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Stop the lending?
Tuesday, Feb 9, 2010 * Since December 1st of 2009, campaigns for all state and local offices received almost $10.9 million in loans, according to a search of the State Board of Elections website. That’s almost a quarter of the entire amount reported raised in all forms during that same time period ($44.8 million). About $2.2 million of the total was lent by GOP gubernatorial candidate Andy McKenna’s wife alone. Another $1.5 million or so was lent by Scott Lee Cohen to his own lt. governor’s campaign. Republican lt. governor nominee Jason Plummer borrowed about $1.2 million from himself and his family businesses. Failed treasurer candidate Justin Oberman took out over $400,000 in loans from himself and others. But it wasn’t all rich people who borrowed money. Gov. Pat Quinn, for instance, borrowed well over $700,000 since December 1st. The search shows that Sen. Kirk Dillard borrowed $650,000 from various individuals. I have no problem with wealthy people running for office. It’s a free country and they have a right to spend their money. My problem is that they often loan themselves money. Here’s the rub: If they win, the cash they raise after they take office is going right into their own pockets. Not good at all. I also have an issue with bigtime borrowing by non-wealthy candidates like Quinn and Dillard. I’ve never believed that campaign contributions automatically meant that the recipients were completely beholden. But borrowed money is different. What happens if Gov. Quinn, for instance, can’t pay that money back right away? Do those lenders have a special hold over him? * The current law in place will, when it finally takes effect, bar loans like the ones Quinn and Dillard received this cycle. I’m pretty sure it would also bar loans like the ones from McKenna’s wife (although McKenna could’ve probably gotten around the law by loaning himself the money). Banning big loans might cut down on vanity candidates like McKenna and Cohen. If they know there’s no legal way to get their money back after the election, maybe they won’t spend as much on themselves. After all, the first thing Cohen wanted when the pressure ramped up was to be made whole. Getting rid of those self-loans could also head off potential trouble if any of these candidates eventually take office and start raising money to replenish their own personal bank accounts. What say you?
- Posted by Rich Miller
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- steve schnorf - Tuesday, Feb 9, 10 @ 10:08 am:
Rich, I think the problem probably wouldn’t be solved by a solution. One lesson we learn over and again is that when we make fund-raising rules all we really do is start a new creativity contest on ways to circumvent them.
- Northsider - Tuesday, Feb 9, 10 @ 10:13 am:
It’s a valid concern, but I’m not sure there’s much that can be done. My guess is the Roberts Court would strike down restrictions on self-lending in a 5-4 heartbeat.
- Downstater - Tuesday, Feb 9, 10 @ 10:13 am:
Rich,
There’s a second benefit for the lender that you haven’t mentioned. If I make a campaign donation - I’m never going to see that money back. Nor do I get to write it off on my taxes.
If I make a loan to a campaign, and don’t get paid back, I can still write it off as a bad debt expense and take the deduction on my taxes.
I’m glad they are closing the loophole.
- way northsider - Tuesday, Feb 9, 10 @ 10:20 am:
I agree. People should be able to donate money to their own campaigns but not loan money to their own campaigns. Same goes for close relatives.
- Dude in Springfield - Tuesday, Feb 9, 10 @ 10:22 am:
Rich- I like Walter Cronkite’s idea of limiting TV ads..and giving candidates free air time. The they wouldn’t need these loans cause campaigns would be much less expensive. Can’t we find a way to eliminate political ads??
- Rich Miller - Tuesday, Feb 9, 10 @ 10:23 am:
State law has no say over FCC-licensed TV stations.
- Pot calling kettle - Tuesday, Feb 9, 10 @ 10:24 am:
For candidates just starting out, a loan might be necessary to open up a campaign. Who wants to give money to a candidate with no palm cards, no fliers, and no bank account? To start an operation takes a couple thousand dollars, which can be a lot to someone with good ideas, but not a big income. Since the candidate is putting a lot of their time into the campaign and forgoing income, much of the investment can never be paid back. So, for some, the ability to take out a loan to kick off the campaign can be crucial because it allows some of that initial investment to be paid back.
In addition, the campaign cycle is such that contributions typically don’t come in until June and later in the election year, while money needs to be spent starting a year earlier.
That said, large loans are a bad idea for all candidates for the reasons you listed and because candidates should not end a campaign under water.
- Macoupinite - Tuesday, Feb 9, 10 @ 10:30 am:
I scanned the list and saw for Bill Brady only one $101,000 loan from Bill to his own campaign. Isn’t thatinteresting?
