Paper Planes: AJC Article Misstates Ethics Rules

23
Sep

Paper Planes: AJC Article Misstates Ethics Rules

I apologize in advance for the length of this post, which runs more than 2500 words. It is a complex issue that requires an extensive treatment to do it justice. You are welcome to simply jump to the conclusions at the end and accept my word that it’s accurate. After all, that’s what many of us did when we first read the AJC articles in question. This originally was posted elsewhere.

A recent article by Jim Walls of Atlanta Unfiltered alleging ethical lapses by Governor Nathan Deal’s campaign ran in the AJC as a special. In some ways it was a follow-up to an earlier AJC article questioning the amount of money Deal’s campaign spent on aviation.

The article misstates the law and rules governing disclosure of expenditures by campaigns and inadvertantly exposes where the State Ethics Commission failed to abide by its own regulations, and in doing so, creates a perception of wrongdoing that is also not accurate.

Walls cites a January 2, 2009 memo from a State Ethics Commission staffer to Rick Thompson, then-Executive Secretary of the Commission, that discussed the value of flights on noncommercial aircraft. Walls wrote:

Campaign Finance Commission rules allow campaigns to spend $500 an hour on the kind of aircraft that Deal used most often — a single-engine plane. Riley has said Deal paid $650 an hour;

Walls’s next paragraph states:

there was probable cause to investigate whether Deal’s campaign paid more than market value for the noncommercial flights, according to a second proposed complaint prepared by the Campaign Finance Commission’s staff.

But Walls either misunderstood or misstated the rules about valuing travel on a private airplane.

 

Ethics Commission Rule Rule 189-3-.06(2) states that the Commission shall set “Fair Market Value” of flights on noncommercial aircraft on a yearly basis. This is the basis on which an attorney for the Commission wrote the memo that both AJC articles cite for the proposition that the value of private air transportation is $500 per hour.

The 2010 article questioning the way in which Deal’s campaign paid for air travel summarized it:

The State Ethics Commission has guidelines for the use of noncommercial aircraft. For a single-engine turboprop plane, such as the plane Deal’s campaign uses, the commission says a campaign should pay a minimum of $2.50 per mile or $500 per hour.

and the 2011 article read the same memo to mean:

Campaign Finance Commission rules allow campaigns to spend $500 an hour on the kind of aircraft that Deal used most often — a single-engine plane.

There are several problems with these characterizations of the Commission’s rules. The first and most obvious is that the AJC cannot agree with itself whether the $500 per hour figure is a minimum or maximum allowable amount.

The more important and fundamental error is that neither Rule 189-3-.06(2) nor the memo apply to the Deal campaign’s payments for aircraft.

The Ethics in Government Act 21-5-34(b)(1)(B) requires the reporting of: “[a]s to any expenditure of more than $100.00, its amount and date of expenditure, the name and mailing address of the recipient receiving the expenditure….” and Rule 189-3-.01(3)(d) requires that a campaign disclose “the amount of the expenditure”.

Clearly where a campaign spends money directly in the course of the campaign, the Act and Rules require the disclosure of the actual amount, not an estimate of “fair market value”. The Ethics in Government Act does not empower the Commission to set limits on what a campaign may pay for anything.

So then, why does the Commission go to the trouble of defining the “fair market value” of noncommercial aircraft flight?

The rule in question was adopted after the issuance of an Advisory Opinion in which the Commission opined:

Providing the use of a plane to a candidate or public officer without charge or at a price that is less than the fair market value is an in-kind contribution. Any in-kind contribution received as a result of a candidate or public officer’s use of a private plane is subject to the contribution limits established in the Act. If more than one candidate or public officer is using the same noncommercial flight they must disclose their pro rata share of the flight’s fair market value.

Rule 189-3-.06 was intended by the Commission to implement that Advisory Opinion and provide guidance to campaigns that were required to disclose the value of noncommercial air travel for which they did not actually pay – in short, in-kind contributions. In these cases, a candidate might not know how to value an in-kind contribution of travel aboard a privately-owned airplane and the Rule gives a value that can be used if the candidate has no idea of the costs or values associated with noncommercial air travel.

Section 189-3-.06(1)(e) defines, in the context of valuing air travel, “Unreimbursed value” as “the difference between the value of noncommercial flight as set by the Commission and the payment made for such flight by a candidate or public officer for campaign purposes. Any such unreimbursed value is an in-kind contribution.”

