by Marcus Stern

Arkansas Rep. Mike Ross — a Blue Dog Democrat playing a key role in the health care debate — sold a piece of commercial property in 2007 for substantially more than a county assessment [2] (PDF) and an independent appraisal [3] (PDF) say it was worth.

The buyer: an Arkansas-based pharmacy chain with a keen interest in how the debate plays out.

Ross sold the real estate in Prescott, Ark., to USA Drug for $420,000 — an eye-popping number for real estate in the tiny train and lumber town about 100 miles southwest of Little Rock.

“You can buy half the town for $420,000,” said Adam Guthrie, chairman of the county Board of Equalization and the only licensed real estate appraiser in Prescott.

But the $420,000 was just the beginning of what Ross and his pharmacist wife, Holly, made from the sale of Holly’s Health Mart. The owner of USA Drug, Stephen L. LaFrance Sr., also paid the Rosses $500,000 to $1 million for the pharmacy’s assets and paid Holly Ross another $100,001 to $250,000 for signing a non-compete agreement. Those numbers, which Ross listed on the financial disclosure reports he files as a member of Congress, bring the total value of the transaction to between $1 million and $1.67 million.

And that’s not counting the $2,300 campaign contribution Ross received from LaFrance two weeks after the sale closed.

Holly Ross remains the pharmacist at Holly’s Health Mart under USA Drug. Neither she nor her husband agreed to speak with ProPublica for this story.

At the time of the 2007 sale, the county assessor’s office valued the pharmacy’s building and the land on which it sits at $263,000 — nearly $160,000 less than the Rosses got for it. Because assessors’ valuations don’t always reflect true market value, ProPublica hired Guthrie to appraise the property. He placed the current value of the lot and building at $198,000, substantially lower than the county’s assessment, which was raised from $263,000 to $269,000 this year. Guthrie explained the difference between his appraisal and the county assessment by saying that county assessments have been running higher than actual market value.

Mike Ross frequently speaks for a coalition of House moderates known as the Blue Dog Democrats, a group that helped force changes to the version of the health care reform bill drafted by the House Energy and Commerce Committee. The role has lifted him to national prominence in recent months.

Ross, a member of the committee, told reporters on Aug. 5 in Little Rock: “We held the bill hostage in committee for 10 days to make it better. … We protected small businesses. … And we ensured that if there is a government option, it will be just that, an option. It will not be mandated on anybody.”

Ross bristled at suggestions he was trying to kill the bill.

“I wasn’t trying to kill health care reform,” he said. “If I was, I wouldn’t have been in negotiations for 10 days.”

LaFrance has amassed a privately held chain of more than 150 pharmacies operating in five Southern and Midwestern states under a variety of names, including USA Drug. It was the 15th largest drug chain in the country in 2008 with an estimated $906 million in sales, according to Racher Press, which publishes business intelligence reports.

The pharmacy industry is aggressively lobbying Congress in an effort to protect its interests in the health care debate. Ross, who belongs to the 52-member Congressional Community Pharmacy Coalition, has introduced and supported legislation backed by pharmacy trade groups.

On Aug. 1, the National Community Pharmacists Association issued a news release thanking Ross for an amendment to the health care reform bill that would create greater transparency in the operations of pharmacy benefit managers, who act as clearinghouses for insurance company reimbursements for pharmaceuticals.

In June, the National Association of Chain Drug Stores issued a news release thanking Ross for introducing legislation authorizing payments to pharmacists to train patients in how to manage their medications.

Health-related interests have donated $342,475 to Ross since 2007, according to federal campaign data maintained by the nonprofit Center for Responsive Politics. No other business sector has given Ross as much.

LaFrance declined to be interviewed for this story. His son, Stephen L. LaFrance Jr., who helps run the chain, asked for questions to be submitted in writing but didn’t respond to them.

Ross’s spokesman, Brad Howard, said the real estate deal was “open, honest and by-the-books.” He described Ross and LaFrance as “acquaintances” but declined to say whether they have discussed the pending legislation, adding that Ross has discussed health care reform with many of his constituents.

The $157,000 gap between the property’s assessed value and the price LaFrance paid wasn’t unusual, Howard said, because assessments are done for tax purposes and typically don’t reflect the full market value of the real estate.

“The appraisal always differs from the assessment, and you can’t really compare the two,” Howard said.

In that initial interview on Sept. 2, Howard told ProPublica that the appraised value of the real estate at the time of the sale “was somewhere around where the purchase price was, which was, you know, I think was like $420,000.” He said he didn’t have a copy of any such appraisal and suggested obtaining it from LaFrance, who did not respond to requests for a copy. On Friday, however, Howard said he could “only assume there was an appraisal done on the property by the buyer in 2007″ and that he “never said” the property was appraised at $420,000.

Nevada County, which includes Prescott, hires an outside firm — Arkansas CAMA Technology Inc. — to update its assessments every five years. After LaFrance bought Holly’s Health Mart in 2007, someone from CAMA called the headquarters of LaFrance’s pharmacy chain to verify the sale price for the lot and building, in part because “it was such an expensive sale for that area,” CAMA employee Mike Shepherd told ProPublica.

Commercial property values in Nevada County “have stayed flat” in recent years, Shepherd said, adding, “I would say flat or a slight increase, maybe. That would be pretty slight, though.”

Brenda Williams of Nevada County Real Estate in Prescott said county property assessments tend to be slightly below market value, but usually “no more than 5 percent.”

“Being in the real estate business, I know that I see the tax card every time, and it’s usually assessed a little bit less than the actual value or sales price, a little bit less but not that much less,” she said. Asked about the value of the lot and building housing Holly’s Health Mart, she said: “It might cost $250,000 to build it. I wouldn’t have a problem with that two hundred and something thousand. But not over 400.”

The Rosses bought the lot in 1999 for $10,000, then constructed a building that the county assessed at $225,000.

Two months after the 2007 sale, LaFrance’s concerns about health care reform were spelled out in an article in the Arkansas Democrat-Gazette.

“Universal health care will ruin our health care in America,” LaFrance told the reporter. “There’ll be long lines, they won’t be able to get treated, potential doctors will be afraid to go into medical school, there will be an outflux of doctors — in my opinion. It’s not broke and don’t fix it.”

Describing the drug industry as “very big business,” he said the high prices charged for prescription drugs are possible only because insurance companies and the government underwrite about 95 percent of the cost.

