Regulators target payments from campaigns

Ethics Commission wants transparency on consultant fees

In an effort to promote transparency in elections, the Texas Ethics Commission has set its sights on large lump sum payments to consultants from campaigns and political action committees.

AUSTIN — Wading into the hush-hush world of political operatives, Texas’ campaign finance regulator is considering how to get more details disclosed when a consultant spends a candidate’s money to shape state and local elections.

The Texas Ethics Commission has set its sights on large lump sum payments to consultants from campaigns and political action committees — six-figure totals, on occasion, that are disclosed on campaign finance reports only as “consulting” or “consulting fees.”

Those expenses can be payments for actual consulting services.

However, regulators say they believe campaigns and PACs are increasingly writing big checks to operatives for a wide range of activities to influence elections — hiring boots on the ground, purchasing mailing lists, production costs for ads — and the details are never reported. That allows a campaign or a PAC to essentially mask who and what it’s paying for by outsourcing expenditures through a consultant, they ar-

gue.

It’s proven to be a touchy subject for political operatives who consider their strategies, including pricing agreements and even the names of third-party vendors, akin to classified material.

In meetings over the summer, several commissioners appeared fired up, describing the lump sum payments with no details as defeating the requirements of state disclosure laws. The commission even came up with a catchy name for the practice: “campaign in a box.”

‘Trade secrets’ argument

However, months after airing the issue in meetings, and taking public comment in a series of letters, the state regulator has yet figure out a path forward — and it’s not clear anything will result from the effort.

One reason: pushback from consultants has been strong. Consultants and PAC treasurers have written to the commission with a largely unison message: back off.

One consultant told the commission he would quit the business. One asked if regulators need to know every time he pumps gas or buys ink from a printing company and “where will it stop?” One wrote: “The solution is like killing a gnat with a sledge hammer.”

Fred Blanton, a consultant from Houston who wrote a letter to the commission, said the regulator’s inquiry into operative spending is absurd. His main beef is an identical one voiced by others in the field: a consultant’s livelihood is dependant in large part on protecting so-called “trade secrets,” namely who they do business with and how much those transactions are worth.

“No consultant should have to disclose who or what is paid for,” he said in an interview. “That would be a breach to a consultant to have to disclose sources and costs, and it would also give an advantage to an opponent to know where they need to spend money to counter their opponent’s actions.”

The issue was first raised by Commissioner Jim Clancy, the former chairman of the eightmember panel, who painted the following scenario at a public meeting: a big campaign writes a check to a consulting firm for $150,000. The money is spread around to hire poll workers, design mailers and pay for ads.

None of it, he cautioned, is reported beyond the lump sum to the consultant, who is not required to provide a break down of the spending.

“I am confident it is a growing practice to make these large payments to campaigns in a box and not disclose any of the specifics,” Clancy said.

Commission Chairman Paul Hobby said the practice has replaced a previously popular method for campaigns and PACs to hide the destination of political money: the credit card. As of September, all expenses racked up on plastic are now required to be itemized in on state campaign finance reports.

‘New piece of paper’

That, however, is not the solution the commission is looking for when it comes to consultants, Hobby said.

“If we can find a way to give the regulated community guidance on how to use the existing format, that’s better,” he said. “I’m trying to avoid creating a new piece of paper and make sure the public has access to the final recipient of campaign dollars.”

The commission has weighed in on the issue in the past by looking at how involved the candidate or PAC was in the final say of any expenditures made by the consultant. But Clancy, the ethics commissioner, has said that essentially provides the equivalent of “hear no evil, see no evil, speak no evil protection.”

A sign of just how sticky the issue is from a policy perspective was apparent at a commission meeting in August. Hobby pushed for ideas and received a lukewarm response from a commission that has aggressively tackled disclosure issues in the past year.

It was tabled soon after one commissioner declared: “I’m not completely sure who or what a political consultant is.” The inquiry hasn’t been brought back up since then, but Hobby says it’s still a live topic for the commission.

The responses the commission received from consultants so far have been fairly wideranging.

Take one from Pam Thacker, the campaign office manager for Agriculture Commissioner Sid Miller, who disagrees with the general approach but said she recognizes why this type of disclosure is important.

“As the one who fills out the ethics reports I do not like this as it would cause me to have to rely on the consultant to send me the invoices, etc,” she wrote. “But I do understand the validity and value of it.”

Lump sums ‘misleading’

W. Troy McKinney, a Houston lawyer and the treasurer of the Concerned Citizens for a Responsible Judiciary PAC, told regulators that consultant expenditures should be itemized because the current system “allows those inclined to hide payments to others to do so.”

“Simply reporting a lump sum to any consultant is, at best, misleading if the amount reported is not solely for the services of the consultant,” McKinney wrote.

Donna Holland Wilcox, Chairman of the Burnet County Republican Party, summed up her argument briefly: “In the name of transparency, which is the intent, I say FULL disclosure is best.”

Those who voiced opposition mostly cited the need for a consultant to be able to protect “trade secrets,” saying vendors could use the information to undercut or overcharge. Or a political opponent could tamper with a campaign by using the information to threaten a vendor.

“Consultants should be able to protect their business and their client’s best interest, and if in their judgment, this includes keeping their vendor’s names confidential, they should be allowed to do so,” wrote John Shults, Chief Business Officer for the Eppstein Group, a prominent Republican consulting shop.

Craig Holman, a federal lobbyist on government ethics at the liberal advocacy group Public Citizen, shrugged off the trade secret argument, saying it’s been used before by others in the influence arena when new disclosure requirements become a topic for regulators.

“Providing a picture for the public to understand where the money is going,” he said “that’s more important than preserving any trade secrets.”