WASHINGTON, D.C.//September 27, 2007///One of the five largest private equity buyout firms in America. A tobacco company heir with three multi-million-dollar homes. A wireless phone company that paid its top executives to play at the Augusta National Golf Club and picked up the tab to fly them there dozens of times on company jets. These are just some of the telephone companies and their executives that are gorging themselves on hundreds of millions of dollars in dubious taxpayer subsidies under the federal government's $7-billion Universal Service Fund (USF) phone bill tax, according to www.CapTheFund.org, a new national campaign that aims to rein in out-of-control spending in the "high cost" portion of the USF.
Rapidly rising spending on the high-cost portion of the federal USF phone tax has caused it to skyrocket from $2.2 billion in 1999 to about $4 billion in 2006. The overall USF tax has surged to $7 billion, up from less than $4 billion in 1998. To pay for the Universal Service Fund, the tax rate applied to the phone bills of American consumers has skyrocketed five-fold from 2.1 percent to its current level of just under 11 percent.
Studies show that unwary U.S. taxpayers now pay up to $13,345 per telephone line per year for federally subsidized phone service under the U.S. government's steep USF phone bill tax. Rather than providing phone service to low-income consumers in need, the bulk of USF taxpayer dollars are now part of a multi-billion wealth-transfer that goes from the pockets of U.S. taxpayers to small, uneconomical private rural telephone companies that often have only a few hundred customers and are so engorged with tax dollars that they can afford to pay out more in dividends to shareholders than they actually charge for phone service. Increasingly, USF funds are also flowing to large wireless companies that provide what is often purely duplicative service competing with unsubsidized service providers.
Flora "Grandma" Green, national spokesperson, The Seniors Coalition, said: "It is high time for the Federal Communications Commission to cap the 'high cost' portion of the federal Universal Service Fund phone bill tax. If the FCC can't get the job done, Congress should step in and clean up the outrageous waste of USF tax dollars that is now going on. We object in the strongest possible terms to the way that billions of tax dollars are being flushed down the toilet today under the out-of-control "high cost" portion of the USF tax on phone calls. The USF system is broken -- unless you are one of the phone companies for which this tax dollar give-away program is paying off like a busted slot machine. We shouldn't add more money to the USF or expand its mission to include broadband service until the Universal Service Fund tax subsidy scandal is cleaned up once and for all by cutting the waste in the USF program."
Dee Hodges, president, Maryland Taxpayers Association, said: "The USF is yet another example of supposedly good federal intentions that get turned into a runaway tax subsidy program that lines the pocket of corporations and wealthy Americans. The 'high-cost' portion of the Universal Service Fund was supposed to help consumers in remote and other rural areas without access to phone service, but the high-cost portion of the Universal Service Fund is now a seemingly bottomless pit of tax subsidy handouts that do little or nothing to help the consumers originally targeted for aid. It's time to cap the USF. The FCC needs to stop picking the pockets of American phone consumers."
According to CapTheFund.org reviews of public records and news accounts, the real beneficiaries of Universal Service Fund federal phone tax subsidies include the following telephone companies and executives that are very far removed from the low-income and otherwise disadvantaged Americans who are supposed to be aided by the high-cost portion of the USF. The concern in these cases is not about any illegal activity, since USF tax dollars are being deliberately doled out by the federal government with no apparent concern about the lack of results. Instead, the focus here is on billions of dollars in federal tax dollars subsidizing companies that clearly do not need them:
One of the five biggest private-equity buyout firms in America. Some of the richest men in the U.S. financial world will become recipients of the USF tax subsidy as a result of the planned private-equity buyout of Alltel, which is being acquired by Texas Pacific Group (TPG). They will pocket the projected annual USF subsidy paid to Alltel of up to $144 million-$280 million (based on 2007 levels reported in SEC filings). In 2006, TPG was involved in $101 billion worth of deals. TPG's latest buyout fund is worth $15 billion. TPG has bought out such well-known companies as the J. Crew Group, Neiman Marcus, Burger King, MGM, and Harrah's Entertainment, the world's largest gaming company.
A tobacco company heir. R.J. Reynolds tobacco heir Smith Bagley is the founder and CEO of the self-named telephone company, Smith Bagley, Inc., of Show Low, Arizona. His wife, Elizabeth Frawley Bagley, served as ambassador to Portugal during the Clinton Administration. According to public records, Bagley and his wife own a home in Washington, D.C. valued at $4.2 million and a Nantucket summer home worth $13.39 million. He also has owned the Musgrove Plantation, a luxurious seaside estate on St. Simon's Island in Georgia.
