HomeMy WebLinkAbout88-005 KeislingMr. William Keisling
Executive Assistant to the
Governor and Chief of Staff
Commonwealth of Pennsylvania
Governor's Office
Harrisburg, PA 17120
Dear Mr. Keisling:
I. Issue:
STATE ETHICS COMMISSION
308 FINANCE BUILDING
HARRISBURG, PENNSYLVANIA 17120
OPINION OF THE COMMISSION
DATE DECIDED 6/10/88
DATE MAILED 7/21/88
Re: Supplemental Pension Allowance Agreement, Executive
Assistant to the Governor, Chief of Staff to the
Governor, Harristown Development Corporation
This responds to your request for the opinion of the State
Ethics Commission.
Whether the State Ethics Act presents any prohibition or
restrictions upon the Executive Assistant and Chief of Staff to
the Governor relating to his receipt of a supplemental pension
allowance from his former employer, a non - profit corporation
which leases office space to the Commonwealth of Pennsylvania.
II. Factual Basis for. Determination:
88 -005
By way of letter dated March 16, 1988, you requested the
opinion of the State Ethics Commission in relation to the above
stated issue.
In your opinion request, you state that you worked on the
redevelopment of downtown Harrisburg for eighteen years: twelve
years as Chief Executive Officer of Harristown Development
Corporation, hereinafter HDC, and six years in directing the
predecessor planning organization. In the summer of 1986, you
state that you decided to leave HDC and pursue other activities
but had no interest in state governmental service. You advise
that your vested interest in the standard retirement program of
the HDC would provide you with approximately $135,000.00, which
Mr. William Keisling
Page 2
would generate $11,000.00 a year in earnings based upon a return
rate of eight percent. Since the foregoing would be the total
available to you under the HDC contribution plan, you state that
you decided to negotiate a retirement supplement. After
discussions with the board of directors of HDC, you state that a
retirement supplement in the amount of $330,000.00 was negotiated
with an initial payment of $100,000.00 upon your termination
followed by five annual payments of $46,000.00. You advise that
aside from a non competition provision, you were free to take any
job or resume your education. After noting that the agreement
provided that you would perform occasional consulting services to
HDC without charge in the five year period provided it would not
interfere with any new endeavor on your part, you state that the
above arrangement was agreed to by September 18, 1986. The
September 17, 1986 minutes of HDC provide the following regarding
your "severance allowance ": "...that the corporation pay to Mr.
Keisling a severance allowance of $100,000 and thereafter annual
payments over a five -year period of $46,000 each, in return for
which he would not engage in any activities incompatible with the
corporation's charter purposes or competitive with the activities
of the corporation, and that he would be available to assist the
corporation as a consultant upon request by the corporation, so
long as such consulting services did not substantially interfere
with other reasonable activities or endeavors in which he might
engage." You note that it was publicly announced that you
would leave HDC by June 30, 1987. In this regard, you note that
at the time you decided to leave HDC, you had no contact with
Robert P. Casey in several years and had no participation in the
1986 gubernatorial election campaign. After Robert Casey was
elected Governor, you state that you were asked in December to
serve as his Chief of Staff. After discussing the consulting
services provision in your agreement with then Governor -elect
Casey, and the potential interference of that provision with your
proposed state service, you state that you contacted the HDC
board of directors. They agreed to your leaving in January of
1987 rather than June and to the removal of the consulting
provision but the board reduced the supplemental retirement plan
from $330,000.00 to $250,000.00 with payments extended to a seven
year period. You note that the board of directors of HDC agreed
to your requirement that your action as a state employee could
not be considered as a violation of the no competition provision
of the supplemental pension allowance agreement. As a state
employee, you advise that you have not participated or consulted
in matters involving HDC and cite one particular instance where
you declined involvement regarding an application for state
financial participation in a downtown hotel - development project
in which HDC was interested. You then reference the publicizing
Mr. William Keisling
Page 3
of your supplemental pension allowance agreement and assert that
there is no relation between your agreement and matters
concerning current and former members of the board of directors
of HDC who are involved with state government.
