sunset on ethics

8/2/2019 Sunset on Ethics

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SunSet AdviSory

CommiSSion

StAff report

with heAring mAteriAl

Texas

Ethics Commission

April 2012


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Sunset Advisory Commission

Representative Dennis BonnenChair

Senator Robert NicholsVice Chair

RepresentativeRafaelAnchia SenatorBrianBirdwell

RepresentativeByronCook SenatorJoanHuffman

RepresentativeHaroldV.Dutton,Jr. SenatorDanPatrick

RepresentativeFourPrice SenatorJohnWhitmire

AppointmentPending AppointmentPending

Ken Levine

Director

Cover photo: The Texas Capitol is a marvel of craftsmanship down to the smallest details. The beautifully carved

wood door frames are emphasized with elaborate, custom-designed bronze hinges and hardware produced especially

for the building by Sargent and Co. of New Haven, Connecticut, in the late 1880s. The eight inch by eight inch hinges

are inscribed with the words Texas Capitol, decorated with incised designs of geometric and stylized oral motifs, and

weigh over seven pounds each.


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Texas eThics commission

sunseT sTaff RepoRTwiTh heaRing maTeRial

apRil 2012


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Tis document is intended to compile all recommendations and action taken by the Sunset AdvisoryCommission or an agency under Sunset review. Te ollowing explains how the document is expandedand reissued to include responses rom agency staf and the public.

l Sunset Sta Report, March 2012 Sunset staf develops a separate report on each individualagency, or on a group o related agencies. Each report contains both statutory and managementrecommendations developed ater the staf s extensive evaluation o the agency.

l Sunset Sta Report with Hearing Material, April 2012 Adds responses rom agency staf and the

public to Sunset staf recommendations, as well as new issues raised or consideration by the SunsetCommission at its public hearing.


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Tableof conTenTs

summaRy.................................................................................................................................. 1

agencyaTa glance.................................................................................................................................. 7

issues/RecommendaTions1 Te States Ethics Enorcement Process Unnecessarily Focuses on

Minor Reporting Inractions .................................................................................... 11

ResponsestoIssue1(page18a)

2 Te Hearings Process or Ethics Complaints Weakens the CommissionsEfectiveness in Enorcing Disclosure Laws ............................................................. 19


3 Te Agencys echnology and Inormation Management Have Not

Kept Pace With Its Workload and Changing User Needs........................................ 25 ResponsestoIssue3(page32a)

4 Antiquated Filing Requirements Waste Agency Resources and DoNot Promote Meaningul Disclosure ........................................................................ 33


5 Te exas Ethics Commissions Statute Complies With StandardElements Analyzed During Sunset Reviews ............................................................ 43


new issues.................................................................................................................................. 45

appendixAppendix A Staf Review Activities .................................................................... 47

page


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summaRy


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Texas Ethics Commission Staff Report with Hearing Material

Summary

Sunset Advisory Commission April 2012

1

summaRy

Enforcement of disclosurelaws may result in candidates

or officeholders beingstigmatized as ethics violators

for innocent mistakes.

Te people o exas had every reason to believe they were getting an ethics

agency when they voted or the constitutional amendment creating theexas Ethics Commission in 1991. Tey did not vote or a Disclosure FilingCommission, and likely would not have done so.

Disclosure, however, is the central tenet o exas system or dealing withcampaign nance, personal nancial statements, and lobby activity reports.

Tat is not to say that the states disclosure-based system cannot delivermeaningul ethics oversight. Given the ew limits state law places oncampaign contributions and expenditures, exas approach to ethics relies ondisclosure to shine a light on political nancial activity or the public to seeand judge. For this cleansing light to meaningully efect ethical behavior, the

exas Ethics Commission must operate in a tense political

environment to ensure that disclosure is timely and accurateand that enorcement actions are air and reect fairly onlers. Several major issues emerged rom this vantage point.

Enorcement o disclosure laws works in such a way that eveninnocent mistakes may result in candidates or oceholdersbeing portrayed as ethics violators, with a stigmatizingimpact that is out o proportion to the seriousness o themistake. Such a portrayal reracts the light o disclosure and potentially colorsthe publics view o the matter in a way that bears directly on the reputationand political ortunes o candidates and elected and appointed ocials. o

be sure, such matters involving errors should still be avoided and dealt withappropriately when they occur.

Unlike the agencys early years, however, quick and easy access tocomputerized disclosure inormation, a more contentious political climate,and greater amounts o money owing around public oce heighten thepotential and temptation to use disclosure less or illumination than orpolitical opportunism. Further, enorcement procedures diferent rom thoseo many regulatory agencies may also afect the role and efectiveness o the

exas Ethics Commission. Finally, the agencys budget has been stagnantrom 2002 through the current biennium, resulting in computer and otherresources that have not kept pace with needs.

Te agency also administers disclosure provisions under laws containingoutdated or inecient requirements. Sunset staf recommends changesto streamline some disclosure requirements and to address some concernsabout personal nancial statements. However, wholesale changes to matchinormation required in these statements to the nature o the public positiona ler holds, or to update potentially antiquated requirements, requirespecialized expertise or otherwise require value judgments that do not lendthemselves to objective evaluation. As a result, such changes are not includedin this report.


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Summary

April 2012 Sunset Advisory Commission

2

Finally, as a constitutional agency, the Commission is subject to review under the Sunset Act, butnot abolishment. For that reason, the report also does not contain a recommendation to continue itsunctions and duties.

Te ollowing material summarizes issues and recommendations contained in the report.

IssuesandRecommendations

Issue 1

The States Ethics Enforcement Process Unnecessarily Focuses on Minor ReportingInfractions.

Te Commissions principal enorcement tool or violations o the law, other than late reporting, iscivil penalties issued through the sworn complaint process. In exas disclosure-based ethics system,almost any error is a potential violation, and lers ound to be in violation o disclosure laws in

even minor ways may be stigmatized as ethics violators. Tis stigma can mislead the public as to apersons character, be devastating to political careers, and provide incentives to misuse the agencyscomplaint process or political purposes. Several actors contribute to this situation, including thepublics diculty in determining the seriousness o violations, the legalistic appearance o complaintdocuments, the absence o a system to review reports or accuracy on submission, and the lack o ullaudits to encourage compliance.

Overhauling the agencys current statutory enorcement system and strengthening processes orreviewing reports would create a system that matches agency enorcement action taken to sanction a

violation with the seriousness o the violation, helping to remove the potential or stigma while stillensuring ull disclosure.

KeyRecommendations

l Develop a system or resolving complaints that aligns enorcement actions with the seriousness oviolations.

l Direct the agency to strengthen systems to veriy the completeness and accuracy o disclosureinormation.

Issue 2

The Hearings Process for Ethics Complaints Weakens the Commissions Effectiveness

in Enforcing Disclosure Laws.Unlike many state agencies with enorcement authority, the agencys ull Commission is involvedin both developing proposed enorcement actions and sitting as nal judge to take nal action onsworn complaints. Tis process could bias Commissioners as to the outcome o a complaint sincethey actually were involved in its investigation. Also, unlike many state agencies, a respondent to acomplaint may choose to bypass the agencys hearings process on the complaint and go to court undera trial de novo standard. Tis approach essentially throws out the agencys work and record, weakeningits enorcement powers.


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Summary


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Elimination or reduction o Commissioner involvement in preliminary review and preliminary hearingstages would reduce any potential or appearance o bias when the Commission sits as judge in theormal stage o complaint resolution. Prohibiting a respondents bypass o agency hearings processand requiring courts to review appeals based on review o the agencys developed record under thesubstantial evidence rule would ensure the agencys meaningul role in deciding sworn complaints.

KeyRecommendations

l Eliminate Commissioner involvement in the preliminary review o a sworn complaint andrestructure the preliminary hearing to include only two Commissioners.

l Provide or judicial review o Commission decisions based on substantial evidence o the recordand decisions made by the Commission.

Issue 3

The Agencys Technology and Information Management Have Not Kept Pace

With Its Workload and Changing User Needs.Te exas Ethics Commissions general revenue budget has been stagnant since 2002 while its workloadand need or technology have increased. Computer systems to support ecient and accurate lingo reports and public accessibility have not kept pace with needs or the march o technology. Teagency does not have unds to check disclosure documents or acial compliance ater submission,nor to conduct complete audits at a later point, reducing assistance and incentives to achieve accuratereporting and compliance. Sworn complaints, a major workload issue or the agency, have increaseddramatically rom 168 in scal year 2004 to 374 in scal year 2011. Te agencys education programhas been eliminated this biennium, closing of an avenue or educating lers on the states complicateddisclosure laws.

