Loophole allowed state to pay $235 million to organizations run by lawmakers and their spouses

Eric Zelz | BDN
Posted Jan. 04, 2012, at 12:01 a.m.
Last modified Jan. 04, 2012, at 5:05 a.m.

Between 2003 and 2010, the state paid almost $235 million to private organizations run by legislative leaders or the spouses of high-level state officials.

But because of a loophole in state law, not one penny of that spending was ever disclosed to the public in ethics filings.

An investigation by the Maine Center for Public Interest Reporting found several instances where the state paid millions of dollars to organizations associated with legislators and state officials.

Sen. Joseph Brannigan, D-Portland, was chairman of the Appropriations and Health and Human Services committees when Shalom House received $98 million from the state. Brannigan was executive director of Shalom House. He is still in the Legislature but has not been a member of those committees since 2011.

Former Rep. Joseph Bruno, R-Raymond, was House minority leader when $35.6 million went to Goold Health Systems, where he was CEO and president, and $49 million to Community Pharmacies, where he was a board member of the controlling group. Bruno’s legislative service ended in 2004.

Former Rep. Arthur Lerman, D-Augusta, was a member of the Appropriations Committee and executive director of Support Solution when it received $14 million from the state. Lerman’s legislative service ended in 2006.

Former Health and Human Services Commissioner Brenda Harvey’s husband, David Lawlor, was the executive director of Mobius, Inc., when it received $15.4 million. Harvey resigned as commissioner in January 2011.

Continuum Healthcare received $21.6 million from the state. Former Workmen’s Compensation Commission Deputy Director Steven Minkowsky’s wife was CEO of four facilities owned by the group. Minkowsky retired from the commission in February.

Each of the legislators or state officials say they did nothing wrong and that their State House colleagues knew of their overlapping private and public roles, thereby, they claim, creating a “check” on any possible conflicts of interest.

“I think it was well-known. Because I’d been here for a long time, I think everybody knew,” said Brannigan.

“My work as executive director of Support Solutions,” wrote Lerman in an email to the center, “was well known among my colleagues at the Legislature and others who frequented the State House.”

But Arn Pierson, vice president for programs at Common Cause in Washington, D.C., said that the informal system of legislators or executive branch officials being aware of each other’s potential conflicts isn’t good policy.

Citizens, said Pierson, deserve to know this information even more.

“You can’t have a public discussion of whether there’s a significant conflict and whether there should be recusal if you don’t have the information to begin with,” he said.

Only part of one of the cases uncovered by the center has been public knowledge until now.

In 2000, the Washington, D.C., watchdog group the Center for Public Integrity revealed the state contracts that had gone to Bruno’s Goold Health Systems and that he had crafted legislation that benefited his pharmacy group.

While serving in the state Legislature for two terms, wrote CPI’s Ken Vogel, Bruno “has used his political power in the Pine Tree State to benefit himself and both companies, one of which receives more than $10 million in taxpayer-funded contracts from the state.”

Bruno denied any conflict of interest. The Portland Press Herald and Bangor Daily News picked up the story and editorialized in favor of stronger legislative disclosure laws.

Those laws were never strengthened, and the tally has since amounted to millions in taxpayer dollars that have gone to organizations affiliated with State House leaders.

There are other legislators who worked for organizations that have gotten millions in state money, including Spurwink, Rumford Group Home, Little Angels Daycare, Community Counseling Center and Discovery House. Those legislators were not in influential positions, but the amounts paid to their employers by the state in fiscal year 2006 alone — not included in the $235 million — totalled more than $60 million.

The loophole that allows these potential conflicts to go unreported works this way: State law requires that legislators or high-level state employees report only state purchases of goods or services directly from the individual legislator or family member, not from a corporation or entity for which the legislator or family member works.

Each year, they fill out a form called “Sources of Income.” Question No. 8 asks: “List each executive branch agency to which you or a member of your immediate family sold goods or services with a value in excess of $1,000 during the time period. Indicate whether you or a family member sold the goods or services. If none, check the box.”