Based upon the foregoing, you ask an opinion of this
Commission regarding your participation in the Supplemental
Pension Allowance Agreement with HDC.
III. Discussion:
As Executive Assistant and Chief of Staff to the Governor,
you are clearly a "public official" as that term is defined in
the Ethics Act and the Regulations of the : State Ethics
Commission. 65 P.S. §402; 51 Pa. Code §1.1. As such, your
conduct must conform to the requirements of the Ethics law.
The relevant provisions of the Ethics Act which now must be
reviewed are subsections (a), (b) and (d) of Section 3, 65 P.S.
§403(a),(b) and (d).
Section 3(a) of the Ethics Act provides:
Section 3. Restricted Activities.
(a) No public official or public employee
shall use his public office or any
confidential information received through his
holding public office to obtain financial
gain other than compensation provided by law
for himself, a member of his immediate
family, or a business with which he is
associated. 65 P.S. 403(a).
It is further provided in Section 3(b):
Section 3(b) of the Ethics Act provides:
(b) No person shall offer or give to a public
official or public employee or candidate for
public office or a member of his immediate
family or a business with which he is
associated, and no public official or public
employee or candidate for public office shall
solicit or accept, anything of value,
including a gift, loan, political
contribution, reward, or promise of future
employment based on any understanding that
the vote, official action, or judgment of the
Mr. William Keisling
Page 4
public official or public employee or
candidate for public office would be
influenced thereby. 65 P.S. 403(b).
Sections 3(a) and 3(b) of the Ethics Act provide that no
public official may use his public office or confidential
information received through his holding public office to obtain
financial gain for himself or a business with which he is
associated and no public official may receive anything of value,
including the promise of future employment, on the understanding
that his official conduct will be influenced thereby. See
Section 3(a) and (b) of the Ethics Act, 65 P.S. §403(a) and (b).
Finally, the Ethics Act provides:
Section 3. Restricted activities.
(d) Other areas of possible conflict shall be
addressed by the commission pursuant to
paragraph (9) of Section 7. 65 P.S. 403(d).
This Commission has applied Section 3(d) to other areas of
possible conflict by referencing the Preamble of the Ethics Act
which declares that public office is a public trust and that a
violation of that trust occurs when a public official realizes a
personal financial gain through public office other than
compensation provided by law. The Preamble further declares
that the people have a right to be assured that the financial
interests of public officials present neither a conflict nor the
appearance of a conflict with the public trust.
In the instant matter, it is necessary to apply the facts to
the provisions of Section 3(a) quoted above. Although you have
indicated that you and the board of directors of HDC had reached
a financial agreement in September, 1986, it does not appear that
such "arrangements" were finalized into a written agreement.
Subsequently, after the 1986 November election, the Governor -
elect asked you to serve as his Chief of Staff in December of
1986, after which you once again entered into negotiations with
HDC which culminated in the January 20, 1987 Agreement. You were
appointed to;your current position on January 20, 1987.
In deciding this matter, we must closely scrutinize the
available facts in order to determine the exact nature of the
payments offered to you by the HDC. Such is essential. to the
appropriate resolution of the question posed.
Mr. William Keisling
Page 5
Specifically, the September 17, 1986 Minutes of the HDC
Board of Directors indicate that the payment to you in the total
amount of $330,000.00 was payable "as a severance allowance of
$100,000 and thereafter annual payments over a five -year period
of $46,000 each, in return for which he would not engage in any
activities incompatible with the corporation's charter purposes
or competitive with the activities of the corporation, and that
he would be available to assist the corporation as a consultant
upon request by the corporation so long as such consulting
services did not substantially interfere with other reasonable
activities or endeavors in which he might engage."
There can be no doubt that the $100,000.00 was clearly to be
a severance allowance. This can not be disputed when one reads
the unambiguous language of the above referenced minutes. It
appears equally clear that a reasonable reading of the above
indicates that the remaining $230,000.00, payable over five
years, was to be in consideration for services rendered by you as
a consultant and for your agreement not to engage in competitive
activities. You subsequently re- negotiated your agreement with
the HDC as a result of your public position.
