Campaign Spending Commission

Campaign Spending Commission
Leiopapa A Kamehameha Building, Room 204
July 12, 2017
10:00 a.m.

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

Commissioners Excused
None

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

Call to Order
Chair Luke called the meeting to order at 10:03 a.m.

Consideration and Approval of Minutes on 6/14/17
Chair Luke asked for comments or changes.  There were none.  Chair Luke called for a motion to approve the minutes.

Commissioner Goodenow moved to approve the minutes of 6/14/17.  Motion seconded by Vice Chair Yoshihara.

Mr. Michael Palcic commented that the minutes did not account for his request to testify about the Julia Allen case, or his request to be put on the current agenda.

Chair Luke stated that it was his understanding that Mr. Palcic spoke with staff about having his items be put on the agenda.

Mr. Palcic replied that he received a letter from the Executive Director that he believed prohibited him from speaking and bringing issues before the Commission.  Mr. Palcic expressed that he took the Commission to court, that the Commission’s attorney was embarrassed in court, and that he won,  therefore forcing the Commission to  offer a settlement.  Mr. Palcic expressed that he wanted a public forum section included on the agenda wheremembers of the public can speak on issues regardless of whether the Commission can act on them.

Vice Chair Yoshihara asked Mr. Palcic if he had any amendments to the proposed minutes for 6/14/17.

Mr. Palcic stated that he formally objected to the proposed minutes.  He insisted that the minutes were wrong, and that he not only wanted a public apology, but he also wanted to testify on the Julia Allen matter.

Commissioner Shoda commented that Mr. Palcic agreed to the settlement agreement in the Julia Allen case and that the matter had ended.

Mr. Palcic stated that he had asked to speak to changing the disclosure form and having a public forum at open meetings.

Vice Chair Yoshihara and Commissioner Goodenow stated that they did not recall those items being sought by Mr. Palcic at the last meeting.  Commissioner Goodenow suggested that the approval of the minutes be continued to the next meeting to permit staff to review the tape.  With respect to seeking matters on the agenda, he told Mr. Palcic to write a letter to the Executive Director.

Commissioner Shoda stated that an apology to Mr. Palcic was not necessary.  Vice Chair Yoshihara stated that there was a fine even though it was a reduced fine in Mr. Palcic’s case.

Commissioner Goodenow moved to continue consideration and approval of the minutes on 6/14/17 to the next meeting.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

Old Business
*Discussion and Update of Commission Legislation and/or Other Campaign Finance Related Bills/Resolutions for the 2017 Legislative Session
General Counsel Kam stated that the Governor signed the following bills:

• H.B. 100 (the state budget bill) was signed into law as Act 49 and took effect on 6/21/17
• H.B. 279, H.D. 1, S.D. 1, C.D. 1 was signed into law as Act 98 and took effect on 7/5/17
• H.B. 280, H.D. 1, S.D. 1, C.D. 1 was signed into law as Act 97 and took effect on 7/5/17

General Counsel Kam reported that the Commission’s 2 remaining bills (i.e., H.B. 281 and H.B. 282) were still pending before the Governor.

*Docket No. 15-15 – In Re the Matter of Pacific Resource Partnership PAC, a Noncandidate Committee, and John White, as its Treasurer and Chairperson, and in his Individual Capacity
and
*Docket No. 15-48 – In Re the Matter of Pacific Resource Partnership PAC and John D. White, Jr.
Chair Luke stated that the Commission needs to go into Executive Session to consider a communication from the Attorney General’s Office before they can address these dockets.

Commissioner Goodenow moved to go into Executive Session pursuant to HRS §92-5(a)(4), to consult with the Commission’s attorneys on questions and issues pertaining to the Commission’s powers, duties, privileges, immunities, and liabilities concerning prosecution of Docket No. 15-15 – In Re the Matter of Pacific Resource Partnership PAC, a Noncandidate Committee, and John White, as its Treasurer and Chairperson, and in his Individual Capacity – and Docket No. 15-48 – In Re the Matter of Pacific Resource Partnership PAC and John D. White, Jr. for the failure to report expenditures.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

*Public Session recessed at 10:14 a.m. for Executive Session.

