Co-authored with Craig Holman

In addition to blowing up the world economy occasionally, Wall Street sometimes sets local fires as well. Consider Jefferson County, Alabama. Here, JP Morgan arranged finance deals to fix its sewer system that proved so expensive to the county that it declared bankruptcy. Bribery of public officials played a role, resulting in the conviction of 21 individuals. Another example is Detroit, where onorous deals with Wall Street are part of its bankruptcy story. The Detroit mayor was convicted of a major scheme of bribery and kickbacks leading up to these dire straits. The common factor in these tales is corruption and subsequent financial hardship. Private firms hoping to profit from municipal deals pay public officials — through bribes or campaign contributions — to choose their firm even when the firm’s profits come at unnecessary and even crippling taxpayer expense.

In good news, the Municipal Securities Rulemaking Board (MSRB) is writing a rule that strengthens its anti-corruption policies. Already, under Rule G-37, Wall Street firms that sell municipal securities generally can’t make contributions to elected officials who have the power to select specific municipal securities dealers. These are the bonds that fund sewers, schools and streets, and must be repaid by taxpayers. The new rule will apply these same contribution restrictions to muncipal securities advisors. These are the consultants who advise a municipal government on which dealers to use, or how to structure finance.

The new rule isn’t perfect. One loophole is that if a firm has two divisions, one providing municipal securities sales, and one providing municipal funding advice, each can make political contributions to the portion of the government that doesn’t oversee its work. The advisors could contribute to a public official who only has control over the selection of the municipal securities dealing. And the advisor department could only make contributions to an official with power over selecting the municipal dealer. This is a problem.

Another issue is that the small municipal securities business might be part of a larger company. And that larger company can make political contributions to any of the officials. This is also a problem. Case in point, a filing by JP Morgan Securities on the MSRB website shows that the firm peformed underwriting services for the Delaware River Authority in 2013. In answer to the question about whether it made political contributions to any municipal finance official related to this service, JP Morgan Services reports “none.” At the same time, the JP Morgan PAC filing at the Federal Election Commission (FEC) shows a contribution to State Treasurer Chipman Flowers in 2013. Further research shows that JP Morgan officials helped Flowers with his campaign.

Why do the rules permit this? Because the MSRB provides that if contributions aren’t “controlled” by the municipal securities division of JP Morgan, that doesn’t pose a quid pro quo danger. Presumably, the JP Morgan PAC feels justified in making the contributions because the firm determines that the PAC contributions are not “controlled” by its securities affiliate, JP Morgan Securities. But that’s a problem for two reasons. First, its not obvious who makes the decisions at the JP Morgan PAC. The Federal Elections Commission, which regulates PACs, doesn’t require any information about who makes decisions. Second, even if the folks at JP Morgan Securities don’t communicate with the parent company PAC, they wouldn’t need to. The PAC folks know their firm provides prodigeous municipal finance services, and making contributions could help win business.

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A strange article appeared in the Motley Fool — a financial services publication and investment advisor — which apparently embraces the idea of corporations keeping shareholders in the dark about their political spending.

“There are some practical reasons that corporations might decide not to volunteer information about their political activities,” writes Casey Kelly-Barton, the article’s author, “the most obvious of which is that, since the 2010 Supreme Court decision on Citizens United v. FEC, they don’t really have to.”

What the author conveniently omits about Citizens United is that Justice Anthony Kennedy’s opinion in the ruling was in no small part premised on corporations disclosing their political spending and shareholders holding those corporations accountable.

Here’s a direct quote from the opinion (emphasis added):

 With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “ ‘in the pocket’ of so-called moneyed interests.”

Though the decision in the ruling itself was split 5-4 along partisan lines, eight of the nine justices concurred on the constitutionality of disclosure.

Of course, we now know that Justice Kennedy assumption that disclosure would occur could not have been more wrong. Congress has so far failed to pass disclosure legislation, and federal agencies such as the Securities and Exchange Commission and the Federal Election Commission — which have clear authority to intervene — have failed to step forward and use their authority to require transparency.

