In the Spotlight

Tools
News & Features




Hidden Agendas: How State Legislators Keep Conflicts of Interest Under Wraps
By The Center For Public Integrity
February 15, 1999


READ ANY NEWSPAPER FOR a week and you're likely to read a variation on the same theme: the story of a state legislator who's abusing his or her position of public trust for private gain. In one case, a Maryland lawmaker fails to disclose thousands of dollars in fees received from questionable contracts with companies seeking to do business with the state government. In another, a Massachusetts lawmaker stalls legislation that would have tightened inspection standards for trucking companies in the state, benefiting his family's trucking business. In another, a New Mexico liquor retailer votes against legislation that would, in effect, kill drive-up liquor windows in the state. In yet another, an Arkansas lawmaker agrees, in exchange for payments from dog-racing interests, to introduce profit-boosting legislation that they wanted. The list is seemingly without end. A Connecticut lawmaker pushes for the legislature to relocate the New England Patriots to a stadium in downtown Hartford even though his law firm does work for a company involved in the deal. Retired teachers in the Missouri legislature vote retired teachers-and thus themselves-more-generous pension benefits. Two state representatives in Alabama stall activity on the state's education budget until their employer, a state university, receives $5 million for higher salaries, among other things.

With the public's right-indeed, its need-to know in mind, the Center for Public Integrity methodically examined the ethics, conflict-of-interest, and financial-disclosure laws that apply to more than 7,300 state lawmakers from coast to coast. The Center's exhaustive investigation uncovered widespread deficiencies in the very laws that are designed to maintain the public's trust in the democratic foundations of law-making institutions. In case after case, the Center found, lawmakers have written disclosure laws that are designed to keep the public and the press in the dark about their personal financial activities and interests; have drilled truck-sized loopholes into existing disclosure and conflict-of-interest rules; and have made it extraordinarily-and unnecessarily-difficult for others to obtain the reports they file. The only possible rationale for the elaborate obstacle courses that the Center uncovered is the belief of many state lawmakers that their private financial affairs are nobody's business but their own.

In evaluating the financial-disclosure laws that apply to members of the legislatures in all 50 states, the Center used criteria drawn from the following categories: outside employment; investments; ownership of real property; clients; family income and interests; public access to disclosure records; and the existence of penalties for violations of the disclosure laws. The Center graded all 50 states as follows:

Half the states received failing grades because lawmakers can hide significant categories of information about the private financial interests from the public and the press. In three of the states ( Idaho , Michigan , and Vermont ), lawmakers do not even have to file financial-disclosure reports of any kind-no matter how serious their potential or actual conflicts of interest may be. In another state ( Utah ), lawmakers themselves are left to decide under what circumstances, if any, they disclose activities or interests that pose such conflicts. And in the remaining twenty-one states ( Delaware , Georgia , Iowa , Illinois , Indiana , Louisiana , Maine , Minnesota , Mississippi , Montana , Nebraska , Nevada , New Hampshire , New Jersey , North Dakota , Oklahoma , Pennsylvania , South Dakota , Tennessee , West Virginia , and Wyoming ), lawmakers do not have to disclose basic information about their private financial interests that would illuminate actual or perceived conflicts.

Eleven states received barely passing grades. Although lawmakers in all of these states ( Arkansas , Colorado , Florida , Kansas , Kentucky , Maryland , Massachusetts , Missouri , New Mexico , Ohio , and South Carolina ) have to disclose some basic information about their private financial affairs, they can exploit loopholes in their respective financial-disclosure laws to keep a wide range of private business activities and interests from public view.

Fourteen states received grades of satisfactory to excellent. In these states ( Alabama , Alaska , Arizona , California , Connecticut , Hawaii , New York , North Carolina , Oregon , Rhode Island , Texas , Virginia , Washington , and Wisconsin), lawmakers must generally disclose a broad array of information on their incomes, assets, clients, family interests, and ownership of real property. Nonetheless, the Center found, lawmakers in these states often use loopholes in their respective disclosure laws to shield some of their private business activities and interests from the press and the public.