“So when the customer pays $7, $10, $15, $20″ for a prescription co-pay, “it doesn’t hurt him. They don’t realize that the insurance company is paying the other $125. That’s kind of a double-edged sword; if it wasn’t for insurance, the American pharmaceutical industry wouldn’t be able to charge the prices it charges today, because the public wouldn’t put up with it,” LaFrance told the Democrat-Gazette.

“Our sales are higher, because it affects the top line of sales,” he added. If the government doesn’t interfere, there’s “nothing but good days ahead.”

ProPublica research director Lisa Schwartz and researcher Kitty Bennett contributed to this report.

This video was broadcast by CNN on Sept. 22, 2009.

By T. Christian Miller and Aram Roston

Last spring, the U.S. diplomatic mission in Iraq got a makeover,replacing the scandal-plagued Blackwater private security company with a firm named Triple Canopy.

The new $1 billion contract cemented Triple Canopy’s status as the pre-eminent provider of private security services in Iraq, with its heavily armed employees appearing side by side with senior State Department diplomats.

But the company’s rise to prominence followed a long, often chaotic route, marked by questionable weapons deals, government bungling and a criminal investigation that was ultimately closed without charges being filed, according to newly released investigative files.

Company employees told federal investigators that Triple Canopy swapped booze for weapons and supplies from the U.S. military. They said the company bought guns and other arms on the black market in Iraq. Some worried that the money was flowing into the hands of insurgents, records show.

The previously undisclosed documents and interviews with current and former Triple Canopy officials raise new questions about the U.S. government’s ability to oversee private security contractors in a fluid and uncertain legal environment. And they give a glimpse into the messy business of creating a private army on the fly in the middle of a war zone.

Watch excerpts from Ronald Boline’s deposition.
“We’re spending a lot of money on these rifles, millions of dollars — where do you think that money is going to?” Ronald Boline, a former Triple Canopy manager, said in a lawsuit deposition videotaped in June 2007. “Who are we supporting in doing that? We’re supporting people who are trying to kill Americans is the logical conclusion.”

That lawsuit against the company, filed in a Virginia circuit court by other former employees who sued Triple Canopy for wrongful termination, was settled this week, records show, but no terms were disclosed.

The criminal investigation began in 2007 after federal investigators received a tip that Triple Canopy was using stolen cars and captured Iraqi weapons to boost profits to over 40 percent on some contracts. Andrew T. Baxter, the interim U.S. attorney for the Northern District of New York, declined to comment on why his office decided not to file charges. (His office handled the case because Triple Canopy’s invoices were paid out of a nearby federal contract processing center.)

Stuart Bowen, the special inspector general for Iraq reconstruction, who oversaw the investigation, refused to talk about details. But he said the difficulty in building the case were indicative of the haphazard atmosphere in which billions of dollars of U.S. money was spent in Iraq without oversight.

“It’s unclear if anything that Triple Canopy did was criminal, but it was symptomatic of the chaos that prevailed at the time,” Bowen said. “It’s another example of contracting gone wrong.”

Triple Canopy officials said the firm had done nothing wrong. They acknowledged buying weapons in Iraq when they were unable to import U.S. guns. But Lee Van Arsdale, a retired Delta Force colonel who was the company’s CEO until recently, said in an interview before retiring that the firm had taken every precaution to ensure that no money wound up in insurgents’ hands.

“Not only are we former military, but our former colleagues are still serving in uniform, living, eating and breathing right beside us in some cases. In some cases, we’ve got family members out there,” Van Arsdale said. “To say that we’re going to fund the insurgency either directly or indirectly, that’s insulting.”

Triple Canopy began in September 2003, when two former Special Forces soldiers formed the company to take advantage of the burgeoning market for private security. Iraq was exploding in violence, and the U.S. lacked enough soldiers to protect U.S. and Iraqi officials, infrastructure and diplomatic outposts.

Within three months, the company got its first break: The U.S. awarded Triple Canopy a contract to protect more than a dozen sites across Iraq. At the time, the company had only a handful of employees. More serious, it didn’t have licenses to import the hundreds of weapons needed to guard sites across Iraq.

The company immediately applied for licenses after winning the contract, according to documents provided by Triple Canopy. Yet the government took months to approve the deal, not authorizing the company to collect the weapons until June 2004. In essence, the U.S. had awarded the company a lucrative contract, but then provided it little ability to arm for the job.

To get the firepower it needed in the meantime, the company turned to the unregulated and unlicensed Iraqi market, purchasing AK-47s and other weapons from local dealers, according to company officials and court records.

The transactions concerned some company officials, according to previously undisclosed records. One midlevel manager told federal investigators that Triple Canopy had purchased weapons “off the street.” He “wondered if the proceeds of those sales was funding the insurgency,” an investigator wrote.

Former managers also told investigators that the company obtained U.S. military equipment from troops at little or no cost. One man told investigators in an October 2008 interview that the company sometimes obtained Army supplies “for liquor,” and that Triple Canopy employees routinely made “deals with Army units that were rotating in and out of Iraq, to obtain medical supplies, water, MRE’s and vehicle tires, to name a few.”

Boline, the former manager, said the company bought Cuban cigars and liquor to trade for U.S. military equipment. He spoke to investigators in 2007, according to records and officials, and his testimony became public later that year, when he provided a sworn statement as part of the employees’ lawsuit.

“The whole mind-set at the time was, whatever it takes to get the job done we’re going to do it,” said Boline, who had been fired from the company after disagreements with supervisors. He provided the deposition several months after his termination.

Van Arsdale acknowledged that importing U.S. weapons was “problematic” as the company began operations in Iraq. But he said the company took steps to make sure that it purchased weapons legally.

“There were a few months in there that, ‘all right, now what do we do?,’” Van Arsdale said. “The answer to that was that we establish … a procedure to procure weapons on the local market to mitigate the possibility of that fungible money getting into the wrong hands.”

Van Arsdale said Triple Canopy turned to a trusted local buyer recommended by the U.S. government. Triple Canopy produced documents showing that the man it said purchased the weapons, an Iraqi businessman, had been vetted by Defense Department officials.

The company also produced several letters of recommendation from military officials praising the man, who also acted as a translator for U.S. military units.

