Capitol Gains: S.C. lawmakers profit from government connections

Current, former legislators benefit through side businesses

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South Carolina lawmakers don't earn large salaries for holding office, but some bring in cash connected to government for everything from public relations campaigns to engineering work, health care contracts and legal services through their side businesses or those of their immediate family members. Here, the South Carolina House of Representatives is empty after the end of the term on Aug. 1, 2014. 

Grace Beahm/Post and Courier Staff

South Carolina’s legislators like to complain about how little money they earn from their part-time jobs running the state. But for some of them, the $10,400 salary is the ticket for a far more lucrative pursuit — profiting on business deals with state and local governments.

It’s almost impossible to say with certainty how much money flows from government coffers to lawmakers because the state’s reporting laws are littered with loopholes and inconsistency. It’s a murky system, created by lawmakers, that makes it difficult for the average voter to see just where the money is going and to whom.

Since 2009, 20 current and former lawmakers reported ties to about $16 million in contracts with state and local government, an analysis by The Post and Courier and the Center for Public Integrity shows.

Separately, some reported that they, their businesses, their associates or their immediate family members earned more than $3 million in work for entities that lobby state government and nearly $17 million from work representing people, businesses or government bodies in government matters, such as worker’s compensation cases and adoptions.

Many of these 55 lawmakers and their colleagues also reported that they or their family members earned salaries directly from state and local government beyond what they earned as legislators.

Some earned cash from the very agencies whose budgets they oversee.

Legislators’ business deals and relationships raise serious questions about conflicts of interest involving lawmakers who profit from state and local government while determining the laws that regulate those businesses.

Lawmakers pulled in money for everything from public relations campaigns to engineering work, health care contracts and legal services through their businesses or those of their immediate family members, an analysis of state financial disclosure filings and other public records shows.

This profit-making out of state and local governmental coffers is perfectly legal in a state where the 170 legislators make and enforce the ethics rules that govern their behavior.

Lawmakers insist there is nothing wrong with this arrangement: It’s simply a byproduct of having a part-time legislature that’s in session for six months. The lawmakers need outside jobs to earn a living. Critics contend the system is ripe for conflicts of interest, abuse and corruption.

At the very least, the practice highlights the intertwined and cozy relationships among lawmakers, their private business interests and the governmental entities they regulate.

Consider Rep. G. Murrell Smith, a Sumter Republican, who sits on the powerful House Ways and Means Committee and chairs a subcommittee that oversees state health care spending and laws.  He reported that his health care businesses received more than $2.1 million since 2009 in income from public employee health plans, Medicaid payments and the state Department of Health and Human Services, whose budget he oversees.

Smith, who also sits on the House Ethics Committee, said his committee posts played no role in his companies obtaining state business.  He said the companies, Reliable Medical Equipment and the now-defunct Abacare Home Medical, mostly sold personal medical equipment, such as wheelchairs. Smith said much of the money his companies received from the state was for purchases of such medical equipment for people covered by insurance, including Medicare and Medicaid — programs that Health and Human Services administers.

During the same six-year period, Smith’s ethics filings show that his law firm, Lee, Erter, Wilson, Holler and Smith, LLC, took in more than $818,500 from contracts with state and local governments and reported $1.5 million in income from state and local entities including the city of Sumter, the state Insurance Reserve Fund and the State Accident Fund.

“I don’t see any inherent conflict of interest in this,” Smith said of both the medical and law firm payments.

Smith isn’t the only legislator to earn taxpayer money on the side.

Take, for example, Republican Sen. Kevin Bryant of Anderson. He reported contracts for $10.2 million since 2009 in government payments to his family’s pharmacy and medical supply company from Medicaid and the state health plan. He said that total represents gross sales figures and he gets 30 percent of what’s left after expenses are paid.

His position as a lawmaker plays no role in the money his family company gets from the state, he said. “We have a contract that any other pharmacy can have with the state. I’ve got about six competitors within a square mile. There’s nothing exclusive.”

