Politics & Government

State House for Sale: SC's ‘very murky’ system

From $1.2 million in state Medicaid payments to a $1 Diet Coke, South Carolina’s state legislators and constitutional officers reported $19.5 million in income and other benefits from public sources in 2012.

Only 23 percent of that money came from lawmakers’ state salaries and reimbursements. The rest came from fees that lawmakers earned from government entities, full or part-time jobs at public agencies, state and federal retirement benefits, and gifts.

State lawmakers are required to disclose the income and benefits they receive from public sources. But a review by The State newspaper of 179 statements of economic interest forms filed in April reveals a wildly inconsistent system with little oversight, making it impossible to say definitively how much lawmakers earn from public sources.

A key question in the debate over overhauling state ethics laws is how much lawmakers should reveal about who pays them. Some argue requiring lawmakers to disclose too much would prevent qualified people from running for office. The state Legislature is designed, they say, for part-time lawmakers – people who have to make their living elsewhere in a full-time job that is subject to the laws and regulations that legislators write.

But others say too little disclosure allows lawmakers to hide their conflicts of interests, creating a cottage industry of cronyism that is inherently at odds with the public interest.

State Sen. Tom Davis, R-Beaufort, said the state’s disclosure law is so “vague and general that it allows too much subjective interpretation by the lawmaker.”

That is why Davis listed the value of every property he owns, including his $1.1 million home, on his statement of economic interest. Davis says those properties benefit “through contributions through the local government fund,” which state lawmakers control, “or through road funding or through something that I may have had a hand in making help happen.”

“That’s the reasoning,” said Davis, one of only a few legislators to disclose property. “Whether I am right or not, I don’t know.”

Other lawmakers do not disclose money from the state, saying they either did not know about the income or did not know they were required to disclose it.

State Sen. Hugh Leatherman, R-Florence, chairman of the powerful Senate Finance Committee, disclosed that he is a minority owner of the Florence Concrete Co., which he founded in 1955 and managed until 1994. But Leatherman did not report the state Department of Transportation awarded Florence Concrete Co. $735,000 in contracts in 2012, according to state procurement records.

“I don’t know anything about those,” Leatherman said. “I’m not the boss. I don’t know what they get or don’t get or when they get (it).”

As a result, Leatherman contends, disclosing his minority ownership stake – not the value of the company’s state business – meets the requirements of state law.

A bill before the state Legislature would require lawmakers, for the first time, to disclose all of their sources of income, both private and public. South Carolina is the only state that does not require such disclosures from its elected officials. But the proposed law would do little to clear up confusion about what lawmakers are supposed to report from public sources.

The bill passed the House, but the Senate adjourned for the year earlier this month without taking it up. Senators will continue the debate in January.

In the meantime, Senate President Pro Tem John Courson, R-Richland, has assigned a special committee – three Republicans and three Democrats – to study the ethics proposal during the legislative off season and hold public hearings across the state.

“My fear is that concern about tightening our ethics laws could start to wane as time goes by unless we have some entity to keep it alive,” Courson said. “I’m hoping this (committee) will do that.”

‘It’s very murky’

The $19.5 million in income and other benefits that lawmakers reported on their 2013 statements of economic interest included:

• $7.4 million in fees lawmakers earned from government entities, including Medicaid payments and legal cases heard before the state Workers’ Compensation Commission

• $4.5 million in salaries associated with their positions as state officeholders

• $3.7 million worth of property, including Sen.’ Davis’ $1.1 million house

• $2 million in salaries that lawmakers or their family members earned from government agencies. (For example, the wife of state Sen. Larry Martin, R-Pickens, works for the Pickens County school district, while state Rep. Rita Allison, R-Spartanburg, works for the Commission on Higher Education, a state agency.)

• $158,000 in gifts

State law 8-11-1120(2) says lawmakers must disclose “the source, type and amount or value of income” of $500 or more “received from a governmental entity.” But some lawmakers say, in their cases, it is difficult to comply with the requirement.

For example, state Rep. Kris Crawford, R-Florence, is an emergency-room doctor. In 2012, he was paid $28,000 from the state’s Medicaid program, the joint federal-state health insurance program for the poor and disabled. But Crawford did not disclose that income on his statement of economic interest.