This anticipates a situation in which a campaign does not pay the actual costs of the flight and uses “fair market value” to determine whether the campaign must also disclose an in-kind contribution from the owner or operator of the aircraft. Where, as in the Deal campaign, the campaign pays the actual costs of flight, this rule is not implicated.

Rule 189-3-.06(3)(a)(1) allows a campaign to apportion the cost of air travel between campaign and non-campaign uses by using “fair market value”. This might happen where a single flight destination provided both a campaign event and an official event or where people from multiple campaigns fly on the same plane. [See, e.g., John Oxendine for this: http://www.peachpundit.com/2009/07/30/fox-5-atlanta-fail/ ].

During the period in which Rule 189-3-.06 was adopted, Rick Thompson was Executive Secretary of the Ethics Commission. He has since been retained by the Deal campaign but nonetheless, he’s the best person to provide the background on the rule. He’s also the person to whom the valuation memo is addressed. Thompson told me that “the rule was not intended to determine how much a campaign can pay for air travel, but was to give some guidance to people who received an in-kind contribution and didn’t know the costs involved in noncommercial aviation.”

Thompson also said, “if the campaign pays the actual expenses for the air travel, then the only appropriate disclosures are the actual costs because the statute requires the reporting of the actual amount of the expenditure, not some artificial ‘fair market value’. In fact, reporting ‘fair market value’ instead of actual expenses would violate the statute.”

As to the allegation in the Walls article that “[t]he proposed complaint said that Deal failed to disclose the departure and arrival airports for those flights,” Thompson said that the requirement in Rule 189-3-.06(4)(a) and (b) that a campaign disclose an arrival, departure and other information is only relevant when the campaign is disclosing estimated or apportioned values, not the actual, known expenditures. Thompson also noted that the electronic campaign disclosure system makes no allowance for disclosure of such information.

Walls compounds his misstatement of Georgia Campaign Finance law by stating that “ethics laws bar candidates from using campaign money for personal benefit, in part by requiring that campaigns pay market rates for services,” but no such limitation appears in the statute. Fair market value may be used in disclosing in-kind contributions when the actual costs are not known to the campaign, and fair market value can be used in determining whether a candidate has unlawfully enriched himself or herself by reimbursing more than the fair market value to an entity that he or she owns, but a candidate is free to make bad decisions and overpay.

Additional Problems with the Commission’s valuation of noncommercial aircraft usage

Under the Commission’s Rules, “Fair Market Value” of flights on noncommercial aircraft shall be set on a yearly basis and the Commission set the value in the January 2, 2009 memorandum.

The value of flight on a noncommercial jet aircraft that seats less than twelve passengers is $15 per mile or $3,000 per hour.

The value of flight on a noncommercial aircraft with a single propeller engine is $2.50 per mile or $500 per hour.

The problem is that the airplane used by the Deal campaign is a Pilatus PC-12/45, which is driven by a turboprop engine.

A turboprop is defined as “a jet engine with a turbine-driven propeller that produces the principal thrust, augmented by the thrust of the jet exhaust.” so that the Pilatus PC-12/45 arguably fits in two different categories, one of which carries a valuation six times that of the other category.

In addition to the inadequate definitions within that memo, Rule 189-3-.06(2) states that the Commission will set the value yearly, but the value have not been updated since original valuation in January 2009. One of the major components of the operating cost of any aircraft is fuel cost, which has changed significantly in the intervening years, rendering the 2009 valuation obsolete.

Is Private Airplane Ownership Excessive for a Candidate or Elected Official?

http://www.youtube.com/watch?feature=player_embedded&v=hfJPg1MaOoo

Many of the issues raised in the 2010 AJC article would not have come up if Nathan Deal were not a part-owner of the airplane and helicopter that his campaign used. That article began from the fact that the Deal campaign had paid more than $135,000 for noncommercial air travel, versus about $16,000 by the Barnes campaign and $6000 by the Handel campaign.

As a purely political decision about how best to travel in a statewide campaign, the routine use of a fractionally-owned aircraft was revolutionary and ultimately successful.

Two factors not previously discussed were also related to then-Congressman Deal’s, and later the Deal campaign’s extensive use of private aircraft.

The first involves the geography of the Ninth District and the distance between then-Congressman Deal’s Gainesville home and the nearest commercial airports. Serving his far-flung constituents, and splitting time between Washington, DC and Gainesville, Congressman Deal fine-tuned the use of private aviation in a way that led to its extensive use in his gubernatorial campaign.