At first glance, it would appear that the re- negotiated
agreement was to your detriment as you would receive $80,000
less under the second agreement. However, upon a closer review,
it would appear as though the second agreement which was
specifically negotiated as a result of your acceptance of public
employment actually worked to your benefit. This is so in light
of the fact that under the first agreement you were to receive
$100,000 as a severance and $230,000 for services rendered.
Under the second agreement, however, while there was no lump sum
distribution as a severance agreement, you were to receive a
total of $250,000 without the need for rendering any services.
It is important to here note that the originally negotiated
severance and compensation package became a supplemental pension
agreement without further explanation.
Upon a review of all of the factors that have been presented
to us, and the available documents there is no doubt that as of
September, 1986, you had negotiated a severance agreement valued
at $100,000.` This was done well in advance of your actual
public employment and prior to any expectation of such
employment. As such, we do not believe that the payment and
receipt of these funds would transgress the provisions of the
State Ethics Act. Specifically, these negotiations took place
and the agreement was consummated in principle prior to your
expectation of public employment. We thus believe that you would
have been clearly entitled to accept this $100,000 as a
severance payment from your former private employer.
Mr. William Keisling
Page 6
As noted above, we also believe, however, that the
remainder of the $330,000, payable under the first agreement,
was clearly related to services to be rendered and your agreement
not to compete. In January, when you re- negotiated your
arrangement because of your public position, you were no longer
obligated to provide these services and obviously because of your
public employment you were no longer in a position to engage in
activities of a competitive nature. You nevertheless were still
offered $150,000.00 over and above the original amount of the
severance payment ($100,000.00), with no obligations on your
part. This would thus appear to be either a gift or a
subsidization of your public salary. Said funds clearly are not
part of the compensation provided for you by law. Such would
have been accorded to you only as a result of your appointment to
a public .position. The agreement was negotiated' as a result
thereof. As such, we believe that the acceptance of funds as a
subsidy of your public compensation could be considered a
transgression of the aforecited provisions of the State Ethics
Act and such would have been a use of your public position to
obtain a financial gain other than the compensation that was
provided by law.
We take note from the decisions of other agencies and laws
which, while not expressly applicable, are instructive.
The foregoing is consonant with a decision of the Hawaii
State Ethics Commission, No. 553 of April 10, 1985 wherein it
was decided that a private foundation could not provide any
additional benefit to a state employee as part of his salary and
benefits since that would constitute a gift to a state employee.
Likewise, 18 U.S.C.A. 259, a statute only applicable to
federal employees, specifically prohibits a supplementation of
the salary of a federal employee. Even though the federal law is
not controlling in this instance, it is cited to illustrate a
fundamental precept that outside entities should not supplement
the salaries of individuals in governmental service. The danger
in countenancing such subsidies is inherently obvious.
Further, this Commission is not swayed by the mere appending
of a label to this agreement whereby it is termed a supplemental
pension. Form does not control over substance in Pennsylvania.
See Baehr Brothers v. Commonwealth, 487 Pa. 233, 409 A.2d 326
(1979). Since you did not retire from HDC and did not attain
retirement age, the mere label "pension" is a misnomer which is
not supported by the substance of the agreement. The $100,000
payment from HDC due to the occurrence of your termination was a
severance. See E.E.U.C. v. Westinghouse, 632 F. Supp. 343
(1986). The $150,000 additional is a subsidy to your salary as
a public official.
Mr. William Keisling
Page 7
The above analysis is in accord with our decision in
Mazziotti, Opinion 87- 005 -R. In the cited decision, we
determined that Mr. Mazziotti could receive a severance which was
negotiated, effectuated and paid prior to his state service.
Since the $100,000 you received was prior to and apart from your
state service, this is permissible as in Mazziotti, supra.
The receipt, however, of the additional income of
$150,000.00 from HDC to you is not in accord with Section 3(a) or
3(d) of the Ethics Act.
We hasten to note that at this point in time you have only
received two payments of $35,715.00 each. The total
distribution from HDC to you as of this date is $71,430.00.
