U.S. Sugar's sweet deal

A week after he flip-flopped his position on drilling for oil off of Florida's Gulf Coast, enraging environmentalists, Gov. Charlie Crist traveled down to the Everglades and became their champion.

On a windy summer day in late June, framed by the mounting thunderstorms along the banks of the Loxahatchee River, Crist readied himself to announce a land purchase that would come to exhaust a thesaurus of platitudes: "bold," "masterpiece," "magnificent," "watershed," "landmark," "priceless," "historic," "once in a lifetime" and "monumental," to name a few.

The deal? The taxpayers of South Florida would pay $1.75 billion for the Everglades-polluting U.S. Sugar Corp., for its 187,000 acres of farmland and the world's largest raw sugar mill. Within six years, U.S. Sugar would cease to exist, and its property would be converted into wetlands and holding ponds to help restore the natural flow of water back into the ailing Everglades.

"Sixty years ago," Crist said that day, "President Harry Truman came to South Florida to dedicate Everglades National Park. Today, we follow in the great footsteps and in the tradition of the great conservationist President Teddy Roosevelt. I can envision no better gift to the Everglades or the people of Florida or to our country than to place in public ownership this missing link that represents the key to true restoration."

The acclaim seemed universal; environmentalists, Democrats and Republicans, newspaper editorial writers all lauded Crist for the bold and surprising move that had been reached in months of secret negotiations.

A no-brainer, right?

Not quite.

For instance, why are so few questioning the sale price, which amounts to a high premium of $350 a share for the privately held giant that produces 10 percent of the nation's raw sugar? The proposed price is much higher than the share value the company itself uses, the $180-$204 it pays its own employee shareholders when they cash out.

And why do few question the propriety of rewarding one of the Everglades' biggest polluters? In 1996, voters approved a referendum requiring those responsible for polluting the Everglades to clean up the mess. That includes U.S. Sugar.

And what about the state's second-biggest sugar baron, Flo-Sun, which owns 30,000 acres just south of U.S. Sugar? For the Everglades restoration to work, some or all of their land is needed, too.

Literally a voice in the wilderness on this issue, Republican Hendry County Commissioner Darrell Harris told the Broward-Palm Beach New Times weekly newspaper: "People can't afford to drive down the road to get something to eat. Teachers are getting laid off, state workers are getting laid off. And [Crist is] spending $1.75 billion on this?"

While the final negotiations are conducted confidentially and out of the public eye, there has been little public or media scrutiny since the initial announcement. But given that the people of South Florida are going to foot the bill for the purchase for the next 30 years, the question remains: Is U.S. Sugar getting too sweet a deal?

Everything about U.S. Sugar is big. For 80 years, the agricultural giant has dominated the Everglades Agricultural Area, spanning parts of four counties just south of the Everglades. Its new state-of-the-art sugar mill is the largest in the world. Its citrus processing plant, Southern Gardens Citrus, is the largest bulk citrus processor in the nation and a major supplier of not-from-concentrate orange juice to Tropicana. It has 200 miles of railroad tracks on its properties. It processes 700,000 tons of cane sugar a year. More than 1,700 employees take home a U.S. Sugar paycheck cut from its headquarters in Clewiston, on the southwest bank of Lake Okeechobee.

Big Sugar also has Big Clout.

In Florida campaigns in this election cycle, the company and its subsidiaries have doled out $780,000 to candidates, political committees and both major parties (more than $200,000 to Crist's Republican Party alone). Its PAC has donated another $16,000 to federal candidates in the 2008 elections.

As an illustration of how much it is willing to spend in campaigns, U.S. Sugar played a big role in the 2006 governor's race in Florida, contributing more than $1 million to two political committees -- Florida's Working Families and Floridians for Responsible Government -- that, in turn, backed unsuccessful Democratic primary candidate Rod Smith, a Gainesville senator who had sponsored sugar-friendly legislation that eased pollution controls on the company, according to FactCheck.org, the Annenberg Political Fact Check website.

