Campaign Spending Commission

Campaign Spending Commission
Leiopapa A Kamehameha Building, Room 204
May 10, 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, Sandrina Lee, Jessica Richey
Supervising Deputy Attorney General Pat Ohara and Deputy Attorney General Valri Kunimoto

Call to Order
Chair Luke called the meeting to order at 10:05 a.m.

Consideration and Approval of Minutes on 4/12/17
Chair Luke asked for comments or changes.  There were none.  Chair Luke called for a motion to approve the minutes.

Vice Chair Yoshihara moved to approve the minutes of 4/12/17.  Motion seconded by Commissioner Goodenow.  Motion carried (5-0).

New Business
*Docket No. 17-35 – In Re the Matter of Kaniela Ing and Friends of Kaniela Ing
Executive Director Izumi-Nitao reported that a complaint was filed against Representative Kaniela Ing who is also the treasurer of his candidate committee called Friends of Kaniela Ing for late filing of a Notice of Intent to Hold a Fundraiser.

Executive Director Izumi-Nitao stated that Respondent Ing held a fundraiser on 3/12/17 for which the price or suggested contribution was more than $25 per person.  Respondent Ing e-filed his Notice of Intent to Hold a Fundraiser with the Commission on 3/23/17 (i.e., 11 days late).  HRS §11-342(b) provides that a notice of intent to hold a fundraiser shall be filed with the Commission prior to the fundraiser, and that because Respondent Ing failed to timely file his notice of intent to hold a fundraiser, Commission staff sent him a letter via first class mail informing him that a fine of $25 would be imposed.  Respondent Ing failed to pay the late notice of fundraiser fine by the deadline and was reminded three times about the fine from Commission staff.

Executive Director Izumi-Nitao stated that on 5/2/17, Commission staff sent Respondent Ing a copy of the complaint and set the matter on the May 10, 2017 Commission Agenda.  On 5/5/17, Respondent Ing paid the $25 administrative fine.

Executive Director Izumi-Nitao recommended that the Commission dismiss the matter due to compliance.

Commissioner Goodenow moved to dismiss the complaint.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

*Docket No. 17-36 – In Re the Matter of University of Hawaii Professional Assembly – PAC
General Counsel Kam reported that a complaint had been filed by Executive Director Izumi-Nitao against University of Hawaii Professional Assembly – PAC for making excess contributions to a candidate committee in violation of HRS §§11-357 and 11-363.

General Counsel Kam stated that the Commission staff received a letter on 5/5/17 from Respondent’s attorney requesting a continuance so that they may submit a written response which they were unable to do prior to the meeting because they were in collective bargaining negotiations.  General Counsel Kam stated that the staff had no objection to this request.

Commissioner Goodenow moved to continue the matter to the Commission’s next meeting on 6/14/17.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

Old Business
*Update on the Consideration of Comments Submitted by Michael G. Palcic, Chairman, The Committee to Elect Julia Allen, Concerning Changes to Headings and Combining Expenditure Election Period Totals on the Candidate Committee Disclosure Reports Filed on the Candidate Filing System
Associate Director Baldomero provided a background timeline of this project.

• By way of a letter dated 1/3/17, Mr. Palcic requested that his proposed changes to the Commission’s Disclosure Report and supporting documents be added to the 1/11/17 Commission meeting for discussion and possible action.
• At the January meeting, Mr. Palcic distributed hand-outs to the Commissioners and staff to aid his presentation in clarifying information on the Commission’s Disclosure Report and bringing the report form into compliance with proper accounting and applicable statutes. Palcic then proceeded to address his proposed changes while stating that the Disclosure Report was primarily a cash accounting report that has accrual elements incorporated into it.
• At the Commission’s March meeting, Associate Director Baldomero reported that there were 9 proposals concerning text and computation changes which were later updated to 10 proposed changes after one of the previous 9 proposals, which consisted of a text and computation change, was divided into two separate proposed changes. Of the 10 proposed changes, he reported that 8 were text changes and 2 were computation changes.  At the March meeting, Associate Director Baldomero stated that consideration of these proposals required a review of the campaign finance laws/rules by the Attorney General’s Office, a discussion with the Office of Enterprise Technology Services (“ETS”) concerning coding revisions for the computation changes, and meeting with a CPA to ensure that accounting principles were intact.  Mr. Palcic presented the Commission with a handout entitled “Summary and Examples of Proposed Changes to Campaign Disclosure Report” to further clarify one of his proposals presented at the Commission’s January meeting.
• At the Commission’s April meeting, Associate Director Baldomero gave a brief update that the requested changes needed to be reviewed by legal counsel before any technical changes could be considered.

