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COVER ARTICLE Can the new Tennessee Ethics Commission Act of 2006 make state
government spotless? What happened inside Tennessee’s Beltway during the special session on ethics? Will the result be a more ethical government? How will the new law — dubbed “Tennessee Ethics Commission Act of 2006,”[1] or “TECA” — which the General Assembly passed on Feb. 6, 2006, and the governor signed on Feb. 15, 2006, impact businesses that employ a lobbyist? How will it affect political action committees (PACs)? This article highlights several new safeguards, as well as several areas that should be examined again when the General Assembly considers amendments, and when rules are promulgated by the new Tennessee Ethics Commission (Ethics Commission) and by the Tennessee Registry of Election Finance (Registry). A public trust TECA — with its broad applicability to officeholders, candidates, lobbyists, employers of lobbyists and political contributors — invites ethics out into the daylight, providing more public accountability and enforcement than before. Historically, both the executive and legislative branches have implemented internal ethics policies. Gov. Bredesen’s first three executive orders, issued upon taking office, established an internal executive committee for the executive branch. Among other items, it establishes limits for gifts from non-family members and requires certain disclosures. Similarly, certain executive branch departments, such as the Department of Transportation, have established additional ethics policies that provide another layer of protection against corruption, some of which focus especially on gifts. Finally, both the Tennessee House and Senate also abide by their own internally issued Ethics Codes. Although all of these policies carry substantial weight, only TECA is codified in the Tennessee Code. As a first step toward a more ethical government, TECA requires the General Assembly to subject itself and its subcommittees to the same open meetings standard that applies to all local governments.[3] The only exception is for meetings concerning state or national security, or the impeachment of a public official other than a member of the General Assembly. Unfortunately, after the enactment of TECA, the attorney general opined that TECA’s requirement of open meetings for the legislature is unconstitutional, since only the constitution, not statutes, binds the General Assembly.[4] If the General Assembly is serious about subjecting itself to the same open meetings standard as local governments, it should pass a resolution placing this issue on the ballot as a referendum to amend the Tennessee Constitution. New Ethics Commission Additionally, the Ethics Commission is charged with providing an annual ethics course for lobbyists. Each lobbyist, thereafter, is required to deliver to his/her employer a manual published by the Ethics Commission, and then verify that he/she has done so prior to engaging in lobbying activities for that employer, on an annual basis.[8] All proceedings before the Ethics Commission on a sworn complaint shall be confidential and not subject to the Tennessee Public Records Act, unless the alleged violator requests they be made open, or the Ethics Commission finds probable cause that a violation has occurred.[9] If the Ethics Commission finds that no probable cause exists, the proceedings shall be made open 60 days later.[10] If the sworn complaint is factually and legally sufficient, the Ethics Commission shall refer the matter to the attorney general for preliminary investigation; then the Ethics Commission shall conduct a probable cause determination.[11] Evidence shall be accepted. If no probable cause is found, the Ethics Commission shall dismiss complaint. If probable cause is found, the Ethics Commission shall conduct a public hearing.[12] The Ethics Commission’s final decisions are reviewable by Davidson County Chancery Court, by filing petition for certiorari within 60 days after final order.[13] Under TECA, the Ethics Commission will be authorized to penalize a complainant who files a frivolous or malicious complaint.[14] These sanctions are not exclusive and do not preclude an improperly accused person from any other remedies under law.[15] Money in politics TECA prohibits cash contributions over $50 to any candidate in Tennessee, whether state or local, and to any Tennessee PAC.[17] It also prohibits all cash contributions by PACs to any candidate in Tennessee.[18] The new law extends the ban on fundraising during session to include special session, rather than merely regular session.[19] And it expands the ban to apply to the governor, rather than merely the legislature.[20] This ban does not apply to non-incumbent legislative and gubernatorial candidates. Under TECA, PACs will be required to register an additional officer besides the treasurer.[21] PACs also will be required to maintain records for two years, instead of just one, from the date of each report.