An Open Reply To Dan Greenberg

70

Late last week, I received an email from former state representative Dan Greenberg, in which he politely took issue with some of the statements made and conclusions reached in the Reimbursementgate discussions. Boiled down, Dan’s argument is that legitimate expenses under the statute are not improper.

What’s that over in the corner, you ask? Oh, that’s just the 800-lb gorilla in the room. We call him “Amendment 70.”

Jokes aside, I do appreciate that Dan took the time to email and to spell out his thoughts on the issue.  I don’t know Dan personally, but I do know that he’s held in high esteem by members of his party, and his response to this issue is the first I’ve heard from anyone on that side of the aisle.  Unfortunately, Dan’s response missed the overarching, important part of the entire discussion.  Thus, I felt like an open response would help clarify the issues for other people as well, and I chose to reprint Dan’s email in its entirety, with my thoughts/responses mixed in after each numbered point.

Dear Matt Campbell,

I have read your articles on your weblog about the legislative reimbursement issue. I think you make some good points about the practice of reimbursement, but I also think you mix in some strange conclusions and insupportable accusations. Please consider the following:

1. It doesn’t matter who the reimbursement goes to; what matters is that the reimbursement is used lawfully. You have repeatedly pointed out something that apparently seems strange to you: some reimbursements are going to legislators, some are going to legislators’ businesses, some are going to legislators’ relatives. None of that matters. It is perfectly appropriate under the law for legislative expenses to be borne by a business of some kind, or for a family member to be entrusted with responsibility for the books of that business; legislative expenses are then paid back on a monthly basis, thus the term “reimbursement.” Relatedly, your terms of abuse like “salary-padding hypocrites” are, as far as I can see, groundless. Again, if expenses are borne and then reimbursed, this doesn’t create, by any stretch of the imagination, anything like a salary. There is no such thing as a salary with a take-home pay of zero; by definition, it is impossible to make money off reimbursements.

Actually, it matters a great deal who the reimbursement goes to. For one thing, if it is paid directly to the service provider, rather than to the legislator, it is not really a “reimbursement.” For another, when it goes to a legislator who “contracted” with himself, only the expenditures to third parties would be reimbursable; the “services provided” would not be because no money would have changed hands.

Semantics aside, however, Dan misses two important points. First, none of these claimed reimbursements is substantiated, meaning that, per the IRS, the entire amount is treated as income, subject to deductions for actual, verifiable expenses.  Second, the larger point of the entire series of posts is that the current reimbursement system, with its lack of substantiation, violates Amendment 70 of the Arkansas Constitution, both because Amendment 70 explicitly requires that the expenses be verified and because the money is legally treated as income.

Based on his statement that “by definition, it is impossible to make money off reimbursements,” it seems that Dan is starting his entire argument from the assumption that we are talking about actual reimbursements for actual expenses.  Quite to the contrary, however, I am starting from the assumption that there needs to be an accounting and documentation of the actual expenses before we can validly say that the money received is entirely “reimbursement” rather than “income.” For reasons I’ll discuss below, the lack of accounting is what makes the whole thing a problem, and any specific legislators who might be knowingly abusing the system are a secondary concern.

2. There is a legally and morally proper way to use the reimbursement system. I believe I did so when I served in the state House for four years, and I am quite sure that there are other legislators who do so as well. There are some improper ways that legislators could hypothetically exploit the system, and you refer to them repeatedly, but if your posts have demonstrated actual wrongful conduct by any significant number of legislators in the real world, I must have missed it. (You arguably have demonstrated that some legislators aren’t very good at filling out forms, but I think that is not quite the same level of wickedness.) The way I used my reimbursement money was to pay legitimate expenses or reimburse myself for the legitimate expenses I had previously borne. A very large part of my expenses consisted of printing and postage – for instance, direct mail to residents in my district that offered services and contact information. I certainly never charged myself rent or took a home office deduction or anything like that (I currently run two businesses out of my home, but the home office deduction rules are so strict that I imagine I will never get involved in that stuff), but I did buy a computer and printer, etc., out of my reimbursement account for my professional use as a legislator in my home. I reimbursed myself for a cell phone contract, travel expenses (mileage adds up when you’re regularly visiting constituents 50 miles away or attending committee meetings near the borders of the state), office supplies, periodicals, and various other normal and ordinary expenses of the job. I took constituents and policy experts out for coffee or business lunches, but of course those are of limited deductibility. All these expenses accumulate: they are larger than you might expect, and they were legitimately incurred and reimbursed.

First things first, I disagree with the idea that I haven’t shown exploitation of the system. When Ann Clemmer bills the state for consulting herself, how is that anything but abuse? She literally could not have incurred costs doing that, yet she billed the state for it. I also dispute the idea that incorrectly filled-out paperwork, which bills the state for things other than what the legislator actually incurred, are not a big deal; without accusing anyone specifically, I would (again) note that knowingly submitting an incorrect invoice to the state would border dangerously close to fraud.

