Lt. Gov. Heck raises ethics concerns over predecessor’s legacy

It was supposed to be former Washington Lt. Gov. Cyrus Habib's legacy — a pair of programs to serve youth with disabilities and youth from marginalized or disadvantaged backgrounds. But Habib's successor cancelled a contract with the nonprofit that operates the programs after identifying what his office called "suspicious financial activity" during Habib's last year in office.

In an unusual case of a high-ranking Washington statewide office holder calling into question the official conduct of his predecessor, the office of Democratic Lt. Gov. Denny Heck has flagged for state ethics investigators what it calls “suspicious financial activity” during former Lt. Gov. Cyrus Habib’s final year in office.

The allegations have ensnared two former Habib staff members, including one former senior staffer, in an ongoing ethics investigation, even as the situation threatens to devolve into a case of intraparty, internecine strife rarely seen in Washington.

Habib, who’s studying for the Jesuit priesthood in California, is not under investigation and not speaking publicly.

However, Habib’s former senior staffer has accused Heck and his chief of staff of a “pattern of abuse” and of “weaponizing” the ethics investigation process. Her lawyer, former Supreme Court Justice Phil Talmadge, recently sent them a fiercely worded cease-and-desist letter.

Caught in the middle of the heated battle, which has raged behind the scenes for weeks and is just now becoming public, is a little-known nonprofit called the Washington State Leadership Board (WSLB) which hired the two former Habib staffers when he left office earlier this year. The more senior of those two staffers announced her resignation from the WSLB last week.

The public radio Northwest News Network is not naming the staffers because they are presumed not to have violated state ethics law, and there have been no findings against them.

The WSLB operates under the auspices of the lieutenant governor’s office and with the imprimatur of the state of Washington. Washington’s governor, lieutenant governor, secretary of state and four state legislators comprise the WSLB’s ex-officio board.

Founded five decades ago as the “Association of Washington Generals” (its name was changed in 2020) and funded in part by revenues from the sale of specialty license plates, the WSLB runs study abroad, experiential travel and outdoor leadership-based programs aimed primarily at disadvantaged youth, first-generation college students and young people with disabilities. It also bestows a series of annual leadership awards, including Washingtonian of the Year.

But now, the WSLB finds itself potentially tarnished by the actions of its former patron, Habib, and financially cut off at the knees by Heck who has unilaterally cancelled a contract with the nonprofit that was supposed to pay it $340,000 a year over a five-year period. Heck's office insists the sole-source contract should have been competitively bid and, therefore, exceeded state procurement law.

As a result, the future of WSLB’s programs for youth who are underprivileged and who have disabilities is imperiled.

The crisis has left the WSLB and the lieutenant governor’s office at an impasse over a path forward.

It’s also thrust some of the state’s most powerful elected leaders into the awkward position of having to distance themselves from a nonprofit that trades on their names, but with which they have minimal involvement.

The origins of this political contretemps appear rooted in Habib’s efforts at legacy building before he left office and Heck’s discovery that his predecessor had tied his hands when it comes to funding the WSLB. Just by itself, discord between an outgoing statewide office holder and an incoming one in Washington is unusual – especially when they’re both from the same party.

But the stakes were significantly raised in June when Heck's chief of staff, Phil Gardner, went to state ethics officials with allegations of both potential financial impropriety and violations of the Ethics in Public Service Act during Habib’s final months in office. That was a period during which Habib was working to secure the financial footing of the WSLB and, in turn, the youth programs he had conceived and that were operated by the nonprofit.

Now, with an ethics probe underway and the WSLB in chaos, two competing narratives are emerging. One is that Habib exploited vague language in state statute to provide an ongoing funding stream to his pet projects, and ensure members of his staff had a soft landing when he left office. The other is that Heck is waging a campaign under the guise of government accountability that is imperiling the youth programs.

Heck’s office insisted Monday that it alerted the ethics board on advice of counsel and that "protecting tax dollars from improper use and following state law" was its only motivation.

But in recent weeks, emails reveal, Heck’s chief of staff and the chair of the WSLB’s board have been locked in an increasingly acrimonious impasse. The chair has warned that the nonprofit’s youth participants risk being left in the lurch mid-program. Gardner, the chief of staff, insists the lieutenant governor’s office can’t keep sending state dollars to the WSLB so long as members of its staff are the subject of an ethics investigation.

The story of how things got to this point is 50 years in the making.

