STATE ETHICS COMMISSION
Twenty-Sixth Annual Report
January 1, 2004 - December 31, 2004
GENERAL
STATUTORY IMPLEMENTATION
The State Ethics Commission met in regular session 10 times
during Calendar Year 2004 and considered issues related to all areas of its
statutory mandate: financial disclosure, conflict of interest, lobbyist
disclosure and conduct restrictions, local government ethics laws, school board
ethics regulations, advisory opinions, enforcement matters, employee training,
lobbyist training and public information activities.
For the first time since it was statutorily mandated in 1999,
the Commission was able to begin in earnest to develop an electronic filing
process for financial disclosure statements. The Commission contracted with The Canton Group, LLC, to
develop both the electronic filing process and the electronic administrative
review process. Although the
statute, Md. Code Ann., State Gov’t Article § 15-602(d), does not require that
all filers utilize the electronic process, the Commission was hopeful that
filers will embrace the new process and thus reduce the paper storage crisis in
our office. Electronic filing will
provide the Commission with the opportunity to engage in more directed review
of the data, streamline operations and allow the Commission staff to
concentrate resources on ethics training and education, advice, assistance to
local governments, and enforcement.
The system will be beta tested in January 2005, and it will be available
for all filers by mid February 2005 for the 2004 reporting year.
As noted in the Commission’s Strategic Plan, the Commission
believes that increased education and training will lead to an increase in
advice responsibilities and decrease the volume enforcement actions. In order to provide more meaningful
training, the Commission staff has reduced the focus on large multi-agency
programs and has made a concerted effort to provide training to smaller groups
of employees at their particular agencies. This approach has resulted in training that addresses the
specific ethical issues confronted by various State employees in the various
agencies and has resulted in more active participation by the attendees. The Commission staff has provided
increased informal guidance and advice to individuals who have attended
training sessions. During
calendar year 2004, the Commission conducted 27 general ethics training
programs attended by 1,054 State employees. In addition to those sessions, 17 additional programs for
agencies, boards and commissions focusing more specifically on conflicts of interest
and the new electronic filing process for financial disclosure statements were
attended by 524 State employees and public officials. The Commission staff also conducted five lobbying
training programs attended by 206 lobbyists plus two programs focusing on forms
completion that were attended by 22 individuals who were administrative staff
of regulated lobbyists.
During the
2004 Maryland Legislative Session, House Bill 191 was enacted. This bill modified §15-406(b)(2) of the
Public Ethics Law by requiring an aggrieved party in an enforcement action to
petition either the Ethics Commission or the reviewing Circuit Court in order
to obtain a stay of the Ethics Commission’s order. Previously, enforcement orders issued by the Ethics
Commission were stayed automatically until final disposition in the review
process. The modification brings
the Commission into parity with the Administrative Procedure Act contested case
provisions, which also require the aggrieved party to petition either the final
decision maker or the reviewing court in order to attain a stay of the order.
In June 2003, the Commission conducted a contested case
hearing on charges of lobbying violations by lobbyist Bruce C. Bereano. The Commission issued its decision and
public order finding a violation of §15-713(1), being engaged for lobbying
purposes for contingent compensation.
The request for judicial review, which Mr. Bereano filed in the Anne
Arundel Circuit Court, was transferred to the Howard County Circuit Court and
was heard before the Honorable Raymond Kane on June 1, 2004, Case No.
13-C-03-057038. On December 28,
2004, Judge Kane issued his decision upholding the Commission’s final decision
and sanction of a 10-month suspension of Mr. Bereano’s lobbying registrations. Mr. Bereano noted his appeal to the
Court of Special Appeals. The case
is currently pending before that Court and scheduled for argument in October
2005.
On July 30, 2004, the Court of Appeals issued its opinion
upholding the Anne Arundel Circuit Court’s decision in favor of lobbyist,
Gerard Evans, in the Commission’s appeal in the case of State Ethics Commission
v. Gerard E. Evans. The Court of
Appeals determined that the Ethics Commission did not have the authority to
revoke Mr. Evans’ lobbying registration as his July 14, 2000 conviction and
September 29, 2000 sentencing for mail and wire fraud relating to his lobbying
activity occurred prior to the enactment of House Bill 2 (Chapter 63, Laws of
2001) (SG § 15-405(e)), which granted the Commission the right to revoke a
lobbyist’s registration under certain circumstances. The Court of Appeals’ decision provided clarification of §
15-405(e) and discussion of legislative history and statutory interpretation
pertaining to the lobbying enforcement provisions of the Public Ethics Law.