*Public Session reconvened at 10:35 a.m.

General Counsel Kam reported that in Executive Session, Vice Chair Yoshihara participated in the discussion because her business partner no longer represents PRP, and thus, there was no conflict.  General Counsel Kam stated that the Commissioners received an attorney-client communication dated 7/11/17 from the Attorney General’s Office informing them that criminal prosecution would be declined in both cases.  He further stated that he spoke with Respondents’ attorneys (i.e., Jonathan Berkon for PRP and Bill McCorriston as well as David Minkin for John White) who informed him that they would like the opportunity to talk to their clients about the civil penalties.  As such, General Counsel Kam recommended to continue the matter to the next Commission meeting.

Commissioner Goodenow moved to continue the matters until the next Commission meeting.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

Commissioner Goodenow stated that he was very disappointed that Docket No. 15-15 was being declined due to a “procedural defect.”  He expressed that he would like to learn more about why the Attorney General’s Office was precluded from pursuing criminal prosecution.  The other Commissioners agreed.

*Docket No. 17-24 – In Re the Matter of Alan Arakawa and Friends of Alan Arakawa
General Counsel Kam reported that a complaint by Executive Director Izumi-Nitao was filed against Alan Arakawa and Friends of Alan Arakawa for the prohibited use of campaign funds.  He stated that the matter was heard at the 11/16/16 CSC Meeting, but was continued to permit the Commissioners to obtain advice from the Attorney General’s Office which was given to them at the 6/14/17 CSC Meeting in Executive Session.

General Counsel Kam stated that this case involves the use of campaign funds, not corporate treasury funds, to pay for personal expenses of the candidate and those associated with him as fellow team mates.  He reported that there are 9 counts for 9 expenditures which are at issue.  They are:

• COUNT I: Purchase of two bats for Dragons softball team – $399.98
• COUNT II: Purchase of caps and balls for Dragons – $679.16
• COUNT III: Purchase of Uniforms for Dragons – $539.44
• COUNT IV: Purchase of socks for Dragons – $58.26
• COUNT V: Purchase of socks for Dragons – $33.24
• COUNT VI: Purchase of shirts for Dragons – $879.16
• COUNT VII: Payment of Tournament entry fee for Dragons – $350
• COUNT VIII: Purchase of softballs for Dragons – $250
• COUNT IX: Payment of tournament entry fee for Dragons – $200

General Counsel Kam stated that Respondents described all of these expenditure as being advertising, directly related to campaign.  Under HRS §11-381, campaign funds may be used for expenditures, including advertising, that are directly related to the candidate’s campaign.  However, General Counsel Kam stated that these expenditures did not pay for advertisements.  Under HRS §11-302, “advertisement” means:

“[A]ny communication, excluding sundry items such as bumper stickers, that:
(1)  Identifies a candidate directly or by implication . . .; and
(2)   Advocates or supports the nomination, opposition, or election of the candidate . . .”

He stated that Respondents conceded that these 9 expenditures did not fall under the campaign finance laws’ definition of “advertising.”  In a 10/27/15 letter to the Commission, Respondent’s treasurer informed the Commission that:

“We used the definition of ‘advertising” as ‘1.  The act [or] practice of calling public attention to one’s product, service, need, etc., especially by paid announcements in newspapers and magazines, over radio or television, on billboards, etc.’ and ‘2. Paid announcements.’”  See, Exhibit 6 to the Complaint.

General Counsel Kam argued that the only definition of “advertising” that should be used is the one found in HRS §11-302 that requires the identification of a candidate and advocates the election of that candidate.  Under this definition, he stated that none of the 9 expenditures paid for a HRS §11-302 advertisement.

General Counsel Kam stated that these 9 expenditures were for personal expenses and that HRS §11-382(3) prohibits the use of campaign funds for personal expenses.  Further, under Hawaii Administrative Rules (“HAR”) §3-160-42(b), “personal expenses” means expenses that would exist irrespective of a candidate’s campaign to seek the nomination or election to office or being elected to office.  To this extent, General Counsel Kam argued that Respondent’s expenses for softball would exist irrespective of Respondent’s campaign or election to office, and that Respondent himself made that very clear.

