If The Texas Ethics Commission Was The IRS, Nearly Every Texas Legislator Would Get Audited

Every American (with possible exception to masochists) hates filing tax returns, but we do it anyways because it’s the law. We also fill out everything very carefully and make sure our i’s are dotted and t’s are crossed (with exception to the likes of Tom Daschle, Tim Geithner, and Al Sharpton). Why? Because the all-seeing eye of the IRS would come crashing down upon us with hellfire and brimstone if we failed to pay the Federal government what it feels it’s owed. While politicians make sure laws concerning John and Jane Q. Public are onerous, their method of creating laws overseeing their own activities are quite the opposite, and in Texas, that attitude persists.

Throughout Texas’ history, from Ma and Pa Ferguson to the Sharpstown Scandal to the never-ending, corrupt political machines of South Texas, our state has suffered a reputation as a breeding ground for shady activities and a lack of political and governmental transparency and accountability that has transcended party lines. In 1991, the Texas Ethics Commission (TEC) was created in hopes of restoring and “promoting public confidence in government.” However, in its short existence, the TEC has been merely a filing agency with little to no teeth, and any oversight is left up to private individuals or groups. Last year, the 83^rd Legislature killed any opportunity for real reforms by rejecting Rep. Giovanni Capriglione’s reform bill. According to the Center for Public Integrity, the TEC scores 0% on its ability to enforce rules independently or initiate investigations. It’s also well known that the TEC most often ignores complaints during election season.

After noticing some irregularities in certain legislators’ campaign loans, Hardhatters.com took it upon themselves to examine every sitting State Representative’s and Senator’s campaign and PAC finance reports from their first report until now (prior to January 2015 reports) and audit their loans (more to come from contributions and expenditures at a later date). Very quickly, they noticed that, at the very least, the numbers weren’t reconciling. In some cases, the figures were off by hundreds of thousands of dollars, some by millions.

So, how do campaign finance loans work? It’s fairly simple. Candidates are permitted to loan money from their personal funds to their campaigns. If they reported it as a loan, then they can reimburse themselves with political contributions, and (controversially) profit off of it by charging interest to themselves. Other individuals and companies such as banks are also permitted to loan money to a candidate. Any loan greater than $50 must be itemized, showing who made the loan and the terms of the loans. Loans $50 and lower are considered unitemized and are totaled in each report. In the report summary, a candidate must show the total amount of unitemized loans for that reporting period and the total amount of all loans still outstanding over the life of the campaign. For example, if a candidate loaned himself $100 in 2001 and has yet to pay it back, his 2014 report would still show $100 outstanding. There are no limits to the amount of a loan a candidate can receive.

Loans should not be confused with “Political Expenditures Made From Personal Funds” or Schedule G. Schedule G expenditures are made by candidates using their personal accounts (e.g. paying for signs with your personal debit card). They are reimbursable if you report them as such but are NOT considered loans.

What happens if the candidate decides not to reimburse himself? Then the candidate would have to “write-off” the loan by converting it to a contribution and expensing out the loan.

So, what’s the problem? There are really four problems, and any one of these is apparent with the reporting done by well over half of the Texas Legislature for their campaigns or PACs. Either (a) they are reporting unpaid loans in the totals with no prior record of those loans existing; (b) they are reporting payments for loans with no prior record of those loans existing; (c) they are reporting no loans outstanding but never recorded any payments for reported loans; or (d) they are reporting unitemized loans well over the $50 limit (in many cases in the tens of thousands range). There is also a fifth problem. General accepted accounting principles (GAAP) are not used. Instead of categorizing loan and interest payments separately as “Loan Expenses” & “Interest Expense”, candidates are free to describe them however they choose (even misspelled in the last example), such as loan payment, note payment, loan and interest payment, principal payment, loan reimbursement, or laon payment (Rep. Sarah Davis and Sen. Juan “Chuy” Hinojosa). While the TEC does require some forms of categorization, these categories are not searchable within the TEC database. Only the descriptions are. This makes it very difficult to keep track of elected official’s expenditures and monitor their balances because there are no clear standards like GAAP, especially when there are misspellings and numerous variations in describing the same transaction. It’s apparent that the TEC is not checking for or requiring consistency. It took 4 years for the TEC to respond to a complaint concerning outgoing Rep. Linda Harper-Brown’s loans, and she still hasn’t corrected them.

There are many concerns to be addressed from the above report. Several powerful officials have campaigns or PACs that, at minimum, are not reported correctly.

