Conflicts of Interest Among Directors of Texas Conservative Coalition Research Institute and Allocation of TCCRI Expenditures to Lobbying Activities

Conflicts of Interests Among Directors of TCCRI

The vast majority of the 38 members of the board of directors of the Texas Conservative Coalition Research Institute (TCCRI) are either statewide elected officials (3), members of the Texas Legislature (19), or registered lobbyists (13). In addition, the six employees of TCCRI are registered lobbyists, although they are registered with the Texas Ethics Commission (TEC) to lobby for an associated organization, the Texas Conservative Coalition.[1]

TCCRI is a tax-exempt organization, specifically a 501(c)(3), commonly referred to as a public charity, serving some general purpose, in alignment with its goals of promoting the public interest. It is not difficult to see that a member of the board of directors who also happens to be a lobbyist registered to promote the interests of a non-public entity, and paid to do so by that entity, might sometimes find himself or herself in a conflicted situation. When faced with a decision to be made as a board member of TCCRI that may not align with the interests of one or more clients that he or she is being paid to represent whose interests will prevail?

It is also not difficult to imagine one of the board members of TCCRI who is a statewide elected official or a legislator to occasionally be put into a conflicted situation. Such an individual, who presumably has in mind, at least in part, a personal view of what is best for the citizens of Texas as a whole, could be at odds with the majority of the board members of TCCRI who might be in support of a position that is not in alignment with the individual board member’s view of what is in the public interest.

Therefore, the presence of either a state official or a registered lobbyist on the board of directors of TCCRI would result in potential conflicts of interest for such board members.

However, if the board of directors of TCCRI includes both types of individuals, which it does, this give rise to an entirely different level of potential conflict and ambiguity of purpose. Not only are the individual state officials and registered lobbyists, directors all, put into a situation of potential conflict of interest, but also so is the organization itself. The reason for this is as follows: If members of TCCRI’s board, both state officials and registered lobbyists, attend a TCCRI meeting where matters that fall under the purview of the state officials are discussed, and if those discussions might ultimately affect the formulation and passage, or opposition to passage, of legislation, lobbying is, by definition occurring. While the lobbyist-directors might already be registered with TEC to engage in lobbying on the relevant topics, TCCRI is not so registered. No person appears as a lobbyist registered to work for TCCRI on the lists maintained by TEC. On IRS form 990, filed annually with the IRS, TCCRI claims it spends nothing on lobbying activities. Yet by providing the venue whereby state officials and registered lobbyists come together as members of the board of directors of TCCRI and discuss matters pertaining to current or potential legislation, that organization has, merely by holding a board meeting, given rise to lobbying communications.

TCCRI directors, lobbyists, their clients and private gains

This section attempts to spell out more explicitly the possibility that some of the registered lobbyists who are also directors of the Texas Conservative Coalition Research Institute (TCCRI) may be using their positions to promote their personal interests.

Initially, it was the mere recognition of the relatively large number of registered lobbyists who are also directors of TCCRI that raised nagging questions. For the most recent year for which data are available, 13 members were lobbyists registered with the Texas Ethics Commission. They had among themselves a total of 110 individual client organizations, most of which are business entities. To put the current number of director-lobbyists into perspective, it was attempted to obtain the same tally for several previous years. These numbers are presented in Table 1 for 4 different years, beginning with 2001. TCCRI was originally established in Texas in 1995.

Table 1. Makeup of the board of directors of the Texas Conservative Coalition Research Institute

Directors	2001	2009	2014	2021
Registered Lobbyists	4	20	18	13
Gov’t Officials, Legislators, Other	5	20	26	25
Totals	9	40	44	38

An on-line publication of the Federal IRS includes the following statement:[2]

“A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests.”

The motivating question was, Why would so many prominent registered lobbyists become directors of TCCRI? A natural hypothesis, of course, is that they perceived some personal advantage would come from such membership. Some indirect evidence in support this hypothesis is the fact that at least three of the current lobbyist-directors of TCCRI note in their personal websites that they are on the board of directors of TCCRI. These TCCRI board members include Lara Keel, Dale Laine, and Michael Jewell. Including that fact on their own websites, where they are in effect trying to convince potential clients that they could help them achieve their own legislative goals, strongly indicates that these individuals are pointing out to potential clients that their positions on the board of directors of TCCRI contributes to their effectiveness as lobbyists. Having made that pitch, it seems likely that these three director-lobbyists would take advantage of their positions on the board of TCCRI to advance the interests of their clients, and in doing so advance their own interests. Such activity would appear to violate the prohibition against such self-dealing expressed in the previous quotation from the IRS website. In particular, if members of TCCRI succeed in exploiting their position through actions taken by TCCRI, this would put TCCRI itself in violation of that prohibition referred to above.

