graduation. At last year’s meeting the energy task force passed a resolution proposed by the Edison Electric Institute, a trade group representing electric utilities, to urge the U.S. Environmental Protection Agency not to define coal ash as a hazardous waste. Wayne Niederhauser, a state senator from Utah, brought a proposal to the tax and fiscal policy task force meeting in New Orleans that would impose the same state sales tax on both brick-and-mortar and online retailers. According to Niederhauser, representatives from Wal-Mart Stores (WMT) and Amazon.com (AMZN) failed to reach an agreement after an animated debate, and the bill was tabled.

ALEC points out that task force legislation can be called a “model bill” only after ALEC’s board of directors—composed exclusively of legislators—approves it. The council is so keen to stress this that it’s hard to phrase questions about the bill-writing process that aren’t answered with an explanation of the board’s role. Even with that fine distinction, a corporate counterpart, the same size as ALEC’s board of directors, meets when the legislative board meets.

“I really kind of think of us as one board,” says Ellington. “We represent the people as state senators and state representatives, that’s where the people are represented,” he says. “It’s certainly not our goal to sit there and do everything that business wants to have done.”

To work effectively for its corporate members, ALEC needs to minimize the appearance of their involvement. But it also needs to allow its public members—state legislators—to meet and talk and learn, and it needs to show these encounters to anyone who might ask. These two directives can be hard to square. Before lunch at the conference, spokeswoman Weber takes a while to decide whether reporters can sit at tables amid the diners or in the back along the wall, then finally seats them at a table surrounded by ALEC staffers. She will send an e-mail later that night telling reporters that their credentials will be taken away if they continue to interview ALEC members—most of whom are elected officials—without setting up an appointment through the council’s press office. When a Louisiana senator asks an ALEC staffer for a copy of a proposed model bill to share with a reporter, the staffer picks up a phone, and minutes later Weber appears to explain that draft legislation is not to be made public, since it hasn’t become a model bill yet. Model bills also are not public. Weber is friendly in person, but it’s hard to avoid the impression that ALEC staffers prefer that some of the council’s work remains secret.

 

The history of Louisiana’s State Bill 877 reveals much about how ALEC works and who writes the bills. In the fall of 2000 several telecommunications companies called on Greg Curtis. At the time, Curtis, a Republican, was the assistant majority whip in the Utah House of Representatives. The companies had what he describes as “bullet points” to be turned into legislation. Asked what companies approached him, he chuckles, then says, “I honestly can’t remember. I want to say AT&T and US West.” (AT&T declined to comment.) That year several cities in Utah, including Provo, had announced plans to fund fiber-optic networks. Curtis, who cautions that he’s only guessing at the motivations of the companies that came to him, points out that the telcos could have challenged Provo’s plan in court, but if Utah’s cities went to litigation and got telecommunications defined as a utility, “It was Katie bar the door, they were going anywhere they wanted.” The bullet points in Utah eventually became the Louisiana bill that surprised Joey Durel and Terry Huval. Corporations didn’t just back the bill. They wrote it.

For most of Utah’s 45-day legislative session that year, Curtis negotiated the language of the bill in a conference room in the statehouse. AT&T, US West, and the Utah Rural Telecom Assn. sat across the table from the Utah League of Cities and Towns and Provo’s mayor, who, according to Curtis, was “trying to have an appreciation as to why this legislator who wasn’t from Provo”—Curtis—“was delving into Provo’s business.” The bill passed.

Provo agreed to offer Internet access through a loophole negotiated with Curtis: It would sell only wholesale access to private companies, which is a harder way to break even. Cable companies that offer Internet access already know this, as they consistently refuse to sell it this way almost anywhere in America. Since the law passed, a few towns in Utah have tried to work through the loophole. A few were grandfathered in. None has tried to clear the law’s hurdles to sell directly to consumers. This is likely what the companies that came to Greg Curtis intended.

