NPRI's Transparency Project on the LVCVA: Feb. 16, 2009 update

  • Monday, February 16, 2009

Original Dec. 3, 2008 report
Feb. 4, 2009 update
• Apr. 9, 2009 update
Apr. 20, 2009 update
May 19, 2009 update  

The Las Vegas Convention and Visitors Authority is attempting to redefine its legal identity and that of its top official in the wake of the Nevada Policy Research Institute's disclosures of improper spending, ethics violations and a longstanding breach of contract by the authority's advertising agency.

No longer is the LVCVA a "political subdivision" of Clark County, according to Luke Puschnig, the authority's attorney. Instead, claims Puschnig, the LVCVA is "an independent government entity," exempt from all county rules and regulations.

At the same time, Puschnig also claims that LVCVA President and CEO Rossi Ralenkotter—who is paid more than $320,000 a year and has the authority to spend up to $100,000 without board approval—is not a "public officer" and therefore is exempt from filing personal financial disclosure statements with the state Commission on Ethics and the Secretary of State.

The record suggests the LVCVA attorney is wrong on both counts.

Puschnig's sweeping claims that the LVCVA is a power unto itself comes at a time the authority is facing increasing public scrutiny and sharply declining revenue. A sharp downturn in the number of visitors and conventions has triggered an 11 percent decrease in hotel room taxes.

Puschnig's statements contained in a Feb. 5 letter to NPRI raise the question of whether it is an effort to ward off any independent financial and operations audit of the authority by an outside entity, such as Clark County. Puschnig's assertion that Ralenkotter is not a public officer also appears an attempt to shelter his boss from a potential state Ethics Commission investigation.

Rather than circling the wagons around the LVCVA and Ralenkotter, the authority would better serve the Nevada public by welcoming an independent financial and operations audit that would bring transparency to LVCVA operations. Given the severe recession faced by the public and elected officials, such an arms-length review would allow informed decisions on how best to allocate approximately $200 million in taxpayer funds now dedicated to the LVCVA.

Authority records that have already surfaced reveal deeply entrenched and systemic problems—many of them located with the authority's $92 million-a-year contract with R&R Partners. The powerful advertising and lobbying firm has held the contract for 29 years. The current contract, which was last put to bid in 1999, expires June 30.

The cozy relationship between the LVCVA and R&R Partners is starkly symbolized by the LVCVA's willingness to provide R&R Partners the authority's actual rubber stamp for approval of expenses above $500. The stamp, LVCVA internal auditors discovered in 2007, was put to frequent use, approving at times more than $20,000 a month in travel for R&R employees without prior consent by the LVCVA—a gross violation of the contract between the two entities.

The authority also allowed an R&R subsidiary, R&R Live, to operate outside the terms of the advertising agreement for more than seven years. Then, once the LVCVA board learned of the breach of contract through a 2007 internal audit, it failed to determine how much the public authority had been overcharged.

The close-knit LVCVA-R&R Partners relationship continues. Between July 2007 and December 2008 the LVCVA loaned, in advance payments, more than $4.1 million in public funds to a company owned by R&R Partners President Billy Vassiliadis, LVCVA records show.

These payments appear to directly violate Article 8, Section 9 of the State of Nevada Constitution, which states: "The State shall not donate or loan money, or its credit" to any private "company, association, or corporation." The company receiving the public loan, Airwave Productions, is a separate legal entity from R&R Partners and has no contract with the LVCVA, the loaning agency.

Nevertheless, the LVCVA acts as Airwave's private banker by advancing funds, interest free, for Airwave to use to oversee the production of television and radio ads.

Airwave funnels most of the LVCVA advances to subcontractors, including Las Vegas-based Red Agency, where a top executive is married to an Airwave executive. Airwave paid Red at least $187,000 from March 2007 through February 2008. Airwave also charged the LVCVA at least $30,000 in commissions in connection with the Red subcontracts.

Airwave's advance billings have become so casual that the LVCVA issued one advance payment of $917,305 to Airwave based on a one-page invoice with no documentation other than a notation stating: "backup to follow later."

The LVCVA not only spends $92 million a year ($398.4 million between 2004 and 2008) on advertising with R&R Partners, it also operates an internal marketing department that has 136 employees with an $8.2 million payroll. Overall, the LVCVA budgeted $126 million this year, or 42 percent of its budget, for advertising and marketing.

Despite the massive internal marketing arm, the LVCVA doesn't rely on it to land big-time clients. For example, the LVCVA instead shelled out a $55,697 commission to R&R Partners for securing a $315,000 LVCVA sponsorship of the Chicago Cubs. Nor did Ralenkotter turn to his own marketing department to produce an elaborate budget presentation he made to the LVCVA board. Instead, he spent $141,000 with R&R Live.

The natural question is: Why should it cost $141,000 to give a report to the board of directors?

A review of LVCVA spending strongly suggests that Ralenkotter steers as much money as possible to R&R Partners. Sharply declining bed tax revenue has forced the LVCVA to reduce spending across the board, except for spending on R&R's advertising contract, which has increased to $92 million this year, up from $87 million a year ago. The authority has until March 1 to extend R&R Partners' contract another five years.

