Category Archives: lobbyists

Do you think local politics are “corrupt”?

I discussed problems with the state’s lobbyist law and made preliminary suggestions of priority fixes at an event late yesterday afternoon sponsored by Common Cause Hawaii, Kanu Hawaii, and the League of Women Voters. Several dozen people attended, and there was plenty of time for some good questions and substantial discussion. I’ll have to share my suggestions after having a chance to clean up my notes.

Several people asked whether I think corruption is a major factor at the legislature and, perhaps, in Hawaii politics more generally.

I took the question to be using the term “corrupt” in a standard meaning like this one.

CORRUPT
Adjective: Having or showing a willingness to act dishonestly in return for money or personal gain.

It’s a question I’ve thought about quite a bit as an investigative reporter. There’s sort of an investigative planning drill where you try to think through the opportunities that might present themselves to public officials. If I were a legislator, for example, or other political official, what would be the best way to move money from those special interests and their lobbyists into my own pockets or the pockets of someone close to me for later retrieval? How would you avoid detection? Thinking through various scenarios then suggests areas where a proactive reporter might be looking for evidence of that kind of corruption. I’m sure at least a few other reporters go through similar exercises from time to time.

My own impression, as I said last night, is that this kind of corruption–the blatant selling of votes–isn’t a major factor locally. Undisclosed and uncorrected conflicts of interest are much more common, but selling votes? Not so much, at least in my experience.

It probably happens on a small scale, since we are sure to have some members of the legislature, or in other positions, who have problems with alcohol and other addictions that can be exploited. But I think it would be hard to keep blatant corruption under wraps so consistently for so long.

But I think I heard another meaning being given to the word, “corrupt.”

What I thought I heard is that, from this other perspective, politics are seen as corrupt because political processes gives some people–those with money, power, connections, experience, family ties, even professional expertise–more influence in shaping policy than your average concerned citizen or group of concerned citizens.

Lobbyists have an obvious edge because they know the legislative system and are in a position to take advantage of its quirks and foibles to advance their clients’ interests, both in the hallways of the capitol and also out in the political world, where they have the means to support the campaigns of legislators who share their viewpoints.

I don’t think those contributions buy votes. The political world is too complicated for that kind of simple exchange. They do, however, certainly increase access, directly or indirectly. More importantly, though, lobbyists or others who contribute are part of the scene, they make the rounds at fundraisers to see and be seen, they become familiar with legislators and staff, and their access grows over time accordingly.

While I understand the frustration of trying to affect legislation without being a capitol insider, I don’t think it’s helpful to view this essentially inequality of influence as corruption.

So when people say the system is corrupt, what are they really saying? Add your comments, please.

Just for fun, here’s one of our favorite corruption scenes from that fine bit of cinema history, “Beverly Hills Cop II.”

Gilbert Gottfried is great!

The companies behind the city’s sewage sludge budget battle

Yesterday I had a few moments of energy, and caught up with Civil Beat’s June 6 story by Mike Levine on tensions between the City Council and mayor over the direction of sewage processing (“Will Honolulu Council Give Back Mayor’s Sewage Construction Money?“).

The mayor is trying to move forward to fund an additional sewage digester at the Sand Island Sewage Treatment Plant. The original design-build-operate contracts were awarded to Synagro in May 2002, following a 1995 consent decree with the EPA., and the administration wants the proposed $24+ million contract to stay with the same vendor. The facility processes sewage sludge into biosolid fertilizer pellets.

There has been unhappiness among council members for years over problems with the Synagro facility. There are lingering environmental concerns prompted by problems in some mainland areas, and an August 2008 city audit of the Synagro contract detailed initial construction cost overruns resulting from delays and change orders. Council members have also complained the company has failed to develop a promised market for the fertilizer pellets, which were supposed to provide an income stream back to the city.

Levine reported the funding for the contract was restored to the budget at the last minute, subject to a proviso that the administration demonstrates its cost-effectiveness compared to a rival process being pushed by another company, HRP 56, LLC.

I came away from the story wondering about the two companies, the players behind them, etc.

The only Synagro entity registered to do business in Hawaii appears to be Synagro-WWT, Inc. It seems to be a subsidiary of Synagro, which describes itself as “the largest recycler of organic by-products in the United States.”

It turns out Synagro was taken over by The Carlyle Group back in 2007, according to a proxy statement filed with the SEC at the time. Remember Carlyle? They’re the politically well-connected group that bought Hawaiian Tel from Verizon, loaded it up with debt, and ran it into bankruptcy.