General Counsel Kam argued that Respondent Arakawa has been playing softball since the fourth grade.  In a You Tube video, Respondent Arakawa states:  “It’s a sport that is absolutely entertaining and thrilling. Every game, every pitch, something you can do that is physical.  And the older I get, the faster the kids get.  And, um, the more of a challenge it is to keep up with them.  But the mere fact that I’m on the field, ah, you know, gives me inspiration to keep practicing and stretching.  It’s really a lot of fun.”  See ¶ 12 of the Complaint.  In this video, there was no mention of campaigning or election to office.

General Counsel Kam addressed Respondent’s arguments that the expenditures are nevertheless allowable for two reasons under HAR §3-160-42(b)(3) and (b)(7).  He stated that HAR §3-160-42(b)(3) provides that “personal expenses” includes “clothing usually and customarily worn for every day wear; provided that a campaign expense for clothing identifying the candidate or campaign for an office shall not be prohibited.”  General Counsel Kam argued that this section does not support Respondent’s position because the softball jerseys are not clothing usually and customarily worn for every day wear, the socks and caps do not identify Respondent or his campaign, and the balls, bats, and tournament entrance fees are not articles of clothing.

With respect to HAR §3-160-42(b)(7) which provides that “personal expenses” includes “dues, fees, or other expenses to a country club, health club, recreational or exercise facility and not arising from a fundraising activity or function held at the facility; provided that contributions may be used to pay for membership dues or other expenses in a community or civic organization where the candidate is directly involved in the activities of the organization,” General Counsel Kam stated that based on his review of various definitions, a softball team is not a community or civic organization.

He argued that Merriam-Webster defines community organization as “social work concentrating upon the organized development of community social welfare through coordination of public and private agencies.”   Further, according to Wikipedia, “a civic association is a type of organization whose official goal is to improve neighborhoods through volunteer work by its members.”  Also, he found no revenue rulings under 501(c)(4) of the IRS code about a softball team being deemed a community or civic organization.  In sum, General Counsel Kam stated that he could find no references of a men’s softball team as being a community or civic organization.

Lastly, General Counsel Kam argued that under HRS §11-381(a)(2), campaign funds may be used “to purchase or lease consumer goods, vehicles, equipment, and services that provide a mixed benefit to the candidate.  The candidate, however, shall reimburse the candidate’s candidate committee for the candidate’s personal use of these items unless the personal use is de minimis.”  He stated that the concept of a mixed-benefit use simply does not apply to outfitting and paying entry fees for a softball team.

General Counsel Kam argued that even if this was a mixed benefit scenario (which it is not), Respondent’s use of the de minimis test was misplaced.  Under HAR §3-160-45(b), “mixed benefit means any use of goods or services both for personal use and to influence the nomination or election of a candidate or to satisfy a function of the candidate’s elected office.”  He stated that in order to see if the personal use of a mixed benefit expenditure is de minimis, and thus, not reimbursable by the candidate to the campaign, you have to compare the campaign use versus the personal use of the expenditure.  General Counsel Kam argued that Respondent is erroneously comparing his personal use of one bat out of seven personal uses of seven bats and personal use of one uniform out of 21 uniforms.  Rather, General Counsel Kam argued that all the uses of the bats, shirts, socks, caps by Respondent and his team mates should be included on the personal use side of the mixed benefit because any use of the equipment by anyone is a personal use; and further, that that total should be compared to any campaign use of the purchased items.

General Counsel Kam cautioned against the reference of the Michigan Ethics Commission Opinion JI-58 cited by Respondents that a judicial candidate may spend campaign funds on sponsorship of a youth sports team.  He stated that Michigan law may be different from Hawaii law, and in that opinion, the candidate was sponsoring a “youth” soccer team so the candidate was probably not playing on the team.  Further, he reported that the opinion requires that the candidate include the “necessary identifying information” which, under Hawaii law, would require the support for the election of the candidate.

