Public service, personal gain

Legislators hold private financial interests in laws

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A two-year investigation by the Center for Public Integrity found startling conflicts of interest and other flaws in the system of state government, affecting policy decisions on everything from education to nuclear waste, taxes to health care.

In 1999, state governments introduced 139,097 bills and enacted 25,031, according to StateNet, and collected more than $470 billion in taxes. All the while they operate under disclosure laws much less stringent than those that govern members of Congress.

Despite the power and money that flows through statehouses, 41 out of the 50 legislatures are run by part-timers who meet a few months each year, and draw salaries that average about $18,000 annually. (Full-time salaries are much higher, averaging about $57,000.) In the end, even some of the most populous states leave the public interest to career lawyers, bankers, farmers, lobbyists and insurance brokers in the legislature.

According to an analysis of financial disclosure reports filed in 1999 by 5,716 state legislators:

  • More than one in five sat on a legislative committee that regulated their professional or business interest.
  • At least 18 percent had financial ties to businesses or organizations that lobby state government.
  • Nearly one in four received income from a government agency other than the state legislature, in many cases working for agencies the legislature funds.

The report is the culmination of an unprecedented study by the Center, a non-profit, non-partisan government watchdog group. Funding for this report came from the Carnegie Corporation of New York, the Deer Creek Foundation, Ford Foundation, Joyce Foundation, John S. and James L. Knight Foundation, Alida R. Messinger, and the Open Society Institute.

Center researchers collected financial disclosure reports from the 47 states where lawmakers are required to make public income, assets and other information about their personal and family finances. The documents became the backbone of a state-by-state analysis of lawmakers' conflicts of interest, based on their sources of income and assets, committee assignments, leadership positions and legislative duties.

Disclosure reports are often the public's only source of information about their representatives' sources of personal and family income. For that reason, the reports are often a better indicator of motivation on the part of lawmakers than campaign contributions.

The Center concluded that around the country, citizens are affected not only by the influence of special-interest money on lawmakers, but also by hidden conflicts of interest that at times places private gain ahead of public service.

Despite the overwhelming number of real and potential conflicts of interest, the numbers in all likelihood are actually much higher. The Center's analysis only takes into account those states that require disclosure.

Idaho, Michigan and Vermont lawmakers do not require lawmakers to reveal their private financial interests, while several other states require so little information as to make it all but impossible to determine whether a lawmaker has a hidden agenda.

According to the Center study, the top financial interest among lawmakers is education, followed closely by agriculture, law, health care, banking and energy or utilities.

Committee conflicts

One of the most common areas of potential conflict among our nation's legislators is the practice of gaining membership to legislative committees that regulate businesses they have an interest in.

For example, in the tobacco-growing state of North Carolina, of 148 legislators who were in office in 1998 (who were required to file disclosure statements in 1999), the Center found that nearly 60 percent sat on committees that directly affected their private income. (The high number in relation to other states is no doubt in part due to its strong disclosure laws.)

Among those lawmakers is House Minority Leader N. Leo Daughtry, a lawyer who sits on the Judiciary Committee and also serves on the Environment and Natural Resources Committee, the Public Utilities Committee and the Select Committee on the Tobacco Settlement.

In addition to practicing law, Daughtry owns a fertilizer company, and is a shareholder in Carolina Power & Light and part-owner of two tobacco warehouses. He has backed a major state tax break for the Philip Morris Tobacco Company, and has pushed to devote half the state's $4.6 billion tobacco settlement to tobacco-dependent communities to wean farmers off the cash crop.

"Leo makes every effort to do the right thing in every instance. No matter what the cost in financial gain," said Jay Warshaw, communications director for Daughtry's unsuccessful gubernatorial campaign. "It is confirmed by his voting record. All his fellow legislators can attest."

Lawmakers argue they pursue committee assignments related to their fields of interest because their knowledge helps make good law.

Lobbyist connections

The influence of special interest lobbyists on the legislative process is immeasurable.

In some statehouses, state lawmakers are the special interest lobbyists.

Illinois Sen. Kirk Dillard has been a registered lobbyist for his law firm for most of his legislative career. In 1995 Dillard became a prime sponsor and spokesman for "tort reform," a legislative effort to limit the amount of money plaintiffs can collect when suing businesses.

Among the chief beneficiaries of Dillard's legislation were insurance companies that provide medical malpractice coverage for doctors. Among the clients of Dillard's firm, Lord, Bissell & Brook: the Illinois State Medical Society's malpractice insurance arm.

Among the firm's areas of expertise is "medical defense litigation" according to its web page. But the Lord, Bissell firm is also paid to lobby, almost solely for large insurance companies. One of its current clients is ProNational Insurance Corp., a medical malpractice insurer.

Dillard said there is an explanation for why he is registered. In the course of firm business, he communicates with members of the executive branch of Illinois government, he said.

Some executive branch officials are on a list that requires registration for those who talk to them, he said. "I'm not registered for anything to do with the general assembly and I don't advocate."

