Minutes for October 11, 2017 Meeting

Posted on Nov 8, 2017 in Main, Minutes

Campaign Spending Commission
Leiopapa A Kamehameha Building, Room 204
October 11, 2017
9:00 a.m.

Commissioners Present
Bryan Luke, Kenneth Goodenow, Adrienne Yoshihara, Gregory Shoda

Commissioners Absent
Eldon Ching

Staff Present
Kristin Izumi-Nitao, Tony Baldomero, Gary Kam, Sandrina Lee, Jessica Richey
Deputy Attorney General Valri Kunimoto

Guest
Cecelia Chang, Director of the Center for Alternative Dispute Resolution, State of Hawaii

Call to Order
Chair Luke called the meeting to order at 9:05 a.m.

Consideration and Approval of Minutes on 9/6/17
Chair Luke asked for comments or changes.

Commissioner Yoshihara sought the following amendment:

  • Under “Consideration and Approval of Minutes on 6/14/17 and 7/12/17,” page 1 paragraph 7, last sentence to read: “Chair Luke reiterated that the Commission made a decision to accept the recommendation from staff.”

Chair Luke called for a motion to approved the minutes as amended.

Vice Chair Goodenow moved to approve the minutes of the 9/6/17 meeting as amended.  Motion seconded by Commissioner Yoshihara.  Motion carried (4-0).

New Business
*Consideration and Discussion of Strategic Planning
Executive Director Izumi-Nitao reported that she has been working with Cecelia Chang, Director of the Center for Alternative Dispute Resolution (“CADR”), to facilitate discussions with the Commission to review, evaluate, and modify (if necessary) the current strategic plan which lapses in 2018.  She stated that the Commission’s roles and responsibilities are set by statute and are largely regulatory in nature.  She further commented that the strategic plan helps shape the Commission’s future, sets longer term priorities, and establishes the foundation to make choices in the short term to influence the future.

Introductions were exchanged and Chair Luke reported that he met with Director Chang before this meeting.

Director Chang proceeded to go through the expected timeline of the planning process and objectives.  She then went over the ground rules which were agreed to by the Commission.  The ground rules were:

  • Everyone participates and no one dominates
  • No “right answer”
  • Keep an open mind
  • Keep discussion on track
  • Once a decision is made, agree not to revisit
  • Public testimony (written in advance or verbal limited to 5 minutes) will be received

Director Chang confirmed that the Commission would be tweaking the current strategic plan.  She also asked that they consider what (if any) term of years the new plan would take as well as when it would go into effect (e.g., January 1st or July 1st).

As for the process, it was agreed that Commission staff would take notes and edit the plan based on the discussions at the public meetings.  A revised version of plan would then be distributed to the Commissioners for consideration and discussion at the next public meeting in an effort to move towards approving a final strategic plan.

Mayor Alan Arakawa raised a concern for ground rule #5 regarding agreeing not to revisit a decision once it has been made.  Director Chang acknowledged that there may be a situation in which a subsequent discussion will cause the Commission to want to revisit a prior decision and she agreed that in certain circumstances ground rule #5 may require some flexibility.

Director Chang started discussion on reviewing the current strategic plan:

Mission Statement.  After discussion on whether to keep, strike, or move “timely” to another place in the Mission Statement, it was decided that it would be stricken (3-1; Commissioner Shoda opposed).  Mission Statement revised to read:

“Our mission is to maintain the integrity and transparency of the campaign finance process by enforcing the law, educating the public, administering public financing, and training campaign committees in order to encourage compliance.”

Goal – To simplify and clarify campaign finance laws in order to improve implementation and compliance.  After discussion, it was decided to revise the goal and its accompanying objectives (4-0) to read:

“To improve campaign finance laws and rules to increase transparency, compliance, and ensure the integrity of the campaign finance process.

  • Review existing laws and propose and submit legislation as needed.
  • Review existing rules and procedures and propose administrative rules as needed.”

Goal – To increase public education, awareness, and access.  After discussion, it was determined that this goal should remain because it focuses on the public (versus campaign committees).  Commission staff agreed to review this goal again and its accompanying objectives for resubmission and consideration at the next meeting.

Goal – Increase the technological capacity to improve access, reduce paperwork, and increase compliance.  After discussion, it was decided to revise this goal and its accompanying objectives (4-0) to read:

“To explore, examine, and implement technological advances and capacities to improve access, reduce paperwork, and increase compliance.

  • Increase the Commission’s capability to process and analyze reported data.
  • Maintain awareness of newer technology, including electronic filing systems and hardware/software or applications, for consideration of integration and/or implementation.
  • Maintain awareness of the implications of technological changes on all aspects of campaign finance.”

Chair Luke commented that technology advances are difficult and constantly improving as well as may have budget consequences that may be beyond the Commission’s control.

Goal – Upgrade the training for and ability of the committees to comply with campaign finance laws.  After discussion, it was determined that this goal should stand alone because it focuses on the campaign committees (versus the public).  Commission staff agreed to review this goal again and its accompanying objectives for resubmission and consideration at the next meeting.

Goal – Encourage compliance.  After discussion, it was decided to revise this goal (4-0) to read:
“To obtain compliance with campaign finance laws and rules through enforcement actions.”

Discussion ensued on the accompanying objectives.  With respect to keeping or striking, “[s]implify and expedite disposition of campaign finance violations,” Commissioner Yoshihara stated that this objective was not necessary because it has been executed and fulfilled.  It was decided to strike this objective (3-1; Commissioner Shoda opposed).

The objectives for this goal to read:

  • “Develop escalating penalties for repeat and gross violations, and disseminate information about the penalties.
  • Seek enforcement of the campaign finance laws and rules against violators.”

Director Chang stated that this would be a good place to stop and that the discussion would resume at the Commission’s next meeting on 11/8/17.