Big earners

Lawmakers who are lawyers like Smith do a lot of business with the state, records show. At least 24 present and former legislators who also have worked as lawyers, including House Speaker Pro Tem Tommy Pope and Senate Ethics Committee Chairman Luke Rankin, reported more than $16 million in legal work representing people, businesses or government bodies in government matters, such as worker’s compensation claims, adoptions or land use issues, since 2009.

Smith and others say these figures can be misleading, as they often represent overall work done by the lawmaker’s firm and not the specific amount of money that went into the lawmaker’s pocket.

For example, Republican Rep. Jenny Horne of Summerville listed on her ethics filings more than $1.8 million combined in contracts with state agencies in 2011, 2012 and 2014.

Horne, a lawyer, said the bulk of that money actually went to Senn Legal, a Charleston law firm that hired her to work on cases for the state Insurance Reserve Fund.  Her actual cut was about $6,700, reports show.

She had to list the total amount paid out because state reporting rules require a full picture “if you are affiliated in any way,” Horne said.

Democratic Sen. Darrell Jackson of Hopkins said the reporting requirements make him appear to be a big earner. In actuality, he said, he doesn’t see a dime of the money that flows into the public relations firm he founded, Columbia-based Sunrise Communications.

From 2009 through 2014, Jackson reported earnings of $264,000 from contracts Sunrise had with organizations that employed lobbyists to woo lawmakers. Most of the money came from public relations work for the private Palmetto Health Alliance, which operates five hospitals in Columbia. Jackson sits on the Senate’s Medical Affairs Committee, which oversees health care issues.

Of that total, Jackson’s firm earned $48,000 providing marketing and consulting services to the South Carolina Ports Authority in 2011 and 2012. A contract shows the firm was hired to promote efforts to deepen Charleston’s harbor to accommodate huge container ships that will call on East Coast ports following next year’s Panama Canal expansion.

Jackson, a full-time pastor with Bible Way Church in Columbia, said he reported the earnings because he is the owner and a shareholder of Sunrise, but he no longer deals directly with clients and he receives no compensation from the firm. He said he has kept it going because it provides job opportunities to young minority professionals.

“I am proud of the fact that I have not taken one dollar, not one dime, from the company in 15 years,” he said.

Sunrise’s day-to-day operations are run by its president and CEO, Antjuan Seawright, a former deputy director of the Senate Democratic Caucus who now advises senators on legislative strategy as a consultant. Seawright said he sees no conflict between that work and his efforts to advance the interests of Sunrise clients, such as the Ports Authority.

“That had nothing to do with public policy,” he said of his work for the Ports Authority. “That was community stuff, strictly in the community. It never involved lawmakers.”

Erin P. Dhand, the Ports Authority’s spokeswoman, said Sunrise Communications has been a “respected and capable advocate” for the port, organizing, participating in and ensuring “the Port was represented at numerous community events.” She offered no specifics, and said no reports were submitted detailing the work Sunrise did. Seawright said he couldn’t recall specific details about what Sunrise did for the $48,000 it was paid.

Rep. Mia McLeod, a Columbia Democrat, also works as a communications consultant and took in $34,000 from the city of Columbia in 2013 and 2014. Exactly what she did for that money is unclear.

McLeod did not return two phone calls or an email requesting comment. She has previously told The State newspaper that her work included helping the city with its search for a new police chief. A city of Columbia spokesman said a Freedom of Information Act request was needed to get copies of the city’s contracts with McLeod. The FOIA request remained pending as of publication. The spokesman did not respond to a follow-up email seeking comment on the work McLeod’s firm performed.

Misconduct feeds suspicion

House Ethics Committee Chairman Kenny Bingham said he understands why some people get suspicious of lawmakers’ dealings. He said that’s especially true after ethics scandals such as the one that took down former GOP House Speaker Bobby Harrell last year for converting campaign funds for his own benefit. Still, Bingham said, lawmakers must be allowed to earn a living in their chosen professions since their $10,400 legislative salaries, plus about $20,000 more in money for expenses, won’t keep them afloat.