As the Center's state-by-state analysis shows, in fact, it's the loopholes that frequently eviscerate otherwise well-intentioned disclosure laws. Taken together, the financial-disclosure rules that apply to the nation's state legislators may be more loophole than law. Consider:

  • Lawmakers in thirty-seven states do not have to valuate their business interests or investments-to distinguish, even in broad ranges, $5,000 from $50,000 or $500,000, for instance.
  • Thirty states allow legislators in certain classes-accountants, consultants, lawyers, and other such professionals-to keep the identities and business interests of their clients secret. Even in states that require legislators to disclose some of this information, secrecy, more often than not, still rules. In Alabama, Maine, North Carolina, and Tennessee, for example, lawmakers in these professions do not have to identify clients but can merely list such broad industry categories as utilities, health care, or manufacturing on their disclosure forms.
  • Lawmakers in twenty-eight states do not have to disclose the business activities and interests of all members of their immediate families.
  • Lawmakers in nineteen states do not have to provide any information about their ownership of real property.
  • Lawmakers in eighteen states do not have to provide any information about their spouse's employment and earnings-even if the spouse's livelihood is provided by one or more interests that the lawmaker regulates.
  • Lawmakers in eighteen states do not have to provide any information about stock owned by spouses or other members of their immediate families, thereby shielding a panoply of potential conflicts from the press and the public.
  • Lawmakers in eleven states do not have to identify corporations-whether for profit or not-for-profit-in which they are officers or directors.
  • Lawmakers in seven states do not have to list companies in which they own stock, making it all but impossible for anyone else to assess potential conflicts.


From coast to coast, some of the loopholes are so distinctive that they are virtually impossible to categorize or catalogue. In North Dakota, lawmakers do not have to disclose their primary source of income. In Iowa, state senators do not have to name their employers. In New Jersey, lawmakers do not have to report any of their real-property interests unless their holdings are in jurisdictions "in which gambling is authorized"; because the only such jurisdiction is Atlantic City, none of the state's 120 lawmakers reported any real-property holdings in 1997. Lawmakers in New Hampshire do not have to disclose any stock holdings or income. In South Carolina, lawmakers do not have to disclose any investments unless they own more than 5 percent of a company's outstanding shares and unless their holdings in that company are worth more than $100,000. In Louisiana, the questions on the disclosure reports that legislators fill out are so narrow that 29 of the 38 state senators did not disclose any income in 1998.

The "crazy quilt" nature of financial-disclosure laws across the United States undoubtedly has the effect of eroding public confidence in state legislatures. What's ethical in one state is unethical in another, what's legal in one state is illegal in another, what lawmakers must fully disclose in one state lawmakers in another can hide completely.

The idea behind requiring state legislators to file personal financial-disclosure reports, however, stems from the same philosophy: that public office is a public trust. To maintain that trust, to safeguard the relationship between the elected and the electorate, lawmakers are expected to draw a line between their public actions and their private activities and interests. If they fully disclose those activities and interests, others-their constituents, news organizations, and their peers in the legislature-are at least armed with the information they need to decide whether a particular lawmaker's actions have been influenced by factors other than the public good. Personal financial-disclosure laws are vital at the statehouse level, as 41 states rely on part-time lawmakers and legislative service is often just one of several hats they wear.

The Washington State Public Disclosure Commission, which monitors the filing of personal financial-disclosure statements by members of the state legislature (among other elected and appointed officials), emphasizes on the cover of the booklet containing the forms that "the public's right to know of the financial affairs of elected officials and candidates far outweighs any right that these matters remain secret and private." The commission, in language that could well be a model for its 49 counterparts, goes on to observe:

"Filing reports that disclose financial interests and holdings is more than a formality. It's a means for the public to have tangible proof that officials are acting in the public interest and not for their private gain. Conversely, completing the reports gives officials an opportunity annually to review their holdings and be more sensitive to subjects that might pose an actual or perceived conflict of interest.

"Some form of conflict of interest or ethics laws has been on the books for generations. They stem from common law and the biblical caution that 'no man can serve two masters.' These laws, and their inherent prohibitions, go hand-in-hand with financial disclosure. Each is virtually meaningless without the other."

Nonetheless, lawmakers in many states have tried to render the laws meaningless by erecting formidable-and sometimes impassable-obstacle courses in front of their financial-disclosure statements. Here are a few examples:

  • In Maryland, Montana, and North Carolina, for example, anyone who wants to review or copy all reports filed by state legislators has to do so in person, even if it means driving hundreds of miles to get to the single office in the state where the forms are filed. In Maryland the forms are not even available anywhere in the state capitol.
  • In North Dakota, anyone who wants to review all of the financial-disclosure reports completed by state legislators must contact fifty-three separate county offices in which they are filed.
  • Seven states require anyone who wants to examine the disclosure statements filed by state legislators to disclose information about themselves before they can even see or copy the reports. Four of them ( Illinois , Maryland , Massachusetts , and Wisconsin ) forward the personal information provided by requestors to lawmakers. The remaining three ( Alabama , New Mexico , and New York ), not only keep request forms on file but freely make personal information available to others, including lawmakers.


