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Arizona GOP lawmaker targets 'conflict of interest' in donations to city bond projects

Man in suit with men behind him
State Rep. Laurin Hendrix speaking on the floor of the Arizona House of Representatives at the Capitol building in Phoenix on March 15, 2023.

A Republican Arizona lawmaker is pushing a bill that would bar construction companies that donate to local bond elections from then benefitting from the array of city projects funded by those bonds — a move that could drain hundreds of thousands of dollars out of the political campaigns that push for passage of those bonds every election cycle. 

City and town council members put those bond questions before voters to ask for approval to finance large expenditures like road improvements, new parks and public safety investments.

In the lead up to those elections, voters are often inundated with advertising and marketing efforts backed by local politicians and political action committees that support passage of the bond questions.

And a lot of the money that pays for those commercials, advertisements and mailers comes from businesses or individuals with ties to the construction industry — the same businesses that could benefit from that bond funding, if the bonds pass and if they win public bids to build those new public projects.

That’s just good business sense from the company's perspective, Rep. Laurin Hendrix (R-Gilbert) said. But he also called it “a conflict of interest.” 

“But that’s not someone donating for the public good; it’s someone donating for the profitability of their company,” he said. “I don’t know why they wouldn’t do that, that’s why I’m passing the law to make it illegal.” 

'I think it’s good policy to not allow people to have an obvious conflict of interest'

That’s why he sponsored House Bill 2088, which would ban businesses that contribute more than $1,000 in support of bond elections seeking over $25 million in public financing from then bidding on the resulting contracts.

The state already has procurement laws in place designed to ensure that all projects funded by public entities go through a transparent bidding process for projects funded by public money.

Hendrix acknowledged the practice is not illegal or even unethical under current law.

“I don’t think there’s any rules that are addressing the conflict of interest at this time. … There’s nothing unethical, nothing illegal about it, because there are no rules,” he said.

But supporters of Hendrix’s bill said state law should go further than that by placing an outright ban on businesses that would seek to benefit from the very campaigns they are pushing.

“It just says that if you’ve given $100,000 to try to get public funding for something that you cannot personally benefit from this,” Rep. Cory McGarr (R-Marana) said. “I think it’s good policy to not allow people to have an obvious conflict of interest.”

Cross referencing campaign finance reports

But critics said the bill would only result in more red tape for the local municipalities that would have to enforce the law.

Tom Savage with the League of Arizona Cities and Towns said local governments don’t currently have tools in place to cross reference political contribution donor databases with the list of companies bidding on a project.

“This would require city staff to review all campaign finance reports to ensure they didn’t financially support a yes campaign for the bond program, and many aren’t experts in campaign finance,” Savage said.

Cities across the state maintain their own campaign finance databases. Some of those systems are dated or lack the technological infrastructure to easily search for donors by business category or their business affiliations.

For example, El Mirage, Glendale, Goodyear and Surprise — which all ran bond campaigns last year — simply link to PDF copies of scanned campaign finance reports that are not easily searchable without advanced software. 

And Tom Dorn, a lobbyist representing both the city of Phoenix and the East Valley Chambers of Commerce Alliance, said Hendrix’s bill would violate the free speech rights of businesses and executives affected by the legislation.

“We shouldn’t be judging people’s intent and just let free speech work,” he said. 

Who donates to bond campaigns

Hendrix dismissed Dorn’s concern, saying the bill wouldn’t prevent anyone from contributing  to a bond campaign.

He referenced campaign finance reports for local bond elections that showed donors with ties to the construction industry provided the lion’s share of funding to those local bond campaigns. Hendrix said this proves that those companies are making those contributions out of self-interest and not a genuine desire to help the community.

“Is there anyone in a typical community that doesn’t work for a construction company or architect that has any interest in the community good, because it appears to me that there isn’t anyone else that cares,” Hendrix said, referring to the list of contributors to bond campaigns. “There’s no churches, no restaurants, no common citizens.”

Hendrix didn’t name the specific city bond elections he was referring to. But an analysis of the five bond elections that took place in Valley cities in 2023 showed that, in some cases, the donations Hendrix wants to ban made up a majority of the contributions to pro-bond campaigns — yet in other cases, they did not.

Voters in Glendale, Goodyear, Phoenix and Surprise all approved bond questions totaling nearly $1 billion last year. In Phoenix — where voters approved $500 million in bonds — the pro-bond campaign raised over $1 million. About $400,000, or 40%, of those contributions came from businesses or groups with ties to the construction or development industries that donated $1,000 or more, meaning they would be barred from bidding on ensuing city bond projects under Hendrix’s bill.

Glendale voters approved $232 million in bonds after the pro-bond campaign raised $120,000. About 58% of those donations came from businesses with ties to construction or development.

The percentage was even lower in Surprise, where voters approved $100 million in bonds. The campaign pushing that bond raised $68,150. A single $12,000 contribution came from a construction company, about 18% of the total haul. The bulk of contributions to the Surprise campaign came from political action committees affiliated with Valley fire departments. 

But in Goodyear, those affiliated with the construction industry gave $28,000 to the effort to pass $232 million in bonds, about 75% of the total contributions to the bond campaign.

'I still have an issue telling people what they can and can’t support'

Hendrix’s bill passed the Arizona House’s Regulatory Affairs committee on partisan lines, with only Republicans in support. It will still have to receive approval from the the Arizona House of Representatives and Senate — and Democratic Gov. Katie Hobbs — to become law.

Rep. Alma Hernandez (D-Tucson) said she was concerned that an original draft of the bill also targeted school districts, which frequently go to voters to ask for additional funds. That version would have banned contractors that support local school district bond and override elections — which allow districts to levy additional property taxes on residents to raise additional funds — from bidding on subsequent school district contracts funded by those voter-approved dollars.

Hendrix removed school district budget override elections from the bill and said he was open to removing school districts altogether at Hernandez’s request. But even with those changes, Hernandez said she is uneasy about the underlying bill’s implications. 

“I still have an issue telling people what they can and can’t support,” Hernandez said, saying that’s what the procurement process is for.

But Hendrix said existing laws don’t address the problem he is trying to target. He said the problem is, in many cases, there are only a handful of companies that could qualify for the large-scale projects funded by bonds, so they can all “reasonably expect” to receive a chunk of that work if the bonds pass.

Targeting bonds but not PACs and lobbyists

At the same time, Hendrix said he isn’t planning to target large donations in other elections that could potentially benefit corporate donors, such as donations from the state’s utility providers to candidates for the Corporation Commission, the regulatory body that oversees that industry and sets rates.

In 2014, APS made millions of dollars in dark money contributions in support of its preferred Corporation Commission candidates.

And Hendrix doesn’t plan to go after political contributions to lawmakers like himself by lobbyists, interest groups or businesses that could benefit from the legislation they support at the state Capitol. 

He said the difference between those contributions and the money spent supporting bond elections is the size of those contributions, saying his donations top out in the $200 range while industry groups and businesses can contribute $100,000 or more.

“I don’t think the money we are talking about with [legislative] campaigns is influencing anyone,” Hendrix said. “If it is, I would hope they get voted out of office.”

But Dorn, the lobbyist representing city of Phoenix and East Valley businesses, said the scale shouldn’t matter and that existing procurement rules are enough to prevent municipalities from simply handing out contracts to the highest donor without properly vetting bids.

“There’s nothing to apologize for; if they want to pursue the business, what’s wrong with that … this is really, with all due respect, ridiculous,” he said. 

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Wayne Schutsky is a broadcast field correspondent covering Arizona politics on KJZZ. He has over a decade of experience as a journalist reporting on local communities in Arizona and the state Capitol.