Houston, we have a problem

The city where deregulation is king is in Enron denial -- and won't let go of its wildcatting ways.

By Katharine Mieszkowski
Published February 1, 2002 8:30PM (EST)

In a skyscraper just across the street from Enron's sparkly new downtown headquarters, Pamela Lovett explains why the biggest bankruptcy in history isn't something to get all worked up about. "This is not the first company to declare bankruptcy," she says. "Personally, I have very high regard for Ken Lay."

Lovett is the head of economic development for the Greater Houston Partnership, a local business group with 135 CEO members, which Lay was the chairman of in 1994. Her job is wooing big companies to come set up shop in the laissez-faire, pro-business Promised Land of Houston.

She lowers her voice to remind me reverently that in this country we assume the accused are "innocent until proven otherwise," and when it comes to Enron "a lot of things are being tried by speculation." But the civics lesson is interrupted when Lovett's colleague David McCollum comes bursting in to announce that the FBI has just occupied Enron's headquarters, based on reports that employees were still shredding documents there a few days earlier.

"We're just having so much fun now!" McCollum jokes before popping back out, leaving Lovett to continue to argue that in spite of the Enron collapse things here in Houston are just fine, thanks.

Congress is holding hearings, criminal investigations are under way and class action suits are bubbling over, but in Houston, civic leaders don't want to jump to any untoward conclusions. Despite all the sob stories generated by thousands of local laid-off Enron workers and retirees, Mayor Lee Brown has been careful not to cast blame. When Ken Lay resigned as the CEO of Enron, the mayor said in a statement: "Only those who are working all day, every day on this situation are in a position to know all the details." Oh, and by the way, Lay sponsored a $50,000 fundraiser for Brown's election last year.

The Houston City Council isn't exactly warming up the tar-and-feathers either. Instead, it's busy awarding a $198,000 consulting contract to Arthur Andersen, a company now feverishly attempting to escape its own immolation after its failure to competently audit Enron's books. "That disgusted me," says Amy Oberg, a former Enron employee who lost retirement savings in her 401K as well as her job. "The fact that the city went and did that in the middle of the federal investigation just blows my mind. For the people here who were hurt by Enron, that was a slap in the face."

Greetings from Houston, the city that tries too hard. Houston is a city that is proudly unapologetic about its status as an icon of anything-goes deregulation. Nowhere will you find a place more consciously devoted to living the free-market version of the American dream. But there's an insecurity lurking beneath the pride, an inferiority complex bred in part by the spectacular flameouts and huge busts that are a natural consequence of living with as few rules as possible. It is, as one resident notes, a place where "people come to make money, and then they go someplace else. Nobody retires in Houston."

Enron's fall from grace is but the most recent disaster to bring out the contradictions inherent in the Houston way. Even as many Houstonians feel a lingering sense of betrayal and disappointment and no shortage of embarrassment, they are still unwilling to ask themselves: Why did Enron happen here in Houston? And can anything be done to prevent the next catastrophe?

Probably not. Because to do anything substantive would be a betrayal of Houston's founding myth -- the idea that the city is a place where a guy can come to make a lot of money without being held back by a bunch of party-pooping naysayers and regulators. It's a myth that fits neatly into the explicit deregulation platform so heavily promoted by Ken Lay and Enron, and it's not something that Houstonians will give up on easily.

"There will be no reform in Houston," predicts Dr. Alvin Tarlov, a physician and policy advisor at the Baker Institute for Public Policy in Houston.

There never is.

"This is a city where you can make your fortune and not have people looking over your shoulder saying: 'You can't do that,'" says Houston native Carlos Hernandez, with evident pride, adding quickly: "Enron was taking that to the extreme. That's just criminal."

But from the beginning, Houston's wide-open ethos has been an invitation to criminals. "Houston is a city that started as a land scam. It's still a wildcatters town," says Jim Hightower, the Texas writer and wisecracker. Back in the 1820s the city's roguish developers sold scrip for 5 or 10 cents an acre that didn't actually convey property rights to any land. It was a scam that makes pushing stock that's not based on real revenues look pretty tame.

To this day, locals eschew government oversight so much that many suburbanites here don't even live under any city government. They inhabit unincorporated districts run by the residents, in a barely governed super-sprawl of cheap housing. Here's how it works: A developer buys a piece of the endless raw prairie land outside city limits. He puts a trailer on it and has his construction foreman move in. Then, an only-in-Texas "election" is held. The sole voter -- the construction foreman -- votes in favor of developing the property, and voila! -- a new district is created complete with tax-exempt bond status.

When the new 'burb is built and inhabited, the developer turns it over to the citizens, who repay the debt from the bonds with property taxes. There are some 400 of these unincorporated districts in the Greater Houston area, and you only really hear about them when the City of Houston cherry-picks a wealthy one, annexing it to assume its lucrative tax base -- usually against vehement "Don't tread on me!" protests from the residents.

