The Philadelphia Ethics Board's Proposed Gift Regulation

Anonymous

Wed, 10/30/2013 - 10:39

City Related

Updated: November 20, 2013 (see below) 
 
The gift regulation proposed by Philadelphia's ethics board last
week (attached; see below) provides a great opportunity to consider
many issues involving gift bans and exceptions. 
 
It's a great thing that the ethics board has chosen to provide
guidance with respect to the city's gift ban, which is not itself
very clear. However, I don't think it did a very good job. I'm a big
fan of Philadelphia's ethics program, but this gift regulation is
dreadful. Fortunately, it's just a proposal. There will be a hearing
on November 20, hopefully followed by a rethink of the
regulation.

Here is the ethics code's gift ban provision:<blockquote>

No city officer or employee shall solicit, accept or receive any
gift, loan, gratuity, favor or service of substantial economic value
that might reasonably be expected to influence one in his position
in the discharge of his official duties, from any person, firm,
corporation or other business or professional organization.</blockquote>

There are two vague terms here: "of substantial economic value" and
"might reasonably be expected to influence." 
 
De Minimis Exception 
The first term is effectively a de minimis exception to the gift
ban. That is, gifts of insubstantial value are excepted from the ban. There are two ways to do
this. One is to recognize all gifts as illegal (with minor exceptions) and require waivers
for any gift, of whatever amount, from the ethics board. The other
is to set a dollar limit on allowable gifts. 
 
Requiring officials to seek waivers may be burdensome, but the result is that
officials will find it not worth the bother to accept
small gifts and, instead, they will, for instance, pay for their own coffee and lunch when
they meet with restricted sources. Such a rule should be
complemented with internal memos suggesting that officials expense
their meals with restricted sources. But the regulation includes nothing about waivers. 
 
Setting a dollar limit is the most common approach, but it raises
certain problems. First, is the dollar amount per occasion or per
year? The ethics board has recommended a limit that requires gifts from a restricted source to be aggregated
per year, which is greatly preferable. Otherwise, restricted sources
can make multiple gifts and can even set up tabs, which officials
can take advantage of whenever they want. 
 
Second, is the limit per individual or per entity? That is, can each
lobbyist in, or partner of, a firm give up to the limit, or all the
lobbyists and partners in a firm put together? Can lobbyists
representing an entity give up to the limit, as well as the entity
itself? If the answer to both question is Yes, the limit is not very meaningful. 
 
The regulation does say that "If a restricted source raises or
collects gifts from other persons," these gifts are added together
in considering the restricted source's aggregate gift. But if the
restricted source's officers and employees separately make gifts, and pay for them themselves, it
does not appear that they would be added together in considering the
restricted source's aggregate gift. How to determine whether such
gifts were "raised or collected" or made separately is presumably
left up to the official, who would certainly be told they were not
"raised or collected." 
 
Indirect Gifts 
The regulation's approach to indirect gifts is different than its
approach to indirect gratuities. With gratuities, the regulation
simply uses the term "directly or indirectly." This is part of the
basic gratuity provision. 
 
However, with gifts one needs to look at Subpart D, entitled "Other
Limitations on Gifts." This is not the right place to deal with
indirect gifts. And this approach is more complicated. Here are the
two relevant paragraphs:<blockquote>

10.9 No person shall give a gift to an officer or employee through
another person if this Regulation would prohibit the person from
giving the gift directly to the officer or employee. 
 
10.10 A gift to another person is a gift to an officer or employee
if the officer or employee solicits the gift and receives a
financial benefit from it.</blockquote>

What does all this mean? The first part appears to deal with a gift
that is passed through an intermediary. This is one sort of indirect
gift, and it's good to prohibit such gifts. But why treat them
separately? This sort of indirect gift should be treated just like a
direct gift, and in the same place. 
 
What this paragraph doesn't say is how an official can determine
whether a gift is coming indirectly from a restricted source. The
best way is to ask. The City Ethics Model Code gift ban provision
says that, "If in doubt, the official or employee should refrain
from soliciting or refuse a gift, and should first inquire into the
person or entity's relationship with the city or with a restricted
source." Guidance such as this is lacking in the regulation. 
 
There is another kind of indirect gift – a gift to an
official's family member – and the Philadelphia
regulations only vaguely prohibit them. While the City Ethics Model Code expressly
prohibits them, the Philadelphia regulation deals with the issue in
two places, and not very clearly in either. The definition of "gift"
includes anything given "to, or for the benefit of" an official. 
 