Van Arsdale said the company had not swapped goods with soldiers for equipment. He said Triple Canopy fully investigated Boline’s charges and found no evidence to support them.

He questioned Boline’s motives, noting that Boline waited until 2007 to make his accusations. In his deposition, Boline acknowledged threatening to go public with his charges if Triple Canopy officials blocked his attempts to receive a security clearance in order to obtain a new job.

Reached by e-mail, Boline declined to comment, citing a nondisclosure agreement that he signed when he took his job with Triple Canopy.

Van Arsdale acknowledged the hectic pace of fulfilling contracts. But he said that even under tight deadlines the company didn’t break the rules.

“We defined the gold standard for training and equipping people at great expense to ourselves as well as great time to ourselves,” he said. “At a period of hurry up, hurry up, hurry up, we took over two weeks to train guys to make sure they were prepared to go in country. To say that we’re cutting corners and we’re opportunistic and we’re war profiteers, all of the facts argue against that.

“In terms of weapons procurement, the rules were clear and we followed them,” Van Arsdale said.

But former senior officials with the Coalition Provisional Authority, the U.S. occupation government that controlled Iraq until June 2004, questioned whether there were any established procedures for buying weapons from Iraqis.

They noted that any Iraqis with large quantities of weapons to sell were most likely businessmen or military officials associated with the former regime of Saddam Hussein.

Some former U.S. officials in Iraq said that buying guns locally was by definition illicit. Steve Casteel, the U.S. senior adviser to the Iraqi Ministry of the Interior at the time, said there was a “disconnect” between Washington and what was happening on the ground in Iraq.

“There was no legal market for the sale of weapons, so if they bought them it had to be black market,” said Casteel, who now works for another private security company. “It wouldn’t have been legal under U.S. guidance. It wouldn’t have been legal under any Iraq law that I’m aware of.”

Triple Canopy’s frustrations with the U.S. government were hardly unique. In numerous interviews, former U.S. and industry officials described a crazed atmosphere in which U.S. contracting officers demanded guns on the ground and asked few questions.

One private security company official said Iraqi vendors sold weapons at open-air markets, the tables stacked high with AK-47s and other armaments, in full view of U.S. officials.

“It was wide open. It was like a swap meet,” said the official, who works for a Triple Canopy competitor and did not want to be identified. “I’m not aware of any company that didn’t use it.”

Companies that wanted to conduct business in normal channels were stymied by short deadlines, constantly changing requirements and bureaucratic clashes between U.S. officials on the ground in Iraq and in offices back in Washington.

“People needed to have weapons,” said one former official with the Coalition Provisional Authority. “So of course you went out and bought them on the black market because you couldn’t get them from anywhere else. If you have a demand, you are going to have a supply.”

CPA officials were aware that there were few controls over the weapons used by their private security contractors. But ideas to exert greater control were ignored.

“We recognized there was a problem, the CPA official said. “We had inconsistent quality. There was not as much control and accountability of those weapons as we wanted.”

Other companies also found means. Blackwater, now known as Xe, said in a statement that it had obtained valid U.S. import and export licenses for its employees’ weapons. The company has been investigated for weapons smuggling, though no charges were filed and it denies the allegations.

An official with DynCorp, the second-largest security contractor in Iraq, said weapons were obtained from a variety of sources. In some contracts, requests for licenses were granted, allowing the import of U.S. weapons. For other contracts, requests were denied and the firm turned to the local weapons market.

“We were forced to turn to the local market even for U.S. government contracts and subcontracts because there weren’t mechanisms in place to allow export of weapons in Iraq, yet we had the responsibility to provide services under those government contracts,” said one DynCorp official, who declined to be named because of the sensitivity of the topic.

A State Dept. official acknowledged that the department had been slow to respond to the need to arm the private companies it was hiring to carry guns. Until late 2004, the department’s Directorate of Defense Trade Controls blocked most requests for the export of automatic weapons to private firms — the result of a decades-old policy to cut down on international arms trafficking.

When private security companies began requesting weapons to fulfill U.S.-issued contracts, the department was caught off guard, the official said. It wasn’t until November 2004 that the policy was changed to grant private security companies export licenses — more than a year and a half after the first such firms were hired in Iraq.

“This was something that the State Department hadn’t considered as a possibility” until the requests for licenses started coming in, said the official, who spoke on background per department policy. “What they did was go through a relatively long discussion and decision process to figure out how to deal with the problem.”

While the system for importing weapons has improved in Iraq, industry and State Department officials acknowledged that problems remain in Afghanistan.

Partly, this reflects the fact that more groups are at work there. Unlike Iraq, there is a substantial presence of nonprofits and international aid organizations in need of security. Companies buying weapons from local sources continue to run the risk of money flowing to insurgents, one official said.

Afghanistan is similar in one way, however. Just as in the early days in Iraq, there are comparatively few investigators on the ground to watch the billions of dollars now flowing into the country.

“It’s an even worse Catch-22 over there,” one industry official said.

By Dafna Linzer, ProPublica

Iran’s five-page offer for talks with the Obama administration, first published here, appears to have been accepted by the White House. Shortly after the offer was presented Wednesday, a host of anonymous western diplomats were quoted as dismissing the offer in its entirety because it did not address outstanding issues related to Iran’s nuclear program. In fact, some diplomats were quoted as saying that the Iranian proposal included an outright refusal to discuss its ongoing nuclear efforts.

But the proposal, which was disclosed by ProPublica Thursday, contained no such claims. We have posted links to the English and Farsi (PDF) versions, as they were given to diplomats in Tehran. While Iran did not commit in the offer to disclosing the genesis or original intent of its nuclear program, it did not discount the possibility either: The five-page proposal was simply silent on the matter.

State Department spokesman P. J. Crowley told reporters that Iran’s lack of interest in addressing its nuclear program is not a reason to refuse to talk. “If we have talks, we will plan to bring up the nuclear issue,” he said.

According to the Iranian proposal, the Tehran government is ready for comprehensive negotiations on a broad range of issues including global nuclear disarmament, regional security, economic incentives and a number of items at the heart of Iran’s own national security interests such as drug trafficking.

“We are seeking a meeting now based on the Iranian paper to see what Iran is prepared to do,” Crowley said. “If Iran responds to our interest in a meeting, we’ll see when that can occur. We hope that will occur as soon as possible.

