When Do Personal Financial Interests Prohibit Earmarks?

Posted August 1, 2008 at 4:54pm

Q:
I am a staffer for a Member of the House and am responsible for her earmark requests. For years, she has obtained earmarks that specifically benefit a company that is a major employer in her district. Recently, the company acquired a corporation in which my Member’s husband holds stock. He received the stock as a gift from his godparents when he was a child, and he has held it ever since. Because the acquisition was paid for by stock, he is now a stockholder in the company that has been the subject of my Member’s earmark requests. I know that the new rules prohibit a Member from requesting an earmark that benefits the Member’s spouse. In light of those rules, if her husband keeps the stock, must she stop requesting earmarks that benefit the company?

[IMGCAP(1)]A: In early 2007, as part of its ethics overhaul, the House added a clause to the Code of Official Conduct providing that when Members request certain fiscal legislative provisions, they must certify that they have no financial interest in the provision. Clause 17 of House Rule 23 applies anytime a Member “requests a congressional earmark, a limited tax benefit, or a limited tariff benefit in any bill or joint resolution (or accompanying report) or in any conference report on a bill or joint resolution (or an accompanying joint statement of managers).” In such a case, the Member must certify that neither the Member nor Member’s spouse has a “financial interest in such congressional earmark or limited tax or tariff benefit.”

Your question turns on what counts as having a “financial interest” in an earmark. But, before turning to that, there is a threshold issue to consider. What qualifies as an “earmark” that triggers the certification requirement in the first place? According to the House Ethics Manual, it is up to the committee with jurisdiction over a particular fiscal legislative provision to determine whether it triggers the certification requirement. So, the first thing to do is to check with the relevant committee whether the certification requirement even applies.

Assuming it does apply, before your Member can certify that her husband has no “financial interest,” you need to understand what the term means. The ethics committee’s general guidance is that a Member’s spouse has financial interest in an earmark when “it would be reasonable to conclude” that the earmark would have a “direct and foreseeable effect” on the spouse’s pecuniary interests. On the other hand, a financial interest does not include “remote, inconsequential, or speculative interests.” As for specific application, the manual states that the answer depends on the specific facts of the proposed provision and the spouse’s personal financial circumstances.

In a letter to the House ethics committee last week, Rep. Jerry Costello (D-Ill.) requested an advisory opinion regarding earmark requests for Southwestern Illinois College, where his wife recently became president. The letter said that his wife’s salary and benefits are established by a three-year contract and that her compensation is therefore not contingent upon any standards relative to revenue, grants or funding for the college. The letter also stated that Costello has requested earmarks for SWIC in the past. As Costello told Roll Call: “I don’t believe that the college should be penalized because my wife is the new president.”

Similarly, your Member might argue that the company in her district that has benefited from earmarks in the past should not now be penalized just because your Member’s husband has, through no action of his own, come to own stock in it. However, while previous ethics committee guidance suggests that Costello will likely be permitted to continue his earmark requests, your Member might not.

In Costello’s case, the ethics committee has previously approved requests very similar to his. Last year, the committee advised Rep. Robert Andrews (D-N.J.) that his wife did not have a financial interest in certain earmarks for Rutgers University even though she was dean of enrollment at Rutgers’ law school. The committee stated that a Member’s spouse may have a financial interest in an earmark benefiting her employer when the spouse holds an ownership interest in the employer, when the earmark would affect the spouse’s salary, or when the existence of her position would be affected. Because none of those factors was present in Andrews’ case, the committee concluded there was no financial interest. The committee is likely to reach a similar conclusion regarding Costello’s request.

Your Member’s case is different. The ethics manual specifically addresses stock ownership. On the one hand, it says that if a Member requests an earmark in a certain company, the Member would not have a financial interest merely because the Member owned shares in a mutual fund that happened to include stock in the company. On the other hand, the manual says, “direct ownership of stock” in the company likely would constitute a financial interest.

Here, your Member’s husband’s direct ownership of stock in the company suggests that he would have a “financial interest” in an earmark for that company. Ultimately, though, only the ethics committee can say for sure. While the ethics manual states that in the “great majority of cases” Members should readily be able to answer the financial interest question, Members also should consult with the committee with any questions. I suspect that either the earmarks or the husband’s stock must go.

C. Simon Davidson is a partner with the law firm McGuireWoods LLP. Click here to submit questions. Readers should not treat his column as legal advice. Questions do not create an attorney-client relationship.