An additional way in which director-lobbyist members of TCCRI might assist their clients is to participate in the subject area task forces that TCCRI creates.[3] These task forces are for the purpose of studying various policy areas and developing “specific policy recommendations” prior to each legislative session. In fact, it is not certain if client organizations of the director-lobbyists are excluded from membership on the task forces or if they can actually participate. I requested the names of the current members of the various task forces from a TCCRI executive but received no response to that request. As over half of the TCCRI directors participate in the American Legislative Exchange Council (ALEC) the methods used by ALEC in bringing together legislators, lobbyists, and business representatives would be familiar to them. In the case of ALEC meetings, the corporate representatives reportedly pay most of the expenses associated with the meetings. Because TCCRI is not required to publicly reveal their sources of revenue, the extent to which the director-lobbyists foot the bill for the expenses incurred by TCCRI, including the operations of the task forces, is not known. Since most of the attendees at TCCRI meetings would be fellow board members, it is likely that participation by the director-lobbyists does not even count as lobbying activity. If true, this is a pretty flagrant lobby loophole.

In my paper I list 6 director-lobbyists who are actually employees of their client firms, and a 7^th who is the owner of a firm. A case study is presented therein of the multi-million-dollar property tax reduction experienced by several Koch Industry subsidiaries in Texas represented by directory-lobbyist Bill Oswald as a result of legislation promoted by TCCRI. Oswald, incidentally, is the only remaining director-lobbyist who held such position in year 2001.

There might also be multiple ways in which the TCCRI director-lobbyists could benefit the other members of the board of TCCRI who are state officials or legislators. One direct way would be to encourage their clients, those for whom they get paid to lobby, to make campaign contributions to those directors of TCCRI who are state officials or legislators. Following is a paragraph from page 6 of my paper on the TCCRI:

“The political action committees (PACs) or employees of 27 of the 110 client organizations of TCCRI directors who are registered lobbyists made political campaign contributions to 22 public office holders who were also directors of TCCRI. These contributions occurred during the time period 1-2-2020 to 7-15-2021, roughly an eighteen-month period. The identified contributions made by individuals and PACs associated with each organization were added together to form the totals for each client organization. The amounts from all 27 organizations totaled $2,850,683.”

The contributions from the clients of the director-lobbyists to the public members of TCCRI’s board are in addition to the more modest contributions from these director-lobbyists to their fellow board members, tabulated also in my paper, on page 5, Table 3.

Allocation of TCCRI Expenditures to Lobbying Activities

One concern is to determine how much of TCCRI’s total expenditures are made in support of lobbying activities. As already mentioned, in its filings with the U.S. Internal Revenue Service (IRS), form 990, TCCRI indicates that nothing is expended for lobbying purposes. Yet, of the 38 members on its board of directors, 13 are registered with the Texas Ethics Commission (TEC) as lobbyists for one or more client firms, 9 are state senators, 10 are state representatives, and 3 are statewide elected officials.[4] According to TEC, “The lobby law applies to direct communications with state officers and employees to influence ‘legislation or administrative action.’ “[5] This TEC document elaborates on this definition, indicating that such communications are not restricted to discussions of “specific legislation or administrative action”:

“The fact that a communication does not include a discussion of specific legislation or administrative action does not mean that the discussion is not a lobby communication. If a communication is intended to generate or maintain goodwill for the purpose of influencing potential future legislation or administrative action, the communication is a lobby communication.” See Gov’t Code § 305.002(2-a) and Ethics Advisory Opinion Nos. 94, 90, 89, 34, 4 (1992)

This last statement suggests that there are broad limits to communications between state officials and lobbyists, including lobbyists who are also directors of TCCRI, that would be defined as lobbying communications.

However, the primary question raised here is, To what extent must expenditures by TCCRI, which facilitate communications between state officials and lobbyists, be reported to TEC, and by whom must those lobbying expenditures be reported?

In the situation described, wherein the organization TCCRI provides the venue in which state officials, legislators and lobbyists, all of whom are directors of TCCRI, meet and communicate with regard to matters of potential legislation, what costs must be reported as expenditures incurred in furtherance of lobbying in this instance? The lobbyists themselves, given their positions as directors of TCCRI, incur no appreciable out-of-pocket expenses to attend a meeting and to communicate with the state officials.

