Californias Napolitano Makes $220,000 From 1998 Campaign Loan

February 13th, 2009|Josh Hudson
Campaign

The suburban Los Angeles Democrat made the $150,000 loan in 1998, when she was first elected to the U.S. House of Representatives. Through Dec. 31, her campaign committee has used donations to pay Napolitano $221,780 of interest while reducing the principal by just $64,727, a review of her Federal Election Commission filings shows.

As recently as June 2008, Napolitano held a fundraiser asking supporters and political action committees for money to pay down the 1998 debt. Napolitano, her spokesman and her campaigns lawyers didnt respond to requests for comment.

“I find this practice quite reprehensible,” said Craig Holman, government affairs lobbyist for Public Citizen, a Washington advocacy group. Interest payments from Napolitanos campaign treasury have “proven exorbitantly profitable,” he said. “Candidates are not supposed to personally benefit from these campaign funds.”

The Federal Election Commission in 1999 ruled the loan and its 18 percent rate were allowed by U.S. election laws, after a complaint by Napolitanos 1998 Democratic primary opponent. The commission agreed with Napolitanos explanation that the interest charges were justified because Napolitano had to pay penalties for taking the money from a retirement account.

Lengthy Loan

Former FEC Chairman Scott Thomas, a Democrat, said that while interest charges are legal hes never seen another case “where someone has basically continued to generate interest income off a campaign loan this long.” Most candidates only seek repayment of the initial loan amount, Thomas said.

“This is unbelievable — it really is extraordinary,” said Michael Toner, a former Republican member of the FEC who was general counsel for George W. Bushs 2000 presidential campaign. Toner said he “cannot recall a situation” where a candidate collected interest in sums that “actually exceeded the original loan balance.”

For Napolitano, a 72-year-old grandmother of 14, the campaign IOU has been a profitable asset, far outperforming stocks since the loan started accruing interest in May 1998. Over the same period, an investment in the Standard & Poors 500 stocks, with reinvested dividends, would have lost more than 7 percent, according to Bloomberg data.

In the first five months of 2008, Napolitanos campaign paid her almost $68,000 of interest, according to FEC records. An additional $15,227 of principal was paid last May.

Biggest Asset

The debt is the biggest asset listed in Napolitanos financial-disclosure filings, which dont include personal residences. A former Ford Motor Co. secretary, Napolitano withdrew $150,000 for the loan from an employee-stock retirement plan. Ford shares, which traded for about $45 in May 1998, closed yesterday at $1.79.

Napolitano cut the interest charge to 10 percent in July 2006. As of Dec. 31, the campaign owed $85,273 of principal and $5,549 of unpaid interest, according to FEC filings.

When the FEC investigated her opponents 1998 complaint about the loan, Napolitanos lawyer, Diane Fishburn, said the 18 percent interest rate was “not out of line with the rates on other unsecured loan transactions.” The FEC concluded that the interest rate, while “high,” was allowable.

FEC Ruling

“It does not appear that the 18 percent interest rate for the $150,000 loan amounts to a conversion of campaign funds to the candidates personal use or that the $150,000 loan was made on commercially unreasonable terms,” the commission ruled.

Napolitano didnt charge interest on an additional $70,000 of loans to her 1998 campaign. FEC records show that the campaign repaid at least $59,000 of the interest-free loans by August 1999. The interest-free loans arent listed on campaign filings after early 2000.

Last year, when Napolitano faced only token opposition for a sixth term, her campaign sought $500 from individuals and $1,500 from political action committees at a June 25 Washington fundraiser. The money was to go at least in part for “1998 primary debt retirement,” according to her campaign Web site.

Napolitano is chairman of the House Natural Resources Committees water and power subcommittee and a member of the Transportation and Infrastructure Committee.

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