Risky Business

Former Gov. John Kitzhaber's state attorney was alarmed by a business group's help for first lady Cylvia Hayes.

Sources tell WW that a grand jury in Portland has been calling former Kitzhaber administration aides to testify, and records show FBI agents are showing up at state agencies, as agents did last week at the Oregon Department of Energy.

Meanwhile, investigators are examining thousands of state documents obtained through a criminal subpoena issued Feb. 13, the day Kitzhaber announced his resignation.

The investigation is focused on whether Hayes—assisted by Kitzhaber—broke the law when she used her position in the governor's office to leverage more than $220,000 in private consulting contracts.

But federal investigators have also zeroed in on whether Hayes or others broke the law when the first lady got a powerful business lobbying group to fund a spokeswoman to help publicize her work.

WW last fall first reported that the Oregon Business Council spent $35,000 to pay for a PR person to help Hayes win more media attention for her anti-poverty causes. The group financed Hayes' spokeswoman as Kitzhaber was championing the OBC's political agenda ("First Lady Inc.," WW, Oct. 8, 2014).

Now, emails newly obtained by WW show how far Kitzhaber's staff attorney, Liani Reeves, went to make the arrangement look legal and avoid appearing as if the OBC deal was a political payoff to Hayes.

In 2013, Hayes started looking for ways to draw more attention to the work she was doing on a state-funded program called the Oregon Prosperity Initiative. Kitzhaber saw the program as a way to help reduce poverty in Oregon, and he put Hayes in charge of it.

The OBC, which represents for some of the biggest employers in Oregon, was among the supporters of Hayes' initiative. The group in 2013 landed a $500,000 foundation grant to help fund a statewide "prosperity" plan.

The OBC used some of that money for a communications director, Therese Lang, to help promote the plan. The final version of Lang's contract said she worked directly for the program to promote its goals—not for Hayes.

The distinction is important. Having a private lobbying firm finance a public official's agenda could violate state and federal laws, especially if the payments were a trade-off for political favors.

In reality, however, Hayes was working behind the scenes to get the OBC to give her a press spokesperson. She was doing this at the same time Kitzhaber was championing the business lobbying group's two top priorities: the $3.2 billion Columbia River Crossing project between Portland and Vancouver, and cutting $5 billion in costs from the state's public employee pension system.

In October 2014, Hayes denied that Lang had been engaged to promote her agenda.

"OBC didn't hire a consultant 'for' me," Hayes wrote to WW. "OBC hired a communications professional for the Oregon Prosperity Initiative using grant money earned for that very purpose."

But emails contradict Hayes' denial.

They show Hayes believed the OBC was providing her with a personal spokeswoman, and it was Hayes—not the lobbying group—who handpicked Lang and dictated the terms under which the spokeswoman would work for her.

On July 13, 2013, Hayes emailed members of Kitzhaber's top staff seeking advice on what she should be looking for in the spokesperson the OBC was going to pay for with the grant money. Hayes' email was among 94,000 emails that state officials released to the news media last week.

Hayes made it clear she—not the lobbying group paying the bill—was the one doing the hiring.

"Will you please take a look at the write up below of what I am looking for in the comms position and let me know your thoughts?" Hayes wrote to Kitzhaber staff members. "Biggest question is do I want to hire one person to perform all of these components or do I want to contract several specialty Service Providers?"

Under the heading "Services Needed," Hayes laid out the job description:

"Focused, Proactive Support and Coverage of First Lady Activities: This may include help with speech-writing, photography and videography, generating media coverage. This needs to be managed strategically both to best serve the goals of the Prosperity Initiative and to align with desired first lady brand."

Hayes had been promoting her "brand" for months as a first lady who was engaged in energy and environmental issues. Her anti-poverty campaign was intended to help bolster her image.

Hayes made clear she believed the spokesperson funded by the OBC would work for her.

Hayes wrote in Sept. 1, 2013, email, to Robert Lee, who also worked for the Prosperity Initiative, that she saw the new spokeswoman as "my comms person."

In a previously undisclosed Sept. 13, 2013, email obtained by WW, Hayes told OBC officials whom they should hire.

"The person I am contracting for this work is Therese Lang. She is cc'd here in case you need any additional information from her," Hayes wrote to OBC president Duncan Wyse. "Therese, as discussed, your contract will actually be with Oregon Business Council."

The OBC went along with Hayes' direction. Wyse provided the governor's office with a draft contract that in some places copied word-for-word the job description Hayes had submitted.

That's when alarms went off with Reeves, Kitzhaber's staff attorney.


But the emails obtained by WW show the depths of Reeves' concerns—and the lengths she went to make the arrangement appear legal.

"I'm trying to get my head wrapped around this," Reeves wrote to Hayes in a Sept. 19, 2013, email. "Do I have this right: A non-state non-profit entity (Oregon Business Council Charitable Institute) has received a private grant (from NW Area Foundation), which is going to be used to support the official duties of the First Lady through the hiring of a communications staff person (Therese Lang)?"

"I'm just trying to get a handle on some of the issues we may need to work through," Reeves continued, "including the use of a non-state entity to do state work; public contracting issues since we are essentially bypassing the public contracting process and getting services donated; and whether the 'value of the services' that the state is getting for free is a 'gift.'"

Later that day, Reeves suggested a change in the contract wording that would eliminate the appearance that a business group was paying for the first lady's spokeswoman.

"In thinking about this further," Reeves wrote to Hayes on Sept. 19, 2013. "I think that if the scope of work is revised slightly to make it so that it is clear that Therese is working with OBC on its own policy initiative related to poverty, which they could instruct her to line up to be consistent with the first lady's, instead of directing Therese to support you directly, we can get to the same outcome but it doesn't look like OBC is basically paying someone to support a state position."

Hayes disagreed and told Reeves she was wrong.

"That is not the case," Hayes wrote to Reeves on Sept. 21, 2013. "They are clear that this position is working for me, supporting our Oregon Prosperity Initiative."

In the end, Reeves won out on the contract language. An Oct. 1, 2013, email the governor's office released to WW in December shows Reeves wanted to reinforce the image that the spokeswoman did not answer to Hayes.

"The modified language makes it more clear that Ms. Lang works for OBC on the Prosperity Initiative led by the First Lady, rather than working for the First Lady directly (which creates legal and ethical issues for our office)," Reeves wrote.

But nothing had really changed. Records show Hayes often directed Lang, who set up interviews and media opportunities for Hayes.

A now-disabled website, Oregonprospers.org, described the Prosperity Initiative as Hayes' work and did not mention the OBC. The state website listed Lang as "communications director."

The federal subpoena issued in February seeks communications between the governor's office and the OBC. On Feb. 19, after the federal subpoena went out, Wyse circulated a statement to the business community in which he said the group's attorneys "did not believe that the funding of a consultant was inappropriate, much less illegal."

Wyse declined to answer questions for this story. "OBC is proud," he said in a statement, “of the work we are doing to reduce poverty in Oregon.”