A legacy project

In 1971, then-Lt. Gov. John Cherberg formed the Association of Washington Generals, WSLB’s predecessor organization, as a way to recognize “worthy citizens who make significant contributions to Washington,” according to a 2005 legislative bill analysis.

The governor, lieutenant governor and secretary of state would sign a commission designating an honoree as a “Washington General” – a play on President George Washington, the state’s namesake, who served as a general in the Revolutionary War. By one account, Washington’s program was a good-humored one-up on Kentucky whose governors had long-bestowed a Kentucky Colonel award. Generals outrank colonels.

In 2005, the Legislature passed a bill -- that was requested by then-Lt. Governor Brad Owen and then-Secretary of State Sam Reed -- that formally recognized the Association of Washington Generals in state statute.

That law established the association as a private, nonprofit, nonpartisan organization whose purpose was to recognize outstanding service by individuals – by designating them Washington Generals -- who would then serve as state ambassadors to promote trade, tourism and international goodwill. The law also established the governor, lieutenant governor and secretary of state as ex officio, non-voting members of the nonprofit’s board.

But perhaps most importantly, the 2005 law gave the Association of Washington Generals permission to use the image of the state flag to promote its work and granted the lieutenant governor the authority to “provide technical and financial assistance” to the association — broad language that wasn’t clearly defined and wouldn’t get scrutiny until years later.

Then, in 2013, another change in state law gave the Association of Washington Generals a dedicated source of state funding. That year, again by request of Owen, the Legislature created two specialty license plates celebrating the Seattle Seahawks and the Seattle Sounders FC soccer team. Under the bill that passed, 30 percent of the proceeds from the Seattle Sounders license plate sales – up to $40,000 a year – was earmarked for the Association of Washington Generals “to develop educational, veterans, international relations, and civic projects, and to recognize the outstanding public service of individuals or groups.”

In 2016, Habib, who had served in both chambers of the state Legislature, was elected as Washington’s 16th lieutenant governor to replace Owen who retired after a record five terms. A Yale educated lawyer and Rhodes Scholar, Habib’s election was historic on two fronts: he was the first Iranian-American elected to statewide office in the United States. He was also blind having lost his eyesight to childhood cancer.

Washington’s lieutenant governor occupies a unique space straddling both the legislative and executive branches of government. When not presiding over the state Senate, or subbing-in when the governor is out of state, the lieutenant governor has a lot of latitude to carve out their own policy niche. In Habib’s case, his particular interest was access to higher education, including study abroad.

In 2017, Habib launched the Washington World Fellows program to serve as the state’s “first global leadership program for high school students,” according to a brief online history.

The program was designed to prepare high school students, who would be the first in their family to attend college, for the rigors of higher education. Beginning in their sophomore year, fellows would participate in a multi-faceted college preparation program. During their junior year, the fellows would travel to Leon, Spain for a six-week summer homestay and study abroad experience for which they would earn college credit.

The following year, in 2018, at the request of Habib, the Washington Legislature passed a bill that formally established the Washington World Fellows program and authorized the lieutenant governor’s office to collaborate with the Association of Washington Generals on the administration of the program.

The legislation also authorized the lieutenant governor’s office to establish a separate sports mentoring program and further expanded the role of the Association of Washington Generals – beyond its 2005 legislative charter -- to include educational, sports and employment opportunities for youth, veterans and people with disabilities.

Authorizing programs is one thing. Funding them is another. The 2018 bill addressed that too.

It redirected up to 25 percent of the proceeds from the sale of Seahawks specialty license plates to the Association of Washington Generals to fund the World Fellows program. It also created a Seattle Mariners license plate and granted 100 percent of the proceeds to Habib’s passion projects. Seventy-five percent of the Mariners plate sales would fund the as yet unnamed sports mentoring program; 25 percent would go directly to Habib’s office to administer the Washington World Fellows program.

The bill was signed into law in March. That July, the inaugural class of fellows departed for Spain.

It had been just 18 months since Habib had taken office and, already, he had succeeded in setting in state statute the architecture and funding for two new programs of his creation, as well as greatly expanded the role and mission of Association of Washington Generals. Its days of designating citizens as “Washington Generals” would soon look quaint.

But Habib’s work wasn’t done.

