Davis’ Filing Reveals $32-Million War Chest

As Gov. Gray Davis filed papers showing he has $32 million banked for his reelection campaign, his Republican rival, Bill Simon Jr., continued to struggle Tuesday to explain his use of a tax shelter that the Internal Revenue Service says could be illegal.

The Davis report, reflecting the governor’s huge financial advantage over Simon, came as the Republican nominee once again retooled his team of advisors, naming his fourth campaign manager since March.

The Democratic governor released his fund-raising report two weeks before the legal deadline in an apparent effort to reinforce perceptions that the Simon campaign is in trouble. Those perceptions have been fueled by a combination of the continuing staff shakeups, Simon’s slow pace of fund-raising, and his difficulty in shifting the campaign debate away from his refusal to release his tax returns.

Simon’s campaign declined to release its latest fund-raising report early, as Davis did, but a Simon advisor said the document will show that the GOP candidate had $5 million on hand as of June 30. That means the Davis war chest would be roughly six times bigger, with four months of fund-raising to go.

The money is particularly important in California, where statewide television advertising can easily churn through close to $2 million each week in the heat of the fall campaign.

In a sign of the multiple problems facing Simon, it was not his fund-raising but his tax returns that dominated his one-hour lunch Tuesday with state political reporters. Pressed repeatedly, the candidate doggedly declined to discuss details about the tax shelter he used.

“I believe everybody looks to be tax efficient,” he said.

He added: “I don’t think there’s anything wrong with that.”

Simon and his team made no public announcement during the day of the latest staff changeover, which was outlined in a Times article Tuesday morning. Instead, the switch was disclosed to Simon’s staff in an e-mail hastily dispatched Monday night by chief strategist Sal Russo.

In his e-mail, Russo announced the elevation of Rob Lapsley, the head of Simon’s communications shop, to campaign manager in place of John Peschong, who took the job just a month ago. The campaign is also shopping for yet another media advisor to join Russo, the producer of Simon’s TV ads, and others already on board.

According to GOP figures who have discussed the issue with the campaign and national party officials, the reshuffling was forced on Simon by White House political operatives unhappy with Russo and eager to see a more assertive Simon effort against Davis, one of President Bush’s highest-profile Democratic opponents.

With the latest changes, the Simon campaign has swelled to more than 100 employees, another issue of concern among Republicans who say the candidate has little to show for his bulging payroll. Davis, in contrast, has only 31 full-time campaign workers.

For six weeks, the governor has been outspending Simon on television ads--the most important means of communicating with California voters--and is likely to continue to do so until election day unless Simon dips into his personal fortune.

Simon and his family spent $5.5 million of their money during the GOP primary, but aides have voiced concern that donations will dry up if he starts bankrolling the general-election race too soon.

It is unclear how much money Simon, a wealthy investment banker, could put into the race, because he has refused to divulge his net worth, much less how much of it is liquid.

“If he’s worth $300 million or $400 million, that’s one thing,” said GOP pollster Dick Dresner. “If he’s worth $50 million, that’s a whole other ballgame. And if it’s $20 million, then he’s not going to make it.”

Whatever his financial capacity, Simon’s personal wealth has dominated the campaign since the IRS filed legal papers last week that listed him as a beneficiary of a tax shelter that it says could be illegal.

The Davis campaign has used the IRS disclosure to renew its demand that Simon release his tax returns, but the GOP candidate said Tuesday that he was not “rethinking” his decision to keep them private. He said he will make his future tax returns public only if he is elected governor.

“I believe that the people of California, at that point, when I’m their governor, working for them, have a right to know,” he said.

At a Sacramento Press Club lunch with several dozen reporters, Simon said he had “over-complied” with state law by filing an extensive disclosure report on his personal finances last year. He acknowledged, though, that it did not contain any information about the “investment transaction” that the IRS has contested.

The IRS has not accused Simon or the other beneficiaries of such tax shelters of wrongdoing, but is investigating the accounting firms that set them up.

Since April, when Simon first rejected Davis’ demand that he release his tax returns, the issue has become a more significant challenge for Simon’s campaign.

The bookkeeping scandals at WorldCom, Global Crossing and other companies have made it harder for Simon to argue that full disclosure of his financial records would violate his privacy.

“Voters have come to expect that politicians release as much information as possible--and that includes tax returns,” said Sherry Bebitch Jeffe, a USC political science professor. The IRS disclosure of the tax shelter has aggravated the problem, making it easier for Davis--as he has in a television ad--to question whether his GOP rival has paid his fair share of taxes.

Garry South, chief campaign strategist for Davis, said the issue is “certainly significant to voters who know very, very little about this man to begin with--and particularly in the face of all the disclosures that we now see every day on the front page of the newspapers about corporate executives trying to avoid paying taxes.”

But Simon accused Davis trying to divert attention from his poor record on issues voters care about, such as schools, roads, water, power and the economy.

Candidates for governor are not required by law to release their tax returns, but Davis has done so, in keeping with a common practice for politicians seeking or holding high public office.