Husband's Business Ties Pose Dilemma for Feinstein : Politics: She says his myriad investments do not influence her votes and she is aware of potential conflicts.

TIMES STAFF WRITERS

Shortly after the Senate unanimously approved legislation sparing the nation's airlines from a $2.5-billion fuel tax, Dianne Feinstein decided to oppose the measure.

The California Democrat announced on the Senate floor in June of last year that she would have voted against a special tax exemption for the ailing airline industry if the amendment had been subject to a roll-call tally rather than a voice vote.

Feinstein later acknowledged in an interview that the statement prevented any possible criticism that she was assisting the business interests of her husband, Richard C. Blum, a prominent San Francisco merchant banker who controls a 6% stake in Northwest Airlines.

The episode underscores Feinstein's dilemma whenever an issue arises that affects her husband's myriad investments in everything from cable television to container products.

As one of the wealthiest members of the Senate and the most prolific fund-raiser among all federal candidates, with about $34 million in campaign receipts since 1989, Feinstein faces a dizzying array of potential conflicts involving both her personal and political finances.

Her opponent in this year's California Senate election, Rep. Mike Huffington (R-Santa Barbara), has attacked Feinstein in television commercials as "a senator who serves special interests . . . and her own."

Feinstein says she is an active legislator who serves the legitimate needs of all her constituents, regardless of whether they give money to her campaign or get involved in her husband's investments. Such connections, Feinstein insists, have no bearing on her decisions.

"I try to be very careful," she said last week. "I make up my own mind on all issues and I prize this independence."

A review of the senator's first two years in office found that Feinstein supported several positions that benefited Blum, his wealthy clients and their investments. She was a vocal proponent of increased trade with China while Blum's firm was planning a major investment there. She also voted for appropriations bills that provided more than $100 million a year in federal funds to three companies in which her husband is a substantial investor.

Senate ethics rules permit Feinstein to vote on bills that affect her husband's finances so long as the legislation is not designed to specifically benefit Blum or his investments.

In some cases, the 61-year-old Feinstein has taken actions that adversely affected her husband's economic interests. She sided with Los Angeles city officials in their successful battle against the airline industry to triple airport landing fees. The increased fees at Los Angeles International Airport cost the airlines $49 million per year and Northwest $3 million annually.

Feinstein said she was the only senator to support the $2.5-billion fuel tax on airlines "because they are big boys running big companies. I didn't feel they should be exempted. My view was contrary. I wanted to make it clear."

The first-term senator could have blocked the tax exemption by refusing to approve a unanimous consent agreement when her office was notified in advance by Senate leaders. Instead, after the measure passed, Feinstein opted to declare her opposition in a statement that got buried in the fine print of the Congressional Record for June 24, 1993.

That same day, Eastern newspapers reported that the board of directors of Northwest Airlines, including Feinstein's husband, would meet to consider filing for bankruptcy protection. Although Feinstein said she did not know about the stories and was unaware of developments at Northwest, she conceded that the timing of the fuel tax measure offered her a "new sensitivity" to how her actions might be perceived.

Throughout the Senate campaign, Feinstein has been criticized by Huffington for allegedly catering to political action committees and corporations that have piled at least $7.8 million into her campaign coffers since 1990.

Feinstein said she does not have the luxury of refusing special interest money when she is running against Huffington, a former oil tycoon who has spent about $25 million of his personal fortune in an effort to defeat her.

Although Feinstein is engaged in a money chase that took her to 17 fund-raising events over the past two weeks, a Times analysis of federal election records indicates that her campaign has relied more heavily on small contributions than on special interest money.

Although her take from PACs has increased to $1.3 million--a 38% jump over 1992--the total represents only 17% of her contributions through Sept. 30. This is well below the average Senate winner's receipts in 1992, when PACs accounted for 27% of campaign funds.

Meanwhile, the records show that Feinstein has raised nearly $2.6 million from supporters who gave less than $200, accounting for 35% of her 1993-94 contributions. The senator also has received $428,000 in bundled contributions through EMILY's List, the abortion rights, Democratic women's group that Feinstein sought to exempt from proposed campaign reform legislation.