Pursuant to the agreement of January 20, 1987, you are to
receive additional payments of an equal amount on January 15 of
each year from 1989 through and including 1993. As a result of
the fact that you have, to this point, received only $71,430.00,
we do not believe that there has been an actual transgression of
the provisions of the State Ethics Act and we further believe
that you may, without transgressing the provisions of that law,
receive the remaining funds of the originally negotiated
$100,000.00.
In light of our finding that the $150,000.00 over and above
the severance payment was a subsidy, we do believe that your
receipt of these funds would be contrary to the provisions of the
State Ethics Act as such would have been negotiated and received
as a direct result of your assuming public office. We believe
this conclusion is consistent with the State Ethics Act and our
prior rulings under the State Ethics Act. Thus, as a result, we
believe that you may not accept any funds over and above
$100,000.00 from HDC without incurring a violation of the State
Ethics Act. In order to remain consistent with the provisions of
that law, you may not simultaneously serve as the Chief of Staff
to the Governor and accept funds over and above $100,000.00 from
HDC. You may forego the acceptance of those funds and remain in
your current position. In the event that you choose to remain in
your public position and forego the remaining funds offered to
you by HDC, your conduct must be consistent with prior opinions
of the Stat& Ethics Commission in relation to your dealings with
an entity that has paid you a substantial severance payment. In
this respect, we believe that the restrictions applicable to you
would be those that comport with our finding in Mazziotti,
Opinion 87- 005 -R. As such, if you remain in your public position
and forego acceptance of the funds from HDC which are in excess
of the originally negotiated severance agreement, you must comply
with the following restrictions:
Mr. William Keisling
Page 8
1. You may not participate in any matter which would
result in financial gain to HDC or a member of the
board of HDC.
2. You may not use confidential information obtained in
your public positions to the financial benefit of
HDC or any member of its board.
3. In order to comply with the above noted provisions
appropriate internal administrative steps should be
initiated to insure that you will not participate in
any matter relating to HDC or a member thereof or in
which HDC or a member thereof is involved.
4. In the event that further questions should develop
in relation to your responsibilities and duties within
the parameters of the State Ethics Act and this
opinion, the further advice of this Commission should
be sought.
As to the previously cited Section 3(b) of the State Ethics
Act we do not believe that based upon the facts before the
Commission at this time there is any indication that such has
been implicated.
You should, however, be familiar with the provisions thereof
and insure that your conduct is in accordance therewith.
We believe that such compliance with Section 3(b) can be
insured if you remain in public service by abiding by the
restrictions set forth above.
Finally, we find it imperative to note that we have herein
reviewed this matter only under the facts that were presented to
us and we have only reviewed the narrow issue involving the
nature of your financial arrangement with HDC.
IV. Conclusion:
As Executive Assistant and Chief of Staff to the Governor,
you are a " =public official" subject to the provisions of the
Ethics Act.
Based upon the documents and statements that have been
presented, this Commission finds that $100,000 of the payment by
HDC to you as Governor's Chief of Staff was a severance payment
that was negotiated and agreed to prior to and separate from your
position with the Commonwealth of Pennsylvania. As such, you may
without transgressing the provisions of the State Ethics Act
accept said funds. This Commission further finds that any
Mr. William Keisling
Page 9
payments above that amount would represent a subsidization of
your public compensation which was agreed to be paid as a result
of your obtaining a public office. As such, you may not
consistent with the Ethics Act accept any amount in the future
over and above the $100,000 severance payment. You may forego
acceptance of such additional funds and continue to serve in your
public position. If you forego the receipt of these additional
funds and maintaining your public position, you must comply with
the following restrictions as previously set forth in our opinion
in Mazziotti.
such.
1. You may not participate in any matter which would
result in financial gain to HDC or a member of the
.board of HDC.
2. You may not use confidential information obtained in
your public position to the financial benefit of HDC
or any member of its board.
3. In order to comply with the above noted provisions
appropriate internal administrative steps should be
initiated to insure that you will not participate in
any matter relating to HDC or a member thereof or in
which HDC or a member thereof is involved.