U.S. Sugar also pays at least 10 lobbyists to look after its interests in Tallahassee, including several high-powered names such as Brian Ballard and J.M. "Mac" Stipanovich, according to state records. Ballard is arguably one of the most influential lobbyists in the capital and a political adviser to Crist; Stipanovich is the former political guru behind Tampa's one-time governor Bob Martinez, and was Katherine Harris' "unpaid and personal attorney" who helped draft her misleading public statements during the 2000 presidential recount.

With the help of lobbyists like these, the sugar industry was able to blunt landmark legislation aimed at enforcing the adoption of cleaner farming techniques and requiring local, state and federal environmental agencies to build runoff water storage properties. The clean-farming techniques became optional instead of mandatory, and Congress recently seemed to be losing interest in funding the billions needed for the water-storage properties.

"Those tracks haven't been working," said Mark Perry, state co-chairman of the Everglades Coalition. He applauds the purchase but concedes we are paying money now because government didn't hold U.S. Sugar's feet to the fire.

"That's true," he said. "[But] what we have done [as private interests] is try to hold their feet to the fire in the 1998 lawsuit that required them to put in stormwater cleanup areas."

But activist lawsuits aren't cheap, either. Perry said that, in the end, buying sugar out was the best option. Another Florida environmentalist agreed.

"There's no doubt that it is the last option," said David Guest, the director of Earthjustice's Florida office who has brought lawsuits to enforce clean-water laws in the Everglades. "What's great about this thing is it really cuts to the core issue. The problem is we have these giant sugarcane plantations in a place where they shouldn't be."

In U.S. Sugar's case, the plantations aren't going away anytime soon. The proposed deal -- negotiated with the help of lobbyists Ballard and Stipanovich, according to several media accounts -- gives U.S. Sugar the right to operate on its Everglades properties for another six years, rent-free, before shutting down.

Sweet.

Sugarcane farming has existed in South Florida for eight decades, a transplant from earlier attempts to grow the sweet plant first in the 1500s in St. Augustine and later, commercially, near New Smyrna Beach in the years before the Revolutionary War. But soil and weather in northern and central Florida locations proved unsuitable for the cane, according to a University of Florida history of sugar production in the state, so it kept moving south. Sugarcane farming was finally established southeast of Lake Okeechobee in the 1920s and flourished in the rich, mucky soil that was so important to the flow of water south into the Everglades.

But two things happened over the decades that conspired to screw up the ecology of the Everglades, a miles-wide-but-inches-deep "river of grass" romanticized by novelists and popularized by environmentalist authors such as Marjory Stoneman Douglas. Just as the sugar industry was getting a foothold near Lake Okeechobee, Florida underwent its first land boom, in the 1920s. Migration to (then) small South Florida cities such as West Palm Beach, Fort Lauderdale and Miami gathered steam in the 1940s and 1950s. Soon, much of the east coast of Florida south of the lake was heavily populated with subdivisions and residents. At the beginning of the 20th century, the Florida Everglades extended to within a few miles of the Atlantic coast. But demand for buildable land and seasonal flooding from the Everglades resulted in dozens of canals and channels being built to regulate water levels and swiftly move excess water out of the Glades and into the ocean, interrupting the natural flow of water. The public appetite for the drainage and control systems only grew after a hurricane in 1928 killed more than 2,500 people when storm surge from Lake Okeechobee breached the lake's dike and flooded nearby towns.

So people are to blame, in part, for the channelizing of the Everglades and Lake Okeechobee. But farming shares in that blame, as the demand for agricultural land fed into the draining of the northern Everglades. More damaging, however, were pollutants caused by farming. Phosphorus from fertilizer -- used heavily on sugarcane, vegetables and citrus in the northern part of the Everglades -- ran off farms or was pumped out through canals and traveled south into the fragile ecosystem of the Everglades.

