The politics of trash

Tangled web of political, business connections links players in public-private partnership
2010-04-12T00:05:00Z The politics of trashBy Marc Chase - marc.chase@nwi.com, (219) 662-5330 nwitimes.com

Enmeshed in the process of bringing a trash-to-ethanol facility to Lake County is a tangled web of political and business connections linking what some describe as a political rainmaker, top county government officials and a multistate law firm.

The law firm, which was the longtime legal counsel of the winning private bidder set to build and operate the plant, also represented the county waste management board when it approved the contract to build what is to be a privately run by publicly owned facility.

Political proponents of the proposed biorefinery hail the plan as a cheaper and more environmentally friendly alternative to landfilling Lake County's trash.

Local government officials opposed to the plan believe the county is launching into a public-private partnership based on an unproven process not fully vetted by the people championing the plant.

Some political detractors of the plant, to which all municipal waste in the county would be routed, believe enough unanswered questions have existed throughout the process for the county to put the brakes on its partnership with Powers Energy One of Indiana LLC, the company set to build and operate what will become a taxpayer-owned facility in Schneider.

But backers of the concept said the private operation and financing ensure taxpayers will not be financially liable if the trash-to-ethanol business fails. Once made aware of a business connection between the political insider and the company set to build and operate the plant, government officials said they immediately demanded the company sever ties with the insider.

How it began

Lake County Commissioner Gerry Scheub said his quest to find a better alternative to landfills for the county's trash led him to become the region's biggest political champion of converting trash to ethanol, a gasoline alternative.

He said the quest arose from controversy surrounding a failed landfill contract between the county's waste management district and USA Waste Services-Hickory Hills Inc. The matter erupted in courtroom battles in the mid- and late-1990s, and the landfill never was built.

At the end of the battle, the Lake County Solid Waste Management District vowed to steer away from landfills.

In the wake of that legal fight, Scheub, a member of the district's board, said he began searching for alternatives for the county's trash. District Executive Director Jeff Langbehn said that search accelerated in 2007 when a good government study concluded Lake County taxpayers could realize cost savings if the district consolidated all trash processing through one provider.

In that vein, Scheub said he discussed the county's desire for trash processing alternatives with Joe Wade, a principal with project management and planning firm RW Armstrong, in late 2006. The two ran into each other at an Indiana Association of County Commissioners meeting in Indianapolis.

"Joe Wade said, 'I have a real good friend down in Evansville who wants to start a new system converting garbage to ethanol,'" Scheub said. "All I could see was dollars for Lake County. Changing garbage into a commodity was an awesome way to go."

Within a matter of days, Wade introduced Scheub and Langbehn to Earl H. Powers, who at the time was preparing to work on the financing for possible trash-to-ethanol plants with Evansville-based Indiana Ethanol Power, now known as Agresti.

Indiana Ethanol would go on to bid for the county's consolidated trash processing contract, but Powers split with the company in early 2007 and began his own trash-to-ethanol venture. Powers' company, which eventually became known as Powers Energy, won the contract after agreeing to process the county's trash for about $17 per ton. Powers' quote was about even with Indiana Ethanol's bid but far below that of a third and final bidder, Allied Waste, which at the time proposed to landfill the county's trash for more than $40 per ton.

Powers garnered the endorsement of a county-commissioned engineer and financial firm during the district's process of vetting the bids, making his company the favored bidder, county officials said.

But Powers also had something else in his corner prior to his dealings with Lake County -- a major law firm working for him that would become the chief legal adviser for the Lake County Solid Waste Management District on the trash-to-ethanol proposals.

Legal ties

Through months of committee meetings, presentations and debates on the trash proposals, the waste management district used the Indianapolis office of Barnes & Thornburg to help analyze the companies proposing to consolidate county trash processing.

Powers, the winning bidder, acknowledges that same law firm represented his business interests for about 18 years prior to making his Lake County trash processing bid, including work to incorporate his financial firm, World Net Capital 1 LLC.

Langbehn said the county used Barnes & Thornburg as an additional set of legal eyes to complement the waste district's own attorney, Clifford Duggan. The county also hired a Wisconsin-based engineering firm and a separate consultant to analyze the financial plans and proposals of the three bidding companies.

"We stayed away from any conflict that anybody might have by not hiring anybody locally who might lean towards different people," Langbehn said. "We told Earl (Powers) this had to be the most honest thing he has ever done because this is Lake County, Ind. We set the standards right away."

During his second presentation to the full Lake County Solid Waste Management District board, Powers divulged that Barnes & Thornburg had served as his attorney.

Because the relationship was disclosed, no state ethics rules were violated, said Seth Pruden, interim executive secretary for the Indiana Supreme Court Disciplinary Commission.

Representatives from Barnes & Thornburg did not return calls from The Times seeking comment on the matter.

In a recent interview with The Times, Powers said he severed ties with the law firm six or seven months prior to signing a contract with the county. That contract was approved by the waste management district board in November 2008, more than a year after Powers disclosed his connection to Barnes & Thornburg to the board.