Te exas Ethics Commission collects lobby registration ees that ofset about 40 percent o theagencys general revenue appropriation o about $2 million annually. Unlike related agencies in somestates, however, the exas Ethics Commission does not have the authority to collect ees rom theapproximately 4,000 political committees, elected ocials, and candidates ling reports with the agency.Additional revenues rom such a ee could help address agency needs, which in turn could make reportling easier and more accurate, ease agency workload on sworn complaints, and encourage compliance.

KeyRecommendations

l Require candidates, elected oceholders, and political committees ling disclosure reports with theexas Ethics Commission to pay an annual ee to help support the agencys operations.

l

Add rider language to the General Appropriations Act that provides additional unding to theexas Ethics Commission contingent on collection o sucient revenue rom the new reportingee.


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Summary


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Issue 4

Antiquated Filing Requirements Waste Agency Resources and Do Not PromoteMeaningful Disclosure.

State law requires candidates, state ocers and employees, certain local ocers, caucuses, political

committees, and lobbyists to submit periodic reports to the agency disclosing campaign, lobby activity,and personal nancial inormation. Several outdated, inconsistent, or unnecessary statutory provisionsimpede ull, transparent, and ecient disclosure. Revising these provisions would modernize the lingo certain reports, improve transparency, and streamline the agencys ling operations.

KeyRecommendations

l Require personal nancial statements to be submitted electronically and made available online atersensitive personal inormation is redacted.

l Eliminate the civil penalty exemption or smaller general-purpose committees.

l

Remove the statutory prohibition on posting reports o major party candidates whose opponentshave not yet led.

Issue 5

The Texas Ethics Commissions Statute Complies With Standard Elements AnalyzedDuring Sunset Reviews.

Among the standard elements considered in a Sunset review, the exas Sunset Act directs the SunsetCommission to recommend the continuation or abolishment o each reporting requirement establishedin law or an agency under review. Te exas Ethics Commission has a single reporting requirement to

submit a biennial report to the Legislature regarding its activities. Continuing this requirement wouldkeep the Legislature apprised o important ethics inormation and necessary statutory changes.

KeyRecommendation

l Continue requiring the Commission to submit its biennial report to the Legislature.

FiscalImplicationSummary

Tese recommendations would have an estimated positive scal impact to General Revenue o $71,050.Additionally, the report recommends a new ee to be paid by certain lers to raise unds specically

to ofset agency costs or improved computer technology, report review, auditing processes, or otherimprovements, but which are not counted as a revenue gain to the State. Te scal impact or eachrecommendation is summarized below.

Issue 1 Te recommendation in this issue to strengthen systems to veriy the completeness andaccuracy o disclosure inormation would require improvements in the electronic ling system, acialcompliance checks o reported inormation, and an enhanced audit system. Costs to develop thesesystems would be ofset by additional revenue resulting rom a new reporting ee recommended inIssue 3.


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Summary


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Issue 3 Authorizing the Commission to charge candidates, elected oceholders, and politicalcommittees an annual ee to support the agencys operations would likely result in a $200,000 annualgain to General Revenue, assuming a $50 ee. Tese revenues are intended or appropriation to theagency or developing the systems highlighted in Issue 1 or other priorities o the Legislature and

would not result in a net revenue gain to the State.

Issue 4 Removing the exemption rom civil penalties enjoyed by certain general-purpose committeesthat ail to timely le required reports would result in annual revenue gain to General Revenue oabout $67,550. An additional savings o $3,500 would result rom removing prescriptive mailingrequirements rom statute and allowing staf to determine the appropriate method or sending latenotices and sworn complaint correspondence.

Texas Ethics Commission

Fiscal Gaintothe Savingstothe

Year GeneralRevenueFund GeneralRevenueFund

2014 $67,550 $3,500

2015 $67,550 $3,500

2016 $67,550 $3,500

2017 $67,550 $3,500

2018 $67,550 $3,500


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Summary6



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agency aT a lancemaRch 2012

g


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Agency at a Glance


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agencyaTa glance

Te exas Ethics Commission administers and enorces the states campaign nance and ethics laws thatgovern the conduct o state ocers and employees, candidates or and oceholders o state and localoces, political committees, political parties, and lobbyists. Created by a constitutional amendmentadopted by the voters in 1991, the agencys major unctions include:

l maintaining nancial disclosure reports and making them available to the public;

l investigating ethics and campaign nance complaints and assessing penalties when warranted;

l issuing advisory opinions interpreting laws under the agencys jurisdiction;

l providing inormation and assistance to stakeholders to help them understand their obligations

under campaign nance and ethics laws; andl registering persons engaged in lobbying at the state level and requiring periodic lobby activity

reports.

KeyFacts

l Policy board. Te exas Constitution establishes the exas Ethics Commission as a state agency,consisting o a bipartisan eight-member Commission: our appointed by the Governor rom alist submitted by members o each political party o the House and Senate; two appointed by theSpeaker o the House rom a list submitted by members o each political party o the House; andtwo appointed by the Lieutenant Governor rom a list submitted by members o each politicalparty o the Senate. Te exas Constitution requires these appointing authorities to split theirappointments between each political party required to hold a primary, so the Commission isevenly divided between Republicans and Democrats. Te chart, Texas Ethics Commission, details theCommissions membership.


Member TermExpires Submittedby Appointedby

om Ramsay, Chair 2013 House Democrats Governor

Jim Clancy, Vice Chair 2013 House Republicans Governor

Hugh C. Akin 2013 Senate Republicans Lt. Governor

om Harrison 2011 Senate Democrats Governor

Paul W. Hobby 2015 House Democrats Speaker

Bob Long 2015 Senate Republicans Governor

Paula M. Mendoza 2007 Senate Democrats Lt. Governor

Chase Untermeyer 2013 House Republicans Speaker


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Agency at a Glance


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l Funding.Te exas Ethics Commission has operated with an annual budget o about $2 million inboth scal years 2011 and 2012. About 99 percent o the agencys budget is supported by generalrevenue with the remainder supported by miscellaneous charges, such as copying ees. For the201213 biennium, the Legislature reduced the agencys general revenue appropriation and ofsetmost o the reduction by appropriating $375,000, contingent on increased lobby registration ees,

which became efective November 1, 2011.

l Stang. Te agency had authority to employ 33 staf in scal year 2011 and has authority toemploy 36 staf in scal year 2012. Due to budget restrictions, the agency maintains about 33 ull-time staf in scal year 2012.

l Disclosure lings. Candidates and oceholders, certain state ocers and employees, certainlocal ocers, political committees, political parties, and lobbyists are required to submit periodicreports to the agency disclosing theirexpenditures and contributions, as

well as personal nancial inormation.Te agency assists lers in ullling

disclosure reporting requirements,organizes and archives reports, andmakes reports available to the public.

Te agency does not evaluate or auditthese reports. In scal year 2011, theagency received 30,837 reports rom9,539 lers, detailed in the accompanyingchart. Approximately 87 percent o allreports are led electronically, with theremaining led on paper.

l Lobbyist registration. Persons who engage in certain lobbying eforts with the legislative andexecutive branches must register with the agency and le lobbying activity reports as noted above.

With some exceptions, persons must register as lobbyists i they receive more than $1,000 in acalendar quarter as compensation or reimbursement to lobby, or i they spend more than $500 in acalendar quarter or certain purposes. In 2011, the number o registered lobbyists was 1,956.

l Complaints.Te exas Ethics Commission investigates and rules on complaints against candidates,political committees, state ocers and employees, ocers and employees o political subdivisions,and lobbyists. Any exas resident or individual owning real property in the state may le a sworncomplaint o an alleged violation with the agency. Te agency may also initiate a complaint withan armative record vote o at least six Commissioners. Most complaints allege violations ocampaign nance and political advertising laws. Te number o sworn complaints is increasing and

in scal year 2011, the agency received 374 complaints.

l Enforcement. Te exas Ethics Commission may enorce all laws under its jurisdiction exceptthose in the Penal Code, such as bribery, improper inuence, and abuse o oce. Te agencysenorcement authority extends to candidates, oceholders, and their supporters ling with localling authorities, as well as those ling with the agency. Te agency is authorized to investigatecomplaints, hold enorcement hearings, issue orders, impose civil penalties, reer issues or criminalprosecution, and take action against a lobbyist s registration. Te agency may also impose an

Texas Ethics Commission Filings* FY 2011

Number Number

ReportType ofFilers ofReports

Campaign Finance Reports 3,976 18,076

Personal Financial Statements** 3,607 2,920

Lobby Activity Reports 1,956 9,841

Total 9,539 30,837

* Te table includes only lers who submit reports to the exas EthicsCommission.