Section 10.10 reiterates this definition, providing no further
guidance. Does an expensive watch given to an official's spouse
"financially benefit" the official? What about if it's given to the
official's child, sibling, or parent? How about a car? How many
gifts to someone else "financially benefit" an official? And yet how
many gifts to an immediate family member would not be seen by the
public to be made solely because the person was the family member of
an official who could be of use to a restricted source? 
 
A regulation is supposed to provide guidance. There is insufficient
guidance in this regulation regarding indirect gifts, and the
guidance that is provided should be either elsewhere or under a better
title. 
 
Dollar Amount and Form of Gift 
In <a href="http://www.philly.com/philly/opinion/inquirer/20131029_Try_again_on_gif…; target="”_blank”">an op-ed piece in the Philadelphia Inquirer yesterday</a>, Ellen
Mattleman Kaplan, the policy director of the Committee of Seventy,
an important good government organization in Philadelphia, took
strong exception both to the ethics board's recommended $200 gift
limit and to its recommended $50 cash gift limit. 
 
She states that ethics board staff says that a lower limit, say $50,
as in New York and Chicago, would require numerous exceptions,
because friends who happen to be restricted sources frequently make
gifts, but not because they're trying to influence their friends. 
 
Kaplan points out that, "in this incestuous small town, everyone is
a chum of everyone else." Clap if you believe that friends don't
give gifts to influence their friends in high places, or that pay to
play does not apply to friends. And cheer wildly if you believe you
can determine the motive behind a gift. 
 
Kaplan is right to argue that cash gifts should be prohibited,
including money orders and prepaid debit, credit, and gift cards. As
she says, "Under-the-table payments are too easy to give and too
hard to track." 
 
Personally, I think that the dollar limit on gifts should be zero.
Government officials and employees should pay their way or have it
paid by the government. There can be an exception for non-sitdown
food at an event, and coffee, tea, and donuts at a meeting (exceptions that appear in the regulations, among many others; see below). But
that's about all. 
 
However, until the "substantial economic value" is taken out of the ethics code gift
provision, the limit should not be more than $50 aggregate for a
year from a restricted source, including its employees,
representatives, and intermediaries. This is "substantial" enough. 
 
The Valuation of Gifts 
When you have a gift limit greater than zero, the valuation of gifts becomes a serious issue. Is a playoff or luxury box
ticket worth the price on the ticket, what the restricted source
paid for it, or what the official would have paid for it (if it were
even available to an ordinary person)? What is the value of dinner
with a movie star, which only costs the restricted source $150? In
fact, does a gift have to have any economic value at all? If a
restricted source uses her influence with her alma mater to help get
an official's child into a university, should this invaluable gift
not be prohibited? 
 
It is good that the proposed regulation has a section on the
valuation of gifts. But it appears to be contradictory and provide
inadequate guidance. Here is the section:<blockquote>

10.12 The value of a gift is the retail cost the officer or employee
would incur to purchase the
gift. An officer or employee who does not know the retail value of a
gift shall estimate the retail
value by reference to similar items of like quality. 
 
10.13 The value of a ticket entitling the holder to food,
refreshments, entertainment, or any other benefit shall be either the face value of the ticket or the
amount paid by the donor, whichever is higher. 
 
10.14 For the purposes of this Regulation, the value of a gift is
not reduced if an officer or employee pays a donor a portion of the value of the gift.</blockquote>

The first sentence of §10.12 is good, except for the unnecessary
and, in some cases, contradictory or confusing word "retail." The
value of a gift should be what it would cost the official, not what
it cost the restricted source. A gift that may cost a restricted
source nothing may cost an official a great deal to purchase. In
fact, there might not be a retail price at all, or not a clear one.
Does an invitation to a private Rolling Stones concert at someone's
home have the value of the average concert ticket at a stadium? It's
certainly worth a lot more, even more than a front row seat. In any
event, there is no retail cost or "similar items of like quality" as
the second sentence of §10.12 states. 
 
It would be much simpler to limit gifts to food and beverage, and
require the restricted source to provide in writing the retail value
per attendee of what is served. If it's important enough for a
restricted source to entertain officials, it can do a little
paperwork. Other gifts that do not have a clear retail value should
simply be prohibited. Sorry, no free private concerts, no rides on
private planes, no invitations to luxury boxes or on hunting trips. 
 
§10.13 creates a problem by using a different approach to valuation
for tickets. Instead of the cost to the official, the value of a
ticket is the greater of the amount paid by the restricted source
and the face value of the ticket. This allows a restricted source to
hand out playoff tickets with a face value (and cost to the
restricted source) of $200, even though they are restricted to season
ticketholders and, therefore, would be available to officials, like
anyone else, only on the black market, at far higher prices. And it is tickets like these
that cause the biggest problems with the public. I see no reason to
allow the gift of any tickets to officials, unless they are there to
represent the city by handing out an award or throwing the first
pitch. If there is another important reason for an official to
attend (beyond providing security), the official should seek a
waiver. 
 