- Corduroy Bob - Tuesday, Feb 9, 10 @ 10:31 am:
Not sure how this works under state law, but paying oneself back at 10% interest — well above anything the market would bear — appears to have been a loophole in the federal law that Quinn exploited to his own benefit with his ‘96 Senate account.
If we’re going to permit self-lending, we need to make sure that kind of laundering isn’t possible at the state level.
- paddyrollingstone - Tuesday, Feb 9, 10 @ 10:34 am:
I don’t think it matters all that much. Almost all of the loans you describe above appear to be close friends and family members. The “quid pro quo” ones that the question addresses, are all dependent upon who the candidate is. If Paul Simon and Rod both had loans from the same people, who do you think we really had to worry about?
- trafficmatt - Tuesday, Feb 9, 10 @ 10:35 am:
Rich,
I don’t agree with you a lot, but on this one, I agree wholeheartedly. We have seen time and time and time again the “self-funders” get into a race and completely screw up the field and end up being terrible candidates. If a candidate believes they have a great message - fine - put your money where your mouth is, no loans.
One of the previous commenters made a case for start up funds. I think a reasonable limit like $10k for an Assembly race and $50k for a State office might be ok.
- Dirt Digger - Tuesday, Feb 9, 10 @ 10:38 am:
Could do worse than to look at federal law for this matter:
“The committee may use contributions to repay the candidate only up to $250,000 from contributions made after the date of the election.”
In other words if the candidate somehow raises the full amount before election day and wants to repay the loan, great. Otherwise there is a repayment limit.
- zatoichi - Tuesday, Feb 9, 10 @ 10:47 am:
Three parts to this. If my campaign is fronted by my money, it seems the public support for my position is pretty thin. It’s basically an ego run because I can. On the other side, if a large amount of cash is made available (by whatever means) somehow it will be used. The rules just provide a path to avoid. Finally, if the candidates can write off those personal campaign loans as a deduction, why can’t that same tax benefit be given to non-family contributors?
- Pot calling kettle - Tuesday, Feb 9, 10 @ 10:54 am:
Limit the loan size and no interest.
- Sue - Tuesday, Feb 9, 10 @ 11:25 am:
Rich- as an aside on state borrowing- in light of the recent borrowing for pension contributions, has anyone done a calculation on the returns since the state borrowed 10 Billion back in 2002? Given the market volatility and declines on private equity and real estate, have the pension systems attained sufficient returns required to repay the loans along with the interest carry? As much as people complain about the state’s failure to routinely pay the necessary amounts into the pension systems, given the volatility, the plans might have not attained sufficient returns to warrant the additional contributions?
- Arthur Andersen - Tuesday, Feb 9, 10 @ 12:20 pm:
Rich, if I may, a response to “Sue’s” question. First, the hurdle rate for the pension funds on the POB cash is roughly 7%, not the 5% interest cost on the bonds, because the funds didn’t receive all of the bond proceeds, forcing them to in effect make up in returns what they didn’t receive in principal. (Recall that about 25% or a bit more of the bond proceeds went to pay current pension contributions, the first year’s interest on the bonds, and issuance costs.)
Only one of the funds reports much detail about their investments from the bond cash. As of 9/30/09, their annualized return on the bonds is reported at 5.3%. (it’s probably a little better as of 12/31/09 after the good fourth quarter.) Answer: the funds are “attaining sufficient returns.”
Sue’s last comment is poised as a question, which it’s not, but which requires response. The State owes the money whether the pension funds are having a good year or a bad one. It’s absurd, especially in Illinois, to say, “markets are volatile” hence we shouldn’t fund the pensions. I think the last guy with that concern wanted to solve it by investing all the pension bond money in the hedge fund his cousin worked for, but I could be mistaken.
- Ghost - Tuesday, Feb 9, 10 @ 12:59 pm:
Require contributors to specifically authorize their money to go towards paying back a loan to the canidate.
Part of the problem with this loan process is many people may not be aware that they are really handing money back to the canidate, and not for the campaign.
- Anon - Tuesday, Feb 9, 10 @ 1:08 pm:
Rich, you posed the question regarding borrowed money by non-wealthy candidates such as Quinn and Dillard: “What happens if Gov. Quinn, for instance, can’t pay that money back right away? Do those lenders have a special hold over him?”
