The Daily Item
By Kimberly Kindy, David S. Fallis and Scott Higham
(c) 2012, The Washington Post.
WASHINGTON — A California congressman helped secure tax breaks for racehorse owners — then purchased seven horses for himself when the new rules kicked in.
A Wyoming congresswoman co-sponsored legislation to double the life span of federal grazing permits that ranchers such as her husband rely on to feed cattle.
And a Pennsylvania congressman co-sponsored a natural gas bill as Exxon Mobil negotiated a deal that paid millions for his wife's shares in two natural gas companies founded by her great-great-grandfather.
Those lawmakers were among 73 members of Congress who have sponsored or co-sponsored legislation in recent years that could benefit businesses or industries in which either they or their family members are involved or invested, according to a Washington Post analysis. The findings emerge from an examination by The Post of financial disclosure forms and public records for all 535 members of the House and Senate.
The practice is both legal and permitted under the ethics rules that Congress has written for itself, which allow lawmakers to take actions that benefit themselves or their families except when they are the lone beneficiaries. The financial disclosure system Congress has implemented also does not require the legislators to identify potential conflicts at the time that they take official actions that intersect or overlap with their investments.
Members of Congress contact the House and Senate ethics offices thousands of times each year to seek legal advice on a range of activities, including their work on legislation that might pose a conflict. Between 2007 and 2011, lawyers for the two committees issued at least 2,800 written opinions to lawmakers, sent 6,500 e-mails containing advice and provided guidance over the phone 40,000 times, according to records kept by the two committees.
The committees rarely discipline their own, instead providing advisory opinions that generally give support and justification to lawmakers who take actions that intersect with their personal financial holdings, according to interviews with nearly a dozen ethics experts and government watchdog groups. And though Congress has required top executive branch officials to divest themselves of assets that may present a conflict, lawmakers have not asked the same of themselves.
Congressional ethics experts say reforms are needed.
Harvard public policy professor Dennis Thompson said lawmakers should refrain from having narrowly focused legislative agendas that align with their personal investments. Disclosure should also be broadened, he said, so the public is notified by a lawmaker of potential conflicts at the time they are taking official actions, including when bills are introduced.
"Ethics rules are supposed to make things clear and transparent," Thompson said. "They should not require the public or the media to go digging around to make the connections."
The legislators, in interviews and through spokesmen, said they saw no conflicts between their legislative actions and holdings. They added that they have a duty to advocate for their constituents, even when those interests align with their own.
Last year, for example, when Republicans attempted to slash funding for public broadcasting, Rep. William L. Owens, D-N.Y., was among a group of Democrats who fought to stop them. Owens's wife is an executive at a public television station, one of nine public TV and radio outlets that broadcast into his district in upstate New York. Owens disclosed her job when he spoke briefly on the House floor opposing the proposed cuts.
"From my perspective, I was representing nine entities," Owens said in an interview. "It wasn't like I was asking for a specific item for the entity my wife worked for."
For three years, the horse-racing industry tried but failed to get Congress to pass a bill that would change the way equine investments are tabulated at tax time. But in the spring of 2008, a new path opened up when then-Rep. Dennis Cardoza, D-Calif., was appointed to a conference committee responsible for hammering out the final language of the next farm bill.
Within weeks, the bill emerged with a new provision that handed the industry what it was seeking — a tax depreciation schedule for yearlings that gave owners the ability to recoup the cost of their investments in an average of three years rather than seven. Alex Waldrop, president and chief executive of the National Thoroughbred Racing Association, publicly thanked several lawmakers, including Cardoza, after the new version of the farm bill emerged from the conference committee.
When the new depreciation schedule kicked in the following year, Cardoza entered the industry, buying seven racehorses, including Regrettable Romance, Dad's Little Man, Flying Spirit and Jade River.
"I have loved horses since childhood and regularly watched horse racing with my mother," Cardoza, who resigned from Congress in August, said in an e-mailed statement. "She passed away in 2007. I used some of my inheritance in 2009 to purchase animals that were a shared passion for us."
After the horse purchases, in 2009, Cardoza joined the Congressional Horse Caucus and started holding his political fundraisers at racetracks. He also co-sponsored legislation in 2009 that sought to reduce the taxes winners must pay on big purses at racetracks. The bill did not become law.
After purchasing his first racehorse, Cardoza said, he and his staff sought opinions from the ethics committee on any actions he took that might affect the industry.
"My staff routinely checked in with the committee to ensure all of my activities and interests were completely without conflict," Cardoza said in an e-mailed statement.
