Ethics panel
clears health contract

It finds no abuse in the vote
for workers' life insurance but
begins a review to amend
the state ethics code

By Mike Yuen
Star-Bulletin

There is no evidence that favoritism colored a major contract decision by trustees of the Hawaii Public Employees Health Fund, the state Ethics Commission said.

Gov. Ben Cayetano had said he suspected favoritism when the fund's board voted 4-3 to award a multimillion-dollar life insurance contract, and he asked the board to reconsider its decision.

At issue were the swing votes of two trustees who were then top officials for two of the state's most influential public-workers unions, and whose bosses had ties to the insurance company.

"We didn't find any evidence of favoritism," ethics panel Executive Director Daniel Mollway said yesterday.

But while the ethics panel did not side with Cayetano, the vote by the health fund trustees did trouble ethics commissioners enough to have them launch another inquiry: whether the state ethics code should be amended to take into account situations in which subordinates take actions that can be perceived to be linked to the interests of their bosses.

And in an unusual move, the Ethics Commission went outside its jurisdiction -- the application of the ethics code -- and told the health fund board that its minutes on the contract controversy were so inadequate that the commission could not use them to determine whether there were any ethics violations.

Board minutes disturb panel

Essentially, only the final vote was recorded. State law doesn't require a full transcript or audio recordings of board meetings; but the written minutes are required to "give a true reflection of the matters discussed" and "the views of the participants."

Ethics commissioners advised health fund trustees to discuss with the fund's counsel the board's minutes and compliance with the public meetings law.

Central to the controversy were the votes of trustees Keith Ahue, the deputy director of the Hawaii Government Employees Association who died Thursday night, and Clifford "Chip" Uwaine, a division director of the United Public Workers.

Five months ago, they voted with two other health fund trus-tees to award a contract to Royal State National Insurance Co. to provide life insurance for 72,000 government workers and retirees.

Their bosses are on Royal State's board of directors. Russell Okata, HGEA executive director, is Royal State's board chairman; Gary Rodrigues, UPW state director, is a board member.

In a letter sent to health fund trustees, Mollway said there is "no clear evidence" Ahue and Uwaine misused their positions.

"The commission believes that so long as good faith is exercised, a differing point of view or even poor judgment does not consti-tute a violation of (the Ethics Code fair treatment section)," Mollway added.

Cayetano and the dissenting health fund trustees believe that another insurance company, the Hartford, submitted a bid superior to Royal State's because it cost less and offered better benefits.

The four majority trustees told the ethics panel's attorneys that they believe Royal State would offer better service because it was a local company and that hiring it would provide local jobs and stimulate the state's economy.

Backing a local company

The trustees gave another reason: Royal State's higher cost was still lower than what the state and counties were paying for life insurance for workers and retirees.

"After listening to all seven board members, the commission's staff attorneys were left with a strong conviction that a vote for (Royal State) was not entirely indefensible," Mollway stated.

Randy Perreira, HGEA acting deputy director, said the Ethics Commission's advisory opinion shows that Ahue and Uwaine --who had no financial interest in Royal State -- were representing the best interests of public employees.

"It is unfortunate the governor said what he did," Perreira added.

Cayetano had said that the Royal State contract "smacks of favoritism."

Uwaine could not be reached for comment yesterday.

Cayetano's spokeswoman said he was not immediately available for comment since he was in Hong Kong for the annual meeting of the Pacific Basin Economic Council.

Mollway said that while Ahue and Uwaine did not have any financial interest that would have triggered a conflict-of-interest violation, the Ethics Commission is concerned about situations in which state officials, employees or board members take action that directly affects companies run by boards on which their bosses sit.

"Certainly, public confidence in government decision-making may be undermined in such situations," Mollway added.

"Subordinates may be placed in an awkward position if they must make decisions affecting the interests of their bosses in other companies."

As a result, the commission is examining whether the ethics code should be amended to cover such instances.