The City Council paid a lobbyist $50,000 for the income tax ordinance, and other revelations

Last year Jason Mercier, Director of the Center for Government Reform at the conservative Washington Policy Center, submitted an expansive public document request for documents and communications from Seattle officials related to the development  of the city’s income tax ordinance. He’s been kind enough to share and discuss the resulting information-dumps with me, and the results are a fascinating behind-the-scenes look at how the City Council operates.

I should state up-front: Jason and I disagree on the merits of an income tax (I’m for it), but we have a shared interest in government transparency and accountability, independent of government officials’ political leanings. The income tax legislative effort was a big, complex knot of relationships: lobbyists, legislators, attorneys, activists, and city staff — largely hidden from view. I was surprised by the extended efforts to keep communications secret, as well as who did the work and who got paid for it.

Complaints about Washington state’s regressive tax system have persisted for decades, and in 2010 the most recent initiative to impose a progressive income tax failed, but Seattle’s 2017 income tax ordinance has its roots in the political campaign of Council member Kshama Sawant. In 2014 she pushed through a request for city staff to investigate whether the city could impose a “millionaire’s tax.” That didn’t go anywhere, but Sawant made it a key part of her successful re-election campaign in 2015.

Enter John Burbank, the Executive Director of the Economic Opportunity Institute (EOI), a Seattle-based advocacy organization that describes its mission as “to build an economy that works for everyone by advancing public policies that promote educational opportunity, good jobs, healthy families and workplaces, and a dignified retirement for all.” EOI is a 501(c)(3) nonprofit; here is its most recently published Form 990. Burbank is a registered city lobbyist and state lobbyist. In 2015 EOI had revenues of $871,000, and lobbying expenses of $156,000; it does not disclose its sources of funding. In 2015, Burbank made campaign contributions to Council members Tim Burgess, Lisa Herbold, Mike O’Brien and Kshama Sawant.

Burbank has been working the “progressive tax” issue locally for years. In early 2015 he was in communication with both city attorneys and then-Council President Tim Burgess on the issue. After the Fall 2015 Council elections, Burbank took another run at trying to get the new Council interested in the issue, reaching out to Council members Lisa Herbold, Mike O’Brien, and Kshama Sawant. Again it didn’t go anywhere — until Donald Trump got elected.

Trump’s saber-rattling about cutting funding for the federal budget as well as funding for “sanctuary cities” created a new opportunity in early 2017 for Burbank to pitch a tax on the wealthy. EOI’s board chair reached out to Council President Bruce Harrell but couldn’t get a response; Burbank, however, contacted Herbold, a colleague for over twenty years. Herbold would become the lynchpin for the entire effort. Between January and April of 2017, Herbold used her inside position to put Burbank in front of City Attorney Pete Holmes and City Budget Director Ben Noble. Burbank also met with Council members Bagshaw, O’Brien, Sawant, Burgess, Gonzalez, and even Harrell.

At the same time, Burbank began work on building a grassroots activist coalition, dubbed the Trump-proof Seattle Coalition, to drive perceived public support for a new tax on the wealthy. His key partner in that effort was Katie Wilson, the General Secretary of the Transit Riders Union. She is fairly ubiquitous in Seattle’s progressive activist community. Currently she is serving on the Council’s Progressive Revenue Task Force and is a leader of the Housing for All Coalition. She recently co-hosted a session on “Closing the Housing Gap” with Council member Teresa Mosqueda. Wilson is also a registered local lobbyist. The Transit Riders Union is a 501(c)(4) political organization largely funded by labor unions and individual contributions.

The Trump-proof Seattle Coalition (whose web page is hosted by EOI) is an interesting mix of organizations: political organizations, advocacy groups, environmental groups. But it also includes several organizations with significant financial interest in the revenues generated by an income tax: human services provides such as SHARE, WHEEL, Nickelsville, and the Seattle Human Services Coalition; labor unions including the SEA; and some community-based organizations that also receive city funding.

By early April the coalition was in place and Burbank had made the rounds of City Hall building at least initial support for a new tax, and they were ready to start pushing for legislation. The first step was to pass a resolution committing Council members publicly to an intent to impose an income tax.