In January 2004, Bruce Poole, who was appointed as to the
State Ethics Commission on February 1, 2000, resigned his position as a
Commissioner. Mr. Poole filled the
position that was a nominee of the Speaker of the House. The Speaker subsequently submitted a
nomination to the Governor in December 2004.
The Fiscal Year 2005 budget was approved for $731,144
(General Funds of $686,034 and Special Funds of $45,110), which in June was
reduced by $35,000 for cost containment, and another $10,654 was removed from
the General Fund Allocation, leaving an actual budget allocation of $685,490.
The Maryland Public Ethics Law (§15-301 through §15-303)
provides that the State Ethics Commission may issue formal advisory opinions in
response to requests from officials, employees, lobbyists, and others who are
subject to the Ethics Law. These
formal opinions generally follow an appearance before the Commission by the
requestor and are published in the Maryland Register. The Commission regulations also allow the staff and the
Commission to provide informal advice.
(See COMAR 19A.01.02.05).
Informal advice generally results in a letter or email to the requestor
that references prior opinions of the Commission addressing similar facts and
issues.
The
State Ethics Commission has the responsibility of interpreting the Public
Ethics Law. When the Commission
was first established in late 1979 most advice requests resulted in a published
formal opinion. During its first full five years of operation (1980 –1984), the
Commission issued a total of 205 opinions: an average of 41 per year. During
the next five years (1985 – 1989) another 128 opinions were issued: an average
of over 25 per year. As a
result, there is a large body of published opinions available to the Commission
staff to provide informal advice in response to advice requests. During the
twenty-six years of its existence, the Commission has issued a total of 486
formal opinions. During the past five years the number of formal opinions has
decreased to 18 while informal reviews and letter advice has increased. A major
factor reducing the need for formal Commission opinions is the large number of
existing opinions that can now be used for informal guidance by the Commission
or staff thus expediting advice.
During Calendar-Year 2004, the Commission issued two (2) formal published opinions. One opinion addressed the application of
§15-502 to the Chair of the State Information Technology Board (“Board”)
(Opinion No. 04-1). The Requestor was an owner of an information technology
corporation that became a subcontractor on a newly awarded information
technology contract with the State Department of General Services. The
Requestor was a “public official” by virtue of his service on the Board, which
was affiliated with the Department of Budget and Management (“DBM”). The
Commission determined that given the role of DBM in the information technology
procurement processes, and the statutory duties of Board, an exception could
not be granted to permit continued service on the Board.
The second opinion addressed whether an employee of the
Maryland Transit Administration could participate in project matters in which a
party to those matters was a vendor under a general task order contract that
employed the employee’s son (Opinion No. 04-02). The Commission allowed the
participation based on the specific circumstances of the employee’s situation
as permitted by §15-501. The published advisory opinions are available on the
Internet through the Commission web site (http://ethics.gov.state.md.us) and
the website of the Secretary of State, Division of State Documents (http://www.sos.state.md.us/).
During
the year, the Commission also granted one exemption pursuant to §15-502(d) upon
the recommendation of the Governor. The Commission granted an exemption to allow
the Assistant Secretary, Office of Resource Conservation of the Department of
Agriculture to maintain his interest in a family farm. This was only the
twenty-second (22) exemption granted in the history of the State Ethics
Commission.