Secondly, I take issue with such a narrow focus on the legality of using the system because it ignores that the lack of substantiation makes the entire system run afoul of Amendment 70. Maybe I am alone in this, but I think violating part of the state constitution is a bigger issue than whether legislators are behaving appropriately within the system.

Finally, vis-a-vis this point, I note that Dan mentioned reimbursing himself for mileage. However, because he lived within 50 miles of the Capitol, he took the flat-rate in lieu of mileage and per diem. Thus any additional reimbursement for mileage would be improper, to say nothing of the fact that Amendment 70 (and the IRS) requires that the mileage be documented to be reimbursable. I don’t say all of that to be flippant or accusatory, but to further point out the lack of accountability in the system.

3. I had a dedicated account for the legislative reimbursements. Especially in the case of large print jobs, sometimes the account owed me more than it could immediately pay, and I ended up carrying the debt owed to me by state government for weeks or months at a time. That was hardly unbearable; I knew that the state government was good for it. I used 95% to 100% of the reimbursements on non-salary expenses every year, and the remaining fraction would occasionally pay short-term salaried employees. Occasionally some clerical work would pile up and I had to enlist someone else to help, and I ended up paying those costs out of the dedicated account. This added up to about $500 to $1000 yearly; I mostly did this during the legislative session.

This is all fine, and I appreciate the explanation for how the money was used, but it is still problematic. The issue is not whether the money was in a separate account; the issue is that there is absolutely no documentation of these expenses. In fact, Dan’s point here touches on another problem with the whole system — the idea that the money has to be doled out in 12 equal payments. Nothing in the statute or Amendment 70 requires this; the statute only says that a legislator may be reimbursed up to a certain amount. If there were months when Dan spent more than $1200, a true reimbursement system would let him submit documented expenses and would pay him the entire amount. Except, as we’ve discussed repeatedly, flat-rate payments with no substantiation are not a true reimbursement system.

I appreciate that Dan used the money as it was intended; it would be nice if the invoices submitted by Dan and other legislators made this kind of claim easy to verify.

4. In short, as far as I can tell, if ‘reimbursement’ funds go to either or both (a) legitimate staff salaries and (b) legitimate expenses, there is nothing illegal, immoral, or improper about their acceptance or use.

On a macro level, I agree with this statement. However — and not to sound like a broken record — without substantiation, the payments violate Amendment 70 for the two reasons mentioned under point 1, supra.  So I don’t buy the “nothing illegal…or improper” assertions. In fact, if the expenses were properly documented, then this would be a non-issue, at least with respect to Dan, because no one would disagree with the idea that legislators could be reimbursed for actual expenses.

Again, however, Dan seems to start from the premise that everyone is incurring costs that meet or exceed the amount received. Without some way to verify this, I don’t believe you can logically start from that point, regardless of what Dan’s own experience might have been.

5. You are welcome to compliment the “fab five” for not taking reimbursements, but I think it is not morally or legally problematic to take them, as long as they are genuine reimbursements. Furthermore, although obviously no one should inappropriately profit from public service (presumably, taking a salary constitutes a profit, but often not an inappropriate one), I don’t see anything praiseworthy in not being reimbursed for legitimate expenses. Forgive me for repeating myself, but it really is possible to take reimbursements legitimately, and that is what I think I did. I agree with a main theme of what I think you are saying, which is that if legislators are just treating all their reimbursements like a salary supplement, it’s a big problem. And it’s a bigger problem if those legislators are ignoring the concomitant tax obligations. But it’s also a big problem when journalists or bloggers casually assume (and write) that everyone’s abusing the system or breaking the law: some people aren’t. I got audited during my second House term after depositing (and spending) a good number of reimbursements, and after significant IRS scrutiny of the receipts and documents that my tax filings were based on, I am happy to say that my original returns were accepted as filed. Based on the interest that the auditors showed in my reimbursements, I am pretty sure that the sudden appearance of a new business with both a high income and high deductions was a factor that triggered the audit.

I’ll avoid rehashing whether the payments are technically legal. I would just note, however, that no one disputes that someone should be reimbursed for actual expenses. What I and others dispute is that we should just all assume that the expenses are real, especially when we see things like Linda Chesterfield submitting a blank invoice or Barbara Nix “consulting” herself.

Additionally, it stretches the limits of common-sense to suggest that a flat-rate payment received in lieu of mileage and per diem qualifies as a reimbursement, especially when it is received year round, regardless of whether any miles were driven or any legislative activities that would warrant a per diem were attended.

