Democratic state Senator Dan Wolf suspended his gubernatorial campaign Thursday and threatened to quit his seat over an ethics controversy stemming from his ownership stake in Cape Air, rattling the state’s business and political circles with questions about the height of the barriers between entrepreneurs and public office.
Wolf said the State Ethics Commission had misjudged “both the spirit and the letter of the law” in its ruling that the airline’s dealings with Logan International Airport should prevent him from holding state office. Under the Massachusetts conflict-of-interest law, state employees are prohibited from having financial interests in state contracts.
“Until this matter is resolved, I am suspending my efforts to become the next governor of Massachusetts,” Wolf told supporters in an e-mail.
The panel’s interpretation of the law and Wolf’s decision provoked concern among politicians from both parties and business leaders, worried about a precedent that could deter people who succeed in business from seeking public office.
“We should be encouraging entrepreneurs and individuals with private-sector experience and success to come into the public sector,” said Paul Guzzi, president of the Greater Boston Chamber of Commerce. “It would be good for government and good for the business community.”
Representative Daniel B. Winslow, a Republican and a former judge and onetime chief legal counsel to former governor Mitt Romney, said he hoped Wolf files suit to seek a court injunction against the commission’s ruling.
“We need legislators who operate in the real world; we just need to make sure there are no corrupt practices or the appearance of corruption,” Winslow said.
Ethics Commission spokesman David Giannotti declined to comment on criticism of the ruling. Wolf also declined an interview request.
The panel ruled earlier this month that Cape Air’s agreements with Massport over access to Logan Airport amount to no-bid contracts, which are off-limits to state employees. Wolf was given three options: divest his 23 percent stake in Cape Air, cancel all contracts between the airline and Massport, or resign his seat and quit the campaign.
Later, the Ethics Commission said it could not block Wolf’s candidacy, but said that, if elected, he could not assume office unless he abided by the other conditions.
The state conflict-of-interest law allows a “particularly narrow” exemption for lawmakers and their business interests, Ethics Commission executive director Karen L. Nober said earlier this month. To qualify, the legislator and immediate family must hold less than a 10 percent ownership interest, and the related contracts must be bid competitively.
The ruling frustrated lawmakers and former officials. “Here’s an accomplished individual who built from scratch a company here in the Commonwealth that’s successful worldwide,’’ said Timothy P. Murray, the former lieutenant governor who now heads the Worcester Regional Chamber of Commerce. “We want people like that, whether they be Democrat or Republican, because the public wins when people like that run for office and talk about their experiences. I think there are a lot of people who are concerned about what this means, and that it could have a chilling effect on people from both parties and independents.”
In his Thursday morning letter, Wolf said that canceling the contracts with Massport would effectively destroy his company and sacrifice 1,000 jobs. Selling his stake, Wolf said, “would fundamentally undermine the company” by saddling its employees “with serious debt” through Cape Air’s employee stock ownership plan and cause “significant cash flow challenges.”
Disputing the commission ruling, Wolf explained that Cape Air, which he cofounded 25 years ago, has state contracts with Massport based on “fixed fees and leases with identical terms and conditions for any airline that uses” Logan Airport. The operating agreements renew automatically, Wolf said.
A Massport spokesman confirmed Thursday that the agency, not negotiations, determines the lease agreements and that flat rates apply to every airline within individual terminals, although they vary between terminals. Landing and operating fees, the spokesman said, are adjusted annually by Massport.
In her comments earlier this month, Nober said the statute the commission used in its ruling on Wolf had been cited in about 50 formal advisory opinions over more than 30 years.
Yet state Democratic Party chairman John Walsh called it worrisome that the statute appears to have been used in particular in the cases of entrepreneurs, rather than outside investors.
“It’s an interesting contrast,” Walsh said. “If you’re an investor whose input into the business is cash . . . we’re saying we can deal with that. If you have more of an entrepreneurial, business-building, active, hands-on role . . . we say, ‘No, that’s the kind of person we don’t want.’
“I think that’s wrong,’’ Walsh said. “It’s unfortunate. I don’t think anybody wants this result.”
The commission’s ruling also gave pause to a government watchdog group. Pam Wilmot, executive director of Common Cause Massachusetts, said the group would like to see the commission reassess its position. “There really appears to be very little opportunity for an actual conflict for the senator, or even the appearance of conflict, given the highly regulated nature of the business,” Wilmot said.
After Wolf criticized the ruling earlier this month, the normally circumspect Ethics Commission issued an unusual public statement saying it had first informed Wolf in November 2010, shortly after he was first elected, that he should vet any Cape Air business dealings with the state. Such contracts, the panel said then, were not permissible for officeholders.
Wolf never followed up on the advice, the commission said. In April, Wolf met with commission legal staff and “was advised at that time that if his airline had contracts with Massport, he would have prohibited financial interests in state contracts,” the commission said.
The nonpartisan commission is responsible for administration of the state’s conflict-of-interest and financial disclosure laws. Much of its day-to-day work involves offering advisory opinions to state officials concerned about running afoul of state good-government laws.
The commission is governed by a five-member board, whose members are appointed by the governor, secretary of state, and attorney general to staggered, five-year terms. As executive director, Nober reports to the commissioners.
Wolf’s decision removes from the Democratic primary field a small-business owner with a progressive voting record who had curried some support within Democratic grass roots. While Wolf was considered a long-shot candidate, the race remains wide open, and rapidly changing. On Wednesday, former Obama administration homeland security official Juliette Kayyem announced she would run as a Democrat, and former senator Scott Brown, a Republican, said he would not run.
Other Democrats vying for the nomination are Treasurer Steven Grossman, former Obama administration health care official Donald M. Berwick, and biotechnology executive Joseph Avellone. No Republican has announced, but party activists expect 2010 gubernatorial nominee Charles D. Baker to run again.
Wolf’s next steps remain unclear unless the ethics panel reverses its decision. In his statement, Wolf said he would not take the matter to court.
But Winslow said he hopes Wolf tries to persuade a court to halt the commission’s decision. Because Cape Air’s contracts with Massport renew automatically, “it’s a ministerial thing,” Winslow said. “There’s no opportunity for favoritism; there’s no opportunity for corruption, it seems.”
Wolf said that, if the Ethics Commission did not change course, he would submit his resignation Aug. 29.
Several of Wolf’s constituents said they were angered by the outcome and would organize a State House protest on Aug. 29.
“I find it inconceivable that he’s the only businessman in Massachusetts government,” said Susan Truitt, 76, an Osterville political activist and retired television producer who has donated to Wolf’s campaign. “This makes no sense to people like me. I’m a partisan, clearly, but I can’t believe that this is the intended outcome of that law.”