The Everglades had developed over millennia as a low-phosphorus environment where sawgrass and other flora flourished. But once higher levels of phosphorus were introduced, the balance went haywire, and plants that thrived with phosphorus, such as cattails, started taking over. The result was a loss of biodiversity, according to a University of Miami publication, which said, "Ninety percent of the wading birds in the Everglades have disappeared and 68 species of plants and animals are either endangered or threatened."

The purchase of U.S. Sugar can help change all of those problems, by taking farms out of production and eliminating the phosphorus runoff from them. Some of those farmlands would be turned into giant holding ponds for water flowing from the lake toward the Everglades, a storage capacity that not only cleans the water but prevents harmful "pulses" of water releases from the lake through rivers such as the Loxahatchee and the Caloosahatchee.

Today, sugar contributes $3.1 billion and an estimated 25,000 jobs to Florida's economy. U.S. Sugar is the biggest company in the state. The second-largest is Flo-Sun, or Florida Crystals, owned by the Fanjul brothers Alfonso and Pepe, wildly caricatured as the murderous Rojo brothers in Carl Hiaasen's book and movie, Strip Tease. Other small, independent sugarcane farms dot the Everglades Agricultural Area (EAA), as the farmlands south of the lake are known.

U.S. Sugar is controlled by the descendants of Charles Stewart Mott, a Michigan industrialist who made a fortune in the automobile business. Mott bought U.S. Sugar out of bankruptcy in the 1920s, the Great Depression, and oversaw its rapid expansion, first after the 1960 embargo against Cuban sugar and then again in 1974, when federal limits on sugar acreage planting were lifted.

The company is privately owned, so valuing it is tough, as there is not a public market in the company's shares. The company is controlled by the Charles Stewart Mott Foundation and its benefactors, including the longtime chairman of the company, William S. White, who is married to Mott's granddaughter. Even though the Foundation owns just 19 percent of the shares, it controls the complicated process of picking the board of directors and therefore keeps control within the Mott family. Employees own 38 percent of U.S. Sugar, through an Employee Stock Ownership Plan (ESOP) started in the 1980s.

One indication of a value for the company, then, is what it has paid employees who retire and cash out their ESOP shares. And that value is at the heart of a federal lawsuit now being contested in West Palm Beach.

Some former employees maintain they were low-balled by the company when they were paid $180-$204 a share over the past five or six years. Especially since, unknown to them at the time, a suitor was offering U.S. Sugar's board much more. Nashville banker, agriculturalist and investor Gaylon Lawrence twice in the past three years offered to pay $293 a share for the sugar company. And he thought he had a deal; in August 2005, according to the federal lawsuit, Lawrence reached an agreement with U.S. Sugar's then-CEO, Robert Dolson, for the $293-a-share purchase -- which the lawsuit calls "an extraordinarily valuable offer" that was 50 percent higher than what employees were being paid for their shares and 91 percent higher than the shares' fair market value that some charity shareholders declared in IRS filings.

U.S. Sugar's board apparently didn't appreciate the offer, according to the lawsuit. Suddenly, Lawrence found Dolson out of the picture, suddenly retired with an unexpected $10 million payment from the board. White took over negotiations and in 2006, the board voted to reject the offer, which Lawrence repeated in 2007 with the same result.

The employees' lawsuit portrays the company as buying up their shares at rock-bottom prices and then retiring those shares, increasing the size of company insiders' holdings without having to buy a single share personally. As mechanization replaced the need for employees and those workers' shares were retired, the Mott family's holdings became more and more valuable. Just in time for the state's offer of $350 a share.

One expert in ESOPs, however, said the value of employee shares doesn't necessarily reflect the true value.

"If you have a company that regardless of whether it is an ESOP or any kind of company, and you've got a minority interest, you're going to get less per share than you would otherwise," said Corey Rosen, executive director of the National Center for Employee Ownership. "That's just the way the market works."

