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Mayor fined $1,000, ordered to reimburse campaign $8,332.16

By BRIAN PERRY

City Editor

The state Campaign Spending Commission fined Maui County Mayor Alan Arakawa $1,000 on Wednesday and ordered him to use personal funds to reimburse his campaign, the Friends of Alan Arakawa, $8,332.16.

The commission did not refer the matter to the state Department of the Attorney General for prosecution for what commission staff earlier had characterized in a complaint as an “apparent scheme” to report charitable contributions as advertising expenditures.

On Thursday, Arakawa said he was pleased the commission reached a decision and found his campaign “didn’t intentionally do anything wrong.” Now, he said he intends to dispute the ruling as a contested case to determine what’s advertising versus a charitable donation.

The commission had alleged 50 violations, and those have been whittled down to around two, he said.

Commission staff has been trying to use nonprofits’ tax records to determine if a payment from the Arakawa campaign was for advertising or donations, he said. There’s never been any question that expenditures have been reported, he added.

And, Arakawa said there are letters from organizations reporting that his campaign bought advertising.

However, now “it doesn’t matter what nonprofits tell us or what we agreed to,” he said. “What it comes down to is what’s reported to the IRS.”

Arakawa said he’s been using campaign funds to buy advertising “as long as I’ve been running for office,” and the matter has never been an issue before.

By a 4-1 vote Wednesday, the commission tweaked and adopted a staff report that, as amended by the panel, showed the Arakawa campaign made 14 payments to 13 nonprofits totaling $16,332.16 from 2014 to 2016. The panel found that those payments should have been reported as charitable donations. The total amount exceeded the statutory limit of $8,000 for mayoral candidate charitable contributions by $8,332.16.

The commission staff also found 13 other Arakawa campaign payments to 10 nonprofits were treated as taxable income and were accepted as being directly related to the candidate’s campaign.

Commission Executive Director Kristin Izumi-Nitao said she was pleased with the commission’s decision.

“We cannot allow candidates and charitable organizations to agree to characterize campaign funds as payments directly related to a candidate’s campaign when the payment is in fact treated by the charitable organization as a tax-exempt donation,” she said Thursday. “A donation is a donation. To not recognize this principle would in effect ignore our laws and perpetuate a wrongdoing.”

In the commission staff’s first complaint, later superseded by a second, staff reported finding 57 suspect “advertising” expenditures to 41 nonprofit and community organizations amounting to $45,500. Further investigation led to a Dec. 8 filing by the commission against Arakawa, his wife and campaign treasurer. It alleged a single count of “excess donations to charitable organizations.”

Arakawa has insisted that all of the payments were for “advertising.”

The distinction between a candidate’s use of campaign funds for charitable donations and paid advertising is important because there’s no legal limit on how much a candidate can spend on advertising, but there is one for contributions to charities and nonprofits. State law caps the amount of campaign funds a candidate can use to make charitable donations as a way to show community goodwill and buy votes.

In a televised report of Wednesday’s commission meeting on Hawaii News Now, Vice Chairman Kenneth Goodenow, a Hilo attorney and former state House representative, said the panel had determined the payments were not for advertising, as claimed by the Arakawa campaign.

“At this point, we’re saying, ‘You know what? It’s a duck. It’s a donation,’ ” he said.

But Goodenow also looked at Arakawa’s intent to buy only advertising.

“I certainly do not think we should refer this to the Attorney General’s Office for prosecution,” he said. “I don’t believe the mayor had any bad intent. He was very straightforward. He said, ‘I only want to do advertising.’ ”

Arakawa told Hawaii News Now that he was pleased the commission found no wrongdoing, but he said he’s spent $20,000 fighting the commission’s complaint and would continue doing so to show he truthfully reported his campaign expenditures.

The commission also ordered Arakawa to correct financial disclosures to the commission to show his campaign made donations to the 13 nonprofits.

For the position of mayor, state law limits to $8,000 candidates’ use of campaign funds in making charitable contributions.

The commission conducted a two-year investigation to determine whether Arakawa had exceeded the legal limit.

At Goodenow’s request, the commission also removed the mayor’s wife, Ann Arakawa, as a respondent in commission complaints filed against the mayor.

An earlier complaint alleged that Mrs. Arakawa “was a participant in Respondents’ apparent scheme or pattern of getting the nonprofit organizations to agree to describe that respondents were paying for advertising, rather than making donations.”

Arakawa has said his wife was trying to comply with the commission’s request for information.

The commission’s vote to fine Arakawa and order him to reimburse his campaign came on a vote of 4 to 1, with the sole dissenting vote coming from commission member Maryellen Markley, president of First Impressions, a firm providing nonprofit strategic planning, board training and grant-writing support for charities.

A phone call seeking comment from Markley went unreturned Thursday.

Commission members voting in favor of the action against Arakawa were: Chairman Bryan Luke, Vice Chairman Goodenow, Stanley Lum and Gregory Shoda.

After the commission issues its findings of fact and conclusions of law, Arakawa will have 20 days to request a contested case. That could be heard by campaign spending commissioners or an administrative hearings officer in a quasi-judicial proceeding with the submission of evidence and witness testimony.

An appeal from a ruling in that proceeding could be heard by a Circuit Court judge.

Minutes of Wednesday’s meeting won’t be released until they’re after they’re approved at the commission’s next meeting on March 7.

On Jan. 30, Arakawa submitted a campaign spending report that showed he spent $9,053.12 in the second half of 2017 on legal fees for “a frivolous complaint,” referring to the commission’s complaint. The legal fees went to the Honolulu law firm of McCorriston Miller Mukai MacKinnon LLP. Arakawa’s attorney, David Minkin, has been a partner at that firm since 1995.

Searchable data on the commission’s website show 16 other payments to the McCorriston firm from the Arakawa campaign.

Those total $19,565.83, beginning with a $1,000 payment on Oct. 13, 2014, for a campaign document review, and continuing through June 6, 2017, for the “frivolous complaint.”

Arakawa’s recent filing with the commission included an updated candidate organizational report. It shows he intends to run this year for the Maui County Council’s Kahului residency seat.

That seat is being vacated by Council Member Don Guzman, who filed nomination papers Thursday as a candidate for mayor.

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

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