The next year, in 2019, he signed a memorandum of agreement between his office, the Association of Washington Generals and two other nonprofits -- Outdoors for All and No Barriers – to create a new program called Boundless Washington. Its aim was to provide outdoor leadership opportunities to young people with disabilities.

That same year, with Habib’s backing, the Legislature created another specialty license plate — this one celebrating the Seattle Storm women’s basketball team. The first $25,000 in proceeds were earmarked for the Association of Washington Generals to fund a long-standing program called the Washington State Legislative Youth Advisory Council, which had previously been housed in the lieutenant governor’s office. All of the remaining proceeds were dedicated to the Association of Washington Generals to provide grants to support athletic and recreational opportunities for women and girls, especially those with disabilities.

That September, Habib summited Mount Kilimanjaro, the highest point on the African continent, as part of a fundraising effort for Boundless Washington.

The next year, 2020, would be Habib’s last in office. It was also the year he worked to put in place the final pieces to ensure his programs would live on after he was no longer lieutenant governor.

That March, the Legislature passed a bill that changed the name of the Association of Washington Generals to the Washington State Leadership Board.

The bill also added four legislators, two from each party, to the renamed nonprofit’s board of directors. And it allowed the WSLB to approve Boundless Washington as its official sports mentoring program.

The Legislature delivered that bill to the governor on March 11. The following day state lawmakers sent the governor another specialty license plate bill — this one celebrating the new Seattle NHL team — with 25 percent of the revenues dedicated to the lieutenant governor’s office for the Boundless Washington program.

A week later Habib dropped a bombshell. He would not be running for reelection and instead planned to leave politics to study to become a Jesuit priest. It was a sudden and unexpected retirement announcement for a politician long seen as ambitious and likely headed for higher office.

It’s what would happen in the months between that announcement and when Habib left office that would lead to the allegations about “suspicious financial activity” and potential ethics violations leveled by his successor.

Securing future funding

That May, Habib signed an agreement with the WSLB that committed $1.7 million in Office of the Lieutenant Governor funds to the WSLB over a five-year period beginning in 2020. It called for annual payments to WSLB of $340,000.

Previously, Habib had secured approximately $500,000 in the state budget — separate and apart from the license plate revenues — specifically for the ongoing operation of the lieutenant governor's educational programs, including Washington World Fellows and Boundless Washington.

That August, with Habib’s time in office coming to a close, the WSLB board met and voted to hire one of his top staffers to become its executive director — a new position for the nonprofit. However, she would remain on Habib’s staff until Habib’s term officially ended.

The fact the WSLB now had a steady stream of funds to hire staff represented a significant evolution. Previously, the nonprofit had been all volunteer and the staff work had been done by the staff of the lieutenant governor’s office.

By that fall, Habib had taken unpaid leave and departed for California to begin his Jesuit training leaving his small staff to manage the day-to-day operations of the Office of Lieutenant Governor.

Still, Habib was checking in regularly. That November, he authorized the transfer of another $18,000 to the WSLB to help pay for staff costs associated with the Boundless Washington program. That transfer would later draw the scrutiny of his successor.

Then, in the final weeks of the Habib administration, his staff made $5,500 in credit card purchases, including for an email blast service and electronic equipment at Best Buy and Amazon.com.

'Suspicious financial activity'

In January, Habib’s term ended and Heck’s began. The Habib staffer who had previously been selected to serve as WSLB’s executive director moved over to the nonprofit to begin her job there. That same month, another former Habib staff member also went to work for the WSLB after turning down a job offer from Heck.

As Heck’s team took office and chief of staff Phil Gardner started to take stock of what the previous administration had left behind, he grew concerned.

Over a four-month period, Gardner passed along some of those concerns to the Offices of Attorney General and State Auditor. Then in June, he submitted an eight-page letter, along with more than 80 pages of supporting materials, to the state’s Executive Ethics Board and to the Director of State Audit and Special Investigations at the Washington State Auditor’s office.

That letter was titled: “Suspicious Financial Activity and Potential Violations of the Ethics in Public Service Act During the Final Year of Former Lieutenant Governor Cyrus Habib’s Term of Office.”

Gardner’s memo centered on Habib’s final 10 months in office during which, he wrote, it appeared Habib “executed a plan aimed at securing long-term sources of public funding” to operate the WSLB and fund the future salaries of his two staffers once they joined the nonprofit.

Furthermore, the letter said, there was evidence that the former staffers played a role in those financial transactions “which made their post-state employment possible.”