*Docket No. 18-02 – In Re the Matter of Alan Arakawa, Ann R. Arakawa, Anthony T. Arakaki and Friends of Alan Arakawa
General Counsel Kam reported that he would like to make a correction to paragraph #48 on page 16 of the Complaint.  Specifically, he stated that the amount should be corrected to read “$104.19.”

General Counsel Kam stated the following:

  • HRS §11-381(a)(1) authorizes a candidate, treasurer, or candidate committee to use unlimited campaign funds for any purpose directly related to the candidate’s campaign.
  • HRS §11-381(a)(3) allows a candidate, treasurer, or candidate committee to use campaign funds “to make donations to any community service, educational, youth, recreational, charitable, scientific, or literary organization.” However, donations are limited to twice the maximum amount that one person may contribute to that candidate in an election period and are prohibited from the date the candidate files nomination papers to the date of the general election.
  • In Respondent Arakawa’s situation, as Maui Mayor, he is limited to giving $8,000 from his campaign funds as donations to community service and charitable organizations in an election period.
  • The 2018 election period for the Maui Mayor runs from 11/5/14 to 11/6/18.
  • During the current election period, as of 12/31/16, Respondents reported over $47,000 in 59 expenditures made to 41 community service and charitable organizations.
  • Respondents reported on the Commission’s electronic filing system that all of the expenditures were authorized by statute as being “directly related to candidate’s campaign” under the sub-category of “advertising.”
  • Commission staff began its investigation in the summer of 2015 having noticed that Respondents reported over $18,000 in expenditures to community service or charitable organizations during the time period of 11/4/14 through 6/30/15.
  • Commission staff asked Respondents for documents that supported the reporting of these expenditures as directly related to the candidate’s campaign. Respondents provided documents to staff.  It appeared that some of the solicitation or acknowledgment letters to Respondents from the community service and charitable organizations used the term “contribution” or “donation.”  Thus, it appeared to Commission staff that these expenditures may be tax-exempt donations.
  • Among the documents turned over by Respondents was a letter dated 1/7/15 from the American Heart Association that stated that the $1,000 payment from Respondents was a tax-exempt donation as well as a 7/23/16 letter from the Japanese Cultural Society of Maui that clearly indicated that the Cultural Society reported the $300 payment from Respondents as taxable advertising income to the IRS.
  • Commission staff then sent out letters of inquiry to the other 39 organizations that Respondents had reported expenditures from campaign funds. Of these 39 organizations, 12 did not respond to Commission staff.  The expenditures made to these organizations totaled $10,829.91.  If these expenditures were donations to community service or charitable organizations, it would have exceeded Respondent Arakawa’s limit of $8,000 for the election period.  Four organizations responded that they reported Respondents’ payments as taxable, advertising income to the IRS.
  • The Commission’s letter of inquiry that was sent to the U.S. Chess Federation (“Federation”) at the address provided by Respondents in their report was returned as undeliverable to the Commission. Commission staff looked up the address of the Federation and re-sent the letter to its Crossville, Tennessee address on 6/13/17.  On or about 6/19/17, a representative of the Federation informed staff that the Federation did not receive any payment from Respondent Friends, the Federation does not sell chess sets, and the House of Staunton, dba U.S. Chess Federation Sales, a for-profit company located in Huntsville, Alabama, sells chess sets.  Since the payment was not a charitable donation and Respondents reported that it put its campaign logo on the sets for use in community chess matches, Commission staff recommended that the Commission find that the payment was directly related to the candidate’s campaign.
  • On 6/2/17, the Commission’s letter of inquiry was sent to Joni Celiz at the Wailuku office of the American Cancer Society (“ACS”). On or about 7/7/17, Commission staff had a telephone conversation with Anita Drummond, Assistant General Counsel for ACS in Washington, D.C.  In that conversation, Ms. Drummond indicated that:
    • The Commission’s 6/2/17 letter was referred to her for response and that the ACS’ fundraising sponsorships do not involve the sale of advertising.
    • Payment for a sponsorship is a tax-exempt donation to the ACS.
    • ACS has a policy of not selling sponsorships to political candidates.
    • Respondent Ann Arakawa may be telling the nonprofit organizations to ignore the Commission’s letter of inquiry.
    • Respondent Ann Arakawa had spoken to Joni Celiz.

Ms. Drummond offered to set up a telephone interview between herself, Ms. Celiz, and Commission staff.  Ms. Drummond also indicated that she would submit a written response to the Commission’s letter of inquiry.

  • On 7/12/17, Ms. Drummond emailed her response to Commission staff. She included as attachments, a 9/1/16 letter from ACS Maui Hope Fest to Respondent Friends, promotional materials for the 2015 Maui Hope Fest, a Sponsorship Packages Informational Sheet with handwritten remarks about “advertising,” and the Sponsorship Agreement form completed by Respondent Ann Arakawa.  In her July 12th letter, Ms. Drummond informed the Commission that:

“I can confirm that ACS received payment in 2015 of $5,000 from the Friends of the Mayor Alan Arakawa (“FOAA”).  The payment was for sponsorship of an event called Hopefest Maui.  Sponsors of the event received return benefits of a reception table and tickets as described in the enclosed document.  The intention of soliciting sponsorships is not to sell advertising in any form.  Instead, charities are permitted to publicly acknowledge event sponsors, including use of logos, without incurring taxable income so long as the content is not advertising in nature.  The value of support is paying for any return benefits, such as tickets, and underwriting event costs.

The enclosed form shows that that FOAA returned the form with a notation of ‘advertising.’  Staff originally involved with soliciting the FOAA sponsorship are no longer with ACS to confirm when this change was made or if it was noted at the time the check was received.  In assessing our records, we determined that the FOAA at some point in 2016 asked our staff to write a letter indicating the payment included advertising, and based on the fact the FOAA form had been changed by hand notation, our staff obliged them.  However, ACS did not book the payment as advertising income.”

