making local government more ethical

New Orleans Mayor's Indictment Shows Weakness of the City's Ethics Program

The FBI had to work hard for years to get a grand jury indictment of former New Orleans mayor Ray Nagin yesterday (a searchable PDF of the indictment is attached; see below).

A lot of what occurred could have been stopped a long time ago if the city and state had better ethics laws and the city's ethics board was able to initiate complaints and hold public hearings on ethics issues that came to its attention. It appears that every time I read the indictment of a mayor or council member, the misconduct is such that a good ethics program might have prevented it from ever occurring. That's why, unlike many in the good government world, I don't cheer when I see another indictment. I see it as unfortunate. Lives were ruined and the public trust was undermined because simple ethics reforms were not instituted and an ethics commission did not do its job.

When I read about the indictment in an article in yesterday's New Orleans Times-Picayune, the two words that jumped into my mind were "no-bid" and "indirectly." The word "no-bid" appears twice in the article, but "indirectly" does not appear at all. In the indictment, neither word appears. But if the ethics program had dealt with just these two words, all of this would have been dealt with years ago.

Over three years ago, I wrote about the word "indirectly" with respect to misconduct that ended up being one of the counts in the indictment. Two trips taken by Mayor Nagin and his family were funded by a firm owned by a city technology vendor's owner. But the law only prohibits taking money from a contractor or the owner of a contractor directly. If the owner of the contractor makes the gift through a different company he owns, even if the company was formed solely for the purpose of making the gift, that's okay by Louisiana law. Why? Because the gift law does not use the word "indirectly." Three little words are all that's needed (see the City Ethics Model Code gift provision for the wording).

A complaint was filed with respect to this gift, but since it fit the loophole, all the mayor learned is that he could get away with doing things indirectly. Payments from one contractor were indirected through a board member (who is now in prison); another contractor set up a sham company that bought an interest in the mayor's family company, as a way of making payments indirectly to the mayor; another contractor's payment for the mayor's family to go to New York City was indirected through a third party; and another contractor created several companies to make it look like the technology office was spreading contracts around.

In other words, "indirect" is not good, as the state's gift provision suggests. It is fraudulent. An indirect gift is actually worse than a direct gift, not better. This is why a poorly written gift provision provides guidance not in how to act responsibly, but in how to act irresponsibly. Instead of a quick finding of an ethics violation or, better yet, the prevention of misconduct, you end up with years of investigations and a lot of people going to prison for fraud, seriously undermining the public trust.

No-Bid Contracts
Local governments need to recognize that the kickbacks Mayor Nagin has been indicted for are synonymous with no-bid contracts. A city that allows officials to make or sponsor no-bid contracts is a city that allows kickbacks. Any statement to the contrary is either dishonest or naive.

The indictment simply says that Nagin "awarded" contracts. A mayor should not award contracts. This should be done solely by a procurement office.

Procurement laws should prohibit no-bid contracts and require officials to seek waivers by going to the ethics commission or another independent body, before which, in a public hearing, they must provide a detailed explanation of the extraordinary circumstances that require a no-bid contract, fully answering all questions directed to them by the ethics commission and by citizens. All alternatives to a no-bid contract should be considered. The body may deny the waiver, allow the waiver, or allow the waiver with requirements such as regular reports and annual requests to renew the contract.

The contractor who set up a sham company to invest in the mayor's family company "received numerous no-bid design and engineering contracts from the city," according to the Times-Picayune article. And the contractor who paid for the mayor's family trips, which led to my 2009 blog post, received numerous no-bid technology contracts approved by the mayor.

Initiating Investigations and Hearings
Besides good laws, an ethics commission needs the authority to initiate an investigation when its members read in the newspaper or are told via a hot line about ethical misconduct. When the misconduct is legal, the ethics commission needs to call a public hearing (whether authorized or not) to consider the issue, ask questions of the officials involved, and recommend changes to the ethics or procurement laws in order to prevent such misconduct in the future.

If Nagin had it to do all over again, now that he has been indicted and will likely go to prison, wouldn't he prefer having had (or made) a good government ethics program that would have stopped him many years ago? Why do so many officials not see that a good government ethics program will protect them or — if they believe absolutely in the strength of their integrity and knowledge of right and wrong — at least their weaker colleagues, and the public?

Robert Wechsler
Director of Research, City Ethics