[22] In enacting TECA, Tennessee followed the Federal Election Commission in several regards. Now, in addition to reporting the names and addresses of donors who contribute in excess of $100 per candidate/PAC per election, recipients of campaign contributions also will have to report the donor’s occupation and employer.[23] Also similar to the federal system, Tennessee now bans individuals from contributing in excess of $101,400 in the aggregate to all candidates, PACs and state/local parties and caucuses in a two-year period.[24] Of this amount, no more than $40,000 may be contributed toward candidates, and no more than $61,400 may be contributed toward PACs and parties/caucuses. Like the federal system, these rates are adjusted for inflation every other year. Interestingly, TECA limited this restriction to just individuals, and not to the broader “person,” which is defined to include individuals, partnerships, committees, associates, corporations, labor organizations, or other groups.[25] Except for individuals, all other “persons” are not subject to the new aggregate contribution limits. Tennessee easily could have taken one further step in line with the federal system but, unfortunately, did not. Whereas federal law permits PACs to incorporate solely for liability purposes,[26] TECA did not repair this problem, and Tennessee PACs currently still may not do so.[27] Such protection against personal liability would benefit PAC officers and members in instances such as entering into contracts or serving alcohol at fundraisers. TECA promotes greater transparency by requiring candidates for state office and PACs, with contributions or expenditures in excess of $1,000 per reporting period, to file online.[28] Unfortunately, this new requirement does not yet apply to local candidates, whose reports will continue to be less accessible to the public. The Registry will begin posting all reports from PACs on the Internet.[29] Interestingly, TECA abolished local counties’ authority to issue penalties for late-filed reports, placing the entire power to issue penalties with the Registry.[30] Giving the Registry the sole authority to penalize makes sense: it alone has audit power, a power that existed nowhere in the state with regard to campaign finance prior to TECA. The downside for local candidates and PACs outside Nashville is that TECA makes it more expensive to contest a penalty or ask for reconsideration, by having to travel to the state capital. The upside, hopefully, will be consistency from the decision making of a single body, as opposed to 95 counties. Concerning lobbying Lobbyists now have seven days, as opposed to five, to register but must do so electronically.[33] Lobbyists also must provide a current photograph[34] and must register the subject matters on which they intend to lobby for each employer.[35] Registrations for both lobbyists (including photographs) and their employers shall be posted on the Ethics Commission’s Web page.[36] And the registration year has changed from a calendar year[37] to Oct. 1 through Sept. 30.[38] Semi-annually, employers of lobbyists shall electronically file disclosure reports with the Ethics Commission (to be posted on the Ethics Commission’s Web page), listing the aggregate total amount that the employer paid the lobbyist, separating lobbyist functions from other functions performed by the lobbyist (such as influencing public opinion through grassroots action).[39] The report must disclose compensation ranges paid, such as under $10,000, between $10,000 and $25,000, between $25,000 and $50,000, and so forth, up to in excess of $400,000.[40] For the first time, Tennessee will have a revolving-door policy. Under TECA, any member of the General Assembly, as well as executive branch elected officials, governor’s cabinet members, and governor’s cabinet-level staff, will be prevented from lobbying for 12 months immediately following departure from office.[41] Lobbyists also will be prohibited from serving as a member of a board, commission or governmental entity of Tennessee having jurisdiction to regulate the business or professional activities of each employer of the lobbyist.[42] Further, lobbyists will be prohibited from serving on state and county election commissions, unless they are currently serving in such capacity.[43] Employers are now prohibited from hiring lobbyists on a contingency basis.[44] And TECA deletes the former provision that carved out an exception to the registration fee for volunteer lobbyists.[45] Now even they must register as lobbyists. Under TECA, lobbyists now are prohibited from ever contributing to the governor or General Assembly member, or any candidate for governor or General Assembly.[46] (Previously, they were merely prohibited from doing so during regular session and not prohibited from giving to a sitting governor.) The attorney general recently opined that such blanket ban is most likely unconstitutional.[47] The law governing campaign contributions by employers of lobbyists, on the other hand, remains the same — they cannot contribute to gubernatorial candidate/ member of the General Assembly during session only now this ban is expanded to include special session, also.[48] TECA does not prohibit lobbyists or employers of lobbyists from contributing to PACs, parties or caucuses.