In the unincorporated areas and the city proper that together make up the sprawling greater Houston area, population 4.5 million, lies a case study in what is wrought by living according to the commandment "There shall be no zoning." Sublime, helter-skelter juxtapositions are everywhere. Right next to an eight-lane freeway, a Discount tire store huddles near a traveling carnival; children spin themselves silly on blinking rides that rival NASA's anti-gravity chambers, under the vacant gaze of an overly made-up model looming down from a billboard advertising an all-night porn store. And don't miss the 20-story office building right across the street from a neighborhood of brand-new monster houses, with no niceties like landscaping buffering the commercial district from the residential one. Neighborhood deed restrictions impose some conformity, but those rules end at the property lines -- then, hallelujah! Anything goes! There were a few years there in the early '90s when the Houston City Council did impose zoning, albeit after the fact, but by 1994 the citizens had voted to repeal this brazen act of government intervention.

"Strip malls and strip clubs. There's a Gap on every corner next to a Starbucks," says Tracy Delmer, a speech pathologist who has lived here all her life. "It's all about trying to make your strip mall prettier than the other strip mall down the street."

The flip side to freedom from nasty government oversight is some of the worst air pollution in the country. Some 2.5 percent of the world's total refining capacity lies in the greater Houston area, and Houston's high ozone readings are rivaled only by Los Angeles. The state, in true Texas laissez-faire style, has been notoriously lax on environmental regulation, allowing old petrochemical plants to be grandfathered in when introducing new, watered down environmental rules, which just means that those old, polluting plants never seem to die off.

"That's Texas. If the federal government forces Texas to do it, they do it," says Jim Blackburn, a Houston environmental lawyer. "But otherwise, it's all up for grabs."

Is it any wonder that few people seem to come here just for fun? "People don't say 'I went to Houston last summer,'" says Delmer, "like they say 'I went to Seattle.'"

"All over the country, if people hear they're being transferred to Houston they want to commit suicide," says Amy Jaffe, a local energy policy advisor, who still finds the distaste outsiders have for Houston puzzling. It's not as if Houston is some kind of cultural wasteland, she notes, enumerating a laundry list of Houston's sophisticated worldly charms, from the opera to the ballet to the symphony.

All of which, it should be noted, are funded almost entirely by private sources.

Nationally, Enron's demise is stirring debate on a huge range of issues, from campaign finance reform to accounting rules to the very ascendancy of the idea of deregulation.

But not here in Houston.

"None of us blame President Bush or free-market capitalism for Enron's collapse," says Raymund Eich, a local patent agent, who believes that liberals are using the Enron bankruptcy as an excuse to smear both. Only Dallas and Washington gave more money to Bush's 2000 campaign than Houston, and Enron is well known to be Bush's single biggest corporate backer, but Eich doesn't think the government owes anything to hard-hit Enron employees or investors, noting that "Houstonians are more self-reliant than people in other places."

Take Houston accountants -- a phrase that in February 2002 sounds like the punchline to a very bad joke waiting to happen. Here's a group who would like very much to remain self-reliant, even as they fear that their days of self-regulation may be numbered, thanks to Andersen's bad behavior. Over lunch -- beef stew on noodles -- the members of the Houston Chapter of the Texas Society of Certified Public Accountants at their annual business meeting at the J.K. Marriott dish about Andersen's role in the Enron debacle.

"I think someone should pay," says Ann-Marie Curtin, a CPA at Prime Asset Management, a Houston property company. "There's no way that there wasn't a significant amount of illegal activity going on."

But new rules to help prevent such nefarious activities? They won't hear of it. Patrick L. Durio, president-elect of the local group and the chairman of the -- voluntary! -- ethics committee of the Texas Society of CPAs, says: "Government regulation is not the answer. I don't want to see the government setting accounting standards," noting that the industry has been self-regulating for 100 years. "And I don't think that politicians should be getting involved in it."

In Houston, they probably won't. Because no matter how big Enron's corporate implosion appears on the national scale, such colossal busts are hardly unusual in Houston history. In fact, Enron is a mere blip compared to the city-wide bust that occurred in the mid-'80s. Houston is always trying to shake the perception that it's just an urban pit stop for roughnecks who rip natural resources out of the ground on the way to getting really, really rich. Because many Houstonians remember what happened when those roughnecks and their moneymen ran the town right into the ground.

"Imagine a city where everybody had gone to Las Vegas for the weekend and lost everything they owned," says Jaffe.

In the mid-'80s, the city lost a quarter of a million jobs in the oil and real estate bust. "There were a lot of people who went from owning lots of real estate in West Houston and driving a Porsche to having to take a job selling aluminum siding. Everybody was a kazillionaire," says Jaffe, "and all of a sudden, everybody was bankrupt over the course of, like, three years." Banks just couldn't keep up with all the foreclosures on the suburban houses stocked with '80s amenities -- the backyard swimming pool, the built-in wet bar and the Jacuzzi.

