Clinton OKd State Lease With S&L; in ‘84, Memo Reveals

While Arkansas governor, Bill Clinton resolved a dispute over leasing office space for state agencies by confirming a recommendation to award the contract to his Whitewater business partner over the repeated objections of a state agency.

The President’s role, acknowledged last week by a Clinton confidant and a former state official, marks the first known instance in which Clinton was involved in a state decision that financially benefited Madison Guaranty Savings & Loan, which was owned by James B. McDougal and subsequently went broke.

Clinton’s role in the state lease comes to light as the Whitewater independent counsel is studying an attorney’s 1987 memo that describes thirdhand an allegation that Clinton promised state lease business to McDougal in exchange for a “substantial campaign contribution.”

Arkansas records show Madison Guaranty received three state leases worth tens of thousands of dollars from Clinton’s gubernatorial administration in the mid-1980s. One lease was finalized in 1984; the other two were approved after a controversial April, 1985, fund-raiser that McDougal hosted for Clinton at Madison.

Clinton’s personal lawyer, David E. Kendall, said that while Clinton supported moving state agencies into the poor Little Rock neighborhood that McDougal and others were refurbishing, there was never any connection to political contributions.

The 1987 memo’s allegation originated with a lawyer representing Arkansas businessman Charles Peacock III, a former Madison official who at the time was trying to stop the S&L; from foreclosing on several of his business and personal loans.

Peacock’s contribution to Clinton at the 1985 fund-raiser has been a focus of the Whitewater investigation. He later was hired to renovate one of the buildings that received a state lease.

In a three-page memo dated April 23, 1987, Lance Miller, an attorney working to collect loans overdue to Madison, recounted allegations made by Greg Hopkins, Peacock’s attorney. The memo quotes Hopkins as stating that some of the proceeds from a loan his client received from Madison on April 4, 1985, were diverted as a donation to Clinton’s campaign.

Investigators believe the donation was delivered to Clinton at the fund-raiser later that day at Madison. They have alleged it was disguised in the name of two other contributors as part of a larger scheme to divert S&L; funds to Clinton’s campaign. McDougal and Peacock have disputed the diversion allegations.

“Mr. Hopkins stated that a portion of the loan proceeds made to Dixie Continental Leasing [Peacock’s company] went to Bill Clinton’s campaign, and that in return for the substantial campaign contribution, Bill Clinton assured Jim McDougal that a state agency would lease space from Madison at its headquarters on Main Street in Little Rock,” the memo said.

Investigators also have Miller’s handwritten notes, which state: “Dixie loan went to Clinton campaign, signed lease to state, a lot of people going to prison!!”

Miller wrote the memo after a call from Pat Heritage, a Madison loan officer who heard the allegations from Hopkins.

Miller and Heritage said this month that the memo was accurate but that they believed Hopkins’ allegations amounted to posturing to stop the loan foreclosure. Heritage said she was recently questioned extensively about the memo by officials working for Whitewater counsel Kenneth W. Starr.

An individual close to Clinton, speaking only on condition of anonymity, confirmed that Clinton was drawn into the 1984 lease dispute after the state housing agency refused to move into Madison’s headquarters. The move had been recommended by the state leasing agency.

“Two agencies had disagreed,” the source said. “The governor decided to go with Madison, to go with the recommendation of the State Building Services, the expert agency.”

Paul Mallard, who ran the building services office, said Clinton “never tried to influence me.”

Wooten Epes, then the housing agency head, said he met with Clinton in the governor’s office in 1984 shortly after Epes wrote two letters: one recommending an alternative site and the other rejecting Madison as too expensive and in an undesirable location. He then appealed to Clinton, who would not overrule the leasing agency’s recommendation.

“The only thing I recall coming from it was, the governor was aware of the redevelopment in that part of town, and he thought it would be good for the state to be part of it,” Epes said.

McDougal said he probably discussed the leases with Clinton.

“I’m not trying to deny I might have said, ‘Hey, Bill, why don’t you give us something for this area down here?’ ” that was mostly populated by poor minorities, McDougal said. But he said there was no connection to any political donations.

The source close to Clinton said he was unaware of any involvement by Clinton in the two leases awarded after the fund-raiser.

Hopkins did not return half a dozen calls seeking comment and refused to see a reporter at his office. Peacock would say only that “I don’t know anything about” the memo’s contents.