Dillard said he opted to "err on the side of caution" and register, knowing the information is open to the public.

Family tradition

Nepotism is rooted in virtually every level of government. But Oregon lawmakers have taken the practice of using public office to take care of relatives to an extreme.

At least 15 representatives and senators, 26 percent of the 58 officeholders, have placed spouses on the public payroll as legislative aides.

The lawmakers defend the longstanding practice, saying they need the additional income so they can afford to live in Salem during the legislative session. Surprisingly, good government advocates have resigned themselves to this conflict of interest.

But in a bold display of self-interest, the Oregon legislature in 1999 gave legislative assistants a 60 percent pay raise, boosting salaries to more than $1,800 per month.

In Connecticut, Republican Gov. John G. Rowland in 1999 submitted a package of bills that would have abolished the state's outdated county sheriff's system – a scandal-ridden system critics said was rife with open patronage and favoritism in hiring practices.

Ironically, those same hiring practices helped save the system for at least another year: Rowland's legislation encountered opposition from at least eight lawmakers with family ties to local sheriffs.

Rowland's legislation had the misfortune of being referred to the 54-member Joint Appropriations Committee, where six committee members, including the Senate and House co-chairs, had family employed as sheriffs. All six voted against the resolution and it went down to defeat 17-31.

Conflict inevitable?

The conflict-of-interest issue is rooted in economics: most lawmakers need to earn additional income to support their families. When not in session, legislators frequently pursue careers regulated by the states.

Because the vast majority of state lawmakers only work part-time, those accused of having conflicts of interest respond with a common refrain: They have to be able to make a living.

"See the problem you guys have got with all this is we get paid $27,000 a year up here. I can't live on that. And yet you guys want to protect everybody's civil rights in this process except mine. And you want to trample on mine, and make everything a perceived conflict of interest. And how do you expect me... to make a living? Is that a fair question?"

That is how Florida Rep. George Albright defended an apparent conflict of interest. Albright is a lawyer, real estate broker and land speculator who tried to deregulate state control of growth issues in the state.

Albright poses a fair question, some ethicists say.

"It is a tough call. You can't ask them to give up the job, particularly if you're not paying them a livable salary," said Jennie Drage, a policy specialist with the National Conference of State Legislatures.

Another question lawmakers often pose is whether taxpayers prefer laws and policy crafted by industry insiders with an understanding of the subject matter, or by neophytes without personal financial interests at stake.Land III

South Carolina Sen. John Land III is a lawyer who earned more than $600,000 representing injured workers in 1998. He has participated extensively in reforming the state workers' compensation system, and asks 'Who better to fix it than someone who understands it?'

"I hope most people realize they need attorneys in there, and if they preclude us from making a living, they're going to end up with only retirees and rich folks serving," he said.

Tough to defend

Drage contends lawmakers keep a watchful eye for conflicts of interest. It is a "system of checks and balances within a system of checks and balances," she said.

But in some cases, it appears legislators are acting purely in their own self-interest.

In Nebraska, where 23 percent of lawmakers have financial ties to lobbyists, Sens. Ray Janssen and Thomas Baker doggedly supported legislation would boost compensation for lottery retailers by 20 percent.

Janssen and Baker are themselves lottery retailers.

The two men proposed to raid funds dedicated to public education, the environment and treatment programs for gambling addiction to give more money to lottery retailers.

Environmental lobbyist Randy Moody said it was easy to see whose interest the senators were representing. "I think it's fairly obvious that their own interest would have been enhanced if in fact the bill would have passed," he said.

The bill failed.

In Maine, one lawmaker is president and CEO of a multi-million dollar health care claims processing corporation and the president of a fast-growing chain of pharmacies.

As a member of the powerful Committee on Appropriations and Financial Affairs, Rep. Joseph Bruno had a say in allocating more than $10 million worth of state contracts to Goold Health Systems, the 115-employee Augusta-based private company he has run since 1995.

During his two terms, the number and monetary value of Goold's state contracts soared. He opened a chain of pharmacies with one other high-ranking Goold official, then crafted legislation that helped save pharmacies in the state millions of dollars. At the same time, Bruno sought to increase the power of a state licensing board on which one of his employees sits, and tried to give greater power to a pharmacy association that counts him as a board member.

States' power on the rise

President Ronald Reagan 20 years ago launched what he called the "new federalism" experiment in returning to state legislatures power and responsibility that until then had rested with congress.

Supreme Court decisions in recent years have further tilted the balance of power to the states. As this 'devolution' of power plays out, special interests have fanned out from Capitol Hill to places like Sacramento, Austin and Dover.

Lobbyists outnumber state lawmakers by a margin of nearly 6 to 1, according to a Center survey. And the stakes are even higher as more federal money, and controversial decisions about such issues as health management organizations and deregulation of the utility industry fall to state lawmakers.

But unlike the full-time legislators in Congress, part-time state lawmakers are less able to make independent decisions about key economic issues because they often earn a living from the industries involved.