  • On 7/13/17, Ms. Drummond confirmed that the payment from Respondent Friends was a tax-exempt contribution.
  • On or about 7/27/17, a telephone conference took place between Commission staff, Ms. Celiz, and Ms. Drummond. Celiz stated the following:
  • She is the Community Development Officer at the Wailuku office of ACS and has so been employed since 5/1/17.
  • On the day she received the Commission’s 6/2/17 letter of inquiry, she took a call from Respondent Ann Arakawa that same afternoon. Respondent Ann Arakawa told her that:
    • She wanted to provide context to the Commission’s letter.
    • The Commission was trying to get nonprofits to list what they (Respondents) gave as a donation instead of marketing.
    • Most nonprofits ignore the Commission’s letter or re-sent the original acknowledgement that was mailed to Respondent Friends.
    • The Commission’s mention of a subpoena was a threat to the nonprofits.
  • She got the impression that Respondent Ann Arakawa was or had been communicating with other nonprofits.
  • Celiz forwarded the Commission’s inquiry letter to the ACS Executive Director in Honolulu and sent an email to her supervisor concerning her conversation with Respondent Ann Arakawa.
  • A copy of Ms. Celiz’ email to her supervisor was provided to the Commission (see Exhibit #47). The email makes it clear that Respondent Ann Arakawa knew about the limitations placed upon a candidate’s donations to nonprofits and that she wanted Ms. Celiz’ response to the Commission “to be clear and say ‘advertising’…not ‘contribution’ or ‘donation.’”
  • From the 41 community service and charitable organizations that received expenditures from Respondents during the period 11/4/14 to 6/30/16, Commission staff could only determine the true purpose of 9 payments made to 8 organizations.
  • Under HRS §11-333(b)(3), candidates and treasurers must disclose the true purpose of an expenditure. The $1,000 payment Respondents made to the American Heart Association and the $5,000 payment Respondent made to the ACS were tax-exempt donations to charitable organizations.  Respondents reported these payments as directly related to the candidate’s campaign under the category of “advertising.”
  • Candidates must not be allowed to disguise donations (HRS §11-381(a)(3)) as payments directly related to the candidate’s campaign (HRS §11-381(a)(1)) under the category of “advertisement.” Otherwise, the time and amount limitations applicable to charitable donations will be meaningless as a candidate would simply describe the acknowledgement that charitable organizations are allowed to do for contributors as payment for advertising.  For the same reasons, the Commission cannot allow candidates and charitable organizations to agree to describe an expenditure as a payment directly related to a candidate’s campaign, where the payment is in fact being treated by the charitable organization as a tax-exempt donation.

General Counsel Kam recommended that the Commission make a preliminary determination that probable cause exists to believe that Respondents violated the campaign finance law, and recommended that the Commission assess a fine against Respondents in Counts I and II in the amount of $1,000 each, the maximum fine under HRS §11-410(a), order that the fines be placed in the general fund of the state, and order Respondents to amend their reports to reflect the fact that the two expenditures to the American Heart Association and the ACS were donations to charitable organizations.  In the alternative, General Counsel Kam recommended that the Commission refer the complaint to a prosecuting authority under HRS §§11-411 and 11-412.   He argued that:

  • In Count I, Respondents may have recklessly, knowingly, or intentionally violated the law. The American Heart Association sent Respondents a “gift” letter acknowledging Respondents “generosity in donating $1,000.”  Respondents ignored this fact and did not report the expenditure as a donation to a charitable organization.
  • In Count II, Respondent Ann Arakawa suggested to the Maui employee of the ACS how the employee should respond to Commission’s staff’s letter of inquiry. Respondent Ann Arakawa suggested that other nonprofits that Commission staff wrote to were ignoring the letter or were simply sending a copy of their original acknowledgement to FOAA to Commission staff.  She also suggested that she wanted the employee’s response to the Commission “to be clear and say ‘advertising’… not ‘contribution’ or ‘donation.’”  Respondents’ conduct with the ACS’ employee on Maui can arguably be seen as an attempt to deceive the Commission.

Mr. David Minkin, Respondents’ attorney, stated that he had corrections to the complaint.  There were 2 checks that were lost so stop payments were initiated and checks were re-issued.

  • $500 payment to Street Bikers United Maui Chapter on 11/7/14 (page 2) was re-issued on 2/11/15 (page 3)
  • $1,210.46 payment to the Wailuku Junior Tennis Club on 5/31/16 (page 6) was re-issued on 7/28/16 (page 6).

Mr. Minkin stated that Respondents were before the Commission on a previous matter regarding softball and were aware that they were pending issues; however, he had not received a phone call to discuss the issues prior to receiving the instant complaint on 9/29/17.  Mr. Minkin stated that the allegations were being bolstered by individuals who were not with the organizations in 2015-2016.  He further stated that he was surprised about the allegation that Ann Arakawa was somehow doing something nefarious.

Mr. Minkin distributed a handout containing 3 exhibits to the Commissioners, Executive Director Izumi-Nitao, General Counsel Kam, and Deputy Attorney General Kunimoto.

Mr. Minkin stated that Ms. Celiz did not start working with the ACS until spring 2017, and that the legal counsel in D.C. [Anita Drummond] did not start working with ACS until 2017.

Mr. Minkin referenced the exhibits that were in his handout.  Exhibit 1 contained documents concerning the ACS HopeFest 2015.

