STATE ETHICS COMMISSION

Twenty-Fourth Annual Report


January 1, 2002 - December 31, 2002


GENERAL STATUTORY IMPLEMENTATION

The State Ethics Commission met 10 times during Calendar Year 2002 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. 

 

In July 2002, the Commission was able to increase its staff from 7.6 to 9.0 full time employees: returning our .6 lobbying coordinator position to full time status, and hiring an additional attorney position, who primarily assists General Counsel. 

 

The implementation of HB2 (Chapter 641, Acts of 2001) required the Commission staff to amend existing informational memoranda and conduct lobbyist training to familiarize new and experienced lobbyists with the changes in the law.  Public Ethics Law, § 15-205(e) requires that we conduct lobbyist training session twice each year, at least one of which must be held in January.  Additionally, the new lobbying provisions required that we create new reporting forms for lobbyists to report meals and receptions for legislative units, and part of the lobbyist training involved instructions related to the completion and submission of those forms.  We conducted the training sessions in the Calvert Room of the State House, and 251 attended the 2002 sessions.  We provided evaluation forms to the attendees, and their responses were overwhelmingly positive with regard to the content and presentation.

           

            By the middle of January, we became aware that the legislature had additional lobbying issues it needed to address.  Several Ethics bills were introduced with regard to lobbyists who wish to serve on Boards and Commissions, attorneys who participate in the legislative process as a function of their positions on Committees of the Maryland State Bar Association; the possible capturing of high earning individuals who come to Annapolis for a day during the legislative session to talk to legislators about pending bills that may affect their businesses or other interests; and the low level compensation and spending thresholds that trigger the registration requirement.  In the end, it was HB 1076 that prevailed, and the Ethics law had once again undergone a major revision.  On May 6, 2002, the Governor signed HB 1076 as emergency legislation.  The net effect of this bill on the lobbying provisions are discussed below in the Legislation 2002 section of this report. 

 

The Commission staff conducted 18 general ethics training programs, in Baltimore and Crownsville, for employees who are required to file financial disclosure statements.  Five hundred nineteen employees attended those sessions, and the attendees’ evaluation forms were overwhelmingly favorable with regard to content and presentation.  In addition to the 18 scheduled ethics training programs, we were requested by and made ethics presentations to: the Maryland State Bar Association Directors; the Maryland Chamber of Commerce; Maryland State Department of Education supervisors; the Personnel Management Group; a Nigerian Delegation for the Department of Commerce; the Cecil County Sheriff’s Office; TEDCO; the State Leadership Challenge Group; the Harford County Sheriff’s office; the Department of Labor Licensing and Regulation; Maryland Department of Housing and Community Development; Board of Trustee of the Maryland State Retirement and Pension System; the Financial Regulation Division of the Department of Labor Licensing and Regulation; new members of the Medical Boards and Commissions; and the Governor’s Leadership and Awards Conference. In December, we also provided ethics training to the newly elected members of the Legislature.  We joined Counsel to the Joint Committee on Ethics for a presentation during the new legislators’ orientation training sessions.   Our part of the program focused on the financial disclosure requirements.

 

On June 30, 2002, Commissioner April Sepulveda’s second term expired, and the Governor appointed Julian Lapides, who had been nominated by the President of Senate, to serve in the vacated position.  As a former State Senator, he brought with him an enormous amount of knowledge and experience that has enriched and enlivened Commission meetings.  He attended all scheduled meetings and participated fully in all aspects of the Commission’s responsibilities.

 

Our fiscal year 2003 budget was approved for $706,227, which in June was reduced by $75,000 when the cost containment measures were put into effect in June 2002.  The $75,000 was specifically identified for the development of electronic financial disclosure filing and electronic lobbyist reporting and public access to lobbyists’ reports.  The Commission had planned to hire a contract employee to work with the Executive Department’s Informational Technology unit to begin the in-house development of programs that would enable Public Officials the ability to file their financial disclosure forms electronically and permit lobbyists to file their reports electronically and permit the public to access the lobbyists’ information.  Although we realized that the funds would probably not be sufficient to complete the project, we were confident that we could at least meet one of the statutory mandates and get a good start on the other.  One of the impediments to electronic filing was the requirement for a sworn oath on both the financial disclosure forms and the lobbyists’ reports.  Delegate Woods submitted legislation that amended our statute to permit electronically submitted reports to be submitted under penalty of perjury rather than requiring a sworn oath. (See Public Ethics Code § 15-602(e) for financial disclosures and § 15-709(b) for lobbying reports)  The removal of the $75,000 from our available funds required us to halt all further work on the electronic filing projects.