Both Powers and Langbehn deny that Powers Energy received any preferential treatment in the bidding process because of the connection between the district and Powers' company to Barnes & Thornburg.

Langbehn noted that Powers' specific attorney -- though within the same firm -- did not perform any of the legal work for the county.

Though very little was made of the Barnes & Thornburg connection throughout the bidding process, county officials concede that ties between the trash-to-ethanol plans and a well-known region political and business figure raised some eyebrows.

Controversial connections

In a November 2009 interview with The Times, Powers said Northwest Indiana lawyer Michael Pannos did legal work to help secure the site in Schneider -- a small southern Lake County town -- where the trash-to-ethanol plant is to be built.

It was a revelation that sparked speculation throughout Lake County political circles that Pannos, a former Indiana Democratic Party chairman, had a financial stake in the trash-to-ethanol plan -- a contention Langbehn, Scheub and Powers all deny.

Repeated attempts by The Times to reach Pannos at his Merrillville home and by phone were unsuccessful.

In an unrelated matter, the Indiana attorney general and city of East Chicago have been locked in a legal battle with Pannos and fellow political insider Thomas Cappas, alleging they have reaped "enormous" salaries while at the helm of East Chicago Second Century Inc. The for-profit firm is accused of squandering millions in local casino revenue it received under an agreement brokered by the administration of former Mayor Robert Pastrick.

In a more recent interview with The Times, Powers acknowledged Pannos worked as a lawyer for a Merrillville financial firm that Powers was trying to use to aid in the financing of the Schneider trash-to-ethanol plant. However, he said the firm failed to deliver, and he severed ties with the company.

The questions came after The Times learned that Pannos had entertained Powers at Pannos' Culver, Ind., lake home sometime in mid-2009. Powers and Scheub both acknowledge that, during that visit, Pannos and Powers also visited Scheub at the commissioner's nearby Culver farm property.

"That was the first time I knew Mike Pannos had anything to do with this -- when Earl stopped by my house with him," Scheub said.

Following Pannos' name association with Powers' efforts, Langbehn said county officials told Powers he could not involve Pannos in any way with the project.

"Earl (Powers) was told on no uncertain terms Mike Pannos will have nothing to do with it," Langbehn said. "I don't care how far removed it is."

Langbehn, who in addition to Scheub remains one of the most staunch government supporters for the trash-to-ethanol plant, acknowledges his own ties with Pannos.

Langbehn described Pannos as among his "best of friends." Langbehn is godfather to Pannos' daughter, and the men's wives also are close friends, Langbehn said.

In an Aug. 21, 2008, district board meeting, Langbehn also revealed to the board that he had become aware of connections between Pannos' cousin and the second trash-to-ethanol bidder, Indiana Ethanol, the company Powers was affiliated with when he first spoke to Scheub about bringing such a plant to Lake County. Langbehn disclosed he had learned that the Pannos' cousin was an investor with Indiana Ethanol.

But Langbehn said none of those affiliations matters, and he dubbed those who attempt to link Pannos with the trash-to-ethanol project as sabotaging naysayers.

"You can spin anything negative on anything you want," Langbehn said. "If anyone had a problem with this plan, they had board meetings over a 3 1/2-year period in which they could have stepped forward and addressed these concerns."

Prevailing uneasiness

Among the "naysayers" Langbehn referenced is Lake County Sheriff Rogelio "Roy" Dominguez, who in recent months has publicly voiced concerns that the taxpayers of Lake County could be on the hook if the trash-to-ethanol plant fails.

Despite what Langbehn assures are "hold harmless" clauses within the county's contract with Powers that shield the taxpayers from any financial liability, the sheriff, who also is an attorney, remains unconvinced.

Dominguez said he is worried about language within the contract that allows Powers to use the land and future plant -- which eventually will be owned by the county but operated by Powers -- as collateral for financing the estimated $280 million facility. Dominguez said he fails to see how taxpayers would be protected from debt collectors if the trash-to-ethanol business fails.

Contributing to that uneasiness are concerns that the proposed trash-to-ethanol technology and process have never been commercially used on the scale proposed in Lake County.

That discomfort -- in part -- prompted waste management district board member George Jerome, who also serves as Griffith Town Council president, to vote against the contract with Powers' company when the full board considered the public-private partnership in November 2008. Jerome was one of four board members who voted against the contract. Fourteen board members voted to accept the deal.

Jerome was among a collection of district board members who toured a pilot plant in Fayetteville, Ark., earlier that month where technology was being used -- on a smaller scale -- that reportedly will be used at Lake County's trash-to-ethanol plant.

County officials said the Fayetteville plant processes less than 2 tons of trash into ethanol per day. The Lake County facility eventually would process 2,000 tons of trash per day, and Jerome said he had reservations regarding whether technology he witnessed in Arkansas would work if the scales were changed by that magnitude. Jerome also argued that the Fayetteville plant was treating already processed waste, not the raw waste that would be showing up at the gates of the proposed Lake County facility for sorting and processing.

"We're putting too much into one plant and riding everything on it," Jerome said. "I think we should have had two contractors form pilot plants here to see how they work first."

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