I think that the answer to this is very different when you consider Gov. Quinn versus Sen. Dillard. The reason I believe it to be different is because Sen. Dillard has repeatedly and publicly made it known that he will not be raising money once he begins as Governor. Therefore, I feel that the individuals who did loan Dillard money have much less an expectation of a quick return. Perhaps it was a bad business decision on their behalf, but I think that Dillard has greatly mitigated the hold that lenders have over his potential governorship.
- Adam Smith - Tuesday, Feb 9, 10 @ 2:25 pm:
Intricate and always evolving Constitutional questions aside, candidate/family loans to campaigns are a non-issue.
Loans allow less affluent people to jump start campaigns and not spend their entire 401k to do it. Prohibit loans and you further stack the deck for incumbents and super-rich self-funders.
Prohibit interest payments, prohibit commercial loans, put a time-limit on payback if you want, but it is ridiculous to think that a candidate or close family member loaning money to a campaign can corrupt the process.
And loans from contributor are no more corrupting than outright donations.
- PEORIA - Tuesday, Feb 9, 10 @ 2:35 pm:
Downstater- the point that you make about writing off campaign debt for tax purposes as ‘bad debt’ is actually inaccurate. Below is a link to an article discussing why.
http://articles.latimes.com/1994-03-13/business/fi-42174_1_mortgage-deductions
- BehindTheScenes - Tuesday, Feb 9, 10 @ 2:49 pm:
I have always been told that a smart candidate does not put their own money into a campaign. I guess the corrolary to that adage would be a smart candidate doesn’t borrow money, either. (Beyond, of course, the “seed” money you loan or advance yourself when getting started.)
What I’m really waiting to see is someone’s report on what candidates spent per vote. Should be some astonishing numbers…
- wordslinger - Tuesday, Feb 9, 10 @ 3:58 pm:
For candidates with money, loans are a nice hedge. If you lose, good luck getting paid back. But if you win, it should be pretty easy.
I say put up or shut up. No loans.
- Pot calling kettle - Tuesday, Feb 9, 10 @ 5:40 pm:
No start-up loans would help keep many potential candidates off the ballot. It’s nice to say put up or shut up, but since a candidate will incur many costs that cannot be reimbursed, the inability to recoup a few thousand dollars of start-up money could be enough to keep them off of the ballot. It also ignores the realities of the election cycle, where the work starts long before the funding kicks in. Getting contributions before you file is extremely difficult, but that doesn’t mean there aren’t extensive costs. A good candidate can get the contributions to cover those costs after filing.
If you want to stop excesses, limit the loan size and limit or disallow interest, especially for loans that do not come from a lending institution.
- Quinn T.Sential - Tuesday, Feb 9, 10 @ 7:36 pm:
I say, check the D-2’s for Anita Alvarez, and then follow the money.
- Mighty M. Mouse - Tuesday, Feb 9, 10 @ 7:46 pm:
>>
Rich, I agree with your concern, and let me give you a specific example.
If I’m not mistaken Gov. Quinn borrowed $100,000 from his own mother. He probably promised he would pay her back. Can you imagine just how uncaring, ruthless, and stone cold-blooded a person has to be to gamble $100,000 of his poor mother’s money on what proves to be the virtual equivalent of a coin flip? I doubt even Speaker Madigan would do that to his own mother, though I could see how others might think so.
But now the worm has turned. That election was so close you could make the argument that his mother’s money made the difference. Now he owes her “bigtime” and in more than just one way. Now she’s totally got him by the short hairs and he’d probably do anything for her. Do we really want an elderly woman having that kind of power and influence over our ostensibly independent governor? What did she ever run for?
- Rich Miller - Wednesday, Feb 10, 10 @ 12:30 am:
MMM, Quinn also borrowed $300K from Ald. Ed Burke. Try to pay attention.
- Mighty M. Mouse - Wednesday, Feb 10, 10 @ 2:14 am:
The first duty of a politician is to get elected. The “sine qua non” of accomplishing anything as a politician is to get elected. Winners get the opportunity to accomplish great things. Quinn was fighting for his political life, he just barely won by a hair and he might well have lost no matter how powerful his last ads were if he hadn’t had those hundreds of thousands of dollars. Now he hopefully will attempt to govern honestly and wisely and try as best he can to make the right decisions for Illinois for the right reasons, only because he won. I agree with the majority. I’d rather take my chances on Pat Quinn’s integrity than on Dan Hynes’, all the loans notwithstanding.