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Author    Post   untanglingwebs El Supremo U.S. Attorney for N.J. Paul Fishman says municipal no-bid ... www.nj.com/mercer/index.ssf/2012/11/us_attorney_says_towns_need_to... Nov 30, 2012 · “Having no-bid contracts that are particularly ... attorney’s office with a separate division of 14 attorneys dedicated to public corruption cases. ... . This is New Jersey, but it makes excellent points [PDF] UNDERSTANDING THE ESSENTIAL ELEMENTS OF A PUBLIC … www.jnclaw.com/resources/Public-Contracts-Law_JAN.pdf UNDERSTANDING THE ESSENTIAL ELEMENTS OF A PUBLIC CONTRACT ... extravagance and corruption. How does the Local Public Contracts Law ... Types of Contracts a. No-Bid ... Wed Mar 26, 2014 10:19 am  untanglingwebs El Supremo U.S. Attorney for N.J. Paul Fishman says municipal no-bid contacts remain a key temptation for corruption Alex Zdan/The Times By Alex Zdan/The Times on November 30, 2012 at 10:05 AM, updated November 30, 2012 at 10:21 AM TRENTON — A week after former Hamilton Mayor John Bencivengo was convicted of accepting bribes to influence a school district insurance contract, U.S. Attorney for the District of New Jersey Paul Fishman yesterday urged municipalities across the state to examine how insurance brokers receive public work. Fishman, whose office prosecuted Bencivengo and now has its sights set on a potential indictment of Trenton Mayor Tony Mack, decried the system of no-bid contracts that allowed the broker who bribed Bencivengo to rack up hundreds of thousands of dollars in commission work while seeking insurance for the school board. “Having no-bid contracts that are particularly lucrative, like these, is something that I think municipalities have to look at,” Fishman said. “Because it’s an opportunity, and a temptation, that too many people have yielded to.” Weighing his words carefully during a wide-ranging meeting with The Times editorial board, Fishman refused to comment directly on the course of the Mack investigation, and had little more to say about Bencivengo, whose lawyer has filed a notice of intent to appeal. But he repeatedly emphasized the importance of prosecuting cases of political corruption, and noted that his is the only U.S. attorney’s office with a separate division of 14 attorneys dedicated to public corruption cases. “You know, if somebody robs a bank, it doesn’t make us feel bad about other people, it doesn’t make us lose confidence in other people,” he said. “If we arrest and indict a mayor, if someone’s on the take who’s a public official, that undermines our collective trust in other people who have similar positions … it’s a bad thing for citizens to not have that trust.” Such investigations are meant to serve as a deterrent for other elected officials, Fishman said, although he acknowledged that even the long string of prosecutions conducted by his office in recent years would not stop all corruption. “What matters I think is that people in New Jersey understand that whatever the level is, it’s too high and whatever the level is, it’s intolerable,” Fishman said. “And we in the federal government, the U.S. attorney’s office certainly, feel some real sense of obligation to do something about that.” He did briefly comment on the Mack case, pointing out that it was the first time in his three-year tenure that his office had wiretapped the phone of a sitting mayor. In addition to six months of wiretapping, the two-year investigation of Mack involved running a sham parking garage project sting involving multiple cooperating individuals, and FBI raids of Mack’s home and City Hall. Mack, his associate Joseph “JoJo” Giorgianni and his brother Ralphiel Mack were arrested Sept. 10 and charged with attempted extortion. The Times has reported that the FBI investigated multiple areas of city government from towing contracts to dirt removal, but no other charges have been filed. A grand jury has been meeting on the Mack case and could serve up an indictment with more charges. In regards to the Bencivengo case, Fishman would only say that it was not his responsibility to clean up government in a town where his office has prosecuted an official. “We are not the only resource for addressing people who have something wrong in the political system,” Fishman said. “Federal prosecution is a pretty heavy tool and should be used with that in mind.” “We have elections in this country, and if people believe that particular public officials have done something that’s inappropriate, they have the ability ... to vote them out,” he said. Contact Alex Zdan at azdan@njtimes.com or (609) 989-5705. Wed Mar 26, 2014 10:29 am  untanglingwebs El Supremo “Having no-bid contracts that are particularly lucrative, like these, is something that I think municipalities have to look at,” Fishman said. “Because it’s an opportunity, and a temptation, that too many people have yielded to.” ------------------------------------------------------------------------------------------- Did the Genesee County Commissioners recent no bid contract to Phil Shaltz that exceeded the amount allowable under the current county purchasing policy deny the citizens of the county the honest services of the seven politicians that voted to do so? Wed Mar 26, 2014 10:34 am  untanglingwebs El Supremo This if from the Birmingham jurisdiction, however it applies to many FBI offices Contracting Corruption Questionnaire If you answer yes to any of these questions, you are strongly encouraged to call or e-mail the FBI at birmingham@ic.fbi.gov. I. Public Contracts A. Corrupt Benefits to a Public Official 1. Are you aware of contracts being awarded to a corporation or a business that directly or indirectly benefits a public official? 2. Are you aware of any individuals or businesses giving a campaign contribution to a public official while that individual or company was specifically seeking a government contract, or immediately after receiving a government contract? 3. Are you aware of any public official who owns a stake in a company that was awarded a contract while that official maintained the ability to control or influence the contract award? 4. Are you aware of any contracts that were awarded to a company owned by a public official, or awarded to a company employing a family member or close associate of a public official? 5. Are you aware of any individuals or businesses offering a lucrative private-sector job to a public official who interacted with that company in an official capacity? B. Coercion, Bribery, and Extortion 1. Are you aware of any public-sector or private-sector individuals, businesses, or corporations being coerced, bribed, or extorted by public officials for a thing of value in return for receiving or retaining government contracts? 2. Are you aware of any public official demanding that a company hire a specific company as a subcontractor? 3. Are you aware of any claims of a "pay-to-play" environment, whereby money or something of value must be paid to obtain a contract? 4. Are you aware of any long-standing public contracts that have not been evaluated under standard contracting procedures for the periodic re-solicitation of competitive bids? II. Non-Competitive Activities A. Abuse of Contracting Authority 1. Are you aware of any no-bid contracts or emergency bid contracts for goods and services being routinely awarded to the same bidders when other potential bidders exist? 2. Are you aware of the awarding of any sole-source contracts even though the requests for proposals (RFPs) did not specify proprietary information or products, and did not include other terms and conditions justifying the solicitation of only one supplier? 3. Are you aware of collusion among companies taking turns submitting the lowest bid during the competitive bidding process? 4. Are you aware of any claims that contracting officials intentionally limit the contract specifications so that only particular companies can meet the contract requirements? 5. Are you aware of any contracting officials who justify the use of sole-source contracts or other alternative bidding procedures when competitive sources and specifications are available? Birmingham Division Links FBI.gov is an official site of the U.S. government Wed Mar 26, 2014 10:38 am  untanglingwebs El Supremo NAAG | Corruption By Public Officials National Association of Attorney Genrals www.naag.org/corruption-by-public-officials.php This is the third of four public corruption articles to ... government agency which issues contracts that would ... competing bids to determine which vendor ... For media inquiries and other press-related questions, please contact the NAAG Press Center at (202) 326-6047 or mtharp@naag.org. Corruption By Public Officials This is the third of four public corruption articles to appear in the monthly NAAGazette. These articles were developed by the attorneys who participated in the June 2012 National Attorneys General Training and Research Institute (NAGTRI) International Fellows Program. This group was assigned to focus on corruption among elected and senior appointed officials. They were asked to discuss various ways in which elected officials and government employees can be influenced to commit acts of corruption as well as possible solutions to this problem. By Mirza Hukeljic, East Sarajevo County Prosecutor’s Office; Jovan Ilievski, Office of the Public Prosecutor of the Republic of Macedonia; Cameron Leonard, Office of the Alaska Attorney General; Jennifer MacLellan, Nova Scotia Public Prosecution Service; Rakesh Patel, Office of the Maryland Attorney General; and Gulnura Toleeva, General Prosecutor’s Office of the Kyrgyz Republic Corruption by public officials is driven by a toxic combination of greed, opportunity, and ambition. Corruption among elected and senior officials takes different forms and varies widely from country to country. Corruption involving government employees includes individuals at all levels of government and both large and small sums of money as well as other incentives. The consequences of public corruption reach all aspects of civil society — political, social, and economic. No one method can address public corruption and conduct which may seem corrupt, such as the use of a public office to influence a favorable private outcome, may be entirely legal. Elected Officials Most nations have laws governing the behavior of elected officials, delineating what may be criminally charged. When these officials specifically agree to pass a law or bring about a result in exchange for monetary