For these reasons, General Counsel Kam recommended that pursuant to HRS §11-405(a), the Commission make a preliminary determination of probable cause that the Hawaii campaign finance law has been violated, assess a fine in the amount of $1,694.62 against Respondent, order Respondent to reimburse his campaign from his personal funds in the amount of $3,389.24, and order that the administrative fine be deposited in the state general fund pursuant to HRS §11-410(e).

Mr. David Minkin, Esq. appeared on behalf of Respondent Arakawa.  He argued that given our aging population and that seniors are more active and playing on teams, a softball team should be considered to be a community or civic organization.  He maintained that Respondent should not be punished for purchasing items for the sponsorship of a team because it did not hit the thresholds.  Mr. Minkin stated that Respondent is running for Lieutenant Governor from the neighbor island, and that this softball team is a State team.  He further stated that he was troubled by Commission staff approaching Respondent’s charitable organizations which received an advertising expenditure from the campaign funds to obtain information on how they treated the expenditure on their taxes.  Mr. Minkin asked the Commission to not find probable cause that a violation of the Hawaii campaign finance laws had occurred.

Respondent Arakawa stated that he was troubled because he reported everything to the Commission and that he has consulted the Commission for over 20 years.  He argued that he has sponsored a team before, that it was never challenged, and that other candidates have done the same thing including the Lieutenant Governor who coaches a team.  Respondent Arakawa stated that at every tournament, he gets publicity because they announce him as Mayor and his team.  He commented that there is an upcoming tournament in Oahu and that he could not get publicity on that scale in any other way.  He then made the following comments:

• Counties have senior and junior programs that promote health and physical fitness, and he cannot believe that they would not be deemed community or civic organizations
• His quote in the You Tube video should have been sourced because he does a lot of public announcements for his office and for campaign purposes
• He chose to advertise his campaign by sponsoring a team because he planned to run at a state level and his job as a candidate is to get his name out there and to be recognized
• There are other ways besides TV ads to campaign
• The baseball uniform and team gives him statewide coverage because the insignia is clear and Mayor Arakawa’s sponsorship is announced
• A spot on the uniform has to be picked to advertise and not every piece of clothing
• His team is a community team and that there are other teams with uniforms with sponsorships (e.g., TJ Gomes which is a trucking company)
• He expressed concern about getting sponsors if the Commission is going to want to see their taxes

General Counsel Kam clarified that Commission staff is not asking for tax returns, but seeking clarification on how organizations receiving Respondent’s campaign funds for advertising were characterizing these donations with the IRS.

Vice Chair Yoshihara commented that all 501(c)(3) non-profit organizations are required to file these documents and that it was not untoward to ask them how they treated Respondent’s donations.

Mr. Minkin stated that Commission staff first asked Respondent about how the campaign funds for advertising were being characterized and then asked the organizations how the IRS treated Respondent’s donations.

Vice Chair Yoshihara stated that Commission staff has a right to do this.

Mr. Minkin stated that Commission staff is looking at a way to ding Respondent and that they are not happy with the answers even if they have a legal right to do it.

Respondent Arakawa stated that he does not know what rights the Commission has but that the Commission is not liking the answers they are getting.

Commissioner Goodenow stated that the arguments are straying from the matter at issue and are going beyond the scope of the complaint.  He said that the issue concerns whether the expenditures were advertising.

Vice Chair 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 Commissioner Shoda.

Chair Luke stated that he thought the uniform including the caps and socks should be advertising.  Commissioner Goodenow agreed and commented that Respondent was trying to get his name out there and that sponsoring a statewide team was an effective way to do that.

Commissioner Ching reaffirmed his conflict so would be recusing himself from the decision.

Commissioner Shoda stated that he cannot see how these expenditures were advertising and disagreed with Chair Luke and Commissioner Goodenow.  He cautioned the Commission about opening the door so candidates can say everything is advertising when there are donation limits to charitable and community groups.  He commented that entry fees and baseball bats were not advertising and that the uniform was borderline as implied advertising.