  • FOAA 1 – Letter dated 9/1/16 from the Executive Director Alaina Cunningham of the Maui ACS stating that the $5,000 contribution was used for advertising.
  • FOAA 2 – FOAA check dated 8/17/15 to the ACS which signifies that the contribution was for advertising.
  • FOAA 3 – HopeFest sponsorship form completed by FOAA for advertising.
  • FOAA 4 – HopeFest sponsorship package describing what kind of advertising and marketing FOAA would receive for a $5,000 payment (e.g., local recognition, half page dedication, and social media coverage). Minkin emphasized that he would submit to the Commission that this was advertising.
  • FOAA 5 – Solicitation letter from the ACS.
  • FOAA 6 – Printout from the event in which the bottom right-hand corner shows “Friends of Mayor Arakawa.”
  • FOAA 7 – HopeFest’s advertisement in the Maui News with the “Friends of Mayor Arakawa” logo on the bottom right-hand corner.
  • FOAA 8 – HopeFest program listing FOAA as a sponsor of the event
  • FOAA 9 to 11 – Linkedin.com profile information of Anita Drummond, Assistant General Counsel for the ACS, indicating employment in April 2017 to present.

Mr. Minkin stated that Commission staff spent an inordinate amount of time hunting down the organizations to deal with this situation.  He stated that Commission staff did not ask for back-ups and reached out to people in these organizations in 2017 who have no background or knowledge as to what transpired.  He stated that how an organization treats the money given to them is beyond the purview of the Commission.  Mr. Minkin maintained that Mayor Arakawa submitted money for advertising and that no one crossed out contribution and wrote advertising.  He commented that he would love to have Ms. Drummond and Ms. Celiz testify under oath as to the statements provided in the complaint, and cross-examine them.

Mr. Minkin continued to explain the exhibits that were in his handout.  Exhibit 2 contained documents concerning the American Heart Association Go Red for Women 2014.

  • FOAA 12 – FOAA check dated 11/6/14 to the American Heart Association which signifies that the contribution was for advertising.
  • FOAA 13-14 – Flyer explaining what a $1,000 contribution purchased. Minkin commented about the statement on the flyer which read: “Opportunity to select a mission program to activate; this is tailored to company’s marketing focus and goals, as well as level of support.”  He stated that Mayor Arakawa lives on a neighbor island and this event would give him statewide recognition.
  • FOAA 15 – Pledge confirmation.
  • FOAA 16 – Letter from American Heart Association that showed the fair market value of the contribution.
  • FOAA 17 – Social media post.

Exhibit 3 contained exhibit FOAA 18 which was an email dated 4/12/17 from Kari Luna Nunokawa to Ann Arakawa.  Mr. Minkin read the following:

“I wanted to let you know about an incident that occurred a couple of months ago.  I received a call from the State Campaign Spending Commission.  I didn’t write down the name of the person who actually called, which I should have.  The call was regarding the Friends of Alan Arakawa’s payment for Advertising in the B. Martin Luna Memorial Tennis Tournament for 2016.  I was asked what the nature of the payment was and I responded that the Friends of Alan Arakawa paid for advertising at the tournament where we hung banners, mentioned Mayor’s name with the announcement of winners and runner ups from the tournament and also engraved Mayor’s name on the tournament trophies all as part of the payment for Advertising.  The man on the phone took a long time to try and process what I was saying and kept trying to get me to say that this was a donation to which I responded that the Friends of paid for Advertising.  He asked who the check was made out to and I responded to Wailuku Junior Tennis Club, who was sponsoring the tournament.  He didn’t seem to understand this.  He kept asking questions about the nature of the advertising and how WJTC claim the fee, as a donation and I said, no WJTC counts it as payment for Advertising.  The man didn’t seem to understand and finally said he would just send me a formal letter, to which I responded, please do.  The man kept trying to ask the same question in different ways hoping I would say something different.  It was bordering on being harassment as he would not take what I said.  It was confusing and very frustrating.  I don’t understand why the State Campaign Spending commission would not take what I say as being true that what was paid for by Friends of Alan Arakawa was for Advertising at the tournament.”

Mr. Minkin explained his frustration that hundreds of letters were going out and calls were being made when the responses were unsatisfactory.  He stated that he does not believe that the case is criminally prosecutable and that failing to report properly does not constitute criminal prosecution.  Mr. Minkin stated that the violations in the complaint were not an excess contribution, nor an excess donation, instead it alleged a violation of HRS §11-333 that the filing of a report be complete and accurate.  Mr. Minkin commented that it seemed like the staff is saying that “if we can’t get you for the baseball advertising, we will find something else that we can ding you for.”  He argued that the Commission should deny the complaint due to insufficient evidence.

Mayor Arakawa stated that he has been in the political arena for a long time and has tried his best to comply with the rules.  He insisted that he followed the requests of the Commission.  He stated that he reports everything and submits everything timely for the most part.  He said that his campaign made a conscious decision not to make donations and only do advertisements because he did not want to get into trouble with the Commission.  Mayor Arakawa commented that at the request of the Commission, he was asked to contact everyone that he purchased advertising from, not once, but three times.  He stated that he had his wife contact those organizations, and when he received their responses, he sent them to the Commission.  Mayor Arakawa added that he also sent copies of the checks he wrote and letters from the people providing the advertisements.  He stated that the Commission would then follow up by contacting the same organizations and badger them.  He expressed his concern that he has been dealing with multiple complaints from the people he was advertising with.

Mayor Arakawa stated that the last time he was here, he was told to contact the organizations to get their tax return information and give it to the Commission.  Mayor Arakawa stated that he would not do the Commission’s work for them.  In his opinion, he cannot approach the organizations and ask them for or demand from them their tax statements.  He also stated that he does not have the authority to go into the books of these organizations to see how or what they are reporting to the IRS.

Commissioner Yoshihara asked whether Commission staff used Guide Star to access the organizations’ 990 forms.  General Counsel Kam replied in the negative.