** Te number o personal nancial statement lers exceeds the number oreports because o statutory requirements on when individuals submitthese documents.


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Agency at a Glance


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administrative ne on late lers o certain reports. In scal year 2011, the agency assessed $136,980in nes through the sworn complaint process and $523,335 through the late ling administrativeprocess.

l Advisory opinions. Te agency issues advisory opinions about relevant laws, including campaignnance, political advertising, lobbyist activities, nancial disclosure, standards o conduct o

government ocials, bribery o public servants, and the misuse o public resources. An advisoryopinion provides a deense to prosecution or imposition o civil penalty or a person who has reliedon such opinion in a substantially similar act situation. Since 1992, the exas Ethics Commissionhas issued approximately 500 advisory opinions, though the number issued has remained relativelyconstant at about ve to 10 per year during the last decade. In 2011, the Commission issued sixadvisory opinions.

l Education. Statute directs the exas Ethics Commission to provide ethics training or new andreturning members o the Legislature at the start o the legislative session, and to provide ethicstraining or state employees in cooperation with state agencies. Additionally, the agency mayprovide inormation and documents about laws within its jurisdiction to anyone who contacts

it. In 2011, the Legislature eliminated appropriations or the education program, but the agencycontinues providing training when possible.


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Agency at a Glance10



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issues


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Issue 1


1

issue 1

The States Ethics Enforcement Process Unnecessarily Focuses onMinor Reporting Infractions.

Background

Te exas Ethics Commission oversees the system o disclosure laws or state and local elected ocialsand candidates, executive directors and ocers o most state agencies, and persons lobbying stategovernment. Tis disclosure system is at the core o exas approach to ethics, relying on ull, timely,and accurate inormation to the public to achieve accountability rom people responsible or directingand running the government. Key to this system are enorcement provisions to help ensure timelyand accurate reporting by lers. In this system, the Commission exercises civil enorcement authority

while authority to apply criminal sanctions rests with county and district attorneys. Te Commissions

primary enorcement mechanism relies on citizen-driven sworn complaints alleging violation o any othe states disclosure laws. Te agencys statutes authorize any exas resident or property owner, as wellas the Commission itsel, to initiate such complaints.1

Te nature o enorcement in a disclosure-based ethics system is that almost any error, regardless ohow small or insignicant, is a potential violation. Te Commission and its staf seek to balance thespecic acts o the case with the nature and seriousness o the error, but will generally take actionupon a determination that credible evidence o a violation exists. Te Commission seeks to resolvematters through a settlement process with respondents, which may result in agreed orders or voluntarycompliance involving minor violations or or other, more signicant matters. Te Commission mayalso initially conduct a preliminary and later a ormal hearing beore determining a nal action.

Te Commissions principal enorcement tool or violations o the law, other than late reporting, iscivil penalties issued through the sworn complaint process. Statute caps these penalties at $5,000 ortriple the amount at issue, whichever is more, or a violation o a law the agency enorces.2 Troughthe sworn complaint process, in scal year 2011 the Commission assessed penalties ranging rom $100to $31,470, and assessed a total o about $137,000 in nes.3 Te table on the ollowing page, Top FiveDisclosure Provisions Violated, describes the most requent violations receiving Commission penaltiesthrough the sworn complaint process in scal year 2011.


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Issue 1


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Findings

Texasenforcementsystemcanbrandcandidatesandofcials

asethicsviolatorsforminorreportingmistakes.

An efective enorcement process works to ensure compliance with therequirements or certain action or behavior. It also seeks to relate theenorcement action taken to the nature and seriousness o the violation sothat the public can make inormed judgments about the behavior o thosesubject to sanctions.

For the exas Ethics Commission, enorcement o sworn complaints isintended to make sure that required disclosure occurs by the threat osanctioning those who do not comply. By relating the enorcement actionto the nature and seriousness o the violation, the process should seek todistinguish between simple, honest mistakes and more signicant matters, toensure that lers are treated airly and the public understands the nature othe wrongdoing.

Despite recent eforts by the Commission to deal with minor violations,the agencys sworn complaint process still does not allow or making this

kind o distinction about the seriousness o a violation. Te general practiceremains that those ound in violation o the states disclosure laws may bestigmatized as an ethics violator, regardless o the seriousness o the violationin question. Te consequences o such a judgment can be serious or theler who is a candidate or oceholder. Tis blurring o the Commissionsactions threatens to conuse the public regarding the ocials or candidatestrue behavior and ultimately can distort the agencys enorcement process outo all proportion to the harm that occurred. Te stigma o an ethics violation,used in a campaign, can afect votes and potentially inuence the outcome oelections.

Those found inviolation of the

states disclosurelaws may be

stigmatized as anethics violator.

Top Five Disclosure Provisions Violated FY 2011

ElectionCodeSectionor

DescriptionofViolation CommissionRuleViolated

Filer did not properly report expenditures o more than $50.* Te ler may nothave included or incorrectly reported the ull name and address o the recipient o 254.031(a)(3)

the expenditure; and/or the amount, date, or purpose o the expenditure.Filer did not properly report contributions o more than $50. Te ler may nothave included or incorrectly reported the name and address o the donor and/or 254.031(a)(1)amount o the contribution.

Filer did not properly report the total amount o contributions and/or expenditures. 254.031(a)(6)

Filer incorrectly reported the payee o a political expenditure. When a stafmember or campaign worker makes such an expenditure on behal o a candidate exas Ethics Commissionor oceholder, the name o the actual payee must be disclosed instead o the Rule 20.62name o the staf member or campaign worker.

Filer incorrectly reported the total amount o contributions accepted as o the last254.031(a)(8)

day o a reporting period.

* Tis amount was increased to $100 in scal year 2012.


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Issue 1


1

A series o actors contributes to the potential misalignment o violationswith their proper characterization as to their nature and seriousness.

l Lack of guidance as to severity of violations. Clear guidence as to theseverity o a violation does not exist in law. Currently, statute establishestwo categories or violations: Category One violations are those that are

generally not dicult to ascertain whether the violation occurred; andCategory wo violations are dened as not a Category One violation. 4

Tese categories only reer to the complexity o evaluating a violation,not its seriousness. As a result, agency processes generally do not group

violations by their seriousness.

In addition, such a determination o whether a violation is an innocentmistake or indicates deeper unethical behavior can be dicult withoutinvestigation or analysis o related disclosure reports and other nancialdocuments. Te diculty o making such determinations creates roomor the public and political opponents to misinterpret a lers innocent

mistake as a serious ethical breach.l Limited discretion in dealing with violations. Statute is airly

prescriptive in directing action against ethics violations. In addition,the lack o clear statutory guidance regarding a violations severity, thediculty o judging true unethical behavior, and the political environmentall conspire to discourage the Commission rom reely exercisingdiscretion to avoid any appearance o partisanship or avoritism. Despitesuch concerns, the Commission recently adopted rules or dealing withminor errors judged to be technical, clerical, or de minimis and delegatedauthority to staf to resolve such issues.

Because statute limits the Commissions ability to urther separate ethicsmatters according to their nature and seriousness, the Commissionitsel still resolves many issues that are paperwork errors or other lesser

violations. Full Commission involvement in lesser violations may add tothe appearance o their importance when in act, violations were minor.Several commissioners have publicly suggested too much o their timeis spent resolving paperwork reporting issues.5 However, given thecurrent statutory ramework and politically sensitive nature o the arenait operates in, the Commission seems to have reached its limits o what itcan reasonably delegate to staf.

l

Nature of violation not clear from appearance of agreed order.Agency agreed orders and other complaint resolution documents have ahighly legalistic look and use ormal legal language or relatively minor,as well as more serious, violations. Lack o distinguishing characteristicsimplies a level o seriousness not necessarily appropriate in every case.

l Nature of politics. In the world o electoral politics where publicperception is o paramount importance to candidates and oceholders, theactors above allow potentially minor reporting errors to be labeled ethics

SeveralCommissionershave publiclysuggested toomuch of their

time is spentresolving

paperworkreporting issues.


