The Legislature is setting its sights on campaign donations from state and county contractors that have been the subject of public corruption cases in recent decades.

Right now, a law banning donations from government contractors only applies to the contracted business, not the owners, officers or employees of those companies as the result of a loophole written more than a decade ago.

“That’s the biggest loophole in any pay-to-play law around the country,” Craig Holman, a Washington, D.C., lobbyist for the advocacy group Public Citizen, said. 

Senate Bill 201 would close the loophole and ban owners, officers, employees and immediate family from donating to campaigns for the duration of a state or county contract. The bill, which is similar to a measure proposed by the House Commission to Improve Standards of Conduct, also would extend that ban to recipients of government grants. It has its first hearing in the Senate Judiciary Committee on Thursday.

Hawaii’s current contractor law passed in the wake of campaign donation scandals in the 1990s and early 2000s. But it did little to curb the flow of donations from government contractors to political campaigns.

A Civil Beat review of state contracts and campaign finance data found hundreds of thousands of dollars worth of donations from state contractors to campaigns made during the 2018 and 2022 election seasons.

Corruption Concerns

Campaign donations from contractors also have featured prominently in recent public corruption cases.

Last year, federal prosecutors unveiled charges against Honolulu businessman Milton Choy, who bribed two former state lawmakers and Maui County officials.

Choy, his business associates and family members also made more than $356,000 worth of donations to candidate committees between 2014 and 2021 while being awarded millions of dollars worth of work for state and county agencies.

The U.S. Attorney’s Office also charged contractor Dennis Mitsunaga and his associates for allegedly bribing former Honolulu Prosecutor Keith Kaneshiro with campaign donations.

Pay-to-play has a long history in Hawaii. Perhaps the most famous examples occurred in the early 2000s when the Campaign Spending Commission under former director Bob Watada initiated dozens of investigations resulting in fines against architects, engineers and other government contractors for using their employees and family members to circumvent campaign donation limits.

Former Mayor Jeremy Harris’ campaign also came under scrutiny over hundreds of thousands of dollars in donations by firms that won lucrative city contracts. One of the companies that donated heavily to Harris, R.M. Towill, saw several of its employees charged with misdemeanors for their roles in illegally funneling cash to the campaign. Harris eventually bowed out of the 2002 governor’s race.

The Legislature tried to limit the influence of donations from contractors in the past, but those efforts fell short. In 2002, then-Gov. Ben Cayetano vetoed a bill that would have limited contractors from donating to governors, lieutenant governors and mayors. 

A year later, then-state Sen. Cal Kawamoto, whose campaign also benefited from contractors-turned-donors, inserted language into a bill that would weaken Hawaii’s existing pay-to-play laws. In 2004, then-Gov. Linda Lingle vetoed another proposed ban on contractor donations.

The Legislature finally passed a bill prohibiting state and county contractors from donating to political campaigns in 2005, but with a catch: the new law only applied to the “contracting entity” and not to anyone associated with the company, such as its owners. 

‘It’s So Easy To Get Around’

According to a study of state laws conducted by Holman and Public Citizen, just 15 states have laws on the books to limit contractor donations. Of those, Hawaii has some of the weakest regulations.

Other states, like Connecticut, apply bans to all contracts and restrict board members, officers, managers and those with at least a 5% ownership interest from making donations. Spouses and children of those people are also banned.

Staff with the Hawaii Campaign Spending Commission said they could not recall any formal complaints being filed against contractors under the current law.

“That’s why people involved in politics could live with the contractor ban,” Gary Kam, the commission’s general counsel, said. “It’s so easy to get around.”

Officers and employees from companies that were awarded contracts with the state in 2022 made nearly $360,000 in donations to Hawaii campaigns in the same year.

Of those contractors, the top firm donating to politicians was R.M. Towill. Employees from the engineering firm gave a combined $75,000 to candidate campaigns. In 2022, the company was awarded more than $1.2 million to oversee work in the Sand Island recreation area and improvements to the Ala Wai Canal.

“It would be helpful for the public to know that contractors can’t use campaign contributions as an additional way to bid for a job.” — Heather Ferguson of Common Cause

In 2022, Nan Inc. was awarded more than $230 million in contracts for improvements to various Hawaii high schools and other projects. Officers with the firm also made more than $23,000 worth of campaign donations.

In total, 67 candidate campaigns benefited from contractor contributions. Gov. Josh Green, one of the most prolific fundraisers in the last few years, was the top recipient of donations from contractors. His campaign brought in $55,275 from companies who won state contracts last year. He’s followed by Maui Mayor Richard Bissen, who got $38,000 from state contractors, campaign finance reports show.

In 2018, the two main Democrats for governor, incumbent David Ige and Colleen Hanabusa, were also the top recipients from contractors. Both of their campaigns got about $70,000 each from entities that won state contracts.

That year, contractors donated about $418,000 to campaigns.

Heather Ferguson, director of state operations for Common Cause, said the good-government group supports extending Hawaii’s ban on contractor donations to include at least the officers of a contracted entity.

“It erodes public trust when contractors are allowed to contribute to campaigns because of the public perception of those donations due to many of the high-profile federal cases,” Ferguson said. “It would be helpful for the public to know that contractors can’t use campaign contributions as an additional way to bid for a job.”

Deciding who can’t donate may prove difficult. Federal cases across the country conflict on whom states can limit from donating. 

Last week, the House Judiciary Committee killed House Bill 96, a proposal to ban all owners, officers and employees of a contracted business, as well as their immediate family members, from donating to campaigns.

The committee chairman, Rep. David Tarnas, and other members expressed concerns that the bill would run into constitutional issues because of the broad definition of employees.

Tarnas used the example of contractors like Hawaiian Telcom, which has thousands of employees. Separate bills proposed by the Commission to Improve Standards of Conduct don’t include the word “employees.”

Kam said he’s asking the Senate on Thursday to move a bill without that word to keep the measure alive this session.

“We’re willing to concede the employees just to get at the officers and immediate family,” Kam said.

So far, no one has testified in opposition to proposals to ban donations from contractors.

Another issue state regulators might face is access to data. The state maintains a database of contract awards, but that list does not include contracts for the four counties. There’s also no easy way to tell what the duration of a contract is, which would be the period in which owners and employees are banned from donating under Hawaii law.

The Campaign Spending Commission has just a handful of employees already tasked with overseeing a myriad of issues related to politics and money.

“It’s going to be hard to investigate, but the policy behind it is important,” Kam said. “We have to use whatever means.”

Kam said that commission staff already look for potential cases of bundling, where a business executive and employees all donate on the same day or give similar amounts of money to the same candidates.

The Senate is advancing a bill to fund a new investigator position at the commission at a cost of about $125,000. The bill faces a hearing in the Senate Ways and Means Committee next.