CALIFORNIA ELECTIONS / STATE CONTROLLER : Fong’s Political Lineage Adds Twist to Race With Davis

There sat Republican nominee for state controller Matthew (Kip) Fong in a banquet room full of GOP campaign check-writers, listening to his mother being denounced as “negligent.”

Fong is the only candidate for high state office in California--perhaps in the nation--whose mother is drawing political fire of her own. In this case, the mother, March Fong Eu, the veteran secretary of state, is seeking reelection to a fifth term.

In another twist, Fong, 36, and his mother, 68, will appear on the same statewide Nov. 6 ballot, but not as a mother and son team. He’s a Democrat-turned-Republican and she’s a Democrat, a dicey mix that strains family relations.

Fong sat attentively but impassively the other day at the gathering of Republican candidates and Lincoln Club financial supporters as his mother’s Republican rival, Los Angeles City Councilwoman Joan Milke Flores, pounded away at March Fong Eu as “negligent” and providing only a “vacuum of leadership.”

Then came Fong’s turn to speak. “You can see why it is difficult to have dinner at home,” he quipped to his audience. Then, he revved up an attack against the Democrat he wants to defeat, state Controller Gray Davis.

Later, Fong conceded that it is “sometimes a little tense sitting there and listening to my mother getting attacked. But that’s the political system. Normally, a candidate doesn’t have to deal with that type of stress.”

Officially, mother and son have taken no position in each other’s race. For the son, campaigning for state controller is his first race for public office, one of the top governmental posts in California.

Davis, 47, seeking election to a second term, is holding a substantial margin in opinion polls and outrunning Fong 10 to 1 in campaign contributions. He said he doubts that voters will entrust the state’s top financial job to a “total novice.”

“The conventional wisdom is that he is trying to position himself in the Republican Party lineup (for some future race),” Davis said.

Fong insists irritably, “I’m running to win. I’m not running for practice.”

In the constitutional pecking order, the controller is fourth behind the governor, lieutenant governor and secretary of state. But as a statewide office, the relatively low-profile post is viewed as a potential springboard for the politically ambitious.

The controller is keeper of the state’s checkbook, its chief accountant and custodian of unclaimed bank accounts. But the controller also can exert influence on major policy issues as a member of the State Lands Commission and various tax, pension and bond agencies.

For example, Davis, together with fellow Democrat Lt. Gov. Leo T. McCarthy, acted as a member of the Lands Commission to place virtually all remaining state parcels along the California coast off-limits to further oil development. Likewise, they proposed the nucleus of what was to become California’s new oil spill prevention and cleanup law.

Davis is an attorney who has been an Army officer, chief of staff to former Gov. Edmund G. Brown Jr. and two-term legislator and who has flirted with running for governor. He also is a highly successful fund-raiser.

Fong is a Los Angeles lawyer specializing in Pacific Rim trade and real estate. He is a graduate of the Air Force Academy and holds a master’s degree in business administration. He walked precincts with his mother at age 13 and managed her 1982 reelection campaign.

The break with the Democratic Party came, Fong said, after his mother began, then gave up, a campaign for the U.S. Senate. Meanwhile, Fong said, he was attracted to the Republican Party after reading books by former U.S. Sen. Barry Goldwater and writer Ayn Rand.

This year, striking the familiar “ethics in government” campaign theme, he charges that Davis “should not be in office. He betrayed the trust of the voters.”

He noted that Davis, as an assemblyman running for controller in 1986, was investigated by Democratic Atty. Gen. John K. Van de Kamp for allegedly using his legislative staff and state equipment to raise funds for his race for controller.

The attorney general in 1988 found insufficient evidence to file criminal charges against Davis but did agree to a settlement under which the Davis campaign committee returned $28,000 to the state to compensate for use of staff, telephones, office space and computer time.

Fong also asserts that since 1983 Davis has “accepted more than $250,000 from the junk bond industry,” including the now bankrupt Drexel Burnham Lambert financial organization.

The megabillion-dollar state Public Employees Retirement System has made relatively small investments in junk bonds. But Fong asserts that the pension system suffered a $100-million loss in junk bond investments, a sum that system officials term a “paper loss” that could become an actual loss in the unlikely case that the bonds were sold today.

One of two commercials that Fong is airing in Southern California attempts to link Davis with junk bond king Michael R. Milken, who pleaded guilty to six felony charges of securities fraud and conspiracy.

Davis said that as a member of its governing board he has no say over investments made by the board’s professional staff. “I didn’t take any (Drexel Burnham) campaign money after they’d had a problem,” Davis said.

But Fong claims that Davis’ delegate on the board last February pressed for continued investment in selected junk bonds in the face of warnings that the retirement system should avoid “high-yield” securities because of collapse of the junk bond market.

But the retirement system has not made further investments in junk bonds. Davis aides say the junk bonds are earning interest.

Davis, in turn, has charged that Fong “is acting like Mr. Clean” but has taken campaign money from the president of Far East National Bank, who played a substantial role in Mayor Tom Bradley’s political influence troubles. “Fong is on notice that this institution (Far East) expects something for its contributions,” Davis said.

Campaign finance statements show Fong last June 26 received a total of $3,000 from Far East President Henry Hwang, his wife and the bank’s vice president of marketing. Far East did business with the city of Los Angeles in 1988 at the same time it paid Mayor Bradley $18,000 in fees to serve on the bank’s advisory board. Bradley later returned the money.

In an interview last year, Hwang discussed the connection between Far East and Bradley, saying it was normal to seek out people of influence who could be helpful to the bank. He said that “you generally have to pay people for things . . . for services rendered in the future, whatever.”

Asked about the contributions, Fong said, “If (Hwang) had been convicted of doing something illegal, I wouldn’t have accepted it. He’s just a longtime family friend and wanted to help.”

Although trailing far behind in fund raising, Fong has some high-powered Republican support behind his underdog campaign. A dinner featuring former President Ronald Reagan recently helped him raise about $100,000, Fong said, mostly for television commercials.

Other national GOP figures who have signed on as fund-raisers include Vice President Dan Quayle, Housing and Urban Affairs Secretary Jack Kemp and U.S. Trade Representative Carla Hills.

Additionally, Stu Spencer, a longtime political intimate of Reagan and adviser to other high-level Republicans, is managing Fong’s campaign. One Asian community publication listed Fong as the “secret weapon” of the national GOP to attract more Asians to the party.