There’s a tangle of Carlyle entities involved in Synagro’s ownership structure, according to that proxy statement.

At the effective time of the merger, Parent will be owned by Carlyle Grey Partners, L.P., CIP Direct Partnership, L.P., CIP Grey Partnership, L.P. and CIP Coinvestment, L.P., which we collectively refer to as the “Carlyle Owners.” The Carlyle Owners are managed by and act through their general partner, Carlyle Infrastructure General Partner, L.P., which we refer to as the “General Partner.” The General Partner’s sole general partner is TC Group Infrastructure, L.L.C., the sole member of which is TC Group, L.L.C. The managing member of TC Group, L.L.C. is TCG Holdings, L.L.C. Each of the Carlyle Owners and the General Partner is a Delaware limited partnership, and each of TC Group Infrastructure, L.L.C., TC Group, L.L.C. and TCG Holdings, L.L.C. is a Delaware limited liability company. The Carlyle Owners are a part of The Carlyle Group, which we refer to as “Carlyle,” one of the world’s largest private equity firms.

Interestingly, Synergo doesn’t appear to have a lobbyist registered with the Honolulu Ethics Commission, so just who is representing the company in the political infighting isn’t clear from this vantage point.

HRP 56, LLP was registered to do business in Hawaii in February 2011. It’s sole registered member is Valentine Peroff Jr, president/director of Steeltech Inc., a Hawaii general contractor. City documents show Steeltech is the contractor that would build the new facility of HRP 56’s technology were to be selected selected.

State business registration records also list Peroff as officer or agent for a number of other companies, including president of KCOM, a real estate developer, which has had a long list of trade names over the years, now expired.

HONOKOWAI MARKETPLACE
HONOKOWAI MARKETPLACE SHOPPING CENTER
HONOKOWAI SHOPPING CENTER
KIHEI BUSINESS RECORDS CENTER
KIHEI COLD STORAGE AND DISTRIBUTION CENTER
KIHEI MINI STORAGE
KIHEI SELF STORAGE CENTER
LIHUE BUSINESS CENTER
LIHUE GATEWAY
LIHUE MINI-STORAGE
LIHUE SELF-STORAGE
LIHUE STORAGE CENTER
LIHUE TOWN CENTER
LIHUE TOWN CENTER ANNEX

Peroff is also the principal in NANI KAHUKU AINA LLC, which has proposed running with the former Hawaiian Riveira project in Kau once planned by Charles Chidiac.

According to the Environment Hawaii newsletter’s September 2011 issue:

Now Peroff’s Nani Kahuku `Aina is proposing a new development, called Kahuku Village, for the area, much of which consists of barren, `a`a lava. Near the Mamalahoa Highway (the Hawai`i Belt Road), on the mauka portion of the land, the developer has promised to dedicate 125 acres to state and county agencies for “civic facilities,” which could include an elementary school, park, police and fire stations, and an emergency medical facility. Near the ocean will be a mixed-use village on 1,600 acres. Included in the development are 1,050 residential units, two hotels with a total of 600 units, a golf course, commercial area, and a 500-acre “Hawaiian Heritage Center” that “will be empowered to steward and preserve the site’s many resources.” The developer anticipates the project cost will exceed $1 billion.

Real estate records show HRP 56 bought the former Hawaii Raceway Park site at the end of 2011, relying on seller financing from AG/CW Raceway Owner II LLC, controlled by Angelo, Gordon Advisors LLC, a New York hedge fund sponsor. Peroff also has ties to the Weinberg Foundation.

Of course, it isn’t clear how these many interests are related to the HRP 56 sewage processing proposal at the city, or who is doing what to whom for what political reasons, but it’s all potentially part of understanding the story, and a starting point for future reporting.

Rep. Choy credited with blocking expanded film industry tax credits

Manoa Representative Isaac Choy gets credit for shooting down HB 2869, the bill to expand available tax credits to the film industry.

The conference committee convened at 9 a.m. yesterday, then soon recessed until 1 p.m. as industry lobbyists pushed to maximize benefits for the film companies and their investors beyond current limits.

Choy, co-chair of the House conferees on the bill, reportedly agreed to extend the existing film credits, but the offer was rejected as the Senate conferees, led by Sen. Fukunaga, pushed for a bigger payoff for the industry, and sought support for a proposed conference draft. Choy refused, and the bill appeared to be dead.

But it got a reprieve when the final decking deadline with pushed out, giving time for more behind the scenes maneuvering by lobbyists and pro-industry legislators.