§10.14 is the most unusual of these provisions. It prohibits, say, a
$500 gift for which an official pays $300, so that the value to the
official is $200. What this does is recognize such a transaction as
a business transaction with a gift attached, and then prohibit it. This is correct. Officials should
not be doing business with a restricted source. Therefore, this sort
of transaction is wrong. 
 
However, if officials are not allowed to do business
with a restricted source, why should they be allowed to take gifts
of any value from a restricted source? The same problems of
appearance and valuation arise. This is a question all ethics
commissions should ask: why should gifts be allowed between
people when other transactions between them (other than, in some cases
and only due to First Amendment considerations, campaign
contributions) are prohibited? 
 
Unfortunately, §10.14 is partially contradicted by the definition of "gift" and by the provision on dealing with a gift that one has recieved. Both allow transactions with a restricted source, as long as the official pays for the gift. A
gift is defined as "Anything of value given to, or for the benefit
of, an officer or employee, unless
consideration of equal or greater value is received." One way of dealing with an illegal gift is to "pay the donor
the full value of the gift." 
 
The problem is that business transactions might actually be gifts, due to problems involving valuation. For example, if an official hires a
restricted source to do construction on her house, she may pay "the full value" or "consideration of equal
or greater value," and still have a sizeable portion of the work given to her as a gift. It would be difficult to prove that this was not an ordinary business transaction, considering how far apart quotes usually are. 
 
Whenever you allow officials to accept anything of value from a
restricted source, beyond buying at retail at a store, you are
asking for trouble. 
 
Soliciting Gifts 
The regulation, like the ethics code, treats solicitation and
acceptance the same. But they are not the same. There is no reason
for a government official or employee to solicit a gift of any
amount from a restricted source. As long as gifts of any amount are banned, this doesn't matter. But as
long as there is a gift limit, especially one as high as $200,
acceptance and solicitation need to be treated different. 
 
Does the ethics board really want the revelation of text messages
from council members asking everyone who comes before them and
everyone they regulate to send them a check for $199? It's bad
enough that gift requirements are understood in pay-to-pay ethics environments, without the need for a request.
But to encourage putting this in writing?! 
 
This is an another consideration in determining the gift limit. It's
less likely, and a bit more embarrassing, for officials to solicit
gifts of $49 than $199. Until solicitation is treated different in
the ethics code, make the gift limit as small as possible. 
 
Restricted Sources 
The regulation's definition of "restricted source" — that is, those
who are not permitted to make gifts to officials — is unnecessarily
narrow and vague:<blockquote>

A restricted source is any person who has an interest an officer or
employee is able to substantially affect through official action. A
person is not a restricted source if the officer or employee’s
official action affects, to the same degree, an interest the person
shares with a large class of similarly situated persons.</blockquote>

What does it mean to "substantially affect [an interest] through
official action"? If a council member cannot vote on a contract, is
it acceptable for her to take gifts from those bidding for the
contract, believing, rightly or wrongly, that the council member has
influence on who gets the contract? Would it look any worse to
citizens if the council member could or could not officially affect
the bidding process? Don't people believe that council members have
influence, directly or indirectly, throughout the government? 
 
And what about an official who has withdrawn from participation in a
matter and, therefore, cannot officially affect anyone involved in
the matter? Is such an official free to accept gifts from those
involved in the matter? That would look terrible. 
 
What does it mean to "substantially" affect (or "influence," which
is the term in the ethics code's gift ban provision)? Being able to
influence a little is a lot. A council aide may have far less
influence than a council member, and has no vote, but a council aide
still has a lot of influence. How does a council aide know whether
or not he can accept a gift from someone who would otherwise be a
restricted source? How does he measure his influence? 
 
What about an administrative assistant, who has even less influence?
If otherwise restricted sources give gifts to administrative
assistants, hoping that they will try to influence their bosses, is
this acceptable? 
 
If influence is to be a standard, it should be as broadly applicable
as possible. Any possible influence should be enough to prohibit the acceptance of gifts. 
 
But why use influence as a standard at all, here or with respect to
gifts? First of all, many gifts are not given to influence. They
are instead the result of pay-to-play requirements, that is, they
are given because they are expected, because otherwise one is left out in the cold. Using the language of influence assumes that
ethical misconduct originates with the restricted source. This
simply is not true in many cases. And it is not the job of
government ethics rules to determine where it originates or what the
motives are. 
 
