Governor Kim Reynolds has defended her decision to use nearly $450,000 in federal funds from the Coronavirus Aid, Relief and Economic Security (CARES) Act to pay salaries and benefits for her permanent staffers.

But her comments at a September 16 news conference, along with information her staff provided to some reporters afterwards, left several salient questions unanswered.

1: How were her staff’s job duties “substantially different” during the pandemic?

The press conference was Reynolds’ first media availability since Bleeding Heartland reported on September 13 that the governor directed CARES Act funding to cover about 62 percent of the compensation for 21 of her employees from March 14 to June 30.

Iowa PBS posted the full video, and I pulled this clip showing the exchange between Reynolds and Kathie Obradovich of Iowa Capital Dispatch.

Note that although the governor twice referred to using $300,000 in CARES Act funds, her staff later confirmed to other reporters that the correct amount is $448,449, consistent with records I received from the Iowa Department of Management.

Reynolds asserted, “CARES funding can be used for salaries. That’s very clear in what allowable allocations are.”

Yes and no.

Guidance from the U.S. Treasury Department indicates that CARES Act funds can cover “necessary expenditures incurred due to the public health emergency,” that “were not accounted for in the budget most recently approved” and were incurred between March 1 and December 30, 2020.

Reynolds acknowledged that under the federal government’s criteria, employees’ “job requirements” must be “significantly changed due to COVID.” She explained that she moved about half of her staff out to the State Emergency Operations Center soon after the first coronavirus cases were confirmed in Iowa. Those working in that building focused almost exclusively on matters related to COVID-19. The other half of her staff stayed at the state capitol, answering Iowans’ phone calls and emails about the pandemic.

The guidance states,

The CARES Act also requires that payments be used only to cover costs that were not accounted for in the budget most recently approved as of March 27, 2020. A cost meets this requirement if either (a) the cost cannot lawfully be funded using a line item, allotment, or allocation within that budget or (b) the cost is for a substantially different use from any expected use of funds in such a line item, allotment, or allocation.

A $2.3 million line item in the state budget for fiscal year 2020 covered operating expenses for the governor’s office. So the key question is whether Reynolds’ staffers were doing work that was substantially different from what the budget envisioned.

The Des Moines Register’s Brianne Pfannenstiel reported that Reynolds’ communications director Pat Garrett pointed her to a “frequently asked questions” document from the Treasury Department. One of those questions was, “What would qualify as a ‘substantially different use’ for purposes of the Fund eligibility?” Here’s the answer (emphasis added):

Costs incurred for a “substantially different use” include, but are not necessarily limited to, costs of personnel and services that were budgeted for in the most recently approved budget but which, due entirely to the COVID-19 public health emergency, have been diverted to substantially different functions. This would include, for example, the costs of redeploying corrections facility staff to enable compliance with COVID-19 public health precautions through work such as enhanced sanitation or enforcing social distancing measures; the costs of redeploying police to support management and enforcement of stay-at-home orders; or the costs of diverting educational support staff or faculty to develop online learning capabilities, such as through providing information technology support that is not part of the staff or faculty’s ordinary responsibilities.

Note that a public function does not become a “substantially different use” merely because it is provided from a different location or through a different manner. For example, although developing online instruction capabilities may be a substantially different use of funds, online instruction itself is not a substantially different use of public funds than classroom instruction.

In other words, moving staff to the State Emergency Operations Center does not automatically make their labor a “substantially different use” of resources.

As the original Bleeding Heartland post discussed, the governor’s office has not specified what kind of work these 21 staffers were doing from March through June. Garrett continued to ignore inquiries on the subject this week.

Speaking hypothetically, if Logan Shine spent a lot of his time coordinating PPE shipments to health care facilities, that would be substantially different from his regular duties as the governor’s legislative liaison. But if he was primarily communicating with state legislators throughout the spring, that would not be substantially different from the job that was budgeted for, even if those conversations were mostly about COVID-19.

Some of Reynolds’ staff appear to have been doing the same kind of work throughout this period. Sam Langholz has reviewed and drafted legal documents, the core responsibilities of the senior legal counsel. Being physically in the emergency operations center didn’t change his role. Sara Craig Gongol was Reynolds’ chief of staff prior to the pandemic and remains in that position. Garrett helped organize news conferences and handled communications with members of the media, which is the same job he’s had since December 2018.

Legislators would have expected the $2.3 million line item to cover those and other full-time positions.

Near the end of the video clip posted above, Reynolds mentioned using CARES Act funds for “additional expense and salaries in our office.” But the governor hired no new personnel to work on the pandemic response. I have confirmed through the Iowa Department of Administrative Services that no one on the governor’s staff received overtime pay from March through June 2020, nor did anyone receive a raise during that time. (All of the employees in question received small salary increases at the start of the current fiscal year on July 1, which is standard practice in state government.)

2. What did the governor do with the state funds appropriated to her office for fiscal year 2020?

David Pitt’s story for the Associated Press noted, “It wasn’t immediately clear what happens to the state money that had already been allocated to governor’s staffer salaries.”