Moreover, and not to be pedantic, but at least in the context of single-member LLCs and “contracts” with one’s self, any money beyond what it actually cost the LLC or the d/b/a entity to provide services is unquestionably income, which is why I said that it matters who receives the money. (i.e. If Legislator LLC provides services to Legislator, then the difference between what the LLC billed the legislator and what it cost the LLC to provide the service is business income. A single-member LLC is not a distinct legal entity from the member, at least in the IRS’ eyes, so that is income above and beyond the statutory salary.)

6. These issues are somewhat difficult to understand and I appreciate your effort to shed light on them, even though you and I have fundamental differences in judgment and interpretation about the scope of the problem. I do think that careless or malicious journalists (or other political opponents) can cause big problems for just about any incumbent legislator who takes reimbursements: that’s certainly what happened to me in my unsuccessful state Senate primary in 2010. Late in the campaign, two different journalists (Jason Tolbert and Kristal Kuykendall) falsely wrote that I was using state money to rent a private office in Bryant, apparently because they found out that I used that business address on my state government web page and leapt to the conclusion that I must have been using taxpayer money to fund it. When I pointed out to these journalists that there was no support for these accusations, Kuykendall refused to correct her error; Tolbert eventually made two slight corrections to his story, although he continued to mischaracterize several fundamental aspects of the controversy. (Additionally, my primary opponent at that time, Jeremy Hutchinson, put out a very strange, largely insupportable press release arguing that if I had ever taken any reimbursement money as income, I could not ethically spend my own money on political campaigns – a mistake not especially relevant to our discussion, but one demonstrating that even legislators and lawyers can sometimes get so excited that they fail to apprehend the mysteries of the reimbursement process.) Indeed, it is fair to say that Kuykendall’s misrepresentations led to a state Ethics Commission complaint and investigation – luckily, the commission members and staff demonstrated much more competence in understanding the facts and law at issue than media commentators did, and that presumably is why the Commission discovered no wrongful conduct on my part and decided that there was nothing to investigate. I am probably a little more persnickety about these matters than some (a legal education can stop you from making really stupid errors), and if this stuff can happen to me I imagine that a lot of legislators can get tripped up not so much by getting the rules wrong but just for ticking off the wrong journalist on the wrong day.

I can only assume that the Ethics Commission was concerned with whether the money received was proper under the reimbursement statute. The issue that I am discussing is that the statute and the reimbursements paid under it are improper under Amendment 70. Thus, I feel like this is a bit of an apples-and-oranges comparison.

Further, I don’t think my point regarding Amendment 70 is that difficult to understand: the amendment says the expenses must be documented, and the reimbursements being paid are for undocumented expenses. So, even where payments are fine under the statute, they are not fine under the state constitution.

As for the audit, as long as taxes were paid on any expenses that weren’t substantiated, the IRS would be placated. That does not mean, however, that the money on which the taxes were paid was still proper under state law.

Re: “persnickety,” this brings up another issue: why would anyone, lawyer or CPA or otherwise, think that they did not need to maintain receipts and other documenation for their expenses? That’s not a real obscure idea or foreign concept; everyone knows that you need receipts for things to be tax deductible. The ONLY way I can see that people would fail to maintain receipts is because they know they are getting that same flat amount every month, regardless. I think that says a lot about how flawed this system is, even before you factor in Amendment 70.

7. I think if you conclude that some legislators are abusing the system, that is almost certainly right, just as a matter of probabilities. But you make a mistake when you suggest that everyone is behaving badly. I certainly don’t see the evidence for your insistence that legislators are typically paying themselves inflated rents for the use of part of their home as an office. I think it’s possible that you exaggerate the scope of the problem – but clearly, there is a problem. Several House members became very unfriendly to me after I publicly suggested that we needed greater transparency in the lunches, dinners, and gifts that lobbyists were eager to buy us — and I remember, shortly after that recommendation of mine, how another legislator came up to me on the House floor and was eager to explain to me the error of my ways. He started explaining to me how he depended on lobbyist meals to eat and how he paid for all sorts of extraneous things out of his own pocket. In fact, he said (holding up a bag of candy), take a look at this, I just bought it and I’m about to take it to a parade to give to kids, and nobody gives me any money for this stuff. “Really?” I responded, rather taken aback. “Because they give me a couple of thousand dollars every month for expenses. Maybe you ought to check with the Clerk of the House and see if you qualify for legislative reimbursements.” He glared at me and slunk away. And so with this story perhaps I have demonstrated two things – that some legislators are (either intentionally or unintentionally) misusing the system, and that it is probably a good thing that I have other career options available to me besides running for office.