She appears to have provided relatively few favors to financial supporters. A review of hundreds of Feinstein letters sent to federal agencies on behalf of constituents and hundreds of individual campaign contributions over the past two years turned up only a few dozen matches.

Nonetheless, Feinstein has provided access and legislative assistance to key support groups that have rallied around her campaign.

The former San Francisco mayor courted the state's agricultural industry after her 1992 victory over Republican Sen. John Seymour and devoted her first two years in office to tirelessly pursuing California farm aid, including a controversial export promotions program.

Sitting on the Senate Appropriations agriculture subcommittee, she helped secure $83 million in new funding for programs that benefit California farmers. She issued more than 100 letters on behalf of California constituents to the Agriculture Department, many of them to Agriculture Secretary Mike Espy.

"I'm proud to have agriculture support," Feinstein said. "I've worked very hard to get it. I think they really believe they have a voice in me."

Through Sept. 30, agriculture PACs have given the Feinstein campaign $147,143--12% of her special interest money, and second only to unions. Individual farmers, ranchers and others employed in businesses dependent on agriculture donated an additional $116,408 to Feinstein.

The support signals a dramatic turnaround from the governor's race in 1990 when Feinstein received only 1% of her special interest money from agriculture. Similarly, the Central Valley overwhelmingly supported Seymour in his unsuccessful 1992 race against Feinstein.

"There's not been a lot of senators that we've had this much access to," said Jean Sagouspe, a prominent Los Banos grower. "When (Sen. Alan) Cranston was in there, we just didn't get anything. Seymour was accessible but couldn't get anything done. She is accessible and gets things done."

Feinstein labored hard to save $90 million for California farmers that had been cut out of the Market Promotion Program, a controversial subsidy to expand agricultural export markets. The national program, which cost $1.25 billion between 1986 and 1993, has been criticized by the General Accounting Office as ineffective and a potentially unnecessary benefit for commercial farms.

"I think the problems have gotten straightened out," Feinstein said.

Some public interest groups were critical of Feinstein for withdrawing her support of President Clinton's health care plan in June after she had accepted $390,970 in contributions from interests opposing comprehensive reforms. A study by Citizen Action, a consumer research and advocacy group, found that Feinstein ranked third in the Senate in special interest contributions from the health industry.

"It does raise eyebrows," said Chuck Lewis, director of the Center for Public Integrity, a nonprofit group that has studied health care lobbying. "People can draw their own conclusion, but there is no question she has embraced the Washington politics-as-usual . . . system. There are very few people who have shaken the money tree any better than (Feinstein)."

Feinstein said the Administration's plan would cost between 150,000 and 500,000 jobs in California. "The fact that doctors contribute to me had nothing to do with my taking my name off the Clinton health care plan," she said.

No individual has raised more political money for Feinstein--and perhaps more questions about potential conflicts--than her husband. In the 1990 governor's race, Blum arranged a $3-million loan to his wife's campaign. Reporting violations surrounding the loan brought a $190,000 fine from the California Fair Political Practices Commission.

For some critics, the proximity of Feinstein's political operation to her husband's investment practice remains too close. This year the Northern California headquarters of the Feinstein for Senate campaign is downstairs from a brick Montgomery Street complex in San Francisco that houses the office of Richard C. Blum and Associates.

Since Feinstein turned her sights on a Senate seat, federal laws--which ban corporate giving, restrict PAC contributions to $10,000 and limit personal contributions to $2,000--have significantly dampened the ability of Blum's business associates to help.

Still, Blum says he is spending "26 of every 24 hours" to get his wife reelected, primarily raising money through friends and business associates. Asked if his fund-raising efforts this year have surpassed reported estimates of $1 million, Blum said he no longer keeps track. "I don't know and I don't care," he said.

The potential pitfalls created by Blum's active role in raising political funds are "a nightmare," said Ellen Miller, executive director of the nonpartisan Center for Responsive Politics. "The next best thing to handing a check directly to (Feinstein) is handing it to her spouse."

