The Philadelphia Ethics Board's Proposed Gift Regulation

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:

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.

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:

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.

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 an op-ed piece in the Philadelphia Inquirer yesterday, 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:

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.

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:

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.

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 the section of my book on gratuities.

Updated: November 20, 2013
For another criticism of the regulation, see an op-ed piece in yesterday's Philadelphia Inquirer 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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