Respondent Arakawa commented that in order to enter a tournament as a team, you need all the equipment.

Commissioner Goodenow acknowledged that abuse of the law is possible; however, sponsorship of a team is highly sought after and that there are ordinary and necessary expenses to outfit a team.

Chair Luke asked about Respondent Arakawa’s earlier comment in being able to sponsor teams in the past.  Associate Director Baldomero stated that candidates use and report their campaign funds as donations to a community organization and not as a personal benefit or as advertising directly related to a campaign.  Executive Director Izumi-Nitao stated that Respondent’s expenditures were flagged because there were numerous expenditures to what appeared to be community organizations for advertising directly related to a campaign and no expenditures being used or reported as community or charitable contributions.

Respondent Arakawa replied that he makes personal donations to organizations and that he uses campaign funds when campaigning if his intent is to advertise.  He said that he personally donates between $20,000 to $30,000 to charities.

Vice Chair Yoshihara inquired as to whether any of the expenditures were made during the prohibited period for charitable contributions.  General Counsel Kam replied no because Respondent was not running in an election in 2016.

Commissioner Goodenow commented that Respondent broke down all the expenses even though to sponsor a team means purchasing the whole package.  Respondent replied that you cannot buy everything in one place.

Commissioner Shoda stated that the problem is that Respondent is participating and has a personal benefit.  Respondent replied that other people pay and play golf and that there is no ethical prohibition.  General Counsel Kam commented that Respondent is deriving a personal benefit by his participation on the softball team.  Executive Director Izumi-Nitao commented that HRS §11-382 specifies only 3 prohibited uses of campaign funds and that personal expenses was one of them.

Commissioner Goodenow inquired whether Deputy Attorney General Kunimoto’s advice could be given to staff if they waived the attorney-client privilege.  No consensus was reached.

Chair Luke asked what happens if the Commission cannot come to a decision.  Executive Director Izumi-Nitao stated that the complaint fails.

Deputy Attorney General Kunimoto commented that the Commission has 4 options pursuant to HRS §11-404 which include to summarily dismiss the complaint or investigate further.  Commissioner Goodenow commented that he did not believe he would have the votes to dismiss the complaint.

Chair Luke called for the vote.  Motion did not carry (2-2) (i.e., Vice Chair Yoshihara and Commissioner Shoda voted in favor of the motion; Chair Luke and Commissioner Goodenow voted against the motion; and Commissioner Ching recused).

New Business
*Consideration, Discussion, and Approval of Guidance to Committees on Calculating Late Report Fines with Respect to Unpaid Expenditures
Executive Director Izumi-Nitao reported that at the last Commission meeting on 6/14/17, staff was asked to prepare guidance to committees on calculating late report fines with respect to expenditures.  She informed the Commissioners that the memorandum, if approved, would be featured in the Commission’s biannual newsletter and would be posted on the Commission’s website.

Vice Chair Yoshihara recommended  a change to the last paragraph, 1^st sentence, on page 2 to:  “Notably, the Commission is issuing this guidance because previously, with respect to calculating the maximum fine, Commission staff did not include the unpaid expenditure (or its balance) in the computation unless it was paid or partially paid during that reporting period for which the report was filed late.”

Commissioner Goodenow moved to approve the guidance as amended.  Motion seconded by Commissioner Ching.  Motion carried (5-0).

*Discussion of Succession Planning of Commissioners and Approval of Chair and Vice Chair of the Commission
Chair Luke opened discussion regarding consideration of a new Chair and Vice Chair of the Commission as a result of Vice Chair Yoshihara’s term ending on June 30, 2017.  It was further noted that Commissioner Ching’s and Commissioner Shoda’s terms ended on June 30, 2016.

Commissioner Shoda moved to approve Bryan Luke to be Chair of the Commission and Kenneth Goodenow to be Vice Chair of the Commission.  Motion seconded by Commissioner Ching.  Motion carried (5-0).

Report from Executive Director
Update on Gubernatorial Appointment of New Commissioners
Executive Director Izumi-Nitao reported that there was no update.