The Post asked for copies of any written opinion, but Cardoza declined to say whether the ones he received were written or oral. Such opinions are not subject to public records laws.
He said he did not think his work on the farm bill in 2008 presented a conflict, because he did not own any racehorses at the time. He said the bill he introduced after he began buying racehorses in 2009 would have "treated all bettors the same" and was aimed at helping the bettors, not the horse industry.
In 2011, Cardoza joined the board of directors of the Thoroughbred Owners of California, a group that advocates on behalf of the racehorse owners in the state.
"I sought an opinion from the House Ethics Committee before joining the not-for-profit TOC," Cardoza said.
He acknowledged that he went to the California statehouse to talk to industry groups and lawmakers about state-level legislation that affects the industry, actions previously reported by the nonprofit group California Watch. The story raised questions over whether the activities constituted a conflict of interest. Cardoza said he was just "visiting friends" and his actions did not amount to lobbying.
In his role with the thoroughbred owners, Cardoza led the effort last year to create a coalition called Horse Racing United to lobby the California legislature on racing issues. Cardoza said he is no longer involved with the coalition's efforts in the California statehouse.
"I encouraged various California horse racing industry groups to come together and stop infighting and to form a loose affiliation called Horse Racing United," Cardoza said. "Once the groups came together, I didn't participate any further."
Cardoza left office to take a job in the Washington, D.C., offices of a large lobbying firm, Manatt, Phelps & Phillips, whose client list is broad and in recent years has included gambling companies that own racetracks, lobbying records show.
In 2010, he reported earning between $55,006 and $175,000 from six of his 13 horses, which raced in California and Maryland. Cardoza said he currently has five horses and none of them are racing.
When the House and Senate wrote their first set of modern ethics rules in the 1970s, in response to the Watergate scandal, they expressly prohibited members from engaging in legislative activities that would financially benefit them. But both chambers immediately carved out exemptions to the rule.
The greatest latitude was provided to lawmakers whose business interests aligned with major industries within their home states. "If a dairy farmer represented a dairy farming state in the Senate, and introduced, worked for, and voted for legislation to raise or maintain price supports for dairy producers, he would not fall under the strictures of this rule," the Senate ethics manual says.
Dozens of lawmakers identified in the Post analysis fell into this category. In interviews, prepared statements and on their congressional Web sites, lawmakers routinely pointed to their home states' needs as the driving cause for their legislative agendas.
For example, Rep. Cynthia Lummis, R-Wyo., owns between $1 million and $5 million in her family's livestock business in Wyoming, where the state animal is the bison and cattle ranches dot the landscape.
She is one of 15 lawmakers co-sponsoring a bill that would double, from 10 years to 20 years, the duration of federal grazing permits for livestock that feeds on publicly held lands. Her husband, records show, holds a permit through 2017 to graze cattle on 675 acres of federal land.
Last year, Lummis also introduced a bill that seeks to change how cattle prices are negotiated to ensure, she says, that ranchers and farmers are fairly compensated. She is also one of the co-sponsors of a bill to exclude livestock manure from being defined as a hazardous substance.
All three bills are pending.
In an interview, Lummis said she that did not seek guidance on the bills from the ethics committee but that she thinks her actions present no potential for conflict.
The livestock marketing bill, she said, would force slaughterhouses to be more transparent about their pricing but would have no financial bearing on her family's large ranching operation. The bill to exclude manure would primarily affect producers who confine their livestock, unlike her family's open-range ranch near Cheyenne, Lummis said.
The bill to lengthen federal grazing permits could benefit her husband, she said. Her husband feeds a dozen or so cattle on federal lands that adjoin one of their ranches, she said. However, she said, that operation is "inconsequential" compared with the 500 to 1,500 cattle sent to market annually from the family's main ranch 90 miles away.
"There are so many more ranchers that I represent that have substantial [federal] leases that are integral and important to the financial viability of their operations," she said. Not pushing for longer leases, she said, "would be unfair to the people I represent."
In Alabama, timber production is one of the state's largest industries, and timberland is one of Sen. Jeff Sessions's larger assets. Efforts by Sessions, R-Ala., to reform outdated timber tax laws have been to help the state's economy and U.S. industry in general, a spokesman said.
In 1999, Sessions sponsored the Timber Tax Simplification Act, a proposed law to revamp how the federal government taxes timber sales. The tax bill finally passed in 2004 as a Senate floor amendment to the American Jobs Creation Act.