Associate Director Baldomero reported about his meetings with various professionals concerning Mr. Palcic’s proposals.

• On 5/8/17, he met with Mr. Palcic to discuss his proposed changes to which Mr. Palcic began to offer alternatives to what he initially submitted. Associate Director Baldomero stated that he would contain his recommendation to Mr. Palcic’s original submission.
• In January 2017, he met with Jennifer Silva who consulted with her team of Kyle Muranaka and Jimmy Thai from ETS because Mr. Palcic’s proposed changes would require text changes as well as coding changes to the mathematical computation of the Disclosure Report. ETS stated that the changes could be done.
• On 4/28/17, he spoke to Paul Kuramoto (CPA; Business owner/Paul T. Kuramoto, CPA Inc.; former Campaign Spending Commissioner (2003-2011) and Commission Chair (2005-2011); former campaign treasurer; and author of the Commission’s Treasurer’s Manual) who confirmed that the Commission’s Disclosure Report and Schedules were following the correct accounting principles as provided in the Hawaii Revised Statutes and Hawaii Administrative Rules, as they relate to the cash basis and accrual basis of accounting.
• From a strict legal review, General Counsel Kam confirmed that the Disclosure Report, in its present form, is consistent with the HRS and HAR.
• Other CPAs consulted were Kathi Thomason from the campaigns of Linda Lingle, Duke Aiona, other Senate/House candidates, and the Hawaii Republican Party; Iris Osaki from the Neil Abercrombie campaign and Governor David Ige campaign; Marilyn Niwao, CPA, attorney, and President of the Hawaii Society of Certified Public Accountants; and John Roberts of the firm Niwao & Roberts, CPA. They all confirmed that the Disclosure Report and Schedules follow correct accounting principles as they are established even though they are unique.
• On 5/4/17, he met with Deputy Attorney General Kunimoto who confirmed that the term “Disbursements” is not a defined term in the HRS, and therefore, should not be used on the Disclosure Report. This was also confirmed by General Counsel Kam.  Associate Director Baldomero reported that there is a clear disagreement with Mr. Palcic on payments to unpaid expenditures and loans being considered “expenditures” versus “disbursements” or non-expenditures.

Associate Director Baldomero summarized that all of Mr. Palcic’s proposed changes are premised upon his belief that payments for unpaid expenditures and loans are not “expenditures” because they lack the second element in HRS §11-302 (i.e., these transfers of money are not for the purpose of influencing the nomination for election, or the election, of any person seeking nomination for election or election to office).  He stated that Mr. Palcic believes that these transfers of money for payments to unpaid expenditures and loans should be considered “disbursements” and that the second element in the definition of “expenditure” is met at the time the unpaid expenditure is incurred or at the time the loan proceeds are expended.

Upon careful consideration and analysis of Mr. Palcic’s arguments and materials as well as his meeting with various experts and consultants, Associate Director Baldomero concluded that staff’s recommendation is to not accept Mr. Palcic’s proposed changes.

Executive Director Izumi-Nitao mentioned that Mr. Palcic informed Associate Director Baldomero that he could not be present at the meeting due to a doctor’s appointment.

Vice Chair Yoshihara commented that if a report is filed late, by using “disbursements,” it would eliminate the Commission from considering “expenditures” in the late report fine computation.

Commissioner Goodenow asked about a situation in which a loan is made in a previous election period, and paid off in the following election period.  He asked whether the loan payoff would be accounted for in the candidate committee’s expenditure limit.  General Counsel Kam replied that the loan payoff would not be counted towards the candidate committee’s expenditure limit.

General Counsel Kam stated that the changes Mr. Palcic seeks requires that he go to the legislature to change the statutory definition of “expenditure.”  He further stated that the Commission’s campaign finance laws are based on the federal law.

Vice Chair Yoshihara stated that because the statutory definition of “expenditure” tracks campaign funds on a cash and accrual basis, as long as an unpaid expenditure is on the books, it is an “expenditure.”

General Counsel Kam stated that the campaign finance law is not an accounting system but a system to ensure transparency and the reporting of contributions and expenditures.

