Gov. Preston Smith and Lt. Gov. Ben Barnes were coming off re-election victories. A fellow Democrat, state Rep. Gus Mutscher, of Brenham, was flexing his muscles as a second-term House speaker. Preparations for an elaborate January inaugural celebration, with a parade in downtown Austin and musical entertainment by Wayne Newton and Faron Young, were in full swing.
But on the eve of the inauguration, investigators from the federal Securities and Exchange Commission dropped a political bomb in a Dallas courtroom, alleging a far-reaching stock manipulation scheme hatched by top business and political leaders. As word trickled down to Austin the next day, the mood at the Capitol turned from cheerful to anxious. The day after that: horror.
It became known as the Sharpstown scandal, and thanks to the reforms it eventually spawned, no controversy before or since has had as much impact on Texas politics.
"That scandal was about changing the mores and folkways," said former state Rep. Lyndon Olson, D-Waco, who was elected in 1972 in the aftermath of the fury over Sharpstown. "I think the times caught up with the way the Legislature did business."
Despite the major reforms passed in Sharpstown's wake, the current Legislature is again facing criticism over flimsy disclosure rules, legislative conflicts of interest, lobbyist wining and dining and high-flying lifestyles fueled with unlimited special interest donations.
The matter at hand in 1971 was legislation sought two years earlier by Frank Sharp, a businessman who developed Houston's Sharpstown district and had cultivated friends in high places. In exchange for the Legislature passing favorable banking bills, Sharp helped lawmakers and other politically connected friends get loans to buy stock in his insurance company, which produced $250,000 in quick profits, according to the 1972 book Texas Under a Cloud.
As the scandal unfolded, a harsh light exposed some of the darkest corners of state government, where lobbyists doled out money in exchange for legislative action, lawmakers enriched themselves with tax dollars and weak disclosure rules ensured the public did not know about it.
After the story broke, reporters and prosecutors found other abuses, including widespread (and illegal) hiring of relatives, politicking on government time and theft. Some lawmakers had stolen their government stamp allotments, cashing them in to buy cars or, in one case, to pay off a loan.
By the time of the next elections, Mutscher, the speaker, was a convicted felon (his conviction was later overturned), as were a top aide and fellow House member. Smith, the governor, was labeled an unindicted co-conspirator. Barnes, though never implicated, saw his promising political career ended by Sharpstown's taint.
Several legislators decided not to run for office again rather than face the electorate's wrath. At least one, state Rep. Walter Knapp, D-Amarillo, went to prison in a stamp theft case and later fatally shot his ex-wife before killing himself. Before the next session, about half of the legislators had been voted or shamed out of their jobs, paving the way for one of the youngest and largest groups of freshman lawmakers the state had seen.
"It was truly a renaissance for Texas," said Kraege Polan, a former aide to House Speaker Price Daniel Jr., who spearheaded most of the post-Sharpstown ethics reforms.
There had been scandals before Sharpstown, of course, and others would follow. Former Gov. James E. Ferguson, known as Pa, was impeached in 1917 for misapplication of public funds. The administration of his wife and successor, Gov. Miriam A. Ferguson, known as Ma, was dogged by allegations of corruption, namely the selling of pardons.
In the mid-1950s, The Cuero Record exposed the Veterans Land Board scandal. Ken Towery, the newspaper's managing editor, won a Pulitzer Prize in 1955 for helping to set off the criminal investigation that sent Bascom Giles, the land commissioner, to prison for defrauding unsuspecting and often illiterate war veterans.
What sets Sharpstown apart are the deep reforms that were passed in its wake. While the abuses in the 1950s triggered passage of a "code of ethics" that barred lawmakers from engaging in conflicts of interest, the law was quickly considered ineffective.
Before Sharpstown, lawmakers could raise and spend campaign money with no meaningful disclosure. They were not required to file public reports about their income, holdings and liabilities. There was no open records law, little oversight of lobbyists and hardly any incentive to conduct the public's business in the open.
Donations could be made by check or cash, and it was customary for lawmakers to disclose only what their contributors agreed to allow; the rest was given in secret and dispensed in whatever manner the official saw fit. A loophole allowed politicians to give money, impossible to trace, as "friends of" the candidate, recalled Buck Wood, a lawyer who helped write many of the 1973 reforms as a lobbyist for the watchdog group Common Cause.
"Nobody really disclosed anything," Wood said. "If you were running for statewide office, you disclosed the dollars that you thought would make an impression on somebody, and if they didn't want to be disclosed, then you called them friends of whatever."
The 1973 Legislature also passed the first freedom of information law, a modern open-meetings bill, the first serious lobbyist regulation act and a tough-fought requirement that top elected officials and political appointees file public financial disclosure statements.
Despite the public clamor for transparency, getting the reforms passed was anything but easy. Woods remembers House members sleeping on cots inside the Capitol as a recalcitrant Senate finally passed the legislation in the waning hours. The old "moss backs" he said, had no interest in revealing their sources of income.
The reforms did not stop ethics controversies. Like accountants who discover legal ways to avoid taxes, political operatives found loopholes -- a complaint still heard today.
In 1980, Speaker Billy Clayton was at the center of Brilab, a bribery investigation involving a $5,000 cash contribution. Clayton was indicted but then acquitted because he had never deposited the money. He said he had intended to return the cash -- which he left in a credenza in the Capitol -- to the donor.
The following year, Clayton passed an ethics bill limiting cash contributions to $100.
Nearly a decade later, ethics reform was again front and center after another series of controversies. In a 1989 special session on benefits for injured workers, the chicken magnate Bo Pilgrim was spotted passing out $10,000 checks on the Senate floor.
A year later, a Travis County grand jury indicted Speaker Gib Lewis, who was accused of accepting an illegal gift and not reporting it. Lewis accepted a plea deal; he admitted to a misdemeanor violation, paid a $2,000 fine and agreed to resign, according to the 2010 book The House Will Come to Order.
With those controversies as a backdrop in 1991, Ann Richards, the newly elected governor, helped push through the last wholesale ethics reforms in Texas. Among other things, lawmakers created the Texas Ethics Commission, banned donations inside the Capitol and imposed new restrictions on lobbyists. The reforms also required lawmakers to reveal their business dealings with lobbyists.
Watchdogs say the rules still did not go far enough, but Chuck McDonald, a former aide to Richards, said the legislation barely passed as it was -- just before midnight on the last day of the 1991 session.
"There is really nothing harder than passing ethics legislation," McDonald said. "I don't know if they would admit this, but I think everyone feels like once you're in that incumbency position, then the system benefits you, so changes level the playing field."
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