The Commission’s informal docket, initiated in 2002, logs
requests for advice that result in informal advice provided to the requestor by
either the Commission staff or the Commission itself. This does not include
telephone advice or answers to routine questions provided by the Commission
staff. The Commission and/or the Commission staff reviewed and considered
requests in the following subject areas during calendar year 2004:
Subject Matter of the Advice Number
of Requests
2004 2003 2002
Lobbying
Registration, Reporting & Conduct 11 18 53
Secondary
Employment Advice 108 132 269
Participation
Advice 17 8 3
Procurement
Restrictions 6 7 10
Post-Employment
Advice 13 13 6
Gift
Questions 21 29 8
Other 44 35 28
Total 220 242 357
The number of informal matters has decreased each year
since calendar year 2002. In 2002 a total of 357 informal matters were
reviewed. The reduction is attributable, in part to a reduction in requests
from lobbyists for advice (from 53 in 2002 to 18 in 2003 to 11 in 2004). During
the last two months of 2001 and in early 2002, there were a significant number
of advice requests addressing the implementation of HB2 (Chapter 631, Acts of
2001, effective November 1, 2001). At its meeting on February 6, 2002, the
Commission considered 32 questions involving interpretation of HB2. When HB
1076 (Chapter 405, Acts of 2002) was enacted during the 2002 legislative
session and signed as emergency legislation (May 6, 2002) various lobbyists
sought additional informal advice. Additionally, the implementation of the
Commission’s Lobbyist Training Program has impacted on the number of informal
requests from lobbyists, who now have the benefit of the training and an
understanding of the lobbying law requirements.
There was also a significant reduction in secondary
employment requests from calendar year 2002. In 2002 there was a total of 269
such requests with 219 from the Department of Human Resources (“DHR”). In 2003,
there were a total of 132 informal requests involving secondary employment,
with 48 from the DHR. In 2004, there were a total of 108 such requests, with 40
from the DHR. The reduction in the number of secondary employment requests from
DHR is probably attributable to two factors. In 2001, the Department
established procedures for approval of secondary employment that were
circulated to all county departments of social services and resulted in a large
number of requests to the Commission to review secondary employment of
employees during 2001 and 2002. Many of these reviews were for existing
secondary employment situations that had not been previously reviewed. By 2003, DHR’s review process had been
implemented statewide and only new secondary employment situations needed to be
reviewed. Additionally, DHR officials who participated in the Commission review
have become sufficiently familiar with the requirements of the Ethics Law to
enable them to screen situations without requiring Commission review.
A review of the informal requests received in 2003 and 2004
demonstrated an increase in the number of requests related to the application
of the post-State employment provisions of the law. This is likely a reflection of the 2002
election that resulted in a change of administration and the movement of certain
officials from State service.
The 108 informal secondary employment requests considered
in 2004 came from the following Departments:
Department
Number of Requests
2004 2003 2002
Department of Human Resources 40 48 219
Department of Health & Mental Hygiene 22 18 20
Department of Transportation 4 9 4
Executive Department 5 6 2
Department of Agriculture 3 5 0
University System of Maryland 2 5 2
Department of Public Safety & Correctional Services 3 4 2
Department of Natural Resources 4 3 1
Other Agencies/Departments 25 34 19
The
Commission staff has also provided general advice about the application of the
Ethics Law in response to phone inquiries from State employees and lobbyists.
During calendar year 2004, the Commission’s General Counsel, Staff Counsel, and
Assistant Counsel responded to more than 1,200 phone inquires.
University of Maryland Public-Private Partnership
Exemptions
In 1990, the General Assembly enacted legislation allowing
the University System of Maryland (USM) to grant to university faculty certain
exemptions from the conflict of interest provisions of the Public Ethics
Law. The exemptions were for “sponsored research and development”
activities. Sponsored research and
development was defined in the law as an ”agreement to engage in basic or
applied research or development at a public senior higher education
institution, and includes transferring university-owned technology or providing
services by a faculty member to entities engaged in sponsored research or
development.” Faculty members were
not fully exempted from all Public Ethics Law requirements, and public
disclosure of the interest or secondary employment was required. The
institution granting the exemption was required to maintain the exemption as a
public record and to file a copy with the State Ethics Commission.
In
1996, the General Assembly enacted the Public-Private Partnership Act. This law
expanded the exemptions beyond faculty to include vice-presidents and
presidents of institutions as well as the chancellor and vice-chancellors of
the USM. The legislation also
broadened the exemption from the conflict of interest provisions to include USM
officials, faculty members, and employees. The USM Board of Regents and the USM institutions adopted
procedures pursuant to §15-523 to allow the conflict of interest exemptions.
