Views differ on governor’s business role

Many of them are new. In the past three years, Hogan’s trust has reported ownership interests in about 20 newly created limited liability companies — a type of business entity often used by developers to oversee projects.

As Hogan seeks a second term, this arrangement has drawn criticism from Democrats, who have sought to tie Hogan to President Donald Trump, and renewed a debate about the lengths to which businessmen-turned-politicians should wall themselves off from their private enterprises.

“Just like Donald Trump, Larry Hogan’s businesses are still being operated by his closest relatives, they are cloaked in secrecy, and they raise many questions about the decisions he makes as governor,” says Maryland Democratic Party Chair Kathleen Matthews.

Hogan pledged to have no input with the three trustees who manage his assets, though he can receive some information on his company’s finances and real estate dealings, according to a trust agreement approved by the State Ethics Commission. Hogan Companies is now run by the governor’s younger brother, Timothy Hogan.

The governor’s supporters say he’s consistently followed state ethics laws and dismiss complaints about the trust agreement as election-year politics.

“Since before inauguration, the governor’s representatives worked closely with the Ethics Commission seeking their guidance and recommendations, which were received and have been followed to the letter,” said Doug Mayer, a spokesman for the Hogan re-election campaign. “And that is exactly why this hasn’t been an issue until the current political season rolled around.”

After months of discussion, the commission finally approved the trust agreement in April 2016 to govern how the three trustees — all of whom used to work for Hogan — would manage his dozens of real estate holdings.

The commission also granted a “financial interest exemption” that allows the governor to maintain ownership of real estate projects and permits the trustees to provide the governor and his accountant details on how much money he’s making.

Michael W. Lord, executive director of the State Ethics Commission, said Hogan worked diligently to make sure he was complying with ethics laws. Lord acknowledged Hogan’s holdings presented a challenge for ethics officials, but they felt strongly about finding a way to make it work.

“Business people ought to be able to run for high office,” he said. “They ought to be able to do so knowing there’s a way to deal with issues like this. The commission found this to be an acceptable way to deal with the governor’s situation.”

Democratic gubernatorial nominee Ben Jealous, the former NAACP president and a partner in a venture capital investment firm, also released three years of tax returns.

Jealous reported earning $1.3 million from 2015 to 2017. He says he’s already divested from companies in which he held a stake.

Damon Effingham, acting director of Common Cause Maryland, said the best way for Hogan, or any governor-elect with substantial business interests, to avoid possible conflicts is to sell their ownership in private companies.

“That’s the only way to absolutely avoid a possibility of a conflict of interest,” Effingham said. “The governor has a good deal of say over state policy decisions including transportation projects. There’s going to be a concern when you’re in the real estate industry about how your companies might be benefited from canceling or approving a transportation project.”

Effingham said complying with state ethics rules “are a floor, not a ceiling.”

“It used to be there was more of a

Real estate projects involving the Hogan Companies

The Hogan Companies lists 34 real estate projects on its website, including developments, but mostly deals for which it serves as broker. Gov. Larry Hogan has maintained a 47.5 percent ownership interest in the firm while governor. Many of the projects are located in the Baltimore and Washington suburbs. sacrifice for a higher duty when you took public office,” Effingham said, adding: “I don’t want this to be solely a criticism of the governor. It’s not unique to Gov. Hogan.”

But Kendra Arnold, executive director of the Washington-based Foundation for Accountability and Public Trust, said it’s “not realistic” for public officials to sell their businesses.

“Having everyone divest themselves of every interest they have is not a reasonable requirement,” she said.

Arnold called Hogan’s trust agreement a “proactive step” that isn’t required by law. “The trust is a good way to make sure private interests don’t conflict with public duties,” she said.

Across the country, governors with substantial financial holdings have opted for a range of arrangements to try to avoid conflicts of interest, according to published reports. These often include a blind trust, in which the owner does not know how the assets are managed by an independent third party.

Tennessee Gov. Bill Haslam, a Republican whose father founded the petroleum corporation Pilot, placed most of his private investments into a blind trust — but not his share of Pilot’s chain of truck stops.

Former Virginia Gov. Mark Warner, a Democrat who is a multi-millionaire investor, put his assets in a blind trust when he was in office. He still received reports about the type of holdings he had, but not specific investments.

In Florida, Republican Gov. Rick Scott put his substantial fortune in a blind trust. But that arrangement has drawn criticism, as Democrats have accused him of using the trust to hide his personal profits from the public.

Alfred H. Guy Jr., director of the Hoffberger Center for Professional Ethics at the University of Baltimore, said Hogan should erect a stronger wall between himself and the trust. The governor, ideally, shouldn’t receive any information about his real estate business until he leaves office, Guy said.

“When you’re in a big position in a small state, everything can be seen or perceived as a conflict of interest,” Guy said. “The blind trust is the best way to go. He should say, ‘I trust you guys to do it. Let’s keep it clean and separate.’”

