Newsom's funny money
Does "destroyed" document show mayoral advisers sought to skirt campaign finance laws?

By Steven T. Jones

A document mistakenly sent to the San Francisco Ethics Commission appears to contain a draft plan to divert money from Mayor Gavin Newsom's low-budget inaugural celebration to pay off some of his $550,000 campaign debt – a move that would have violated state law.

The document was prepared by employees of attorney Jim Sutton, who represented the Newsom for Mayor campaign committee and his inaugural committee, and accidentally sent to Ethics staffer Kevin De Liban.

Ethics Commission executive director Ginny Vida and her deputy, Mabel Ng, tried to destroy the document, which indicated some of the same people owed money by the Newsom campaign were due to receive large payments from the inaugural committee.

Although Sutton insists the document was an early draft that never would have been acted on, the incident raises questions about whether high-level Newsom advisers intended to divert large unregulated donations to cover the debt of a campaign limited by $500 donations, and whether the top elections watchdog helped cover up evidence of that effort.

Each page of the document is clearly headed "San Francisco 2004 Swearing-In Committee. Current Accounts Payable by Vendor. 1/2/2004."

Among the pending payments listed are $20,000 to Joyce Newstat, $20,000 to Heather Hiles, $15,000 to Hsieh and Associates, and $54,708 to the Newsom for Mayor campaign committee.

When the Newsom campaign filed its disclosure statement at the end of January, among the $555,966 in outstanding debts were $20,000 to Newstat, $20,000 to the Hiles Group, and $15,000 to Tom Hsieh, as well as $50,000 to consultant Jack Davis, $187,374 to Storefront Political Media (campaign manager Eric Jaye's company), and $26,237 to Sutton and Partners.

Hiles, communications director for the campaign, was appointed by Newsom to the San Francisco Board of Education last month. Newstat now works in the Mayor's Office. Hiles, Newstat, and Hsieh all failed to return repeated calls from the Bay Guardian asking if they have been paid.

Since the inaugural committee could raise money beyond the $500 limit, state law prohibits transferring funds from the inaugural to the campaign committee.

Sutton employee Tricia Weber accidentally sent the document to the Ethics Commission Jan. 5; it was supposed to go to Sutton attorney Kevin Henegan. She contacted Ethics, the body charged with administering campaign finance laws in the city, to ask that the document be destroyed. But De Liban and another staffer who saw the document, investigator and attorney Oliver Luby, were concerned that it indicated intent to break the law and that destroying it would violate Government Code Section 6200, which makes destroying public records a felony punishable by two to four years in prison.

Nonetheless, both Vida and Ng, who had also been contacted by Weber, ordered the document destroyed. "It was a draft document that had no probative value," the women later told the Bay Guardian, repeating the legalistic language from a preliminary City Attorney's Office opinion issued Feb. 3 that it wasn't a public document the department was required to retain. Yet why would they destroy it rather than investigating its significance? "I felt it wasn't fair to keep something that doesn't belong to us," Vida told us.

The employees balked at the destruction directive, asking their bosses for a city attorney opinion backing up the order. Instead, Vida took matters into her own hands and physically deleted the document from Luby's e-mail Jan. 15.

Yet unbeknownst to her, the employees had already printed out the document, which formed the basis for both a story on the San Francisco Sentinel Web site that day and a complaint filed the next day with the city's Sunshine Ordinance Task Force.

Sutton, who is known for pushing the envelope of campaign finance law (see "The Political Puppeteer," 2/4/04), denied there was ever an intent to skirt the law and told us the document was a draft that was never intended to reflect actual payments. And to back up his claim, Sutton on Feb. 5 sent us a summary of the Swearing-in Committee's expenditures dated Feb. 3 and totaling $281,745, on which the most questionable expenditures no longer appear.

