The ethics of Ethics

Pub date July 3, 2007

Part one in a Guardian series


Back in 2002, Carolyn Knee did what many other citizens of San Francisco were doing — she volunteered her time and energy campaigning for a ballot measure she hoped would pass.

Five years later the retiree living on a fixed income has found herself threatened with $26,700 in fines levied by the Ethics Commission enforcement staff, who turned up several alleged violations of campaign finance laws during a random audit of San Franciscans for Affordable Clean Energy, the committee for which Knee was a volunteer treasurer.

At a June 11 probable cause hearing before the Ethics Commission, investigator Richard Mo itemized several infractions, including failure to report $19,761 in contributions on time, in addition to another $9,500 that came in right before the election but wasn’t reported until afterward; failing to notify two organizations that they were major donors who needed to file as such (one of which was the Guardian); not providing all the required information about two donors; and disparities between bank account statements and campaign finance reports.

Mo alleged Knee had "cooked the books," saying she "takes no responsibility" and "claims she was ignorant of the law, passes the blame on to her personal accountant. She cites her inexperience as a treasurer when in fact she served as treasurer for one prior committee."

It sounds like a litany of campaign crime, with Knee as the linchpin, but she maintains that none of it was intentional and that many of the reporting mistakes were made by her accountant, Renita Lloyd-Smith of the Simon Group, a company she’d hired to handle the complicated ledger of campaign finance reports. "Perhaps I was wrong in placing confidence in someone I had to hire because I didn’t know the rules," Knee told the Ethics Commission. "It was all in good faith. It was all done in love of my city. But I’ll never do it again."

Those words have a dual meaning: Knee hopes never to make another financial mistake, and she’ll never again take on the risk of steering the financial helm of a grassroots campaign.

Ethics Commission hearings such as this are usually held in closed session, but this one was opened at Knee’s insistence because she suspected she’s not the only one who’s had difficulties handling campaign finance laws or negotiating fair settlements. It was the first publicly aired probable cause hearing in the commission’s 13-year history, and both commissioners and attendees walked away with questions after issues of perceived bias and a lack of timeliness in the investigation were raised, as well as the possibility that the fines being threatened are inflated and arbitrary.

"There’s only one department in the city and county of San Francisco with no oversight — Ethics," Joe Lynn told the Guardian. Lynn is a former Ethics commissioner and staffer who still watchdogs the agency and has been openly critical of the laxness he perceives there.

His question is one of many about the commission: How does the staff conduct its investigations? Should smaller campaigns staffed with volunteers be handled differently than larger, more professionally managed operations? If resources are tight, should Ethics be more focused on going after the big guys? If the commission had more resources, would the public benefit from both a greater understanding of campaign laws and a more open, honest, and just government?

SFACE raised a little more than $100,000 during the 2002 election season (including about $29,000 from the Guardian and editor and publisher Bruce B. Brugmann), but the measure it supported — Proposition D, which would have allowed the city to set up its own public power system and break ties with Pacific Gas and Electric Co. — failed.

PG&E spent more than $2 million defeating Prop. D, $800,000 of it in the final days of the race, which campaign attorney James Sutton, the treasurer of the utility’s front group, San Franciscans Against the Blank Check, didn’t report until nearly a month after election day, a violation of campaign finance laws. That act likely scored SFACE’s opponents the win.

The Ethics Commission staff launched an investigation, and in 2004, Sutton’s old law firm was fined $100,000 — the largest amount ever levied by the city for breaking election laws. The state Fair Political Practices Commission also slapped Sutton with $140,000 in fines for vioutf8g the Political Reform Act (see "Repeat Offender," 10/27/04).

At Knee’s recent hearing, Lynn, who was once a finance officer for the Ethics Commission, pointed out she was being fined 14 times what Sutton was fined, and if the same formula had been applied, his fine would have been nearly $1.5 million. "You can’t change the standards arbitrarily," Lynn cautioned the five commissioners. "You need to establish standards for these fines, and you need to keep them across the board."