Here’s where it starts to gets weird. In many ways, Burbank and Wilson were in the drivers’ seat in crafting the resolution, with Sawant, O’Brien, and especially Herbold in supporting roles. The coalition was meeting regularly and driving discussion of what the new tax revenues should be spent on, including directing money to several causes that would directly and indirectly benefit coalition members: expanding preschool, investing in school buildings, healthcare, new tiny homes for homeless encampments, and free transit passes.

Simultaneously, Burbank and Wilson were pushing the discussion on what should be taxed: unearned income, capital gains, or adjusted gross income.  Council central staff and Herbold’s own staff were scrambling to keep up with the conversation and pull the threads together into a resolution. This was made more complicated because Burbank and Wilson brought their own organizations’ attorneys into the conversation, with differing views from the City Attorney’s Office and the city’s outside attorneys on the legal strategy. That led to some awkward conversations about whether some of the legal firms should be cut out. Burbank was also driving the conversation with the City Budget Office.

After some last minute panic editing and a call by Burbank to the coalition to pack City Hall, on May 1 the Council passed the resolution and attention turned to drafting the real ordinance.

This kind of resolution is not legally binding law; that requires an ordinance. That means the stakes suddenly got much higher, especially given the city’s unique legal strategy on the issue. As I’ve written before, Seattle has two major legal obstacles to enacting a graduated income tax: a state law prohibiting taxes on “net income,” and state Supreme Court precedent from a 1932 ruling that income is property and under the state Constitution must therefore be taxed uniformly. The combined legal team believed that there were potential workarounds for the first, but the second one was more problematic, requiring the state Supreme Court to overturn its own precedent.  Therefore, the consensus legal strategy for the income tax ordinance was to write it to maximize its chances of making it all the way to the Supreme Court. The amount of revenues raised by the tax, and the potential uses of that money, were secondary concerns; the ordinance was first and foremost a vehicle for a legal battle that the proponents wanted to fight.

But the various legal teams had different views on the winning arguments. Most everyone was of the belief that the Supreme Court wants to overturn its precedent based on more recent thinking and U.S. Supreme Court cases as laid out in this 2011 memo by Hugh Spitzer, but the courts would first need to deal with the prohibition on taxing net income before reaching the constitutional issue. There were conflicting views on how to approach that. EOI’s legal firm, Smith and Lowney, believes that the prohibition itself was passed into law illegally and should be challenged on those grounds; the city’s legal firm, Pacifica, didn’t agree. Further, there were conflicting views on the definition of “net income,” and how to choose a category of income to tax that would escape that definition. That disagreement persisted throughout April and May.

But there was another problem: under the rules of discovery, the city’s communications and documents related to the income tax ordinance would have to be turned over to any party that sued, except for those protected by “attorney-client privilege.” The fact that Burbank and Wilson were both outside parties meant that the city’s communications with them would generally not be protected by attorney-client privilege, even when communicating with the city’s attorneys (because they aren’t clients of the City Attorney’s Office). Likewise, city personnel communicating with EOI’s attorneys and the Trump-proof Seattle Coalition’s attorneys would also not be protected. In late April Deputy City Attorney Greg Narver, who was involved in the early stages of drafting the ordinance, recognized this problem and told all parties to stop discussing legal issues in email until he could get a “Common Interest Agreement” in place.

“Common interest” is a legal principle that most frequently applies to co-defendants in a case, such as when two accomplices are accused of committing a crime and are being tried together.  The courts recognize that they have an interest in coordinating their legal defense because of their common interest in the outcome of the case, and therefore have need to communicate legal strategy among the parties and their attorneys. Because of this, the courts treat all communications between either party and either attorney as privileged. And despite the fact that attorney-client privilege generally can’t be asserted for communications between people who aren’t attorneys, the “common interest” principle allows non-attorney parties to communicate under attorney-client privilege if they are discussing the legal views of one or more of their attorneys.

By May 18th, there was a common interest agreement signed by Burbank, Wilson, Narver, and their outside attorneys. Let’s pause a moment to appreciate the full absurdity of that. There was now a written agreement in place specifically designed to allow City Council members and staff to communicate with two paid lobbyists while protected from scrutiny by attorney-client privilege. Protected not just from opposing parties in litigation, but also from citizens’ public document requests. Further, the agreement states that it is “retroactive to the onset of discussions between the Parties regarding the Ordinance.”

