Need for Funds Takes Davis From Duties

Short on personal wealth and long on political ambition, gubernatorial hopeful Gray Davis always has financed his campaigns the hard way: by persuading donors he is a good investment.

But the aggressive fund-raising that netted Davis’ campaigns more than $19 million during the past 11 years has left him juggling and sometimes shirking his state responsibilities and risking the appearance of conflict of interest. Companies with state business before him have donated hundreds of thousands of dollars.

Faced with two wealthy Democratic opponents, the lieutenant governor has courted donors in a particularly feverish manner in the months leading up to the June 2 primary.

His schedule during a 50-day period from late October to mid-December indicates that he rushed back and forth to the East Coast and up and down California raising money.

Davis, whose campaign has touted his two decades of hands-on government experience, was out of the state on six days when he was designated to perform his most important duty as lieutenant governor: acting as governor whenever Pete Wilson leaves California.

In an interview, Davis said that campaigning during business hours is virtually unavoidable and that he has fulfilled all of his duties. He also noted that high-ranking state officials do not have to keep regular office hours.

“You have to just get your job done,” he said. “If you want to work all weekend and raise money for your campaign all week, you can do it.”

Davis said that serving as acting governor is important and that during the 290 days he has served in that capacity, he has declared emergencies for natural disasters and met with the president.

However, he said, “I’ve never suggested . . . that acting governor is the principal part of being lieutenant governor.”

He also said he cancels his own out-of-state campaign appearances and other activities if he has ample notice that he needs to fill in for the governor.

The lieutenant governor is legally permitted to leave the state when the governor also is gone. And the state Constitution provides that the Senate president pro tem then acts as governor.

Records also show that Davis routinely misses meetings of several commissions, which advise the governor on matters ranging from the North American Free Trade Agreement to state labor policy. “I never go to any of those meetings,” he said.

On several trips, his schedule shows, Davis spent less time in his official role than he did raising campaign funds. But he acknowledges that he took advantage of the state’s discounted travel rates reserved for state business. “I’m the lieutenant governor,” he said. “I’m entitled to travel” at the state rate.

Davis said that even though he does fund-raising on the trips, he also gathers ideas that could benefit the state. “I don’t just come in and say, ‘I’m running for office. Please give me money.’ ”

His practice is in contrast to Wilson’s, which is to pay for all travel out of campaign funds and never use the state discounted rate once the campaign season has begun.

A look at Davis’ fund-raising over the past decade illustrates the precarious balance that many elected officials maintain between government duties and the time-consuming need to raise millions of dollars.

Largess of Wealthy, Special Interests

Davis has depended on the largess of wealthy friends and special interests to fund races for controller, U.S. senator and governor, according to an analysis by The Times with the aid of the Campaign Study Group, a private, Virginia-based research firm.

Banks and brokers, unions and real estate developers top the list of contributors to his campaigns. And records show that more than $750,000 came from those who did business with the many boards and commissions that Davis served on while state controller from 1987 to 1994.

Like Davis, current Controller Kathleen Connell has accepted contributions from those seeking state business. But she has a policy of abstaining from decisions affecting her donors when they come before the panels on which she serves.

Davis said he did abstain in many cases and that when he or his surrogates did vote on issues concerning contributors, they did so only upon the recommendation of committee staff and consultants. “There may be one or two cases where things slipped through,” he said.

Records and interviews show that some of Davis’ campaign contributors benefited from his official actions. These include votes by Davis or his assistants on contracts or other matters handled by boards and commissions on which he served while controller.

The San Francisco law firm of Orrick, Herrington & Sutcliffe has given Davis nearly $32,000, and during his years as controller, it became counsel for state bond issues totaling $786 million. The legal work was unanimously approved by the California Educational Facilities Authority and the California Industrial Development Financing Advisory Commission, with Davis assistants voting on his behalf.

In the case of State Street Bank, which has contributed more than $30,000 to Davis’ campaigns, the firm had a contract with the controller’s office to retrieve unclaimed cash and securities held by banks and others on behalf of California residents.

In 1995, Connell commissioned an independent audit of the office, which, without mentioning his name, faulted Davis for renewing State Street’s contract without going out for competitive bids--over the objections of the state Department of General Services. The audit also contended that the controller’s office had illegally allowed the firm to waive the 12% interest penalty owed the state when property was held longer than permitted by law.

Auditors concluded that the waiver benefited State Street and cost the state an estimated $3 million.

Davis disputed the conclusion and said any suggestion of a conflict in the continued use of State Street is “baloney.” The company is so highly qualified, he said, that it works for most states.

On a trip to New York and Boston on Oct. 23 and 24, Davis attended a reception held by Nicholas Lopardo, chief executive of State Street Global Advisors, a division of the bank. Four days later, Lopardo sent Davis’ campaign a $1,000 check, records show.

Davis’ daily schedule, obtained by The Times, shows that he turned around and flew east again Sunday, Oct. 26, while Wilson was also out of state.

During the next two days, Davis met in New York City with a variety of high-powered lawyers and corporate executives. Among them were Sanford I. Weill, chairman and CEO of the Travelers Group, and Davis Mercer, the deputy finance chairman for the Democratic National Committee.

The DNC has been one of Davis’ top supporters, giving more than $158,000 over the past decade. Some others he met with in New York contributed a total of $5,400 to his campaign in the following weeks--when individual campaign contributions were capped at $1,000.

On the same trip, he visited a New York Hospital program designed to encourage reading and stimulate language development among children from low-income families. The tour was conducted by the program’s founder, Dr. Evelyn Lipper, a Cornell University pediatrician.