But perhaps the most telling reflection of how little importance many state legislatures attach to the financial-disclosure rules under which they operate lies in the enforcement of those rules:

  • In six states ( Indiana , Iowa, Maine , Mississippi , New Hampshire , and Virginia ), lawmakers can withhold this information from the public because there are no penalties on the books for filing late financial-disclosure reports. Three states ( Hawaii , Indiana , and Iowa ) have no penalties for filing inaccurate or even fraudulent reports.
  • In five states (Iowa, Indiana, Louisiana, North Carolina, and South Carolina), lawmakers have specifically exempted themselves from the oversight of state ethics agencies.
  • In Hawaii, state legislators exempted themselves from a key clause of the conflict-of-interest statute by defining a state employee as "any state employee other than state legislators."
  • In Colorado, state legislators must abstain from voting when they have a "personal or private interest" in legislation, but the law has a built-in escape clause: "in no case," it says, "shall failure to disclose constitute a breach of trust of legislative office."


This report-the Center's analysis of conflict-of-interest, disclosure and ethics laws in all fifty states-is the first phase of a two-year project that aims to examine how the state legislators weigh their public duties against their private economic interests. This project is an outgrowth of the Center's recent examinations of the Indiana and Illinois legislatures, where Center researchers found not only that lawmakers routinely proposed and voted on measures that could boost their own incomes, but also that the relevant financial-disclosure and conflict-of-interest laws often went unenforced. Throughout 1999, Center researchers will identify the business activities and interests of more than 7,300 state lawmakers, put that information into an Internet-accessible format, and release its findings in mid-2000.

In researching state conflict-of-interest laws across the country, the Center ran across many news accounts that, especially when taken together, vividly illustrate why financial-disclosure laws-and the enforcement of those laws-is so important. A handful of recent cases show that the real-life conflicts are neither isolated nor inconsequential.

In Ohio, State Senator Roy Ray hid the fact that he was taking in more than $10,000 a month from Ohio Edison, one of the state's largest electric utilities. Ray managed to obtain a ruling from the Joint Legislative Ethics Commission that he did not have to disclose his relationship with Ohio Edison because the company paid him through his consulting firm, Merriman Financial Services, and because Ohio Edison was not classified as a "legislative agent." It was only after the consulting arrangement had ended that the public and press learned that Ray's firm had received $161,500 from Ohio Edison over fifteen months-and only because the company had to disclose its consulting agreements to the U.S. Department of Energy as part of its pre-merger paperwork. In the meantime, Ray had voted on various bills that Ohio Edison had lobbied lawmakers on. One, for example, would have allowed companies to conceal environmental violations uncovered during internal audits. Ray also voted on the budget and appointments to the Public Utilities Commission, which regulates Ohio Edison's rates, and he was appointed to the Select Committee on Electric Utility Deregulation.

In Florida, then-State Senator Alberto Gutman, while serving as vice-chairman of the chamber's Health Care Committee, accepted $500,000 from Max-A-Med Health Plans for brokering the HMO's sale to Physician Corporation of America. "I don't see it as a conflict in any way," Gutman told a reporter for the Fort Lauderdale Sun-Sentinel in1995. "I try to keep my state job separate from my personal business. . . . I'm a part-time legislator and I've got a family I have to support."

In Indiana, then-State Representative Sam Turpin, while he was serving as the chairman of the Ways and Means Committee, failed to disclose that he had taken at least $50,000 from American Consulting Engineers, an engineering firm that held contracts with riverboat casinos in the state. During the years he was paid by the company, he voted on legislation that the company wanted. He was ultimately indicted for bribery, perjury, and filing a fraudulent campaign report. As of this writing, Turpin has not yet gone to trial.

In Georgia, House Majority Leader Larry Walker sponsored legislation in 1998 that would have specifically benefited the Georgia Beer Wholesalers Association and its members. The association happened to be a client of his law firm.

In Arizona, State Representative Bob Burns pushed for legislation in 1996 that would have made it harder to sue child-care centers in the state by narrowing the definition of child abuse, requiring a higher standard of proof to prove abuse, and allowing such centers to purge complaints from their files in just 60 days. Burns and his wife own a day-care center in Arizona.

In Arkansas, State Representative Ed Thicksten chaired the committee that created the Arkansas Education Services Coordinating Council. Shortly afterward, Thicksten left the legislature to become the council's $69,500-a-year executive director.

In New Mexico, State Senate President Manny Aragon fiercely opposed proposals that sought to privatize the state's prison system. In 1998, he signed a consulting deal with Wackenhut Corrections Corporation, which is seeking such contracts nationwide. Aragon has refused to disclose how much the company is paying him, telling the Albuquerque Tribune, "Just because I work for Wackenhut doesn't mean they own me."


© The Center for Public Integrity
 

Hidden Agendas Home | Overview | The Case of Roy Ray: Conflict or Not?
The Story of Dallas Sams | Complete CPI Report