Internal Documents Tell Coca-Cola's Real Story
por Ross Getman Sunday May 30, 2004 at 10:16 PM
ross_getman@verizon.net

Internal documents show how Coca-Cola's political influence was the key to overcoming legal objections and launching a "pouring rights" scheme that promoted soda to a captive audience of schoolchildren throughout the US.

Controversies surrounding Coca-Cola that have received the most attention include the death of trade unionists in Colombia, a federal grand jury tasked with hearing evidence of accounting and marketing fraud, pesticides in the product sold in India, contamination of ground water in India, a potential carcinogen in Daisani sold in Great Britain resulting in its withdrawal, and a much-heralded revolving door in the executive suite.

But in the United States, little attention has been paid to the legality of the school soda agreements that are the bedrock of Coca-Cola market share. Such agreements seek to shape and even "brand" a person's beverage choice for life. The New York City Comptroller did announce as illegal a $160 million agreement he alleges was "steered". But few appreciate that internal documents from the New York State Education Department demonstrate that the "pouring rights" scheme itself that was launched in New York State in 1998 in New York -- and then throughout the nation -- was the result of steamrolling legal objections and disregard of established legal precedent.

Such agreements are not only bad policy, they are illegal. Internal documents recently produced yesterday by the State Education Department -- which had concurrent responsibility for overseeing the legality of the agreements with the New York State Comptroller and courts -- show that the legal objections were overcome by the exercise of raw political influence.

In the face of legal objections by the staff of the State Education Department, powerful Majority Whip Michael Bragman wrote:

"I am proud of the fact that I am one of your strongest allies in state government."

"I must tell you, however, that I am having serious doubts about our partnership. At issue is the adversarial role SED has taken with regard to the proposed agreements between Liverpool and North Syracuse Central School Districts and the Coca-Cola Company."

"It is simply incomprehensible to me why SED would stand in the way of agreements that could provide extraordinary enhancements of school facilities at no cost to local real property taxpayers."

"[He neglected to mention that the construction of athletic facilities was instead to be at state taxpayer expense. Taxpayers contributed 92.5% to build the facilities in his district -- which then were named after him.]"

He continued: "SED has advanced the argument that the proposed agreements somehow would set a dangerous precedent in New York. I find this position to be ridiculous. There is no threat to children from a pouring rights agreement."

He argued that "other companies, including IBM, Apple Computer Co., Nike, Adidas, Fila, Calvin Klein, Nestle and others -- have initiated agreements with schools that have resulted in much more obvious and aggressive product promotion that what is being proposed."

"Every time my staff and I try to address SED's concerns with facts such as these and with information regarding the compelling benefits of this project, we are met with new obstacles. I am becoming extremely frustrated...."

"The purpose of this letter to inform you that I would like to meet as soon as possible for a public airing of all outstanding concerns with all the interested parties. I would request that you personally attend this session. Ron Ochrym of my staff will contact your office to coordinate the meeting, which I would like to schedule at the earliest opportunity."

He sent the letter to Assembly Speaker Sheldon Silver; Hon Anthony S. Bottar (who was President of the Board of Education of North Syracuse Central School District Board of Education from 1989 to 1996 and in 1998 a member of the New York State Board of Regents); Richard P. Mills [the Commissioner], the two affected Superintendents, Stephen Rogers, and unnamed "Interested Individuals."

Isn't it true that a meeting was held at which he angrily demanded that the agreements be allowed? The State Education Department has failed to provide documents relating to the meeting.

A meeting was held at the time with State Education Department Counsel Kathy Ahearn, for which the SED also failed to provide documents.

The legal objections raised by the State Education Department's legal counsel -- and overcome coincident with the pressure by the powerful Bragman -- were numerous:

(1) There is a question as to whether school boards have any statutory authority to enter into such contracts. School boards, as creatures of statute, have only the authority given to them under express or implied provisions of law. There is nothing in the law that conveys upon a school board the authority to enter into this kind of contract.

(2) In addition to the issue of statutory authority, there are also questions about the constitutionality of such an arrangement. The State Constitution prohibits the gift or loan of public property to a private commercial enterprise, at least absent a valid and substantial school purpose. The Education Law expressly provides that to the extent the use is for nonschool uses and activities, the use must be "nonexclusive". A contract is unconstitutional where it is for nonschool purposes, even notwithstanding a financial benefit.

(3) Another problem is binding future boards. The Department's top lawyer's wrote that long-term contracts are arguably saved, if at all, by the "opt out" provision -- that future boards may opt out of the contract at will. As the agreement term is lengthened, coupled with the possibility that future boards may have to pay back substantial sums of money, there is a major problem. An advance on commissions is a burden on future boards and the board is not in fact free to opt out of the contract at will.