4. In the event that further questions should develop
in relation to your responsibilities and duties within
the parameters of the State Ethics Act and this
opinion, the further advice of this Commission should
be sought.
Based upon the facts as presented and documents before this
Commission at this point in time, we do not believe that Section
3(b) has been implicated.
We do not herein address any other issues except those as
set forth above.
Pursuant to Section 7(9)(i), this opinion is a complete
defense in any enforcement proceeding initiated by the
Commission, And evidence of good faith conduct in any civil or
criminal proceeding, providing the requestor has disclosed
truthfully all the material facts and committed the acts
complained of in reliance of the evidence of the advice given.
This letter is a public record and will be made available is
Mr. William Keisling
Page 10
Finally, any person may request within 15 days of service of
the opinion that the Commission reconsider its opinion. The
person requesting reconsideration should present a detailed
explanation setting forth the reasons why the opinion requires
reconsideration.
By the Commission,
Joseph W. Marshall, III
Chairman
Dear Mr. Contino:
STATE ETHICS COMMISSION
308 FINANCE BUILDING
HARRISBURG, PENNSYLVANIA 17120
July 19, 1988
DISSENT FROM THE COMMISSION MAJORITY OPINION
John J. Contino, Executive Director
State Ethics Commission
308 Finance Building
Harrisburg, PA 17120
In re: Supplemental Pension Allowance Agreement,
Executive Assistant to the Governor,
Chief of Staff to the Governor,
Harristown Development Corporation.
In March 1988, William Keisling requested advice from the
Ethics Commission as to whether or not his participation in a
retirement agreement with his former employer, Harristown
Development Corporation (HDC) while serving as a state employee
has been consistent with the State Ethics Law. The facts are
substantially as reported in the Majority Opinion. From those
facts, the Majority properly concluded on Page 9:
"Based upon the facts as presented
in documents before this Commission
at this point in time, we do not
believe that Section Three (b) has
been implicated."
With that conclusion, I agree.
Thereafter the Majority abandoned the facts and reached the
balance of its findings without again referring to any section of
the Ethics Act, nor has the Majority Opinion identified any
conduct on the part of Mr. Keisling which violated the Act in any
fashion. On Page 8, the Majority writes:
Mr. John Contino
July 19, 1988
Page Two
"Based upon the documents and
statements that have been
presented, this Commission finds
that $100,000 of the payment by HDC
to you as Governor's Chief of Staff
was a severance payment that was
negotiated and agreed to prior to
and separate from your position
with the Commonwealth of
Pennsylvania."
In fact, the payment was not made to Mr. Keisling "...as
Governor's Chief of Staff" but was made to him as•a faithful,
dedicated, talented and effective employee of HDC. (Minutes of
the Board Directors Meeting of September 17, 1986) When the
commitment to Mr. Keisling was made, there was no hint that he
would one day become the Governor's Chief of Staff.
Without referring to any specific section of the Act as
being violated, the Majority finds "This Commission further finds
that any payments above the amount ($100,000.00) would represent
a subsidization of your public compensation which was agreed to
be paid as a result of your obtaining a public office." (italic
mine) How the majority arrived at that conclusion is not clear.
Having accepted the statement of facts as contained in the March
1988 letter the Majority then again assigns motives to actors and
meanings to the words that were never intended nor should they be
permitted.
It is a matter of formal record supported by Minutes of the
Board of Directors of Harristown Development Corporation dated
September 17, 1986, that Mr. Keisling's plans to leave HDC was a
matter of "extended discussion ". The Board took official notice
of Mr. Keisling's decision to leave the Board as its employee.
The Board then identified a specific sum of money to be paid to
Mr. Keisling as a severance allowance. That amount was
$330,000.00. At the September 17, 1986 meeting, Board members
were effusive in their expression of thanks to Mr. Keisling for
his contributions to the Harristown Plan and for stoutly
resisting the endless assaults on the plan by others who thereby
attempted to obtain personal, political and financial gain.
Mr. John Contino
July 19, 1988
Page Three
Mr. Keisling was identified then as the target for such
unwarranted criticism. A position in which he unfortunately
continues to find himself by the action of this Commission.
