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Home / Capitol Insiders / Safety in numbers: ‘Rule of 10’ gives lawmakers conflict-of-interest leeway

Safety in numbers: ‘Rule of 10’ gives lawmakers conflict-of-interest leeway

Laws that dictate when a legislator has a conflict of interest leave miles of wiggle room for anyone looking to lend a hand to their business or industry.

Arizona lawmakers are prohibited by statute from sponsoring, voting on or otherwise acting on legislation that would provide them a financial gain. But the threshold for establishing that conflict of interest is so high that few ever run afoul of it.

Some lawmakers have pushed new laws or legislative rules aimed at curbing what they view as a serious problem, though the proposals have fallen short. Many other lawmakers say no new laws are needed because there is no problem, and question what kinds of changes could be made that would address the issue prudently. Critics of the current system point to very few definitive situations where they believe lawmakers are personally benefitting from their own bills.

Under House and Senate rules, members are considered to have a personal financial interest in any official duty that will provide a material benefit to them, their spouses or their minor children. However, no personal financial interest exists if lawmakers are part of a “class of persons” and their legislation or other actions will affect the “total membership.”

That class is often known as the “rule of 10.” Arizona statute bars lawmakers from taking actions in which they have a substantial interest. But the law states that they have only a “remote interest” if they are part of a class of at least 10 people, and their interest is no greater than other members of the class.

That leaves a lot of room to maneuver for lawmakers seeking to make their businesses and professions more lucrative.

A lawmaker could sponsor a bill to loosen regulations that would make his business more profitable, as long as it affects others in the same business. A lawmaker could push legislation mandating state spending in areas that would create more business for his industry, as long as it didn’t specifically target his business. Or a lawmaker who runs a nonprofit agency could push legislation directing state money and resources toward that area.

For many at the Capitol, the gold standard in the debate over conflict-of-interest is Sen. Steve Yarbrough, R-Chandler, the executive director of one of Arizona’s largest school tuition organizations. The Chandler Republican often runs STO-related legislation, including a 2011 bill that would have expanded the STO tax credit program and brought more tax credits into the organizations. Gov. Jan Brewer vetoed the bill, partially due to its fiscal impact.

But other lawmakers sponsor legislation related to their professions, or those of close relatives. Rep. Kimberly Yee, R-Phoenix, whose husband is a dentist, has run several bills in the past two years related to the dental industry. Former Democratic Sen. Ken Cheuvront, who owns a construction company, and Senate Minority Leader David Schapira, who used to do IT work for his family’s construction equipment company, sponsored bills dealing with construction and contractors.

Rep. Frank Pratt, R-Casa Grande, who owns a pool company, ran a bill in 2012 changing regulations on pool pumps.

All of those lawmakers, except for Yee, who did not return a request for comment, said the bills had no personal benefit to them or their families, and most say the bills didn’t actually affect their businesses. Often, the bills are requested by industry organizations and lobbyists who seek sponsors who understand the businesses, can give knowledgeable testimony in committee hearings and explain the need for legislation to their colleagues.

But some lawmakers say the lax rules governing when legislators must recuse themselves are a problem at the Capitol.

“It happens every year, and we have members of the Legislature, they don’t even blink an eye,” said Sen. Steve Gallardo, D-Phoenix. “The rule of 10 is a joke.”

Lawmakers who have a conflict of interest under the rule of 10 can file a disclosure statement with their respective chambers, though few ever do. For example, in the past four sessions, only three senators have filed conflict-of-interest statements and recused themselves from a vote. Only one House member in that period, Rep. Justin Olson, R-Mesa, filed a statement over a specific piece of legislation and recused himself from the vote.

Sen. Adam Driggs, a Phoenix Republican, in 2011 recused himself from a vote on the nomination of a relative to the Maricopa County Commission on Trial Court Appointments, while former Senate President Bob Burns recused himself from voting on his wife’s nomination to the Early Childhood development and Health Board.

Rep. Jack Harper, a loan originator, recused himself when he served in the Senate from voting on a 2010 bill that changed regulations on reverse mortgages. In 2008, the Surprise Republican also recused himself from a vote on teacher performance pay because his wife is a teacher.

During the 2012 session, Rep. Tom Chabin, D-Flagstaff, asked to be excused from a floor vote on a tax break for organizations that build low-income housing. Chabin, a public policy consultant, has a client that sites and develops low-income housing, and he said he felt it would have been a conflict of interest for him to vote on the bill.

Chabin said he took similar steps during his time as a Coconino County supervisor. But the rules at the county level are more stringent, he said.

“We live with this ethics rule that said if there are 10 companies in the state that do your business, 10 or fewer, you have a conflict of interest. But if there’s 11, you don’t. And you can introduce a bill, as Senator Yarbrough has, that puts money directly into his very small and limited industry. You can be in the state Senate, wield considerable influence, and attract a whole lot of business to your mission,” Chabin said.

Critics such as Chabin and Gallardo say self-serving legislation is a major problem at the Capitol, but can’t point to definitive examples beyond Yarbrough.

Most lawmakers who run bills related to their industries, businesses or professions say their legislation provides them with no personal or financial gain.

Cheuvront said his company, Cheuvront Construction, does not do the type of construction work affected by his bill because his company works mostly with insurance companies. Schapira said he has no financial stake in his family’s company, Action Equipment and Scaffold, and no longer works for it. He said the bill only dealt with timeliness of payments.

