Election Funds Frozen in Shelley Audit

The Schwarzenegger administration froze $17.6 million in federal election reform funds late Friday until an audit is completed into how Secretary of State Kevin Shelley spent other federal money intended to raise voter turnout.

The state Department of Finance took action one day after state legislators ordered an examination of Shelley’s handling of Help America Vote Act funds following reports that several of Shelley’s political associates or allies were awarded no-bid contracts.

Officials in Shelley’s office expressed disappointment that the governor’s office was holding up the money, arguing that it was needed to ensure an accurate and secure presidential election in November.

“This denial unfortunately affects $10 million in grants for counties for training of election and poll workers, voter education and compliance with state security measures,” said Shelley spokeswoman Carol Dahmen. “It also impairs the ability of the secretary of state’s office and counties to work together on parallel monitoring of electronic voting equipment, polling place monitoring, and reviewing software coding of electronic voting equipment.”

Finance Department spokesman H.D. Palmer said he hoped the audit could be completed quickly, and noted that $17.5 million earmarked for new voting machines will be sent to counties without delay.

Officials at the Bureau of State Audits, which will review how the federal funds were spent, were not available for comment.

Bruce Cain, director of the Institute of Governmental Studies at UC Berkeley, said some of the contracts may appear politically damaging to Shelley, but the real issue is: “Was the money well spent? Were they people who had credentials and capability? Was it a genuine attempt to increase [voter] participation?”

Shelley has been hit by a wave of investigations since published reports raised questions about potentially illegal campaign fundraising and his handling of federal election funds.

After an article in the San Francisco Chronicle, the FBI, the state attorney general and the state’s political watchdog agency began examining contributions made to Shelley’s 2002 campaign by people and companies that received part of $500,000 in state construction grant money that Shelley arranged for a neighborhood nonprofit group in San Francisco.

Shelley has denied that he was aware of any campaign fundraising improprieties involving the grant for the neighborhood center.

The attorney general’s office this week subpoenaed documents from Shelley’s office.

The Help America Vote Act was passed by Congress to avoid voting problems like those that arose in Florida in the 2000 presidential election. California has received grants totaling about $350 million, which can be used to modernize voting machines, train poll workers, improve turnout and educate voters.

Last year, the Finance Department and the Legislature gave Shelley authority to spend $81.1 million -- but finance officials say a number of delays, including one at the federal level and the recall of Gov. Gray Davis, prevented Shelley’s office from spending $35.1 million.

The Finance Department recently authorized Shelley to spend the remaining money, but on Friday blocked the allocation of half that money because of concerns raised about how Shelley has distributed it.

Contracts recently released by Shelley’s office showed that some of the dozens of businesses and individuals hired to perform $6.4 million in administration, voter outreach and other work had ties to Shelley, to fellow Democrats or both. Many of the contracts, Shelley’s office said, were not put out to bid because the work needed to be done quickly.

Among the contractors Shelley chose was a San Francisco law firm that included his campaign treasurer and the former city attorney. Another contract went to his former campaign manager, Eric Jaye.

Jaye said in an interview that although his contract was for up to $49,000, he donated his time, working on a website, ballot handbooks and speeches for Shelley.

“I’m very supportive of having an activist secretary ... who takes the position we need to invite people into the political process,” he said.

Shelley also hired David Yaroslavsky, the 22-year-old son of Los Angeles County Supervisor Zev Yaroslavsky, for $3,500 a month to do outreach and education among Bay Area college students for the summer.

The younger Yaroslavsky, a recent UC Berkeley graduate who is heading to law school, declined to comment. But Shelley said he hired him after meeting him and being impressed.

P.J. Johnston, who served as press secretary to former San Francisco Mayor Willie Brown, landed a contract for up to $49,000. Johnston said in an interview that he billed $26,000 for work earlier this year on issues associated with the electronic voting machines some counties are installing. He said he has known Shelley, a former San Francisco County supervisor and state assemblyman, since the mid-1990s and was brought in because the secretary needed personnel.

Such contracts prompted the Joint Legislative Audit Committee to vote Thursday to request an audit of how Shelley’s office spent the federal funds.

Shelley said he chose people for contracts because he knew their work and was confident they could get the job done.

“I’ve got a job to do, and an important election coming up,” he said. “There is no intention to be partisan with any of the work. There are 6 million people who are eligible but are not voting.”

Federal officials said that states have great latitude when it comes to spending discretionary funds under the Help America Vote Act.

Tony Miller, a special counsel to Shelley who oversees the spending, said he knew nothing about some of the contractors’ political connections. But, he said: “I do know every dollar expended was in compliance with federal law....”