Anchorage Daily News

In 2004, Alaska state officials came across a puzzling sentence deep inside a bill recently passed by Congress. It said only this: "$2 million is for the Kenai River; $1 million for the Russian River."

That's all.

The officials couldn't tell what the money was for. So they sent an e-mail to the office of Alaska's powerful U.S. senator, Ted Stevens, at the time chairman of the Appropriations Committee. Stevens' panel had helped craft the bill, which covered spending for several federal agencies. The section in question dealt with money distributed out of something called the Pacific Coastal Salmon Recovery Fund.

The reply from Stevens' office to the state: "The $2 million for the Kenai River; and $1 million for the Russian River go to Bob Penny." Then it gave the phone number for Penco, an Anchorage company founded by developer Bob Penney.

That's all.

Penney is a longtime advocate for sportfishing on the Kenai, and has a summer home and other property along the river. He co-founded the nonprofit Kenai River Sportfishing Association and helps direct the group.

He is also a longtime personal friend and past business partner of Stevens.

The $3 million was ultimately spent under the direction of the sportfishing association on fisheries research and habitat work. But putting the private sportfish group in charge of the money -- and not the state Department of Fish and Game -- has proven controversial on the Kenai Peninsula, where competition between recreational anglers and commercial fishermen is fierce.

How the money got to the group to start with is an example of how the process of earmarking works -- and why it has become so controversial. There were no hearings, no debate, and in this case, not even an explanation in the bill of what Congress wanted the money spent on.

When told about the Kenai and Russian river money recently, Keith Ashdown, vice president of the nonpartisan Taxpayers for Common Sense, called it among the worst examples he's seen of how Congress directs tax dollars out of public view.

"This is a case where there wasn't an iota of public input," Ashdown said. "It was sort of done on the sly through e-mail."

CONTROVERSIAL MONEY

Members of Congress write earmarks into spending bills to direct programs and money where they want. Stevens has been a master, using them to steer billions to Alaska -- for hospitals, roads, harbors, university expansion, military bases and many other areas. Earmarking has become highly controversial, though, in part because of the so-called "Bridges to Nowhere" from Alaska's delegation.

Stevens declined to comment for this story. His spokesman, Aaron Saunders, cited the senator's position of not speaking on matters related to the federal investigation of Stevens, which included an FBI raid this summer on Stevens' Girdwood home.

Penney, when reached for comment, denied having anything to do with securing the Kenai and Russian river money.

Kenai River Sportfishing Association acting chairman Ron Rainey, though, thought Penney was behind the earmark that ended up with the association, known as KRSA. He said the group hadn't even known the money was coming.

"I was chairman then, and Bob Penney and Sen. Stevens evidently worked out a process for habitat and fisheries studies on the Kenai and Russian rivers," Rainey said.

Rainey added that Alaskans should be glad they did.

Sue Aspelund, special assistant with the Alaska Department of Fish and Game, was the department's point person on the 2004 earmark. It was contained in the appropriations bill for Agriculture, Rural Development, the Food and Drug Administration and other agencies. Aspelund said the only communication from Stevens' office she received on the earmark was the e-mail saying the money should "go to Bob Penny."

Aspelund said she knew the money was meant for the Kenai River nonprofit but does not recall exactly how. She said her recollection is that someone from the association had contacted the department. Aspelund said she never spoke to Penney about it.

State officials said they read the context of the e-mail from Stevens' office directing the dollars "go to Bob Penny" just to mean Penney was a contact for the Kenai and Russian river money -- not the recipient of it. The state had also asked Stevens' office where to send another $1 million earmark, and the same e-mail back had explicitly named someone as "the contact" for those dollars.

The money came from the Pacific Coastal Salmon Recovery Fund and it can only be used for salmon sustainability work, so there was never any inference that the money was intended for Penney personally.

The money from the 2004 earmark -- and similar appropriations in 2005 and '06 -- never actually went to the sportfishing association. The group, working with Fish and Game, determined how it should be spent, and the money was then channeled through the state to individual contractors. In addition, Fish and Game has conducted many of the projects itself.

Aspelund said the sportfishing group does a professional job of analyzing gaps in research and habitat protection that need to be filled.

"I think they are doing some really important work," she said.

But the fact that an advocacy group is directing where the federal money is going has caused some heartburn on the Kenai Peninsula. A new group of fishermen and retired biologists, the Kenai Area Fisherman's Coalition, wrote the governor on Sept. 14 complaining about it.

"We feel these actions were unethical and possibly illegal," the group told the governor.