Pratt said he sponsored HB2775, a 2012 bill that would have exempted preexisting pool pumps from expensive energy efficiency requirements, at the request of a constituent who was concerned about the financial burden the regulations placed on people who were trying to sell their homes. Pratt, R-Casa Grande, said the bill would not have affected his business because he does few, if any, such repairs.

Harper, who has recused himself in the past from voting on bills affecting his industry, said HB2079, a 2012 bill he ran to reduce the requirements for loan originators to become mortgage brokers, would have had no real impact on him because it would have taken 10 years for him to meet the requirements anyway. Harper, R-Surprise, said he sponsored the bill on behalf of a constituent.

Even Yarbrough, who faces constant criticism and scrutiny for his STO legislation, says he doesn’t benefit financially from his bills. As a nonprofit organization, the Arizona Christian School Tuition Organization doesn’t get the same benefits that a for-profit company would get, he said. And his salary, Yarbrough said, stays the same either way.

“I get paid a salary. And that’s all there is to that. Just like if you’re a college professor or a teacher or an insurance agent, you get paid a salary,” Yarbrough said. “There’s nothing that I’ve ever voted on that has resulted in any financial benefit for me personally.”

Yarbrough in 2010 asked the House rules attorney about potential conflicts of interest on three STO bills introduced by other lawmakers, including one high-profile bill that increased the amount of money STOs can keep and use for administrative costs. The attorney said he had no conflict that would prevent him from voting on the bills.

Those who want to crack down on lawmakers’ ability to push legislation that benefits them have a number of ideas on the subject.

Chabin said Arizona must look at what other states, as well as private sector businesses, have done to combat conflicts of interest, and emulate the best practices. He suggested expanding the rule of 10 to include up to 500 people.

During the 2012 session, Rep. Ruben Gallego, D-Phoenix, proposed a House rule change that would have expanded the conflict-of-interest class to 50 people, unless the benefit was extremely small. The rule was shot down by colleagues who said it was too broad.

Ironically, even if such a rule were applied in the Senate, it would not have affected Yarbrough because there are more than 50 STOs in Arizona.

Rep. Ed Ableser, D-Tempe, who referred to such self-serving legislation as a “pandemic,” has sponsored several bills to require lawmakers to file disclosure statements, which would be posted on the Legislature’s website any time they vote on a bill on which they have a “direct financial interest.” Ableser also has pushed legislation to increase the size of the class in the rule of 10.

“My bill never goes anywhere,” Ableser lamented.

Gallardo said he would support legislation that goes much further.

“I think a flat-out ban on any member of the Legislature who has some type of financial gain needs to be kept from introducing legislation or even possibly voting on legislation,” he said.

Many times, industry organizations and lobbyists who want to push legislation will specifically go to lawmakers who have backgrounds in the same business.

For example, Cheuvront said construction industry representatives asked him to run a clean-up bill in 2010 on “prompt payment” legislation from several years earlier that had been partially thrown out in court. Schapira’s legislation from the same year was also backed by the industry.

“It was such a complicated issue and they knew I understood it,” Cheuvront said of SB1375, the 2010 cleanup bill he sponsored.

And last session Yee sponsored HB2169, which gave the state Board of Dental Examiners permission to lower fees for dentists at the request of the Arizona Dental Association.

Kevin Earle, executive director of the Arizona Dental Association, said his group asked Yee to run HB2169 and other bills because of her familiarity with the industry. He said the bills provided no financial benefit to Yee’s husband except for a reduction of about $16 per year in licensing fees.

“You’ve got to have a sponsor … who can explain the issues to their colleagues,” Earle said.

Many, however, say there’s nothing wrong with the system as it is. Arizona has a citizen Legislature, with part-time lawmakers who earn only $24,000 a year, plus a per diem allowance, and most members have regular jobs outside of their service at the Capitol.

“Because we have a citizen Legislature, most everybody has a job outside the Legislature, whether they are a teacher, a Realtor, an insurance agent, a professor — the list goes on,” Yarbrough said. “Many of us have an interest in some sort of a job.”

The law must reflect the fact that legislators have lives outside the Capitol and not penalize them for serving in the Legislature, many argue. And prohibiting the people who know the most about the needs of their professions from addressing those issues is counterproductive, defenders say.

Those who say no new rules or regulations are needed say the scrutiny of the public, press, political opponents and colleagues is enough to keep lawmakers from using their positions to line their pockets.

“I think things are pretty much fine the way they are,” said Rep. Jim Weiers,

R-Phoenix. “There’s plenty of people to point that out. You don’t operate in a vacuum.”

Weiers, who said he’s sure he has sponsored bills that personally affect his business, questioned what new laws could be implemented to eliminate any potential conflicts of interest, at least without switching to a full-time Legislature with equivalent salaries, as some other states have.

And what of teachers who vote to provide more funding for schools — including teacher salaries — or people who work for nonprofits that deal with social welfare issues, Weiers asked. Should they be prohibited from voting on those issues?

“What are you going to use as a parameter? 10? 100? 1,000?” Weiers said.

Pratt said he thinks it’s wrong for lawmakers to vote on bills that provide them a financial benefit. But he isn’t sure what, if any, changes are needed and doesn’t think it’s much of a problem. He noted that the only example he ever really hears about is Yarbrough, and said he isn’t sure whether there is a problem with his actions.

“I would consider it a kind of a gray area,” Pratt said.

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