Thanks to the Center for Political Accountability — whose CPA-Zicklin index scores corporations on voluntary political spending transparency — there is some light being shed on this issue. But much remains unknown.

Let me be clear: As Supreme Court rulings go, Citizens United was an abomination. By allowing corporations to spend as much as they want to tilt elections toward candidates, Democrat or Republican, who will do what corporations want, it struck a severe blow against our democracy.

But the ruling’s pro-disclosure outcome is a good thing. By omitting this fact in an article supporting secret corporate political spending, the Motley Fool does its readers — readers who have a clear interest in knowing whether corporations are spending their investment dollars to play in politics — a disservice.

Rick Claypool is the online director for Public Citizen’s Congress Watch division.

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Statement of Robert Weissman, President of Public Citizen

Note: Public Citizen late Monday filed a motion to dismiss a defamation lawsuit brought against the organization in August by Murray Energy Corporation and its CEO Robert Murray. The company and CEO sued after Public Citizen ran a short radio advertisement criticizing the company for filing lawsuits to block regulations aimed at protecting public health and addressing climate change. In its motion to dismiss, Public Citizen explains that the lawsuit’s aim is to punish and silence critics. The statements of Public Citizen over which Murray Energy sued are either statements of fact or opinion, both of which are protected under the First Amendment. Further, none of the statements in the ad is about Mr. Murray, so his defamation claim is baseless. The motion is available here (PDF). Public Citizen is represented pro bono in the case by Robert Balin, Alison Schary and Joanna Summerscales of the law firm Davis Wright Tremaine LLP, and Fred Gittes and Jeffrey Vardaro of The Gittes Law Group.

Murray Energy is wrong on the law and wrong in the belief that it can silence consumer groups, reporters and other advocates for climate change solutions.

The groundless lawsuit by Murray Energy is a blatant attempt to silence opposing views – its fourth such lawsuit since July 2012.

The Public Citizen ad made accurate statements and statements of our opinion, based on publicly available sources. As the ad states, Murray Energy has sued to block a rule intended to save lives by limiting the amount of coal dust to which coal miners are exposed. And Murray Energy has sued to block a proposed rule to limit carbon emissions from power plants – a rule intended to reduce the impact of climate change on human health and to prevent premature deaths attributable to carbon emissions.

Murray Energy’s lawsuit against Public Citizen is a desperate act by a member of an industry engaged in a losing battle against the tide of history. For decades, Dirty Energy interests have engaged in a public relations campaign to block action on climate change. As a result, we stand on the brink of climate catastrophe – a cataclysm that threatens tens of millions of lives.

The days when those bullying tactics can succeed are over. The growing public insistence on climate solutions is not going away; neither, unfortunately, is the reality of worsening climate change. As the rule proposed last spring by the U.S. Environmental Protection Agency evidences, policy makers are, belatedly, starting to act. Murray Energy can’t stop that.

Nonetheless, humanity is now in a race against time to take sufficiently bold and comprehensive action to avert catastrophic climate change. If Murray Energy and other companies succeed in slowing action further, we may well fall over the precipice. The consequences would be too terrible to contemplate.

That’s why there is only one reasonable response to a lawsuit intended to scare critics into silence: Defeat the lawsuit in court and use the lawsuit to educate, motivate and activate the American public.

So, our message to Murray Energy: Your lawsuit is only going to help build support for the very solutions to climate change you are trying so hard to prevent.

Read the motion (PDF) to dismiss the lawsuit.

Read Public Citizen’s response to Robert Murray’s statements about the EPA rule.

Read background information about Murray Energy.

A fossil-fuel-industry front group that calls itself the “60 Plus Association” has released a “study” claiming that the EPA’s proposal to curb carbon pollution, known as the Clean Power Plan, would raise utility costs for seniors. Don’t buy it.

