Mayor accused of falsifying campaign spending report

Expenditures to nonprofits were listed as advertising

Mayor Alan Arakawa is shown at a 2014 campaign event. The Campaign Spending Commission is investigating post-election expenditures for Arakawa’s campaign including donations to nonprofits listed as advertising. The Maui News / CHRIS SUGIDONO photo

A two-year Campaign Spending Commission investigation of post-election expenditures reported by Maui County Mayor Alan Arakawa’s campaign from Nov. 5, 2014, to Dec. 31, 2016, found 59 “advertising” expenditures to 41 nonprofit and community organizations amounting to more than $47,000.

On Wednesday, the commission decided to investigate further a complaint against Arakawa; his wife, Ann; his campaign treasurer, Anthony Arakaki; and the Friends of Alan Arakawa for “falsely describing the purpose of expenditures.” The commission is expected to revisit the complaint during its Dec. 13 meeting.

The commission complaint cites two counts of “false reporting of an expenditure.” One is for $5,000 on Aug. 17, 2015, to the American Cancer Society, and the other is $1,000 on Nov. 6, 2014 — two days after Arakawa was elected to his current final four-year term — to the American Heart Association,

The commission staff recommends assessing a $2,000 fine and ordering Arakawa to use personal funds to pay the fine if his campaign does not have funds to do so. (His most recent campaign spending report shows he had $94,298 in surplus funds as of June 30.)

In campaign spending disclosures, the Friends of Alan Arakawa reported all 59 expenditures were “directly related to the candidate’s campaign,” under the category of “advertising.”

On Wednesday afternoon, commission Executive Director Kristin Izumi-Nitao said that the commission staff found it “suspicious” that the Arakawa campaign’s report listed all the expenditures as being “advertising” and not donations to community service or charitable organizations.

Earlier Wednesday, Arakawa insisted that all of the money was spent on advertising, and that he was able to produce for the commission earlier in the day letters from “virtually everybody” to show the payments were for advertising. He said his campaign has a policy of only purchasing advertising and not making donations to community groups.

Arakawa, who has announced his intention to run for lieutenant governor in 2018, said that a commission complaint filed Sept. 29 stemmed from confusion about whether the expenditures were for charitable donations or advertising.

“The major focus (of the commission’s investigation) is not so much on what we did but how the law should be interpreted,” he said. “It’s all advertising . . . We only do advertising.”

The distinction between a donation and advertising is important because there’s no legal limit on the amount that can be spent on advertising directly related to a candidate’s campaign. However, state law caps the amount a candidate can contribute to community groups.

In Arakawa’s case, the contribution limit was $8,000 in an election year, according to Izumi-Nitao. The law caps the amount a candidate can contribute to groups so he or she “can’t seed the community to buy their vote,” she said.

The additional time for the commission’s inquiry will allow staff to reach out to Maui nonprofit and charitable groups for explanations of whether payments received from the Arakawa campaign were donations or advertising, Izumi-Nitao said. And, staff will research the legislative intent behind the campaign spending expenditure law, she added.

In September 2015, commission staff began seeking from Arakawa and his campaign copies of records from Nov. 5, 2014, to June 30, 2015, that documented reported expenditures, which at the time amounted to $18,000, the complaint says. Later, as the Arakawa campaign continued to report such “advertising” expenditures, the staff expanded its records review for the period of July 1, 2015, to Dec. 31, 2016.

The response from the Arakawa campaign to the commission’s inquiry was that the expenditures were “all advertising,” she said, but it was “advertising” in “the vernacular sense . . . not the campaign spending law definition.”

The Hawaii campaign spending statute defines “advertisement” as “any communication . . . that (1) identifies a candidate directly or by implication . . . and (2) advocates or supports the nomination, opposition or election of the candidate . . . on the ballot.”

In responding to the commission’s inquiry, Arakaki provided documents that appeared to the commission staff to show payments from the Arakawa campaign that “were considered by the recipients to be contributions or donations,” the complaint says.

For example, in a Feb. 12, 2015, letter, the Lahaina Complex After School Tutor Project thanked the Arakawa campaign for a $1,000 check it received. The letter noted: “Special mention of your contribution will be made at the event in addition to other publicity efforts for our fundraiser. Again, a huge mahalo for your generous contribution which will help us to continue to make a positive difference in the lives of Lahaina keiki and continue successfully to keep Lahaina ‘No Ka Oi.’ ”

Another example was from a May 8, 2015, letter from kumu hula Iola Caldito Balubar to the Arakawa campaign. The letter closed by saying: “I would very much appreciate your monetary support or donation for the halau by purchasing an ad for the souvenir booklet. Attached is the advertising contract that you need to fill out for an ad. Donations are made payable to Halau Hula Keola Ali’i O Ke Kai.”

A footnote in the complaint says that the full-page advertisement in the souvenir booklet contained Arakawa’s campaign logo and committee disclaimer, “but the main point of the advertisement was to congratulate the kumu hula’s 40 years of dedication to teaching hula. Also, as noted in the letter, the kumu hula considered the payment for ad space in the souvenir booklet to be a donation.”

In another instance, a June 9, 2015, letter from the Maui 4-H Livestock Association asked the Arakawa campaign for “support by contributing to our organization by sponsoring a set of four trophies for our 4-Hers and recognize them for their hard work.” The association’s letter said: “In exchange, we will announce your conttribution at our award ceremony. We will also recognize your contribution on our Mahalo board at the show as well as our Mahalo ad in The Maui News.”

A Jan. 7, 2015, letter from the American Heart Association reported that a $1,000 payment from the Arakawa campaign was treated as a $1,000 tax-free donation, and a July 23, 2016, letter from the Japanese Cultural Society of Maui reported its $300 donation was taxable advertising income that was reported to the Internal Revenue Service.

The American Heart Association payment was “clear and unambiguous” as a donation that should have been reported as a charitable contribution, the complaint says, while the cultural society’s receipt of $300 that it paid taxes on would likely be considered as an expenditure directly related to Arakawa’s campaign.

The commission staff sent letters to 39 community service or charitable organizations that the Arakawa campaign reported making advertising expenditures with to ask if they reported the payments as donations to the IRS. A dozen organizations did not respond, the complaint says.

The expenditures to those groups amounted to $10,829.91 and would have exceeded Arakawa’s $8,000 limit if they were donations instead of advertising, the complaint says.

Four groups considered the Arakawa payments as advertising income and reported it as such to the IRS. Other groups gave various explanations, the complaint details.

Anita Drummond, assistant general counsel for the American Cancer Society, told commission staff that the society’s fundraising does not include advertising, although the Arakawa campaign reported a $5,000 payment to the society as “advertising.”

The society “has a policy of not selling sponsorships to political candidates,” the complaint says.

This is not the first commission complaint against the Arakawa campaign. In July, the commission was deadlocked in a 2-2 vote (with one member recusing himself and not voting) on whether the mayor personally benefited from the Friends of Alan Arakawa paying $3,389.24 for “advertising” to pay for softball equipment for senior “makule” league softball teams.

Arakawa said “that’s where this started.”

When the commission staff couldn’t “win” with its complaint in the softball equipment case, it continued pursuing its investigation against the Arakawa campaign, the mayor said.

“Why are we the only one singled out when everybody else does it?” he asked. “They should be investigating everybody.”

Izumi-Nitao said the softball inquiry was part of the larger investigation, and there was an agreement to take up the softball case first before the larger review of payments to other groups.

She said she’s not aware of other campaigns that “spend this kind of money” without designating some as contributions to community or charitable organizations.

“He has not been singled out,” she said.

* Brian Perry can be reached at bperry@mauinews.com.