Paper Planes: AJC Article Misstates Ethics Rules

I apologize in advance for the length of this post, which runs more than 2500 words. It is a complex issue that requires an extensive treatment to do it justice. You are welcome to simply jump to the conclusions at the end and accept my word that it’s accurate. After all, that’s what many of us did when we first read the AJC articles in question.

A recent article by Jim Walls of Atlanta Unfiltered alleging ethical lapses by Governor Nathan Deal’s campaign ran in the AJC as a special. In some ways it was a follow-up to an earlier AJC article questioning the amount of money Deal’s campaign spent on aviation.

The article misstates the law and rules governing disclosure of expenditures by campaigns and inadvertantly exposes where the State Ethics Commission failed to abide by its own regulations, and in doing so, creates a perception of wrongdoing that is also not accurate.

Walls cites a January 2, 2009 memo from a State Ethics Commission staffer to Rick Thompson, then-Executive Secretary of the Commission, that discussed the value of flights on noncommercial aircraft. Walls wrote:

Campaign Finance Commission rules allow campaigns to spend $500 an hour on the kind of aircraft that Deal used most often — a single-engine plane. Riley has said Deal paid $650 an hour;

Walls’s next paragraph states:

there was probable cause to investigate whether Deal’s campaign paid more than market value for the noncommercial flights, according to a second proposed complaint prepared by the Campaign Finance Commission’s staff.

But Walls either misunderstood or misstated the rules about valuing travel on a private airplane.

Ethics Commission Rule Rule 189-3-.06(2) states that the Commission shall set “Fair Market Value” of flights on noncommercial aircraft on a yearly basis. This is the basis on which an attorney for the Commission wrote the memo that both AJC articles cite for the proposition that the value of private air transportation is $500 per hour.

The 2010 article questioning the way in which Deal’s campaign paid for air travel summarized it:

The State Ethics Commission has guidelines for the use of noncommercial aircraft. For a single-engine turboprop plane, such as the plane Deal’s campaign uses, the commission says a campaign should pay a minimum of $2.50 per mile or $500 per hour.

and the 2011 article read the same memo to mean:

Campaign Finance Commission rules allow campaigns to spend $500 an hour on the kind of aircraft that Deal used most often — a single-engine plane.

There are several problems with these characterizations of the Commission’s rules. The first and most obvious is that the AJC cannot agree with itself whether the $500 per hour figure is a minimum or maximum allowable amount.

The more important and fundamental error is that neither Rule 189-3-.06(2) nor the memo apply to the Deal campaign’s payments for aircraft.

The Ethics in Government Act 21-5-34(b)(1)(B) requires the reporting of: “[a]s to any expenditure of more than $100.00, its amount and date of expenditure, the name and mailing address of the recipient receiving the expenditure….” and Rule 189-3-.01(3)(d) requires that a campaign disclose “the amount of the expenditure”.

Clearly where a campaign spends money directly in the course of the campaign, the Act and Rules require the disclosure of the actual amount, not an estimate of “fair market value”. The Ethics in Government Act does not empower the Commission to set limits on what a campaign may pay for anything.

So then, why does the Commission go to the trouble of defining the “fair market value” of noncommercial aircraft flight?

The rule in question was adopted after the issuance of an Advisory Opinion in which the Commission opined:

Providing the use of a plane to a candidate or public officer without charge or at a price that is less than the fair market value is an in-kind contribution. Any in-kind contribution received as a result of a candidate or public officer’s use of a private plane is subject to the contribution limits established in the Act. If more than one candidate or public officer is using the same noncommercial flight they must disclose their pro rata share of the flight’s fair market value.

Rule 189-3-.06 was intended by the Commission to implement that Advisory Opinion and provide guidance to campaigns that were required to disclose the value of noncommercial air travel for which they did not actually pay – in short, in-kind contributions. In these cases, a candidate might not know how to value an in-kind contribution of travel aboard a privately-owned airplane and the Rule gives a value that can be used if the candidate has no idea of the costs or values associated with noncommercial air travel.

Section 189-3-.06(1)(e) defines, in the context of valuing air travel, “Unreimbursed value” as “the difference between the value of noncommercial flight as set by the Commission and the payment made for such flight by a candidate or public officer for campaign purposes. Any such unreimbursed value is an in-kind contribution.”

This anticipates a situation in which a campaign does not pay the actual costs of the flight and uses “fair market value” to determine whether the campaign must also disclose an in-kind contribution from the owner or operator of the aircraft. Where, as in the Deal campaign, the campaign pays the actual costs of flight, this rule is not implicated.

