Chicago Revolving Door Scheme with Indirect Benefits

A former head of Chicago's public school system has said she will plead guilty to a scheme to take hundreds of thousands of dollars, airfare, meals, and baseball tickets in exchange for steering more than $23 million in no-bid contracts to her former employer, an educational consulting and training company. The situation provides a valuable look at the problems that can arise when someone goes through the revolving door in the manner that is often overlooked by ethics code:  from a company that seeks financial benefits from an agency (whether or not that company has actual contracts with the agency) to an official in that agency. This is why "post-employment" is an insufficient name for revolving door provisions.

Indirect Benefits
One of the heads of the company offered to give jobs to the official's friends, which involves an indirect benefit to the official, but should still be considered a gift to the official, a non-financial gift (it would be a financial but indirect benefit if she had a kickback arrangement with her friends). And instead of giving the official direct kickbacks, the company set up trust accounts in the names of two of her relatives, according to a Huffington Post article yesterday. It's not clear how much of the money would truly go to these relatives, but even if it were all the money, it was still an arrangement intended to benefit the official, even if not financially and not directly. This is the way deals are structured to get around limited ethics and criminal laws. It is not enough to prohibit only direct financial benefits to officials, or even financial benefits to an official's immediate family.

According to the indictment (attached; see below), Chicago's Code of Ethics prohibited the official "from participating in any aspect of any contract award process in which she had or had reason to know that she had an economic interest distinguishable from that of the general public." This "economic interest" would not include jobs for friends or money given to relatives. It could be stretched, however, to include a promise to be rehired. And in this case, she was given direct benefits, as well. But had the company been more careful and not given any direct benefits to the official and not put its promise of a job in an e-mail, there would have been no ethics violation. The indictment, on mail and wire fraud, is due to the schemers' arrogance or incompetence.

Cooling-Off Periods
It is also worth recognizing that the effect of the revolving door did not end one or even two years after the official went through the revolving door, as the use of cooling-off periods assumes. She took the government job in October 2012 and resigned in June 2015, nearly three years later. Had she not been caught, she might have continued to engage in ethical misconduct for years more, including a return to the company, which promised her a substantial signing bonus, presumably after the post-employment cooling-off period was over.

This shows the limits of short cooling-off periods. Most are only one year, which makes it easy for companies to reward former officials for using their office to benefit the company. The argument is that longer periods will make people not want to enter public service due to the limits it places on them when they leave. Two years is a better compromise than one, but it might be useful to consider allowing an ethics commission to review financial arrangements with former officials and their family members even after the cooling-off period is over, to prevent the use of a job (full-time or on contract) to provide kickbacks.

Robert Wechsler
Director of Research-Retired, City Ethics