Mayor Arakawa replied that as a candidate, he cannot be held accountable to look up all the information.  He commented that he is being charged with two incidents because all the other organizations have said that it was advertising because he did not want to get into donations.  Mayor Arakawa explained that he required letters stating that it was advertising.  He also stated that he personally donates to many of these organizations and knows the difference.

Commissioner Yoshihara referenced Mr. Minkin’s letter (see Exhibit #9 in the complaint) which addressed the reasonable commercial rate for advertising.  She asked whether the $500 payment to Street Bikers United Maui Chapter for advertising was the same amount that they charged everyone else for the same form and size of the advertisement.  She questioned this because everything above the reasonable commercial rate would be considered a donation.  Mayor Arakawa responded that he pays whatever the organization asks them to pay, that he could not answer whether it was a fair market value of the advertisement, and that he assumes that what they are asking for was what was asked of everyone else.  Mayor Arakawa explained that he does not go out of his way to give extra.  He did mention that there have been instances in which organizations charge political candidates more for an advertisement than others.  For example, the Makawao Parade charges more for an entry fee to political candidates.

Commissioner Yoshihara asked how the forms requesting money were set-up (e.g., check boxes with different dollar amounts).  Mayor Arakawa replied in the affirmative.  He stated that the solicitations were not normally in person.  If he did receive an in-person solicitation, he would tell them that he required a formal letter.  Mayor Arakawa mentioned that he did not personally buy the advertisements and that it was done by his committee because he wanted to be separate from the money.

Commissioner Yoshihara referenced the $1,000 given to American Heart Association in which $476 was for goods and services, and the remainder was a donation.  Commissioner Yoshihara asked Mayor Arakawa if he believed this happened with the other organizations.  Mayor Arakawa responded that he just pays the organizations what they solicit for and that he pays no attention as to how the organizations treat the money they receive.

With respect to the reasonable commercial rate referenced in Advisory Opinion No. 06-02, General Counsel Kam stated that the opinion clarified that if a candidate paid the reasonable commercial rate for advertising in a non-profit organization’s newsletter, the candidate would have made an expenditure that he believed the organization would treat as unrelated business income to the IRS.  He noted that the opinion further provided that if the candidate paid more than the reasonable rate for advertising, then the excess would be considered to be a contribution to the non-profit organization.  He stated that he did not believe this opinion to be controlling nor persuasive since it did not involve fundraisers which are at issue in this matter.  General Counsel Kam commented that the Commission needs to put a meaning to the term “donation” in HRS §11-381(a)(3) and maintained that a donation is whatever the organization considers a donation.

Mayor Arakawa asked how candidates are supposed to know what is a reasonable rate.  He maintained that candidates are not marketing experts and are therefore unaware of what is a reasonable rate for a high school booklet or a community organization booklet, etc.  Mayor Arakawa stated that what the organizations set as the rate is what he has to assume is a reasonable rate; otherwise, he would have to get an evaluation from the Commission on everything that organizations are asking for to ensure that it is a reasonable rate.

Commissioner Yoshihara asked about a circumstance in which a flyer was distributed.  She would write down her $250 off as a charitable donation.  For the same flyer, Mayor Arakawa assumes it as advertising and the organization calls it advertising.  Commissioner Yoshihara stated that she suspected that if she called and asked how her money was treated, it would be considered as a donation.  Mayor Arakawa responded that he donates to organizations that he also purchases advertising from.  One is a personal decision and one is a business decision.  Mr. Minkin commented that if Commissioner Yoshihara were to donate for advertising, she would not anticipate her name being on a trophy, placard, or her name mentioned during the winner announcement, etc.  Commissioner Yoshihara replied that for the Humane Society and Hawaii Public Radio, your name is recognized.  Mayor Arakawa commented that he only does advertising and that he explicitly explains to the organizations that he only purchases advertising.

General Counsel Kam stated that Advisory Opinion No. 06-02 references advertising in a newsletter of an organization which he argued did not occur in this case as all of advertisements were at a fundraiser which leads to the assumption that it is a donation.  He stated that there is a limit for candidates on donations (i.e., twice the contribution limit for the candidate) and a candidate cannot donate from the date they file their nomination papers until the date of the general election.

Chair Luke stated that he believed it was reasonable for the staff to investigate when the vast majority of candidates are reporting their payments to these organizations as donations in contrast to Mayor Arakawa who reports it as advertising.

Commissioner Shoda commented that it seemed reasonable for the Commission staff to investigate into this matter since it involved $47,000 of expenditures to charitable organizations.  He further stated that it would be negligent to not investigate.  Commissioner Shoda asked about whether it was an exaggeration that hundreds of letters were sent out by Commission staff to which Mr. Minkin replied that there were more than 39 letters.

General Counsel Kam stated that numerous phone calls were made to Mr. Minkin throughout the investigation.  Once General Counsel Kam received the standard gift letter form the American Heart Association and the letter stating that the donation was for advertising income from the Japanese Cultural Society, he contacted Mr. Minkin asking if he could obtain letters such as these from the other non-profits.  General Counsel Kam stated that he did not ask for any tax records.  In General Counsel Kam’s opinion, non-profits just send out letters, such as the ones stated, to account for the money they have coming in.  General Counsel Kam recalled a conversation with Mr. Minkin in which he said he would try to obtain the letters once his jury trials were over.  Soon after, Mr. Minkin sent a letter to Executive Director Izumi-Nitao that stated they would not be contacting the organizations.  In response, General Counsel Kam sent out the Commission’s letters of inquiry to the organizations.