 

Due to the dramatic increases in the number of lobbyist registrations and the amount of resources required to meet our statutory mandates set forth in the lobbying provisions of the Public Ethics Law, we submitted draft language for a Departmental Bill for the 2003 Legislative Session to raise our current $20 per registration lobbying fee to $50 per registration.  If that increase is approved, our special funds appropriation will increase from approximately $46,000 to a possible $114,000, based on 2002 lobbyist registration figures.

 

After meeting with the Executive Director of the Department of State Documents, Dennis Schnepfe, we agreed that Formal Advisory Opinions would continue to be published in the Maryland Register, but they would no longer be published in the Code of Maryland Regulations (COMAR).  The Formal Opinions will be available on line, and they will be available in print by request to this office.  Mr. Schnepfe explained that the cost of continuing to publish the Formal Advisory Opinions and the sheer volume of the opinions in COMAR have become burdens on, and, therefore, Ms. Schnepfe and the Commission agreed that the Formal Opinions will appear in the Maryland Register rather than be added to the hard bound publication of COMAR.

 

Because of the limitations on our space, it was of utmost importance to devise a system that would enable us to keep the most current and important documents in our office, maintain our historical files with State Archives, and create room to house current and future filings until such time as we can establish and efficient and reliable electronic filing system for both financial disclosure and lobbying records.  The Commission rewrote our document retention procedures and submitted them to State Archives.  Our procedures were accepted, and we began the labor-intensive project of culling our files, shredding some dated and extraneous documents and sending other documents to State Archives.  This is an ongoing process and hopefully will enable us to maintain easily accessible and orderly records pending our ability to implement and utilize electronic filing to the fullest extent possible.

 

Additionally, in 2002, working in conjunction with the Governor’s legal staff and State Documents, we were able to join in a contract for electronic research through West Law.  The contract provides unlimited electronic research into legal data basis for the Executive Director, General Counsel, Staff Counsel, and our new Legal Officer position.  We also have access for one user into the public documents database.  The addition of this resource has improved our efficiency significantly as we can now perform almost 100% of our legal and public documents research within the confines of our office. 

 

Advice Activities

The 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 allow for informal staff advice and informal Commission consideration of requests (See COMAR 19A.01.02.05). The informal advice generally results in an advice letter to the requestor and references prior opinions of the Commission addressing similar facts and issues as those presented in the request.

 

            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. This was an average of 41 per year. During the next five years (1985 – 1989) another 128 opinions were issued. This was 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 -four years of its existence, the Commission issued a total of 482 formal opinions. During the past five years the number of formal opinions deceased to 31 while informal reviews and letter advice increased. A major factor reducing the need for formal opinions issued by the Commission 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 2002, the Commission considered 4 formal requests resulting in two formal published opinions.  Two requestors, after appearing before the Commission, withdrew their request for a formal opinion and accepted letter advice. The two published formal opinions issued in 2002 dealt with application of §15-502 secondary employment restrictions. The first opinion addressed the application of the outside employment restrictions to the private practice of a psychiatrist in the Mental Hygiene Administration. The second opinion addressed a private mediation practice by a director of a county department of social services and service on the boards of directors of two community service organizations.

 

            During 2002, the staff implemented a data information system for advice requests            that result in informal advice being 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 the Commission staff received and considered requests in the following areas during calendar year 2002:

 

           

Subject Matter of the Advice

Number of Requests

 

 

Lobbying Registration, Reporting & Conduct

53

Secondary Employment Advice

269

Participation Advice

13

Procurement Restrictions

10

Post-Employment Advice

6

Gift Questions

8

Other

28

 

During the last few months of 2001 and in early 2002, much of the informal advice in the lobbying area addressed 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.