Crawford said he does not have a contract with Medicaid and does not know what kind of insurance his patients have. His company’s billing office handles those matters. “I never know, and I don’t know how I could ever account for that appropriately on my statement of economic interests,” he said.

However, several of Crawford’s peers reported their income from Medicaid.

State Sen. Kevin Bryant, an Anderson Republican who owns a pharmacy and medical-supply company, reported receiving $1.6 million in Medicaid payments. And state Rep. Murrell Smith, R-Sumter, who co-owns a medical supply company, reported $197,656.40 in Medicaid payments.

“They own their businesses, and so they know what flows in. They know who they get their money from,” Crawford said. “I get paid an hourly rate.”

In 2011, Crawford did report receiving $164,244.40 from Medicaid, but he said that was only because the agency sent the money to him directly that year.

“The way that we report now, I don’t think is particularly clear,” Crawford said. “It’s very murky for folks. I think I’m compliant. One year, they write you the money one way and you have to report it, and, the next year, they write you the money a different way.”

Crawford said if he told his bosses at the emergency room where he works that he needed them to account for exactly how much money Medicaid pays for his services, they would tell him to resign from the House or quit his job.

“You have to make this a place where people can serve. Obviously, all businesses appreciate some level of privacy,” Crawford said. “How long can you stay here and be in the workforce?”

House lawmakers authorized the state Medicaid program to spend an extra $528 million in the state budget year that begins July 1. Crawford did not vote on the section of the budget that authorized the new spending. But he did vote on the part of the budget that tells the Medicaid agency how to spend the money.

Rep. Smith, who co-owns a medical-supply company, did vote for Medicaid increase. Sen. Bryant, who owns a pharmacy, voted against it.

Sen. Leatherman, who has a minority ownership in a concrete company, voted to approve the Department of Transportation’s budget, including an additional $140 million in spending.

Understaffed ethics police

Leatherman says South Carolina does not have a problem stemming from having a weak ethics law governing lawmakers – it has a problem enforcing its existing ethics law.

Consider the case of state Rep. B.R. Skelton.

For five years, the Pickens Republican did not report any income on his statement of economic interests – not even his taxpayer-funded salary, as state law requires. Skelton said he did not know he was required to disclose that pay. After being questioned by a reporter, Skelton filed amended reports disclosing his state salary for the past five years.

No one seemed to notice that Skelton had not disclosed his salary. As a state lawmaker, Skelton is outside the jurisdiction of the State Ethics Commission. Instead, he falls under the oversight of the House Ethics Committee, which until this year had five members, all lawmakers. (It now has 10 lawmaker-members, five from each party.)

The committee’s job is to monitor the hundreds of ethics reports filed by the House’s 124 members. Four times a year, each member must file a report listing everyone who donated to the member’s campaign account, plus how their campaign spent that money. That is in addition to the annual statements of economic interest forms.

Also, House members are up for election every two years, meaning hundreds of challengers for the House’s 124 seats also file disclosure reports and statements of economic interest.

But the House Ethics Committee only has two part-time staffers to monitor these reports. And those staffers have other committee responsibilities. For example, the Ethics Committee’s attorney also is assigned to the House Judiciary Committee, one of the busiest committees in the Legislature.

In contrast, the House Ways and Means Committee – which handles the state budget – has 11 full-time staff members.

Likewise, the Senate Ethics Committee has one staff member to monitor reports from 46 senators plus any candidates who oppose those incumbents every four years.

Staffing is even worse at the State Ethics Commission, which has jurisdiction over statewide elected officials, including the governor, and hundreds of local elected officials, including school boards and city and county councils.

Herb Hayden, the Ethics Commission’s executive director, told lawmakers in January that his agency receives 25,000 ethics filings every year. The agency only has three or four staffers to audit those filings. But it only audits a filing if someone files a complaint.

That understaffing is one reason that Leatherman, the chairman of the Senate Finance Committee, said the problem is not the state’s ethics laws but its enforcement.

“I want to give the Ethics Committee enough competent people to look at every statement as it comes in. And I mean, look at it,” Leatherman said. “If there is somebody looking at every report that comes in, in depth, there is no way anybody is going to do anything, if they’ve got any sense. So I’ll be pushing that when we get back here in January.”