In a 2016 letter to Lord at the state ethics commission, Hogan laid out the parameters of his trust agreement, saying it “includes some of the safeguards generally found in blind trusts.” But he said he still had “continuing interests in active and ongoing businesses” that can’t be put in a blind trust like stock or other investments.

So the governor turned the day-to-day business operations over to the trustees and pledged to “refrain from communication on any matters involving any decision regarding the Hogan Companies’ business interests.”

Hogan also pledged he would abide by state law, which prohibits him from participating in any government matter in which the Hogan Companies has a specific interest, using the prestige of his office for private gain, and using confidential information acquired as governor for personal gain.

But he made clear that the trust agreement does “not prevent me from requesting and receiving information about the status of the Hogan Companies.” This can include tax information and “the identity of the investors and the locations of real property in which the Hogan Companies have an investment.”

Amelia Chasse, a spokeswoman for the governor, said the agreement means Hogan “cannot and does not have any discussions with the trustees about specific projects or potential investments.”

“He can occasionally communicate with them about distributions,” she said, referring to profits that accrue to Hogan. “His accountant communicates with the company's accountant about tax issues.”

Hogan’s trust is managed by Victor White, Jacob Ermer and David Weiss, who were top aides to Hogan in his private business, which has about a dozen employees. White is chief operating officer; Ermer is vice president; and Weiss is a former employee.

Neither the trustees nor Timothy Hogan, who is running Hogan Companies, responded to requests for interviews or information about the company’s latest projects.

The Hogan firm has numerous deals around the state, primarily as a real estate broker. Dozens of development projects are featured on the firm’s website, from Anne Arundel County to Western Maryland and the Eastern Shore.

Several projects have met with controversy in the communities where they’re being built.

The governor is 25 percent owner of the Diamondback Investment Co., a Hogan Companies subsidiary formed since he took office. It is helping develop a proposed 84-unit condominium-townhouse project in Crofton. More than 200 people packed a meeting in March to complain about the project’s impact on traffic and overcrowded schools.

The Hogan Companies also acts as a broker on land owned by Craftsmen Developers where the James Run mixeduse office and retail development is planned in Harford County.

That development has been in the works since before Hogan took office and has moved ahead despite some vocal opponents who criticized a $23 million tax-incrementfinancing subsidy. The Harford County Council narrowly approved that subsidy in 2012, but it has since expired.

Conor O. Gilligan, a vice president with Craftsmen Developers, said in an email that his firm has no plans to use any public subsidies for the James Run project. He said the Hogan Companies has been hired as a broker and has no ownership in the development itself.

Hogan’s trust distributions have been lucrative — allowing him to earn much more than his $180,000 governor’s salary. Profits from Hogan’s private business holdings aren’t public, but tax returns show that he and his wife Yumi earned about $898,000 in 2015, $579,000 in 2016 and $937,000 in 2017.

State Sen. Richard S. Madaleno Jr., a Montgomery County Democrat, urged Hogan to release his tax returns from prior years to help assure voters that his earnings haven’t been boosted by being in public office.

Madaleno, who released six years of tax returns during his unsuccessful bid for the Democratic nomination for governor, said he’s concerned there isn’t a blind trust separating Hogan from the firm now headed by his brother.

“How do you not have a conversation during Thanksgiving?” Madaleno asked.

State Sen. Bill Ferguson, a Baltimore Democrat, says he thinks the governor should make a clean break from the firm he founded.

“You’re either governor, or you’re a developer. Unfortunately, the governor appears to have struggled with this decision,” Ferguson said. “Your focus has to be on the people of Maryland, not the returns from your investments.”

“It’s the exact same as Donald Trump’s sons running the Trump Organization,” he added.

A billionaire developer before he took office, Trump formed a trust that is not blind because he knows how his assets are performing, has close relationships with trustees, and can revoke it at any time.

Republicans took a different view of Hogan’s arrangement.

State Sen. J.B. Jennings, a Harford County Republican, said Democratic critics are being hypocritical because they wouldn’t sell their own properties, quit their jobs or sell their stocks when they took office in the part-time legislature.

“He’s done exactly what he needed to do,” Jennings said of Hogan. “He put it in a trust. It’s the same thing with every legislator who owns stock. For everyone who is saying, ‘He needs to sell it all,’ well, I want to see them sell all their stock and give up their law practices. You’re going to stymie anybody from running for office if they have to dissolve all their ownership.”

The former owner of a feed store in Hereford, Jennings said, “I would never have run if I had to sell my business.”

State Sen. Stephen S. Hershey Jr., an Eastern Shore Republican, said that Hogan has been extremely transparent by releasing tax returns and trust documents — neither of which are required to be public.

“Maryland needs fewer lawyers and lobbyists running for office and more small-businessmen and women — and the governor is providing an incredible example to all those considering running for public office for the first time,” he said in an email. “We need more people like him.”