Rule 189-3-.06(3)(a)(1) allows a campaign to apportion the cost of air travel between campaign and non-campaign uses by using “fair market value”. This might happen where a single flight destination provided both a campaign event and an official event or where people from multiple campaigns fly on the same plane. [See, e.g., John Oxendine for this: http://www.peachpundit.com/2009/07/30/fox-5-atlanta-fail/ ].

During the period in which Rule 189-3-.06 was adopted, Rick Thompson was Executive Secretary of the Ethics Commission. He has since been retained by the Deal campaign but nonetheless, he’s the best person to provide the background on the rule. He’s also the person to whom the valuation memo is addressed. Thompson told me that “the rule was not intended to determine how much a campaign can pay for air travel, but was to give some guidance to people who received an in-kind contribution and didn’t know the costs involved in noncommercial aviation.”

Thompson also said, “if the campaign pays the actual expenses for the air travel, then the only appropriate disclosures are the actual costs because the statute requires the reporting of the actual amount of the expenditure, not some artificial ‘fair market value’. In fact, reporting ‘fair market value’ instead of actual expenses would violate the statute.”

As to the allegation in the Walls article that “[t]he proposed complaint said that Deal failed to disclose the departure and arrival airports for those flights,” Thompson said that the requirement in Rule 189-3-.06(4)(a) and (b) that a campaign disclose an arrival, departure and other information is only relevant when the campaign is disclosing estimated or apportioned values, not the actual, known expenditures. Thompson also noted that the electronic campaign disclosure system makes no allowance for disclosure of such information.

Walls compounds his misstatement of Georgia Campaign Finance law by stating that “ethics laws bar candidates from using campaign money for personal benefit, in part by requiring that campaigns pay market rates for services,” but no such limitation appears in the statute. Fair market value may be used in disclosing in-kind contributions when the actual costs are not known to the campaign, and fair market value can be used in determining whether a candidate has unlawfully enriched himself or herself by reimbursing more than the fair market value to an entity that he or she owns, but a candidate is free to make bad decisions and overpay.

Additional Problems with the Commission’s valuation of noncommercial aircraft usage

Under the Commission’s Rules, “Fair Market Value” of flights on noncommercial aircraft shall be set on a yearly basis and the Commission set the value in the January 2, 2009 memorandum.

The value of flight on a noncommercial jet aircraft that seats less than twelve passengers is $15 per mile or $3,000 per hour.

The value of flight on a noncommercial aircraft with a single propeller engine is $2.50 per mile or $500 per hour.

The problem is that the airplane used by the Deal campaign is a Pilatus PC-12/45, which is driven by a turboprop engine.

A turboprop is defined as “a jet engine with a turbine-driven propeller that produces the principal thrust, augmented by the thrust of the jet exhaust.” so that the Pilatus PC-12/45 arguably fits in two different categories, one of which carries a valuation six times that of the other category.

In addition to the inadequate definitions within that memo, Rule 189-3-.06(2) states that the Commission will set the value yearly, but the value have not been updated since original valuation in January 2009. One of the major components of the operating cost of any aircraft is fuel cost, which has changed significantly in the intervening years, rendering the 2009 valuation obsolete.

Is Private Airplane Ownership Excessive for a Candidate or Elected Official?

Many of the issues raised in the 2010 AJC article would not have come up if Nathan Deal were not a part-owner of the airplane and helicopter that his campaign used. That article began from the fact that the Deal campaign had paid more than $135,000 for noncommercial air travel, versus about $16,000 by the Barnes campaign and $6000 by the Handel campaign.

As a purely political decision about how best to travel in a statewide campaign, the routine use of a fractionally-owned aircraft was revolutionary and ultimately successful.

Two factors not previously discussed were also related to then-Congressman Deal’s, and later the Deal campaign’s extensive use of private aircraft.

The first involves the geography of the Ninth District and the distance between then-Congressman Deal’s Gainesville home and the nearest commercial airports. Serving his far-flung constituents, and splitting time between Washington, DC and Gainesville, Congressman Deal fine-tuned the use of private aviation in a way that led to its extensive use in his gubernatorial campaign.

Traveling weekly between DC and Gainesville, the two nearest commercial airports are Atlanta and Athens, GA. Flying commercial to and from Atlanta necessitates a 1.5 to 2 hour drive each way, adding 3-4 working hours each week, most weeks of the year. Flying from Washington to Athens requires layovers in Charlotte and Atlanta. Neither of those is efficient. When multiple passengers, up to seven in the Pilatus, travel together, the cost of noncommercial air travel becomes competitive with commercial air travel.