Vice Chair Goodenow asked for clarification on whether all of expenses were used for advertising except for American Heart Association and ACS.  General Counsel Kam replied in the negative.  General Counsel Kam stated that only 6 of the organizations replied to the Commission stating that the money received was used for advertising income.  The remaining 33 organizations have not responded to the Commission.  Vice Chair Goodenow asked whether the Commission staff considered it legitimate that 6 organizations replied that the payment was used for advertising.  General Counsel Kam replied that the Commission would accept their responses.

Vice Chair Goodenow stated that he did not see any knowing, intentional, or reckless actions taken by the Respondents.  He stated that he appreciated the fact that the actions of Ann Arakawa were brought to the Commission’s attention, but that he did not see them as criminal.

Vice Chair Goodenow asked if the 6 organizations that were seen as advertising were let go.  General Counsel Kam explained that those organizations replied to the Commission stating that the payment for advertising was reported as advertising income and they paid taxes on that income.

Executive Director Izumi-Nitao stated that the investigation and analysis does not focus on advertising.  By law, she reported that there are only 8 authorized uses of campaign funds of which 2 of those authorized uses are directly related to a candidate’s campaign and a donation to a charitable organization.  Notably, in this matter, she reported that none of the $47,000 expended was characterized as a donation to a charitable/community organization.  Executive Director Izumi-Nitao commented that this inquiry started out very professional in 2015 but deteriorated later.  When Commission staff sent out its inquiry letters, it did not get any responses and the only way to explain appeared to be that Respondent Ann Arakawa got involved based on the conversation that General Counsel Kam had with the ACS.

Executive Director Izumi-Nitao stated that the only matter put before the Commission in the complaint was 2 counts of false reporting because there were 2 situations in which Respondents reported their expenditure as directly related to a candidate’s campaign for advertising when it should have been reported as a donation to a charitable/community organization because the 2 organizations treated Respondents’ payments as tax-exempt donations.

Since he was copied on the Commission’s letters, Mr. Minkin reported to have received a half a dozen phone calls from the organizations that were contacted.  His response to them was to do what they thought was appropriate.  The organizations responded to Mr. Minkin stating that they are too busy and, if subpoenaed, then they would respond differently.  Mr. Minkin commented that to say Ann Arakawa is out there doing nefarious things upon one conversation is inappropriate and mistaken.

Commissioner Yoshihara asked if the Commission should go into Executive Session to consult with their attorney.

Mayor Arakawa commented that ACS allows political candidate committees to buy sponsorships.  He referred to Respondents’ Exhibit 1, FOAA 8, in which it showed another candidate committee’s name (i.e., Friends of Stacey Moniz) and commented that candidate Stacey Moniz must have also been solicited.

Commissioner Yoshihara stated that she would like to know the cost of the advertisement and what was the balance or donation after the cost of the advertisement.

Mayor Arakawa responded that he is being accused of willfully misrepresenting the report, but did not willfully misrepresent anything.  Mayor Arakawa insisted that he was just purchasing advertising.

Chair Luke stated that he believed it was reasonable to inquire further with the organizations because although Mayor Arakawa claimed that he made an advertising payment, the vast majority of contributions received by charitable organizations are deemed donations.  Mayor Arakawa responded that he makes personal donations and purchases campaign ads using his campaign funds.

Commissioner Shoda asked why Respondents could not get invoices.  He stated that normally when advertising is purchased there is an invoice.  The invoice breaks down exactly what is being purchased.  Commissioner Shoda expressed his concern that no other candidate committee runs roughshod over the Commission like this.

Vice Chair Goodenow provided an example in which his daughter’s ballet recital has a booklet in which his business purchases advertisement space.  The advertisement puts his name out there and he gets referrals as a result.  Vice Chair Goodenow commented that advertisements should not be limited to newspapers and radio ads.

Commissioner Yoshihara commented on the $5,000 contribution to the ACS in which a set amount is an in-kind contribution and anything over that amount is a donation.  Vice Chair Goodenow replied that those who are purchasing the advertisements are paying for the cost of the fundraiser.  Commissioner Yoshihara agreed, but the organization is also making money.  She further stated that the law states that organizations are supposed to break down the costs.

General Counsel Kam stated that he did not receive FOAA 1 (i.e., the letter dated 9/1/16 from Executive Director Alaina Cunningham from ACS) from the Respondents originally.  Instead, General Counsel Kam reported that he received this letter from ACS to Respondent Friends dated 9/1/16 from Ms. Drummond (see Exhibit #45 in the complaint).  Ms. Drummond told General Counsel Kam that a representative of Mayor Arakawa’s committee told the organization to write this letter after the investigation started.

Vice Chair Goodenow suggested that Commission staff look into the legislative history of when charitable/community donations were added to the law to see if they were trying to curb abuses of this type. General Counsel Kam commented that there is a limitation to these donations, not a prohibition.  General Counsel Kam stated that the organizations are allowed to acknowledge your gift.  He argued that if the acknowledgements were going to be turned into advertising as used in a commercial or corporate sense rather than in accordance with the campaign finance laws which define advertisements more strictly, then he does not see how donations will ever be limited.  In other words, General Counsel Kam argued that everything would be reported as directly-related advertising.  Commissioner Shoda commented that if Mayor Arakawa were allowed to do this, then everyone would do this and the charitable donation law would be meaningless.  He further commented that Mayor Arakawa cannot just ignore the Commission’s laws.

Mayor Arakawa stated that he has been doing this for years and that his reports have been accepted by the Commission.  He never had the intent to misrepresent anything.  He argued that the Commission’s rules and laws should clearly be specified to every candidate if the Commission is going to enforce them.  Mayor Arakawa stated that it was never explained to him or anyone on his committee and that the Commission has a duty to the candidates to inform them of any changes in the rules.  The mission statement of the Commission is to go out and do training sessions.  Commissioner Shoda confirmed that Commission staff does have training sessions.  Mayor Arakawa replied that he has attended those training sessions, but that this issue was never been brought up.