or other benefits, there is little doubt that the behavior would be deemed corrupt. Some have raised the concern that activities such as publically-funded election campaigns promote corrupt behavior. In a democracy, individuals vote for – and donate to – those people whose policies and beliefs are in line with their own. Thus, the public funding of campaigns does not, in itself, create a corrupt environment. However, where especially large sums are involved, some might perceive that a quid pro quo is involved. Open records as to who has donated and how much has been donated are an important aspect of ensuring that campaign financing does not create a corrupt environment. These contributions may also buy access and influence. For instance, campaign donations to a legislator on behalf of a company are generally made because the legislator is in favor of spending that would benefit the company or other businesses similarly situated. The ethical difficulties occur when the legislator who has received such donations does not strictly separate the company’s interests from the country’s interests. Such donations may be particularly problematic when the legislator is involved in funding the government agency which issues contracts that would benefit the company providing the campaign contributions. Government Employees Employees at every level of the executive branch of government can be involved in corrupt activities. Depending on the laws of the country or state, employee corruption is much more likely to be clearly illegal than the behavior of an elected official. There are a myriad of ways that employees are able to behave dishonestly. For instance, many government employees are issued credit cards to pay for their government-related purchases and travel. Individuals handling credit card transactions are often able to slide a personal expenditure or two — or more — into the purchases made for the agency. Internal auditors depend on employee reports to justify purchases. Rarely will these bills be scrutinized so carefully that small personal purchases will be noticed. Only when an employee becomes careless or excessive in his or her spending will this misappropriation be caught. As long as an employee is able to keep greed somewhat in check, the embezzlement will remain undetected. Procurement is perhaps the area where the opportunity for corrupt behavior is most pronounced. Most governments have laws in place to guard against procurement fraud. But those in the procurement process often find ways to circumvent the formal procurement process. All governments spend large amounts of money. They build things — roads, bridges, schools, hospitals. They hire people and contract workers, using employment agencies. They buy things — computers, advanced software, technology services, weaponry, and all kinds of supplies. All of these expenditures, involving billions of dollars, must go through a procurement process. That means that the government employees responsible for procurement must put out a request for bids from vendors and contractors. These vendors and contractors routinely build relationships with government employees involved in the procurement. These relationships certainly are not illegal. But using these relationships to influence winning a contract can be. And that happens. From the government’s side, procurement involves evaluating the competing bids to determine which vendor or contractor provides the best goods or services at the best prices. In most instances, there is a number score attached to the criteria and whichever bid gets the highest score, wins. The reality is, however, that the score a procurement employee gives to particular criteria is entirely subjective. So, if the employee has been improperly influenced, he or she can score a bid in a way that is very favorable to his preferred contractor. Honest government is fundamental to a democratic system. Therefore it is imperative that appropriate laws be in place to criminalize corrupt behavior among government officials, ensure that investigations into alleged corruption are non-partisan and fairly undertaken, and that prosecutors uphold their obligations of prosecuting corrupt officials, regardless of their status, stature, or influence. Wed Mar 26, 2014 10:46 am  untanglingwebs El Supremo "Procurement is perhaps the area where the opportunity for corrupt behavior is most pronounced. Most governments have laws in place to guard against procurement fraud. But those in the procurement process often find ways to circumvent the formal procurement process." " Honest government is fundamental to a democratic system. Therefore it is imperative that appropriate laws be in place to criminalize corrupt behavior among government officials, ensure that investigations into alleged corruption are non-partisan and fairly undertaken, and that prosecutors uphold their obligations of prosecuting corrupt officials, regardless of their status, stature, or influence." Wed Mar 26, 2014 10:50 am  untanglingwebs El Supremo The Ten Commandments of Ethical Government Purchasing "When a man assumes a public trust, he should consider himself as public ... corruption in government: no-bid contracts, insider deals, and allegations of ... www.nd.gov/spo/legal/resources/the%20ten%20commandments%20of%20ethical%20governm... The Ten Commandments of Ethical Government Purchasing "When a man assumes a public trust, he should consider himself as public property."Thomas Jefferson (1743B1826), quoted from, Life of Jefferson (Rayner), p.356. By Suzanne M. Dallimore, Esq. We are bombarded these days by news stories, radio rants, and talking heads decrying corruption in government: no-bid contracts, insider deals, and allegations of kickbacks large and small. Politicians of every stripe are spinning, posturing, and rushing to photo ops. Some of the charges of corruption are leveled at those who receive the government's largesse, but many indict those within government who grant it. This gnashing of teeth and wringing of hands is likely to produce "reform" that places additional burdens on government purchasers and the purchasing process. Why is reform necessary? Don't we have laws on the books in every jurisdiction down to the tiniest hamlet against throwing contracts to friends and cronies? Of course we do. The answer may be that what's needed is not reform of law, but the restoration of ethics. Laws are a manifestation of societal values. For example we all agree that rigging bids and taking bribes is wrong. But law does not address the moral questions government purchasers face. How does a government purchaser obey the law, and, when called to task, retain the ability to stand up and say "my conduct was both legal and ethical"? Law and ethics are not necessarily synonymous. A definition of ethics may help in understanding the difference: eth-ics: 1 a. A set of principles of right conduct, b. A theory or system of moral values, e.g., "An ethic of service is at war with a craving for gain". 2. The study of the general nature of morality and of the specific choices to be made by a person, a moral philosophy. 3. The rules or standards governing the conduct of a person or the members of a profession, e.g., medical ethics. Ethics as "right conduct" requires action. Deeply held moral beliefs are satisfying and can be good for society, but even a large group of individuals having such beliefs is of no appreciable benefit unless those individuals put their conduct where their values lie. To accomplish this, it is useful to agree to a short list of ethical conduct rules that go beyond legal technicalities. A procurement ethical code might include the following: 1. Be Independent A government official engaged in purchasing should be independent, from vendors, bidders, prospective bidders, interested parties and, in a perfect world, politicians and political appointees, including their own bosses. As human beings we tend to form emotional obligation bonds with people we like, who are nice to us, who help us, who flatter us and people who give us things. In procurement, while one can be friendly and helpful, one must resist the temptation to accept benefits, emotional or economic, from any would-be vendor, so as to reduce the desire to reciprocate. 2. Act Only in the Public Interest A procurement official represents the public interest, as defined by the legislature or Congress, and never the private commercial interest of a seller of goods or services. It is the legal duty of every person representing a commercial enterprise to maximize its profit. A commercial representative who says he is trying to help the public is not doing his duty to his company. This is not to say that it is bad to have a profit-motive, the profit motive drives markets toward developing better mousetraps. And corporations can be very good public citizens. But a purchasing officer must assume, always, that private profit is the only motive of the vendor or interested private party. 3. You Are a Trustee of the Public's Money A government purchaser is a fiduciary for the public's money, a trustee. An effective regulatory scheme governing procurement officers might read as follows: A. It's not your money. B. It's not your money. C. It's not your money. D. It's not your money. This catch phrase delineates exactly the ethical limitations of purchasing personnel's discretion. You are not Donald Trump and it is not your money. Spend the public's money with the care you'd demand a bank exercise in handling your own funds. 4. Follow the Law Most jurisdictions have many statutes and rules that protect competition and consumers in government purchasing. Take all the training in competition and public integrity law available. Develop a close working relationship with enforcement lawyers, so that legal questions can be asked and answered. Your agency's risk management department will be thrilled with your commitment to the law. There are plenty of lawyers who will be used against you, ask that public lawyers be used to help you. This outside check empowers procurement officials since enforcement lawyers can run interference with higher-ups when what they want to do is unlawful, unethical, or against public policy. 