Within the Ninth Congressional District, travel can also be time-consuming. It’s a broad district with a mountain range in the middle of it. From Gainesville to Dalton in the northwestern corner of the state and district is approximately 93 miles and takes about two hours and five minutes. Noncommercial air travel also allows a Congressman to serve the entire district more efficiently.

The second factor was a rule enacted by former Speaker Nancy Pelosi that forbade Members of Congress from flying on noncommercial aircraft that they did not themselves own or lease.

By the time that the Pelosi rule was adopted by Congress, the Congressman and his staff had determined that noncommercial air transportation was the best way to handle traveling between Washington and the district, and between the far-flung ends of the mountainous Ninth Congressional District.

Fixed costs and operating costs.

The 2010 AJC article also raised questions about manner in which the Deal campaign accounted for the costs of air travel. At issue was the campaign’s payment of “fixed costs” and “operating costs”. As the AJC described it:

Fixed costs often include things such as loan payments, insurance, annual inspections, taxes and hangar fees. Deal’s campaign would not provide details of what the actual fixed costs are.

In addition, the owners pay operating costs — fuel, landing and gate fees — each time they use one of the aircraft.

The article questions whether the fixed cost expenditures are “ordinary and necessary”. While the Deal campaign may have been the only one to rely so heavily on noncommercial aviation it’s clear that it was part of a winning strategy. Does the AJC suggest that campaigns are limited to using methods that have been used before by many other campaigns, and that innovative campaigning is illegal?

The better way of determining whether expenses are “ordinary and necessary” is to compare a given expenditure that a campaign chooses to undertake, whether it be robocalls or the lease of a campaign automobile or here, the extensive use of a private plane.

If a campaign chose to lease a vehicle, it would be responsible for both “fixed costs” such as the lease itself and insurance, as well as variable costs such as periodic maintenance and gasoline or CNG. So we ask whether the costs incurred by the Deal campaign are ordinary and necessary in the private operation of an airplane or helicoper the way that the costs of leasing a car would be.

A little time on the internet teaches me that fractional ownership of private planes is extensively used and that most such arrangements include payments by each owner-operator of a share of fixed costs and the actual operating costs incurred when flying the plane or helicopter. Additionally, the Pilatus PC-12 is a popular aircraft for share ownership, and the operating costs cited are within the normal range for such an aircraft.

Summary

The AJC article by Jim Walls misstates, either intentionally or inadvertantly, the rules governing how the Deal campaign was required to report its expenses incurred in connection with the strategic decision to make extensive use of private aircraft in the gubernatorial campaign. There was no requirement to report fair market value when the campaign paid the actual costs associated with the travel.

The Ethics Commission rules neither set a floor nor a ceiling for what a campaign may pay for noncommercial aviation, rather it provides guidance for campaigns that have been given free use of commercial aircraft as an in-kind contribution.

The Ethics Commission’s valuation of private aviation is fatally flawed because the plane used by the Deal campaign can be fit within two different categories, with an hourly valuation ranging from $500 to $3000. Additionally, the Commission has not updated its valuation despite the significant changes in fuel prices which constitute the major part of the variable costs associated with aviation.

Then-Congressman Nathan Deal was forced by Congressional rules to either fly only commercially, or to fly only on a private aircraft that he owned or leased. This rule along with the geography of the Ninth District motivated the decision to make extensive use of private aircraft owned in part by the Congressman. Having established the advantages of noncommercial flight in his Congressional service, it was not surprising that the campaign decided to use it statewide.

The accounting by the Deal campaign of payments for both “fixed costs” and “operating costs” reflect both the actual expenses incurred, which are required to be reported accurately, and the normal course of business for organizations involved in fractional ownership of noncommercial aircraft.

The rule requiring disclosure of arrival, departure and other information about specific flights is used on in valuing and apportioning in-kind contributions and thus the campaign was not required to report this information. The electronic campaign disclosure system has no place to file this information, even if it was required.

Finally, the operating costs cited for the Pilatus PC-12/45 used by the Deal campaign are within the range seen for share ownership of similar aircraft.

29 comments

  1. Cassandra says:

    Rick,

    Here is your summary:

    Gov. Deal has made a number of decisions that prove he is an effective, conservative, able and fiscally prudent executive. Hope you feel well today.

    For example, Gov. Deal chose to set-up a ‘blue-chip’ panel of experts to address the PPACA requirement for Healthcare Exchanges in Georgia. This is noteworthy because many Georgians and our State opposes PPACA. Oppose PPACA, fine; but back-up PPACA opposition with a reasonable effort to comply if PPACA prevails.