The electric utility industry – in the midst of a dramatic revamping by state lawmakers - presents a striking case study of conflicting interests.

Among the most common financial connections at the state level is with energy companies, largely through stock ownership. Two dozen states have passed laws easing government regulation of the industry, raising disturbing questions about how new energy rules will affect the public.

Ohio Sen. Roy Ray collected more than $161,000 in consulting fees from the First Energy Corp., among the companies that stood to gain up to $8 billion under a bill sponsored by Ray.

In the Delaware, the legislature in 1999 eased government restrictions on electric utility sales. Lawmakers called the bill a winning proposition for everyone involved.

Some lawmakers were in a position to win, too. Eight House members held thousands of dollars each in stock in Delaware's biggest utility company when they voted on the deregulation bill.

Meanwhile, a senator who works as an "alternative energy consultant" added an amendment to the deregulation bill worth hundreds of thousands of dollars to "green" energy interests, possibly even his own. Furthermore, the state's power company has a top officer well positioned on the board of a nonprofit run by the chairman of the Special Task Force on Telecommunications and Electric Utility Deregulation and primary sponsor of the deregulation bill.

Regulation of health insurance has also become more of a state issue in recent years.

In Pennsylvania, Rep. Merle H. Phillips admitted to using the legislative cachet he has as majority caucus administrator to insert budget provisions aimed at helping chiropractors by increasing access to chiropractic services.

In 1999, he inserted into the 222-page state budget language that allows recipients of Medicaid and other forms of medical assistance "direct access" to chiropractic services without a primary care physician's referral and obligates managed care plans to pay for the visit.

Phillips's son is a chiropractor.

Kim Kockler, executive director of the Pennsylvania Managed Care Association, told the Center that Phillips' addition to the budget delivered to the chiropractic industry what years of failed bills could not. She called the "direct access" budget additions a political "maneuver to get something accomplished."

Disclosure under attack

Electric utility deregulation also exemplifies how lawmakers sometimes respond when conflicts are publicized.

The eight Delaware lawmakers with investments in a major state utility were forced to declare conflicts of interest and abstain from a January 1999 vote on the deregulation bill.

But several weeks later, the house watered down disclosure rules so that even those heavily invested in the utility were clear to vote without declaring a conflict when the bill returned to the house for a second roll call.

The change happened quietly, with little notice. "I wasn't aware of the change," said John Flaherty, a lobbyist for Common Cause of Delaware. "…It sounds like they are deregulating ethics," he said.

That's not the only occasion where a state legislature has tried to weaken disclosure requirements.

In Indiana, Rep. Chester Dobis is married to a woman who sells advertising specialty items to an association that lobbies for the commercial trucking industry.

Dobis doesn't want that information to be made available to the public. But under Indiana law, they are required to report any business with a lobbyist that exceeds $100.

Or at least that's the way it used to be.

In the 1999 session, Dobis proposed an amendment to an unrelated bill that removed the requirement for lawmakers to list such retail transactions from their annual financial disclosure forms.

The Indiana Motor Truck Association has been a good customer of his wife's business.

In 1996, the association purchased $2,401 from Identitees, owned by Mrs. Dobis. In 1997, the association purchased in excess of $100 in goods. In 1998, the total was $2,000, according to disclosure records.

Dobis, chairman of the House Ethics Committee, says he has nothing to do with his wife's business and does not feel beholden to the trucking industry.

However, during the 1999 legislative session, he sponsored HB 2022, an overhaul of the tax system for commercial trucks in Indiana. It is a complex piece of legislation that would change the tax on trucks from an ad valorem system, to an excise tax, more similar to how automobiles are taxed.

The bill, prepared by the trucking association, affected 162,000 vehicles at the time, according to a fiscal impact statement prepared for legislators.

What's the answer?

Ethicists and political scholars differ on what constitutes a conflict.

"The division really is the difference between someone who is passing legislation to help himself directly as opposed to the industry he may be working for," said Robert Stern, president of the Center for Governmental Studies. "And most states do say if it affects an industry, you're free to do that."

Stern's group studies ethics, campaign finance and campaign contributions.

"Because constituents know - you can't stop trial lawyers from working on legislation about trial lawyers, you can't stop farmers from working on laws about agriculture." If you do, he said, "you're asking them to be either retired or students or unemployed."

Stern said there is one rule that all state legislatures should abide by is keeping the public informed about lawmakers' interests.

"The big question I guess is, are they disclosing everything and is anybody looking at these statements?" he said. There's also the question of enforcement. "Just to say you didn't file on time, we're going to fine you, I think is important."

Finally a diligent press and an engaged and educated electorate are important. And efforts to make financial information available to the public are paramount.

"Ultimately, it is up to the taxpayer to decide whether a legislator is operating in good faith or not," said Charles Lewis, executive director of the Center for Public Integrity. "And it is in that spirit that we have made this information available."

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