Commissioner Ching asked Associate Director Baldomero that when he consulted with the professionals, did they also consider whether the Commission’s forms were legal.  Associate Director Baldomero responded in the affirmative.

Deputy Attorney General Kunimoto commented that the court appeared to have difficulty with the Commission’s form which included the terms “expenditures” and “disbursements” so she recommended that the language be changed to use only one term (i.e., “expenditures” not “disbursements”).  Associate Director Baldomero replied that the change to the disclosure reports was requested in September and implemented by October 2016.  Deputy Attorney General Kunimoto stated that it would have been easier to show the court how Commission staff calculated the fine with the deletion of “disbursements.”

Chair Luke stated that whether an expenditure is prepaid or not paid for, it is an “expenditure.”

Commissioner Shoda asked about how unpaid expenditures would be used to calculate late report fines.  Associate Director Baldomero used an example in which a committee had incurred a $1,000 unpaid expenditure in a reporting period.  If the report was filed late and the committee made no payment towards the $1,000 unpaid expenditure, Commission staff would assess the fine using the $1,000 unpaid expenditure balance.  If the following reporting period was filed late and the committee paid $200 of the $1,000 unpaid expenditure, Commission staff would assess the fine using the $200 payment and the $800 unpaid expenditure balance (i.e., $1,000).  Lastly, if in the following reporting period, the report was filed late and the committee made no additional payments, Commission staff would assess the fine using the $800 unpaid expenditure balance.

Prior to the Julia Allen contested case, in this hypothetical, Commission staff would not assess the fine at the time the unpaid expenditure was incurred (or its balance), but only when it was paid.  Therefore, in the example above, the $1,000 unpaid expenditure incurred in the 1^st late report would not be considered, only the $200 payment towards the $1,000 unpaid expenditure in the 2^nd late report would be considered, and the $800 unpaid expenditure balance in the 3^rd late report would not be considered.

Vice Chair Yoshihara commented that the statutory definition of “expenditure” is broad.

General Counsel Kam stated that the impact of this application is that the fine ceiling will be higher on the expenditure side because the expenditure amount used to calculate the 25% cap will be higher thereby resulting in higher fines if the cap has to be used over the daily fine.

Commissioner Goodenow moved to accept staff’s recommendation and not accept Mr. Palcic’s proposed changes.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).

*Discussion and Update of Commission Legislation and/or Other Campaign Finance Related Bills/Resolutions for the 2017 Legislative Session
General Counsel Kam referenced the “2017 Legis CSC (May)” spreadsheet to inform the Commissioners of the status of the bills.  He reported the following:

H.B. 100, H.D. 1, S.D. 1, C.D. 1 – In the Executive Budget bill, the legislature agreed to reinstate general funding for Commission operations and salaries in FY 2018 and FY 2019.

Chair Luke asked about funding beyond FY 2018 and FY 2019.  General Counsel Kam explained that after FY 2019, the Commission will need to go back to the legislature for further funding.  General Counsel Kam added that this is the current practice of other agencies.

H.B. 1022, H.D. 1, S.D. 2, C.D. 1 – This was the Attorney General Office’s claims against the State bill that will be discussed in Executive Session to consult with Commission’s attorneys.

H.B. 279, H.D. 1, S.D. 1, C.D. 1 – This was a Commission bill that specified that certain types of dissemination, distribution, republication, and use of certain types of campaign materials or the financing of such by any person would not be considered a contribution or expenditure by a candidate.  C.D. 1 accepted S.D. 1’s clarification that it would not be a contribution to a candidate if the campaign materials were incorporated into an advertisement or electioneering communication by a different candidate, or by a noncandidate committee, which advocated the defeat of the candidate that originally prepared the material.  This bill takes effect upon approval.

H.B. 280, H.D. 1, S.D. 1, C.D. 1 – This was a Commission bill that clarified the due dates of preliminary, final, and supplemental reports, provided that the supplemental report due on 1/31 must be filed every year, and provided that the final election period report would have to be filed 3 business days before the candidate is sworn into office for those candidates who take office before the final election period report is due.  This bill takes effect upon approval.

H.B. 281, H.D. 1, S.D. 1, C.D. 1 – This was a Commission bill that amended HRS §11-340(f) and required the Commission to publish on its website the names of noncandidate committees that fail to file or correct a report.  C.D. 1 accepted S.D. 1’s clarification that candidate and noncandidate committees that failed to correct a report within 2 weeks of notification would be published on the Commission’s website.  Commission staff noted a concern about this amendment because the language conflicted with HRS §11-340(e) which provides that a committee has 14 days (rather than 2 weeks) to correct a substantially defective or deficient report, and the notification by first class mail of a substantially defective or deficient only mentions candidate committees in HRS §11-340(d).  This bill takes effect upon approval.