    Here is the latest on Exchanges from Georgians for a Healthy Future:
    http://us1.campaign-archive1.com/?u=cd73cb2cd3f6e781c9506fdc7&id=8ec457b88a&e=6d40f4cf2c

  2. Todd Rehm says:

    Amtrak takes 12 hours, 28 minutes from DC to GNS. It costs $201.00 one way coach, $563.00 one-way coach if you want a room. That’s for one person.

    I guess maybe that’s efficient in bizarro-liberal world.

    • Baker says:

      Fair enough, but I definitely will add that having ridden at separate times the train from Atlanta to New Orleans (I think I’ve done that one three times), Atlanta to D.C. (two times), and D.C. to New York (one time), it is a beautiful ride (minus the awful poverty-stricken places you pass directly through the middle of in Alabama). Riding along the water in Louisiana, the mountains on the way to D.C., and the urban vibrancy on the way to New York is really something. Everyone should do it sometime.

      • Todd Rehm says:

        I’ve ridden it up to DC myself, and it’s a civillized way to travel, but the expense is at least comparable to flying commercially.

        And while I wouldn’t mind taking Amtrak to DC once in a while, I don’t think I’d like doing the round-trip on a weekly basis.

        Anyone know if they have wi-fi and cell service between DC and Gainesville or Atlanta on Amtrak?

  3. It’s easy, during these cynical times, to assume anything a politician does is for personal gain. Sometimes, there’s more to the story. Thanks for shedding light on this issue Todd.

        • CobbGOPer says:

          But Buzz, this is Georgia. All politicians here ARE crooks. No offense. It’s why we don’t trust you people anymore when you try to push things like TSPLOST on us, even if it might have some positive effects. If I could find some approval rating numbers for the Georgia Legislature, I’m sure they would be poor. Unfortunately, UGA quit doing the Peach State Poll. They must have needed the money to keep paying Mark Richt to lose to Florida.

          And Deal is still a crook, no matter the number of apologists who pop up, or how hard he tries to quash every investigation into his actions.

  4. greencracker says:

    Submitted for your approval:

    1. Self-dealing (ie, buying campaign services from yourself) is legal. If you run a sign company, you may use campaign funds to buy signs from your own company:
    1a. If you pay “fair market value” for those signs.

    2. Alas, good old “FMV” is foggy. Ethics/statute/rule doesn’t define “fair market value” of signs.

    3. Donors might want to know what their contributions are paying for. Like if you spend $10k at your own sign company for 100 signs.

    4. All that federal stuff Todd mentioned, I don’t know anything about and certainly makes plane management sound difficult.

    5. Thus, I take all that to mean an endorsement of high-speed rail everywhere in Ga.

    xoxo

    • Todd Rehm says:

      Greencracker,

      I’m not sure where you get the notion that “fair market value” is required of politicians buying good or services from companies they own. It doesn’t appear anywhere in the Act or the Rules.

      In one of the articles mentioned above, the AJC states, “State ethics laws bar candidates from using campaign money for personal benefit.” and I’m also not sure that’s correct. The only limitations I see in the statute or the rules are the ones contained in 21-5-33

      Those limitations are:
      (a) contributions shall be utilized only to defray ordinary and necessary expenses…incurred in
      connection with such candidate’s campaign for elective office or such public officer’s fulfillment
      or retention of such office
      (b) excess contributions can be used to make political or charitable donations, refunds, future campaigns, or paying off debt from past campaigns; and
      (c) Contributions and interest thereon, if any, shall not constitute personal assets of such candidate or such public officer.

      Walls wrote “ethics laws bar candidates from using campaign money for personal benefit, in part by requiring that campaigns pay market rates for services and publicly account for their spending.” I don’t know where he gets that idea because it’s not in the statute and it’s not in the Commission’s rules.

      • greencracker says:

        reckon he heard “fair market value” from the same place i did … from the lady who’s no longer the boss lady at ethics.

        #Conspiracyconspiracyconspiracyiknewmytinhatwasright

        geez, slow day, I’m on PP past midnight

  5. Clint says:

    We will never know anything about Deal’s ethics because they stonewall every investigation by either putting up roadblocks or resigning from office before they can be completed in a timely and legally allowable time frame.

    I’ll just say it’s mighty convenient that someone close to Deal (lets call him his “friend”) buys a plane then charters it out to him to fly back and forth for Congressional travel for years on end and it not raise a flag. If Deal’s “friend” didn’t own the plane would Deal still have sought travel between DC and Atlanta on a charter plane? If Deal’s “friend” didn’t have the guaranteed payment of Deal’s government travel, would he have still even bought the plane? Speaking of Charters, when’s the last time we read about our illustrious Senators chartering flights to and from DC to GA? I’m pretty sure they fly commercial – and coach at that.