The USM Board of Regents and seven of the affiliated institutions adopted
policies, and the Commission’s authority was limited to comment on the policy’s
conformity to Public-Private Partnership Act. The definition of “sponsored
research” was expanded to include “participation in State economic development
activities.”
The
records filed by the institutions with the Commission reflect a total of 76
faculty exemptions granted by university presidents between 1996 and 2003.
These included exemptions at the University of Maryland at Baltimore (UMB),
University of Maryland at Baltimore County (UMBC), and the University of
Maryland Biotechnology Institute.
During calendar year 2004, USM institutions granted an additional 19
individual faculty members an exemption. The exemptions were from the following
institutions:
Institution No.
Of Exemptions
University
of Maryland, Baltimore 5
University
of Maryland, Baltimore County 1
University of Maryland, College Park 13
Total Faculty
Exemptions 19
In some
instances the individual faculty member has had more than one interest
exempted. For example, in February 2004 the President exempted a faculty member
for his interests in two separate private entities. As reported in the State
Ethics Commission Annual Report for 2002, there has been only one Board of
Regents exemption for a university president in the history of the
program. Pursuant to §15-523(c)(1)
each exemption requires a disclosure to the State Ethics Commission and is
required to be maintained as a public record at the educational institution.
The financial disclosure program continued to process the
identification of those required to file, provide technical assistance to
filers, and monitor compliance with the Law. In accordance with Public Ethics Law § 15-103, the
Commission reviewed a large number of requests by various agencies to add or
delete positions from the financial disclosure filing list, and the net result
was an increase in the number of filers from approximately 9,006 in 2003 to
approximately 12,170 in 2004.
In accordance with Public Ethics Law §§ 15-103 and 209, the
Commission made decisions concurred in by the Department of Budget and
Management regarding the status as “executive units” of newly created boards
and commissions and considered and acted upon requests by a number of boards
and commissions to be exempted from the requirement to file financial
disclosure statements. In recent
years there has been a substantial increase in the number of boards,
commissions, task forces, and technical advisory groups created by the General
Assembly.
Currently there are more than 12,000 State and public
officials required to file financial disclosure forms, and the number of filers
continues to grow. Individuals who
are public officials only as a result of their participation on boards or
commissions are required to file a limited form of financial disclosure (form
#2). The Commission staff
conducts compliance reviews of financial disclosure statements and notifies
filers of identifiable errors or omissions, and it pursues enforcement actions against
those who fail to file. During
2004, Commission staff reviewed more than 2000 financial disclosure forms for
reporting year 2003.
The
Commission also has the responsibility for the financial disclosure program for
appointees to executive boards or commissions who seek limited conflict of
interest exemptions from the appointing authority, sometimes referred to as
“Time of Appointment Exemptions.”
Board or commission members must file a request for the “time of
appointment “ exemptions with the Commission, the appointing authority, and the
Senate, if Senate approval is required for the appointment. The request forms
publicly disclose existing conflicts and will exempt the individuals only from
those conflicts that are disclosed on the forms. The Commission staff coordinates this process with the appointing
authority, reviews the forms and, throughout the year, assists a large number
of appointees in completing the disclosures forms. In 2004, the Commission processed 223 Time-of-Appointment
Forms.
Under
its 1999 mandate to develop electronic filing for financial disclosure
statements, Public Ethics Law § 15-602(d), the Commission must develop
procedures under which a statement may be filed electronically and without
additional cost to the individual who files the statement. The Commission worked with the Canton
Group, its contractor, to develop an electronic process that will be available
for the filing of 2004 Financial Disclosure Statements.
In working
with the Governor’s IT staff and others suggested by them, the Commission staff
have become aware of some changes to the financial disclosure form that will be
necessary in order to attain the accurate, efficient and effective collection
of financial disclosure information.
For example, where the written form asks for “amount of consideration paid”
for interests in real property, in order to avoid inadvertent mistakes
permitted by “free writing,” a range of consideration paid that the filer will
highlight from “drop-down boxes.”