The co-owner of an NBA team who liked a New York City restaurant so much that he moved it to a small town in Oklahoma. Dobson Communications founder Everett Dobson is part of the investment group that purchased the Seattle Super Sonics and the Seattle Storm for $350 million. Dobson also is part owner of Cascata, an Italian restaurant that he decided to move from New York City to Edmond, Oklahoma. According to a news release issued by the restaurant owners: "The creation of that Cascata experience began two years ago when Everett Dobson, Chairman and CEO of Oklahoma City-based Dobson Communications, and Ed Evans, CEO of TSI Telecommunications Services, Inc., were dining in New York City. The Manhattan restaurant specialized in northern Italian cuisine and left such a strong impression on the pair that they decided to bring their experience home to Oklahoma."
Executives who are paid to play golf at Augusta and also subsidize a NASCAR race team. Joe Ford and Scott Ford, the leaders of the wireless giant Alltel, are members of Augusta National Golf Club, for which Alltel generously picks up the tab - along with the cost of "company travel" on Alltel jets. From 2001-2005, Alltel's four jets landed more than 165 times at the airport in Augusta, Georgia, according to published news accounts. The Fords are friends of not just the PGA, but also NASCAR. Alltel recently spent $7.2 million on its corporate sponsorship of Ryan Newman's NASCAR Winston Cup Series race car.
The owner of a $12 million Manhattan townhouse and a former advisor to the ruling family of Brunei. Accipiter co-founder Lewis van Amerongen is an investor who spent more than two decades with the private equity firm Gibbons, Green & van Amerongen. The New York City investor lives in a $12 million townhouse on the Upper East Side. Another principal in Arizona-based Accipiter is Phillip Sotel, a corporate lawyer and consultant specializing in international commerce. His past clients include the Atlantic Richfield Company, Warner Brothers, the Hunt family of Dallas and the ruling family of Brunei. A July 5, 2006 article in The Arizona Republic indicated that Accipiter had only four employees, 80 customers and 200 lines, but noted that the firm had invested $5.4 million in advanced fiber-optic equipment. The newspaper reported: "As van Amerongen and Sotel learned more about the generous (USF) subsidies for rural carriers, the idea of launching such a company in the Arizona desert didn't seem like such a gamble. The funds could offset the costly job of building the infrastructure needed to run a phone company."
A Naval Academy friend of former FCC Chairman Michael Powell. Sandwich Islands Communications, Inc. is home to America's largest and most infamous USF subsidy: the more than $13,000 per line paid for homes in the resort community of Maui. The company in question is controlled by Albert Hee, who, according to Forbes magazine, attended the Naval Academy in Annapolis and while there, became friends with Michael Powell, the future chairman of the Federal Communications Commission. Hee's relationship with Powell became a matter of controversy when the FCC allowed Sandwich Isles to continue receiving hundreds of millions of dollars from USF and other federal support.
For more about high-cost USF taxpayer dollar waste, please go to http://www.CapTheFund.org.
ABOUT THE GROUPS
The Cap the Fund campaign seeks to do exactly what our name implies: We want to cap the runaway "high-cost" portion of the Universal Service Fund federal phone tax. All individuals and organizations are urged to join the Cap the Fund campaign If you are an individual, please take time now to send a message to the Federal Communications Commission (FCC) and Congress by going to http://www.CapTheFund.org. If you represent an organization, please join the ranks of the Cap the Fund Campaign, by sending an email to webmaster@CapTheFund.
The initial members of the Cap the Fund campaign include:
The Seniors Coalition (http://www.senior.org) is a non-profit, 501(c)(4), non-partisan, education and issue advocacy organization that represents the interests and concerns of America's senior citizens at both the state and federal levels. Its mission is to protect the quality of life and economic well-being that older Americans have earned while supporting common sense solutions to the challenges of the future. The Coalition was founded as a public advocacy group during the fight to repeal the Medicare Catastrophic Coverage Act in 1989. Since then, it has grown rapidly and expanded our advocacy to include a wide range of other important issues.
The Maryland Taxpayers Association (http://www.mdtaxes.org) is a 501(c)(4) non-partisan, not-for-profit, volunteer grass-roots organization which asks Maryland elected officials for their pledge not to raise taxes, acts to make Maryland government more efficient, and organizes and chairs the Maryland Center-Right Coalition and the Maryland Leadership Conference.
CONTACT: Ailis Aaron Wolf, (703) 276-3265 or aaaron@hastingsgroup.com.
EDITOR'S NOTE: A streaming audio recording of the related news event will be available on the Web as of 7 p.m. EDT on September 27, 2007 at www.CaptheFund.org.