5. Strive for Efficiency This is not easy to do in a system of cumbersome procurement rules. But efficiencies can take hold in ways you can control. Do your homework, independent of any one vendor. Study historic outcomes that reflect poor procurement choices and avoid them. Identify what efficient vendors do and use that as a guide for your next set of specifications. Don't let the vendor write them, write your own so as to produce a similarly efficient outcome. Ignore the "bureaucrats waste money" talk and do your job as efficiently as the system lets you. 6. Protect the Economy The economy works best when large and small firms are competing to produce the highest quality goods at the best possible prices to meet consumer demand. Buyers drive markets, and government purchasing has a tremendous effect on economies. To protect local economies, consider these guidelines: A. Do Not Bundle Contracts - Bundled contracts favor big, incumbent firms, to the exclusion of small business. Some regulatory schemes specifically prohibit bundling. Bundling leads to longer contracts, and less flexibility to take advantage of new market products. Some projects require bundling and some statutes allow it, but know that bundling favors old technologies and prevents taking advantage of innovation and the power of head-to-head competition. B. Run an Arms' Length Shop - Relationships turn into conspiracies where public money is involved, and the official who gets too close to a vendor may be engaged in criminal bid-rigging. Bid-rigging hurts economies and there is no law to the contrary. C. Research New Ideas- Markets create new technologies and unheard-of small firms come up with wonderful new products and services. Do the market research to ensure that you are not locked into obsolete technology. The economy works better when innovation pays off. 7. Take Nothing, Ever Don't even accept cookies from the vendor dropping by with the paper delivery. Why not? Surely no one is bought for cookies! If you don't take the cookies, no "appearance" of a "relationship" with that vendor arises and you create no witnesses who can testify against you. Even if your rules permit you to accept lunch or anything valued under $25, do not take anything. Acceptance of anything can create the appearance of conflicted interests. 8. Do Not Socialize with Vendors Prosecutors prove procurement offenses through testimony putting government officials at social events with government vendors. If you have social friends who may be bidders, get completely out of any aspect of the process, then socialize. Otherwise, don't do it. This applies to business associations also. If you want to fraternize, get out of the procurement process entirely before you do. 9. Maintain Confidentiality The business of the government in buying goods and services is your business, not the business of your business associates, your friends, or your golf buddies. Reveal only that necessary to insure clean bids and a sterling selection process. The possession by a bidder of insider information not available to his competitors is almost universally an issue in procurement crime enforcement. If the information is public, everyone gets it. If it is not, nobody gets it. 10. Do Not Play Favorites Do not help cronies, family members, business associates, or good buddies get a leg up in the procurement process. Whether you like the representative of a contractor or would-be bidder, whether the firm has the best holiday parties, or whether the vendor will hire your child to help her through college are all irrelevant to the procurement process. It is not irrelevant to criminal prosecutors. Almost every jurisdiction has common, or court-made law that says favoritism in the expenditure of public money is wrong. Here then is a working model of a proposed Ten Commandments of Ethical Government Purchasing. Since you are, in Jefferson's words, a "public property", your ethics are as important as your formal rules. Remember that, "an ethic of service is at war with a craving for gain". Above all, stay independent and you'll stay above the fray. The payoff? It won't be your name, or your agency's name, in the next "culture of corruption" headline. Ethical procurement isn't always easy, but it's always worth the effort. Editor's Note: Suzanne M. Dallimore has 28 years' experience as an antitrust and commercial and securities fraud litigator, prosecutor, and trial attorney in Utah and Arizona. She served as Chief Antitrust Counsel for the Arizona Attorney General and as Chief Counsel, Utah Attorney General's Antitrust Division. Ms. Dallimore is currently in private practice. Notable cases include: State v. Thompson and State v. Fletcher (criminal RICO, bid-rigging and commercial bribery criminal convictions); In re: Project SLIM Investigation, (Arizona state government contract bid-rigging, $750,000 recovered for Arizona); In re: Electric Utility Deregulation Proceedings, Arizona Corporation Commission, (utility stranded costs proceedings, $800 million saved for Arizona electric consumers); Baseplans USA v. Arizona Department of Transportation, et al, (Public corruption and bid-rigging, case pending). Contact Ms. Dallimore via e-mail: sdallimore@aol.com or phone: 602-748-180 Wed Mar 26, 2014 10:55 am  untanglingwebs El Supremo Removing the Risk of Corruption in Michigan - State Integrity ... Michigan gets a grade of F for corruption risk and ranks 43rd out of 50 states in ... failed in Michigan, where it's difficult for the public to track lobbyists' activities ... www.stateintegrity.org/michigan Report: Michigan Fails In Fending Off Public Corruption « CBS Detroit Jul 19, 2013 ... LANSING (WWJ) – When it comes to helping citizens fight public corruption — Michigan gets a failing grade. According to a report from Better ... detroit.cbslocal.com/2013/07/19/report-michigan-fails-in-fending-off-p... AG - Public Integrity - State of Michigan In February 2011, Attorney General Schuette created a new Public Integrity Unit to ramp up the fight against corruption in state and local government, protect tax ... www.michigan.gov/ag/0,4534,7-164-58056---,00.html AG - Public corruption the focus of Mich. AG's new unit Feb 11, 2011 ... LANSING, Mich. (Legal Newsline) -Michigan Attorney General Bill Schuette announced on Thursday that he has created a new Public Integrity ... www.michigan.gov/ag/0,4534,7-164-58056-252428--,00.html Criminal Division - USDOJ: US Attorney's Office - Eastern District of ... The United States Attorneys Office - Eastern District of Michigan ... The Public Corruption Unit investigates and prosecutes corruption by public officials and law ... www.justice.gov/usao/mie/manage/criminal.html Michigan's Corruptibility Rated An 'F' In New Report -- And It Isn't ... Mar 19, 2012 ... But now a new ranking from the Center for Public Integrity claims that Michigan as a whole is one of the worst states when it comes to ... www.huffingtonpost.com/2012/03/19/michigan-corruption_n_1358238.html Amidst public corruption investigation, Romulus ... - Michigan Radio Apr 2, 2013 ... This is not a great week for Romulus Mayor Alan Lambert. State police are investigating him for public corruption and raided his home last ... michiganradio.org/post/amidst-public-corruption-investigation-romulus-mayor-says... Wed Mar 26, 2014 11:18 am  untanglingwebs El Supremo Huffington Post Campaign Finance, Michigan Corruptibility, Michigan f Ranking, Detroit News . From the cases of Kwame Kilpatrick to those of Monica Conyers and Robert Ficano, metro Detroit has not wanted for blockbuster political scandals over the past few years. But now a new ranking from the Center for Public Integrity claims that Michigan as a whole is one of the worst states when it comes to "corruptibility." Michigan got an F and ranked 43rd in the nation in the State Integrity Investigation, which aimed to figure out how loopholes or laxness in state laws make it easier to unduly influence legislators and leaders and subvert the political process. For national political junkies accustomed to cracking jokes about the mob-like political culture of Illinois, New Jersey or Rhode Island, the news that Michigan is one of the most corruptible states might come as something of a surprise. But for clean government advocates who have had their eye on the Wolverine State as they watched corporate money pour into state and local elections in the last few years, the report is just one more sign that Michigan needs to change to avoid even more scandals. The problem, those advocates say -- and the State Integrity Investigation bears them out -- is that activities that might put you in jail in other states are perfectly legal in Michigan. Wed Mar 26, 2014 11:28 am  untanglingwebs El Supremo Removing the Risk of Corruption in Michigan - State ... www.stateintegrity.org/michigan Find out why and e-mail Michigan's report ... A report by the Kent County prosecutor determined the ... Massachusetts anti-corruption gaps fueled public ... Home → State Integrity Blog → State pro-business organizations are publicly funded, but privately controlled Posted by Nicholas Kusnetz 31pc on October 23, 2013 · Flag The offices of the Arizona Commerce Authority are housed in downtown Phoenix at the Freeport-McMoRan Center, the gleaming glass headquarters of an international mining firm of the same name. The authority, which oversees state corporate tax incentives and grants worth hundreds of millions of dollars, is not quite a public agency, as its location two miles east of the state government complex suggests. It’s led by a board of directors run by the governor and Jerry Colangelo, who, after four decades as an Arizona sports and real estate mogul, is a local icon. Sixteen other corporate executives also sit on the board, including Richard Adkerson, President and CEO of Freeport, to which the authority paid about $411,000 in state funds last fiscal year for renting the space. There’s a name for this arrangement. The Commerce Authority is a “quasi-public” entity, or a public-private partnership. About 10 other states have also given control over lucrative corporate tax incentives to similar organizations, which are often run by the states’ most influential businessmen, generally at the pleasure of the governor. Supporters say these partnerships are more nimble than government bureaucracies and are insulated from the vagaries of electoral politics. But both liberal and conservative watchdog groups say the practice takes a government function already prone to mismanagement and obfuscation and makes the situation worse by giving oversight of business incentives to businesses themselves. “There’s a lot of potential for powerful special interests to abuse the public purse,” says Phineas Baxandall, a senior policy analyst at US PIRG, a liberal advocacy group. In recent years, state governments have been