MUSKOGEE — Pittsburg County businessman Steve Phipps testified Tuesday he was so certain he would get taxpayer money — illegally — to build a dog food plant in 2002, he invested $60,000 to repair a building he didn’t even own.

What prompted his assurance? His business partner in the project was Gene Stipe, who then was among Oklahoma’s most powerful politicians.

His confidence was well-placed. Stipe and then state-Rep. Mike Mass helped obtain $669,000 in state and city of McAlester money for the dog food business. Phipps said Mass received a $48,000 kickback, representing 10 percent of the amount they expected him to earmark from his share of “special project” money.

Mass, a Democrat, was chairman of the powerful House appropriations and budget committee at the time.

“He (Stipe) told me Mike would want more than 10 percent, but 10 percent was plenty, and that’s all we were going to pay him,” Phipps testified.

Phipps, who testified as part of a plea agreement, was a prosecution witness at the federal trial of Stipe’s younger brother Francis, 76. Both brothers faces a four-count indictment alleging conspiracy, mail fraud, paying a bribe and witness tampering. The counts against Gene Stipe, 81, are on hold after he was deemed mentally incompetent in a related case.

In 2002, Francis Stipe was chairman of the McAlester Foundation, a private entity that acted as a conduit for the taxpayer money. The foundation, consisting of local businessman, pitched in $100,000 of its own for National Pet Products.

Phipps said Gene Stipe told him his brother was on the foundation board, which Phipps said gave him extra confidence.

“He’d make sure you’d get the money?” Assistant U.S. Attorney Gay Guthrie asked.

“Yes,” Phipps said.

The state and private money was used in part to buy a run-down building that Gene Stipe owned for $191,609.78. That was more than twice its market value, but the property had major debt due to loans Gene Stipe had taken out on it.

Gene Stipe has admitted the loans were excessive, illegal contributions to the 1998 congressional campaign of Walt Roberts. His involvement in that campaign ended a half-century political career and made him a convicted felon.

Did state money pay off senator’s loans?

Francis Stipe learned of the plan to build the dog food plant on his brother’s property and asked Phipps in July 2002 if there wasn’t a more suitable property in town, Phipps testified.

Phipps said he told Francis Stipe that Gene Stipe had told him that in order to get state money, “it was going to have to be located in his building.” Phipps said he then mentioned the extensive loans Gene Stipe had on the property.

“Francis replied, ‘Well, I guess that’s the only way he’s going to get his money back,’ ” Phipps said.

He said the building was in “pretty poor condition” when he agreed to build his dog foot plant there. The floor was “falling apart,” the walls over one part were pulling away from the building and the roof leaked, Phipps said.

He said he knew how much Gene Stipe intended to sell the property for to recover the loan debt.

“I said, ‘Gene, it’s in horrible shape. I don’t see how anybody could ever believe it would be worth this much money,” Phipps said.

He said that conversation prompted him to write a $60,000 check to make improvements on the building, months before Gene Stipe sold it to the McAlester Foundation to benefit the dog food plant. The money came from Phipps Enterprises, which owned several abstract and title insurance companies. Phipps and Gene Stipe were equal partners in that business.

Up to 200 illegal campaign donations

Phipps pleaded guilty last year to a conspiracy charge. He faces up to five years in prison and a $250,000 fine, although prosecutors have told him they will seek a reduced sentence for his cooperation.

Under cross-examination Tuesday by defense attorney John Carwile, Phipps admitted he made illegal contributions to numerous political campaigns between the early 1990s and 2006.

He admitted reimbursing “straw donors” to get around state and federal contribution limits. Straw donors are people who illegally use another person’s money to make a contribution.

The money came from Phipps Enterprises, and most of the 25-30 straw donors were his employees, he said.

Phipps admitted the total number of illegal contributions may have approached 200. The reimbursements showed up on his tax records as bonuses for employees or consulting fees for other people, he said.

Phipps is expected to be a key prosecution witness at the upcoming corruption trial of state Auditor and Inspector Jeff McMahan. Prosecutors allege Phipps gave more than $100,000 illegally to McMahan’s 2002 campaign, much of it through straw donors.

Bribes were common, Phipps says

Other highlights of Phipps’ testimony:

He admitted paying Mass a standard 10 percent cut for the $2.7 million to $3 million that Mass obtained for Phipps’ various businesses. Prosecutors previously said Mass received about $250,000 in kickbacks. Mass pleaded guilty last year to a conspiracy charge and awaits sentencing.

Phipps said he also paid bribes in 2003 through 2005 to then-state Reps. Jerry Hefner and Randall Erwin. Erwin has denied receiving kickbacks. Hefner hasn’t returned several phone messages since that allegation was first made in court papers.

Phipps said Gene Stipe sent another business partner, Steve Covington, to see Phipps at the National Pet Products plant after The Oklahoman ran a story concerning the public money used to build it.

“He told me that Gene didn’t want any more involvement in the plant,” Phipps said.

Gene Stipe and Mass each wrote letters of support to help obtain the state funding for National Pet Products. Phipps said he was the actual author.

At the property closing for what would become the dog food plant, Francis Stipe signed the check on behalf of the McAlester Foundation. Phipps said he mentioned his concern about keeping Gene Stipe’s ownership in the company hidden.

Francis Stipe’s reply? “He said that was about the worst-kept secret in Pittsburg County,” Phipps testified.

Tony Thornton: 475-3464, tthornton@oklahoman.com