Even Curtis has his doubts, now. He has since left the legislature to lobby for a group of cities in Utah that have invested together in a “fiber ring” that sells wholesale access. “For me, cable television is a luxury, a service, not a utility,” he says, “whereas Internet access, at good quality and high speed, I’m growing more into the conversion where it is a utility.” His bill, however, lives on. At ALEC’s annual meeting in Orlando in 2002, it became a piece of model legislation. The model tracks the Utah bill line for line, and in most lines word for word. But Curtis wasn’t the one who took it to Florida. “I remembered the bill,” he says, “but I wasn’t even aware that it was model legislation.” Asked who proposed the model, an ALEC spokesperson answered that the council does not disclose information about specific members.

 

When Joey Durel chaired the Greater Lafayette Chamber of Commerce in the early 2000s, he had what he describes as a “pretty contentious” meeting with BellSouth and Cox Communications, the local cable incumbent, about a fiber ring that Lafayette’s city utility had run around the city for schools and businesses. When he was elected in 2003, BellSouth returned to him and asked, directly, how he felt about the government competing with the private sector. “They were already fearful of it,” he says. “I pretty much danced around it without saying, ‘Absolutely not.’”

Then, in June 2004, he ended up in the exact same position that the mayor of Provo had been in three years before. After Ellington introduced SB 877—the Utah bill, the ALEC model bill—Durel and Huval spent three weeks in a conference room in Baton Rouge, negotiating with lawyers from incumbent telcos about a bill that had been introduced by a state senator from another city without a dog in the fight. Sitting in the conference room, Durel came to a realization. “We’re government,” he says, “but it turns out we were the mom and pop.”

The bill passed. Lafayette managed to remove some of the ALEC bill’s barriers to entry but, as Huval had predicted, the law embedded into Louisiana code a set of handholds for future litigation. BellSouth and Cox Communications called for a referendum in Lafayette, which the law only suggests. The city’s attorney determined that the petitions to force a referendum did not meet the city’s standards, and BellSouth sued. Lafayette lost on appeal, paid for a referendum, and BellSouth ran ads against approving the project. (According to KLFY, a local television channel, Cox paid for a phone poll that suggested a government-owned provider might ration television on Tuesdays, Thursdays, and weekends.) Lafayette tried to issue bonds, and BellSouth challenged them. By 2007, when the Louisiana Supreme Court upheld the bond issue, Huval estimates that the city had paid $4 million in legal fees, more than the cost of the original fiber ring. A spokesperson for AT&T, which now owns BellSouth, says the company has backed away from BellSouth’s aggressive approach. But the damage is done. As with Utah, no other city in Louisiana has attempted to follow Lafayette.

According to data provided to Bloomberg Businessweek by the Sunlight Foundation, which posts government information online, state legislators who have signed on to sponsor the ALEC bill limiting municipal telecommunications have tended to receive donations from local cable and phone incumbents, as well as rural telephone associations. The pattern is consistent across states. In North Carolina, where the bill passed in May of this year after four attempts, these companies and groups consistently gave more money to the bill sponsors.

Noble Ellington hasn’t followed what became of his bill. “I just hope we fixed it,” he says, “so private industry and the city and parish were satisfied with what we did.” Terry Huval and Joey Durel both travel around the country now, talking to other small towns about how to get wired. Durel believes it’s going to get worse before it gets better. Huval is working with towns in nearby states but won’t say where. When a plan goes public, he explains, a bill—that bill—is not far behind. ALEC’s model bill on municipal broadband works because the idea of a city providing Internet access is alien to even most lawmakers. If a bill shows up at the right time, in response to one or two cities, it smothers an idea that hasn’t yet gathered many defenders. “I tell people this is not for the faint of heart,” says Huval. “If you don’t have the drive, don’t even start.”

With Victoria Pelham
Greeley-brendan-190
Greeley is a staff writer for Bloomberg Businessweek in New York.
Fitzgerald is a reporter for Bloomberg News.

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