Blum, 59, earned the bulk of his estimated $50-million fortune by investing in undervalued companies on behalf of some of America's wealthiest people and largest corporations. His company manages $750 million in investments for about 70 clients, including oil heir Gordon Getty and Bank of America.

Tax returns released by Blum and Feinstein show that the couple's income rose from $292,000 in 1980, the year they married, to $3.9 million last year. The couple was hit by the tax increase contained in President Clinton's deficit-reduction plan that Feinstein supported. They paid 29.6% of their adjusted gross income in federal taxes last year--up from 24.2% in 1992--and owed an additional $180,518. They also took advantage of a provision in the Clinton plan--added at the urging of Feinstein and other senators--to defer $120,345 of their federal tax bill.

Feinstein has criticized Huffington for refusing to release information about the sources of his wealth and divulge his tax returns.

Feinstein's tax returns offer little insight into her husband's merchant banking business.

"What you see is that he is generating seven-digit figures coming out of his financial interests," said Robert K. Mah, a San Francisco certified public accountant whose firm was hired by The Times to review the couple's tax returns. "But what you don't see is the makeup of those financial interests to determine if there is any potential conflicts of interest between Feinstein's track record and his investments."

Such detailed financial information, Mah said, would have to come from Blum's corporate tax returns, a list of his clients and other financial records. Blum said he would release his corporate returns when Huffington makes his tax records available.

Senate financial disclosure documents, together with a client list Blum released in 1990, reveal a wide range of business ventures and investments in industries that come in contact with Congress, government agencies and federal regulators. These include the Bank of America, cable television holdings in Georgia and California, a pair of San Francisco Bay Area high technology firms, an interstate trucking company and broadcast properties.

When Feinstein first ran for Senate in 1992, she and Blum sought legal advice from the Democratic law firm of Manatt, Phelps, Phillips & Kantor on the question of participating in decisions that affect her husband's business interests.

Manatt, Phelps stated that it was "very unlikely" that any actual conflicts of interest would arise because Senate rules are so broad. "Somewhat more problematic," the Manatt, Phelps memo said, "is the possibility of an appearance of a conflict of interest."

As a candidate in 1992, Feinstein vowed to stay clear of any mergers between the private and public sectors of her household. She appointed her top Senate staffer in Washington, Michael McGill, to steer her away from potential conflicts.

So far, Feinstein said, no problems have surfaced.

"There's never been a question so much of right or wrong. That is easy to deal with," Blum said. "We try to go beyond that--even if it is right, how does it look?"

Last May, Feinstein declared her strong support on the Senate floor for continued trading with China while her husband was planning a major investment in that country.

For the past year, Blum said, he has been preparing to place up to $150 million on behalf of several investors in Chinese enterprises that make products such as cement, bicycles, washing machines and telecommunications equipment. Blum said he would put between $2 and $3 million of his own money into the investment.

Blum's economic interest in China is "news to me," Feinstein said. "All I know is presently he doesn't have any investment in China."

Blum also serves as vice chairman and director of Shanghai Pacific Partners, an import-export broker that participated in building a $30-million residential and retail high-rise on the outskirts of Shanghai. Blum's firm joined with the state-run Shanghai Investment Trust Corp. to form one of the first joint ventures between San Francisco and Chinese investors.

The project was cited by Chinese officials as a testament to the friendly business ties between Shanghai and San Francisco that Feinstein had initiated. Since she began America's first sister-city relationship with a Chinese city in 1979 as mayor of San Francisco, Feinstein has developed a close relationship with Jiang Zemin, the former Shanghai mayor and current president of China.

While mayor of Shanghai in the 1980s, Jiang danced with Feinstein during a visit to San Francisco. In August of last year, Feinstein and Blum traveled to Beijing at the invitation of Jiang for lengthy face-to-face meetings with top Chinese leaders.

Such encounters are fondly remembered when deals are clinched back in China, according to American experts in Chinese business practices. They said that Feinstein's consistent support for China's interests cannot help but benefit her husband's efforts to earn profits there.