Thus, the filer will choose between boxes that contain choices such as
“under $50,000; $50,000 to $99,999; $100,000 to $250,000, etc..” In this way, the information required
by Public Ethics Law § 15-607 will be obtained and eliminate the likelihood of
typographical mistakes that could be misleading. Additional modifications in the method of obtaining the
required information will be required in order effectuate the transition from
paper to electronic reporting. The
Commission has determined that such changes will provide sufficient information
and meet the statutory requirements of the financial disclosure section of the
Public Ethics Law as set forth in § 15-607.
The
increase in the number of filers together with the filers’ participation in
equity investment and other financial interests has created a resource crisis
within the Commission staff in reviewing the statements. The Commission lacks sufficient staff
to sort, file and review more than 10,000 annual financial disclosure reports,
and it lacks sufficient space and resources to store at least six years of financial
disclosure reports for each filer.
Absent any foreseeable increase in staff and space, the Commission must
put forth its efforts to develop an electronic filing process that will meet
the statutory requirements of § 15-607 and which will be embraced by filers
with confidence. The Commission’s
next Annual Report will contain facts and figures to assess the success of the
electronic filing project.
Lobbyist Disclosure and Regulation
During the lobbying year ending October 31, 2004, 2,555
lobbying registrations were filed with the Commission. This represents an increase of 120
registrations from the 2,435 that filed in 2003. Seven hundred fifty-five lobbyists
registered for 1,059 employers.
(Some employers have more than one lobbyist and many lobbyists have more
than one employer.) This compares
to 724 lobbyists who registered on behalf of 1056 employers in 2003. Although the largest number of lobbyists
is registered during the legislative session, registrations begin and end at
various times throughout the lobbying year, which begins on November 1 and ends
on October 31 of the following year.
Most persons registered to lobby had a single registration representing
one employer. However, 144
lobbyists had two or more registrations during this time period; 94 registrants
had four or more employers; and 69 lobbyists had eight or more employers. The Ethics Commission staff monitors
lobbyist registration, reporting, conduct, and certain aspects of campaign
finance activity.
The $38,556,789 in lobbying expenditures reported for the
period ending October 31, 2004, represents an increase of $8,060,080 from the
previous year. Lobbyists’
compensation continued to increase.
Lobbying expenditures have very significantly increased since the
$2,864,454 reported expenditures in 1979; the first year the Ethics Commission
administered the filing program.
Expenditures for gifts and entertainment in 2004 increased from
$1,488,646 to $2,128,770. The amount for food and beverages, other than special
categories, increased from $4,178
to $4,493. The amount in this
category was dramatically lower than the $416,924 reported in this category for
1992, reflecting the stronger disclosure laws of that year. Entertainment at legislative
organization meetings resulted in $16,519 in lobbyists’ expenditures. Lobbyists’ expenditures for special
events increased from $1,404,028 in 2003 to $2,060,647 in 2004, a substantial
increase from the $245,288 reported for special events in 1994. Under current law, special events
include events to which all members of the General Assembly, either house,
standing committees, or geographic delegations are invited. There were 126 “all members” of the
General Assembly events reported in 2004 totaling $1,072,303, an increase over
the $784,069 spent for the previous year.
The total expenditure for special events may be misleading, as the
reporting requirement is for the total cost of the event rather than funds
expended directly on General Assembly members. There were 94 events reported
for the House of Delegates Standing Committees and 83 for the Senate Standing
Committees. The total of 177
committee events was higher than the 157 events in 2003. The most entertained committee in the
House of Delegates was the Health, Government and Operations Committee with 28
events. The least entertained
Standing Committee in the House was the Ways and Means Committee with 10
events. In the Senate, the most
entertained committee was the Finance Committee with 26 events and the least
entertained committee was the Education, Health and Environmental Affairs
Committee with 16 events. The
regional delegations with the most events reported were the Montgomery County
Delegation and Prince George’s County Delegation, with 21 events each.
A detailed analysis of special events spending is contained
in Appendix C of this report.
Lobbyists are also required to file gift reports naming individuals
receiving tickets or other gifts above certain thresholds. Five lobbyists filed 5 gift reports in
2004 compared to 13 in 2003. Gift
reports may name one or more gift recipients. Gift reports tend to be concentrated among the higher
spending employers.