Report on Compliance of Filing Timely Disclosure Reports
Executive Director Izumi-Nitao reported that the only area that requires an update concerns the Commission orders that were referred to the Attorney General’s Office – Civil Recoveries Division (“AG-CRD”).  AG-CRD reported that out of the 13 referrals, 5 have not been resolved (i.e., Henry Kahula, Creighton Higa, Eric Ryan, Raymond Banda, and Junior Mataafa).

In the matter regarding Henry Kahula, Executive Director Izumi-Nitao reported that there have been new developments which require further review.  In the matter regarding Green Leaf Group, General Counsel Kam reported that there was a hearing before the First Circuit Court on 7/7/17 and that Respondents did not appear.

Update on Searchable Database and Data Visualizations
Associate Director Baldomero reported that he was informed 2 weeks ago by ETS that the contract with Socrata, who is the vendor that oversees the Commission’s searchable database and data visualization programs, expires on 8/31/17.  He stated that he is working with ETS to ensure that these tool sets remain operational, and that if there is a change in the vendor (i.e., possibly CKan and Open Gov), he was assured that the transition would be seamless.  He informed the Commission that he would keep them posted.

Chair Luke asked if there were any budget concerns.  Associate Director Baldomero said not at this time.  Executive Director Izumi-Nitao reported that this was not an area that was budgeted for this fiscal year since the Commission had no knowledge about the expiration of this contract.

Report on July CSC Newsletter
Executive Director Izumi-Nitao reported that the Commission’s biannual newsletter was being prepared and that the target publication date is 7/25/17.  She reported the following articles to be included:

• Reminder to All Committees to File the Supplemental Report
• Availability of New Reporting Schedules
• Update on System Maintenance to the Commission’s Electronic Filing Systems
• Restoration of Operations to the State General Funds and Reminder to Check Off the $3 Box on Your 2018 Tax Return
• New Laws Going Into Effect and Review of the 2017 Legislative Session
• New Fines for Ad Disclaimer Violations
• New Guidance Regarding the Commission’s Calculation of Late Report Fines
• Reminder of the Downloadable Calendar on the Commission’s Website
• Reminder of Termination of Committee Registration with the Commission

Executive Director Izumi-Nitao asked if there were other areas that should be covered and addressed.  There were no suggestions.

Discussion of Commission Staff Salary Adjustments as a Result of a New Proposed Executive Order
Executive Director Izumi-Nitao reported that she was recently informed in the last week of June that effective 7/1/17, exempt excluded employees who are counterparts to included employees of BU 13, may receive a 2% pay increase according to a new proposed Executive Order (EO).  DAGS Personnel has asked whether to proceed.

Executive Director Izumi-Nitao stated that she did not anticipate this EO and that typically when this request is made, the Commission has asked for staff evaluations and comparable salary amounts to assess and consider staff salary adjustments.  She reported that the last staff evaluations were conducted and approved 6 months ago at the 1/11/17 CSC Meeting.  She also stated that she anticipates that BU 3 which affects the other 2 staff members will occur shortly although she had no timelines.  Therefore, the issue presented was how to proceed.

Executive Director Izumi-Nitao recommended that she will work with the Chair and Vice Chair to come up with a recommendation for the full Commission to consider at its next meeting on 9/6/17 in Executive Session under HRS §92-5(a)(2).

Chair Luke stated that he did not believe staff evaluations were necessary, but that comparable salary amounts would be helpful.

Chair Luke asked for a motion to convene Executive Session to consider and approve Executive Session minutes from the Commission meeting on 6/14/17.

Vice Chair Goodenow moved to convene to Executive Session for the aforementioned reason.  Motion seconded by Commissioner Yoshihara.  Motion carried (5-0).

Public Session reconvened at 12:08 p.m.

Vice Chair Goodenow moved to adjourn the meeting.  Motion seconded by Commissioner Yoshihara.  Motion carried (5-0).  Meeting adjourned at 12:08 p.m.

Next Meeting:
Scheduled for Wednesday, September 6, 2017.