racing to out-spend their neighbors wooing corporations — they’ve nearly doubled their number of economic incentive programs since 1999 to about 1,800, according to the Council for Community and Economic Research, an economic development membership group. But much of this spending remains shrouded in secrecy. Even most public agencies do not disclose the recipients of all the incentives because of tax privacy laws. But privatization raises a unique set of concerns. Ohio, for example, created JobsOhio in 2011 as an independent nonprofit, exempting it from most state ethics and open records laws and, as of this year, from government audits. Other states, including Arizona, have applied ethics and freedom of information laws to the entities but have carved out exemptions for cases in which board members decide that disclosing information could divulge confidential corporate data. Florida, Michigan, Indiana, Wisconsin, Iowa, Wyoming, Rhode Island and Virginia have also created similar entities, from the fully independent, like Ohio’s, to quasi-public agencies. Most have also established related private foundations that receive anonymous contributions, which eventually fund travel for public officials or entertainment for business executives. In each case, states have given oversight of millions of dollars in public money to entities led at least in part by corporate leaders — while shielding some of their activities from public view. “Here are people who are put in charge to make decisions that were never elected,” said Farrell Quinlan, Arizona state director for the National Federation of Independent Business. “Is that really proper to have someone not accountable to voters making decisions about public money?” The Commerce Authority says it is committed to transparency, but officials declined repeated requests to interview its CEO, Sandra Watson, and did not respond to a set of emailed questions. When approached by a Center reporter at a breakfast for business leaders at the JW Marriott Desert Ridge Resort & Spa, Watson cheerily declined to speak. Jerry Colangelo also declined to comment through his assistant, as did each of the other four board members who were contacted by the Center. While there is no evidence of corruption or direct conflicts of interest for board members, the authority has given a handful of small grants totaling nearly $13,000 to companies owned by director Gary Abrams. Additionally, board members’ private interests have occasionally aligned with official policies of the authority, as with a proposal to build a new interstate highway from Phoenix to Las Vegas. But good-government groups say it’s impossible to know for sure whether there are more serious conflicts because the authority, like most of its peers in other states, does not make public all the recipients of tax incentives. “It’s hard to imagine a situation more ripe for potential abuse,” Baxandall says. Letting business do business The Arizona Commerce Authority is one of Gov. Jan Brewer’s signature achievements, but its public face has been Jerry Colangelo, the former owner of the Phoenix Suns and Arizona Diamondbacks. Colangelo is widely praised for helping transform Phoenix into the sprawling, cosmopolitan urban center that it is today. The glass-encased arena and stadium he helped build sit side-by-side, anchoring downtown just four blocks from the authority headquarters. Since selling his interests in the Suns and Diamondbacks in 2004, Colangelo has led a successful career in real estate development and has run the U.S.A. national basketball program. In 2006, President George W. Bush named him to the President’s Council on Service and Civic Participation. Soon after assuming office in 2009, Brewer, a conservative Republican, asked Colangelo to help her remake the state’s Commerce Department, which had been criticized as ineffective. The Great Recession wreaked havoc on Arizona’s real-estate-dependent economy and Brewer was keen to show she would bring jobs to the state. In early 2010, Colangelo led a governor’s council that recommended eliminating the department and replacing it with a quasi-public entity. By June, Brewer created the Commerce Authority via executive order and appointed Colangelo as co-chairman. In February 2011, the legislature authorized the authority to replace the Commerce Department. Sixteen other business executives populate the board, with nine appointed by the governor, who serves as chairwoman; the rest of the board is named by the Senate president and speaker of the House, who also sit on the board as two of 13 non-voting members from the legislature, state universities and other government commissions. Five board members or their companies have contributed a total of $25,684 to Jan PAC, Brewer’s super PAC, or political action committee, over the last three years, including $5,000 from Colangelo last year. In her 2010 campaign, Brewer used Arizona’s matching campaign finance system and as a result was limited from receiving large direct contributions. “What we're hoping to do is privatization,” Colangelo told the Arizona Capitol Times in February 2011 about his plans for the authority, months before the first official board meeting. “It’s the business community and leaders who are out there making business decisions.” The legislation that created the authority also boosted economic development funding, increasing the authority’s budget to $10 million, a 64 percent hike over the Commerce Department budget, and allocating tens of millions of public dollars to new grant programs. Among those programs: a $25 million “deal-closing fund,” from which the authority’s CEO, who is appointed by the board, can write checks to companies willing to relocate to the state. The authority started with a bang, just not the one Brewer wanted. The board of directors awarded a three-year contract worth about $1 million to its first CEO, Don Cardon. That worked out to almost twice Cardon’s previous annual salary of $183,000 as director of the old Commerce Department, to which Brewer appointed him to oversee the transition. Legislators from both parties were outraged, so Colangelo and Cardon announced that about half of the pay would come from a private foundation they had established: Team ACA. Team ACA Brewer had initially mentioned Team ACA in August 2011, at the Commerce Authority’s first official board meeting, when she announced that the authority would create a private “investment” arm, with Colangelo as chairman. The papers were filed the next month, but hardly anybody noticed until Colangelo announced in January that the privately-funded group would pay half of Cardon’s salary. Rather than quiet the furor, that move only raised questions about who was funding Team ACA, which was run at the time by Cardon, Colangelo and executives from Alliance Bank of Arizona, one of the state’s largest, and Apollo Group, which owns the for-profit University of Phoenix. The office that Team ACA listed on its state filings until this month is on the seventh floor of a boxy, sand-colored building in downtown Phoenix, currently occupied by a company called Marketplace One. When a Center reporter visited in September, a receptionist said Cardon is a friend of the owner and that he briefly rented the space but left years ago. According to its articles of incorporation, Team ACA was initially established to support the Commerce Authority. But in June 2012, the directors amended the group’s mission to say it would more broadly help the state’s businesses by funding meetings and seminars to “promote contacts and exchanges” between business and government in Arizona and to “support the efforts of economic development organizations in Arizona.” In addition to $138,657 that it gave the authority, reportedly for Cardon’s salary, Team ACA spent about $83,000 assisting the authority through June 2012, the most recent data available, and an additional $35,000 on advertising and promotion. It has continued to fund entertainment and travel for the authority, spending about $9,500 to buy business class seats for Brewer and an aide on flights to Europe for an economic development trip last year, for example. Team ACA has declined to make all of its donors public, but Cardon told the Capitol Times in October 2012 that the organization had secured a three-year $600,000 commitment from Alliance Bank and Apollo Group. The controversy over Team ACA funding only grew worse when Cardon abruptly announced his resignation as CEO of the Commerce Authority in January 2012, only to quietly stay on as director of Team ACA. Through a spokesman, Cardon said he is no longer involved with Team ACA and declined to comment further. But he did defend Team ACA last year to the Capitol Times: “The reality is you have private sector [sic] that are funding thousands of dollars to help support this state, help families,” he said. “And I am trying to understand what the downside of that situation is." But Team ACA has done little to ease concerns over its secrecy. Efforts to obtain the foundation’s public tax forms resulted in a labyrinthine pursuit. “This money is coming in from the private side supporting the public sector Commerce Authority side, and then the Commerce Authority is handing out money to whatever it deems is a good use of that money,” said Chad Campbell, the state House minority leader. “But we have no idea where that money is coming from in the private sector foundation. And they’re just unwilling to be transparent about it,” he said. “Is somebody giving $10,000 in here, and then getting $50,000 out the back end in public sector money? I’m not saying it is, I just don’t know.” In addition to the Team ACA money, the Commerce Authority received $50,000 this year from Arizona Public Service, the state’s largest utility. Brewer’s office did not respond to requests for comment. But when the Arizona Republic editorial board asked the governor if the Commerce Authority had a transparency problem, she said she was “committed to ensuring the ACA adheres to all legal requirements related to financial disclosure and transparency. The ACA's meetings are open, as are its books as it pertains to the authority's use of taxpayer funds.” While the authority does post much of its financial data on a state website and publishes an annual report, lawmakers including Campbell and Eddie Farnsworth, a House Republican, have said the reporting and oversight are inadequate. Campbell introduced a bill this year that would have increased reporting to the legislature and required