The State Ethics Commission gets nearly all of its $815,000 annual budget from fines and fees, including registration fees paid by lobbyists.

The House budget proposal for the state’s fiscal year that starts July 1 would have increased those registration fees by $100, giving the Ethics Commission another $100,000. But the state Senate did not include the increase in its budget plan, and state budget negotiators – including Leatherman – killed the increase.

‘There is a big difference’

Other legislators agree the current ethics committees are overwhelmed.

“If we are going to maintain separate House and Senate Ethics Committees, they have to be staffed appropriately to do our jobs,” said state Rep. Kenny Bingham, R-Lexington, chairman of the House Ethics Committee.

The House and Senate ethics committees could look very different after the 2014 legislative session. A House proposal would combine the two committees into one committee that would include a mix of lawmakers and citizens.

A Senate proposal would keep the House and Senate ethics committees in place but would outsource the investigation of ethics complaints to the now-understaffed State Ethics Commission. Based on the Ethics Commission’s findings from its investigation, the House and Senate ethics committees would decide on what, if any, punishment was warranted for a legislator.

Whatever lawmakers decide, ethics reform almost certainly will include more staff for the ethics committees. And it would require lawmakers to report the sources – public and, for the first time, private – of all of their income. However, legislators would not have to report the amounts they were paid by private employers.

Most lawmakers are opposed to requiring legislators to disclose how much they earn – the one time this year that idea was voted on, in a committee meeting, it easily was defeated – and ethics reform advocates can’t agree on whether amounts should be disclosed.

Ashley Landess, president of the libertarian S.C. Policy Council think tank, says the amount does not matter because “if there is an income source, there is a payment stream, period. And that creates the conflict.”

“Whether it is $1 or $100,000, it is a conflict of interest,” she said. “That’s what we want to watch.”

Others disagree.

“There is a big difference between getting $2,000 and $200,000,” said Lynn Teague, advocacy director for the S.C. chapter of the League of Women Voters.

“If the object is for the public to make up their mind on this person – does this person have a personal financial interest that conflicts with his public duties? – in this respect, it’s a big difference,” she said.

Forty-seven states require some type of income disclosure from both private and public sources, according to the S.C. Commission on Ethics Reform, appointed by Gov. Nikki Haley. South Carolina is the only state that requires just one source of income to be disclosed — government income.

The House and Senate ethics reform proposals would require lawmakers to disclose their private sources of income in different ways.

The House version would require lawmakers to disclose who pays them if:

• It is more than $2,500

• It is disclosed on a W-2, K-1, 1099 or any other reporting form used by the Internal Revenue Service

The Senate version is more direct, requiring lawmakers to disclose “the source of any other income received by the filer or a member of the filer’s immediate family.”

Courson: Public must care

While lawmakers debate requiring lawmakers to disclose their sources of income, one S.C. advocacy group is tired of waiting.

The S.C. Policy Council, in coordination with several other groups, is asking lawmakers to voluntarily disclose their income. President Landess says the groups have organized more than 700 emails to politicians asking them to voluntarily disclose all of the sources of their income, both public and private.

So far, 34 lawmakers have replied.

“It’s not something we expect to happen overnight,” Landess said. “A lot of the ones who don’t have anything to hide are the first ones who stepped forward.”

Most of the voluntary disclosures mirror what lawmakers already have disclosed on their statements of economic interest. For example, Rep. Bingham disclosed all of the companies that pay him on the Policy Council’s voluntary form that he previously had disclosed on his statement of economic interest.

That duplication is why House Speaker Bobby Harrell, R-Charleston, said he has not participated in the voluntary program. Harrell’s statement of economic interest already lists the Charlestowne Development Corp. and the Robert Harrell Insurance Co. “That’s all of my income — the Legislature, the businesses I own. That’s it,” he said. “So I did report all of the sources right.”

It will take more than campaigns by groups, like the controversial Policy Council, and newspapers to pass ethics reform next year, said Courson, the Senate president pro tem.

Reform only will pass if there is “a groundswell of public opinion that would allow for the citizens to contact their legislators and strongly encourage them to vote for a meaningful ethics reform bill,” Courson said. “It cannot be just editorial writers, major daily newspapers in the state plus Common Cause and the League of Women Voters. That’s, basically, what you’ve got now.”

Related stories from The State in Columbia SC