The Iowa Senate Democrats highlighted that angle in a September 16 news release demanding investigations of the matter.

The diversion is even more puzzling because the Legislature approved and the Governor signed legislation to appropriate more than $4.6 million to cover the cost of running the Governor’s office – including salaries and benefits – over the past two years.

“We need to find out what the Governor did with the extra money. The intent of the federal aid was not to allow the Governor to set up a slush fund,” [State Senator Joe] Bolkcom said. “We also need to find out if this diversion is continuing.”

For the past six months, none of the documents released to the public and legislators contained any information about this diversion of funds.

“Instead of transparency by the Governor and her staff, they are hiding the ball from Iowa taxpayers,” Bolkcom said.

After reviewing the salaries paid to Reynolds’ staff last year, I would guess that the $2.3 million was fully spent on payroll expenses, and the CARES Act funds helped cover what otherwise would have been a shortfall of nearly half a million dollars.

If so, one wonders whether federal COVID-19 relief funds will be needed to balance the books during the current fiscal year. The 2021 budget included $2,315,344 for the governor’s office, little changed from the $2,303,954 appropriated for last year.

Asked whether the governor has directed CARES Act funds to cover part of her office’s payroll expenses for fiscal year 2021, Garrett did not reply, and the Iowa Department of Management said it had no responsive records.

Staff for State Auditor Rob Sand told Bleeding Heartland on September 14, “Our office is auditing CARES Act money but we cannot comment on specifics until our audit is complete.” Perhaps that inquiry will uncover further details about state funds allocated to the governor’s office as well. The Iowa House or Senate Oversight Committee could investigate this matter, but that’s unlikely as long as Republicans hold majorities in both chambers.

3. Why didn’t CARES Act funding cover Paul Trombino’s salary?

Reynolds said at the press conference, “And some of our staff are actually shared or they’re funded through other agencies, and I didn’t think it was fair for them to pick it up, when this is an expense that’s qualified.”

She was alluding to policy advisers Liz Matney, Joel Anderson, and Daniel Wolter. Other agencies covered 100 percent of their compensation for most of fiscal year 2020; those arrangements ended on March 13.

Oddly, Reynolds did not direct the use of federal funds to pay her chief operations officer Paul Trombino III. Documents obtained through other records requests support accounts from various sources, who say Trombino has been deeply involved in COVID-19 policy discussions. For that reason, I was surprised not to see his name on the list of staff paid through CARES Act funds.

Linda Leto of the Department of Management told me the Department of Administrative Services has paid 100 percent of Trombino’s salary and benefits since Reynolds named him interim director of that agency on March 7, 2020. Why not put his compensation on the federal government’s tab instead?

4. When did Reynolds’ staff discuss this matter with the U.S. Treasury’s watchdog?

Pitt paraphrased Craig Gongol as saying, “The governor’s office confirmed the expenditures with the U.S Department of Treasury Office of the Inspector General.”

Did that happen before Reynolds authorized this use of CARES Act funds, or only after I started investigating these expenditures?

The governor must have decided to spend COVID-19 relief money on her office payroll sometime before June 30. On that day, Craig Gongol and the directors of the Iowa Department of Human Services, Iowa Department of Revenue, and Iowa Economic Development Authority signed salary-sharing agreements for the three policy advisers. All specified that the agency’s obligations ended on March 13, indicating that the governor’s office planned to tap a different funding source from March 14 through the end of the fiscal year.

States were not required to seek permission in advance when allocating CARES Act funds, but the Treasury’s inspector general has the authority to review any use of those funds, and could ask the state to repay a portion of the money.

5. Why did Reynolds’ staff deceive state lawmakers about the additional $200,000 her office received last year?

Ever since the governor’s office advertised for a public relations manager in June 2019, I’ve wondered how Reynolds would manage to pay her expanding staff.

The governor’s office had requested an extra $200,000 for fiscal year 2020. Legislators received no written justification for why the governor’s budget should increase by nearly 10 percent when most agencies had to make do with status quo budgets.

During Iowa House floor debate in April 2019, Republican State Representative John Landon announced, “The governor’s office tells us they would use that as an analyst for tax policies and another analyst for health care policies.” In his discussions with Craig Gongol, Landon said, “it became very apparent why the need was there.”

After receiving salary-sharing agreements that showed other agencies covered the salaries of new hires on health policy (Matney) and tax policy (Anderson), I sought comment from the Republican leaders and Democratic ranking members on the legislature’s Administration and Regulation Appropriations subcommittee. Landon and his GOP counterpart in the upper chamber, Senator Dennis Guth, did not reply.

Democratic Senator Claire Celsi provided this statement on August 12.

The Administration and Regulation subcommittee functions as a liaison between the Legislature and some departments in the State of Iowa, including the Governor’s office. This year, the Governor submitted an unremarkable budget request. Democrats later found out that the Governor hired a few policy positions in her office and she requested $200,000 to cover those costs.

Now, I am finding out that these salaries were covered by memorandum of understanding (MOU) by other state departments that actually covered the cost of those salaries. I have questions. Why wasn’t the Governor’s office more transparent? Why didn’t they inform the Legislature about the MOUs? What was the $200,000 actually used for?