Any meeting would likely include representatives from Russia, China, Britain, France and Germany has been coordinating efforts with Washington to coax Iran to the negotiating table. If successful, this would be the first formal, substantive talks between the United States and Iran in 30 years. The two countries worked closely in 2002 to help form a new government in Afghanistan and have traded some intelligence and information on Al-Qaeda. But those talks centered on very specific issues and were not held in the context of repairing relations damaged by the 1979 Iranian Revolution and the ensuing hostage crisis inside the U.S. embassy in Tehran then.

Iran’s nuclear program began in secret two decades ago with illicit help from Pakistan. It was exposed in 2002 and quickly became the focus of United Nations nuclear inspectors. Iran maintains that the program is designed to provide the oil-rich country with nuclear energy and has refused to address evidence that suggests it was originally designed to produce fuel for nuclear weapons. The lack of cooperation, coupled with Iran’s continued progress on its nuclear program, has led to three rounds of international sanctions.

by Dafna Linzer, ProPublica

The Iranian government has told the Obama administration and its Western allies that it is ready to hold “comprehensive, all-encompassing and constructive” negotiations on a range of security issues, including global nuclear disarmament.

But the new proposal is silent on Iran’s own nuclear program. U.S. officials have said Iran is stockpiling uranium at an alarming rate and needs to account for unanswered questions about the program. The five-page Iranian proposal, hand-delivered to foreign diplomats in Tehran on Wednesday, has not been made public, but a copy was obtained by ProPublica and is available here.

In the document, titled “Cooperation for Peace, Justice and Progress,” Iran reiterated many of its previous ideas for talks while scaling back specific requests made in previous proposals (PDF). Among other things, Tehran called for an end to hostilities and for talks on issues of specific concern to Iran, such as drug trafficking and security in the Middle East. Unlike previous Iranian proposals, this one does not contain a litany of past grievances with the United States and does not assert an Iranian commitment to advancing its nuclear efforts.

White House spokesman Robert Gibbs said that “the offer is still being evaluated” by the United States and its allies. “I will say Iran’s proposals have, time and again, failed to live up to its international obligations.” Iran’s offer is in response to coordinated efforts by the United States, France, Germany, Britain, Russia and China to prevent it from developing a nuclear weapon.

Iran’s proposal comes as President Obama is facing pressure from Congress to take a harder line with Tehran and it will likely test his high-profile efforts to engage a country his predecessor once described as a member of an “axis of evil.”

A willingness on the part of Tehran to talk with the United States, 30 years after diplomatic relations came to a halt, could be a boon to Obama’s commitment to diplomacy and his efforts to improve conditions in the Middle East. But the Obama administration worries — as the Bush administration did — that Iran could orchestrate go-slow negotiations to fend off international sanctions long enough to produce the necessary components for a nuclear weapon.

If Obama rejects Iran’s proposals, he is left with few attractive options. He can try to improve the terms of the Iranian proposal, or seek other ways to pressure the Iranians to halt their nuclear program. One option is a new round of tough international sanctions imposed through the U.N. Security Council. Former President Bush pushed for economic sanctions and left open the threat of military action — neither of which convinced the Iranians to halt its program, come to the negotiating table or to level with international inspectors about the genesis and intent of its nuclear efforts.

One European diplomat said that no strategy seems to be having an effect on Iran at the moment. Still, the diplomat said it would be a mistake to proceed with talks based on the current Iranian offer.

“We have to hold firm to our ideals. Now, above all, is not the time to give the Iranians a chance to discuss every issue under the sun. We have to keep focused on the goal, which is to stop Iran from getting a nuclear weapon,” the diplomat said. The diplomat said European countries were seeking clarifications on the offer but didn’t say whether they were considering a counterproposal.

One U.S. government official who agreed to discuss the Iranian offer on the condition of anonymity lamented that its lack of detail meant “one could read either very much or very little into” the terms.

The official described it as “a very Persian opening gambit to offer such a big picture,” just as a new round of sanctions was being considered. The official also noted that the Iranians had refrained from taking a critical or angry tone in the proposal but said that the Obama administration doesn’t want to waste time pushing for talks that won’t yield results.

The official said the administration would now need to decide whether “there is enough here to justify meeting the Iranians face to face.”

Above is a satellite image of Iran’s nuclear enrichment facility Natanz. (Google Earth)

Until now, the United States has refused to do so, saying it will not discuss the issue until Iran suspends its nuclear work. Iran has rejected that condition and continued to push ahead, enriching uranium that could be used either for a bomb or to fuel a nuclear energy reactor.

Iran has long maintained that its large-scale efforts to enrich uranium, begun two decades ago in secret and with illicit help from Pakistan, were intended to provide the oil-rich nation with an alternate energy source.

A seven-year investigation by U.N. nuclear inspectors has unearthed reams of evidence that point to Iranian efforts to conceal the nature of the program. Iran has refused to answer some of the inspection agency’s most pressing questions and has denied inspectors access to key individuals who could shed light on the program’s roots.

U.S. intelligence estimates cite evidence that Iran was working on a covert nuclear weapons program until 2003 and note that any peaceful nuclear program of the size and scale Iran is constructing could be diverted for weapons use if the country makes that decision.

In past talks with the Europeans, Iran sought to negotiate the terms of its enrichment capabilities, but once it faced international sanctions, it abandoned that approach and declared that it would move ahead with a full-scale nuclear energy program.

Iran’s latest offer does not depart from that strategy. It is also similar to past proposals in that it begins with a flowery recitation of Iran’s view of the world and its place in it. One half of the proposal is a preamble that borrows, in part, from themes included in Obama’s April speeches on nuclear disarmament and Middle East peace. It also emphasizes Iranian national sovereignty and takes a veiled swipe at critics of Iran’s contested June presidential election.

The second half of the proposal outlines three broad areas for discussion, including political and security issues, international issues and economic issues.

While there is no mention of Israel, the political security section wades into the prospects for resolving the Israeli-Palestinian conflict. The proposal welcomes efforts “to draw a comprehensive, democratic and equitable plan to help the people of Palestine to achieve all-embracing peace.” Iran’s long-stated policy has been to reject Israel’s right to exist.

The Iranian offer also seeks talks on issues that have become increasingly problematic for Iran’s national security, such as drug trafficking, illegal migration and organized crime. Iran has long struggled to stem the flow of drugs and people entering its borders from Afghanistan and now from Iraq.