H.B. 282, H.D. 1, S.D. 1, C.D. 1 – This was a Commission bill that clarified that a noncandidate committee that failed to file the 2^nd Preliminary General Report would be assessed the higher minimum fine of $300 per day.  This bill takes effect upon approval.

All other Commission bills and other campaign finance bills are dead for this session, but could be revived in 2018 since it is a biennium session.

General Counsel Kam reported the following timeline in the legislative process:

• 5/12/17 – the list of bills sent to Governor’s office for bill review
• 5/22/17 – comments and recommendations for bills are due to the Governors (which is what General Counsel Kam is working on presently)
• 6/7-6/9/17 – the Governor will be reviewing bills with departments
• 6/26/17 – the Governor’s intent to veto deadline
• 7/11/17 – last day for the Governor to sign/veto bills

If the Governor signs these bills, Associate Director Baldomero reported that there would be no technological changes to the filing systems that ETS would have to implement.  As for committee reports, he stated that staff would need to change the reporting schedule for Kauai County and Hawaii County elected officials to reflect an earlier filing deadline for the Final Election Period Report (i.e., 11/28/18) because these officials are sworn into office earlier than the statutory deadline for the filing of the Final Election Period Report (i.e., 12/6/18).  Lastly, he stated that he would need to change the Commission’s website to add a link under Noncandidate Committees entitled “Committees that Failed to File or Correct a Report.”

Executive Director Izumi-Nitao further reported that if the Governor signs these bills, the Administrative Fine Guidelines with respect to the late report fine for noncandidate committees who filed a late 1^st Preliminary General Report would have to be adjusted (i.e., $50 minimum fine for the first 7 days and $200 per day thereafter).  She also noted that staff will adjust the language in the standardized letters notifying committees of campaign finance law violations as well as review the committee guidebooks and manuals.  Notification of the legislative changes and adjustments would be posted on the Commission’s website, e-blasted to subscribers, and inserted into the June CSC newsletter as well as the 2017 CSC Annual Report.

General Counsel Kam commented that this was a productive legislative session for the Commission and that appreciation letters were sent to the chairs and vice chairs of the Senate Judiciary & Labor Committee and House Judiciary Committee.

*Consideration, Discussion, and Approval of Amendments to the Commission’s Administrative Fine Guidelines
Executive Director Izumi-Nitao stated that this matter was continued from the 3/8/17 Commission meeting to permit staff more time to research.  She stated that the relevant statute at issue is HRS §11-391(b) which provides that:  “The fine for violation of this section, if assessed by the commission, shall not exceed $25 for each advertisement that lacks the information required by this section or provides prohibited information, and shall not exceed an aggregate amount of $5,000.”

Executive Director Izumi-Nitao expressed a concern in satisfying the Commission’s request because staff is having difficulty coming up with a recommendation that promotes compliance and deterrence as well as addresses a prompt correction of the disclaimer.  She commented that there are multiple advertisement mediums (i.e., mailers, TV ads, radio ads, Internet) so it is difficult to recommend a dollar amount “for each advertisement” when the quantity may not be so discernable and would require staff to make further inquiries with the committee.

Executive Director Izumi-Nitao reported that there has been only one case where a committee elected to repeatedly violate this statute with multiple advertisements despite being previously fined and warned by Commission staff.  Typically, most committees have corrected their advertisement, paid the fine, and did not reoffend.

Executive Director Izumi-Nitao asked the Commissioners for further instructions or guidance.

Discussion ensued regarding the legislative history behind HRS §11-391.  Associate Director Baldomero stated that the statute used to assess a fine of $25 per day that the advertisement lacked the disclaimer not to exceed $5,000.  He said that in 1995 the daily fine amount was taken out.  General Counsel Kam reported that sometime in early 2000 when he was the Deputy Attorney General advising the Commission, he recalled a case involving a Midweek ad that lacked the disclaimer due to a problem with their printer whereupon the ink smeared out part of the disclaimer.  The fine in that case was much higher than $5,000, and ultimately, Midweek paid the fine because the candidate committee and the Commission would not budge on the assessed fine.