Bingham, a Republican from Cayce, is a civil engineer by trade. His companies, American Engineering Consultants and Bingham Properties, earned more than $1.2 million over five years from government entities and another $300,000 from private companies that employ lobbyists to influence lawmakers. Clients for his engineering company have included the town of Lexington, energy company SCANA, the City of Columbia and the University of South Carolina.

Bingham said his company won that work by offering competitive bids and performing quality work — not because he serves as a lawmaker.

“We have to go in there and compete for it just like anyone else,” he said. “We do very good work.”

Bingham invited a Post and Courier reporter to examine contractual documents, as well as reports and plans his firm had produced for clients. He also opened his company books to show he had actually lost money on some of the projects in question, including an $11,907 erosion control project at the state-run Wil Lou Gray Opportunity School.

Bingham also serves on the powerful House Ways and Means Committee, which helps set the state’s spending budget. He said he has never used his legislative role to win jobs. Much of the work his firm specializes in, such as waste-water management, is in the public sector, he said.

“How else am I supposed to make a living? This is what I have been doing all my life.”

Republican Sen. Paul Campbell of Goose Creek said such crossover is inherent with citizen legislatures. He, for instance, serves as executive director of Charleston County’s Aviation Authority, which runs the state’s busiest airport, while sitting on the Senate’s Transportation Committee, which deals with airport issues.

Campbell landed the now $225,000-a-year job in 2013 after the county’s Aviation Authority opted to bypass a wide search and hire the sitting lawmaker. Authority members said it was his business acumen — Campbell is a retired regional president of aluminum giant Alcoa — that made him the ideal candidate, not his legislative position. Still, Campbell said most authority members wanted him to keep his Senate seat.

 “They thought it was important to maintain some influence on what goes on,” he said.

Campbell said he couldn’t recall an instance where he has had to recuse himself from a vote due to his airport job. He has, however, abstained from county legislative delegation deliberations on new appointments to the Aviation Authority, as that would put him in the position of picking his own bosses.

“I don’t get involved in those types of things,” he said.

They need to make a living

Experts familiar with ethics laws across the country say rules to ban or restrict business between part-time lawmakers and governmental agencies are difficult to draw.

Meredith McGehee is policy director at the Campaign Legal Center, a Washington, D.C.-based nonprofit opposed to the influence of big money on local and national politics. She said it’s not realistic to ban part-time legislators from doing business with their state and local governments, especially in small states where the number of businesses in any particular field could be very small.

South Carolina is one of 40 states whose legislators serve part time to varying degrees. Legislators in 24 of those states, including South Carolina, say they spend about 70 percent of the equivalent of a full-time job making policy, campaigning or working with constituents, according to the National Conference of State Legislatures.

California, which has a full-time legislature, is among the few states that have fairly strict limits on outside work by its lawmakers. The majority of states don’t.

Such states need to erect safeguards, impose some restrictions and require a fair, open and transparent bidding and hiring process, McGehee said. Otherwise the deals will have “a fishy odor … there’s opportunity for all kinds of mischief,” she said.

Mark Quiner directs the Center for Ethics in Government for the National Conference of State Legislatures and tracks ethics laws across all 50 states. He said his organization provides no gold standard model for ethics laws because the needs of each state are so varied. “Each state has to decide what’s appropriate,” he said.

Since legislatures act as their own “judge, juries and hangman,” they have to learn how to walk through the bumpy field of policing ethics, Quiner said. In general, he suggests they take a “front page” approach to deciding what’s ethical and what’s not. He tells them to ask themselves: “Would you be comfortable if your local newspaper ran a front page story on you?”

South Carolina’s lawmakers made national headlines in the summer of 1990 when the FBI nailed more than two dozen legislators, lobbyists and others in “Operation Lost Trust,” which was characterized at the time as the largest legislative public corruption prosecution in U.S. history.

In those pre-“Lost Trust” days, some influential state legislators received huge retainers or consulting fees from businesses or organizations and performed no real work, said John Crangle, director of Common Cause in South Carolina. They were, in effect, lobbyists with the power to make laws and spend state money, he said.

Reforms have since been enacted. But Republican Rep. Jim Merrill of Charleston said the only way to completely wipe out potential ethical conflicts in South Carolina is to reduce the length of the Legislature’s six-month sessions or make the job full time. Under the current set-up, “there’s no time for people to make a living,” he said.