Vice Chair Goodenow questioned why the legislature decided to limit donations and commented that he suspects that it was because campaigns had large amounts of money leftover and the legislators decided that they could give it to these organizations.

Executive Director Izumi-Nitao responded that she believed that although donations to charitable/community organizations are permitted, restrictions on when you could give these donations and how much you could give to them, were enacted so that there was no perception that the candidate was seeding the community to persuade the community to vote for him/her.  She commented that staff’s investigation did not involve Respondents making charitable/community donations in a prohibited period, and that staff was unable to prove that Respondents exceeded the $8,000 limit based on the responses (or lack of responses) received.

Chair Luke commented that in reviewing the ACS, he would be apt to consider Respondents’ payment as advertising if they received notification from the organization that it was received as advertising and not as a donation.  Commissioner Yoshihara replied that the Commission has to be aware of the timing of the acknowledgment.  Chair Luke stated that he has made donations in the past to non-profit organizations, and when he lost their gift letter, he was able to obtain a replacement letter.  Chair Luke acknowledged however that the timing is a little suspect based on the conversations.

Chair Luke reviewed the letter from American Heart Association and referenced FOAA 16.  He commented that the $1,000 donation included a fair-market value of $476 for advertising, and asked the other Commissioners if the remaining balance would be considered a donation to which the other Commissioners replied in the affirmative.

Chair Luke stated that he thought it would be reasonable for Commission staff to investigate the payments made to the non-profit organizations because normally the payments made to these organizations would be considered donations.  Chair Luke said that if a response was given that the payment was for advertising, and not a donation, he would accept that.  Chair Luke stated that non-profit organizations that receive donations regularly are used to writing letters to clarify that it was a donation.

Commissioner Yoshihara asked if the other organizations that did not respond were still on the plate and whether there would be any other counts associated with the complaint.  General Counsel Kam replied that once it became apparent of why and how the organizations were responding or not responding based on Respondents’ involvement, he believed that this complaint should just be filed because staff was not getting any more information or cooperation.

Commissioner Yoshihara asked why Commission staff did not subpoena the organizations that did not respond.  General Counsel Kam replied that the cost would be too great.  He stated that in order to enforce the subpoena, it would need to be done on Maui.  When Commission staff received the response from ACS, General Counsel Kam thought it would be throwing money away if staff went through with the subpoena because Respondents were telling the organizations not to respond to the Commission or to provide the Commission with the same acknowledgment letter that was sent in the past, so he did not expect any true compliance but instead more litigation in attempting to enforce subpoenas in a court on Maui.

Mr. Minkin commented that he did not receive any phone calls from the Commission staff between 7/12/17 and when the complaint was filed on 9/29/17.  Mr. Minkin stated that the Commission staff was being disingenuous since they received the letter from Ms. Drummond dated 7/12/17 and never told him about it.

Mayor Arakawa stated that even though there was an assumption that when the expenditure occurred it was for advertising, he would change his campaign spending report to show that the 2 expenditures to ACS and American Heart Association were for donations.

Commissioner Yoshihara stated that there appears to be 2 inquiries: (1) The legislative history on charitable contributions and policy discussions in HRS §11-381 which was requested by Vice Chair Goodenow; and (2) A request for further fact finding which was requested by Chair Luke.

Commissioner Yoshihara stated that under the Internal Revenue Code, all tax-exempt organizations are required to provide letters of substantiation.  She found it disconcerting that at least $7,000 of the nonresponsive organizations have not provided a letter confirming the nature of Respondents’ contribution.  She requested that Commission staff send out another letter.  Executive Director Izumi-Nitao commented that Exhibit 20 in the complaint shows how Commission staff was trying to address this concern.

Mayor Arakawa commented that he has all the letters that were given to him from the organizations and provided them to the Commission.  General Counsel Kam reported that he received the letters, but not from all of the organizations.  General Counsel Kam recalled that Respondents indicated that there was an agreement with the organizations that what they were purchasing was advertising.

Executive Director Izumi-Nitao reported that the organizations’ responses to Commission staff’s inquiry letters resulted in many different responses.  Exhibit 20 in the complaint asked if the non-profit organizations considered Respondents’ payment to them as a contribution.  Commissioner Yoshihara asked that of those that considered it advertising, could they then assume that they considered the payment as an unrelated taxable income.  General Counsel Kam replied that one of the responses that he received was that Respondents viewed the payment for advertising, not that the organization viewed the payment for advertising.  General Counsel Kam stated that he can send out another letter to specifically request the information.

Mr. Minkin stated that he heard 3 things:  (1) ACS – the letter from 2016 which states that the payment was for advertising differs from that of the letter received in 2017; (2) American Heart Association – the balance of $524 to be claimed as a charitable contribution which the committee would be willing to do; and (3) As to the other organizations where information was still required, he commented that he was not sure whether responses would come to the Commission without the power of a subpoena.

Deputy Attorney General Kunimoto asked if the Commission could go into Executive Session.

Vice Chair Goodenow moved to amend the agenda to go into Executive Session.  Motion seconded by Commissioner Shoda.  Motion carried (4-0).

Vice Chair Goodenow moved to go into Executive Session pursuant to HRS §92-5(a)(4) to consult with the Commission’s attorney on questions and issues pertaining to the Commission’s powers, duties, privileges, immunities, and liabilities concerning Docket No. 18-02 – In Re the Matter of Alan Arakawa, Ann R. Arakawa, Anthony T. Arakaki, and Friends of Alan Arakawa.  Motion seconded by Commissioner Yoshihara.  Motion carried (4-0).

*Public Session reconvened at 12:10 p.m.

