In the closing days of the 2014 session, the legislature approved a bill that would require members of key state boards and commissions — those people whose decisions impact daily lives across the state — to open their personal finances, and those of their families, to public scrutiny.
It’s a reform that has been a long time coming. Senate Bill 2682 is backed by the State Ethics Commission, and it’s one of just a few of what Common Cause terms “Democracy bills” to be passed this year. But its fate is uncertain, as some influential board members who would be affected are calling for a gubernatorial veto.
What’s all the fuss about?
Elected officials, candidates for public office, and top government administrators are already required to make similar disclosures, which are intended to identify and deter potential conflicts of interest. Financial disclosure was one of the reforms adopted in Hawaii and across the country in the wake of the Watergate scandal back in the 1970s.
SB2682 would add the members of 15 major state boards and commissions to the 160 or so people already required by law to publicly disclose their personal financial interests. Among the boards and commissions whose members would face the new requirements are the Public Utilities Commission, the UH Board of Regents, the state land board, the Land Use Commission, and Hawaii Community Development Authority.
These boards and commissions were selected either because they “head” state departments, like the land board that has authority over the Department of Land and Natural Resources, or have significant and wide-ranging authority over major government policies, like the Public Utilities Commission and HCDA.
Controversial decisions by HCDA regarding the scope and shape of Kakaako development, allegations of mismanagement by the Board of Regents, and the interest of anti-GMO activists in more accountability for the Department of Agriculture and the Hawaii Agribusiness Development Corporation, may have all contributed to public interest in and support for the bill.
But not everyone agrees on the value of disclosure, at least not for themselves. Some boards testified against the bill, and the chairman of the UH Board of Regents made news last week by announcing the board’s intent to ask Gov. Neil Abercrombie to veto it. One regent, currently the president/CEO of Central Pacific Financial Corp. and Central Pacific Bank, said he would resign if necessary to avoid opening his own finances to public scrutiny.
Opponents say the bill goes too far, and that forced disclosure of private financial information is not only a violation of privacy, but could open board members up to increased risk of financial fraud and other dangers.
Members of the Labor and Industrial Relations Appeals Board went so far as to claim in legislative testimony that their lives could be put in danger by increased financial disclosures.
The board cited a 2013 report by the National Academy of Public Administration highlighting various risks stemming from a 2012 federal law — since rolled back — that would have required public disclosures by 28,000 executive branch employees to be public, to be made available online in a searchable, database format. Those employees affected would have included military officers, as well as those dealing with sensitive commercial negotiations and contracting, national security matters, or even in diplomatic positions, who the report concluded could have faced unusual risks from the online availability of their financial details.
But those high-risk positions dealt with in the report don’t have much in common with the state’s boards and commissions. In over 30 years of practice in Hawaii, with annual public financial disclosures by hundreds of state and county officials, including judges as well as elected officials, there’s no evidence of any increased vulnerability to financial fraud or other crimes.
The number of board and commission members who would now be required to file public financial disclosures is far less than the 28,000 covered by the federal statute. And unlike federal ethics officials, who joined in criticizing the expanded requirements, the State Ethics Commission backs the new legislation.
The ethics commission says the discomfort felt by individual board and commission members has to be balanced against the broader public good of increased confidence in government.
“The Commission is aware that the members of most of the boards and commissions identified above serve without pay and that allowing the public to view their financial interests may discourage some from volunteering to serve,” the commission stated in written testimony.
“However, the Commission strongly suggests that there are certain responsibilities and obligations to the public that members must accept in exchange for the privilege and honor of serving. In light of the State Ethics Code’s fundamental purpose i.e., to foster public confidence in state government — the Commission believes that those individuals responsible for department policy and other state policies about which there is a significant public interest should be required to publicly disclose financial information from which the public can consider whether the member has a conflict of interest.”
The commission also pointed out that the financial disclosures do not include detailed information like account numbers, home addresses or telephone numbers, and provide for reporting incomes or the value of investments in specified ranges rather than exact dollars. These limit the risk of identity theft and fraud.
Financial disclosure requirements are nothing new. Hawaii’s disclosure provisions date back to the 1978 Constitutional Convention, which also led to the creation of the State Ethics Commission and a state ethics code. The ConCon proposed that the ethics codes of the state and counties should contain provisions relating to conflicts of interest, gifts, use of one’s position, lobbyist registration, and financial disclosure.
The constitutional amendment, which was approved by voters in 1978, spells out the financial disclosure requirements.
“The financial disclosure provisions shall require all elected officers, all candidates for elective office and such appointed officers and employees as provided by law to make public financial disclosures.”
In addition, the amendment required other officials with “significant discretionary or fiscal powers” to file disclosures that would remain confidential.
The 1978 constitutional amendment also spelled out the financial information required to be disclosed, including “sources and amounts of income, business ownership, officer and director positions, ownership of real property, debts, creditor interests in insolvent businesses and the names of persons represented before government agencies.”
There’s been at least one Hawaii Supreme Court decision that concluded financial disclosure for state officers and employees, and the constitutional right to privacy, do not necessarily conflict.
The case arose in 1983, when Hawaii County began requiring certain employees to begin reporting their financial interests. A class action lawsuit was filed on behalf of a group of about 70 employees, including investigators, inspectors, purchasing agents and planners.
The lawsuit claimed the mandatory disclosures violated their right to personal privacy, another constitutional right that emerged from the 1978 ConCon. The case was eventually decided by the Hawaii Supreme Court (Nakano v. Matayoshi, 1985) which held that the disclosure requirement did not impermissibly conflict with the right to privacy.
The court found the constitution gives island citizens “a legitimate expectation of privacy where their personal financial affairs are concerned.” But it also concluded this expectation has to be tempered by the parallel requirement that public employees comply with an ethics code that includes financial disclosure. Both provisions were approved by delegates at the same Constitutional Convention. As a result, the court did not see a conflict between the constitutional rights to personal privacy and requirements government ethics.
“The unassailable purpose of the code is the promotion of high standards of conduct among public officers and employees,” the court wrote. “Its particular objectives obviously include the deterrence of corrupt conduct and conflicting interests.”
The bill’s fate is now up to the governor, who can choose to veto it, sign it into law, or let it become law without his signature. Gov. Abercrombie has earned a reputation for being less than friendly toward “sunshine,” openness, and public disclosure, as exemplified by his long battle to avoid disclosing the names of judicial nominees. On the other hand, it is an election year, not a good time to balk at signing reform legislation, especially when there was no opposition to the bill in either House or Senate on final reading.
The public has the right to expect our elected officials, top appointees, and others who wield government authority, to meet the highest ethical standards. Expanding the reach of public financial disclosures to include the members of these major boards and commissions will provide some additional degree of confidence these standards are being met.
Read Ian Lind’s blog at iLind.net.