BILL ANALYSIS
SENATE COMMITTEE ON ELECTIONS AND REAPPORTIONMENT
Senator Don Perata, Chair
BILL NO: AB 2842 HEARING DATE:6/16/04
AUTHOR: LENO ANALYSIS BY:Darren
Chesin
AMENDED: 4/14/04
FISCAL: YES
PRIOR ACTION :
Assembly Elections, Redistricting,
and Constitutional Amendments: 7-0
Assembly Appropriations: 21-0
Assembly Floor: 77-0
SUBJECT :
Political Reform Act: loans
BACKGROUND :
Existing law provides that a loan received by a candidate
or committee is a contribution unless the loan is received
from a commercial lending institution in the ordinary
course of business, or it is clear from the surrounding
circumstances that it is not made for political purposes.
Existing law also provides that the campaign contribution
limits enacted by Proposition 34 do not apply to loans made
to a candidate by a commercial lending institution in the
lender's regular course of business on terms available to
members of the general public for which the candidate is
personally liable.
Existing law provides that a candidate for elective state
office may not personally loan to his or her campaign an
amount, the outstanding balance of which exceeds $100,000.
Furthermore, a candidate may not charge interest on any
loan he or she made to his or her campaign.
PROPOSED LAW :
This bill, an urgency measure, would clarify that the
$100,000 limit on how much a candidate may personally loan
to his or her campaign includes the proceeds of a loan
obtained by the candidate from a commercial lending
institution.
COMMENTS :
1.According to the author, during the gubernatorial recall,
then candidate Arnold Schwarzenegger loaned himself over
$4 million using his personal wealth as collateral. On
January 28 of this year, the Sacramento Superior Court
decided in Camp v. Schwarzenegger that bank loans in
excess of $100,000 violated the spirit of Proposition 34.
In fact, the judge called the practice of wealthy
candidates who "pledge personal wealth as security for a
loan from a commercial bank to their campaign," a form of
"money laundering."
Despite this ruling, legislative candidates continue to
obtain these type of loans. In fact, 5 legislative
candidates for the November, 2004 election took out bank
loans in excess of the $100,000 limit. One of these
loans was taken out after the Superior Court's ruling.
Since the Superior Court ruling does not carry the force
of law, the Legislature must act immediately to close
this loophole.
2.This bill is similar in intent to SB 1449 (Johnson) which
passed this committee 5-0 and the Senate 36-0 and was
pending in the Assembly ER&CA Committee at the time this
analysis went to print.
3.The intent of this bill is consistent with Sacramento
Superior Court Judge Loren McMaster's decision in Camp v.
Schwarzenegger . In that case the court found that the
defendant violated the Political Reform Act's prohibition
on a candidate loaning his or her campaign more than
$100,000 when he obtained bank loans totaling over $4
million that were in turn loaned to his campaign
committee. Specifically, the decision stated the
following:
AB 2842 (LENO)
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Under the court's interpretation, a candidate could
receive qualifying commercial loans without concern that
the loans constitute "contributions" and without regard
or subject to the contribution limits. Further, a
candidate could receive a qualified commercial loan and
lend (interest free) up to $100,000 of its proceeds to
his or her campaign. Moreover, a candidate may receive
an unlimited qualified commercial loan and give an
unlimited amount of the loan proceeds to his or her
campaign.
Under Defendants' interpretation of 85307, as adopted
in 2 CCR section 18530.8, the loophole is not only
opened, but the $100,000 limit in 85307 (b) is rendered
meaningless. Specifically, under defendants'
interpretation, if a candidate has $1,000,000 of personal
cash, he or she may loan his or her campaign only
$100,000, interest free; however, the same candidate
could borrow $500,000 from a commercial lending
institution secured by the same $1,000,000 and then lend
the entire $500,000 to his or her campaign (presumably
subject to interest since the last sentence of Section
85307 (b) would also not apply). This result is patently
absurd.
The Court also held that the aforementioned regulation
promulgated by the Fair Political Practices Commission (2
CCR section 18530.8), which the defendant relied upon for
guidance, conflicted with the statute.
4.Since the decision in Camp v. Schwarzenegger was a
Superior Court ruling it applies only to the case in
question and therefore does not have the broad,
precedent-setting effect as an Appellate or Supreme Court
ruling. This bill would clarify in statute that proceeds
from a commercial loan cannot be used to exceed the
existing $100,000 personal loan limit from a candidate to
his or her campaign in a manner consistent with that
decision.
POSITIONS :
Sponsor: Author
Support: Secretary of State
AB 2842 (LENO)
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Oppose: None received
AB 2842 (LENO)
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