From the Mercury News

Governor broke campaign law, judge rules
By Barry Witt
Mercury News
January 27, 2004

Gov. Arnold Schwarzenegger broke state law last year when he used a loophole
to loan his campaign committee $4 million, a move that prevented voters from
knowing before Election Day who would end up paying the governor's campaign
bills, a judge ruled late Monday.
Schwarzenegger will probably face no fines as a result of the ruling, but he
will be blocked from paying himself back with the more than $3.4 million he
has raised since his election and will have to convert the loans into a
personal contribution to his campaign.
The millionaire former movie star contributed an additional $4.85 million in
cash to his campaign before the Oct. 7 recall election.
Sacramento County Superior Court Judge Loren E. McMaster said
Schwarzenegger's use of a loophole to avoid a $100,000 cap that voters
imposed in 2000 on candidate loans ``flies in the face of the express
purpose of the law.'' He said Schwarzenegger's approach would allow rich
candidates to ``evade both the $100,000 loan limitation and the requirement
of pre-election disclosure of contributions, while those limitations would
apply to candidates of more modest means.''
Schwarzenegger's campaign treasurer, Colleen McAndrews, said in a statement
that ``the campaign committee intends to comply with the judge's order.''
Schwarzenegger was sued over the loans five days before the recall vote by
Berkeley attorney Lowell Finley on behalf of Sacramento labor leader Bill
Camp, who was opposing the recall of then-Gov. Gray Davis.
``The voters adopted a loan limit as part of Proposition 34 to prevent
candidates from fronting large amounts of money for the final portion of
their campaign and then after the election taking special-interest
contributions to repay themselves,'' Finley said.
`Illusion' over donors
While there's no way to know how much Schwarzenegger's use of the loans
influenced the outcome of the election, Finley said, ``it did make a
difference in how long he was able to maintain the illusion that he was
above special-interest politics.''
Schwarzenegger said days before the election that voters should ``trust me''
and shouldn't be concerned whether they knew who his donors were before or
after the election. ``I will not take money from special interests, from any
of the unions or Indian gaming,'' he said.
He has taken hundreds of thousands of dollars from developers, insurers and
dozens of other businesses.
Loophole cited
McAndrews, Schwarzenegger's treasurer, deflected blame to the California
Fair Political Practices Commission, which in 2002 adopted a regulation
allowing candidates to ignore Proposition 34's $100,000 loan limit, if they
used bank loans to provide the money for their campaigns and were personally
liable for repayment in the event the campaign didn't pay the money back.
In a footnote to his ruling, McMaster said that Schwarzenegger ``no doubt
acted in good faith when the subject loan was obtained since'' he had the
FPPC's regulations ``to rely upon.''
But McMaster -- as he did in a September case involving another section of
Proposition 34 and Lt. Gov. Cruz Bustamante -- ruled the FPPC wrongly
interpreted the ballot measure and created an ``absurdity'' by opening the
loan loophole.
Proposition 34 ``prohibits a candidate from personally loaning his or her
campaign an amount, the outstanding balance of which exceeds $100,000,
regardless of the original source of the monies used by the candidate to
fund the personal loan,'' McMaster wrote. ``The provisions are not ambiguous
or susceptible of more than one reasonable interpretation.''
In Bustamante's case, McMaster ruled that the FPPC wrongly allowed
candidates to collect unlimited campaign contributions from single sources
as long as the money went into campaign committees that existed prior to the
effective date of Proposition 34's contribution limits.
In response to McMaster's ruling, the FPPC earlier this month closed that
loophole.
Officials with the FPPC were not available for comment on the judge's latest
ruling.
The commission also has sued Bustamante for up to $9 million in penalties,
saying he raised money in a way that violated even the loophole the
commission had opened. But in Schwarzenegger's case, there appears to be
little likelihood of an FPPC suit against the governor because there have
been no allegations that he violated commission rules.
In addition to the $4 million in loans to his campaign, Schwarzenegger
loaned $500,000 to a second committee advocating the recall of Davis, to
which he has also donated $650,000. It was unclear Monday whether McMaster's
ruling would apply to that loan.