"This modest change in the law will allow timber owners to get more timber to the mill without paying unnecessarily high tax rates on their harvest," Sessions said then in a news release.
Sessions at the time owned 40 acres of timberland in western Alabama worth between $50,000 and $100,000. In 2009, he inherited from his mother and aunt 1,100 acres of timberland valued at the time between $1 million and $5 million. Last year, he reported earning between $115,000 and $1,050,000 from the sale of timber.
From 2005 through 2009, Sessions sponsored or co-sponsored three other bills promoting tax reforms generally related to timber.
Sessions, through his communications director, Stephen Miller, declined a request for an interview. But Miller said in a statement that timber is critical to Session's constituents and the senator's support to reform the tax code is in line with his broader goals to promote domestic industry and jobs nationwide. His efforts have had bipartisan support and were necessary for timber states, including Alabama, because of changes in forestry management, Miller said. He said the family timber holdings had no bearing on the senator's actions.
Sessions has adhered to all Senate ethics rules and principles and did not seek an ethics opinion because the rules were clear, Miller said.
"The Senator's reform efforts with respect to timber are part of a larger, broader effort to ensure the competitiveness of American industry and to defend the American worker on the world stage," he said.
After Rep. John Yarmuth, D-Ky., took office in 2007, he asked the House Ethics Committee whether he could vote on legislation that might affect his personal holdings, including an investment worth as much as $5 million in his brother's home health-care business, Louisville-based Almost Family. The panel advised he was prohibited from actions that would benefit his assets in a "direct and distinct manner, rather than merely as a member of a class." Otherwise, the committee said, he had a duty to vote.
In office, Yarmuth joined the congressional Home Health Caucus, a group of two dozen lawmakers that promotes the value of in-home health care.
He also has helped co-sponsor a handful of bills of interest to the industry, including the Home Health Care Planning Improvement Act. That pending bill would expand the number of health professionals who can refer patients to home health care. And, in May, Yarmuth co-sponsored a legislative amendment to block across-the-board Medicare cuts to providers, including home health aides. The effort failed.
Yarmuth declined to be interviewed through a spokesman, who said the congressman's policy since his 2011 appointment to the House Ethics Committee was not to comment on issues that could relate to committee business. But his communications director, Stephen George, said the lawmaker has avoided conflicts of interest and adheres to the ethics committee's guidance. During congressional matters involving home health care, Yarmuth has disclosed his investment.
"None of the bills that Congressman Yarmuth has co-sponsored has or would directly benefit Almost Family or even only private home health-care companies," George said. "His support for each is consistent with his longtime interest in and strong advocacy for health-care reform, as well as the interests of his constituents and the significant health-care industry in Louisville."
He added: "All these bills are about improving care for patients, not special tax treatment or increasing the bottom line for the home health industry."
Yarmuth's ties to Almost Family date to the late 1970s, when he invested in his brother's firm. In the late 1980s, Yarmuth served as its vice president of marketing. He values his share of Almost Family at between $1 million and $5 million and reports no annual income from it. His 2010 opponent asked during a debate if the investment posed an ethical conflict, the Courier-Journal in Louisville reported. Yarmuth said there was no conflict.
Almost Family is one of the nation's largest home health firms and employs about 9,000 people across 11 states. The firm spent more than $500,000 lobbying Congress and regulators in the past two years. Almost Family chairman and chief executive William Yarmuth said his company is "part of the industry efforts in Washington," but he "rarely" speaks to his brother about legislation. "Most of my interactions are with other members of Congress," he said.
The company is a member of the industry's largest trade group, the National Association for Home Care and Hospice, which has lobbied on five bills John Yarmuth has co-sponsored. The group said it supported three of those bills and opposed all or parts of the other two. The group's president said they have had "little interaction" with Yarmuth on legislation.
George said Yarmuth has met occasionally with Kentucky-based home care providers, but the congressman does not discuss legislation with his brother and has had little contact with the representatives from home health trade groups or lobbyists.
Yarmuth joined the Home Health Caucus as a "symbolic way to show support for the industry," George said. He said Yarmuth signed a caucus letter opposing further cuts in Medicare to home health but described his role otherwise as "almost entirely aesthetic."
In some cases, Yarmuth's legislative actions have run counter to the home health-care industry's broader interests, George noted. One of Yarmuth's most significant legislative actions was to help draft and pass the Patient Protection and Affordable Care Act. The law overhauling health care hit the home-care industry hard with reduced reimbursement rates and new rules.