Yes, the language in the gift ban provision isn't about intent, but about "reasonable
expectations." But it is not about reasonable expectations of pay to
play. When you talk about expectations of influence, every official
will argue that she can't be bought, that there is no reason to
expect that a meal or sports event ticket will have any influence on
her. It's just part of her job. This is, therefore, a vague standard
that enables ethical misconduct and makes an ethics program look
like it's questioning officials' integrity. 
 
It's much easier and less accusatory to simply ban gifts, whether or
not they may be "expected to influence" and whether or not any
individual may "substantially affect" someone who is regulated by
government or is attempting to benefit from government action. 
 
The ethics board cannot do anything about the ethics code's use of
the language of "influence" (other than to recommend amending the
provision). But it can refrain from adding another use of the
language of "influence" in its regulation. And if it's going to use
the language of "influence" to determine whether someone is a
restricted source, the ethics board should use this word rather than
"affect," or make it clear what the difference is between these two
words. 
 
Another problem is that when the regulation goes on to further
define a "restricted source" in terms of a list of eight examples of
restricted sources, it uses shorthand. Most of the examples say that
a person is a restricted source "only if the officer or employee is
able to take action regarding the services sought." The
"substantially affect" is dropped from the formula. 
 
Does this mean that a person with influence who cannot sign the
papers can take gifts from
anyone seeking official action? 
 
The last example, example #8, suddenly drops the shorthand: "A
superior or subordinate of an officer or employee or any other
officer or employee who is able to take official action that would
substantially affect an interest of the officer or employee." Does
this mean that "substantially affect" should be understood to be in
all the other examples? Or does this mean that officials who can
affect, but who cannot take official action, can take gifts from
those who would otherwise be restricted sources? This needs to be
clarified. 
 
But more important, the ethics board needs to decide whether it
really wants restricted sources giving gifts to officials who do not
legally have any influence and employees who cannot take action. I
personally cannot see why these individuals should be accepting
gifts from those seeking special benefits from one's government or, at least, one's agency. If the
ethics board sees why, it should provide a set of scenarios where
administrative assistants are getting their kitchens redone by
agency contractors, council aides are getting discounted rents from
developers, council members are allowed to accept free invitations
to all the big charitable events because they don't vote individually on grants,
etc. 
 
Restricted Source Employees 
According to the regulation, as long as an employee of a restricted
source pays for a gift out of his own pocket, he is not a restricted
source. This means that the president of a developer, or a
professional in an incorporated firm (as opposed to a partnership),
can heap gifts on a council or on agency employees as long as he
pays for them himself. What does it mean to be "reimbursed" for a
gift? Is an end-of-year bonus "reimbursement"? Are profits that are
shared by engineers "reimbursement"? 
 
No citizen cares whether a gift is paid for by a
developer or contractor's employee or by the developer or contractor
itself. Why should these two situations be differentiated by a gift
regulation? 
 
Exceptions, aka Loopholes 
The proposed regulation calls them "exceptions," but it is important
to recognize that the public and the news media call them
"loopholes." There should be as few loopholes as possible, and the
reasons for each should be important. 
 
Section 10.6 contains eleven exceptions. The first exception is for
"Hospitality provided at a residence when the donor or a family
member of the donor is present." So if a restricted source wants to
wine and dine officials, all she need do is invite the officials to
her home, but only if she or a family member is there. Since gifting
is about establishing relationships, wouldn't it be better if the
restricted source wasn't there? 
 
In fact, this points to a major problem with this regulation, and
many gift rules. They're about gifts, not about relationships. Gifts
are not a problem in and of themselves. They are a problem due to
the part they play in creating a reciprocal, two-way relationship between a
government official and those who can benefit from the official's
actions and influence. 
 
Looked at in this way, this exception is ridiculous. Nothing
establishes a relationship more than inviting someone to one's home. 
 
The second exception is for "Food, beverages, or entertainment
provided at a reception for which attendees do not 
have to purchase a ticket." This means that lobbyists and other
restricted sources can throw all the receptions they want for
officials, as long as no one has to buy a ticket. In other words,
party time with developers, contractors, and lobbyists is officially
recognized as a good thing. 
 
The first part of the third exception is fine, but the second part
is not: "rebates or discounts offered to a class of officers or
employees." Why should businesses seeking benefits from government
be encouraged to provide rebates and discounts to those who work in
the government agencies they are seeking these benefits from? 
 
The fourth exception is neither desirable, nor do I know how it
could be proven or who has the burden to prove it: "Gifts resulting
solely from the officer’s or employee’s membership in a bona fide
charitable, professional, educational, labor, or trade
organization." The ethics board provides examples of some of the
other exceptions, but not this one, which is the most mysterious.
There must be a very strong argument for what looks to me like a
huge, and very unusual loophole. 
 