"It seems to me that he's got some kind of an advantage over the ordinary Joe Schmo investor," said William Triplett, former chief Republican counsel to the Senate Foreign Relations Committee. "There is a particular Chinese phrase guanxi. It means relationships . . . any kind of a connection gives you an edge over other people. This really sounds like a case of guanxi. "

In separate interviews, Feinstein and Blum flatly rejected the notion that his business practices have benefited from her ties to China. They said that Blum had developed his own separate relationships in China before he met and married Feinstein.

"He is in San Francisco running his business, I am in Washington being a United States senator and they are two separate things," Feinstein told a reporter. "I don't know how I can prove it to people like you. Maybe I get divorced. Maybe that is what you want."

Three companies in which Blum holds considerable investment interests have received $100 million a year in federal funds through appropriations bills that Feinstein voted to approve. Two firms, URS Corp. of San Francisco and Frequency Electronics Inc. of New York, have defense contracts and the third, National Education Corp. of Irvine, received education grants for jobs programs.

Feinstein should have recused herself, Huffington contends, from voting on legislation that benefited Blum's investments. The senator has said there was no conflict because the multibillion-dollar spending bills carried no specific reference to the companies.

Two longtime clients and personal friends of Blum have connections to a San Francisco firm that would have benefited from a special provision in Feinstein's original desert protection bill. The firm, Catellus Corp., was the only private property owner in Feinstein's original bill that received special allowances to exchange its 366,000 acres of desert land for other government surplus property.

The legislation, which specifically mentioned Catellus, was criticized by Interior Secretary Bruce Babbitt at a Senate hearing in April of last year. "It can be read to mandate me to lay up all of Idaho for discretionary selection by the Catellus Corp. That is not good policy," Babbitt said.

The language remained in Feinstein's bill until September, 1993, when several Republicans on the Senate Natural Resources Committee objected to Catellus receiving favorable treatment above all other landowners. The committee voted unanimously to yank the provision from the Senate bill.

The Catellus "special deal" is cited by Huffington in television commercials as a prime example of Feinstein going to bat for a special interest. Companies and individuals affiliated with Catellus have provided at least $119,000 in campaign contributions to Feinstein since her 1990 gubernatorial race, records show.

Feinstein said she picked up the Catellus language straight from House-passed legislation and did not support it, even though she kept the provision in the bill after making more than 50 other changes.

"It did not catch my eye initially," Feinstein said of the Catellus provision. "When I understood that Catellus had to be put at the head of the list, I said I agreed to have it taken out. It was just that simple."

Times staff writer Rone Tempest in China contributed to this story.

Financial Fallout

Dianne Feinstein has raised more campaign funds than any federal candidate since 1989 and is one of the wealthiest members of the U.S. Senate. Here are some of the positions Feinstein has taken that affected the interests of her campaign donors and the investments of her husband, San Francisco merchant banker Richard C. Blum:

* Jan. 21, 1993--Feinstein introduces California Desert Protection Act with a provision that allows the Catellus Corp. to exchange 366,000 acres of desert land for surplus government property. Companies and individuals affiliated with Catellus donated at least $119,000 to Feinstein. Provision is later dropped after criticism that it would give Catellus preferential treatment.

* June 24, 1993--After the Senate passes a $2.5-billion fuel tax exemption for the nation's airlines on a unanimous voice vote, Feinstein announces her opposition to the measure. Blum controls a 6% stake in Northwest Airlines.

* Oct. 18, 1993--Feinstein votes for an education spending bill that provides more than $50 million to National Education Corp., an Irvine firm that lists Blum as a major stockholder.

* Dec. 2, 1993--Feinstein sides with Los Angeles city officials in their successful battle against the airline industry to triple landing fees at LAX. The increase costs Northwest $3 million a year.

* May 25, 1994--Feinstein withdraws support of President Clinton's health care plan while accepting $390,970 in contributions from providers and other interests opposing comprehensive reforms.

* May 25, 1994--In a speech delivered on the Senate floor, Feinstein urges Clinton to increase favorable trade relations with China at the same time Blum is planning to invest up to $150 million there on behalf of several clients.

* July 19, 1994--At the request of California farmers, Feinstein helps save controversial $90-million federal program to expand the state's agricultural export market. Among special interest groups, growers are the second-largest contributors to Feinstein campaign.

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