STEVENS AND PENNEY

Penney has been under scrutiny lately for his relationships with members of Alaska's congressional delegation. The state's other U.S. senator, Lisa Murkowski, was accused of getting a sweetheart deal from Penney on her 2006 purchase of a Kenai riverfront lot next door to Penney's home.

Murkowski denied wrongdoing but decided in July to sell the lot back to Penney as a result of the controversy.

The ties between Stevens and Penney are long established.

Every summer for more than a decade, Stevens and Penney have been involved in bringing members of Congress, Cabinet secretaries, corporate executives and other VIPs to Alaska for the Kenai River Classic, a king salmon tournament that raises money for fish habitat. Each July from 2002 to 2006, the same month as the classic, the sportfishing association gave an engraved gun to Stevens, the senator's financial disclosures show. That includes a $1,800 Beretta 470 and a $1,400 Winchester Model 70 Super Grade.

Penney and Stevens were partners in a Utah land deal. Stevens made an initial investment of $15,000 in 1998 and said in 2005 that he made $150,000 when he sold his interest in the property.

Stevens and Penney, along with other influential Alaskans, have also been partners in racehorses.

Earlier this year, Penney appeared before a federal grand jury that is part of the ongoing investigation of Stevens.

'WITH ATTENTION TO BOB PENNEY'

Penney, while declining a full interview for this story, provided a statement of his version of events. In it, he singles out retired state commercial fisheries biologist Ken Tarbox for criticism. Tarbox is a vocal critic of the KRSA money and provided the Daily News with the e-mail of protest his group, the fisherman's coalition, sent the governor.

Penney's statement begins with his recollection that $20 million was appropriated from the Pacific Coastal Salmon Recovery Fund for Alaska in 2004. Penney said he recalls $1 million of it went to sportfishing and he believed "commercial purposes" got the rest.

Penney's group actually received $3 million of $19.3 million designated for Alaska from the salmon recovery fund in 2004.

The rest was appropriated for uses including Fairbanks and Cook Inlet hatcheries, the Alaska SeaLife Center for Resurrection Bay salmon habitat, the city of Adak, the Arctic-Yukon Kuskokwim Sustainable Salmon Initiative and the Municipality of Anchorage to restore popular sportfisheries at Ship Creek, Chester Creek and Campbell Creek.

Penney's statement said sportfishing money went to the Kenai River through the Alaska Department of Fish and Game "with attention to Bob Penney, it should have continued to say, as co-chairman of the KRSA habitat restoration committee."

"KRSA received not a cent, all that money went to projects like Slikok Creek restoration project. I don't understand why Ken Tarbox and other commercial fish people object to this, as the money goes into habitat restoration projects which benefit all users, including the commercial fishermen who get 85 percent of the salmon harvest," Penney said.

The commercial share of sockeye, the vast majority of Kenai River salmon caught, is about 50 percent to 90 percent of the harvest, depending on the year, according to Fish and Game. The commercial chinook harvest is close to 30 percent to 50 percent.

Penney is correct that none of the money went directly to KRSA, according to Fish and Game. But KRSA identified the priorities for spending the federal funds, the state said.

KRSA sets priorities through a process including input from local, state and federal fisheries scientists. The sportfishing group then seeks out proposals for projects that fit with those priorities. The organizations that do the projects submit invoices to Fish and Game for reimbursement from the Pacific Coastal Salmon Recovery Fund.

WHO DECIDES?

Tarbox, the retired state commercial fisheries biologist, said money has been wasted. He disagrees with some of the projects, the consultants chosen to do them, and what he calls their implications for upcoming Board of Fish decisions.

But Tarbox said his main problem is with the process involved. He said there needs to be a level playing field to decide the priorities of the Kenai. The state, not the sportfishing group, should decide the fate of federal dollars for the river, he argued, and other users of the river shouldn't be shut out.

Fish and Game does have an oversight role and put together a team of commercial and sportfish scientists to review the projects and make sure they are scientifically sound and financially responsible, said Fish and Game special assistant Aspelund.

But the department would never veto any of the sportfishing group's projects unless they completely did not fit with the idea of salmon recovery work on the Kenai, Aspelund said.

Ricky Gease, executive director of the sportfishing association, emphasized the collaboration with government scientists in figuring out how to spend the money. He said invited planning workshop participants have also included local governments, the Kenai Watershed Forum, the Kenaitze Indian Tribe and the Cook Inlet Aquaculture Association.

He said KRSA isn't even reimbursed for its costs in managing the program, and that it benefits all who love the river.

"These earmarks have been a good thing for Alaska," he said.

Find Sean Cockerham on the Alaska Politics blog at adn.com/alaskapolitics call him at 257-4344.