Very similar to the fourth exception is the eighth: "Gifts resulting
solely from the officer’s or employee’s outside employment." Many
gifts can be characterized as "resulting from outside employment," but
who will believe it? And anyway, should, for example (and the ethics
board once again fails to provide one here), a council member who is
a lawyer be permitted to accept gifts from restricted sources for
their work as a lawyer? Is a council member any less conflicted in
his role as a lawyer than in his role as a council member? One of
the most important reasons for an ethics code is to prevent
conflicts between one's outside employment and one's government
role. This exception acts as if there were no such conflicts. 
 
The same goes for the ninth exception, which extends the eighth
exception to cover one's spouse or "life partner." This
makes it fine to make gifts to an official's spouse, if they can be
said to have something to do with his business. Better it have
nothing to do with his business, because his business should have
nothing to do with restricted sources. 
 
The final exception, about giving tickets away, allows officials to give preferential treatment
to people, using often very valuable tickets to sporting events and
concerts. It may be better than letting officials use the tickets
themselves, but why should they have any control over such tickets
just because they're officials? It's still a gift. Regifting does
not make it something less than a gift. 
 
The regulation does not allow
officials to pay for a gift. Why should they be allowed to regift
it? They should refuse it, send it back or, if they can't do either,
throw it away and tell the restricted source not to do it again. 
 
The §10.8 exception is one of the more common ones, but that doesn't
make it any better. This allows restricted sources to pay for
officials and employees to attend, and even travel to, any "event,
convention, conference, seminar, or fact-finding trip," so long as
(1) it is approved by the agency head (elected officials and board and
commission members – that is, most of the people who get sent to
such events – don't need any approval at all) and (2) the event "will
benefit the City and is reasonably related to his or her official
duties or expertise." 
 
Holding such events
at just where people want to go is an industry in itself. An all-expenses paid trip to
Hawaii, golfing in Scotland, gambling in Vegas, with a luncheon
speaker every day. This kind of exception subsidizes this industry. 
 
If the government won't pay for its officials' and employees'
training, then they shouldn't get trained. The last people who
should pay for this training (and be hanging around with them at the
beach, golf course, or casino) are the people who have an interest
in getting something from these officials (not to mention feeding them propaganda for their causes). 
 
As if there aren't enough exceptions, the ethics board proposes yet
another: an all-purpose "legitimate government purpose"
exception. It's good that an official can only claim this after
consulting ethics board counsel, but if this regulation were to be
passed by the ethics board, it's not clear that the public would
trust ethics board counsel to prevent this from becoming another big
loophole. Better to have a public waiver process than confidential
approval of gifts. 
 
Giving Gifts to Charities 
One of the best and most unusual paragraphs in this regulation is
§10.11, "If a person offers an officer or employee a gift prohibited
by this Regulation, the officer or employee shall not suggest or
request an alternative recipient, such as a charity." People tend to
forget that when an official effectively turns a gift over to a
charity, she is favoring one charity over others. In fact, restricted sources
often make gifts to an official's pet charity as a way of giving the
official a gift (conduct that it is good to prohibit). Allowing
officials to designate a charity for gift-giving purposes does
exactly the same thing. 
 
But doesn't this paragraph contradict the §10.6(k) exception, the
one that allows officials to turn tickets over to anyone they want,
including to charities (who would presumably turn them over to
"members of the public")? Why should tickets be treated different
from any other gift? 
 
And doesn't it also contradict the §10.15(c) option of what to do
with a perishable gift when it's illegal: give it to charity? 
 
Charities are wonderful things, but they do not magically cure an illegal
gift. And they should not be corrupted by being part of a
pay-to-play scheme. There are too many instances of corrupt
official-related charities for any ethics program to validate their
involvement in the giving of gifts to government officials. 
 
Gratuities 
I won't deal here with the gratuities section of the regulation,
because I don't think gratuity matters should be handled by ethics
programs. They are better handled administratively within an agency
or by the human resources department. See <a href="http://www.cityethics.org/files/lgep1-0%20-%20Robert%20Wechsler.htm#Gra…; target="”_blank”">the
section of my book on gratuities</a>. 
 
Updated: November 20, 2013 
For another criticism of the regulation, see <a href="http://www.philly.com/philly/opinion/20131119_Regulation_No__10__This_i…; target="”_blank”">an op-ed piece in yesterday's Philadelphia Inquirer</a> by the city's Chief Integrity Officer and the city's Inspector General. 
 
Robert Wechsler 
Director of Research-Retired, City Ethics 
 
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