The bust inspired a favorite Houston bumper-sticker, begging God for a second chance, for another oil boom: "God, if you bring it again, we won't screw it up this time."

Things were so depressed circa 1986 that a volunteer civic organization called Houston Proud formed to try to cheer up the beleaguered populace. The Houston Proud theme song was a relentlessly upbeat ditty that tried too hard. Sample lyric: "We're Houston Proud! Proud of the things we've done together!" Commercials aired on local TV pairing the song with chipper images of smiling Houstonians to market Houston to its own people, as if to plead, "Please don't lose faith. Just don't move away."

And maybe that's where the inferiority complex comes from: This is a city that knows what it feels like to fall flat on your face, to go from driving a Porsche to selling aluminum siding. Or maybe a city where the free-market conquers all knows it's inevitably a little rough around the edges.

Congratulations, Houston! You've just been named "The Fattest City in America" by Men's Fitness magazine for the second year in a row. To respond to the salvo, Mayor Brown recently launched a campaign to inspire Houstonians to slim down, by starting with his own waistline. If you can't rule by policy, why not govern by example?

The taxes are so low here that the city government needs a public referendum to do anything beyond barely keeping the surface streets functional. Behind the scenes, it's businesspeople, both informally and through the Greater Houston Partnership, who push civic projects and sweetheart deals along, from downtown revitalization to building new stadiums. In Houston, the business agenda is the civic agenda.

"The shadow government decided where the football stadium is going to be, how much public money was going to be put into it, and where the money would come from," explains Tarlov. Ken Lay led the approval process of the new baseball stadium, which now bears the name of his disgraced company.

The sign that says Enron Field, which the now-bankrupt company pledged to pay $100 million for, is the most vivid symbol that Enron's shame is also a big black eye for Houston. But neither Enron Field nor the Compaq Center -- Compaq cut 8,500 jobs last spring and may still be absorbed by Hewlett-Packard -- has soured local politicians on the naming game. Right now, the City Council is considering selling off different rooms of the new convention center for corporate branding.

Houston has struggled since the catastrophic oil bust of the '80s to change its wildcatting ways. And like an investor who learned her lesson the hard way when her 401K turned out to be composed 80 percent of Enron stock, Houston has shed its overdependence on the energy industry, with some success. The city now boasts that while 82 percent of all economic activity in the early '80s was energy-related, now it's about 49 percent. That still means it's a town whose fortunes are tied to the price of oil, just less so.

But even with big local employers Compaq and Continental on the ropes, Enron evaporating and the price of oil down from $30 a barrel in early 2000 to $18 a barrel today, the city has lost only 5,700 seasonably adjusted jobs, according to the University of Houston's Institute for Regional Forecasting. That means while the country has shed about 1 percent of its job base in the recession, even with Enron's fall, Houston has lost only a quarter percent of its base. Houston may be down, but it is still ahead of the rest of the country.

But the collapse of Enron means something more here than the loss of jobs or money or even face. Lay was the archetypal Good Houston Businessman: a young man from somewhere else who comes to town, makes a lot of money and showers it back on the community, while building his good name. He was widely thought to be a promising candidate for mayor when Brown's term expires on term limits next year, prompting comparisons to Houston's great-granddaddy of civic business leaders, Jesse "Mr. Houston" Jones.

And before its collapse, Enron represented Houston's best idea of itself -- an innovative, technocratic, deregulation innovator that might be a bit on the arrogant and greedy side but was also philanthropic and civic-minded, a company transforming itself out of the oil and gas business into a new economy conglomerate that even sold broadband services. Enron was the New Houston.

Not even the city's official civic pride cheerleaders can entirely brush off Enron. Lynn Nutt, chair of Houston Proud, confides: "The self-esteem here in Houston is very depleted."

But in a city that's always trying to prove itself, there's no time for navel-gazing about whether Enron's collapse means that there's something inherent in Houston's culture that breeds such colossal screwups. The Houston way isn't to wallow and whine. It's to declare -- all together now! -- your pride in your city, while leaving the congressional investigators, the FBI and the courts to sort out that Enron mess. In bike-riding, eco-friendly, granola-eating Portland, Ore., they may be singing the "Enron Blues," but here in Houston, headquarters for the largest bankruptcy in history, they're still Houston Proud!

Just in time for all the Enron fuss, there's a new Houston Proud "Rally Song" by local songwriter Phil Blackman: "Houston is the Place to Be." It's a twangy Texas two-step blues number with a country twist.

"I've been up, I've been down,
Searchin' for a place to be
I've been around, the world you see
But Houston is the place for me."

Ah, the good-natured earnestness, the protesting-too-much! It's enough to make the heart skip a beat for Houston, or maybe just make you want to skip town.

Katharine Mieszkowski

Katharine Mieszkowski is a senior writer for Salon.

MORE FROM Katharine Mieszkowski

Related Topics ------------------------------------------