Rosen said the lawsuit over the value of the ESOP shares is pretty typical for ESOP litigation and that it will be very hard to win for the employees. He also said it is very difficult to tell if, based on the company's own valuation of shares for employees, whether the state is overpaying for U.S. Sugar.

"It's a complicated, detailed process to wade through all the financials," he said. "It's hard to say on its face did the state pay too much, even though there had been other lower offers for the company."

U.S. Sugar has denied any wrongdoing in answering the lawsuit. Attempts to get a comment from the Clewiston-based company about the state purchase's effect on the ESOP lawsuit were unsuccessful. Likewise, repeated telephone calls to the lawyers for the employee plaintiffs were not returned. Plaintiff Diallo Johnson, a former analyst for U.S. Sugar now working in Philadelphia, said, "I can't comment at this time."

So here's the upshot of it all: The Mott family controls an increasingly larger share of U.S. Sugar. They will be able to cash out with an offer from the state that is higher than any they have had before and much higher than the company was paying its own employees for their shares. The owners are getting this premium from taxpayers not as a reward for good behavior but as recognition that the deck is so stacked against Everglades restoration because of U.S. Sugar's political clout that the only way to move forward is to pay them off.

And the only criticism so far has come from a South Florida alt-weekly, the Broward-Palm Beach New Times, which titled its story about the deal "Sugar Daddy" and called the land purchase "stupid" and "irresponsible."

One more thing: The purchase of U.S. Sugar doesn't solve all the Everglades' problems. One big obstacle remains in the way of restoring the flow of water from Lake Okeechobee to the river of grass: the roughly 30,000 acres south of the U.S. Sugar property owned by the Fanjul family and their Flo-Sun companies. In an interview with the New York Times last week, the Fanjul brothers said they were open to the idea of swapping some land with the state to give a route for the water through their property -- sort of. The Fanjuls, in fact, said a better idea would be to let them farm on the U.S. Sugar lands once the state owns it, sugarcane that would be fed into their new biomass fuel production facility in Okeelanta.

The wheeling and dealing that might be occurring behind the scenes scares environmentalists.

"It's really important to keep a real close eye on this," said Perry of the Everglades Coalition. "When it gets down to negotiating, the public needs to know what does this agreement look like and are we getting our money's worth? We need to make sure these land swaps and purchases achieve what we want them to achieve. ... and not just trade them off for other development."

The confidential negotiations between the South Florida Water Management District and U.S. Sugar are fast-tracked and must be completed by early September. Randy Smith, a water management district spokesman, said all of the money to pay for the purchase will come from taxpayers in the 16 South Florida counties the district covers. Taxes won't go up to pay for the purchase, district Chief Financial Officer Paul Dumars added, because the agency had already earmarked $100 million a year for Everglades restoration.

As for what kinds of deals water district officials can strike with the Fanjuls, it is anybody's guess. But you have to wonder if the same "pay them off at any cost" strategy will prevail with Flo-Sun's property as it did with U.S. Sugar's.

The secrecy behind the U.S. Sugar agreement has now given rise to legal action. Late last week, former U.S. Attorney Dexter Lehtinen sued to stop the purchase, claiming that it had been illegally brokered in out-of-the-sunshine meetings. Lehtinen helped lead Everglades cleanup efforts, and he told media that he was concerned that too many questions remained unanswered about how the deal would affect other cleanup projects in the river of grass.

Still, the U.S. Sugar deal may be inevitable. In a congratulatory letter to Gov. Crist, well-known Republican environmentalist Nat Reed added this postscript: "Marjory Stoneman Douglas, shortly before her death, bedeviled by the inaction of the board and staff of the South Florida Water Management District to make meaningful changes in the operation of the Everglades Agricultural Area, announced that the only solution was 'to buy them out!' Marjory is looking down on you with a smile on her face."

Full disclosure: As a political consultant, the author was retained to do grassroots and grass-tops organizing on behalf of U.S. Sugar in Tampa Bay during the 1996 "Penny-a-Pound" referendum