the authority to make public all grant and incentive recipients; the measure also would have required the state auditor to perform a review every three years. Currently, the authority submits a private, independent audit. The auditor general has 30 days to initiate its own review, but it has declined to do so. The bill never saw a vote. Despite these controversies, the Commerce Authority has plenty of backers. “It’s put Arizona on par with some of the best states for business,” says Ioanna Morfessis, who founded the Greater Phoenix Economic Council, a local public-private partnership, and is also a paid consultant for the authority. In its year-end report for fiscal year 2013, the authority said it assisted 104 planned projects that will create 15,262 jobs. Doug MacEachern, a member of the Arizona Republic editorial board, in August 2012 wrote that while the authority needed to improve transparency, it was “far better” than the Commerce Department it replaced. It has also taken some steps toward transparency, by announcing quarterly the recipients of the “deal-closing fund,” for example. The most recent report shows three grants, including $1.5 million given to the Go Daddy Group, Inc., an Arizona-based company, to help with an expansion that is supposed to create 300 jobs. None of the tax incentives were public under the old Commerce Department either. Serena Unrein, the public interest advocate at Arizona PIRG, said there’s been no evidence of malfeasance, but that without full transparency, it’s impossible to know for sure. “When half of the incentive programs that they control are behind this veil of secrecy,” she said, “it’s hard to tell if there is any sort of reason to be concerned.” A lack of transparency in the Buckeye state As Brewer was privatizing economic development in Arizona, Republican colleagues in three other states were on similar paths. Gov. John Kasich’s efforts in Ohio have been especially controversial. Within weeks of taking office in 2011, Kasich was pushing legislation that eventually created JobsOhio, an independent nonprofit corporation that assumed economic development responsibilities for the Buckeye State from the old Department of Development in July of that year. The organization is led by a nine-member private-sector board, appointed by Kasich. It is not subject to open records laws. After the state auditor, a Republican, threatened to subpoena records for an audit this year, the legislature passed a bill, pushed by Kasich, to shield the entity from any future audits. JobsOhio has argued that its funding is private: for $1.4 billion, it purchased a 25-year lease of the state’s liquor sales profits, worth about $100 million a year. The deal was funded with a bond, issued by JobsOhio. It, too, has received private donations both directly and through a related nonprofit, the JobsOhio Beverage System — a total of $6.9 million from five anonymous donors in its first year of operation, according to the Columbus Dispatch. One of those donors, according to the Dispatch, was American Electric Power, based in Columbus, which gave $2.45 million. In July, the Dayton Daily News reported that six of the nine board members had financial ties to companies that have received incentives from the state, though several of the deals in question were approved before JobsOhio began operating. The organization also helped secure hundreds of thousands of dollars in incentives for Worthington Industries, which continued to send deferred payments to Kasich through 2012 for his former role as a director of the company. Employees of the firm have donated hundreds of thousands of dollars to Kasich’s campaigns, including $10,000 from CEO John McConnell one week after JobsOhio awarded Worthington a tax break worth more than $100,000. The Kasich Administration, which did not respond to requests for comment, has said the governor is no longer linked with Worthington — a statement supported by the state Ethics Commission — and that the criticism over the deals are a political ploy by Democrats. A recent review by the Ethics Commission found that nine directors and employees of JobsOhio had financial ties to entities that have either received incentives from or had contracts with the organization. JobsOhio has not replied to phone calls or emails, but a spokeswoman, Laura Jones, has said publicly that all staff and directors comply with a conflict of interest policy. She said the financial ties do not represent conflicts because the interests are small and because directors do not decide which companies get money; agency staff make recommendations to a separate state agency, which makes the ultimate decision. While that is true, an August report by the Columbus Dispatch found that since 2009, the five-member government board that makes the final decision has not cast a single vote against the recommendations it received. Newspaper editorials have generally supported the idea of a streamlined, public-private JobsOhio, but criticized its secrecy. “A state-authorized corporation whose operating funds derive in part from a bond issue underwritten with public dollars needs to be more transparent, not less so,” the Cleveland Plain Dealer wrote in a March editorial. Watchdog groups have been less circumspect. “What they’ve done is taken a system that didn’t have a whole lot of disclosure and wasn’t that great a system under any governor,” said Brian Rothenberg, executive director of ProgressOhio, a liberal group, “and they’ve privatized it so that you don’t know what’s going on with all those public dollars.” ProgressOhio has sued the state, arguing the liquor sales lease is illegal. Altered states Wisconsin Gov. Scott Walker also created a public-private entity, the Wisconsin Economic Development Corporation, in 2011. While the corporation is subject to the state’s public records laws, it’s suffered a stunning string of mishaps, detailed in a series of news reports and two public audits over the past two years. A May 2013 legislative audit found that WEDC gave money to ineligible businesses, didn’t require financial statements from some incentive recipients and didn’t check whether companies were creating jobs. The corporation hired its fourth CFO in June (one of them lasted only 24 hours), only to see its third controller resign the same month. Corporation officials said they were committed to improving their operations, but an October report by the Milwaukee Journal Sentinel found that one in five companies receiving incentives still were not reporting their activities to the corporation. Iowa created a public-private partnership to take over business incentives as well, leading to some of the same controversies that have surfaced in Arizona, including allegations of excessive pay and poor transparency and oversight. Most states have created public-private organizations to market the state to business while retaining control over incentives within a government agency. Those arrangements have drawn their own scrutiny. Two funds under Texas Gov. Rick Perry’s control have spread hundreds of millions of dollars to corporations over the past several years, much of it to companies that have also donated heavily to Perry’s political campaigns and the Republican Governors Association, which he once led and which gave his campaign $1 million in 2006. The arrangement drew criticism that Perry was rewarding companies for political support. Watchdogs and lawmakers from both parties have also questioned whether the funds are effective and have called for independent audits. Perry’s office has countered that the funds have created tens of thousands of jobs and that legislative leaders must approve each deal, providing adequate oversight. Proponents of public-private partnerships say they streamline economic development work. Morfessis of the Greater Phoenix Economic Council says they show the business community that government is prepared to work with the private sector, and that the groups are actually less prone to abuse than their fully-public counterparts because the private sector demands strong accounting practices. Quasi-public entities also allow the organizations to pay higher salaries, theoretically allowing them to compete for top talent in a competitive field. But there’s no evidence that public-private partnerships are any more effective, says Jeff Finkle, president and CEO of the International Economic Development Council, a membership group of economic development agencies. The advocacy group Good Jobs First, which supports transparency in economic development, issued a report in 2011 that found deficiencies in each of the eight states that, at the time, had given some or all of their business recruitment activities to quasi-public or private entities — deficiencies that included conflicts of interest, misuse of taxpayer funds and excessive bonuses. An updated version, to be released today, argues that private economic development agencies are “inherently corrupting.” “There are plenty of problems even when government agencies do this kind of thing,” says Philip Mattera, the organization’s research director, “but those problems are compounded when you privatize that kind of function.” A harvest in the desert? About 50 miles west of Phoenix, over a spine of jagged peaks called the White Tank Mountains, empty desert spotted with creosote bushes and the occasional saguaro cactus stretches to the horizon. But the city’s real estate titans see a future there, and they own the land that could make it happen. A handful of private developers have bought tens of thousands of desert acres that local municipalities have annexed to make way for sprawling developments. Douglas Ranch, as one of the properties is called, covers nearly 34,000 acres and is slated to house 300,000 people and include 55 million square feet of commercial space. The plans have sat idle for years, victims perhaps of the recession-fueled real estate bust. But the developers see hope in a proposal to build a new interstate highway that would connect Phoenix and Las Vegas and serve as part of a “CANAMEX” route linking ports in Mexico with the Pacific Northwest. Several of the project’s biggest supporters now sit on the board of the Commerce Authority, which has been one of several state agencies pushing over the past couple years to make the road a reality. Douglas Ranch is owned jointly by JDM Partners, Jerry Colangelo’s development company, and El Dorado Holdings, which is led by Mike Ingram, another authority board member. JDM Partners owns a