Lipper said her husband--Wall Street investor and writer Kenneth Lipper--is a longtime Davis friend. Late last year, the Lippers donated $2,000 to Davis’ campaign.

On Oct. 28, Davis flew to Chicago, where he stayed at the home of Norman Perlmutter, chairman of a real estate investment trust company, who hosted a reception at the Four Seasons Hotel that raised more than $14,000 for Davis.

During the visit, Davis, accompanied by campaign director Garry South, visited a deputy superintendent of Chicago public schools, whose education reforms have drawn national attention.

Schools chief Blondean Davis recalls that she and her staff briefed the lieutenant governor on their innovations, including mandatory summer school for failing students.

Seven weeks later Davis unveiled his “Learn--or Return” education proposal during a speech in Los Angeles. It included summer school and other features of the Chicago model, and he said he had patterned the plan on what he had seen in Chicago in October.

When members of Congress mix campaign activities and official business, they must pay their air fares out of campaign funds and are barred from using government-negotiated discounts, which can amount to hundreds of dollars per ticket.

California law is not so clear cut, according to state and federal officials consulted by The Times. But to avoid any criticism of doing campaign-related business at taxpayers’ expense, Wilson pays for all of his travel, for whatever purpose, out of his campaign committee funds, said the governor’s press secretary, Sean Walsh.

And, during his run for reelection four years ago and his aborted presidential bid, the governor did not take advantage of discounted airline fares that the state negotiated for official government travel, Walsh said.

“It costs us money, but it pays off handsomely in not having people question our motives for making a trip,” Walsh said.

Back in California at the end of October, Davis continued his frenetic pace, sometimes squeezing official duties and meetings in between fund-raising calls and events, sometimes not.

In the past, Davis has landed in trouble when his state staff blended political activity and government business.

A decade ago, investigators for then-Atty. Gen. John K. Van de Kamp found that several state employees had worked on Davis’ first campaign for controller, while on state time and using state facilities.

One Davis employee admitted that for months she worked only three hours a day at her state job during the campaign, even though she was drawing a full-time state salary, according to a report on the probe.

Although Van de Kamp found impropriety by the employees, he concluded that there was “insufficient evidence to justify the filing of criminal charges against Mr. Davis.” The campaign reimbursed the state $28,000, and Davis denied any wrongdoing.

When Davis was controller, those who raised funds for his campaigns repeatedly sought donations from investment firms and bond lawyers who oversaw various state investments--including those of the California Public Employees’ Retirement System, on which Davis served.

Firm Objected to Solicitations

One plea for campaign money did not sit well with Santa Monica investment firm Wilshire Associates, which was invited to a $500-a-plate fund-raiser for Davis at a New York bond house.

In May 1993, Wilshire Vice President Rosalind M. Hewsenian wrote Davis a personal letter complaining that the invitation came while the firm’s contract with CALPERS was being considered for renewal. The firm had received a similar fund-raising request from Davis when the contract was up for renewal three years before, she said.

“These solicitations put Wilshire in a difficult position,” Hewsenian said in correspondence obtained by The Times. “We are concerned about the perception of ethics that making campaign contributions to those elected officials who can vote on our contract can have.”

In a recent interview, Hewsenian recalled that Davis apologized in person after receiving the letter. Wilshire continues to do work for the state.

Wilshire, Davis said, was solicited, “but not by me.” He said his supporters in the “Wall Street crowd” kept sending invitations to the company without his permission.

Over the past decade, Davis has received financial backing from banking, real estate, legal and entertainment interests.

His top contributor is Long Beach Mortgage Co., which paid $4 million in 1996 to settle a federal Justice Department suit alleging that the company overcharged minorities, women and the elderly for loans.

The firm donated $260,000 to Davis’ campaign, most of it in late 1996.

The Long Beach firm was headed by Roland Arnall, who was appointed by Gov. Edmund G. “Jerry” Brown Jr. to the California State University Board of Trustees in 1982. Davis had served as Brown’s chief of staff.

Arnall did not return calls to explain why the company made the contributions. The current chairman, Jack Mayesh, said the decision to give the money had been Arnall’s and that the company no longer makes political contributions.

“I’m personal friends with virtually all my large contributors,” Davis said. “People don’t give you $125,000 because they think you might get elected.”

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Davis Contributors

A review of Gray Davis’ campaign fund-raising shows that he has long depended on the largess of wealthy friends and special interests. These are some of the biggest corporate and individual contributions to Gray Davis over the last 11 years.

Contributor: Amount

Long Beach, Mortgage Co.: $260,000

Terry Giles, attorney and businessman: $259,000

William S. Lerach, trial attorney: $232,000

Jessica L. Stevens, former Telegen executive: $195,000

USA Investments, real estate development: $192,000

Democratic National Committee: $158,391

California Teachers Assn.: $151,605

Saban Entertainment: $146,099

ICN Pharmaceuticals: $136,265

****

Sources of contributions

From January 1997 through mid-March of this year, Davis has collected close to $20 million for his political campaigns. Among the major contributors by category:

Category: Amount

Financial services*: $1,619,419

Real Estate: $1,602,416

Professional services**: $1,494,579

Union: $1,277,279

Entertainment: $819,286

Wholesalers, retailers: $671,908

Manufacturing: $596,368

Health care: $480,836

Business services: $343,000

Travel/leisure: $316,446

* underwriters, broker, banks

** lawyers, accountants

Sources: Times analysis with the aid of the Campaign Study Group based on state and federal campaign records.