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A Project of The Annenberg Public Policy Center

Another Arkansas Whopper

An ad from the Republican Governors Association claims that Democratic gubernatorial nominee Mike Ross of Arkansas got a “sweetheart deal” on the 2007 sale of his family-owned pharmacy. That’s not so. The claim is based on an appraisal that state regulators later found to be bogus.

The ad also directly implies that former congressman Ross is “for sale,” which is utterly unsubstantiated. In fact, he was cleared in 2010 by the House Ethics Committee, which found that his pharmacy sold for “fair value” and that the appraiser “improperly” used the wrong method when he mistakenly put the pharmacy’s value at less than half the price Ross was paid.

The appraiser — quoted in the ad — gave up his license forever in 2010 rather than face a six-month probation and 30 hours of remedial training prescribed by the Arkansas Appraiser Licensing & Certification Board as a result of the Ross appraisal, according to documents obtained by FactCheck.org and reported here for the first time.

The RGA ad was released Aug. 26 and started running Aug. 27. The Ross campaign immediately called the ad “slanderous.” We find the ad to be false and defamatory.

No ‘Sweetheart’

The ad begins, “The only real-estate appraiser in Prescott [Arkansas] put it this way, ‘You can buy half the town for $420,000.’ Yet somehow, Mike Ross sold his Prescott pharmacy to the company of a campaign donor for just that amount. A sweetheart deal.”

That’s based entirely on a story reported by ProPublica, a nonprofit organization that produces investigative journalism, and reprinted by Politico, on Sept. 22, 2009. That day Ross vigorously disputed the story, and soon after the state’s leading newspaper, the Arkansas Democrat-Gazette, quoted several experts, including a professor of pharmacy management who said the price Ross received was “well within the ballpark” of what similar pharmacies in similar communities would bring. The paper later published blistering editorials denouncing ProPublica’s “smear” of Ross and describing it as “an artificial tempest” cooked up by liberals trying to discredit Ross’ resistance to the new health care law then moving through Congress.

We won’t speculate on ProPublica’s supposed liberal motives; it is a capable organization that has won two Pulitzer Prizes for other reports. But in this case, it relied almost entirely on what turned out to be a shoddy appraisal that led to a regulatory hearing and the permanent surrender of the appraiser’s license.

An ‘Incompetent’ Appraiser

The appraiser hired by ProPublica — and quoted in the RGA ad — is Adam Guthrie Jr. He was described in the original news story as “the only licensed real estate appraiser in Prescott.” He valued Ross’ pharmacy at only $198,500, which is less than half what Ross and his wife, Holly, received from the buyer, Stephen L. LaFrance, the owner of the USA Drug retail chain.

If that appraisal was accurate, it would indeed raise a question of what Ross might have done for LaFrance to warrant the extra money. But as we can report here fully for the first time, the appraisal was a bad one that failed to take into account either the cost of the building or the income it produced. Two days after the ProPublica story appeared, the chair of the Arkansas Appraiser Licensing & Certification Board, Dwight L. Brown, filed a complaint with the board’s chief investigator citing those and other errors in Guthrie’s work.

“In my opinion, I feel Mr. Guthrie is incompetent to complete real estate appraisals of this complexity,” Brown said in his complaint, which the board supplied to FactCheck.org at our request. Brown added, “This real estate appraisal conducted by Mr. Guthrie is a bad reflection on the appraisal profession.” Brown, we should add, is a veteran real-estate appraiser who was first appointed to the 10-member regulatory board by Republican Gov. Mike Huckabee in 2005, and reappointed by Democratic Gov. Mike Beebe in 2008.

Appraiser Guthrie based his valuation only on the sales prices of five other properties in 2006, 2007 and 2008. Only one of the properties was in Prescott, and the other four were in Hope, Arkansas, which is 16 miles away. Guthrie said these were “the nearest thing to comparable sales in this area,” but did not describe how any of them were being used at the time of sale, or the age or condition of the structures. Chairman Brown found the appraiser’s methods to be “inconsistent with good appraisal practice,” and added: “Looks to me [as though] he grabbed a dollar amount out of the air for use in the final determination of value.”