second, smaller property that borders Douglas Ranch. Four other current or former board members either have direct financial interests in building the road or are otherwise involved in pushing for its construction. While the Commerce Authority has expressed support for the road, its exact role is unclear. In March 2011, before the authority was fully operating, Colangelo told a local government group that board members had already been discussing the project. As of publication, the authority had not responded to a public records request filed September 3 seeking details on its support for the proposed road, known as Interstate 11. It’s also true that, because the Brewer administration is a strong proponent of the project, even a fully public agency would likely play a similar role. The state Department of Transportation, along with its Nevada counterpart, recently funded a study arguing the economic benefits of the road. But the melding of public and private interests raises questions about whether board members can make independent decisions for a quasi-public agency. In April 2012, Colangelo gave a presentation at an economic development summit for the West Valley region where he pressed the need to improve the area’s transportation. He showed an image of Douglas Ranch with a bright yellow dotted line cutting through the middle, representing a proposed interstate route. The road would surely boost the value of the land. For his presentation, Colangelo was introduced as both the co-chairman of the Commerce Authority and as a principal partner with JDM. Colangelo has not publicly addressed the potential for a conflict of interest. None of the board members with a stake in the road agreed to an interview. While it would be years before the road is built — if it is built at all — last year Congress designated the road as an interstate corridor, a largely symbolic gesture that gives it a number but does not promise funding. The proposed interstate is not the only issue raising questions about possible conflicts-of-interest at the Commerce Authority. The authority has given about $13,000 in grants to two small arms manufacturers owned by board member Gary Abrams. It also contributed an undisclosed amount to help sponsor the Basketball Hall of Fame’s second-annual Jerry Colangelo Golf Classic, which took place in September. “If you’re able to pick winners and losers like this with the Commerce Authority, the winners are always going to be the people who are better connected to the people on the board and the politicians calling the shots,” said Scot Mussi, executive director of the Arizona Free Enterprise Club, a free-market advocacy group. The authority has a conflict of interest policy that says directors and employees must disclose potential conflicts and cannot vote on matters that affect their financial interests. However, the authority would not respond in regard to whether any board members have announced conflicts or recused themselves from votes, and none of the public board meeting minutes make any mention of the issue. Other states have had more glaring potential conflicts. In Florida, for example, where many board members have donated $50,000 to the public-private Enterprise Florida, several incentives have gone to companies that are represented on the board, according to reports by good-government group Integrity Florida and the conservative Americans for Prosperity Florida. A close cousin Over the past decade, a few states have eliminated public-private partnerships for economic development after determining they were ineffective, including California, which abandoned its effort in 2010. Others, such as Connecticut, have considered the proposition only to study it and abandon the idea. North Carolina is currently in the process of transferring at least some of its economic development work to a new public-private entity, but the transition has been bumpy. Earlier this year, a bill that would have created a public-private partnership appeared ready for passage when at the last minute, someone attached an amendment that would have allowed for hydraulic fracturing, the controversial oil and gas drilling technique which is not yet in use in the state, scuttling the bill. It was unclear why fracking was included in the bill, but a clue emerged in July, when Commerce Secretary Sharon Decker told a group of business and community leaders that she wanted to create an incentives fund, similar to those in Texas, with proceeds from a tax on fracking. Decker promised that, unlike Perry, she wouldn’t “go as crazy” with the fund, adding, “I’m glad the press isn’t here.” But a reporter from the News & Observer in Raleigh was, in fact, there to report the comment. The bill contained some provisions that watchdogs welcomed, such as a ban on board members’ companies receiving grants. After it failed, Gov. Pat McCrory won language in the budget allocating money for the Commerce Department to begin the process anyway. Decker, the commerce secretary, has said she will use the legislation as a guide, but it’s unclear whether those provisions will survive. In September, the state filed papers for a new nonprofit corporation that Decker said should be operating by March. In Arizona, the controversy had largely died down until the Capitol Times reported in June about a line in the state budget that allows the authority to loan $2 million for a specific rural railway project. The arrangement, and the authority’s activities in general, have rankled the state’s vocal libertarian contingent. Byron Schlomach, the director of the Center for Economic Prosperity at the Goldwater Institute, said he’s skeptical of economic development initiatives. “To me, all it is is a very expensive ticket for politicians to show up at a ribbon cutting ceremony,” he said. He characterizes the authority as a form of “soft corruption,” with public money being allocated to powerful corporations. “Is it anything you can directly call bribery?” he said. “No. But it’s a close cousin.” Chris Zubak-Skees contributed to this rep @StateIntegrity on Twitter Last edited by untanglingwebs on Thu Mar 27, 2014 5:37 am; edited 1 time in total Thu Mar 27, 2014 5:31 am  untanglingwebs El Supremo Home → State Integrity Blog → State legislators' ties to nonprofit groups prove fertile ground for corruption Posted by Nicholas Kusnetz 31pc on June 13, 2013 · Flag When investigators examined the operations of a sprawling New York social service organization, what they uncovered was deeply troubling. Board members of the Ridgewood Bushwick Senior Citizens Council had almost no experience in nonprofit management. Several couldn’t name any of the group’s programs. Two of them could not identify the executive director, who in turn told investigators she was unaware of a fraudulent scheme carried out under her watch: Employees had squandered or stolen most of an $80,000 city grant. As a result of that July 2010 report by New York City’s Department of Investigation, both the city and state quickly pulled the plug, suspending the organization’s grants, which provide practically all of its funding. But just as quick, the Brooklyn-based group won back it’s government support on the condition that it enact corrective measures, and today, the council has active grants from the city and the state totaling more than $50 million. Maybe that’s because the organization provides critical services, such as senior care and affordable housing, as a city spokeswoman said when funding was restored. But the council may also be thriving because its founder, Vito Lopez, was for years one of New York’s most powerful politicians — a state legislator who spent much of his career channeling that power through Ridgewood Bushwick. Lopez personally directed at least $505,000 in state grants to the organization from 2007 through 2010, the only years for which data are available, and has reportedly had a hand in millions more. He helped elevate the group’s employees to political office. Other candidates, elected with Lopez’s help, have directed even more public money to Ridgewood Bushwick in return. The council’s former executive director, forced out in disgrace, was Lopez’s campaign treasurer; she later pleaded guilty to lying about a raise that hiked her salary to $782,000 for the fiscal year ending in June 2010. And Ridgewood Bushwick’s housing director is Lopez’s girlfriend. This may look bad. It’s not unusual. Vito Lopez is but one example of a surprisingly common phenomenon afflicting state legislatures. Since 2010, at least eight New York lawmakers or their related charities have been investigated, charged or convicted of pillaging public funds. Earlier this year, former state Sen. Shirley Huntley pleaded guilty in two separate cases, one in which she sent state grants to a nonprofit she had founded before pocketing the money, the other in which she helped her niece and a former aide steal funds she directed to another group that, yes, Huntley herself created. New York’s legislators outshine their peers in this department, but they’re not alone. Two former Florida state senators repeatedly directed state funds to a struggling group on whose board they sat, apparently not a violation of state law. A Pennsylvania charity had its state funding frozen after a state audit found it allegedly gave no-show jobs worth hundreds of thousands of dollars to a pastor and his aide at the direction of a state lawmaker. Illinois, Ohio and South Carolina all have seen similarly close ties between certain legislators and charities they helped fund. While several examples led to criminal charges of theft and fraud, others appear to be perfectly legal: public officials are simply tipping the scales in favor of groups they are associated with or have a family member working for. “The issue to me is what’s legal, and the fact that there’s a tremendous amount that’s legal,” said John Kaehny, executive director of Reinvent Albany, a group advocating government transparency. Kaehny said public officials in New York have used charities to conduct “widespread looting” of taxpayer funds with little repercussion. As for Lopez, he’s gotten into plenty of trouble in recent weeks — but not for anything related to Ridgewood Bushwick, despite reports of federal investigations back in 2010. Instead, in May, the New York Assembly forced Lopez to resign after the state’s ethics commission released a report exposing lurid details of several sexual harassment complaints against him. On June 11, the Legislative Ethics Commission said