Under TECA, lobbyists and their employers still will be subject to a general prohibition on giving gifts to candidates and officials in the legislative and executive branches, as well as their immediate family members.[58] Although many of the previous exceptions still exist, two exceptions have disappeared: (a) tickets to athletic events,[59] and (b) health care services provided on state property and given as a courtesy to all officials or employees of the legislative or executive branch.[60] These gifts are now prohibited. TECA added one new exception to the gift prohibition: lobbyists and their employers may provide food and beverages to less than the entire membership of the General Assembly, under $50 per person in attendance, with no official in attendance receiving more than $100 aggregate under this exception in food and beverages from the host in a calendar year, as long as the legislators in attendance do not receive their per diem for the day, as long as an officer or management-level employee of each employer attends (but a lobbyist shall not be considered to fill this position). Two serious loopholes exist under TECA, which need to be closed. First, the general gift ban does not apply to organizations and companies that choose not to employ a lobbyist. Under TECA, it is perfectly legal for a corporation to throw lavish gifts on legislative and executive branch officials, taking them on expensive trips and allowing the CEO to communicate directly with those officials who will be taking action that will impact the business. (Only if the CEO offered consideration in exchange for particular action would this be illegal, amounting to bribery.) The CEO’s actions undoubtedly would constitute “lobbying,” as defined above, but the CEO’s salary would not constitute “compensation,” since her lobbying is assumedly only incidental to her other work, thus not rendering her a “lobbyist.” Under TECA, she would never be required to register as a lobbyist, and neither the company nor the legislator would have any obligation to disclose the details of the gifts. The term “incidental” has not been defined in TECA, which the legislature or the Ethics Commission should quickly address. The Ethics Commission can continue to permit such gifts to be given (since current jurisprudence considers money to be speech), but it should require full disclosure by officeholders of all gifts they receive (whether or not from a “lobbyist”), other than those motivated by a “close personal friendship” — a term of art used both in Tennessee and federally.[61] The second loophole that needs to be closed is that only the CEO and CFO or their equivalent at those businesses and organizations that employ lobbyists are subject to the general ban on gifts to state candidates and officials. The gift ban narrowly applies only to employers of lobbyists and lobbyists.[62] “Employer of a lobbyist” is defined to explicitly not include the individual employees, officers, directors, or members of a corporation, union, association or membership organization other than the CEO, the CFO, or comparable individuals.[63] Thus, the members and non-CEO/CFO employees of a business or organization that employs a lobbyist may give unlimited gifts to candidates and officeholders, without having to report anything, and without being subject to any laws, other than the bribery statute. Again, if such activity is allowed to exist, at the very minimum it should be disclosed so that transparency is truly promoted. Partisan ethics? Hopefully, both bodies will remain as non-partisan as the Registry has been under the past framework, but this is unlikely. Previously, it was often the case that Democratic appointees to the Registry were more critical of Democratic leaning PACs and candidates during monthly meetings where penalties were considered and assessed. The same was true for Republicans. But it appears that the legislature is willing to make ethics more partisan in Tennessee: at least one senator stated, during the Conference Committee’s open meetings on the new ethics law, that he fully expected members of the Ethics Commission to pick up the telephone and contact the political caucus that appointed them prior to casting any votes. Let’s hope this never happens. An ongoing conversation • • • Notes
• • • Stephen Zralek is a member at Bone McAllester Norton PLLC in Nashville, where his practice focuses on commercial litigation, campaign finance and ethics in business and government. He received his law degree from the University of Tennessee in 1997. Tennessee Bar Journal
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