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Issue 1


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violations and used against opponents in elections, uther perpetuatingthe ethics violation stigma.

Otherentitiesavoidinappropriatelystigmatizinglersby

conductingpreliminarystaffreviewsofdisclosurereports.

Sunset staf surveyed 13 states selected or their similarity to exas in havingew campaign nance limits or similar ethics agency structures.6 O the13 states, 12 have developed disclosure systems that have less potential orcandidates and public ocials to be inappropriately stigmatized. All but onestate, Oklahoma, perorm some type o acial review to check reports orobvious errors, or more in-depth audits o reports. Tese states then allowlers to correct reports within a given timerame without being subject toenorcement action.

Te Federal Elections Commission also has a review and correction processor all campaign nance reports. Te agencys Reports Analysis Division

reviews all reports or acial compliance and completeness and works withlers to correct any mistakes. Ten, i lers do not make corrections or aproblem is systemic, enorcement action becomes necessary and the agencyuses diferent processes to resolve the matter depending on the violationsseverity and dollar amount at issue.

Tese types o systems weed out technical and other minor reporting errors,leaving only more serious violations to the ormal enorcement process andreducing the opportunity to unairly label lers as ethics violators.

TheTexasEthicsCommissionlacksadequateresourcesto

regularlycheckorauditlersreportstopromotecomplianceandaccuratedisclosureandfocusonmoresignicantethics

matters.

Statute requires the agency to randomly review disclosure reports or acialcompliance and gives it authority to perorm complete audits.7 While theagency has done acial reviews o randomly selected lers reports in the past,it currently perorms no reviews or complete audits due to lack o unds andresources. Te agencys ling sotware provides lers limited prompts orensuring complete reports, but this sotware that was once state o the art hasbeen outpaced by internet-based programs that can work interactively withlers to achieve greater accuracy and may also help ag potential violations

or urther staf review ater lers submit reports.

Te lack o agency compliance check and audit unctions may adversely afectthe states disclosure system in two ways. At the ront end, the lack o acompliance check deprives the system o a tool to assist lers in preparingcomplete reports. Ater reports have been led, the lack o an audit mechanismdeprives the state o a means o assuring that reports are, in act, true andcorrect and ree o possible deception.

The agencysfiling software

has beenoutpaced by

internet-basedprograms

that can work

interactivelywith users.


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Issue 1


1

Currently, a major incentive to comply ends up being the possible stigmathat may be attached to an ethics violation, which, as discussed previously,is a clumsy and uneven way to deal with disclosure errors. Te Legislaturehas enacted laws over time allowing limited periods or correcting reports

without consequences, which may reduce the errors that can stigmatizelers.8 However, dealing with the stigma associated with ethics violationsby relaxing the law in this way threatens to urther erode the integrity othe reporting and disclosure system without the balance o acial compliancechecks and ull audits to encourage accurate reporting.

Obtaining compliance with disclosure requirements is particularly importantin a state like exas, which places ew limits on sources and amounts opolitical contributions and expenditures. For example, individual candidatesand non-judicial oceholders may accept unlimited amounts o money romlegitimate sources, which do not include corporations, labor unions, andoreign nationals; and candidates and oceholders may expend any amounto money or authorized purposes. In such a system, accurate disclosure

inormation substitutes or contribution and expenditure limits to inorm thepublic about the ull range o nancial activity.

Te Commission may also be missing the opportunity to ocus on matterso greater ethical signicance. By largely relying on a citizen-driven sworncomplaint process, the agency generally does not pursue its own complaints.Aside rom the resource issues that prevent the agency rom conductingthe audits to provide the basis or initiating complaints, the agency is alsoconstrained by its cautious approach to enorcement and the desire to avoidany appearance o partisanship in how it operates. Regardless o the reason,the state is deprived o a bigger view o potential unethical behavior and the

expertise o the agency established to deal with such issues.

Recommendations

Change in Statute

1.1 Developasystemforresolvingcomplaintsthatalignsenforcementactionswith

theseriousnessofviolations.

Tis recommendation would overhaul the agencys current statutory enorcement process to create asystem to match the action taken to sanction an ethical breach with the seriousness o the violation.

Te recommendation is intended to accomplish this goal by revising language associated with simple

complaints to be less legalistic and suggestive o ethics violations; directing alleged violations into threediferent outcomes according to seriousness ater investigation by staf; and giving the Commission clearauthority to delegate more complaint processing to staf, with nal action still subject to Commissionapproval except in very minor cases. Te recommendation would work hand-in-hand with therecommendations in Issue 2 o this report that would revise the agencys process or considering andhearing complaints to provide or greater separation o staf and Commission roles.


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Issue 1


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Te new enorcement process would eature the ollowing basic elements.

l Initiate action with a reporting inquiry form. Te orm that the public uses to initiate an actionwould be styled as an inquiry orm rather than a sworn complaint to lessen the negative perceptionattached to the current terminology. Individuals would still be required to sign an adavit with theinquiry swearing to its content and submit the orm to the agency, as is currently required.

l Establish levels of violation. Te new system would eliminate the current statutory CategoryOne and Category wo violations and instead require Commission staf, upon receipt o an inquiry,to open a matter under review. Based on review o an inquiry and necessary investigation, andater appropriately notiying the parties involved in the matter as statute currently requires, staf

would propose to the respondent resolution o apparently valid allegations according to one o threeoutcomes escalating according to seriousness.

Letter o Acknowledgment. Tis outcome would be reserved or those violations deemed technical,clerical, or de minimis, as dened by the Commission in rule. Te Commission could use its currentrule dening technical or de minimis violations as a starting point, or could work with stakeholdersto expand it. Matters eligible to receive a letter o acknowledgment would carry no dollar penaltyand would remain condential.

Notice o Administrative or Filing Error. Tis notice would be reserved or ling or otheradministrative errors, as dened by the Commission in rule. Tese violations would be consideredmore serious than those eligible to be resolved using a letter o acknowledgment and would carry ane. I the respondent agrees to the notice o administrative or ling error, it would be made publicand be available on the agencys website.

Notice o Violation. Tis notice would be used in matters where a violation was most serious. TeCommission would dene in rule which violations would be subject to a notice o violation. As

with a notice o administrative or ling error, a notice o violation would carry a ne and be made

publicly available on the agencys website.I a person alleges multiple violations in a single inquiry, staf would proceed with the matterunder review according to the most serious allegation staf believes is valid. I staf determines thematter to be a lesser or more serious violation during the process, it would proceed according to theappropriate outcome level as described above. Commission staf would have exibility to separateallegations in an inquiry into separate actions or keep them grouped together.

l Development of penalty guidelines. Te Commission would develop penalty guidelines in ruleand within the bounds o the Commissions current statutory penalty authority to assist staf inproposing nes based on the level o violation and lers compliance history.

Management Action1.2 Directtheagencytostrengthensystemstoverifythecompletenessandaccuracy

ofdisclosureinformation.

Te exas Ethics Commission is required to review lers disclosure reports and personal nancialstatements or acial compliance with the law based on a random selection process, but has not done sorecently because o resource constraints.9 Issue 3 recommends an additional unding source that maybe used or this purpose.


25/73


Issue 1


1

Te agency should set up a system to regularly perorm acial compliance checks using either therandom process currently laid out in statute or through an improved electronic ling system. Animproved electronic system, also discussed in Issue 3, could potentially assist a much broader range olers than random manual compliance reviews since ler inormation could be electronically checkedor incomplete inormation and potential mistakes beore submission, much like sotware individualsuse in ling their personal income taxes. Such a system could also ag potential errors ater lers reportor staf to review.

In addition to the acial compliance check discussed above, the agency should exercise its existingauthority to develop a system o audits or reviewing lers disclosure inormation in more depth,comparing the inormation with bank statements, contacting third parties, or perorming otherinvestigatory unctions. As one approach or such audits, the agency could select randomly romtargeted areas, based on risk actors determined by the Commission, such as lers reporting largeamounts o contributions or expenditures, lobby reports indicating substantial activity, or specic typeso reports considered crucial or disclosure. Violations ound during a complete audit would subjectlers to enorcement action as described in the previous recommendation.