According to the governing law, which mirrors state mandates at the FPPC, commissioners may levy a fine of up to $5,000 or three times the amount of the violation, whichever is greater. Knee’s fine could be as much as $230,000, and Sutton’s could have been $2.4 million — about the same amount that it costs to run the Ethics office for a year.

The Ethics Commission has never imposed the maximum fine, and executive director John St. Croix doesn’t like to draw comparisons between campaigns. "They’re like snowflakes, very different," he said.

A review of the past three years of enforcement history, posted on the commission’s Web site, bears out this truth and shows fines ranging from a sliver to as much as half of the contested amount. In many cases, fines are dismissed completely for financial hardship reasons. The commission does not abide by a formula, fearing that would handicap it during negotiations, but a number of considerations are weighed, including the experience of the campaign treasurer, the appearance of intent, the overall outcome of the election, and a willingness to make right.

Eric Friedman, spokesperson for New York City’s Campaign Finance Board, considered by many good-government activists to be the national gold standard for ethics groups, said its members use similar tactics for settlements, but "the structure that they follow is precedent. They’ve seen pretty much everything at this point." New York’s board is about five years older than San Francisco’s and audits all campaigns.

According to investigator Mo, the $26,700 in fines pointed at Knee was an "opening salvo" designed to inspire negotiations, which have not been smooth. Knee and her pro bono lawyer, David Waggoner, initially offered $500 to settle. Ethics continued to press for more, but Knee didn’t flinch. "I don’t think I should have to pay anything," she said, pointing out that Oliver Luby, the commission’s current fines officer, recommended a complete waiver of all fines. St. Croix said Luby doesn’t work in the enforcement division and doesn’t know all the facts of the case. The current settlement offer from Ethics is $267, which Knee is willing to accept if the commissioners agree.

It’s unclear how often such hardball is played. "Frankly, we took that settlement because that’s what they were willing to pay," St. Croix said of the Sutton case. So too with a $17,000 fine imposed on Andrew Lee for a variety of campaign finance violations (see "Enforcing Equity," 5/2/07). St. Croix said that was what Lee was willing to pay on the spot.

"I’m not sure we could set a standard," said Commissioner Eileen Hansen, who thought both the Lee and the PG&E fines were too low and said if that’s the bar, it should be raised. She pointed out that the law does provide guidance, but read literally, it could mean exorbitant fines for the same slipup echoed through a whole season of paperwork. "I think it’s a good thing to have the law," she said, but "some should pay the maximum amount and some should pay less."

"I’m happy to pay $250 to get it out of the way," Knee said. "This has taken so much of my time and energy." When asked about her audit experience, she replied, "I would never do this again. It totally discourages grassroots" campaigns.

A legal assistant for 25 years, Knee was not a professional accountant but did have experience doing some bookkeeping. "The IRS is like kindergarten compared to the Ethics Commission," she said.

David Looman, a professional treasurer who’s currently managing about 10 campaign accounts and undergoing three audits by the Ethics Commission, agrees that the potential liability is a huge risk. "Twenty years ago when I started in politics in this town, nobody paid for a treasurer. Nobody had a lawyer. Nowadays you’d be crazy not to do both," he said.

The audits in Looman’s cases involve small grassroots campaigns similar to the one Knee oversaw. "There’s no good business principle for why these people should be audited," Looman said. "The fewer resources you have to employ, the more intelligent your decisions should be for how to employ them. Here they are auditing my $12,000 committee when there are clear miscreants running around."

Part of the Ethics Commission’s charter calls for mandatory audits of all publicly financed campaigns, and St. Croix said the agency does as many random audits as resources allow. Last year, he recalled, more than a dozen were completed. With full financial backing, St. Croix said, he would audit all campaigns. He said, "It’s funny. People know they’re going to get audited and they still try to get away with stuff."<\!s>*

Next: what does the Ethics Commission need to rein in the most frequent and flagrant violators?