More important, Chairman Brown faulted Guthrie for failing to use either the “income approach” or the “cost approach” in valuing the Ross pharmacy.

Guthrie’s appraisal didn’t take the property’s income-producing record into account, saying it was “not applicable because there was no financial data available to make an income comparison.” But Brown’s complaint said, “The Income Approach could and should have been completed.” Guthrie also rejected the “cost approach,” saying that it “was not considered to be relevant.” But Brown stated in his complaint, “In my opinion, the Cost Approach could and should have been considered and completed.” 

Cost alone could have led to a higher valuation than the $198,500 at which Guthrie arrived. In a statement issued on the day of the ProPublica story, Ross said he spent $316,000 to build the structure in 1998 and sold it nine years later for $420,000. “I would have made more during that time period if I had invested in a certificate of deposit (CD),” he said.

The chairman’s complaint led the state regulatory board to hold an informal conference of a “non-judicial hearing panel” on Jan. 14, 2010. According to a draft of a consent agreement that the board furnished to us at our request, that hearing panel concluded that because of “errors” in Guthrie’s appraisal he should submit to a six-month probation during which he would be required to complete two 15-hour courses, one in uniform standards of appraisal practice and the other in how to make general sales comparisons. 

But, according to a board staffer who asked not to be named, Guthrie decided instead to simply give up his license and cease practicing as an appraiser. So a new consent agreement was drafted and signed on Jan. 26, 2010, under which Guthrie agreed to surrender his license, and Guthrie further agreed that “he will not apply in the future nor will he be eligible for any licensure, certification or registration with the Arkansas Appraiser Licensing and Certification Board.”

Cleared by House Ethics Committee

The RGA ad mentions “a call for the Justice Department to investigate.” It’s true that a group called “Citizens for Responsibility and Ethics in Washington” did write a letter to the Justice Department the day after the ProPublica story appeared — and before the deficiencies in the appraisal came to light — calling for an investigation of whether Ross “engaged in bribery and honest services fraud by selling a piece of commercial property for more than it’s worth to a pharmacy chain with an interest in pending legislation.” But we’ve seen no evidence that the DOJ pursued the matter, and certainly no legal charges have been brought against Ross in the nearly five years that have passed.

However, the House Ethics Committee did inquire about the allegations in the ProPublica article, and after months of investigation, it cleared Ross of any wrongdoing. In a letter sent to Ross on Nov. 10, 2010 — more than a year after the original article — the bipartisan panel’s Democratic chair and senior Republican member said that ProPublica’s appraiser didn’t use the proper method, and that Ross sold the pharmacy at fair market value:

House Ethics Committee letter, Nov. 10, 2010: The appraisals cited in the ProPublica article are dated and the independent appraisal improperly employs the sales comparison methodology to assess their value. The documents you provided indicate that the fair market value of your building and property was approximately $420,000, the price USA Drug paid for them.

The committee closed the matter without taking any action against Ross.

The ad further states that Ross “got another $800,000 from the same buyer,” which is old news. The day after the ProPublica story appeared, the buyer released details of the full transaction at Ross’ request. The terms involved not only the sale of the pharmacy land and building but also of items including store inventory, prescription files, accounts receivable, petty cash and other things that are part of a retail concern. The value of the inventory was determined by Washington Inventory Services, which performed a physical count on the night of closing. The sale also provided for $110,000 to be paid to Ross, his wife and their pharmacy corporation in return for their agreement not to compete with their old store for 10 years at any pharmacy within 20 miles. Non-compete agreements are common in such sales.

Both the ProPublica story and the new RGA ad mention that the buyer, LaFrance, had given money to Ross’ House campaigns. And indeed, records show LaFrance has contributed a total of $6,450 to Ross’ campaigns for the House, both before and after the sale. What isn’t mentioned, however, is that LaFrance previously supported Ross’ opponent, Republican Rep. Jay Dickey. In 2000, when Ross defeated Dickey, LaFrance gave $2,000 to Dickey and nothing to Ross. His first donation to Ross came in 2006.

The RGA ad concludes by calling Ross a “typical politician” and adding, “Some things shouldn’t be for sale.” But the facts show that insinuation to be false, and the ad to be an extraordinary whopper.

— Brooks Jackson