Tese systems would simpliy ling, help reduce the number o reporting errors, and reduce the numbero complaints stemming rom reporting mistakes. Tese benets would help eliminate the stigmaattached to lers who commit minor reporting errors while still ensuring compliance and ull disclosure.

FiscalImplication

Tis recommendation would likely have a cost to pay or improved systems or veriying thecompleteness and accuracy o disclosures, including new electronic ling systems to provide acialcompliance checks and an enhanced audit system. Issue 3 o this report recommends establishment oa new reporting ee to help und such improved technology and a system o audits. Implementationo the recommendations above would be contingent on the receipt o revenue generated rom this new

unding source or any other source o unds directed by the Legislature or this purpose.

1 Section 571.122(b-1), exas Government Code.

2 Section 571.173, exas Government Code.

3 Fines reerenced include Assurance o Voluntary Compliance (AVOC) orders. Te Commission issues AVOCs when the violation isconsidered technical or de minimis under 1 .A.C. Section 12.81. Fines associated with AVOCs can be up to $500, but these orders typically resultin no ne.

4 Sections 571.1211(2) and (3), exas Government Code.

5 exas Ethics Commission, January 17, 2012, workshop.

6 Sunset staf contacted Caliornia, Georgia, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Nebraska, Oklahoma,South Carolina, and ennessee in its state survey.


8 Section 254.0405, exas Election Code; Section 571.0771, exas Government Code.

9 Section 571.069(a), exas Government Code.


26/73


Issue 118



27/73


Issue 1


18

ResponsesTo issue 1OverallAgencyResponsetoIssue1

Te exas Ethics Commission agrees with the recommendations. Te agency understands thatthe states enorcement process unintentionally creates an environment whereby lers wantingto ully comply with the reporting laws are subject to accusations and the resulting stigma oethics violations or minor reporting inractions. (David A. Reisman, Executive Director

exas Ethics Commission)

Recommendation1.1

Develop a system for resolving complaints that aligns enforcement actions withthe seriousness of the violations.

AgencyResponseto1.1

Te Commission agrees with this recommendation.

l Initiate action with a reporting inquiry form. Initiating an action with an inquiry ormrather than a sworn complaint would lessen the negative perception as an inquiry into amatter that does not rom its ace appear to jump to a presumption o wrongdoing.

l Establish levels of violation. Replacing the Category One and Category wo violations,as currently dened and set out in statute, with levels o violations set out in statute thatinitiate and ofer resolution by a Letter o Acknowledgement or technical or de minimis

violations dened by current rule; a Notice o Administrative or Filing Error, or example,

late lings, non-lings, and administrative types o errors; and Notices o Violation ormore serious types o violations, such as actual conicts, material omissions, and abuse ooce through campaign nance, would allow the staf exibility to group inquires by leveland allow or more ecient processing o actions. Tose technical or de minimis allegationsand administrative ling errors could be processed more eciently by staf by allowing moretime or the Commissioners and staf to investigate and resolve more serious violations.

(David A. Reisman, Executive Director exas Ethics Commission)

For1.1

None received.

Against1.1

None received.


28/73


Issue 118b


Recommendation1.2

Direct the agency to strengthen systems to verify the completeness and accuracyof disclosure information.

AgencyResponseto1.2


Contingent on sucient unding, the statutory authorization or acial compliance audits on allreports in addition to random in-depth audits would serve a dual purpose o weeding out acialproblems with disclosure reports while enabling the Commission to perorm intensive selectiveaudits in high risk areas that a acial audit would not disclose. Enabling the Commission torandomly perorm these complete intensive selective audits, through bank record review, thirdparty interviews, and other intensive investigation methods, with the ability to subject lers tothe enorcement process, could enhance the reporting process by providing an incentive or ulland accurate disclosure. (David A. Reisman, Executive Director exas Ethics Commission)

For1.2

None received.

Against1.2

None received.


29/731


Issue 2


issue 2

The Hearings Process for Ethics Complaints Weakens the CommissionsEffectiveness in Enforcing Disclosure Laws.

Background

Any exas resident or property owner can le a sworn complaint with the exas Ethics Commissionalleging violation o a law enorced by the agency.1 As shown in the chart, Texas Ethics CommissionSworn Complaints Process, a sworn complaintcan pass through several stages beore reachingresolution.

Te process begins with the executive directordetermining whether the Commission has

jurisdiction over the matter and assessing thecompleteness o the complaint.2 As shownin the table on the ollowing page, Processingof Sworn Complaints, the executive directordismissed about one-third o complaints at thisinitial step. Te executive director may resolvecertain minor cases through an assurance o

voluntary compliance, as occurred in another33 cases at this early stage.3

For the remaining complaints, staf prepares

a report or the ull Commission or itsconsideration with staf in a closed preliminaryreview session. Te preliminary review can resultin various actions, including the Commissiondismissing the complaint, authorizing staf topropose an agreed order to the respondent,resolving the complaint through an assuranceo voluntary compliance, or directing staf toget more inormation.

I a complaint is not resolved at the preliminary

review stage, it may continue to a preliminaryreview hearing and, nally, a ormal hearing,both beore the ull Commission. In scal

year 2011, nine complaints progressed to thepreliminary hearing stage and none graduatedto a ormal hearing. Commission decisionsmay be appealed to district court, but no caseprogressed to that point in scal year 2011.


Sworn Complaints Process

Sworn Complaint

received or initiatedby Commission

Non-complying

Dismiss if

complying

complaint

is not

resubmitted

within 21 days

Complying

complaint

resubmitted

Resolved byAgreed Order

and Assurance

of Voluntary

Compliance

Resolved by

Agreed Order

Final Order

issued

Dismissed due

to no jurisdiction

Review by

Commission

on request of

complainant

Dismissed dueto insufcient

evidence

or credible

evidence of no

violation

Dismissed due

to insufcient

evidence

or credible

evidence of no

violation

Final decision of

no violation

Preliminary

Review by

Staff and

Commission

Preliminary

Review

Hearing

Formal Hearing

Jurisdiction

by Executive

Director

New trial in district

court

Not resolved

Not resolved

Appeal


30/73


Issue 220


Findings

Statutedoesnotstructuretheagencyshearingsprocessfor

sworncomplaintstoensureoptimumfairness.

Te Commission is set up to be the ultimate judge o sworn complaints underits jurisdiction. However, when it involves itsel in the preliminary reviewo complaints, the Commission not only spends its valuable time on what

is usually a staf unction in many agencies, but also potentially impairs itsability to airly judge and decide these matters.

In the preliminary review, the Commission meets with agency staf inexecutive session without the respondent in attendance. Te Commissionhears inormation about the case and may direct aspects o the investigationor work with staf to propose an agreed order or the respondent to consider.I the respondent rejects the proposed order, the complaint may progress toa preliminary hearing and, potentially to a ormal hearing, both beore thesame Commission members that proposed the order in the rst place withouthearing rom the respondent. As a result, the Commission may be biasedtoward a particular set o acts it helped develop without hearing all sides andmay not be impartial decision makers.

Further, the Commission must consider as many as 40 such cases at each oits meetings, combing through hundreds o pages o documents or what isessentially a ministerial unction. Te Commission has recognized this andbegun to delegate more authority to its staf to act on lesser matters ound tobe technical, clerical, or de minimis violations.

Processing of Sworn Complaints FY 2011

Percent Complaints

Numberof Resolved Remaining

StageofComplaintResolution Action Complaints atThisStep AfterAction

Jurisdiction by ED Dismissed 123 33% 249

Beore Preliminary Review by Staf andAVOC* 33 9% 216

Commission

Dismissed 74 20% 142Preliminary Review by Staf and

Agreed Order 111 30% 31Commission

AVOC* 22 6% 9

Agreed Order 2 1% 7

Preliminary Hearing with Commission Final Order 7 2% 0

Deault Hearings

Formal Hearing Final Order 0 N/A N/A

Total 372 100%* Assurance o Voluntary Compliance

The Commissionsinvolvement inthe preliminary

review ofcomplaintspotentiallyimpairs its

ability to fairlyjudge them.