New gift limitations, effective October 1, 1999, and the fact that gift
reports are no longer required in some situations have resulted in the very
substantial decline in gift reports.
For the year 2004, 196 lobbyist employers reported total
lobbying expenditures of $50,000 or more, and 388 lobbyist employers reported
total expenditures of $25,000 or more.
This compares to 344 employers reaching $25,000 in expenditures in
2003. One hundred sixteen
individual lobbyists, registered on behalf of one or more employers, reported
$50,000 or more in compensation for services as compared to 104 in 2003. Sixty-four lobbyists reported
compensation of $100,000 or more compared with 59 in 2003. There is a growing trend toward firms
employing several lobbyists, ranging from groups within large law firms to
government relations groups unassociated with the practice of law. In 2004, four fee-earning firms earned
over $1,000,000. This information
is outlined in Appendix D.
Examples of topic areas involving large total employer expenditures
during the reporting period included business, utilities, racing, labor,
health, banking, energy, communications, technology, attorneys, real estate,
construction and insurance.
Employer lobbying spending continues to increase. In 1988, only 5 employers spent over
$100,000 on lobbying. In 1999, 35
employers exceeded $100,000. Lists
of those employers spending $25,000 or more and those lobbyists reporting
$50,000 or more in compensation are included in Appendices A and B of this
report.
The following expenditure data summarizes lobbying
expenditures for the last three lobbying years:
10/31/04 10/31/03 10/31/02
1. Expenditures for meals and beverages
for
officials or employees or their
immediate
families. $ 4,493 $ 4,178 $ 1,690
2. Expenditures for special events,
including parties, dinners,
athletic events, entertainment,
and other functions to which all
members of the General Assembly,
either house thereof, or any
standing committee thereof were
invited. (Date,
location, group
benefited, and total expense for
each event are also reported.) $
2,060,647 $
1,404,028 $
1,115,206
3. Expenses for food, lodging, and
scheduled entertainment of officials
and employees and spouses for a
meeting given in return for
participation in a panel or
speaking engagement at the
meeting. $ 26,283 $ 18,524 $ 5,702
4. Expenditures for food and beverages
at approved legislative organizational
meetings. $ 16, 519 $
15,787 $
12,298
5. Expenses
for a ticket or free
admission to attend charitable,
cultural or political events where
all members of a legislative unit
are invited. $ 4,350 $ 4,708 $ 15,320
6. Gifts
to or for officials or employees
or their immediate families (not
included in B-1 through B-5). $ 16,478 $ 41,421 $ 14,564
Subtotal of items l, 2, 3, 4, 5 and 6 $2,128,770 $1,488,646 $1,164,780
7. Total compensation paid to registrant
(not
including sums reported in any
other
section). $32,832,105 $25,367,757 $22,461,621
8. Salaries, compensation and reim‑
bursed expenses for staff of the
registrant. $
980,177 $
889,332 $
898,943
9. Office expenses not reported in
items
5 and 6. $
1,146,653 $
841,415 $
829,315
10. Cost of
professional and technical
research and assistance not
reported in items 5 and 6. $ 334,780 $
635,491 $ 310,151
11. Cost of
publications which
expressly encourage persons to
communicate with officials or
employees. $
465,458 $
771,743 $
434,924
12. Fees and expenses
paid to
witnesses. $ 122,810 $
4,685 $ 28,541
13. Other expenses. $
546,036 $
497,650 $
561,032
Total of items 1 through 13 $38,556,789 $30,496,719 $26,689,307
(NOTE: At the time the Annual Report was compiled, some
lobbyist expenditure information may have been subject to adjustment based on
the staff review program.)
In calendar year 2004, the Commission
issued fifty-six complaints. Three
complaints involved conflict of interest issues, forty-three involved financial
disclosure issues, and ten involved lobbying issues. The Commission also closed forty-six complaints during
2004. Thirty-five complaints were
closed when the Commission accepted a cure proposal from the complaints’
respondents, fourteen Stipulations of Settlement were accepted by the
Commission, three complaints were dismissed after a preliminary investigation
and one complaint was closed for other reasons. The Commission collected $4650.00 in payments to the State
of Maryland through the Stipulations of Settlement accepted in 2004.