• House Speaker Joe Straus’ PAC reported loans from Joe Straus in the amount of $55,057.27 and reported reimbursements in the amount of $52,500. His most recent report should show a balance of $2,557.27, but he reported $0 outstanding. This would imply a payment was made, but never reported.
• Senator and Lieutenant Governor-elect Dan Patrick’s campaign and PAC both have problems. In the 2008 January Semiannual report, Patrick’s campaign reported that he received unitemized loans of $119,671 during that time period. This would mean at least ~2,400 individuals loaned his campaign $50 or less, which seems highly unlikely. Patrick’s PAC made a loan payment of $1,725 to Independent Bank but never reported having received such a loan.
• Senator and Comptroller-elect (the next chief accountant for the state) Glenn Hegar reported $25,000 in unitemized loans during the 2005 July Semiannual period. This would mean at least 500 individuals loaned his campaign $50 or less, which also seems highly unlikely. He also made two payments totaling $112,000 to Dara Hegar but never reported receiving any loans from her.
• Senator and defeated gubernatorial candidate Wendy Davis showed loan payments for a vehicle loan in the amount of $4,620.45, but never recorded receiving any such loan.

Four South Texas legislators have been receiving loans from a bank that has had past relationships with the Mexican drug cartels. Sen. Eddie Lucio Jr and Reps. Bobby Guerra, Rene Oliveira, and Richard Raymond received a total of $435,000 in loans from the International Bank of Commerce (IBC). In the mid-1990’s, managing directors at the IBC were found to have laundered millions for the drug cartels during Operation Choza Rica.

Many legislators have been reporting loans payments to themselves without ever recording any corresponding loans. Examples include:

• Matt Shaheen paid himself $35,000 with no recorded loans. Update: After acquiring Rep. Shaeheen’s reports from his tenure as a Collin County Commissioner, Hardhatters.com discovered that he had made $427,000 in unitemized loans and $427,000 in itemized loans ($854,000). His most recent report shows a loan balance of $0. The total payments of $35,000 remains the same. They corrected their report to display these updated numbers.
• Paul Workman paid himself $100,000 with no recorded loans.
• John Raney paid himself $20,000 with no recorded loans.

Others have reported enormous amounts of unitemized loans, in some case in the millions. Examples include:

• Borris Miles reported unitemized loans over many different periods in various amounts totaling $3,005,000. This would mean at least 60,100 individuals loaned his campaign $50 or less. He has only made $47,383 in loan payments and shows a loan balance of $704,600.
• Jim Keffer repeatedly reported unitemized loans of $20,000 during various periods in the amount of $220,000. He has made only $29.500 in payments and currently shows a loan balance of only $25,000.
• Ken King’s PAC, Friends of Ken King, reported unitemized loans of $125,000, $300,000, and $100,000 during three different periods. He has never recorded a loan payment but shows a loan balance of $0.
• Carlos Uresti reported unitemized loans over many different periods in various amounts totaling $243,569.52. He has only made payments of $106,093.50 and shows a balance of $222.49.

Others still are failing to report payments to themselves. Examples include:

• Angie Chen Button shows a $0 loan balance but should have $230,000 of loans from herself remaining on the books.
• Kelly Hancock’s campaign and PAC both show a $0 loan balance but should have $65,000 and $75,000 of loans, respectively, remaining on the books.
• Craig Estes shows a $0 loan balance but should have $398,200 of loans from himself remaining on the books. No payments were ever reported.
• Joan Huffman’s campaign shows a $0 balance and reported only $500,000 in loans from Amegy Bank National Association, yet reimbursed herself $770,000 for personal loans that were not reported.

Finally, legislators have been reporting large amounts of loans outstanding but are not recording an equal amount in loans. Examples include:

• Kel Seliger has reported receiving a total of $475,258.45 in loans, including $100,000 in unitemized loans. but shows a loan balance of $1,391,356.70.
• Greg Bonnen’s PAC, Friends of Greg Bonnen, reported receiving a total of $425,000 in loans but shows a loan balance of $450,000.

In total, 20 Senate and 80 House campaigns and PACs were found to have accounting errors relating to just the loan accounts. In a large number of these cases, the discrepancies were substantial. If our state officials want to begin things right for the upcoming 84^th Legislature, an immediate audit of all campaigns and PACs relating to members of the Texas Legislature should be implemented by the TEC. After all, if any of these reports were handed to the IRS, an audit would be practically guaranteed. Unfortunately, the only way any investigation would take place is if a private individual or group filed a complaint during a non-election period. However, legislators like Rep. Cecil Bell have commented that they want to make it harder for complaints to be filed against them. The TEC serves the incumbents ultimately, for they write the rules and set the TEC’s budget.

Click HERE to view the full report.