The Iranian proposal includes seven items for discussion under the theme of international issues, including “putting into action real and fundamental programs toward complete disarmament and preventing development and proliferation of nuclear, chemical” and biological weapons.

Iran, and many other developing nations, sees a double standard when Western countries, chiefly the United States, demand a halt to nuclear programs while maintaining large weapons stockpiles. Obama sought to address those concerns in his April speech when he pledged to work toward universal disarmament and a nuclear-free world.

A doctor who was working the rounds at New Orleans’ Memorial Medical Center during Hurricane Katrina has admitted euthanizing patients during a crucial shortage of energy and supplies at the hospital.

Despite the revelations, the state prosecution service in Louisiana says it will not re-open an investigation into the matter, the Associated Press reports.

The doctor’s admission comes on the fourth anniversary of Hurricane Katrina making landfall on the Gulf Coast, an event that would lead to the death of more than 1,000 people and the displacement of a city of one million.

It also comes at a time when the US is busy debating fundamental reforms to the country’s health system. The specter of “rationed health care” has been raised during the debate.

But in the panic and chaos of Katrina, the notion of “rationed care” was taken to a brutal new level.

Dr. Ewing Cook told ProPublica’s Sheri Fink that he gave the order to give an elderly patient a dose of morphine he knew would kill her.

‘‘Do you mind just increasing the morphine and giving her enough until she goes?’’ Cook says he asked the patient’s nurse.

In a sign of his certainty the patient would die under the morphine overdose, Cook penciled in “Pronounced dead at” on the patient’s chart and left it blank to be filled in later.

‘‘To me, it was a no-brainer, and to this day I don’t feel bad about what I did,’’ Cook told ProPublica. ‘‘I gave her medicine so I could get rid of her faster, get the nurses off the floor.’’

He added, ‘‘There’s no question I hastened her demise.’’

The complete investigative article from ProPublica, appears in the August 30 edition of the New York Times.

By Christopher Flavelle

Back in July, a software company named Smartronix landed an $18 million contract to build a Web site where taxpayers could easily track billions in federal stimulus money. It was just another part of the Obama administration’s ongoing effort to bring transparency to stimulus spending, we were told.

But it seems the drive for transparency doesn’t cover the contract itself.

After weeks of prodding by ProPublica and other organizations, the General Services Administration released copies of the contract and related documents that are so heavily blacked out they are virtually worthless.

Don’t believe us? Take a look.

ProPublica sought the contract under the Freedom of Information Act to find out what kind of site Smartronix planned to build and to assess whether it justified the cost, which Republican critics of the stimulus plan called “unreal.”

Ed Pound, the director of communications for the Recovery Accountability and Transparency Board, defended the redactions as “legitimate.” The Web site Smartronix is to build will replace Recovery.gov, the existing stimulus Web portal run by the transparency board.

“I’m not concerned about whether journalists are concerned about this,” Pound said. “We have been very transparent.”

The GSA declined to comment, but said in its response to ProPublica’s FOIA request that such redactions were allowed if material “involves substantial risk of competitive injury” to a contractor.

But the blacked-out information includes material that seems harmless to the company, such as the names and backgrounds of key personnel and the number of visitors expected by the site during traffic spikes.

Some sections of the contract were redacted in their entirety. They include:

• the project’s management structure;
• something called the “Strategic Advisory Council”;
• quality assurance procedures;
• five pages on user experience;
• site navigation ;
• four unidentified pages on which everything, even section headings, have been redacted;
• every single piece of information in the document’s pricing table, including function, vendor, model, part ID, detail and quantity;
• the contract’s warranty agreement.

In all, 25 pages of a 59-page technical proposal — the main document in the package — were redacted completely. Of the remaining pages, 14 had half or more of their content blacked out.

The secrecy drew criticism from government transparency watchdogs.

Lucy Dalglish, executive director of Washington, D.C.-based Reporters Committee for Freedom of the Press, noted that information labeled “contractor proposed deliverables” had been completely redacted.

“I think it’s on the one hand funny, but on the other hand frightening,” said Dalglish. “How are you going to keep these people’s feet to the fire? You can’t evaluate whether or not they delivered on the contract unless you know what they promised to deliver. That’s just nuts.”

Dave Levinthal, a spokesman for the Center for Responsive Politics, agreed. “It’s difficult to make an accurate comparison with any other potential services when you can’t even see what the rates are for different types of programming services and job functions,” he said. “Sure, you get the overall number, but could there be a better deal out there? We don’t know.”

A spokeswoman for Smartronix, headquartered in Maryland, confirmed that the company was given the chance to propose redactions in the documents, as allowed by the Freedom of Information Act.

However, Charles Davis, executive director of the National Freedom of Information Coalition, faulted the GSA for allowing the documents to be redacted so extensively.

“The government should have come back at the redaction and said, ‘Oh, for the love of God, nobody can tell anything from what you’ve redacted here,’” said Davis. “If you’re going to create a system designed ostensibly to provide greater transparency around a piece of the federal government, it would certainly be a great start to provide some transparency in the contract itself.”

Clay Johnson, the director of the Sunlight Labs project at the Sunlight Foundation, called the level of redaction in the documents remarkable.

“I think the people have a right to know what their money is being spent on,” he said. “We still don’t really know what the government’s buying here, other than that it’s a Web site.”

The criticism from the Sunlight Foundation is notable. Smartronix claims in its proposal that it has “engaged the Sunlight Foundation as advisers on government transparency,” adding that the foundation “is willing to advise Team Smartronix on transparency.”

Johnson disputed that characterization. He said that while he had spoken with one of Smartronix’s subcontractors and agreed to have Sunlight listed as an adviser, he had never spoken with anyone from the company itself and isn’t involved in the contract.

“We’re willing to advise anybody on transparency,” said Johnson.

ProPublica has filed an appeal with the GSA, arguing that the redactions were excessive and requesting that more of the information in the Smartronix documents be released. We’ll let you know what it says.

GE has long straddled the fence between banking and commerce — allowing it to profit from the federal bank bailout without falling under banking regulations. But as the Obama administration seeks to tighten financial regulation, the world’s largest industrial company will have to make a choice.

General Electric, the world’s largest industrial company, has quietly become the biggest beneficiary of one of the government’s key rescue programs for banks.

At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.

The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.