Commissioner Yoshihara moved to continue the matter to investigate further by having Commission staff and Deputy Attorney General Kunimoto review the legislative history regarding the use of campaign funds for charitable/community contributions as well as to write to the organizations again to clarify that the money they received from Respondents was treated as taxable income (or tax-exempt donations).  Motion seconded by Vice Chair Goodenow.  Motion carried (4-0).

Commissioner Yoshihara noted that staff needs to become familiar with tax laws and write to the organizations from the standpoint of the tax laws.

Executive Director Izumi-Nitao clarified that the Commission has requested that staff send out letters to the organizations similar to exhibit 20 to specifically ask how they received/treated Respondents’ contribution to them.

Vice Chair Goodenow stated that he would hope for Respondents’ cooperation and positive participation in this endeavor.  Commissioner Yoshihara commented that GuideStar may provide some light on how the organizations treated Respondents’ payments to them.

It was agreed that the matter would be continued to the 12/13/17 Commission meeting to permit staff the opportunity to complete these tasks.

*Docket No. 18-04 – In Re the Matter of Tiare Lawrence and Tiare Lawrence for Maui
Executive Director Izumi-Nitao reported that a complaint had been filed against candidate and treasurer Tiare Lawrence as well as the candidate committee called Tiare Lawrence for Maui for the failing to pay the fine of $20.90 for the late filing of the Supplemental Report in violation of HRS §§11-333 and 11-334(b).

HRS §§11-333(a) and 11-334(a) require that the candidate and treasurer shall timely file the Supplemental Report.  Pursuant to HRS §11-331, Respondents’ Supplemental Report covering the period 1/1/17 to 6/30/17 was due on 7/31/17.  Respondents did not file this report by the deadline.  On 8/1/17, Commission staff sent Respondents a letter via first class mail informing them that the Supplemental Report was not filed and that a fine would be imposed.  This letter was addressed to Respondents at the addresses listed on their Organizational Report.  On 8/3/17, Respondents filed the report.  On 8/3/17, Commission staff sent Respondents a letter via first class mail informing them that a fine of $20.90 would be assessed for the late filing of the report.  Respondents did not pay the late report fine.  Commission staff called Respondents on 8/22/17, 8/28/17, 9/5/17, and 9/7/17 to remind them to pay the fine as well as to inform them that their failure to do so would result in a complaint being filed.  Respondents did not pay the fine.  On 9/20/17, Commission staff sent Respondents a copy of the Complaint and set the matter on the 10/11/17 Commission agenda.  Executive Director Izumi-Nitao recommended that pursuant to HRS §11-405(a), the Commission make a preliminary determination of probable cause that the Hawaii campaign finance law had been violated, assess an administrative fine in the amount of $20.90 against Respondents, order that the fine be paid from the candidate’s personal funds if the candidate committee’s funds are insufficient to pay the fine, and order that any and all administrative penalties be deposited in the general fund pursuant to HRS §11-340(g).

Commissioner Yoshihara moved to make a preliminary determination that probable cause exists that a violation had been committed and to accept the fine and terms stated in the complaint.  Motion seconded by Vice Chair Goodenow.  Motion carried (4-0). 

Old Business
None

Report from Executive Director
Report on Compliance of Filing Timely Disclosure Reports
Executive Director Izumi-Nitao reported that there are 3 candidate committees and 4 noncandidate committees who have not filed the Supplemental Report which was due on 7/31/17.  She reported that these committees have been previously referred to the Attorney General – Civil Recoveries Division (“AG-CRD”) for collections.

As for the Commission orders that were previously referred to AG-CRD, Executive Director Izumi-Nitao had no new update (i.e., 5 of the 13 referrals have not been resolved — Henry Kahula, Creighton Higa, Eric Ryan, Raymond Banda, and Junior Mataafa).

Update on 2017 CSC Annual Online Survey
Associate Director Baldomero reported that the online survey was made available from 9/11/17 and will close on 10/31/17.  To date, there have been 100 responses.  He reported that he eblasted reminders on 9/25/17 and 10/16/17.  He stated that he will do a final eblast on 10/31/17.  Notably, most of the responses submitted are from treasurers from committees on Oahu who have experience with the Commission of over 10 years.  Associate Director Baldomero stated that he intends to give a full report at the next meeting.

Discussion of Proposed 2018 CSC Meeting Dates
Executive Director Izumi-Nitao asked the Commissioners whether the proposed meeting dates in 2018 were acceptable so that they could be posted on the Commission’s website (i.e., 1/10/18, 2/14/18, 3/14/18, 4/11/18, 5/9/18, 6/13/18, 7/18/18, 8/8/18, 9/12/18, 10/10/18, 11/14/18, and 12/12/18).

Vice Chair Goodenow and Commissioner Yoshihara stated that they would be off island for the March 2018 meeting.

Executive Director Izumi-Nitao stated that staff would take a look at the March 2018 meeting date and try to identify an agreeable date given the conflicts in the Commissioners’ schedules.

Chair Luke asked for a motion to convene Executive Session to (1) consider and approve Executive Session minutes from the Commission meeting on 9/6/17 and (2) pursuant to HRS §92-5(a)(4), consult with the Commission’s attorney on questions and issues pertaining to the Commission’s powers, duties, privileges, immunities, and liabilities concerning a letter from Attorney General Douglas Chin to Chair Bryan Luke dated 9/5/17.

Commissioner Shoda moved to convene to Executive Session for the aforementioned reasons.  Motion seconded by Commissioner Yoshihara.  Motion carried (4-0).

Public Session reconvened at 12:47 p.m.

Vice Chair Goodenow moved to adjourn the meeting.  Motion seconded by Commissioner Yoshihara.  Motion carried (4-0).  Meeting adjourned at 12:48 p.m.

Next Meeting:
Scheduled for Wednesday, November 8, 2017.