(4) To the extent that a contract requires the school district to purchase any beverages for its food service program or other purposes, the contract must comply with any applicable competitive bidding mandates in General Municipal Law Section 103. The Commissioner in a 1976 decision (named EFM) found that the requirements of Section 103 could not be circumvented just because the food service contract was a revenue sharing agreement in the nature of a license. The Commissioner rejected the company's reliance on the line of precedent involving licenses on public property -- to do so, the Commissioner ruled, would thwart the salutary purpose of the competitive bidding law and the precedent of the highest court in New York State. Moreover, a School District would have to justify a requirement that a vendor sell soda in order to compete to sell its product on school property as "essential to the public interest." Selling soda to kids is not essential to the public interest -- indeed it is contrary to the public interest.

(5) Regulations prohibit the electronic advertising on school property. (The six-foot high displays on the front of vending machines are electronically backlit).

(6) Finally, there is a strong State public policy against the use of school property for commercial promotional activity, especially given the fact that chlldren are a captive audience in school, attending under the compulsory education law. School Districts must articulate a school purpose apart from any financial benefit.

After the intervention by Bragman, there was prompt approval of the North Syracuse agreement. Indeed, counsel in July took that agreement -- titled it a "Model Contract -- and then mailed the contract to Superintendents throughout the State. There was an accompanying memorandum that urged the School District to consult with an atttorney to ensure compliance with State Education Law, the State Constitution, competitive bidding laws, and applicable regulations. But the significance of that advice was lost upon Superintendents who saw a so-called "Model Contract" being sent out by the state agency that had responsibility for ensuring its legality.

The New York City Comptroller likely has relied on the decisions by Commissioner Mills in connection with the $160 million dollar New York City agreement without realizing that the State Education Department had abdicated it responsibility. Rather than the rule of law, the State Education Department's review of the legality of the agreement was the exercise of the domination of the agency by the man who could reach its purse strings.

The State treasury opened up further still -- providing roughly ten-fold in state taxpayer money the $900,000 paid up-front by Coca-Cola. The money was used to build a stadium that then was named after Mr. Bragman. Ironically, it was state taxpayer money that built the complex that then served as the showcase nationally for what soda money could buy.

The real irony is that the reality has always been that just as much money can be made from the sale of healthy beverages. There was no need to sell out our kids.

Mr. Bragman is also involved in a controversial decision to grant exclusive right to develop the historic Erie Canal in New York State. He then obtained sub-right from the vendor worth, in his estimate, many tens of millions.

The manipulation of public taxpayer funds to provide pork barrel money, unfortunately, is something that is commonplace. Seldom, however, is it so blatantly at the expense of the health of our children and the rule of law.

The New York State Comptroller Carl McCall had concurrent jurisdiction over the legality of such agreements. Where was he during all of this? He was in boxseats at the basketball game -- in seats comped by the Coca-Cola Enterprises Vice-President Robert Lanz who was in charge of launching the agreements and who negotiated the North Syracuse agreement with Bragman. In the Spring of 1998, McCall's office was involved in an ongoing audit of pouring rights agreements in New York State -- finding, for example, that Generally Accepted Accounting Principles were not being followed at the State University at Stony Brook. There is no evidence that his office objected to the legality of these agreements at elementary, middle and high schools. He instead wrote a letter thanking the Coca-Cola Vice-President Lanz for the hospitality shown him and his wife at a March 8, 1998 game between the Knicks and Bulls. That was the very month the agreement was being negotiated. When in the Fall 2002, it was pointed out that gifts in excess of $75 to a public official were illegal, his spokesman, as reported in the New York Post and Daily News, explained that he didn't think he needed to report the gift because he and the Coca-Cola Enterprises Vice-President were friends. His office quickly retrieved the letter from the state archives and it hasn't been seen since.

Coca-Cola Enterprises Vice-President Lanz was also a good friend of Michael Bragman, having been pictured some years earlier coming out of a luxury hotel in Puerto Rico in a Syracuse Post-Standard article titled "Secrets of the Chamber -- Whoever said there was no such thing as a free lunch." The Coca-Cola manager in charge of the agreements, William Wyrick ("Lucky") has said that whatever passed between Mr. Bragman and Mr. Lanz, too, was out of friendship.

Someone should tell these public officials that the fact that they like the lobbyists who give them unreported gifts in excess of the statutory limit is irrelevant. We all like people who bestow gifts upon us.

Mr. Bragman had made Coca-Cola tens of millions when he was instrumental in eliminating a bottle tax. He no doubt was a personal friend of Robert Lanz and no doubt received all the Coca-Cola paraphanalia filmed in his office, and written about in the local paper, as the result of personal friendship or at market value. Someone should ask him. In the mid-1990s, according to a former employee, the Coca-Cola "Move Crew" would deliver items directly to his basement.

If you are not part of the solution, it very well may be that you are part of the problem. Just part of that problem is an obesity epidemic killings thousands each year.

And if you are not following the rule of law, and are giving unreported gifts to public officials, you probably have done something very wrong. That is, you've done something wrong totally apart and in addition to promoting caffeinated sugar water on the captive audience of our school children.

Who is going to stand up for our children and put aside their financial self-interest?

When are elected and appointed officials going to start doing their job?

What was Coca-Cola's excuse more recently for giving the Governor of Arkansas Huckabee a canoe valued at $500? It had the Coca-Cola logo on the front and thus it constituted free advertising.

This corporation, along with its affiliates, simply does not get it.