As a result, GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company’s massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government’s actions have been “powerful and helpful” to the company, GE chief executive Jeffrey Immelt acknowledged in December.

GE’s finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government’s historic intervention in the financial crisis.

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

“We’d like to regulate companies according to what they do, rather than what they call themselves or how they charter themselves,” said Andrew Williams, a Treasury spokesman.

GE’s ability to live in the best of both worlds – capitalizing on the federal safety net while avoiding more rigorous regulation – existed well before last year’s crisis, because of its unusual corporate structure.

Banking companies are regulated by the Federal Reserve and not allowed to engage in commerce, but federal law has allowed a small number of commercial companies to engage in banking under the lighter hand of the Office of Thrift Supervision. GE falls in the latter group because of its ownership of a Utah savings and loan.

Unlike other major lenders participating in the debt guarantee program, including Bank of America, Citigroup and J.P. Morgan Chase, GE has never been subject to the Fed’s stress tests or its rules for limiting risk. Also unlike firms that have received bailout money in the Troubled Assets Relief Program, or TARP, GE is not subject to restrictions such as limits on executive compensation.

The debt guarantee program that GE joined is administered by the Federal Deposit Insurance Corp., which was reluctant to take on the new mission, according to current and former officials who were not authorized to speak publicly. The FDIC also initially resisted expanding the pool of eligible companies, fearing it would add more risk to the program, the officials said.

Despite those misgivings, there have been no defaults in the loan guarantee program. It has helped buoy confidence in the credit markets and enabled vital financial firms to raise cash even during the darkest days of the economic crisis. In addition, the program has raised more than $8 billion in fees.

“The TGLP program has been a money maker for us,” FDIC chairman Sheila Bair has said. “So I think there have been some benefits to the government and the FDIC.”

For its part, GE said that it properly applied for and qualified for the program. “We were accepted on the merits of our application,” company spokesman Russell Wilkerson said.

The Cash Cow

The current good fortune of General Electric, ranked by Forbes as the world’s largest company, has roots in the Great Depression, when it created a consumer finance arm so that cash-starved families could buy its appliances.

What grew from those beginnings is now a powerful engine of profit, accounting for nearly half of its parent’s net earnings in the past five years. GE may be better known for light bulbs and home appliances, but GE Capital is one of the world’s largest and most diverse financial operations, lending money for commercial real estate, aircraft leasing and credit cards for stores such as Wal-Mart. If GE Capital were classified as a banking company, it would be the nation’s seventh largest.

Unlike the banking giants, GE Capital is part of an industrial company. That allows GE to offer attractive financing to those who buy its products.

At the height of last fall’s financial crisis, GE’s cash cow became a potential liability. As credit markets froze, analysts feared that GE Capital was vulnerable to losing access to cheap funding – largely commercial paper, or short-term corporate IOUs sold to large investors.

Company officials projected confidence. “While GE Capital is not immune from the current environment,” Immelt said in October, “we continued to outperform our financial-services peers.” Behind the scenes, they urgently sought a helping hand for GE Capital. One key hope was a rescue plan taking shape at the FDIC.

The program emerged during a hectic weekend last October as regulators scrambled to announce a series of rescue efforts before the markets opened.

They found a legal basis for the program in a 1991 law: If a faltering bank posed “systemic risk,” then the FDIC, the Fed, the Treasury secretary and the president could agree to give the FDIC more authority to rescue a failing institution. The financial regulators applied the statute broadly, so it would cover the more than 8,000 banks in the FDIC system.

The FDIC hurried to approve the program Oct. 13.

“This was crisis management on steroids,” said a person familiar with the process. “A lot was made up on the fly.”

The author of the systemic-risk provision, Richard Carnell, now a law professor at Fordham University, says it was intended to apply to a single institution, and that in their rush to find legal footing for unprecedented new programs, regulators “turned the statute on its head.”

The FDIC launched the program Tuesday, Oct. 14, the same day Treasury officials announced large capital infusions into nine of the country’s banking giants under TARP. That day, the FDIC also expanded its deposit guarantees to a broader range of accounts.

Within days, the FDIC held conference calls with bankers to explain the program. Agency officials explained that not all companies that owned banks were eligible. “The idea is not to extend this guarantee to commercial firms,” David Barr, an FDIC spokesman, said during one of the calls.

A Broader Program

GE was watching closely. Though GE Capital owned an FDIC-insured savings and loan and an industrial loan company, they accounted for only 3 percent of GE’s assets. Company officials concluded that GE couldn’t meet the program’s eligibility requirements.

So the company requested that the program “be broadened,” GE’s Wilkerson said. GE’s main argument was fairness: The FDIC was trying to encourage lending, and GE Capital was one of the country’s largest business lenders.

GE deployed a team of executives and outside attorneys, including Rodgin Cohen, a banking expert with the New York firm Sullivan & Cromwell.

“GE was among the parties that discussed this with the FDIC,” along with the Treasury and Fed, according to FDIC spokesman Andrew Gray. He said the details about eligibility “had not been specifically addressed” in the beginning.

Citigroup, the troubled banking giant, also was pressing for an expansion of the FDIC program. Though Citigroup was included in the debt guarantee program, its main finance arm, Citigroup Funding, appeared ineligible. Fed Vice Chairman Donald Kohn wrote to the FDIC’s Bair on Oct.

21, arguing that debt issued by Citigroup Funding should be covered “as if it were issued directly by Citigroup, Inc.”

Two days later, the FDIC announced a new category of eligible applicants – “affiliates” of an FDIC-insured institution. Bair explained that “there may be circumstances where the program should be extended” to keep credit markets flowing. That meant “certain otherwise ineligible holding companies or affiliates that issue debt” could apply, she said.

GE Capital now was eligible.

Raising Billions

GE Capital won approval to enter the FDIC program in mid-November with support from its regulator, the Office of Thrift Supervision. The company used the government guarantee to raise about $35 billion by the end of

2008. By the end of the first quarter of 2009, the total reached $74 billion, helping to cover the company’s 2009 funding needs and about $8 billion of its projected needs for 2010.

Despite government support, GE lost its Triple-A rating for the first time in decades this year and was forced to sharply cut its dividend. But the outlook could have been much worse.

The debt guarantee program has “been of critical importance” to the fiscal health of GE Capital, said Scott Sprinzen, who evaluates GE’s finance arm for the Standard & Poor’s credit-rating company. He said the FDIC program enabled GE to “avoid an exorbitant price” for its debt late last year.

