Sunday, June 03, 2007

Is The Law On Campaign Loans Really Vague?

"Void for vagueness" will be words you will hear often from Jim Bopp and others who are trying to defend Fort Wayne mayoral candidate Matt Kelty's failure to initially report the true source of nearly $160,000 in loans his campaign received prior to the primary. Indiana law is clear that a loan to a campaign is a reportable contribution. Indiana law also makes it clear it is illegal to make a contribution in the name of another as an anti-laundering deterrent. In a story by Benjamin Lanka of the Fort Wayne Journal Gazette today, Kelty's case is portrayed as "unique" and "without legal precedent." He writes:

Both the Democratic and Republican legal co-counsels for the Indiana Election Division agree there have been no similar cases litigated in the state, and a judicial ruling on the matter could dictate how future cases are handled.

Kelty is being investigated by the Allen County Election Board over how he reported $158,000 in loans to his successful primary campaign. Kelty originally reported the loans came from himself, but pressure from fellow Republicans pushed Kelty to reveal the loans originated from his campaign staff.

Kelty disclosed he received a $150,000 personal loan from Fred Rost, a campaign adviser, and a $10,000 personal loan from his campaign manager Glenna Jehl and her husband, Steve. He used those loans to loan his campaign money. The loans could have been made directly to the campaign, as there is no contribution limit for individuals in Indiana.

What is at question is whether Kelty was required to report the original loans from his staff as a campaign contribution. Indiana code specifies a loan as a type of political contribution if it is given to a candidate or campaign committee. But Kelty has hired a nationally known attorney, James Bopp Jr., who said Thursday that because the loans were made to Kelty the person, not the candidate, they didn’t need to be reported.

Leslie Barnes, the Democratic co-counsel for the state election division, said she would be interested to see how other states had ruled on similar matters, but conceded that wouldn’t be binding in Indiana.

Based on the arguments surrounding the issue, there is a good chance the case will – or at least should – end up in court, said Andy Downs, Democratic county election board member. While saying he has not yet examined Bopp’s arguments in depth, Downs said Bopp’s interpretation of the law is “vastly different” from many people’s interpretations.

“This has implications that could lead it to the (Indiana) Supreme Court,” Downs said. “The appropriate place to decide those interpretations is the court system, not the Allen County Election Board.”

Bopp, an attorney with Bopp, Coleson & Bostrom, of Terre Haute, argued that it would be invasive and wrong to force candidates to reveal the source of personal loans given to a campaign.

He used the analogy that if a candidate used his personal Visa card to buy campaign materials, the candidate would not report Visa as a campaign contributor. The money rightly should be listed as coming from the candidate, he said.

That analogy is a poor one, according to Bob Stern, president of the Center for Governmental Studies in Los Angeles. Stern said he has served as an expert witness in opposition to Bopp on a few occasions.

Stern agreed that a candidate wouldn’t report Visa as a contributor, or even a bank or lending institution that lent a candidate money.

“As long as it’s in an ordinary course of business from commercial lending institutions, it’s not a contribution,” he said. “That’s completely different from going to an individual who’s not in the business of loaning money.”

Because Kelty’s money came from two of his campaign staff and was used to finance his campaign, the loans should be viewed as contributions, Stern said.

“What is the purpose of campaign disclosure if not to disclose this?” he asked.

Bopp argued because Kelty is responsible personally for repaying the loans, they shouldn’t be viewed as campaign contributions. But he also said it would be legal for Kelty to repay the loans using campaign contributions.

Stern said using Bopp’s argument, it wouldn’t be a large leap to say it is legal for someone to give – not lend – someone money, and then have the person use that money to finance that person’s own campaign without ever having to report the source.

The law may seem ambiguous to some in Indiana because there has been such lax law enforcement of the written law. It doesn't seem quite so ambiguous in other states though which define a "contribution" quite similarly to Indiana's law. For example, a quick google search pulls up a story about a New Jersey mayor reporting $200,000 in personal loans his campaign raised from friends and supporters. The Star-Ledger recently reported:

Union City Mayor Brian Stack, an Assemblyman running for state Senate, raised more than $200,000 for his campaign this month through a series of personal loans taken out on his behalf by supporters, including the city school superintendent . . .

"It's nothing illegal," said Caliente, who said he cleared the arrangement with the state Election Law Enforcement Commission be fore accepting the loans. "It's just something that people really rallied around Brian and wanted to help him."

Caliente said about $210,000 was raised through the personal loans. Details of the loans are spelled out in campaign finance disclosure forms that were submitted to the Election Commission on Friday, but which will not be made public until Wednesday . . .

If you check Illinois' interpretation of its law, you'll find that you not only have to report the source of loans, but you must also identify any person who signs as a guarantor for a personal loan obtained by the candidate. Illinois' law defining a contribution is also very similar to Indiana's definition. Lanka's story makes a good point about the lax enforcement of Indiana's election laws by local election boards. "With the way Indiana campaign election laws are written, and especially with how they are enforced locally, it wouldn’t be difficult for candidates to skirt them if they truly wanted to, according to many experts," he writes. So it wouldn't be surprising to see the Allen Co. Election Board give Kelty a pass on this one; however, a prosecutor could still take up the case. What is clear is that "it could create one of the most gaping loopholes in the state’s disclosure law" if the election board and the prosecutor give Kelty a pass as Lanka's story points out.

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