Traveling weekly between DC and Gainesville, the two nearest commercial airports are Atlanta and Athens, GA. Flying commercial to and from Atlanta necessitates a 1.5 to 2 hour drive each way, adding 3-4 working hours each week, most weeks of the year. Flying from Washington to Athens requires layovers in Charlotte and Atlanta. Neither of those is efficient. When multiple passengers, up to seven in the Pilatus, travel together, the cost of noncommercial air travel becomes competitive with commercial air travel.

Within the Ninth Congressional District, travel can also be time-consuming. It’s a broad district with a mountain range in the middle of it. From Gainesville to Dalton in the northwestern corner of the state and district is approximately 93 miles and takes about two hours and five minutes. Noncommercial air travel also allows a Congressman to serve the entire district more efficiently.

The second factor was a rule enacted by former Speaker Nancy Pelosi that forbade Members of Congress from flying on noncommercial aircraft that they did not themselves own or lease.

By the time that the Pelosi rule was adopted by Congress, the Congressman and his staff had determined that noncommercial air transportation was the best way to handle traveling between Washington and the district, and between the far-flung ends of the mountainous Ninth Congressional District.

Fixed costs and operating costs.

The 2010 AJC article also raised questions about manner in which the Deal campaign accounted for the costs of air travel. At issue was the campaign’s payment of “fixed costs” and “operating costs”. As the AJC described it:

Fixed costs often include things such as loan payments, insurance, annual inspections, taxes and hangar fees. Deal’s campaign would not provide details of what the actual fixed costs are.

In addition, the owners pay operating costs — fuel, landing and gate fees — each time they use one of the aircraft.

The article questions whether the fixed cost expenditures are “ordinary and necessary”. While the Deal campaign may have been the only one to rely so heavily on noncommercial aviation it’s clear that it was part of a winning strategy. Does the AJC suggest that campaigns are limited to using methods that have been used before by many other campaigns, and that innovative campaigning is illegal?

The better way of determining whether expenses are “ordinary and necessary” is to compare a given expenditure that a campaign chooses to undertake, whether it be robocalls or the lease of a campaign automobile or here, the extensive use of a private plane.

If a campaign chose to lease a vehicle, it would be responsible for both “fixed costs” such as the lease itself and insurance, as well as variable costs such as periodic maintenance and gasoline or CNG. So we ask whether the costs incurred by the Deal campaign are ordinary and necessary in the private operation of an airplane or helicoper the way that the costs of leasing a car would be.

A little time on the internet teaches me that fractional ownership of private planes is extensively used and that most such arrangements include payments by each owner-operator of a share of fixed costs and the actual operating costs incurred when flying the plane or helicopter. Additionally, the Pilatus PC-12 is a popular aircraft for share ownership, and the operating costs cited are within the normal range for such an aircraft.

Summary

The AJC article by Jim Walls misstates, either intentionally or inadvertantly, the rules governing how the Deal campaign was required to report its expenses incurred in connection with the strategic decision to make extensive use of private aircraft in the gubernatorial campaign. There was no requirement to report fair market value when the campaign paid the actual costs associated with the travel.

The Ethics Commission rules neither set a floor nor a ceiling for what a campaign may pay for noncommercial aviation, rather it provides guidance for campaigns that have been given free use of commercial aircraft as an in-kind contribution.

The Ethics Commission’s valuation of private aviation is fatally flawed because the plane used by the Deal campaign can be fit within two different categories, with an hourly valuation ranging from $500 to $3000. Additionally, the Commission has not updated its valuation despite the significant changes in fuel prices which constitute the major part of the variable costs associated with aviation.

Then-Congressman Nathan Deal was forced by Congressional rules to either fly only commercially, or to fly only on a private aircraft that he owned or leased. This rule along with the geography of the Ninth District motivated the decision to make extensive use of private aircraft owned in part by the Congressman. Having established the advantages of noncommercial flight in his Congressional service, it was not surprising that the campaign decided to use it statewide.

The accounting by the Deal campaign of payments for both “fixed costs” and “operating costs” reflect both the actual expenses incurred, which are required to be reported accurately, and the normal course of business for organizations involved in fractional ownership of noncommercial aircraft.

The rule requiring disclosure of arrival, departure and other information about specific flights is used on in valuing and apportioning in-kind contributions and thus the campaign was not required to report this information. The electronic campaign disclosure system has no place to file this information, even if it was required.

Finally, the operating costs cited for the Pilatus PC-12/45 used by the Deal campaign are within the range seen for share ownership of similar aircraft.

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