GE has not disclosed how much the company has saved because of TLGP backing.

Like other companies in the program, GE pays the FDIC fees to use the guarantees – a little more than $1 billion so far. But as Bair explained to bankers last fall, the fees, while “healthy,” are “far below certainly what the cost of credit protection is now in the market.”

Not every finance company has had that peace of mind. One of GE’s competitors in business lending markets, CIT Group, a smaller company, has had a harder time raising cash. It has been unable to persuade the FDIC to allow it into the debt-guarantee program, at least in part because of its lower credit ratings. A recent Standard & Poor’s analysis cited CIT’s “inability to access TLGP” as a factor in the company’s declining financial condition.

Two weeks ago, the Obama administration said it would seek to eliminate the Office of Thrift Supervision and force companies like GE to focus on commerce or banking, but not both. That could require the industrial giant to spin off GE Capital.

Last week, Immelt said GE had no intention of doing that. “GE is and will remain committed to GE Capital, and we like our strategy,” he said in a memo to staff.

In its proposal to overhaul financial regulation, the Treasury Department pointed out that some firms operating under the existing rules, including collapsed companies such as American International Group, “generally were able to evade effective consolidated supervision and the long-standing policy of separating banking from commerce.”

GE’s Wilkerson said the company generally supports regulatory reform but thinks that it should be permitted to retain its structure. “Bank reform has historically included grandfathering provisions upon which investors have relied, and there is no reason this settled principle should not be followed here,” he said. He said the company “didn’t have any choice” but to have OTS as its regulator.

The company also objects to the Treasury’s proposal to force firms to separate banking and commerce because that issue “had nothing to do with the financial crisis,” Wilkerson said.

Wilkerson said GE has remained profitable and avoided some of the exotic financial products that contributed to losses at other institutions. He also said that GE performed an internal stress test this year and found that its capital position was “quite strong by comparison to the banks.”

The FDIC has been working to wean financial institutions off the program. The TLGP originally was slated to end in June, but at the Treasury’s request the FDIC agreed to extend it until Oct. 31. Some participants have stopped using the program, but GE Capital continues to do so for the overwhelming majority of its debt.

Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the “cliff,” the agency would have to make good if companies such as GE are unable to honor their obligations. FDIC officials say they are comfortable that the agency has collected more than enough money to cover potential losses.

By Dafna Linzer and Peter Finn

The Obama administration, fearing a battle with Congress that could stall plans to close Guantanamo, has drafted an executive order that would reassert presidential authority to incarcerate terrorism suspects indefinitely, according to three senior government officials with knowledge of White House deliberations.

Such an order would embrace claims by former president George W. Bush that certain people can be detained without trial for long periods under the laws of war. Obama advisers are concerned that bypassing Congress could place the president on weaker footing before the courts and anger key supporters, the officials said.

After months of internal debate over how to close the U.S. military prison at Guantanamo Bay, Cuba, White House officials are growing increasingly worried that reaching quick agreement with Congress on a new detention system may prove impossible. Several officials said there is concern in the White House that the administration may not be able to close the facility by the president’s January deadline.

White House spokesman Ben LaBolt did not directly respond to questions about an executive order but said the administration would address the cases of Guantanamo detainees in a manner “consistent with the national security interests of the United States and the interests of justice.”

One administration official suggested the White House was already trying to build support for an executive order.

“Civil liberties groups have encouraged the administration, that if a prolonged detention system were to be sought, to do it through executive order,” the official said. Such an order could be rescinded and would not block later efforts to write legislation, but civil liberties groups generally oppose long-term detention, arguing that detainees should either be prosecuted or released.

The Justice Department has declined to comment on the prospects for a long-term detention system while internal reviews of Guantanamo detainees are underway. The reviews are expected to be completed by July 21.

In a May speech, President Obama broached the need for a system of long-term detention and suggested that it would include congressional and judicial oversight. “We must recognize that these detention policies cannot be unbounded. They can’t be based simply on what I or the executive branch decide alone,” the president said.

Some of Obama’s top legal advisers, along with a handful of influential Republican and Democratic lawmakers, have pushed for the creation of a “national security court” to supervise the incarceration of detainees deemed too dangerous to release but who cannot be charged or tried.

But the three senior government officials said the White House has turned away from that option, at least for now, because legislation establishing a special court would be both difficult to pass and likely to fracture Obama’s own party. These officials, as well as others interviewed for this article, spoke on the condition of anonymity because they were not authorized to speak publicly about internal deliberations.

On the day Obama took office, 242 men were imprisoned at Guantanamo. In his May speech, the president outlined five strategies the administration would use to deal with them: criminal trials, revamped military tribunals, transfers to other countries, releases and continued detention.

Since the inauguration, 11 detainees have been released or transferred, one prisoner committed suicide and one was moved to New York to face terrorism charges in federal court.

Administration officials said the cases of about half of the remaining 229 detainees have been reviewed for prosecution or release. Two officials involved in a Justice Department review of possible prosecutions said the administration is strongly considering criminal charges in federal court for Khalid Sheik Mohammed and three other detainees accused of involvement in the Sept. 11, 2001, attacks on the United States.

The other half, the officials said, present the greatest difficulty because these detainees cannot be prosecuted either in federal court or military commissions. In many cases the evidence against them is classified, has been provided by foreign intelligence services, or has been tainted by the Bush administration’s use of harsh interrogation techniques.

Attorney General Eric H. Holder Jr. agreed with an assessment offered during congressional testimony this month that fewer than 25 percent of the detainees would be charged in criminal courts and that 50 others have been approved for transfer or release. One official said the administration is still hoping that as many as 70 Yemeni citizens will be moved, in stages, into a rehabilitation program in Saudi Arabia.

Three months into the Justice Department’s reviews, several officials involved said they have found themselves agreeing with conclusions reached years earlier by the Bush administration: As many as 90 detainees cannot be charged or released.

The White House has spent months meeting with key congressional leaders in the hopes of reaching agreement on long-term detention, even as public support for such a plan has wavered as lawmakers have sought to prevent detainees from being transferred to their constituencies.

