Bustamante faulted over acts by aide

In recent years, the lieutenant governor’s office under Cruz Bustamante fell $300,000 behind in office rent, and vendors exasperated by unpaid bills shut off cellphone service, stopped maintaining copy machines and threatened to cancel credit cards.

Aides to Bustamante blame the lapses on the lieutenant governor’s former fiscal officer, who used a state-issued credit card to make a down payment on a sports car, travel to Hawaii, buy stereo and computer equipment and rent videos, state documents show. The state has paid those costs.

Bustamante is the Democratic nominee for insurance commissioner, a post with far more responsibility than he has as lieutenant governor. The commissioner oversees a $200-million annual budget, 1,340 employees and an industry that generates $115 billion in annual premiums.

Wealthy Silicon Valley Republican Steve Poizner, Bustamante’s opponent in the race for insurance commissioner, cites the episode as a reflection of Bustamante’s handling of the lieutenant governor job.

“This is a clear example of how he has been asleep at the wheel,” Poizner campaign manager Tim Clark said Friday. “In an office that is not tasked with much to do, he couldn’t get that right, and taxpayers had to foot the bill.”

Bustamante spokesman Stephen Green shot back: “This happened several years ago. What’s new about this? We were the victims of a crime.... [Poizner] is spending millions of dollars on smear ads on television, and now he’s trying to make something out of this.”

By California standards, the lieutenant governor’s office is small, with fewer than 20 employees and a $2.8-million annual budget. One employee was Michael Keolanui, a high school graduate in his 30s. Hired in 2001, Keolanui became the lieutenant governor’s fiscal officer in 2002, responsible for part of the office’s budget and for ensuring that routine bills were paid.

Bustamante fired Keolanui in March 2004 after aides discovered that several bills hadn’t been paid, and he turned the matter over to law enforcement. Keolanui pleaded guilty to federal charges related to embezzlement of $65,000 and was sentenced in 2005 to three months in jail.

“When we became aware, we took action,” Green said. “When we started to hear that bills were not being paid and started looking into what he was doing, we contacted” law enforcement authorities.

Keolanui and his attorney declined to comment.

The overdue bills date at least to February 2003, when Hertz Corp. complained about a debt of $802, according to documents obtained under the California Public Records Act and given to The Times by Poizner’s campaign. In January 2004, a company that services copy machines refused to go to the office because of unpaid bills.

Delinquent rent and services amounting to $346,000 for Bustamante’s offices in Fresno and Los Angeles became apparent in June 2004, after Keolanui was fired. All past-due bills have since been paid.

In 2003 and 2004, Keolanui used his state-issued credit card for a deposit on a Nissan 350Z sports car, to pay restaurant bills and to visit Hawaii. He also made numerous charges at video shops, convenience stores and on a website that offers pornography, the documents show.

For a year before he was fired, Keolanui’s erratic work habits had troubled Bustamante’s top aides. Many complained that he often was a no-show at the office, according to e-mails and other documents.

“When you don’t have the office calendar flagged and don’t call in, how are we supposed to know where you are?” one employee asked in an e-mail to Keolanui dated April 1, 2003.

In May 2003, an employee sent an e-mail to a supervisor referring to “complaints from all offices due to his lack of responses to what he feels is beneath him.... His attendance has got to be dealt with also.”

In November 2003, an e-mail to Lynn Montgomery, Bustamante’s chief of staff, said: “I have no idea what hours/days he is working. It seems very random.”

In December 2003, another e-mail to Montgomery said: “Does Mike K. still work here (or is he on vacation)?”

The situation unraveled in March 2004, when American Express called the lieutenant governor’s office complaining that a $9,000 credit card bill was three months overdue.

Also that March, Kevin Terpstra, then Bustamante’s communications director, sent an e-mail to Montgomery complaining: “I discovered that my office-issued cellphone has had its service cut off.... If I were an intrepid reporter, I’d be asking why the communications director’s phone service was cut.”

Bustamante fired Keolanui on March 19, 2004, and turned the matter over to Atty. Gen. Bill Lockyer. The case was referred to the U.S. attorney’s office for prosecution. Keolanui has made one restitution payment of $8,470.

The issue of unpaid bills continued this year when US Bank sent a memo dated Jan. 18 to the lieutenant governor’s office asking that Keolanui’s state-issued credit card balance of $30,172 be paid.

“Your agency’s Cal Card program is in danger of being suspended.... To avoid suspension, all balances and associated interest penalties, less disputed amounts, must be resolved within 30 days from the date of this notice.”

The lieutenant governor’s office submitted the debt to a state board that decides such matters. The board agreed that it should be paid and submitted the matter to the Legislature.

Gov. Arnold Schwarzenegger signed legislation authorizing payment of the $30,000 credit card debt.

Bustamante became Assembly speaker in 1997 and was elected lieutenant governor in 1998. His fortunes turned when he fell short in the race for governor in the 2003 recall.

In his campaign for insurance commissioner, Bustamante has struggled to raise money against Poizner, who has put $11 million of his own money into his candidacy.

Sen. Tom McClintock, the Republican running to replace Bustamante as lieutenant governor, said the revelations add to “a growing consensus that Cruz Bustamante was not exactly the ideal lieutenant governor.”

“The man at the top always takes responsibility,” McClintock said.

John Garamendi, the Democratic nominee for lieutenant governor and outgoing insurance commissioner, would not “draw conclusions” about Bustamante’s operation but said he has “systems in place that provide very tight fiscal control and internal audits.”

“We monitor and audit in the Department of Insurance, and I’ll do the same as lieutenant governor,” Garamendi said.

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dan.morain@latimes.com For exclusive Web features, including the new Political Muscle blog, go to latimes.com/calpolitics.