that Lopez's conduct had violated state law and fined him $330,000. Lopez and his attorney did not return calls seeking comment. James Cameron, who became CEO of Ridgewood Bushwick in 2011 after the city ordered the group to overhaul its leadership, said the organization is fully independent of Lopez. Any ties exist simply because it operates in the neighborhoods he has represented for decades. “He does not control, influence or dictate anything that happens in the organization,” Cameron said. “But it’s a large organization. If he’s talking to staff out there in the field I would have no way of knowing.” The former executive director, interviewed by city investigators three years ago, likewise distanced herself from her subordinates’ actions, saying she had no “crystal ball” to know if employees were dishonest. Ridgewood Bushwick and affiliates employ 2,100 people. Lopez is now running for a seat on the New York City Council and has received campaign contributions from at least 10 employees of the organization. Rick Cohen, who has written extensively on the links between politicians and charities for Nonprofit Quarterly, said that in state capitols across the country, lawmakers direct taxpayer money to their pet groups irrespective of whether they need or deserve scarce public dollars. “I’ve seen very little evidence in … states that do this,” he said, “that there’s an accountability regimen or the oversight that’s needed.” A lack of scrutiny Over the past few decades, state governments have increasingly outsourced many functions to community-based nonprofits in an attempt to provide more effective, flexible social services. But the result, some say, has been the creation of what is essentially another arm of government. “The function may be outsourced, but a lot of the funding is coming from government,” said Susan Lerner, executive director of Common Cause New York, a good government group. Ridgewood Bushwick, for instance, derived $13.4 million of its $15.5 million in outside funding in the fiscal year ending in June 2012 from government grants (affiliated groups pulled in some $42 million more, mostly in government health care contracts). When independent nonprofits spend that cash, rather than a government agency, Lerner said, public money does not receive the same level of oversight. “It has a tendency to fall into nepotism and favoritism and cronyism.” Separating favoritism from efficient use of funds has proven to be a daunting task for state governments. Some ethics experts say states should draw a clear line: that lawmakers cannot be involved in sending funds to any group with which they have a direct link, even as an unpaid board member. “Where there’s a real personal connection, financial or otherwise, I think it makes sense for the law to say that you can’t be involved in that,” said Peter Sturges, who served as executive director of the Massachusetts State Ethics Commission from 2000 to 2007. “You can’t be making decisions objectively.” But few states draw such a line. Most laws consider a situation a conflict only if an official derives a direct financial benefit; sending money to your pet project, regardless of merit, is fine as long as you don’t get a cut. In many states, lawmakers do not have to disclose if they hold an unpaid board position with a nonprofit in their community, or if family members or political staffers do (New York is among the few that do require this disclosure, though it does not extend to staff members of the lawmaker or grown children). Ethics oversight bodies have weighed in on the topic in several states, and in most cases, they have allowed the lawmakers to help fund nonprofits with which they are associated. In Texas, one lawmaker who worked for a nonprofit wanted to solicit contributions for the group (Texas, like most states, has a part-time legislature). The Ethics Commission said that solicitations “could be viewed as improper under certain circumstances” and advised the legislator to use “extreme caution,” but in January the body gave its approval. Two 2006 advisory opinions from Colorado’s Ethics Board allowed lawmakers to vote on or sponsor legislation that benefited nonprofits they were associated with, one as a paid director, the other as an unpaid board member. The general counsel for Florida’s House of Representatives has issued four relevant opinions since 2007, each time determining that soliciting funds or voting on a bill that could benefit the nonprofit did not raise a conflict of interest. In one case, the lawmaker was a paid employee of a nonprofit,while the other three had volunteered for the group, co-hosted events, or were otherwise associated with an organization or its founders. In one of these cases, a legislator wanted to solicit funds for a group the lawmaker volunteered for and sometimes partnered with on “joint community projects.” The general counsel said the lawmaker was free to solicit the funds, but highlighted state laws against using an official position for personal gain or to grant special privilege, saying, “it would be prudent to keep these in mind.” The opinion adds that while “the law grants latitude to members,” because they serve part-time, “what may be a legally tolerated conflict of interest may be viewed as inappropriate or corrupt” by the public. The counsel was sounding a common theme: the gulf between what is legally permissible but seemingly inappropriate. “I’m certainly aware of a growing trend nationally of public officials having ties with nonprofits and those nonprofits perhaps, not always, benefiting from the public official’s position of power,” said Carol Carson, executive director of Connecticut’s Office of State Ethics. She said state employees, including executive branch officials, often come to her office to ask whether they can be involved in awarding a grant to a group they are associated with. As long as the grant doesn’t directly benefit them financially, she tells them yes. “That might not pass muster with the court of public opinion,” she said, “but under the Code of Ethics, that would be allowable.” Trouble in Gotham “It’s become a routine headline in New York: Politician pinched in charity scandal,” said a September 2012 article by Andrew J. Hawkins in Crain’s New York Business. “The story changes little from case to case: An elected official funds a nonprofit and staffs it with cronies. Sometimes the group works on his campaigns — or does no work at all.” Assemblyman William Boyland Jr. accounts for several of these tales just by himself. Boyland Jr. comes from a line of Brooklyn legislators: he gained his post through a special election in 2003 after his father resigned; his uncle held the seat previously. The district is covered with the family name — a street, a school, a housing project and more are all named for the elder Boylands. Boyland Jr.’s activities first came to light in March 2011, when federal prosecutors charged him with taking bribes, in the guise of consulting fees, from the executive of a nonprofit that operates hospitals in exchange for helping the organization, MediSys, secure millions in state funds. Boyland Jr. had worked for MediSys before taking office, and continued earning a salary after his election without reporting it as required, prosecutors said. The MediSys executive was eventually convicted of offering bribes to Boyland Jr. and two other lawmakers, but a jury acquitted Boyland Jr. in November 2011. One juror told The New York Times, “We could not say that because he got the money, he advocated for MediSys. … We couldn’t do that beyond a reasonable doubt.” Within a month, however, prosecutors charged Boyland Jr. in another, unrelated bribery case. The allegations include the solicitation in an Atlantic City hotel suite of more than $250,000 in bribes from undercover FBI agents posing as real estate investors. According to the indictment, in exchange for the cash, Boyland Jr. was to help with development deals in his district and secure state financing for the purchase and resale of a hospital building. Prosecutors had just filed the first set of charges against him, so Boyland Jr. needed cash to pay his lawyers, he allegedly told one of the agents. In May, prosecutors updated the new charges to include allegations that Boyland Jr., from 2007 through 2010, sent public funds to a nonprofit group while directing some of the money to be spent on political events and expenses for the lawmaker, including the printing of T-shirts that said “Team Boyland.” (The family reportedly had handed out these shirts for years.) Boyland Jr. is facing 21 criminal counts and has pleaded not guilty. The trial has yet to start. Boyland Jr. has ties to another, upstate New York charity, the Altamont Program, which also has operations in Brooklyn. The FBI and state authorities raided the upstate offices in December. The Albany Times Union said agents were looking into Boyland Jr.’s direction of $1.2 million in state grants to Altamont and a related group from 2004 to 2009, using a controversial legislative vehicle called “member items” that put state funds at the discretion of individual lawmakers. Boyland Jr.’s father went to work for the organization as a consultant after he resigned as a legislator in 2003. Boyland Jr.’s sister also reportedly worked for the group. Boyland Sr. says he worked for the group from 2008 to 2010. He was reportedly fired after the organization discovered that he had used a company credit card for personal expenses. In an interview, the elder Boyland did not deny using the card for the purchases, but said that in consulting work, it’s impossible to distinguish between business and personal expenses. A spokeswoman for Boyland Jr. referred questions to his lawyer, Nancy Ennis. She did not return phone calls and emails requesting comment. Many a similar scandal in New York, including Huntley’s and Lopez’s, has been fueled by those “member items” — part of a gentlemen’s agreement between legislative leaders and the governor that for years disbursed hundreds of millions of dollars to groups of lawmakers’ choosing with no oversight or trail of who got what. In 2007, Gov. Eliot Spitzer pushed a bill that required the legislature to disclose each member item. The same year, the Attorney General’s office reached an agreement with the legislature that required recipients to certify the funds were being used appropriately. But even with this level of oversight, watchdogs and some legislators ridiculed the practice as corrupt and wasteful. “It’s a system which invites