Lawyers for the administration are now in negotiations with Sens. Carl M. Levin (D-Mich.) and Lindsey O. Graham (R-S.C.) over separate legislation that would revamp military commissions. A senior Republican staff member said that senators have yet to see “a comprehensive, detailed policy” on long-term detention from the administration.

“They can do it without congressional backing, but I think there would be very strong concerns,” the staff member said, adding that “Congress could cut off funding” for any detention system established in the United States.

Concerns are growing among Obama’s advisers that Congress may try to assert too much control over the process. This week Obama signed an appropriations bill that forces the administration to report to Congress before moving any detainee out of Guantanamo and prevents the White House from using available funds to move detainees onto U.S. soil.

“Legislation could kill Obama’s plans,” said one government official involved. The official said an executive order could be the best option for the president at this juncture. Under one White House draft that was being discussed earlier this month, according to administration officials, detainees would be imprisoned at a military facility on U.S. soil but their ongoing detention would be subject to annual presidential review. U.S. citizens would not be held in the system.

Such detainees — those at Guantanamo and those who may be captured in the future — would also have the right to legal representation during confinement and access to some of the information that is being used to keep them behind bars. Anyone detained under this order would have a right to challenge his detention before a judge.

Officials argue that the plan would give detainees more rights and allow them a better chance to one day end their indefinite incarceration than they have now at Guantanamo.

But some senior Democrats see longterm detention as tantamount to reestablishing the Guantanamo system on U.S. soil. “I think this could be a very big mistake, because of how such a system could be perceived throughout the world,” Sen. Russ Feingold (D-Wis.) told Holder.

One administration official said future transfers to the United States for long-term detention would be rare. Al-Qaeda operatives captured on the battlefield, which the official defined as Iraq, Afghanistan, Pakistan and possibly the Horn of Africa, would be held in battlefield facilities. Suspects captured elsewhere in the world could be transferred to the United States for federal prosecution, turned over to local authorities or returned to their home countries.

“Going forward, unless it’s an extraordinary case, you will not see new transfers to the U.S. for indefinite detention,” the official said.

Instituting long-term detention through an executive order would leave Obama vulnerable to charges that he is willing to forsake the legislative branch of government, as his predecessor often did. Bush’s detention policies suffered successive defeats in the courts in part because they lacked congressional approval and tried to exclude judicial oversight.

“There is no statute prohibiting the president from doing this through executive order, and so far courts have not ruled in ways that would bar him from doing so,” said Matthew Waxman, who worked on detainee issues at the Defense Department during Bush’s first term. But Waxman, who waged a battle inside the Bush administration for more congressional cooperation, said the “courts are more likely to defer to the president and legislative branch when they speak with one voice on these issues.”

Walid bin Attash, who is accused of involvement in the bombing of the USS Cole in 2000 and who was held at a secret CIA prison, could be among those subject to long-term detention, according to one senior official.

Little information on bin Attash’s case has been made public, but officials who have reviewed his file said the Justice Department has concluded that none of the three witnesses against him can be brought to testify in court. One witness, who was jailed in Yemen, escaped several years ago. A second witness remains incarcerated, but the government of Yemen will not allow him to testify.

Administration officials believe that testimony from the only witness in U.S. custody, Abd al-Rahim al-Nashiri, may be inadmissible because he was subjected to harsh interrogation while in CIA custody.

“These issues haven’t morphed simply because the administration changed,” said Juan Zarate, who served as Bush’s deputy national security adviser for counterterrorism and is now at the Center for Strategic and International Studies in Washington.

“The challenge for the new administration is how to solve these legal questions of preventive detention in a way that is consistent with the Constitution, legitimate in the eyes of the world and doesn’t create security loopholes that cause Congress to worry,” Zarate said.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism in the public interest. Its content is in the public domain.

By David Epstein

If only there were a stimulus edition of Quicken. With billions of stimulus dollars flowing into the economy, some via historically unprecedented avenues, accounting mistakes were inevitable. And, given the magnitude of the stimulus plan, some of the typos and slip-ups were bound to involve astronomical sums of money. Last month, there was the whole $250-checks-being-sent-to-thousands-of-dead-people [1] thing. Then, last week, we noted that the Labor Department had slipped a footnote onto Recovery.gov [2] that corrected by $10 billion [3] the amount of stimulus money that the department had put in the unemployment trust fund. This week, ProPublica received a copy of a section of California’s corrected application [4] for State Fiscal Stabilization money that fixes an accounting error worth $2.3 billion.

The State Fiscal Stabilization Fund is a $53.6 billion pot created by the stimulus bill. Most of the money is earmarked for education, and to receive the money, a state has to assure the federal government that it will spend at least as much on public K-12 and higher education in 2009 and 2010 as it did in the 2006 fiscal year.

When California submitted its original application [5] for $4.875 billion in stabilization funds on April 15, it showed 2006 figures of $34.905 billion for K-12 funding and $5.435 billion for public higher education. Last month, after Californians voted down various budget measures, Gov. Arnold Schwarzenegger submitted a budget that includes $4.7 billion in cuts to schools [6] over the next two years. The plan made it painfully obvious that California might have trouble topping the 2006 figures in its application, potentially jeopardizing its right to money from the stabilization program. That’s where the accounting error comes in.

Going over their numbers, officials in California realized that they had counted more than $2 billion in “settle-up” funds, which were guaranteed to schools in 2006 but not actually spent until the following year. Settle-up funds are owed to schools that have not yet received all the money they are entitled to under California’s Proposition 98, which promises that 40 percent of the state’s general fund be spent on schools.

The accounting fix lowered the education funding bar that California must meet to receive SFSF funds. “This technical adjustment was made to ensure that we treat all funds consistently across fiscal years in our State Fiscal Stabilization Fund application,” says Kathryn Gaither, California’s undersecretary of education. “We’re continuing to work with the federal government, and we expect to hear final word on our revised application soon.” According to John White, a spokesman for the federal Department of Education, no state has had its SFSF application [7] turned down thus far, so it’s a good bet that California’s revised application will be accepted.

Based on its revised application (which also includes community college funding that was left out on the first go-round), California is still aiming for the funding figures in its original application but now has the wiggle room to deal with the deep and unavoidable cuts that are looming. “It frees up $2 billion in the terms of the ‘maintenance of effort’ requirement in the application,” says Carol Bingham, director of the state Education Department’s fiscal policy division, “so the 2009 and 2010 figures can be dropped down if they need to.”