Last week, Mayor Whitmire held a press conference to call out City Controller Chris Hollins for soliciting sponsors for the City’s annual “investor conference.” Whitmire said the solicitation from firms that either do business with the City or seek to do business with the City was a conflict-of-interest and smacked of “pay-to-play.”
Hollins sluffed off the accusation, claiming that he wasn’t doing anything different from previous controllers, does not approve contracts, and that his solicitation of sponsors was no different than Whitmire soliciting sponsors for other events. Hollins also said the sponsorship funds were going to a non-profit over which he had no control over how the funds would be spent.
The facts about what was going on here are still a little fuzzy. Here is what we know.
The City has sponsored an annual Investor Conference for the public finance industry for several years. They have charged for tickets to attend this event and the proceeds have been used to cover the cost of the event. If there were excess proceeds or a shortfall, they were booked to the Controller’s miscellaneous expense account. Former Controller Chris Brown told me that his recollection of the ticket price was $100-$150. Hollins raised the ticket price for the event this year to $750. Based on previous conferences this would raise funds well in excess of the actual costs. Therefore, the excess funds would be credited back to the Controller’s budget, effectively increasing funds the Controller’s office would have to spend.
More importantly, this year, for the first time, and without City Council approval, Hollins offered sponsorships for the event ranging from $10,000 to $100,000. Chris Brown confirmed that sponsorships have never been solicited for this event previously.
So, we can definitively say that Hollins’ assertion that he was not doing anything different from previous City Controllers was not true.
The flyer soliciting the sponsorships offered various benefits, including a private dinner with Hollins at the $50,000 and $100,000 levels. Not to be ugly, but frankly no one is going to pay $50,000 to have dinner with Hollins except someone hoping to curry favor from his office. Hollins’ claim that City Council selects city contractors is partially true, but it omits some critical information about the influence his office has over the process.
First, the controller has authority to approve contracts up to $50,000 without Council approval. Also, he has the power in some situations, as the City’s financial representative, to select from a pre-approved list of agents which firm will represent the City. Much of this is hashed out in a little know ad hoc committee, which includes representatives from several City departments including the Controller. A person familiar with the operations of the committee told me that the Controller’s representative leads those meetings and the other members are normally inclined to defer to that office’s recommendations.
The same person told me that since Hollins took office, his representative on the committee has been pressing very hard to increase the share of the business that goes to Loop Capital, a Chicago-based investment firm. And as it turns out, Loop Capital is the largest sponsor that signed up to sponsor the conference, pledging $50,000. The firm is already a substantial contractor for the City. It has been paid over $500,000 in the last four years.
Hollins is also correct that it is not unusual for the City to seek outside sponsorships for various events to help defray their expenses. But the solicitations are handled by an office that Council specifically set up for that purpose many years ago. The director of the office, Susan Christenson, has been in that position through multiple administrations.
All sponsorship money is handled by a non-profit entity that the City created specifically for this purpose. In cases where the sponsorship proceeds exceed the costs, the City allows large donors to select other non-profits to receive any money that is left over. Hollins chose not to use this established procedure for sponsorships and instead set up his own.
And where exactly the sponsorship money is going is the murkiest aspect of this affair. The flyer indicated the funds were going to assist two non-profits, Bank On and Houston Forward. Bank On is a national collaboration which seeks to help low-income individuals establish a banking relationship. The initiative was established and is directed by the Community Empowerment Fund (CEF), a highly regarded national organization. However, that is not where Hollins directed these sponsorship proceeds to go.
As nearly as I can tell, the other beneficiary, Houston Forward, is not a legally organized non-profit entity. I could not find any filings for it at the Secretary of State’s office or an IRS 990. It does have a partially completed website. However, the website does not disclose anything about the organization’s board, staff or finances, or even a telephone number. The only identifying information is an address in the Galleria area, which is the address of the Greater Houston Community Foundation (GHCF). A very small disclosure on the sponsorship form indicated that proceeds should be paid to the GHCF.
The GHCF is a well-known and highly regarded organization that primarily operates “donor-advised” funds. Donor-advised funds are used by donors to park non-profit proceeds until they are needed. GHCF has been used extensively to accumulate and administer disaster funds for the Houston area. Within certain broad legal guidelines, the GHCF allows donors to direct how funds will be dispersed. What we currently do not know is who GHCF recognizes as the donor in this situation and would, therefore, effectively have control of the funds. So far, despite numerous media inquiries, GHCF has declined to comment. How and under what terms GHCF is holding these funds is something that needs to be publicly disclosed.
During Whitmire’s press conference he was asked if the City has been in touch with law enforcement regarding Hollins solicitation of sponsorships and he declined to comment. Multiple sources have told me that law enforcement agencies are looking into this, but I do not have an independent verification. If law enforcement is taking a look at this, that may or may not end up being significant.
One of the legal issues involved is that financial institutions’ political contributions are very strictly regulated by the SEC. If the sponsorship proceeds had been directed to the CEF, there would not be any question as to their legality. But it is less clear as to whether contributions to Houston Forward would have been legal. Its website, under the “Our Mission” page, sounds distinctly political, which would probably mean SEC-regulated entities could not make contributions. But it will likely be a long time before we know if there is any legal fallout from this affair.
Regardless of any legal consequences, I do not see how this episode does not tarnish Hollins’ ability to act as an independent financial watchdog for the City. Individuals who serve in this role should err on the side being non-political and above reproach. Hollins, of course, has already shown himself to be an extreme hyper-partisan activist and this decision to solicit six-figure donations from City contractors falls well short of the example set by his predecessors.