abuse,” said Lerner, of Common Cause. In 2010, Gov. David Paterson vetoed thousands of member items in the budget, citing fiscal austerity, and Gov. Cuomo has continued to veto the requests, effectively ending the practice for now. But there are still funds from multi-year grants that have not yet been spent. And political insiders in New York say new tricks have taken the place of the “member item” abuses. “There are lots of ways to direct money,” said state Sen. Liz Krueger, who has co-sponsored a bill that would ban legislators from giving member items to groups that employ family members or staff and would apportion them equally to each district. Traditionally, the majority party controlled most of the funds and disbursed them as it pleased. Machine politics in Illinois Lawmakers in other states have their own ways to send money to charities, particularly in states with hefty budgets. In Illinois, legislators can direct funds without having to disclose they were the source, much as in New York. In 2009, for example, a paragraph tucked into an appropriations bill included a $98 million grant to the United Neighborhood Organization, a Latino community group that builds and operates charter schools in Chicago. Over the past several years, the group built close ties to the state’s most powerful politicians, pushing the boundaries of appropriate activity by tax-exempt charities, which are barred by federal law from working on political campaigns. After the organization’s CEO, Juan Rangel, co-chaired Rahm Emanuel’s successful campaign for Chicago mayor, Emanuel jokingly referred to the fact that the charity is not supposed to be directly involved in politics. The organization’s staff and lobbyists include former city officials, and some of them have left to enter politics. Rangel regularly endorses candidates. Contractors hired by UNO (often with public money) have contributed to those candidates. Rangel hosted a fundraiser for state House Speaker Michael Madigan in October, with the organization’s contractors giving more than $24,000 to Madigan, according to a Chicago Sun-Times report. The close relationships paid off with that 2009 grant of $98 million. But in February, a report by the Sun-Times revealed that UNO had spent millions from the grant on insider contracts with relatives of the organization’s staff and political allies. Within days, Rangel said the organization had launched an internal review and had suspended some of the suspect contracts. He also said, however, that all of the contractors were qualified and that the work had been fulfilled. The organization’s vice president, whose brothers had won a contract, resigned. The state determined that the practices constituted apparent violations of the grant, and in March suspended what remained of the grant. In response, the group hired a full time compliance officer and Rangel stepped down from the board of directors (though he stayed on as CEO). In June, the state restored the flow of funding. Officials at UNO did not respond to requests for comment. Steve Brown, a spokesman for Madigan, who sponsored the spending bill that included the grant to UNO, said the speaker is a supporter of the organization, but that the grant had nothing to do with the contributions from the Rangel fundraiser, which he described as modest in relation to Madigan’s overall fundraising. Rey López-Calderón, executive director of Common Cause Illinois, said some nonprofits have become modern-day political machines in Illinois, citing UNO as the prime example. Groups receive state grants with the help of politicians and in return, he said, their members contribute money and even time to the officials’ campaigns. “That kind of activity is rampant in Illinois.” Other nonprofits or their employees in Illinois have been questioned about the extent of their ties to legislative patrons. In 2010, for example, a federal grand jury subpoenaed records related to dozens of state grants for nonprofits linked to at least one lawmaker. Thomas Homer, the state’s legislative inspector general, said there are no requirements that lawmakers disclose their ties to nonprofits unless they receive a salary from the group, and that there are no ethics rules that apply to the situation beyond general laws prohibiting bribery and kickbacks. He said his office refers complaints of schemes involving nonprofit groups to the FBI, and that there are several open cases, though their nature and number remain confidential. Behested payments In addition to state grants, lawmakers have found another source of funds they can direct to nonprofits: corporate contributions. It’s become common practice in many states and in Congress for corporate donors and lobbyists to contribute money to specific charities at the request of lawmakers, in what’s often called a behested payment. A few states have formal systems to regulate this, but in many cases it’s an uncharted field. The payments present a “win-win situation all around,” said Nola Werren, a client specialist at State and Federal Communications, which provides corporate clients with information about state lobbying laws. “The lawmaker gets this benevolent image for his constituents and shows that he cares,” while the corporation gets its name on the donation and the nonprofit gets the money. But the arrangement can also serve as a route around restrictions on gifts to lawmakers or campaign contributions, allowing corporations to curry favor with politicians, frequently without disclosure. California is one of the few states that does require disclosure, but that hasn’t discouraged the practice, said Phillip Ung, a spokesman for California Common Cause. Last year, 57 lawmakers reported such contributions, totaling $2.3 million. Ung pointed to state Sen. Roderick Wright, who has directed $166,500 in corporate contributions to the National Family Life and Education Center from 2010 through 2012. In the fiscal year ending in June 2011, the last year records for the organization are available, the payments comprised more than half of the group’s outside income. Wright has co-hosted several events where the group handed out prizes, school supplies and provided health screenings to families in his district. In an email, Ung praised the fact that the funds are helping the community but added, “there is the ethical question of why are these corporate interests giving at the behest of Mr. Wright and what do these behested payments earn them in political influence.” Among the contributors are AT&T, Time Warner Cable, Edison International and the Morongo Band of Mission Indians. Wright is the chairman of the Governmental Organization Committee, which oversees gambling by Indian tribes in the state, and sits on the Energy, Utilities and Communications Committee. Cine Ivery, Wright’s chief of staff, said the nonprofit helps mentor youths in the senator’s district, and that it couldn’t do the work without the corporate donations. The companies get nothing in return, she said. The organization did not return phone calls or emails. The practice is on the rise across the country, Werren said. Her company has gotten so many requests from clients about the rules covering such payments that it decided to canvass state laws. According to State and Federal Communications, only 14 states require lobbyists to disclose such gifts. California is the only state Werren knows of that requires lawmakers to disclose them, and only New York and Maryland prohibit behested payments. Changes slow to come Even as experts say the questionable ties between nonprofits and politicians are on the rise, many states have been slow to enact reforms that might prevent them. One step would be to ban, or restrict, discretionary spending directed by a single lawmaker. But there are many reasons why even advocates for reform say this could be a bad idea. “Legislators, if they’re good, know what their district needs. They know the good organizations,” said Sturges, the former Massachusetts regulator. “Why should they not be able to direct funds to the best organizations in their districts?” There’s no doubt that many charities provide critical services in poor communities as a result of grants shepherded by their representatives. Sen. Krueger of New York pointed out that some small community groups do not fit the pre-packaged conditions required by many state grant programs, but are worthy recipients nonetheless. And, both Krueger and Sturges said, there’s no indication that leaving such decisions to governors or other executive branch officials produces markedly better results. In lieu of prohibitions, many good-government groups are pushing for increased disclosure of all budgetary spending. They say that whatever discretionary funds do exist should have strict requirements tied to them that would dictate what types of projects can be funded and prevent staff, relatives or associates of public officials from being associated with any recipients of the funding. Kaehny, of Reinvent Albany, has called for more disclosure from the nonprofit world as well. In New York, for example, he said that an independent body should regulate charities, rather than the politically charged Attorney General’s office, and that all the data that is already public from tax forms and other documents should be added into a searchable database. Lawmakers have introduced bills that would require their colleagues to disclose positions with nonprofit organizations in Arizona and Florida, but neither bill has passed. In response to a series of scandals, Pennsylvania’s House and Senate adopted rules in 2007 and 2013 restricting members’ ability to form and fund nonprofits. But two bills that would have gone further, including one that would have ended “legislative initiative grants,” the state’s own version of member items, failed to pass the legislature. The bill that Sen. Krueger cosponsored in New York to reform member items has also failed to pass.As have repeated efforts to require disclosure of Illinois’ own version of the funding, called “member initiatives.” Cohen, of Nonprofit Quarterly, said that any changes face an uphill battle because most of those with the ability to enact them, from lawmakers to charities, benefit from the status quo. “There are a lot of players that have a stake in this,” he said, “and want to see it continue.” Thu Mar 27, 2014 5:36 am    Display posts from previous:   All Posts1 Day7 Days2 Weeks1 Month3 Months6 Months1 Year Oldest FirstNewest First

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