Choy has more than a passing interest in this issue. He served as chair of the Tax Review Commission (2005-2007) which recommended an overhaul of the Act 221 high tech tax credits, among other changes.

I commented back in January 2009 that Choy had hit the ground running as a new representative by raising pointed questions about tax credit policies.

Now Choy, as a member of the Finance Committee and vice-chair of Economic Revitalization, Business, & Military Affairs, has been able to ask extremely sharp and pointed questions as Act 221 is again under review.

It’s refreshing to watch professionals who really know their stuff able to fill positions where they can immediately put their knowledge and experience to work. The public is certainly going to benefit.

During his 2010 reelection campaign, I again noted Choy’s strong critical views on tax credits.

• In an email, Representative Isaac Choy’s campaign chairman questioned why the Hawaii Venture Capital Association made an endorsement in just one legislative race.

The only House or Senate race at the State Legislature was for Kimberly Case against Rep. Isaac Choy. Isn’t it odd that the proponents of the 221 tax credit go after the one state legislator who they see as the roadblock to their cash flow? Forget the Gov’s race, these greedy folks want to suck another $100 million a year from the state for the next ten years, again.

While I disagreed strongly with Choy’s backing of a bill to restrict public information about consumer complaints, I was quite impressed with the level of his participation during Finance Committee discussions of the budget, these tax credits, and other issues. Choy, who is a CPA, raised the level of committee discussion and provided key perspectives.

No wonder he’s been targeted by the HVCA, I guess.

They’re Baaaack! Film company trying to resurrect huge new tax credits

Remember Ryan Kavenaugh and the folks from Relativity Media, LLC? They’re the ones who lobbied hard at the legislative last year for a huge new tax break to benefit themselves. In the process, they got in trouble for passing out expensive gift sets of DVDs to legislators and staff. The bills providing for their big tax breaks eventually got hung up and died in conference last year.

But Kavenaugh and company are back in town. They’ve got a web site (HawaiiFilmIncentive.com), and a fancy new presentation touting their tax proposal, and have reportedly been making the rounds at the capitol seeking support from legislative leaders and folks in the governor’s office. It looks like they are hoping to slide in under the radar and have their tax break emerge from an obscure conference committee at the last minute.

The company had been pushing HB 1308 and SB 318 as their vehicles, but those appear dead. I’ve got my eye on HB1551, which in its House version included similar tax breaks for digital media and film production. I’m sure they have other possible legislative vehicles that could be used in a last minute move.

What the company doesn’t have is any reported lobbyist expenditures since the end of April 2011, a quick check at the State Ethics Commission shows.

Relativity’s proposed tax breaks have drawn fire from StopRunawayProduction.com, a web site that collects information on “Runaway Production and state and international film incentives.”

Fortunately, Relativity’s efforts failed last year. But now they are back. They have a new presentation, and it’s a SPECTACULAR work of fiction. Hawaii taxpayers better pray the numbers in Relativity’s presentation are fictional, because if they are accurate, the cost of the proposed film incentive would be a staggering $2.38 billion (with a B) in just six years! And I thought Arizona’s new $2.1 billion film incentive legislation bill was costly!

What follows is a detailed assessment of the claims Relativity is making here in Hawaii.

For example:

In slide after slide, Relativity’s presentation cherry picks from various economic impact reports by highlighting impressive sounding job numbers and huge increases in production spending. Conveniently missing is any mention of CO$T. For example, Relativity cites some impressive sounding statistics from The Arrowhead Center Report prepared for New Mexico’s film incentive:

– Motion picture and video production industry businesses increased by over 50% in 5 years
– Jobs and wages in the motion picture and video production industry increased nearly 10x in 5 years

These statistics are much less impressive, however, when compared to the cost. The same Arrowhead Center report found New Mexico taxpayers recouped just 14-cents for each dollar spent:

During fiscal year 2008 the NM government granted $38.195 million in rebates. The resulting increase in economic activity generated $5.518 million in revenues. The implied return is 14.44 cents on the dollar. This means that for every one dollar in rebate, the state only received 14.44 cents in return.

Similarly, Relativity cited the ERA reports prepared for Louisiana and the huge increases in spending, jobs and wages. Again missing is any mention of costs also contained in those reports. From 2002-2010, the film incentive cost Louisiana over $795 million and returned just $106 million in new taxes from the increased production activity.

There’s a whole lot more there, and it should be required reading for anyone following the issue.

And, while you’re at it, check out the news about the lawsuit filed in California accusing the Relativity Media of fraud.