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The Honolulu Advertiser
Posted on: Monday, September 16, 2002

Harris campaign probe shines light on nonprofits

By Johnny Brannon
Advertiser Staff Writer

Private nonprofit groups raise money for important projects and events sponsored by many cities, but the practice can have serious pitfalls if donations are made to unduly influence government decisions or curry favor with officials, according to activists for clean government.

Some Honolulu City Council members say there needs to be more open accounting of money spent by some tax-exempt nonprofits that support city functions here, especially since prosecutors have raised questions about groups headed by Mayor Jeremy Harris' chief political campaign fund-raiser.

But others worry that too much scrutiny or red tape could discourage well-intentioned donors from supporting worthy city functions, and that bogging down event organizers with reporting requirements could be an unnecessary burden.

"You've got to find some balance, find a way to make government work in spite of itself, and have some checks and balances to see that the public is protected," Councilman Steve Holmes said. "I hate to see too many strings attached, because I think you're going to kill off contributions to good causes."

Prosecutors have interviewed several council members, including Holmes, about $100,000 the Harris administration granted in 1999 to a nonprofit called the Friends of the City and County of Honolulu, which helped produce a popular Pacific Rim environmental conference hosted by the city.

The group's president is Peter Char, deputy treasurer of Harris' 2000 re-election campaign and his aborted gubernatorial campaign. Char also heads a second nonprofit, the Environmental Foundation, which also helped pay for the conference and subsequent events.

Investigators have also questioned Michael Shea, a tax attorney who helped set up the groups, as part of a wide-ranging investigation into Harris' campaign fund-raising practices and the awarding of city contracts. No one involved with the nonprofits has been accused of any wrongdoing.

Much of the money the groups raised came from engineering and design companies that contract with the city and contributed heavily to the mayor's campaigns. But Char said the nonprofits have not engaged in campaign activities, which would violate federal law, and that all city money they handled was spent properly and is fully accounted for.

Harris declined to be interviewed. His spokeswoman, Carol Costa, said there is no need to single the groups out for scrutiny, because the city provides grants to many nonprofits for special events every year.

But some council members say the situation with the Friends and Foundation is different because they raise money for events that are hosted by the city's government, and because Harris administration officials have served on their boards of directors.

That's very different from the city granting money to other groups for such events as music festivals, they say.

"What raises your eyebrows in this case is the involvement of city employees or people who are active in the mayor's campaign," Holmes said. "Even if it's not illegal, it certainly raises concerns, and I think it's good that the investigators are taking a look at it. How it will be resolved, I don't know."

Routinely making public as much information as possible about private contributions to city-sponsored functions is one way to avoid even the appearance of influence peddling, said Larry Meacham, spokesman for clean-government group Common Cause Hawai'i.

"I think we always need transparency," he said. "We need to know who's giving and who's getting favors. Sunshine is the best disinfectant."

While nonprofit groups can help support government functions in tough economic times, they can also be used by politicians for their own ends and raise serious ethical concerns, he said.

One such case involved former California Insurance Commissioner Chuck Quackenbush, who resigned in 2000 after an investigation revealed that he had coerced insurance companies into donating $12 million to nonprofit groups that were used largely to boost his visibility and political clout.

One of his top deputies pleaded guilty to mail fraud and money laundering charges connected to the scheme, in which insurers who contributed to the groups allegedly avoided more than $3 billion in fines for improperly handling policies after the 1994 Northridge earthquake.

City Council budget chairwoman Ann Kobayashi said the full cost of city events should be understood, and that it should be clear who's paying for what.

"There should be no reason for secrecy," said Kobayashi, who was elected to the council in January. "If it's going to be used on city-sponsored events ... that money has to be accounted for."

Council members have not always scrutinized such costs. Several who have served on the panel longer said they had no idea that the administration spent more than $300,000 on an environmental conference last year, and that they did not know how much the Environmental Foundation had chipped in for the event.

Costa said the administration has not tracked how much money the private group spent on the event or been asked to provide any breakdown to the council. She said the administration can document its expenditures, but that she could not immediately release such information because of the inquiry by prosecutors.

Costa said the council agreed to appropriate up to $406,000 for last year's conference when it passed the city's annual budget for that year. But she could not say what portion of the budget the money was reflected in, despite repeated inquiries over several days.

Expenditure statements released by the Environmental Foundation show that the city spent at least $323,422 on the event while the foundation spent $34,076. Char said some additional expenditures by the group are not included in the statements, but he could not immediately provide a total.

Among the expenses borne by Honolulu taxpayers was airfare for visiting government officials from China, Japan, New Zealand, Vietnam and California, according to the expenditures statements.

The city also spent $25,394 on hotel accommodations for the visitors at the Hilton Hawaiian Village, $82,825 for banquets, $34,936 for an audio-visual program, and nearly $14,000 on a public relations firm that later worked on Harris' gubernatorial campaign, the records show.

A month after the event, the foundation still had more than $1.2 million in the bank, according to a tax return, and some council members question why the administration spent so much public money if private money was available.

Councilman Jon Yoshimura said he believes the conference was successful and was good for the city, but that he had not realized how much the administration had spent on it. The $100,000 the administration spent for the 1999 conference was significantly less, he noted, and the nonprofits picked up a bigger portion of the tab that time.

"I think it was fine for the city to put up the seed money for the first one, but it's questionable whether we have to spend significant amounts of public money to continue to support it," he said. "I think these kinds of events should not be a continuing responsibility of the City and County of Honolulu. These kinds of activities should stand on their own."

Char said such concerns are the reason the foundation did not spend more. The group was building up a capital base to pay for future events if city support should dry up, he said.