I am very disappointed in the shell game Governor Reynolds is playing. She has to follow the rules, just like everyone else. I am calling on the Governor to immediately explain where the money was spent. That is the least she could do at this point. And I call on my Republican colleagues who chair this committee to do their jobs and immediately demand this information.

State Representative Karin Derry wrote in an August 13 email,

At the January 29, 2020 Administration and Regulation Appropriations Subcommittee meeting, I questioned Sara Craig with the Governor’s Office about the two additional positions. She responded only that the two FTEs [full-time equivalents] were a Tax Policy Advisor and a Health Care Policy Advisor.

According to these MOUs, the salaries for two employees assigned to the Governor’s Office to “provide strategic support for the Department as agreed by the Office of the Governor and the Department” of Revenue and DHS, are reimbursed by those Departments through mid-March of the state’s fiscal year. It is unclear, then, how the additional $200,000 for two additional FTEs is being spent.

This lack of clarity and transparency around the expenditure of taxpayer dollars is troubling. More troubling still was the majority party’s willingness to accept such scant details and approve a 10 percent increase to the budget for the Governor’s Office without requiring reasonable justification. Unless we restore some much-needed balance to our state government, this irresponsible and nontransparent expenditure of taxpayer dollars will only continue.

Craig Gongol and Garrett did not respond to four emails last month asking about these discrepancies. The governor’s chief of staff certainly knew in January 2020 that contrary to what she had told legislators, the extra money wasn’t supporting the salaries for Matney and Anderson.

The Iowa Department of Revenue’s spokesperson John Fuller told Bleeding Heartland on August 18 that the agency’s Director Kraig Paulsen negotiated the plan to fully cover the tax policy analyst’s compensation “when Mr. Anderson was hired”–that is, during the summer of 2019.

The Department of Revenue has agreed to pay Anderson’s salary and benefits for the current fiscal year as well. The Department of Human Services will do the same for Matney, according to that agency’s spokesperson Matt Highland.

At the September 16 news conference, Garrett and Reynolds thwarted two attempts by Obradovich to follow up on her questions about the CARES Act. Iowa reporters who have access to the governor should keep pressing for answers.

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Appendix 1: The U.S. Treasury’s Coronavirus Relief Fund Guidance for State, Territorial, Local, and Tribal Governments, as updated on September 2

Appendix 2: The U.S. Treasury’s Coronavirus Relief Fund Frequently Asked Questions document, as updated on September 2

Appendix 3: September 16 news release from the Iowa Senate Democrats

Key Democratic Legislators call for investigations into misuse of federal COVID funds

Key Democratic legislators are calling for investigations into reports that Governor Reynolds diverted nearly $450,000 to pay her staff instead of using the funds for COVID-19 relief efforts.

“At a time when the number of jobless Iowans is through the roof and many Iowa businesses are hurting because of the pandemic, Iowa taxpayers should have confidence that federal COVID relief funds are being used only to help them,” said Sen. Joe Bolkcom, Ranking Member of the Senate Appropriations Committee.

“Instead of using funds that are desperately needed to provide relief to hard-working Iowans and closed or struggling businesses hurt by the pandemic, the Governor is diverting the relief funding for other purposes. That’s not right.”
A report by Bleeding Heartland uncovered public documents showing that Reynolds directed that $448,449 in funding received through the federal Coronavirus Aid, Relief and Economic Security (CARES) Act were used to cover salaries and benefits for staff already working in her office.

The diversion is even more puzzling because the Legislature approved and the Governor signed legislation to appropriate more than $4.6 million to cover the cost of running the Governor’s office – including salaries and benefits – over the past two years.

“We need to find out what the Governor did with the extra money. The intent of the federal aid was not to allow the Governor to set up a slush fund,” Bolkcom said. “We also need to find out if this diversion is continuing.”

For the past six months, none of the documents released to the public and legislators contained any information about this diversion of funds.

“Instead of transparency by the Governor and her staff, they are hiding the ball from Iowa taxpayers,” Bolkcom said.

Democratic Senators called for a three-pronged effort to investigate this misuse of public funds:

First, Senator Claire Celsi of West Des Moines, Ranking Member of the Administration and Regulation Budget Subcommittee, will request that the State Auditor immediately investigate the diversion of funds. The Subcommittee appropriated $2,303,954 for the Governor’s office during Fiscal Year 2020 (July 1, 2019, through June 30, 2020) and $2,315,344 for Fiscal Year 2021 (July 1, 2020, through June 30, 2021).

Second, Senator Tony Bisignano, Ranking Member of the Government Oversight Committee, will request that the Oversight Committee convene to allow Republican and Democratic lawmakers to question the Governor, the Director of the Department of Management and other key officials with knowledge of this diversion.

Third, federal officials in U.S. General Accountability Office (GAO) will be contacted to investigate whether paying existing staff is an appropriate use of COVID relief funds.

Top image: Screen shot from the video of Governor Kim Reynolds’ press conference on September 16.