Under a quirk of state election law that could have disguised improper spending, the inaugural committee wasn't required to report its expenditures to the Ethics Commission, only the donations of more than $5,000. Among those contributing to the $317,850 fund were Joseph Cotchett, Shorenstein Co., ACS State and Local Solutions, and SIA Consulting Engineers ($15,000 each), Gap founder Don Fisher and his wife, Doris, ($20,000), and Clear Channel and the San Francisco Association of Realtors ($10,000 each).

Despite unanswered questions about why Vida and Ng tried to destroy a document that seemed to indicate campaign finance violations, City Attorney Dennis Herrera and the Ethics Commission have so far refused to investigate the matter. Debbie Mesloh, spokesperson for District Attorney Kamala Harris, told us Feb. 9 that Harris was looking into whether the document was improperly destroyed.

"Somebody should be looking into it," Bob Stern of the Center for Governmental Studies, who coauthored California's landmark Political Reform Act of 1974, told us. "There should be a determination as to whether funds were misused."

When media outlets like the San Francisco Chronicle and KRON-TV in early February reported on Newsom's record-breaking $5.2 million in campaign spending last year, they failed to note the massive debt that was left over, which is significant because Newsom can't tap any of his thousands of donors who have already given the maximum $500 for the main election and $250 for the runoff.

Shortly after the election, mayoral challenger Matt Gonzalez announced a pair of fundraisers to help clear out $68,933 in debt, but Newsom has yet to publicly announce fundraisers or even make reference to his debt – although his supporters were raising money for the low-key inauguration ceremony, which Sutton told us Newsom wasn't legally required to pay for.

Newsom told us he had no comment on the document destruction or the intent of the inaugural committee. As for his outstanding debt, he minimized its significance and the difficulty in retiring it. "It's pretty straightforward," he told us on his way out of a meeting at City Hall. "If you have a debt, you have to go out and fundraise."

Sutton also minimized the significance of the debt, owed to consultants and staffers as well as local hotels, restaurants, printers, Pacific Bell, and the State Compensation Insurance Fund. "In the campaign world, it's common for there to be a relatively small debt at the end," Sutton said. "Campaign vendors tend to know that."

Sutton noted that the Swearing-in Committee had always planned to disclose its expenditures on federal tax forms for nonprofit corporations and said the disputed document "was an internal worksheet, and it was not meant to be a public document. It did not in any way represent the debt of the Swearing-in Committee.... Every expense of the campaign committee has been, or will be, paid by the campaign committee."

Among the actual Swearing-in Committee expenditures Sutton supplied were $72,126 for payments to staff (almost all of whom now work in the Mayor's Office), nearly $40,000 for equipment rental, $25,000 to Rita Barela Productions, almost $10,000 to Sutton and Partners, and $3,400 to the Newsom for Mayor committee for rent on the campaign headquarters.

According to Sutton, many of those expenses legally could have been borne by the city. "The mayor didn't have to pay for this stuff but said he was going to," he said – a curious statement that doesn't diminish speculation about the original intention of this fundraising.

As a side note, Sutton said the at least $36,105 left in the Swearing-in Committee coffers after paying for the inauguration "will be given to nonprofit organizations pursuant to the nonprofit laws."

Click here for links to key documents and other supporting information.

See our politics blog for more on this developing story, including:

Will the Ethics Commission (including newly named commissioner Emi Gusukuma) investigate, and will the Feb. 9 discussion of severe enforcement shortcomings lead to reform?

Did the Sunshine Ordinance Task Force accept jurisdiction over the destroyed document (see Editorial) during a Feb. 10 meeting, and what comes next?

After last fall's contribution cap scandal involving the Harris campaign, Sup. Aaron Peskin formally requested that there be a "hearing on the Ethics Commission to determine the extent of influence, if any, of the regulated industry over the commission management and to study ways in which the conduct of the Ethics Commission may be subject to ongoing public scrutiny and peer review." That hearing never happened, but will it happen now?

E-mail Steven T. Jones

February 11, 2004