“In the clearest case, one of the two staff members … accepted a job offer from the Washington State Leadership Board in August 2020 and remained on the payroll of the [lieutenant governor] through January 13, 2021,” the memo said.

During that interim time, the memo said, the staffer participated in the transfer of the $18,000 from the lieutenant governor’s office to the WSLB, her future employer. The memo said that one person recalled that the staffer expressed concerns at the time about whether the transaction was an “appropriate use of funds.”

The memo said the second staffer had a “ministerial” role in the transfer of the $18,000 to WSLB and, at the time, had no plans to join the nonprofit’s staff.

“Nevertheless, the more limited actions of Staffer-2 may also be in violation of the post-state employment restrictions,” Gardner wrote.

Washington’s employment after public service law imposes a two-year cooling off period before an employee can benefit from a contract or grant they created or administered while working for the state. The ethics law also prohibits the acceptance of any offer of post-state employment if there’s reason to believe the job is a reward for actions taken while a state employee.

The state ethics board confirms that it's looking into allegations related to "purchases made and [the] post-state employment" of the two former Habib staffers.

Both former staffers deny wrongdoing.

“I did recuse myself from the $18,000 decision,” the first staffer said in response to a series of written questions provided by the Northwest News Network.

“I had absolutely no discretion in any of the decisions that were made,” the second staffer said in an email.

Gardner’s letter to the state ethics board and the state auditor also raised questions about the agreement committing the lieutenant governor’s office to pay the WSLB $1.7 million over five years.

“In drafting this contract, former Lt. Governor Habib intended to bind his successor in office — and future legislatures — into continued funding of the Washington State Leadership Board long after he left office,” the memo said.

Gardner said the agreement did not follow state contracting rules, although he also acknowledged that state law gives the lieutenant governor wide latitude to provide the WSLB “technical and financial assistance.”

While accusing Habib of taking advantage of that broad language, Gardner conceded in his memo that the transfers of money “appear to be permissible under current state law.”

Nonetheless, the same day Gardner sent his memo to the ethics investigators, Heck nullified the agreement to make annual payments to WSLB on the grounds that Habib “never had the legal authority to enter into the agreement.” Those payments represent more than 50 percent of the WSLB’s revenues, according to its staff. Without that money it’s unclear if it can retain its employees and continue its programs.

Reached in California, Habib declined to comment on the ongoing ethics investigation into his former staffers, or the allegations contained in the memo citing the policies of the Jesuit seminary where he is currently studying for the priesthood.

However, the former senior Habib staffer who went to work for the WSLB agreed to answer a series of questions from the Northwest News Network via email.

In her responses, the former staffer said that state law “encouraged collaboration between the WSLB and the Lt. Governor’s office” and defended the $1.7 million, five-year contract as consistent with the Legislature’s goal of having the WSLB run the programs in tandem with the lieutenant governor’s office.

She also noted the contract was reviewed by a state lawyer and included a termination clause.

Regarding the $5,500 in credit card expenditures at the end of Habib’s term in office, she said the purchases were for office equipment, such as a monitor and headsets, and an email blast service the nonprofit needed to operate remotely during the pandemic.

The former staffer also provided a lengthy statement in which she said she’s been “continually harassed and bullied by Lt. Governor Heck and his office” which led her to announce her resignation from the WSLB earlier this month. (She had previously resigned in July but then, at the urging of WSLB’s executive committee, rescinded her resignation.)

She alleged that for months Heck’s office has been pressuring the WSLB board to fire her and making future funding for its programs contingent on her departure from the nonprofit.

“I was informed by multiple people in June that Lt. Governor Heck had personally called board members to disparage me prior to filing his ethics board complaint,” she wrote.

The woman said she has retained Phil Talmadge, the former Supreme Court justice, as her attorney at her own expense, “Due to the frightening intensity with which Lt. Governor Heck’s office has worked to oust me and damage my reputation.”

The cease-and-desist letter from Talmadge, calls the ethics complaint against her “baseless” and accuses Heck and Gardner of a “vicious character assassination.”

In her statement, the woman said that Heck was hostile toward her during the transition period after he had won his election and was preparing to take office. She suggested that it might have been related to Habib’s support of Heck’s Democratic opponent in the primary, state Sen. Marko Liias.

Asked to respond to the allegations, Gardner wrote in an email that: “None of these assertions dispute any of the facts contained in the June 21 submission to the Executive Ethics Board and the State Auditor’s Office.”