Merrill doesn’t make money doing business with the state. But he does make money off other state lawmakers.

He runs the mass mailing business Geechee Communications and has received more than $215,000 since 2008 from other state lawmakers who paid his firm campaign dollars to send mailings to voters to gather their support, raise money or keep them informed.

Merrill said his expenses significantly cut into his actual earnings. He wouldn’t reveal what that profit was, but said the industry average is 15 percent to 18 percent.  And, he said, “I guarantee you, if there was any profit, it was well below that.”

Some of the money Merrill received came in 2008 while he served as House majority leader. He left that leadership post shortly after elections in November 2008.  He sees nothing improper about accepting business from fellow House members while serving as one of their leaders. In his view, the post carried very little power.

Crangle doesn’t agree. The majority leader is an “influential figure” who serves as the right hand of the powerful House speaker to mobilize votes and keep legislators on board with the party leadership’s legislative goals, he said.

”Anytime a legislator has more power, it creates a greater opportunity for conflicts-of-interest,” Crangle said.

The unknown is a bigger problem

For Crangle, the main way to effectively limit conflicts of interest and ethical violations in a part-time legislature is to impose stringent transparency rules. They should, at a minimum, require competitive bidding for all state and local government business and full disclosure of lawmakers’ income sources.

Currently, legislators do not have to report income unless it comes from state or local governmental agencies, or from businesses or groups that officially lobby or have contracts with government. If a lawmaker gets income from a business or organization that does not lobby the state or have government contracts, neither the source of the income nor the income has to be reported.

And that is a huge problem, Crangle said, because the public has no knowledge that such lawmakers might be voting on matters that might impact their income and the business or organization that pays them.

Consider Senate President Pro Tem Hugh Leatherman, who for years did not disclose that he owned stock in Florence Concrete Products, which has earned about $8.5 million from state contracts since July 2009, mostly from the state Department of Transportation, according to records from the State Comptroller General’s Office.

Leatherman, a founder and former president of the company, did not declare that he was a minority stockholder until 2013, when the websites FITSNews and The Nerve raised questions about his stake in Florence Concrete. Leatherman, a Republican, has still not revealed how much, if any, income he derives from that stock or the size of his ownership interest beyond being a minority shareholder. He did not return calls for comment.

South Carolina ranked 45th out of 50 states in the Center for Public Integrity’s 2012 State Integrity Investigation that assessed potential corruption risks, largely because of the state’s weak regulations.

Republican Sen. Larry Martin of Pickens has been a leader in efforts to push ethics reform in the Senate, where such efforts failed during the last session. One measure he supported was a bill to require that lawmakers report the sources of outside income, but not the amount, which many legislators objected to revealing. Martin said he figured that requiring lawmakers to reveal the sources of their income would give the public the ability to know what outside financial connections exist.

Martin reasoned that if lawmakers didn’t have to report the amount of income, they might have little problem revealing the source. But the effort failed. And, Martin said, “that does raise a whole set of questions about what they are doing.”

Ashley Landess is president of the South Carolina Policy Council, a nonprofit organized to promote limited government. Her 2013 letter to Attorney General Alan Wilson alleging “possibly criminal violations of state ethics laws” led to Speaker Bobby Harrell’s resignation and conviction last year on ethics-related charges. Landess agreed with Crangle, saying requiring lawmakers to be completely transparent, especially about all of the sources of their income and the amounts, is “the most urgent priority.”

Landess said the root problem lies in the structure of government, which leaves virtually all power in the hands of the legislators.

“They are making the laws. They appoint judges and control almost all of the executive power. They police themselves,” Landess said. “Until we tear down the concentration of power and secrecy in this state, there’s no reform possible. It touches on every area of citizens’ lives.”

This story was reported by Glenn Smith, Doug Pardue and David Slade of The Post and Courier and Rachel Baye and Ben Wieder of The Center for Public Integrity. It was written by Glenn Smith and Doug Pardue.

This story was co-published with The Post and Courier.

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