In a congressional hearing last year on the new law, Yarmuth quizzed an official from the Centers for Medicare and Medicaid Services about its fiscal impact on health-care providers.
"I have a vested interest in this. I admit, my brother runs a home health-care company. I am a stockholder. I have to make that clear," Yarmuth said. "But back in the late 1990s, there was a severe drop in the reimbursement to home health-care companies. About half the companies in the country went out of business."
When Rep. Mike Kelly, R-Pa., was elected to Congress in 2010, he and his wife owned shares in two privately held natural gas companies, Phillips Resources Inc. and TWP Inc. They were founded by his wife's great-great-grandfather. When Kelly filed his candidate papers, he listed his shares at a relatively modest level — between $2,000 and $30,000. His wife's shares were valued at between $1.5 million and $6 million.
At the time, big energy firms were eyeing the two companies, which had a leasehold on 317,000 acres in the gas-rich Marcellus Shale basin, industry and shareholder reports show.
The couple made between $10.1 million and $50.2 million when Exxon Mobil bought the companies in June 2011.
An Exxon Mobil subsidiary is now at the basin using hydraulic fracturing — commonly referred to as fracking — to break apart the shale and free the gas by injecting large volumes of water, sand and other chemicals.
Kelly and his wife, Victoria, also continue to be partners in two other natural gas companies: Campbells Gas Partners and PC Exploration Ltd., which also have land along the Marcellus Shale, records show. The couple earned between $37,000 and $100,000 from their holdings in 2011, Kelly's latest disclosure statement shows.
Both as a candidate and congressman, Kelly has taken a high-profile stand in favor of Marcellus Shale gas development.
"We are poised to be on the forefront of the new energy economy thanks not only to our rich history but also to our proximity to large deposits of natural gas known as Marcellus Shale," Kelly's campaign website said.
After he was elected, Kelly joined more than a dozen caucuses, including the Marcellus Shale Caucus, which held its organizational meeting on April 1, 2011.
Six days later, he voted for a bill to bar the Environmental Protection Agency from regulating greenhouse gases, which passed the House but not the Senate. Some scientists have warned that large quantities of greenhouse gases can be released during fracking.
The following day, April 8, an opinion piece by Kelly appeared in a local newspaper. Kelly wrote that "burdensome" regulations in Washington were impediments and emphasized the economic benefits to the region. "Reports have shown that for each mile of pipeline throughout the Marcellus Shale, nearly $1 million is poured into Pennsylvania's economy," he wrote.
Kelly did not disclose on his website or in the opinion piece that he held a financial stake in such endeavors.
In two congressional hearings in May, he railed against the EPA for efforts to regulate the industry and for investigating concerns about water contamination in relation to fracking. He thinks such work is better handled at the state level.
In June, his co-sponsorship of a natural gas bill — pushed by business magnate T. Boone Pickens — became an issue. The legislation would have provided between $5 billion and $9 billion in federal tax credits for a variety of initiatives to increase the number of passenger vehicles and long-haul trucks powered by natural gas.
The American Conservative Union and tea party groups launched an intensive lobbying effort to kill the bill, calling it a "boondoggle" as they attacked lawmakers, including Kelly, who had campaigned on a message of fiscal conservatism and promised to reduce government spending. Kelly withdrew his support, along with a host of other Republican lawmakers, and the bill died.
That same month, Exxon Mobil bought Phillips Resources and TWP for $1.69 billion. Kelly and his wife received their payments from the company the following month, according to Kelly's accountant and financial disclosure statements.
Kelly and his wife continued to be partners with the two other gas companies, and his efforts to promote Marcellus Shale natural gas development have also continued.
In October, Kelly was the lead signatory on a three-page letter from the Pennsylvania delegation to the White House about four federal agency studies on fracking and the environment. "We are concerned that the economic benefits of shale gas to ordinary citizens in states such as Pennsylvania and across the country are not part of the discussion," the letter said.
In a prepared statement, Kelly's chief of staff, Matthew Stroia, said the lawmaker has followed all rules and laws set by Congress regarding public disclosure of assets and conflict of interest.
Stroia said Kelly has completed ethics training as a newly elected member of Congress, reviewed the House's ethics rules and sought "informal" guidance from the ethics committee.
"Rep. Kelly rejects any insinuation that his motives are anything other than to get Americans back to work and pursue policies that will help lead to our country's economic turnaround and energy independence," the statement said. "Rep. Kelly did not run for political office for a career or personal gain but for a cause."
Bobbye Pratt and Dan Keating contributed to this report.