31/732


Issue 2


Te involvement o an agencys ull governing body at these early stages ocomplaint investigation and resolution is not typical o most state agencyhearings processes, which the Sunset Commission staf has observed overmany years o reviewing state agencies. Such a process typically starts withstaf developing a proposed agreed order without ull governing boardinvolvement i, ater investigation, staf believes that grounds exist orenorcement action. I the respondent rejects the proposal, an agency mayhold inormal discussions with the respondent, including, in some cases,holding an inormal settlement conerence. Tese discussions may occurat the agency staf level, or may involve a subset o agency board members.For example, inormal settlement discussions held by the Public UtilityCommission and exas Commission on Environmental Quality occur at thestaf level, while settlement conerences o the exas Medical Board oteninvolve one or more board members.

For most state agencies, a disputed matter usually progresses to a ormalhearing beore the State Oce o Administrative Hearings (SOAH). SOAH

hears the case and develops a Proposal or Decision or the originating agency.Te agencys governing body then accepts, modies, or rejects the proposalwithin certain limits dened by law. Such a ormal process or conductinghearings is important in ensuring needed independence in weighingapplicable acts and law, and in ensuring a complete record to documentthe decision-making process. Tis record is especially important in mattersappealed to court. Statute does not specically authorize SOAHs use by the

exas Ethics Commission, although the agency has used its services at leasttwice since its creation.

Statuteandagencyrulessetupcourtappealsofthe

Commissionscontestedcasesinawaythatweakensitsroleinenforcingdisclosurelaws.

Statute requires that an appeal rom a Commission decision be resolvedthrough a new trial in district court in ravis County or in the county in

which the respondent resides.4 exas Ethics Commission rules allow arespondent to waive the right to hearing, in which case the Commission maystill issue a nal order imposing a civil penalty.5 Te respondent may appealthe order under the de novo standard, causing the court to hear the matteranew and not based on the record o the Commissions decision, even i arecord was developed.

Requiring a new trial on appeal threatens to undermine the Commissionsenorcement o disclosure requirements that are at the heart o the statesethics laws. Because trial de novo requires the court to try each issue o act andlaw and not to admit in evidence the act o prior action by the commissionor the nature o that action, such a review potentially renders moot thedecisions made by the agency, especially on the larger, more signicant mattersmost likely to require ormal Commission action.6 Allowing respondents toskirt the agencys hearings process in avor o a court trial urther weakens

The involvementof an agencysfull governingbody at early

stages ofcomplaint

investigationis not typical.

Requiring a newtrial on appeal

threatens toundermine theCommissions

enforcement ofdisclosure laws.


32/73


Issue 222


the agencys role by eliminating procedural steps in which the Commissionexercises the quasi-judicial authority or which it was established. Waivingthe right to a Commission hearing has occurred in at least two high prolecases in the recent past.

Certainly, the potential to delve into matters with signicant political

overtones requires extra caution in how the state sets up an ethics agency.It is, in act, diferent rom an occupational licensing agency. However, theassumption must be that the states voters, in approving the creation o theagency, intended or it to be efective in its charge. Te careul balance in theCommissions composition reects this interest in having the Commissionaccommodate the sometimes dicult political issues that may come beoreit. By diminishing the Commissions role in enorcement matters, the currentappeals process afects the agencys ability to meet its basic responsibility andultimately challenges the states commitment to a meaningul process in

which the agency and Commission have the expertise and the authority toadequately enorce the laws entrusted to them.

A more common standard or a trial on appeal in contested cases beoreadministrative agencies is or judicial review based on the substantial evidencerule, whereby statute directs a court not to substitute its judgment or thato the state agency on questions let to the agencys discretion. Instead, thecourt may arm all or part o the agency decision; or may reverse or remandthe case i, among other issues, agency decisions violate law or procedure,are arbitrary or exceed agency authority or discretion, or are not reasonablysupported by substantial evidence. General state law also suggests reviewunder the substantial evidence rule as a standard by deaulting to this rule ithe law does not dene the scope o judicial review.7

Respondents in contested cases subject to the substantial evidence rule onappeal typically must exhaust all administrative remedies beore appealing tocourt, and thus may not bypass agency hearings procedures. Tis requirementis necessary since appeal under the substantial evidence rule is based onexamination o the record developed by the agency.

Recommendations

Change in Statute

2.1 Eliminate Commissioner involvement in the preliminary review of a sworn

complaint and restructure the preliminary hearing to include only twoCommissioners.

Under this recommendation, Commissioners would not be involved in the preliminary review o acomplaint. Staf would make any initial proposals to respondents and continue to gather inormation,as necessary. Rejection o a proposal made by staf would move the case to the preliminary hearingphase, where all possible actions remain on the table or consideration.

Commissioner involvement in the preliminary hearing phase o a complaint would be limited to twoinstead o the ull Commission, as is currently the case. Te Commission would decide by rule how


33/732


Issue 2


the two commissioners representing each political party would be selected. Te preliminary hearingscould be held in conjunction with regular Commission meeting dates or at other times as the agencydecides. Several preliminary hearings could occur simultaneously, i needed, with all Commissionmembers having the opportunity to serve on the preliminary hearing panels. A tie vote on an actionin a preliminary hearing, or rejection o a proposal by the respondent, would promote the case to theormal hearing stage. A respondents rejection o a proposal rom a preliminary hearing would notpreclude the possibility o higher sanctions resulting rom a ormal hearing.

Te Commission would adopt rules as necessary dening the preliminary review and preliminaryhearing procedures, in compliance with broad statutory directives. Unless specically delegated in ruleor statute, the Commission would still need to approve all agreed orders arising through any preliminaryprocesses. Other powers o the Commission, such as subpoena power, would remain unchanged.

Elimination or reduction o Commissioner involvement in preliminary review and preliminary hearingstages reduces any potential or appearance o bias when the ull Commission sits as judge in the ormalstage o complaint resolution. Te recommendation, which reects a more standard hearings processused by state agencies, would enable Commission members to ocus on more signicant cases while

not afecting staf workload substantially. Providing a mechanism or Commission approval o agreedorders would ofer the needed high level o assurance that decisions made at these preliminary stagesare made appropriately.

2.2 Provide for judicial review of Commission decisions based on substantial

evidenceoftherecordanddecisionsmadebytheCommission.

Contested case hearings would be subject to appeal under the substantial evidence rule rather than therequirement o a new trial. Additionally, a respondent would be required to exhaust the Commissionsadministrative remedies and not be allowed to bypass agency hearings beore taking a case to court.

Tis recommendation would still allow the respondent to seek such an appeal either in a district court inravis County or in the respondents county o residence, as is currently provided in law. Tese changes

would ensure the exas Ethics Commissions role in deciding sworn complaints is not diminishedbeyond the role typically played by most other state agencies.

2.3 Clearly establish that the Texas Ethics Commission has the choice of holding

formal hearings itself or delegating this responsibility to the State Ofce of

AdministrativeHearings.

Te agencys statute does not specically authorize the agencys use o SOAH, and this recommendationwould eliminate the current ambiguity in its wording.

FiscalImplication

Tese recommendations would not have a signicant scal impact to the State. Te agency could incuradditional expense i it changes current procedures to hold ormal hearings at SOAH.


34/73


Issue 224


1 Section 571.122(b-1), exas Government Code.


3 1 .A.C. Section 12.81(c).

4 Sections 571.133(a) and (d), exas Government Code.

5 1 .A.C. Section 12.25.

6 Section 571.133(d), exas Government Code.



35/7324


Issue 2


ResponsesTo issue 2OverallAgencyResponsetoIssue2

Te Commission agrees with the recommendations. Elimination or reduction o Commissioninvolvement in the preliminary review o a complaint would allow both the staf andCommission more time to ocus on more signicant cases. Additionally, the Commissionagrees that the current statutes weaken the Commissions role in enorcing disclosure laws byrequiring a new trial, trial de novo, on appeal. Finally, the Commission agrees that the relevantstatutes could be claried to show that the Commission has the choice o holding the ormalhearing itsel or delegating the responsibility to the State Oce o Administrative Hearings(SOAH). (David A. Reisman, Executive Director exas Ethics Commission)

Recommendation2.1

Eliminate Commissioner involvement in the preliminary review of a sworncomplaint and restructure the preliminary hearing to include only twoCommissioners.