 

Many advice inquiries involved secondary employment questions. A large number of the requests came from employees of county departments of social services through the Department of Human Resources headquarters. The Department established procedures for approval of secondary employment that were circulated to the county departments of social services, and resulted in a large number of secondary employment request reviews to the Commission. Forty-two (42) requests came to the Commission between October and December 2001 and were pending with the Commission at the start of calendar year 2002.  The 269 secondary employment requests considered in 2002 came from the following Departments:

 

Department

Number of Requests

 

 

Department of Human Resources

219

Department of Health & Mental Hygiene

20

Department of Transportation

4

Dept. of Public Safety & Correctional Services

4

Department of Labor, Licensing & Regulation

3

University of Maryland

2

Executive Department

2

Department of Budget & Management

2

Other Agencies

13

 

A review of the requests from the Department of Human Resources indicates that about two thirds (66%) of the requests came from employees in county departments of social services located on the Eastern Shore, and in Western and Southern Maryland. This may be the result of State employee salary limitations in some agencies that have required State employees to supplement their incomes in order to meet their expenses.

 

Advisory opinions are now 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/).

 

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 34 faculty exemptions granted by university presidents between 1996 and 2001. 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 2002, USM institutions granted an additional 25 faculty exemptions. The exemptions were from the following institutions:

                       

Institution

No. of Exemptions

 

 

University of Maryland, Baltimore

8

University of Maryland Biotechnology Institute

6

University of Maryland, College Park

9

University of Maryland, Center for Environmental Studies

2

Total Faculty Exemptions

25

 

            During 2002, the Board of Regents granted its first exemption under the Public-Private Partnership Act to a university president.  The President had been hired by the Board of Regents in April 1999 and had disclosed the fact that he was on the Board of Directors of EduFund, Inc. and owned an interest in the company.  Global Student Loan Corporation is a wholly owned subsidiary of EduFund, Inc. and specializes in making loans to international student and part time distance learning students. At the time of the hiring, the Board advised that it was permissible to continue the relationships with EduFund, Inc. Subsequently, Global Student Loan Corporation was listed on the financial aid resources website at the university. The President’s interests were brought to the Commission’s attention in April 2002.

 

In response to a Commission inquiry, the Board of Regents granted the president an exemption for his financial interest and service on the Board of Director of EduFund, Inc. in July 2002.  The Board made the following findings:

 

 

The Board concluded that the President’s interest and service on the Board of Directors of EduFund was activity with an “entity engaged in research or development.” The Board found that EduFund was developing financial products to support the enrollment of international and on-line students who do not qualify for guaranteed or conventional student loans. It was therefore engaged in market and economic research in regard to various nations and developing borrowing plans to benefit students. The Commission expressed to the Chancellor serious concerns about the Board of Regents’ interpretation of the research and development requirements to justify the exemption.

Financial Disclosure

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.  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 7652 in 2001 to 8557 in 2002.  During 2002, the Deputy Sheriffs and Assistant State’s Attorneys, who were added to the list of those who must file, expressed displeasure with regard to their new responsibility. Through training and active communication, the Sheriffs’ offices accepted the Commission’s position with regard to their need to file, but the Assistant State’s Attorneys were not unanimous in their acceptance of the filing requirement.   As a result, in July 2002, 47 Assistant State’s Attorneys, from Anne Arundel County, Talbot County and Harford County, filed suit in the Circuit Court for Anne Arundel County asking for a Declaratory Judgment that they are not Public Officials and therefore are not required to file financial disclosures statements with the State Ethics Commission.  The case, Miles et al v. State Ethics Commission, Case No. C-2002-81420, is scheduled for hearing in 2003.  The State Ethics Commission has entered into an agreement with the Plaintiffs to stay any enforcement proceedings based on failure to file the statements pending a resolution of the legal action.  

 

The Commission reviewed the Ethics Law status of new boards and commissions and considered and acted upon requests by advisory boards to be exempted from the requirement to file financial disclosure statements.  This activity has significantly increased in recent years due to a substantial increase in the number of boards and commissions created by the General Assembly. 

 

Currently there are more than 8,500 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.  In addition, copies of all judicial official financial disclosure forms are kept on file at the Commission office.  When the Commission conducts compliance reviews of financial disclosure statements and finds errors or omissions, it sends letters advising them to provide further information to correct or complete the documents. 