Commissioner Harvey, whose husband was the executive director of a midcoast social services agency that got $5.6 million in state funding during fiscal year 2009, checked “none.” She was legally able to do that because the millions in state money did not go to her or her husband as individuals.

Likewise, Brannigan, Lerman and Bruno each checked “none” in response to the same question on the legislative disclosure forms, where the language is virtually the same as on the executive branch forms.

According to Phyllis Gardiner, an assistant attorney general, “The reporting obligation in section 1016-A(7) thus does not appear to encompass goods and services provided to an executive branch agency by a corporation that employs, or is owned by, the legislator.”

So, if legislator Mary Smith is an accountant and performs accounting services for the state for which she is paid more than $1,000, she would have to disclose this under the requirement. But if she were the president of Accounting Associates, Inc. and performed the same work, she would not be required to disclose. Staff at the state’s Commission on Governmental Ethics, which receives and reviews legislative and executive disclosure statements, confirmed that this interpretation is correct.

“If that’s the limits of it, we’re missing a broad range of significant potential conflicts of interest,” said Pierson. “That interpretation is so narrow as to not make the law useful.”

Jonathan Wayne, executive director of the state’s Commission on Governmental Ethics, said he, too, believes the law may be too limited in scope.

“I think it would certainly be better disclosure to the public if it were broadened to include organizations, whether nonprofit or profit-making, that had a certain relationship to the official,” said Wayne.

“I think it’s just good for the public to know if public officials or members of their immediate family have significant contracts with the state.”

But Brannigan questioned whether the public would be interested in his business dealings.

“Would they know any more if you wrote it down on a piece of paper that nobody looks at?” he said.

The narrow financial disclosure law is at odds with policy in the state controller’s office, which prepares the annual audit of state finances. Each audit contains a section called “Related party transactions” which details financial transactions between the state and organizations run by high-level legislators, executive branch officials or their close family members.

Neria Douglass, a former Democratic legislator and now the state auditor, said related party transactions are listed because they provide “transparency” about financial dealings between high-level government officials and the state.

“It is a special type of potential conflict of interest or power to exert financial influence at a higher level than that of the ordinary individual,” Douglass said.

In Brannigan’s case, Douglass said, “Joe Brannigan could control an agency that received substantial funding from DHHS, and as a representative, then senator chairing the Joint Standing Committee on Health and Human Services, and later the Joint Standing Committee on Appropriations and Financial Affairs, he had some control of policies that affected this financial relationship. The notes to the financial statement provide disclosure of a relationship that rises to a level that has potential to affect the financial transactions between the parties.”

But residents would have a hard time figuring out who was involved in such transactions if they read the audit without a list of legislators and their committee assignments. That’s because the audit contains no names and in some cases contains mistaken references to legislators, as in this example:

“The State of Maine pays a local company as a provider for mental health and independent living services through the MaineCare program. The Executive Director of the Company also serves as House Chair of the Joint Standing Committee on Health and Human Services in the Maine Legislature. During fiscal 2010, the State paid $15.1 million for these services; $5.1 million from the General Fund and $10.0 million from the Federal Fund. At June 30, 2010, the State owed $189 thousand to this vendor.”

The section above, said Douglass in an email, should refer to Brannigan, the Senate Chair of the Committee on Health and Human Services. But it cites the “House Chair” of the Committee on Health and Human Services, who was Rep. Anne Perry, D-Calais.

Senate President Kevin Raye, a Republican from Perry, said that he was surprised to learn that the disclosure law failed to include businesses affiliated with a lawmaker or executive branch official.

“It almost strikes me that it’s an oversight or somehow wasn’t anticipated,” said Raye. “I would have thought we already were disclosing this.”

Raye said he would consider introducing legislation to fill the disclosure gap.

“I think it would be in keeping with the spirit of the disclosure law,” he said. “I’m perfectly comfortable with including this aspect under the existing law.”

To view a chart of state spending on organizations affiliated with legislative and executive branch leaders from fiscal years 2003-2010, click here.

The Maine Center for Public Interest Reporting is a nonprofit and nonpartisan journalism organization that provides in-depth reporting as a public service to its Maine media partners. The center’s email address is mainecenter@gmail.com and website is pinetreewatchdog.org.

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