Discussion ensued about whether Commission staff would have to conduct a mini-discovery in ascertaining how many advertisements were distributed and whether this would delay correcting the disclaimer on the advertisement.  Commissioner Goodenow expressed his concerns in staff conducting mini-discovery and the delay.

Vice Chair Yoshihara and Commissioner Shoda expressed concerns that the $25 fine being administered by staff was too low.  Ultimately, the Commissioners agreed that a $25 fine for the first violation seemed reasonable but that graduated steps with increasing fines should occur if there are repeated violations.  To this extent, they asked Commission staff to consider a proposal for their consideration to change the Administrative Fine Guidelines to account for graduated steps for reoccurring violations to culminate in a criminal referral if there is intentional, knowing, or reckless conduct.

Commission staff agreed to come up with a recommendation for the Administrative Fine Guidelines for their consideration at the next meeting.

Report from Executive Director
Update on Gubernatorial Appointment of New Commissioners
Executive Director Izumi-Nitao reported that the Commission’s efforts to obtain new Commissioners have been unsuccessful.  She stated that the Judicial Council met recently and added 5 new applicants to the Commission’s list for the Governor to select from.

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 Faye Hanohano, General Counsel Kam stated that a bench warrant was issued on 5/2/17 by Judge Crandall in 1^st Circuit Court for her failure to appear.  He further reported that Faye Hanohano has submitted a cashier’s check to pay her fines.  However, she still needs to file 2 reports.

Update on the CSC Budget Request
Executive Director Izumi-Nitao reported that the Commission was successful in restoring operations and salaries to general funding in H.B. 100, H.D. 1, S.D. 1, C.D. 1 which is now before the Governor for approval.  She thanked the Department of Accounting and General Services for their support.

Associate Director Baldomero reported that as of today, the trust fund balance is $806,759.03 which is below “close to depletion” (i.e., $874,503.70) as defined under HAR §3-160-65.  He commented that the Commission should receive an approximate $158,750 from revenue (i.e., $3 tax check-off, interest, escheats) which will help boost the trust fund, and effective 7/1/17, assuming the trust fund will no longer have to pay for salaries and operations, it will be able to rejuvenate itself so that the Commission will not have to declare “near depletion” (i.e., $655,975.99) which means no partial public funding in the 2018 election.  He informed the Commission that he would keep them posted.

Chair Luke asked for a motion to convene Executive Session to:  (1) Consider and approve Executive Session minutes from the Commission meeting on 4/12/17; (2) 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 H.B. 1022; and (3) 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. 17-24 – In Re the Matter of Alan Arakawa and Friends of Alan Arakawa for the prohibited use of campaign funds.

Commissioner Shoda moved to convene to Executive Session for the aforementioned reasons.  Motion seconded by Commissioner Goodenow.  Motion carried (5-0).

Public Session reconvened at 12:41 p.m.

*Pursuant to Hawaii Revised Statutes section 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 H.B. 1022
Regarding the Executive Session item #2 concerning H.B. 1022 (the Attorney General’s claims bill), Chair Luke stated that the Commission agreed to fund two items out of the Hawaii Election Campaign Fund.  He made the following statement:

“We agreed with the recommendation of General Counsel Kam to pay the judgment for attorneys’ fees in the Yamada case in the amount of $66,701.10.  This is a judgment that must be paid because if we force the plaintiff to go back to federal court to enforce the judgment, the result will be more fees to pay.  Since the Attorney General’s office acknowledged that we were not at fault in the Yamada case, we hope that the Attorney General’s office will go back to the legislature next session to seek reimbursement of this amount to the trust fund.

Further, we agreed with the recommendation of General Counsel Kam to pay for the settlement amount of $2,415 in the Julia Allen matter.  Although we were told that general funds would pay for the settlement, General Counsel Kam believes that the amount to be paid represents the nuisance value of the case, and no more.  The Commission agrees and believes that ending the dispute so that the parties can move forward with other business is the right approach.  By settling this case for nuisance value only, the Commission in no way agrees with the Attorney General’s legislative testimony on this claim that the Commission acted unreasonably, in bad faith, or that the electronic filing system is inadequate.”

Chair Luke moved to adjourn the meeting.  Motion seconded by Vice Chair Yoshihara.  Motion carried (5-0).  Meeting adjourned at 12:45 p.m.

Next Meeting:
Scheduled for Wednesday, June 14, 2017.