 

            The Commission also has the responsibility for financial disclosure program for appointees to executive boards or commissions who seek limited conflict of interest exemptions from the appointing authority.  The board or commission members must file a request for the “time of appointment “ exemptions with the Commission and the appointing authority and the Senate. The request forms publicly disclose existing conflicts and 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 2002, the Commission processed 145 requests for “time of appointment” exemptions.

 

Beginning in calendar year 2000, the Commission began monitoring the requirement for legislators to file preliminary financial disclosure forms in January noting any changes from their immediately previous filings. The Commission’s experience since 2000 suggests that some legislators, who had significant changes and should have filed, have not been compliant with this process.

As 2002 was an election year, the Commission also provided had the responsibility of receiving and reviewing financial disclosure forms for all candidates for State elected offices.  In total 546 candidates filed financial disclosure statements, 188 of whom were incumbents.  Staff reviewed each statement and sent letters to each person whose statement was either incomplete or had obvious discrepancies.

Lobbyist Disclosure and Regulation

During the lobbying year ending October 31, 2002, 2,339 lobbying registrations were filed with the Commission.  This represents an increase from the 1988 registrations filed in 2001. Seven hundred twenty-two lobbyists registered for 1,030 employers.  (Some employers have more than one lobbyist and many lobbyists have more than one employer.)  This compares to 591 lobbyists who registered on behalf of 929 employers in 2001.  The growth in the number of lobbyists has been slower than the growth in registrations, employers and expenditures.  For example, in 1988 there were 415 registered lobbyists, 545 employers and 744 registrations spending $9,405,759.  This data reflects a trend of a growing lobbying business concentrated within a smaller group of lobbyist and firms.  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, 123 lobbyists had two or more registrations during this time period; 82 registrants had four or more employers; and 55 lobbyists had eight or more employers.  The Ethics Commission monitors lobbyist registration, reporting, conduct, and certain aspects of campaign finance activity.

 

The $26,439,229 in lobbying expenditures reported for the period of October 31, 2002, represents an increase of $4,049,148 from the previous year.  A further decrease in individual meals reflected changes in the law, as did an increase in special events.  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 2002 increased from $883,747 to $914,702.  The total for gifts and entertainment was higher than the record level of $824,685 reported in 1993.  The amount for food and beverages, other than special categories, decreased from $3,486 to $1,690.  The amount in this category was dramatically lower than the $416,924 reported in this category for 1992, reflecting the stronger disclosure laws of recent years and an increasing reluctance of officials to accept this type of entertainment.  Entertainment at legislative organization meetings resulted in $12,298 in lobbyists’ expenditures.  Lobbyists’ expenditures for special events increased from  $814,161 in 2001 to $865,128 in 2002, 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 112 “all members” of the General Assembly events reported in 2002 totaling $657,023, an increase over the $622,365 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 79 events reported for the House of Delegates Standing Committees and 57 for the Senate Standing Committees.  The total of 136 committee events was higher than the 99 events in 2001.  The most entertained committee in the House of Delegates was the Environmental Matters Committee with 23 events.  The least entertained Standing Committee in the House was the Judiciary Committee with 7 events.  In the Senate, the most entertained committee was the Finance Committee with 21 events and the least entertained committee was the Judicial Proceedings Committee with 11 events.  The regional delegation with the most events reported was the Montgomery County Delegation with 13 events.

 

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.  Fifteen lobbyists filed 15 gift reports in 2002 compared to 11 in 2001.  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 2002, 139 lobbyist employers reported total lobbying expenditures of $50,000 or more, and 324 lobbyist employers reporting total expenditures of $25,000 or more.  This compares to 297 employers reaching $25,000 in expenditures in 2001.  Ninety-nine individual lobbyists, registered on behalf of one or more employers, reported $50,000 or more in compensation for services as compared to 81 in 2001.  Forty-four lobbyists reported compensation of $100,000 or more compared with 39 in 2001.  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 2002, each of the top three 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:

 

 

   10/31/00

     10/31/01

    10/31/02

 1. Expenditures for meals and beverages

 

 

 

for officials or employees or their

 

 

 

immediate families.

$   4,067

$  3,486

$  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.)

$ 688,176

$ 814,161

$ 865,128

 

 

 

 

 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

 

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