AgencyResponseto2.1


While there is no current evidence o bias, the attempt to standardize the review process byadopting a process similar to that o other state agencies, may reduce a perception that earlyinvolvement and decision making in a matter makes a diference in the outcome. Additionally,

the ull Commission is currently involved in all three stages o the sworn complaint process.Removing the Commission rom involvement in certain stages would result in better eciencyin the sworn complaint process. (David A. Reisman, Executive Director exas EthicsCommission)

For2.1

None received.

Against2.1

None received.


36/73


Issue 224b


Recommendation2.2

Provide for judicial review of Commission decisions based on substantialevidence of the record and decisions made by the Commission.

AgencyResponseto2.2


Current law allows a respondent to appeal a decision made by the Commission to districtcourt where the district court must hear that case as a trial de novo, a new trial. Te entireadministrative record o the matter may not be introduced at the new trial. Te Commissionagrees that this atypical standard is inecient as it creates a necessity to duplicate the caserecord and ultimately weakens the Commissions enorcement efectiveness. (David A.Reisman, Executive Director exas Ethics Commission)

For2.2

None received.

Against2.2

None received.

Recommendation2.3

Clearly establish that the Texas Ethics Commission has the choice of holdingformal hearings itself or delegating this responsibility to the State Office ofAdministrative Hearings.

AgencyResponseto2.3

In an attempt to alleviate some ambiguity ound in the law, the Commission adopted a rulestating that, when the Commission orders a ormal hearing, the Commission shall decide

whether the ormal hearing will be held beore the Commission or beore the State Oceo Administrative Hearings. (Ethics Commission Rule 12.117. Formal Hearing: Venue).It would give helpul guidance i relevant statutes were claried to specically state that theCommission has a choice o holding a ormal hearing or delegating this responsibility toSOAH. (David A. Reisman, Executive Director exas Ethics Commission)

For2.3

None received.Against2.3

None received.


37/732


Issue 3


issue 3

The Agencys Technology and Information Management Have NotKept Pace With Its Workload and Changing User Needs.

Background

Te exas Ethics Commissions responsibilities include receiving nancial disclosure inormation romapplicable lers and making it available to the public; enorcing nancial disclosure laws, includingprocessing sworn complaints rom individuals alleging disclosure irregularities; preparing advisoryopinions interpreting the states disclosure-related statutes; and educating disclosure lers and the publicas to the requirements o the law. Te Legislature unds these activities almost entirely rom GeneralRevenue, with about 1 percent o the agencys scal year 2011 budget o $1.9 million comprisingmiscellaneous receipts such as copying services.

Statute directs the exas Ethics Commission to collect lobby registration ees, which are depositedto General Revenue and help support, but do not cover, total appropriations rom that und. Lobbyregistration receipts amounted to $811,550 in scal year 2011. A statutory provision dating to 1987currently prohibits the agency rom charging a ee or ling campaign nance disclosure reports,another potential source o revenue.1 Fines assessed by the agency accrue to General Revenue as well,but are not considered to support agency operations.

Findings

Theagencysfundingandresourceshavenotkeptupwith

neededtechnologicalchanges,legislativemandates,andanincreasingworkload,reducingtheagencyseffectiveness.

l Stagnant funding. Te graph below provides historical budget andstang inormation or the exas Ethics Commission.

40

38

36

34

32

30

FY 02 FY 04 FY 06 FY 08 FY 10 FY 12

$2FullT

$1.5

Millions

$1

(FTEs)

$.5

$0

im

eEquivalientEmployees

$1.95

$1.59

$1.82

$1.47

$1.77

$1.58

$1.93

$1.72$1.83

$2$1.93

$1.76

34.3 34.2 34.3

33.6

32.5 32.6

Agency Budget Salary Expenditures FTEs


Budget, Salary Expenditures, and Full Time Equivalent Employees


38/73


Issue 326


Te agency is operating on about $18,000 less in scal year 2012 than inscal year 2002, without considering ination. I ination is actored in,the shortall increases to more than $500,000.2 Stang also has declinedby about two employees rom scal year 2002 through scal year 2012.Salary costs, however, have increased overall, and take a greater portion ooperating expenses, reducing the agencys non-salary operating expensesby about $196,000 (54 percent) rom what it had in scal year 2002.

Recognizing the agencys developing unding issues, the Legislaturehelped ofset standard budget cuts experienced by the exas EthicsCommission or the current 201213 biennium. Te Legislatureincreased the registration ee or most lobbyists rom $500 to $750 per

year and appropriated an additional $375,000 to the agency contingenton these additional unds being realized.3 Tese additional appropriationsare included in the budget above but still ell short o bringing the agencyback to its unding level or the 201011 biennium.

l

Growing demand for information technology.Te agency relies heavilyon inormation technology to serve lers and the public. Since scalyear 2000, state law requires most exas Ethics Commission campaignnance lers to submit reports electronically and requires the agency tomake resulting data available online.4 In scal year 2003, the Legislatureextended electronic ling requirements to lobbyists ling lobby activityreports.5 Te agency now receives about 87 percent o led reportselectronically and the number o reports it receives is increasing. Betweenscal years 2002 and 2011, reports submitted climbed rom nearly 19,000to just under 31,000, an increase o about 63 percent. Te agency mustalso make inormation rom these reports and other inormation about

sworn complaints and advisory opinions easily available online to thepublic.

l Outdated ling software. Te agency has been unable to stay on thecutting edge o innovation and user riendliness with its ling sotware.

Te agency makes downloadable sotware available as the primary meansor lers to complete and submit campaign nance and lobby activityreports. Downloadable sotware is available or personal computer (PC)users, but not or lers using Mac computers, a source o numerouscomplaints. Te agency has developed a web-based program as a work-around or campaign nance lers using Macs, but this workaround isdesigned mainly or small reporting needs and lacks eatures available

in the downloadable version or PCs. None o this sotware providesextensive and instant eedback or clearly wrong entries, a eature commonin tax ling sotware that would help reduce ling errors.

Te agency experiences problems in managing this sotware.Downloadable ling sotware or campaign nance lers is now outdated,having been rst programmed in 1999. Agency programmers have tomake patchwork updates to old sotware code that creates errors whenused with newer user sotware and equipment.

The agency isoperating on

about $18,000less in fiscal year

2012 than infiscal year 2002.

The agencysfiling software

does not provideextensive

feedback forclearly wrong

entries.


39/732


Issue 3


Te exas Ethics Commission has considered ways to replace itspatchwork system with electronic ling sotware that would work well orPC and Mac users alike, and that would be easy to update with additionaleatures. In January 2012, agency staf presented to its Commissioninormation about an electronic disclosure reporting design that wouldallow lers to submit nancial inormation immediately or shortly aterexpenditures, contributions, or other nancial transactions occurred.6Although untested, such a system could have the ollowing benets:

eliminating the current tangle o ling dates or diferent reports withreporting as you go;

simpliying reporting to reect basic activities comparable to a bankstatement, thereby reducing opportunities or errors;

agging late lings electronically in real time and providing anautomated process or dealing with them;

providing ast online access to data and increased transparency or thepublic; and

being potentially less expensive than other replacement systemsconsidered by the agency.

l Outdated hardware. In scal year 2009, the agency put its plan toreplace aging computer servers on indenite hold due to lack o unds.

Te agency also has been unable to renew maintenance contracts on thisequipment due to increased contract costs associated with maintainingthe older equipment. Te loss o a key computer server could prevent theagency rom being able to accept electronically led campaign nance and

lobby activity reports and restrict public access to the agencys database,crippling agency services.

l Loss of resources for website development. As a main source oinormation or many, the website needs to be easy to navigate andmake the most important inormation readily available to lers and thegeneral public. Because o budget cuts and reductions in staf, however,the agency no longer has a ull-time website administrator. Current

website maintenance is assigned to sotware programmers who also areexperiencing increased responsibilities or technical support to the public.

Te lack o resources devoted to website support reduces the agencys

ability to improve website design through researching new ideas, trends,and applications. As an example, the agency would like to explore addingconnectivity or mobile devices to its website but does not have theresources to dedicate to this type o project.

l Increasing number of sworn complaints. Workload rom sworncomplaints has increased dramatically, with complaints led escalatingrom 168 in scal year 2004 to 374 in scal year 2011. Because o thesubstantial increase in the number o sworn complaints received, the

The agency isresearching anew electronic

disclosurereporting design

that wouldallow as yougo reporting.