It seems ridiculous on its face to claim protection for communications before there was an agreement in place, particularly since Narver insisted on stopping the communications until it was. But I did a quick check of case law and found support for the idea that “common interest” doesn’t actually require a written agreement; a verbal agreement at the “onset of discussions” would probably suffice. There are other interesting legal questions though, such as whether “common interest” applies to the general legislative process, as opposed to communications happening during litigation after a case has been filed in court. Unlike private parties whose documents and communications are presumed to be private unless compelled to be disclosed by a narrowly-tailored discovery request, government communications and documents are presumed to be public unless closed off by a narrowly-tailored exception to the public records laws.  In this case, the parties fully anticipated they would get sued (and they did); that strengthens their case in one way, but it weakens it in another since attorney-client privilege is waived for communications that are implicated in conspiring to break the law — which arguably they did since they were well aware that a graduated income tax is illegal.

But let’s get back to the action. Much of the communication between the parties is redacted for the period after the commmon interest agreement was signed, but you can still get the sense of the interplay between the parties. And Burbank and Wilson were still very much in the core group fine-tuning the financial models and the legal strategy and writing and editing the draft legislation. They were also simultaneously continuing to coordinate the Trump-proof Seattle Coalition, lobby Council members and other city officials to gain their support, and even write external talking points for Herbold, Sawant and Burgess. Herbold was particularly helpful in advising Burbank and Wilson in how to influence her colleagues on the Council, right up until the end.

It turns out that the collaboration between the city and EOI had a financial side as well. On July 6th, the day after the ordinance passed out of committee and four days before the full Council voted it into law, EOI and the city signed a consultant agreement, paying EOI $49,500 of taxpayers’ money for various services provided in development of the ordinance.

This is fishy for several reasons. First, it was signed after 99% of the work was done, a big no-no for contracts. Second, the dollar amount, $49,500, is the maximum that a department can write a contract for without advertising it. Herbold was directly involved in getting this contract in place, although in May she and Narver had decided against it and one month later she had flipped and was pushing to get it signed. Here’s the contract request form, noting that Herbold requested it. And here’s the final invoice from EOI for the contract; the tally of billed hours conveniently works out to $49,475.

You’ll note the subcontracts to Gibson and Smith & Lowney.  Both had been deeply involved in the lobbying effort since early 2017, if not much earlier. EOI lists John Gibson as on their staff. Here’s Gibson in early March weighing in on revenue models, and the Smith and Lowney attorneys in mid-March trying to lobby the City Attorney’s Office and writing a memo to support the lobbying effort. The work covered by this contract is indistinguishable from EOI’s and its subcontractors’ lobbying work on the same topic, and they were happening simultaneously.

To recap: through May and June, Wilson and Burbank were lobbying the city government and running an activist coalition while simultaneously participating in writing the ordinance under the protection of attorney-client privileged communications — and Burbank was also arranging for EOI to get compensated almost $50,000 in taxpayer money for the same work. Is that legal?  Probably. Is it an ethical arrangement? Doubtful. Is it good governance? Hell no.

In response to a request to interview her for this story, Council member Herbold sent me this (across several emails, collected together):

The purpose of the common interest agreement was to protect the attorney-client privilege while allowing the City Law Department, Pacifica Law, Hugh Spitzer, and Smith & Lowney to work together to draft the legislation, again *without waiving the City’s attorney-client privilege.*  The strategic legal underpinnings of the bill was the analysis of Smith & Lowney’s attorneys.  We needed their participation in drafting the ordinance & we couldn’t have it unless we had some way of protecting the attorney-client privilege.  The common interest agreement was vehicle to do that.

On 5/3 I wrote to the Law Department to express my preference & my understanding of the Executive’s preference that we not contract with EOI but that we work through Pacifica’s existing contract with the City & allow Smith & Lowney to be reimbursed for their legal services through that contract instead.

I was told by the Law Department that this arrangement would not be feasible.

