30
Jun
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De Blasio’s legal defense fund may raise more conflict questions





New York City Mayor Bill de Blasio is pictured. | Getty

At a press conference this week, de Blasio wouldn’t commit to setting up the fund in a way that limits people with business before the city from giving to the fund. | Getty

Mayor Bill de Blasio could use city money to pay his legal bills in connection with ongoing state and federal probes involving his fundraising efforts. He’s decided not to, instead vowing to set up a separate legal defense fund to raise money to pay off his bills.

But good government officials and election lawyers say legal defense funds can raise more conflicts of interest than simply spending taxpayer dollars on legal defense, opening the mayor up to the same kinds of questions about donor influence and campaign contribution limits that led to the criminal probes in the first place.

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De Blasio has been under scrutiny for nearly a year for his campaign and nonprofit fundraising, the subject of separate probes by both the Manhattan U.S. Attorney’s Office and the Manhattan District Attorney’s Office. Part of what investigators are looking into is whether any donors to de Blasio’s campaign or nonprofit received any benefits from the city in exchange for their support.

The city could wind up paying $11.6 million in taxpayer funded legal defense contracts with outside law firms related to the probes. But that price tag doesn’t include de Blasio’s own legal bills. He’s being represented by the law firm of Kramer, Levin, Naftalis and Frankel, and hasn’t been billed by the law firm for months. NY1 reported Wednesday that de Blasio spent much of the day at his lawyers’ Midtown offices in a meeting.

“All legal efforts on my behalf are not paid for by the taxpayer, as opposed to other city employees. That’s money that will have to be raised. So that’s the reality, because I guess you didn’t know, I’m not a billionaire like my predecessor,” de Blasio said earlier this month.

At a press conference this week, de Blasio wouldn’t commit to setting up the fund in a way that limits people with business before the city from giving to the fund.

“We’re going to set up a clear standard that’s fair and avoids conflicts,” he offered. “But I’m not going to go into detail because that’s going to take a lot of work, a lot of lawyers figuring out what’s the right way to do things.”

The mayor is “allowed to use taxpayer funds for lawyer compliance work related to city business, just as any employee would be,” his spokesman Eric Phillips told POLITICO New York. But he has “chosen not to bill taxpayers for these expenses.”

The potential for a lack of transparency has some good government groups on edge. De Blasio “has to bend over backwards to make this as open and transparent a legal defense fund as possible, and get it blessed by the relevant authorities,” said Blair Horner, of the New York Public Interest Research Group. “Otherwise he’s just waving a red flag at the bull known as the U.S. attorney.”

In setting up his fund, De Blasio can draw upon examples from politicians across the country. Former Detroit mayor Kwame Kilpatrick, former Alaska governor and vice-presidential candidate Sarah Palin, former congressman Charlie Rangel and New Jersey Sen. Robert Menendez have all set up some kind of legal defense fund to help pay their legal costs.

Election lawyers who spoke with POLITICO New York said the mayor could structure the fund as a trust fund, essentially a bank account whose donors wouldn’t have to be disclosed and wouldn’t be subject to any kind of donation limits or rules dictating who can give.

That type of structure has been used in New York.

When facing trial soon after he left office in 2008, former state Senate majority leader Joe Bruno helped cover his own bills through a defense fund that brought in roughly $1 million without disclosing its donors. Court documents in the unrelated arrest of his successor, Dean Skelos, revealed that $200,000 of the money in his legal defense fund came from Glenwood Management, the developer whose payments to state officials played a key role in the trials of Skelos and former Assembly speaker Sheldon Silver.

Former Republican state senator Guy Velella set up a legal defense fund as he faced federal corruption charges in 2004, but suspended it shortly after it was created, amid criticism that donors could be seeking favors in return. So did former Democratic state senator Hiram Monserrate, who created his own legal defense fund as he faced assault charges in 2009. Monserrate’s fund, which did not disclose its donors, was roundly condemned by good government groups, and at least one Democratic lawmaker introduced legislation attempting to force any donors to such funds be disclosed.

A legal defense fund can also be set up as a nonprofit, typically a 527 fund, which reports to the IRS and whose donors are required to be made public. A 527 fund isn’t subject to donation limits, and may also help politicians avoid significant tax liabilities if donations to the fund are counted as gross income. Politicians like Menendez, who is accused of corruption, and former senator John Ensign, accused of violating Senate ethics rules and federal lobbying and employment laws, set up 527 funds to raise money for their legal defense.

De Blasio and his re-election campaign have declined to detail how they’ll structure the fund or when it will be created. A spokesman for de Blasio’s re-election campaign declined to comment for this story.

“People who are donating to this legal defense fund to the mayor may have business before the government,” Horner said. “How is he going to deal with that?”

Another New York City lawmaker’s experience might be instructive in de Blasio’s case. Staten Island City Councilwoman Debi Rose set up a legal defense fund several years ago to help pay legal bills related to her 2009 campaign for Council, in which her campaign was accused of financial improprieties. She herself was never charged with anything.

In an advisory opinion which has not been made public, the City’s Conflicts of Interest Board decided that Rose’s fund would be required to operate under the same contribution restrictions as a New York City campaign, and the fund’s donors are disclosed biannually by the City’s Conflicts of Interest Board.

City Comptroller Scott Stringer said last week that de Blasio should seek approval from the COIB before setting up any legal defense fund.

After the 2009 city elections, in a post-election report, the City’s Campaign Finance Board said that separate legal defense funds are very rare and should fully disclose their funders and expenditures in the same way campaign accounts do.

“In a very few cases, candidates have used trust accounts or separate political committees for the purpose of paying off debts to the CFB. The contributions raised by these entities are not fully disclosed to the public, and are not subject to the Act’s contribution limits and source restrictions. These contributions are yet another way for contributors to seek influence with a candidate,” the report said.

At the time, the Board was also weighing whether to recommend the city change its laws to allow for the creation of legal defense funds that would have required all such funds to disclose their donors and expenditures.

“The Board believes that all fundraising for the purpose of paying off debt arising from a political campaign should be fully disclosed, and should be subject to the same contribution limits and restrictions that apply during the election,” the report said.

No such law was ever passed.

Bill Mahoney contributed to this story.