SACRAMENTO / BRADLEY INMAN : Treasurer’s Campaign Comes Calling on the Investment Banks

For the past few months, state Treasurer Tom Hayes has been wearing two hats--one as campaigner, the other as guardian of the state’s public purse. That can’t be easy for a button-down guy who is a novice on the campaign trail and who is just beginning to master his current job.

Hayes--a 43-year-old ex-Marine who was appointed to the job in January, 1989, and won the Republican primary earlier this month--is portrayed by his supporters as a fiscal taskmaster and a steady hand at the helm of the state’s vast financial empire. During the general election campaign, voters will be reminded of his credentials as a champion of the competitive bidding process and as a trustworthy custodian of California’s AAA credit rating.

But with a formidable opponent in Democrat Kathleen Brown, Hayes faces an expensive statewide campaign that depends on a lot of big contributors.

Recently, campaign fund-raising and the state’s financial affairs have crossed paths, illustrating what a wobbly tightrope Hayes must walk.

On April 26, Hayes solicited proposals from 16 of the nation’s largest investment banking firms on issuing $150 million in revenue bonds for construction of the California state prison in Madera. Companies such as Smith Barney, Harris Upham & Co.; Goldman, Sachs & Co.; Lazard Freres & Co.; Morgan Stanley & Co.; Prudential-Bache Capital Funding, and First Boston Corp. were contacted. Their proposals were due back in the Treasurer’s office May 4.

On May 16, the investment bankers were notified that all of the firms invited to submit proposals had done so but that the Treasurer’s office would delay a decision on which firm would manage sale of the bonds.

During this time, many of the same firms or their employees were invited to campaign fund-raising luncheons for Hayes. A $1,000-a-plate affair was scheduled for May 10 at the executive dining room of Security Pacific Bank in Los Angeles and a $500-a-plate gathering for May 24 at the Bankers Club in San Francisco.

Critics see a conflict of interest. “You should not be raising funds from those people who you are soliciting (state business) from,” argues Ruth Holton, legislative advocate for Common Cause. “Even if it wasn’t a deliberate attempt to coerce a contribution, there appears to be a conflict of interest.”

Hayes was not available for comment, but spokespersons for his campaign and the Treasurer’s office denied a link between his fund-raising activities and decisions in the Treasurer’s office.

“We can’t just stop the business of the state because Tom has a campaign to run,” said Donna Lucas, of the Treasurer’s office.

Assistant Treasurer Russell Gould said his office’s guidelines prohibit the staff from getting involved with Hayes’ campaign. Campaign manager Brian Lungren said lists used for the fund-raisers were not obtained from the Treasurer’s office and that campaign officials had no knowledge of the Madera prison project.

“We are no different than any other campaign,” Lungren said. “We rely on local fund-raising consultants, and they often have developed lists from other campaigns, such as Bush, Reagan and Deukmejian.”

The Hayes campaign also taps a “house list,” which is made up of 6,000 contributors who have previously donated to him. Lungren said there’s little doubt that some names on the Treasurer’s bidding list would also show up on fund-raising rosters. In fact, all of the firms on the bid list for the Madera prison project have previously contributed to the Hayes campaign or have key employees who contributed. In 1989, Hayes received at least $80,000 from these companies or their employees.

Moreover, there is nothing illegal about an elected state officeholder soliciting political contributions from the same groups that do business with a state agency--unless there is a quid pro quo between candidate and contributor.

What about the appearance of a conflict of interest? “We are going out with RFPs (requests for proposals) all of the time. This is no different,” Lucas said.

One investment banker, who asked to remain anonymous, had a different view. “It was breathless timing,” he said. “Never have I seen such a hurried attempt to issue a bond and then have everything be put on hold--all right before the (primary) election.”

But Gould cites other reasons for delaying the Madera prison bond sale: “Just about the time we were making plans to go to market, the governor announced the $3-billion budget deficit. That’s not a good time to make investor decisions of this magnitude.”

The investment banking community has a mixed view of the matter. “This is an example of how politicalized the process can get,” complained a banker who asked not to be identified.

“I don’t see any relationship between the two (fund-raising and the bids),” said a representative from Prudential-Bache. “Maybe it’s because I receive so many fund-raising requests this time of year. I’ve got seven on my desk right now.”

First Boston apparently felt that attending the San Francisco fund-raiser would hurt its chances of doing business with the state, so it didn’t attend. “It may sound odd, but we were worried that appearing on the list of attendees might hurt us in the long run, given Mr. Hayes’ widely proclaimed divorce between policy and politics,” managing director Michael George said.

Campaign manager Lungren declared flatly that contributors won’t get special treatment when it comes to awarding state business.

“Tom has been up front about his commitment to competitive bidding and open about his fund-raising philosophy,” Lungren said. “If contributors want to demonstrate their support of open and competitive bidding, they can contribute to the campaign, but all they can hope for in return is that they will be treated fairly.”