The arrangement was approved by the Law Department and the Council President.  The Council as a whole also voted on a resolution that stated, among other things: “Council, Executive, the City Attorney, and members of the Trump-free Seattle Coalition will work together to craft the ordinance, and may engage outside legal counsel as needed.”  The Common Interest Agreement itself references this as well.

…

The strategic legal underpinnings of the bill was based upon the analysis of the Smith & Lowney’s attorneys.  Without Claire Tonry (Smith and Lowney) in the room crafting the ordinance, several differences in the ordinance itself would have been the likely result.  I was in that room on several occasions when the City Attorneys, Claire, Hugh Spitzer, and Greg Wong (Pacifica) were arguing points of the bill – together with the policymakers like me (who knows little about the law!) and Ben Noble – were arguing from a policy perspective on several components in the bill and Claire was instrumental in bringing the conversation back to:  “If you want to make this X legal argument in court, the words in the bill need to be y.”

…

The funds went to Smith and Lowney not EOI. As I explained earlier, I would have preferred the funds go to Smith and Lowney through our contract with Pacifica, and I said so.   

…

Also on the timing for the contract to be finished – I don’t know why it took so long.  It certainly was not my intent that it wouldn’t be signed until 7/6.  We had the basics for the agreement worked out in late May.  Councilmembers requested the expenditure on 6/7 and the Council President approved it on 6/15.

Oh and because I still couldn’t let it ago after my email sent on 5/3, I was still asking for an alternative on 5/26, I found this email to Central Staff Director:

 

 

 

I appreciate Herbold’s willingness to engage and directly answer questions. Note she admits “the strategic underpinnings of the bill was the analysis of Smith & Lowney’s attorneys.” The City Council was executing not on their own strategy, but on EOI’s and their legal staff’s, despite the Council having access to the full resources of the City Attorney’s Office and their own outside counsel, Pacifica. Also, as I pointed out to Herbold, the funds from the contract did in fact go to EOI, which in effect reimbursed them for work they had already commissioned their own attorneys and other staff to do (and only part of the $49,500 went to Smith & Lowney). Also, even if the basics of the agreement were worked out by late May, as Herbold asserts, that was still a month into the drafting of the ordinance.

Herbold also mentions that the City Attorney’s Office and Council President Bruce Harrell approved the consultant contract — pointing out that the issue isn’t necessarily with any particular official but more broadly with a lack of intellectual rigor around distinctions between activists, lobbyists, paid consultants, and the city’s own staff. And in this case, the desire to get the ordinance done on a specific timeline (driven by the coalition) took precedence over the desire to follow appropriate procedures and policies.

Since the ordinance passed and was signed by the Mayor, Burbank and Wilson have continued their collaboration with the city, including Herbold and Sawant. That includes coordinating PR strategy, tracking the opposition, and sharing legal updates. While EOI was not named as a defendant in the lawsuits against the city, they successfully petitioned to intervene in the case and have since co-presented with the city. EOI told the coalition “we welcome this lawsuit,” even saying “bring it on.”

The case, however, has not gone well. The city lost on all issues in Superior Court; the judge found the city’s choice to tax “total income” to be a form of net income, and so didn’t decide the constitutional issue that the city is so eager to bring to the state Supreme Court. That makes it less likely the court will directly take the appeal, but the city has appealed directly to the Supreme Court anyway. All parties are waiting to see what the Court decides to do.

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This story highlights the challenges when government officials get too cozy with outside parties. In this case, those parties were simultaneously acting as lobbyists, community activists, and paid consultants, with unclear loyalties. They led the city into a well-intended but high-risk (and expensive) legal strategy, and they danced around several ethical boundaries.

It also points out that the left end of the political spectrum is just as prone to improper political influence as the right. It has its own paid lobbyists, entrenched financial interests, and conflicts of interest. There is money on the table, and it makes for some strange bedfellows. If lobbyists for Uber or AirBnB, both of which have their own “grassroots” advocacy groups, had reached out to one of the more business-friendly members of the City Council and put in place a similar common interest agreement and consulting contract, Seattle’s progressive advocacy groups would be apoplectic.

And all of this reinforces the importance of government transparency, regardless of who is in charge and how much we like or dislike the political leanings of our elected officials.