The LVCVA board sidestepped the issue at its Feb. 10 monthly meeting. Board Chairman Oscar Goodman rushed through the agenda item calling for discussion of the advertising agreement and, instead, formed a committee, without board approval, to review the board's options.

Goodman named Clark County Commissioner Lawrence Weekly, Henderson Mayor James Gibson, Boyd Gaming CEO Keith Smith, MGM Mirage executive Charles Bowling, Las Vegas Chamber of Commerce CEO Kara Kelly and himself to the unofficial LVCVA committee.

Conflicts of interest abound with several members of Goodman's ad hoc committee. Bowling and Smith both have ties to R&R Partners through their respective companies' membership in the Nevada Resort Association, which has hired R&R Partners as its lobbyist in Carson City.

Gibson, during the board's 2003 advertising contract discussions, expressed strong support for R&R Partners and successfully added the clause, now coming into play, allowing the board to extend R&R Partner's contract without going to public bid. Goodman, meanwhile, acknowledged in 2003 that Vassiliadis advised one of his sons on a business matter.

Given the evidence of too-intimate relationships between LVCVA's management, some members of its board and R&R Partners, Clark County would be the most logical government to commission an independent, top-to-bottom audit of the authority. It was the county, under powers granted by the state, that in 1955 created the LVCVA under the name of the "Clark County Fair & Recreation Board."

The board changed its name to the "Las Vegas Convention and Visitors Authority" in 1967. Since then, it has largely abandoned its original mandate to support recreation in Clark County and instead has focused almost exclusively on increasing tourism for the benefit of the gaming and hotel industry and operating the convention center.

Attempting to distance the LVCVA from Clark County, LVCVA attorney Luke Puschnig stated in his letter to NPRI that the LVCVA "is not a subdivision of Clark County." Puschnig's assertion comes after the LVCVA had responded to more than 20 NPRI public records requests since last March where NPRI described the LVCVA as "a publicly funded subdivision of Clark County, NV." Puschnig never objected to the description, until now.

Puschnig also has now declared that neither the "administrative provisions of the Clark County Code nor the administrative regulations" apply to the authority.

Puschnig's attempt to secede from Clark County is undermined by the LVCVA's own descriptions of itself in multiple legal documents. NPRI's use of the term "subdivision of Clark County" in its public records requests was based on the LVCVA's own description of itself in its 1999 contract with R&R Partners. In the preamble of its current advertising agreement with R&R Partners, the LVCVA explicitly identified itself as a "political subdivision" of Clark County.

Even more definitive is the legal description the LVCVA provided to investors for more than $250 million in outstanding tax-free, municipal bonds. "The authority is an instrumentality of Clark County," the LVCVA states in its 2007 official statement in connection with the sale of $50 million in bonds to finance the purchase of eight acres adjacent to the convention center (emphasis added).

The bonding document also states that the LVCVA had previously issued more than $73 million in general obligation bonds "on behalf of Clark County."

Thus, not only is the LVCVA a "political subdivision" and an "instrumentality" of Clark County, the authority is also dependent on Clark County for the use of powers that only a truly independent government entity can exert. The LVCVA has no independent taxing authority and can not change the room tax or gambling receipts tax rates that provide most of its funding. Nor can the LVCVA exercise the power of eminent domain without the assistance of the Clark County Commission.

Not only is Puschnig attempting to isolate the LVCVA from possible county oversight, he also is attempting to shield its president, Ralenkotter, from provisions of Nevada's Ethics in Government law, claiming Ralenkotter is not a "public officer" as defined by that law.

However, the state Commission on Ethics has already determined that the occupant of a parallel position, the office of president and CEO of the Reno-Sparks Convention and Visitors Authority (RSCVA), is a "public officer" under state ethics laws. In an April 2002 opinion regarding an investigation of improper use of RSCVA credit cards by then-president and CEO J. Phillip Keene III, the commission stated as a conclusion of law that Keene was a "public officer."

The Ethics Commission opinion could spell trouble for Ralenkotter. Not only has he failed to file personal financial disclosure statements as required for all public officers, he has also accepted travel expenses from companies doing business with the authority, which state law prohibits government employees from doing.

Further, Ralenkotter used authority funds to benefit himself personally when he cut an LVCVA check for $25,000 to a Denver-based nonprofit hospital that had no business with the LVCVA but intended to honor Ralenkotter as its 2008 "humanitarian" of the year. He also encumbered the LVCVA for expenses of $1,125 for airfare for himself and his wife to travel to Denver to visit the National Jewish Hospital and an overnight stay at the Denver Ritz Carleton, at taxpayer expense.

Puschnig's attempts to insulate the LVCVA and Ralenkotter from independent oversight appear legally specious. If the principles of public accountability regularly professed by Clark County Commissioners and the state Ethics Commission mean anything, both of these agencies should now weigh in.

The fundamental issue is the public's right to know how its money is being spent by a troubled public agency—particularly during hard times of financial uncertainty.