I don’t think I’ve ever said that everyone is abusing the system. If I appeared to be saying that, then that’s a failure in communication on my part. I’ve said that everyone is taking the maximum and that no one is documenting expenses, both of which are true statements. I also said that the system violates Amendment 70, which is true. To the extent I’ve pointed out absurdities in the billing practices of some legislators, I did not mean to suggest that every legislator was so flagrant or brazen. That said, to the extent that everyone (save for five) is receiving money for undocumented expenses, even if they are taking it in good faith, the money is improper under the constitution. Thus, it’s possible to be functioning entirely properly within the reimbursement system, while still receiving money that is legally improper. This is the part that I feel Dan has missed.

Also, while I have no reason to doubt Dan’s claims regarding his own expenses, I see far too many suspect invoices that bill for ridiculous things (being consulted by your wife, consulting yourself, etc.) to believe that most legislators aren’t taking in some amount of extra income through this plan. In fact, the one response I heard from two different legislators regarding the posts is that they “couldn’t afford to do the job” without the extra money. Now, maybe they meant they couldn’t afford to incur the expenses, but I doubt it. After all, real expenses would and certainly should be reimbursed. Rather, I took both statements to mean that they couldn’t afford to take that time away from their day job without the extra cash to pay bills, etc.

Now, maybe the pay for legislators is too low. That’s entirely possible, and it’s an issue that I don’t mind seeing addressed. But taking “reimbursements” to supplement that low salary is a problem.

Regarding home offices, Bryan King turned in an invoice that simply said “Rent” for use of part of his home. Tommy and Jody Dickinson have basically taken turns billing the other for “office space” out of their home. So I don’t feel that it’s a terribly large leap to suspect that many of the invoices that reference “rent” are including an abnormally high dollar amount for working at home. (Not to mention, at least in King’s case, it doesn’t matter that he charges himself $1200 for “rent” because the IRS is still only going to allow him to deduct a tiny amount, if anything. Which would make the rest of the money received income.)

8. I tend to think that your concern would be applied with as much justice to many other areas of the economy involving government grants or reimbursements and their monitoring or auditing. State government grants to private providers are misused and unaudited too often. Similarly, state government commissions often use funds in an unmonitored and unaccountable way. It’s quite similar in the private sector: an unethical small business can play lots of games with risky and questionable, or flatly illegal, tax deductions until their number comes up for a state or federal audit. I don’t mean to be too harsh, but your discovery that people can misuse a system doesn’t even begin to demonstrate what you seem to think it does – namely, that the reimbursement system is universally, routinely, or broadly abused.

I don’t disagree that there are worse abuses occurring elsewhere. But I also don’t think there are specific, explicit constitutional prohibitions against those groups/businesses receiving the money in the first place. That makes a huge difference in the analysis in my opinion. On top of which, I don’t think abuses happening in other areas of government spending/reimbursements is a defense or an explanation for the particular abuses that are occurring in this particular system. One simply has nothing to do with the other, except to the extent that all of these abuses suggest a need for greater transparency at every level of government.

Ultimately, I think Dan is miscasting my conclusion here. I don’t think that most legislators are knowingly abusing the system; I think the system is illegal on its face. In addition, I think that some legislators are knowingly (or at least negligently) abusing it, as evidenced by the sloppiness I’ve shown on specific invoices. So, when I see invoices such as Dan’s, which bills for legislative services provided under written contract with his own company, even if I didn’t know that he was spending all of the money on expenses or was keeping it separate, I wouldn’t say that there was knowing abuse in that situation at all. I would, instead, assume that Dan was simply doing what everyone else was doing.

On the other hand, when I see David Meeks bill the state $2000 for his wife, who is a certified nurse’s assistant, to provide political consulting to him for a month, I feel that such invoices are highly questionable at best and knowing abuses at worst. In either case, however, the manner in which the money was received is a constitutional problem.

Consider also: every legislator who “contracts” for services in an amount that includes the flat-rate mileage is abusing the system to some extent because that money is not to be used for legislative expenses, but for the legislator’s own meals/travels. By including it in the contract amount, the legislators are submitting invoices to the state in an amout that exceeds what they could legally be paid for legislative expenses even under the statute.

Whether the actual expenses incurred by legislators were $200 or $2000 per month, I would have zero problem with their being reimbursed as part of an accountable, substantiated reimbursement system. Those reimbursements would comport with Amendment 70, would clearly not be income, and would be wholly fair and warranted. My problem is with the lack of documentation and the lack of accountability, and the unconstitutionality of the reimbursement system trumps any questions of whether a legislator is abusing the system.

I am happy to talk to you about this anytime; please feel free to call me if you like.

Cordially, Dan Greenberg

Again, I do appreciate that Dan wrote this email, as I think it shines a spotlight on the key area of misunderstanding over this entire problem. Hopefully my responses here have clarified this issue a little both for Dan, for other legislators who happen upon this blog, and for the rest of the readers.