40/73


Issue 328


processing time to resolve them has also gone up rom an average o44 days in scal year 2004 to an average o 139 days in scal year 2011.Delay in processing sworn complaints can have serious implications orcandidates or elected ocials who may be branded with unconrmedallegations. Slow complaint resolution also afects the public, which lackstimely enorcement inormation about candidates or oceholders.

l Inability to check or audit reports. Statute requires the exas EthicsCommission to review or acial compliance randomly selected reportsled with the Commission.7 In addition to these acial reviews orcompleteness, statute authorizes the Commission to initiate a completeaudit o reports by vote o the Commission.8 Te agency is unable toperorm either o these unctions systematically, primarily due to lack ounds and pressing workload in other areas. As discussed in Issue 1, theinability to perorm these unctions deprives the state o an assistance toolat the ront end to help ensure that lers reports are properly completedand an assessment mechanism at the back end to see that reports are

accurate and not deceptive. In turn, the inability to check or audit reportscould potentially reduce the availability o complete inormation or thepublic to accurately assess the accountability o lers.

l Loss of ethics education funding. Although directed to provideeducation and training to state agencies and elected ocials, the agencyhad its education budget or the 201213 biennium eliminated.9 Whilethe agency continues ofering training as time allows, lack o trainingunds hampers its eforts to help lers understand their responsibilitiesand reduce ling errors.

Theagencysuseofinformationtomanageandsupportefcientoperationsneedsimprovement.

Emphasis on ecient operation is especially important or agencies withconstrained budgets, and agency administrators should develop, analyze,and manage inormation to support this goal. Te agency seeks to managethe increasing workload with limited resources. For example, the agencyschedules its attorneys work so they have uninterrupted time away rom thelarge number o telephone inquiries to work on sworn complaints. However,the agency could take additional steps to better manage inormation thatcould help allocate resources more eciently.

Te agency has not systematically analyzed the topics o telephone calls orcomplaint allegations to objectively determine areas o greatest interest tocallers. Tis inormation could help guide the development o explanatoryinormation, either or use by attorneys answering calls, or training purposes,or or publication and prominent placement on the agencys website. Welltargeted materials, in turn, could help the agency maintain its high level ocustomer service while potentially reducing telephone calls and ler reportingerrors and possibly reducing its workload.

The agencycould take

additional stepsto better manage

information.


41/732


Issue 3


ManystateagenciesinTexas,aswellassomeagencies

administeringdisclosurelawsinotherstates,assessfeesto

helpsupportagencyoperations.

Statute requires the agency to collect lobby registration ees, which help deraythe states cost o agency licensing unctions, but prohibits charging reporting

ees to help cover the cost o processing disclosure reports and providing thatinormation online.

Te Legislature oten requires agencies to collect ees to support some or allagency operations. Examples include the exas Railroad Commission, the

exas Commission on Environmental Quality, the exas Alcoholic BeverageCommission, and many occupational licensing agencies. In addition, theSecretary o State charges a ling ee or candidates or certain oces to geton the ballot. Te Secretary o State avoids any constitutional issue that mightarise rom a ee potentially obstructing a persons candidacy by providing apetition process allowing the petitioner to get on the ballot without having

to pay a ling ee.Agencies dealing with nancial disclosure in several other states requirelers to pay ees to supplement agency expenditures or providing services.For example, the Oklahoma Ethics Commission requires a $50 annual eerom all political committees or appropriation to the agency. Te LouisianaBoard o Ethics and ennessee Ethics Commission both charge politicalcommittees a $100 annual registration ee to supplement operating expenses.

Te Kansas Governmental Ethics Commission charges various ling eesor candidates and sliding scale registration ees or political committeesdepending on contributions received.

Recommendations

Change in Statute

3.1 Require candidates, elected ofceholders, and political committees ling

disclosurereportswiththeTexasEthicsCommissiontopayanannualfeetohelp

supporttheagencysoperations.

Tis recommendation would charge annual ees to candidates, elected ocials and political committeesling disclosure reports with the exas Ethics Commission, but would not add to the ee already chargedto lobbyists and would not apply to individuals only required to le personal nancial statements.Because o the novelty o such a ee, it should be capped in statute. Setting the ee cap at $100 and

requiring the exas Ethics Commission to set the specic ee in rule would enable the agency toestablish the ee at a level to support the agencys unding needs, as discussed, and provide some roomor additional revenue in the uture without having to amend the statute.

Fee revenue would be deposited in the General Revenue Fund, subject to appropriation to the agencyby the Legislature, as indicated in the ollowing recommendation. Te appropriations process wouldserve as an additional check on the agency setting the ee too high. o help ensure the ee does notcreate any nancial hardship to running or oce, candidates ling petitions to be placed on a ballot

Several otherstates require

filers to pay feesto supplement

agencyexpenditures.


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rather than pay a ling ee to the Secretary o State would be exempt rom paying this reporting ee tothe exas Ethics Commission.

Estimates suggest that about 4,000 lers would be subject to the ee each year. While the number orequired reports may uctuate a little rom election to non-election years, the anticipated number olers subject to the ee should remain airly constant. A reporting ee o $50 would generate $200,000

a year, a reasonable amount to initiate these improvements.

New ee revenues, used as the next recommendation indicates, would benet the agency, lers, andthe general public without reducing existing General Revenue unds. Tis unding would allow theagency to research sotware that could help lers avoid potential mistakes as disclosure reports areled electronically, simpliying and streamlining disclosure reporting, reducing the number o sworncomplaints the agency receives resulting rom ling mistakes, and improving disclosure. Additionalunding would also allow the agency to consider an auditor position to ocus on more detailed auditsor investigations, when needed.

Change in Appropriations

3.2 Add riderlanguage tothe GeneralAppropriations Act that provides additionalfunding to the TexasEthics Commission contingenton collectionof sufcient

revenuefromthenewreportingfee.

Tis recommendation would speciy the purposes or the new unds resulting rom Recommendation3.1, and make the appropriation contingent on receipt o sucient ee revenue to cover it. Riderlanguage should indicate priority uses or the und, which could include the ollowing:

l improving the electronic ling system, including ways to make the system easily accessible to alllers, simple to use, able to assist lers in accurately completing reports, and exible to meet uturedemands;

l

keeping computer servers and other hardware necessary to serve the public and lers up to date;l keeping the agencys website up to date and easy to use;

l initiating an audit unction or disclosure reports; and

l unding statutory education requirements.

Tis approach is similar to that used or appropriating $375,000 by rider to the agency or the currentbiennium, contingent on collection o additional lobby registration ees required in statute. Using a riderto control the appropriation gives the Legislature exibility to change the amount o the appropriationand its underlying ee, subject to the statutory cap, over time as needs warrant.

Management Action3.3 TheTexasEthicsCommissionshouldevaluateandreportto theLegislatureon

anelectronicreportingsystemthatallowslerstouploaddisclosureinformation

soonafteranyactivityoccurs.

Te agency should ully evaluate the easibility o a new electronic, web-based reporting system thatallows lers to enter disclosure inormation as you go as activity occurs. As suggested and visualizedby agency staf, the new system could:


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Issue 3


l replace the current system based on xed reporting dates with a new rolling date system ocontribution and expenditure activity, comparable to a bank statement;

l allow lers to enter inormation shortly ater it occurs, up to some cut-of period such as 30 days,ater which inormation would be agged as late, with a threshold or allowable late entries beoreagency action is warranted;

l warn lers o clearly mistaken entries and ag possible errors or agency attention;

l be available to the public soon ater uploading; and

l use current agency technical capabilities to the maximum to reduce cost o the new system.

Te agency should report its analysis o such a system to the Legislature by February 1, 2013, in timeor consideration by the 83rd Legislature. Te report would address costs and benets o the system;statutory changes needed or possible implementation; possible application to other lings, such as lobbyactivity reports and personal nancial statements; and a plan or its rollout, including the possibility oa pilot project, i the Commission deems such a system to be easible. Funding or a easible system

should be considered as the Legislature evaluates uses or the new ee revenue recommended above.While involving development cost, a reporting proces

sunset on ethics

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