In response to the ongoing ethics investigation, the WSLB board has retained a lawyer “out of an abundance of caution” to respond to inquiries from the state ethics board and to review the hiring earlier this year of the two former Habib staffers.

“We are awaiting the results of that review but believe that it will conclude that WSLB at all times acted appropriately,” board chair Nickolas Bumpaous wrote in an email.

Meanwhile, emails reviewed by the Northwest New Network reveal that tensions between Heck’s office and Bumpaous have been rising in recent weeks.

When Gardner got word earlier this month that the WSLB was going to alert its youth program participants and their families that the programs were imperiled, Gardner sent an email to the entire WSLB board.

In his email, Gardner alerted the board members to the ethics investigation and attached a copy of his memo.

“I have not previously communicated this information directly to you out of respect for your board's internal decision-making process,” Gardner wrote. “However, yesterday it became apparent that many board members have not been told key details about the conversations [the Office of Lieutenant Governor] and WSLB leadership had this summer.”

Gardner said in the email that the Office of Lieutenant Governor “remains committed to the future success of Washington World Fellows and Boundless Washington and is more than willing to work with the WSLB to achieve these outcomes.”

But Gardner also held firm that so long as WSLB staff are the subject of an ethics investigation, the lieutenant governor’s office can’t distribute funds to the nonprofit or make “lasting, future plans” about the programs.

The Office of Lieutenant Governor, he wrote, “has no flexibility on these two points.”

Gardner did not include Bumpaous on the email, which he says was inadvertent.

When Bumpaous learned of the email to his board members, he wrote Gardner back calling it “divisive and inefficient” to not include him or the nonprofit’s executive director in the communication.

Bumpaous reiterated to Gardner that the WSLB cannot continue to operate the Washington World Fellows and Boundless Washington programs for the coming year without additional funding and a new memorandum of understanding. He also noted that Heck’s office had not transferred to WSLB the April through June specialty license plate revenues due to the organization.

Gardner told the Northwest News Network that he plans to authorize the transfer of those funds before the end of the month.

However, it remains unclear if the lieutenant governor's office and WSLB will come to a long-term agreement to continue funding and operating the youth programs.

Approximately 60 past and present Washington World Fellows students could be impacted if the programs cease operations, according to WSLB staff. The Boundless Washington program is currently serving 13 students with disabilities.

A ‘need for reform’

The situation appears to have caught most of the elected officials who serve as ex-officio board members by surprise. A spokesperson for Inslee said his chief of staff was briefed on the ethics investigation, but that Inslee has had no involvement with the WSLB as governor.

Secretary of State Kim Wyman, in an interview, said she has attended WSLB board meetings, but viewed her ex-officio role as supportive, rather than involved in budget and policy decisions.

Three of the four lawmakers who serve as ex-officio board members responded to the Northwest News Network’s request for comment. One, Republican state Sen. Brad Hawkins, said he had resigned from the board after learning of the ethics investigation.

Another Republican, state Rep. Skyler Rude, who still holds his ex-officio position, said he was reluctant to pass judgment early on in an investigation.

“I think all parties involved need to do their best to put personalities aside and come together at the table and figure out solutions that benefit the programs and the youth involved in those programs,” Rude said.

The two Democrats on the ex-officio board are state Sen. Claire Wilson, who did not respond to a request for comment, and state Rep. Steve Bergquist who said he supports the mission of expanding civic and cultural engagement opportunities for students, but added that he has “generally not been involved in [WSLB] board policy matters.”

The uncertainty about the future of the WSLB and the programs it operates is already having an impact. For now, the WSLB has paused new applications for its next cohort of Washington World Fellows.

For his part, Lt. Gov. Heck said in a statement that the WSLB “is in obvious need of reform.”

“Its future will be the subject of legislation in the upcoming regular session. However, the Office of the Lieutenant Governor remains committed to the future success of these programs and the youth they serve,” the statement said.

Update: In November, the Washington State Executive Ethics Board dismissed the case against the more junior staffer after finding no violation of ethics law had occurred. However, in the case of the more senior staffer the board found that there was reasonable cause to believe the state's Ethics in Public Service law had been violated. That staffer has 30 days to respond and will then have the option to enter into settlement negotiations or request a full hearing before the board.

Tom Banse contributed reporting.

This story was updated on November 30, 2021.

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