The group relies on a sleight-of-hand to make its claim: It cites only the EPA’s projection that electricity prices will increase under its rule (Clean Power Plan Regulatory Impact Analysis (RIA) Table 3-21) while ignoring the projection, just a few pages later in the very same document, that electricity bills will actually decline. The rule includes efficiency measures that will result in consumers using significantly less power. (RIA Table 3-24). So raw electricity prices will go up a bit, but we will use less power—and pay less overall.

Also, 60 Plus looks only at the agency’s analysis for 2020, rather than its longer-term projections. What happens in the long term is obviously more important. It’s also much more favorable.

Here is a chart that shows projected electricity prices and bills under one of two main scenarios that the EPA analyzes:

Projected Retail Electricity Prices Under EPA’s Option 1, State Compliance Scenario Projected Change in Utility Bills
Cents/kWh Without Rule Cents/kWh Under Rule Percent Change
2020 10.4 11.1 6.5% 3.2%
2025 10.8 11.1 2.9% -5.3%
2030 10.9 11.3 3.1% -8.4%
Source: RIA Tables 3-21, 3-22, 3-23, 3-24.

 

60 Plus points out that electricity prices will rise 6.5 percent in 2020, but it ignores that actual bills will rise by less than half that (3.2 percent) in 2020 and will decline 5.3 percent by 2025 and 8.4 percent by 2030. The numbers are even more favorable under the EPA’s other major scenario, in which states band together and comply in regional groups rather than comply separately. There, bills would fall by 8.7 percent by 2030. (RIA Table 3-24).

Media outlets should ignore this kind of junk from 60 Plus. But at least one local TV station was duped by this release. WDBJ 7 in Virginia not only reported the study, but misreported in just the way 60 Plus wants: by saying it shows that electricity bills will increase under the EPA plan.

Let’s hope no one else picks it up.

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In a move apparently to be more progressive and inclusive, Burger King recently changed its motto from “have it your way” to “be your way.” It’s good the company is trying to be more inclusive, but, the company’s recent decision to merge with Tim Hortons and move its headquarters to Canada which reportedly could score tax reductions for the company, is the opposite of progressive, it’s downright regressive.

By merging with Tim Hortons and reincorporating as a new company in our neighbor to the north, Burger King is deserting its American consumer base, leaving average citizens to pick up the tab for the lost taxes from a profitable U.S. business. A business that will continue to operate in our country, have management and workers here, despite becoming on paper a foreign entity.

The whopper of a tax move is called an “inversion” and it is a way for a company to transfer headquarters on paper to another county with lower tax rates or other policies that reduce the amount of U.S. taxes a corporation pays. Dozens of corporations have done it in recent years, and more have deals currently in the works. Each new company announcing its intent to defect to a foreign tax jurisdiction fans the flames of consumer displeasure.

Recently, America’s largest drugstore chain, Walgreens, made a tactical retreat and dropped plans to reincorporate after merging with a Swiss company in order to invert. After shoppers and activists united in calling on the company to stay true to its U.S. roots and pay its fair share of corporate taxes, Walgreens decided to keep its headquarters (and tax contributions) here in America.

Given all the rightful criticism of American people and press to the problem of inverted companies, it was welcome news when the U.S. Treasury Department announced last week that it is taking some small but positive steps that went part of the way toward addressing inversions. Treasury did that by limiting economic incentives of these inversion deals. The changes to the interpretation of the tax code took away some of the benefits of inversions like ending some types of subsidiary loans, restructuring deals, and cash and property transfers.

Currently, under the tax code, when companies merge and reincorporate in another country but retain 80 percent of their previous shareholders, they are classified as “inverted” under the tax code. That means the inverted company is treated as domestic for tax purposes and is not able to escape paying its fair share of taxes. The new changes from Treasury tighten up the “80 percent rule” by ensuring that companies aren’t able to artificially shrink via dividend payouts or grow by counting passive assets like cash in order to squeak in below the 80% previous shareholders threshold.

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