What about TCCRI? It would seem that no additional expenses are incurred merely by calling a meeting of its board of directors wherein communications between state officials and lobbyist-directors will occur. Assume for purposes of argument that TCCRI has no purpose other than to hold such meetings. This would suggest that all of its expenses—rent, electricity, refreshments served at meetings—are in fact attributable to that communication-lobbying activity that occurs when a meeting is held. Since all of these expenses are paid by TCCRI, is TCCRI obligated to register and report those expenses as lobbying expenses incurred by the organization itself? Under the simplified situation assumed, lobbying occurs, and all of the related expenses are paid by TCCRI. How are such expenses viewed by TEC?

Is it possible that the lobbyists themselves might report the related lobby expenditures, taking TCCRI of the hook? In the same TEC document Lobbying in Texas, beneath the heading Entity Registration, the following appears:

“A corporation, partnership, association, or other type of entity may be required to register as a lobbyist if the entity exceeds either the compensation threshold or expenditure threshold. An entity that is required to register may nonetheless avoid registration if all activity otherwise reportable by the entity is reported by one or more registrants. 1 T.A.C. §§ 34.45, .65, .85. An individual registrant may report an expenditure made by a lobby entity if the entity requests that the individual do so in order for the entity to avoid registration; and

(1) the entity makes the expenditure in order for the individual to act on the entity’s behalf to communicate directly with a member of the legislative or executive branch to influence legislation or administrative action; or

(2) the entity compensates or reimburses the individual to act on behalf of the entity or on behalf of the entity’s clients to communicate directly with a member of the legislative or executive branch to influence legislation or administrative action.”

There are a couple of questions if this approach were taken by TCCRI. First, does the previous language permit “An entity that is required to register” to have the opportunity of having a lobby entity for which it is not a client report its expenditures? That is, could the lobby firm headed by Michael Toomey report TCCRI’s expenses and thereby avoid the requirement that TCCRI must register as a lobby entity? Secondly, what expenditures must be reported? All of the expenses incurred by TCCRI, since it was assumed above that TCCRI had no purpose other than to facilitate lobbying activity between its various directors? Or only the marginal costs associated with each such meeting? Assuming no refreshments served during the meeting, those marginal costs would be close to zero, and thus there would be no expenses to report. Some such rationale as this must be used by TCCRI when it reports to the IRS that it expends nothing on lobbying.

It seems to me that a non-profit that has on its board of directors state officials as well as registered lobbyists is in a class of its own. By definition, with a certainty of 99.99 percent, any meeting of its board of directors will entail lobbying activity. What entity is required to report the associated costs? And do those costs include the fixed or overhead costs of the entity? What about the salaries of staff members who develop position papers that are discussed and likely acted on during board meetings? Deliberations among board members can also occur without the members actually physically meeting together via electronic or other means of communications.

It is my opinion that a careful consideration of the various work products produced by the TCCRI staff would result in a conclusion that the majority of staff time is devoted to producing background information and positions on topics with the ultimate goal of developing, supporting, or opposing legislation in current or future legislative sessions.[6] To document this conclusion would require a careful examination of the various activities that take place within TCCRI, the staff time spent on each of those activities, and a calculation of the costs of those activities that support legislative/lobbying functions. If the sum of those costs range upwards of a quarter or more of all expenditures by TCCRI in a given time frame, those results would seriously question whether TCCRI indeed qualifies as a non-profit corporation under either U.S. or Texas law. A specific question is whether state or federal guidelines on how an organization’s costs are allocated to the lobbying function permits, or requires, an allocation of the organization’s fixed or overhead costs to such activities.

[1] These and other facts about the TCCRI can be found in my paper, “Money, Power, Politics, and Influence in and around the Texas Conservative Coalition Research Institute”,(2022), available from the author upon request (ltoenjes@aol.com ).

[3] A description of the various task forces sponsored by TCCRI can be viewed at https://www.txccri.org/task-forces .

[4] On TCCRI’s website, the 12 Private Sector Board Members are all registered lobbyists except for Rossanna Salazar. In addition, Treasurer Lara Keel and Vice Chairman Bill Oswald are registered lobbyists. See or go too https://www.txccri.org/board-of-directors .

[5] Lobbying in Texas: A Guide to the Texas Law, Texas Ethics Commission, Revised January 1, 2022, p. 4, see or go to https://www.ethics.state.tx.us/data/resources/guides/lobby_guide.pdf .

[6] Such activities may be called “policy research.” But the ultimate purpose of them is to influence legislation or administrative actions.