    While Deal may be doing a decent job, the means to an end do not always justify the goal.

    That’s all I have to say about these things.

  6. As an editor at The Atlanta Journal-Constitution, I’d like to respond to Todd Rehm’s exhaustive critique of our article. Mr. Rehm’s work is 1,000 words longer than the story that prompted it, so it is indeed a detailed analysis. But he gets some of the details wrong.

    Here’s an example:

    Mr. Rehm wrote: As to the allegation in the Walls article that “[t]he proposed complaint said that Deal failed to disclose the departure and arrival airports for those flights,” Thompson said that the requirement in Rule 189-3-.06(4)(a) and (d) that a campaign disclose an arrival, departure and other information is only relevant when the campaign is disclosing estimated or apportioned values, not the actual, known expenditures.

    But that is not what Rule 189-3-.06(4) says. (Note, as well, that Rule 189-3-.06(4) does not contain a paragraph d.) From rule 189-3-.06(4)(a):

    (4) Disclosure. Reporting of flights on noncommercial aircraft for campaign purposes by a candidate, public officer or member of a committee shall be as follows:

    (a) The candidate, public officer, or committee that makes an expenditure for a flight (or that records an in-kind contribution for a flight) must disclose on the Campaign Contribution Disclosure Report due for the reporting period in which the flight occurred the departure and arrival airport(s) of the flight and the Commission mileage rate applicable to the aircraft used and by which the value of the flight is being assessed.

    This appears to say the opposite of what Mr. Rehm reports. His assertion of what the rule was *intended* to say is not relevant.

    And perhaps most important, note that Jim Walls wrote that “the proposed complaint said . . .” This was not an allegation lodged by Mr. Walls but an allegation contained in a document that was *reported* by Mr. Walls. If Mr. Rehm has a quarrel with the complaint, he should see the state officials – in this case, the former state officials — who prepared it, not the journalist who reported it.

    Mr. Rehm’s point of view asserts itself early in his piece. His second paragraph begins:
    “In an attempt to create the impression of wrongdoing by Governor Deal’s campaign . . . .” This is Mr. Rehm’s opinion – a supposition that he cannot factually support. We did not attempt to create the impression of wrongdoing. We published the contents of proposed subpoenas that were to be served on the governor and some of his associates. We believed the story was newsworthy then, and we still do.

    I won’t continue for 2,000 more words. Just a few additional points:

    Mr. Rehm devotes nearly a dozen paragraphs to an exploration of the use of aircraft as an “in-kind” contribution to a campaign. But this was not an instance of in-kind contributions. As The Atlanta Journal-Constitution has reported, the Deal campaign paid cash for the use of the aircraft, which were owned by Mr. Deal and his associates. These facts are not in dispute.

    Mr. Rehm has a point when he says there is confusion in the way the state values the flights of different kinds of noncommercial aircraft. The rules say that a flight by a noncommercial plane with a single-propeller engine should be valued at $500 an hour. A flight by a jet aircraft that seats fewer than 12 passengers is valued at $3,000 an hour. In fact, the plane in question has a single-propeller engine. It is also a turboprop – a jet engine that drives a propeller. The AJC used the closest description of the plane that the rules provide: a single-propeller engine. This point may in fact be arguable. But until the ethics commission changes or clarifies the rule, we stand by what we reported.

    I’m approaching 700 words and am now well into the weeds, so I’ll wrap it up. But here’s a very important final point: Mr. Walls’ report was an accurate record of what was contained in subpoenas that were drawn up but never served. As noted, Mr. Walls did not write the subpoenas or cause them to be written. Instead, he did what he used to do at The Atlanta Journal-Constitution for nearly 30 years and what he has continued to do since he retired from the newspaper: He found a story, reported it meticulously and fairly and – with the considerable skills he has honed over decades – offered the information to readers.

    • Doug Grammer says:

      So Mr. Wall’s and the AJC’s position is that for this not be a newsworthy story, that Governor Deal had to pay exactly $500 an hour for use a of a plane, no more, and no less, even though this plane is not exactly the same type of plane that the ethics commission rules said the fee should be set at $500 an hour? If he paid less than $500, it would be a partial in-kind contribution. You agree that because more was paid, that the fee was above market value?

      I stated my position in less than 100 words.

  7. Todd Rehm says:

    Richard-

    Note that the line in the original piece, “In an attempt to create the impression of wrongdoing by Governor Deal’s campaign . . . .” was changed to remove the imputation of motive to Jim. This was done after talking with Jim on Facebook.

    I’ll respond at length to what you wrote but I’m tired, hungry and cranky right now. I’m going to go get some tacos before I do anything else.

Comments are closed.