All of the discussions concerning Mr. Keisling's severance
allowance took place prior to September 17, 1986. The amount was
agreed upon, the terms and conditions under which the payments
were to be made were outlined and resulted in what was probably
an enforceable agreement at equity and at law. A public
announcement was made that Mr. Keisling would leave HDC as of
June 1987. He had agreed to a "non compete agreement" clause,
and he further agreed that he would consult upon request by the
corporation so long as such consulting service did not
substantially interfere with any other reasonable activities or
endeavor in which he might engage. That agreement allowed Mr.
Keisling to seek employment in any other business and any other
location at any other time that he might choose and to consult
with HDC as it was convenient to him.
After the election of Governor Casey, Mr. Keisling was asked
to join the administration as the Governor's Chief of Staff.
When Mr. Keisling expressed a desire to accept the position as
the Governor's Chief of Staff, he so informed the Board of
Directors of HDC and requested permission to leave in January
rather than in June and further requested to be relieved of any
consulting responsibility. The Board agreed to his requests,
however, but penalized Mr. Keisling to the extent that they
reduced his payments from $330,000.00 to $250,000.00. This
amounts to an $80,000.00 penalty. Mr. Keisling agreed to the
penalty and a new schedule of payments was arrived at. From this
series of business -like negotiations all of which are a matter
of record and thoroughly documented and all of which took place
before Mr. Keisling assumed any responsibility as a public
official the majority has concluded that for Mr. Keisling to
accept what was his right as a matter of contract, would in
fact... "represent a subsidization of your public compensation
which was agreed to be paid as a result of your obtaining a
public office." How the majority arrived at that conclusion is
still a mystery to this member of the Commission. The majority
has already concluded that there is no implication of Section
Mr. John Contino
July 19, 1988
Page Four
3(b) of the Act. Does the majority suggest, even though it does
not so state, that there is a violation of Section 3(a) of the
Act. That section reads:
"No public official or Public Employee shall
: use his public office or any confidential
information received through his holding
public office to obtain financial gain other
than compensation provided by Law for
himself, ... etc. 6.5 P.S. Code 403(a).
Mr. Keisling was not a public official in the summer of 1986
when he first made a decision to leave employment of the HUD nor
was he in September of 1986 when an agreement was arrived at
between the Board of Directors and Mr. Keisling, nor was he in
December 1986 when the terms of the agreement were renegotiated
to his substantial disadvantage. So that to suggest that Mr.
Keisling used a public office, which he did not hold, to obtain
confidential information, which he did not have the ability to
obtain, or to obtain financial gain, which he already had, is
patently ridiculous.
The payments to be made to Mr. Keisling were to be made to
him or to his estate in that period of time between July 1, 1987
and January 15, 1993 no matter the nature of his employment or
unemployment or even his death. A special fund was created by
HDC to guarantee all of the payments which were to be made in any
event unless Mr. Keisling should in some way after leaving the
Government service accept employment with an HDC competitor or
otherwise compete with the best interests of HDC. (Supplemental
Pension Allowance Agreement)
The Commission is obliged to establish precedent by which
the Ethical conduct of public officials may be reviewed and
advice given. Just a few months ago, this Commission approved a
severance payment between a public official and a former employer
made in anticipation of public employment and specifically so
that public service would be entered (Mazziotti Opinion,
Mr. John Contino
July 19, 1988
Page Five
87- 005 -R) A fair reading of the documents in this case clearly
reveals that there was no intention by either HDC or Keisling
that the payments were in any way dependant upon public service.
Also see Baxter, Opinion 81 -004 wherein the Commission approved
an executive exchange program which brought into government some
of the best business and private talent while allowing the
individuals in the program to remain on the payroll of their
private employer. In that case there was a salary
supplementation by a private company. This Commission approved
that agreement.
Based on the facts presented in this case and in
application of those facts to the precedent created by this
Commission it is the opinion of this Commissioner that Mr.
Keisling should be advised that his participation in a retirement
agreement with his former employer is not a violation of the
Ethics Act.
Respectfully Submitted,
Dennis C I� ( in 'tobh,
Commissioner