Federal candidates seek ways to tap state campaign stockpiles | McClatchy Washington Bureau

Henry T. Perea is facing the end of his term-limited time in the California state Assembly with $900,000 stashed in his campaign accounts and thoughts of one day running for Congress.

If the Fresno-area Democrat takes that step, he will face a dilemma that has confronted other politicians who have jumped from Sacramento to Capitol Hill: What to do with all that leftover money?

“There is a large amount of creativity,” said Loyola Law School professor and election law expert Jessica Levinson. “Creativity does not indicate violation of the law.”

California’s House members, many of whom previously served in the state Legislature, have definitely innovated in their disposal of state-raised funds. They have given to schools and nonprofits. They have contributed to fellow officeholders. They have donated to their political party or its affiliated organizations.

Sometimes, their spending has provoked complaints.

Because different rules apply to raising money for state and federal elections, state-raised funds are not supposed to be spent directly on a congressional campaign. Within the law, though, there is considerable ambiguity about whether an expense counts as a federal campaign activity.

“In most cases there are five possible explanations, and only one of them is illegal,” Levinson said.

The gray area was illuminated by Rep. Jeff Denham, a Turlock Republican, in his inaugural 2010 run for the House of Representatives.

Denham was an eight-year veteran of the state Senate, and a potential candidate for lieutenant governor when he jumped into the House race. In the heat of a contested Republican primary, Denham transferred $225,000 from his state campaign account to a small military veterans’ charity known as Remembering the Brave.

The charity sponsored a benefit for veterans at the Chukchansi Gold Resort & Casino, for which Denham, an Air Force veteran, cut radio and television advertisements. The benefit took place 11 days before the primary, and Denham’s Republican opponents charged it was a thinly disguised campaign scheme.

Responding to a complaint, the FEC General Counsel in a report said the “timing and amount” of the Denham state campaign’s contribution to Remembering the Brave suggested state funds may have improperly financed a federal campaign effort. One Denham supporter, in a January 2010 email, wrote, according to the FEC official, that “Denham mentioned that he thought he could use $700,000 in state campaign funds on his federal campaign.”

Denham denied any misuse of funds and, on a party-line vote, the Federal Election Commission subsequently deadlocked 3-3 on the matter. Ties are commonplace on the six-member commission, prompting critics to say the FEC is not as aggressive in enforcing campaign finance law as the state, according to Bob Stern, a campaign ethics expert and former general counsel for the California Fair Political Practices Commission.

“It is another incentive to dance close to the line because you know there is a commission that is deadlocked, and if they are deadlocked, you know there is not going to be any action,” Levinson said.

As of June 30, Denham still had $143,912 in a state campaign account originally established for a potential lieutenant governor campaign.

“Rep. Denham will use and dispose of his leftover state funds in accordance with state and federal election laws,” Denham’s campaign consultant Dave Gilliard said in an email.

His state campaign fund has been used for donations, like a $250 contribution this year to Modesto Republican Women Federated. Denham has likewise contributed state campaign funds to help a voter registration drive by the San Joaquin County Republican Central Committee. In January 2013, the Republican Party of Stanislaus County received a $10,000 contribution from his lieutenant governor’s war chest.

The recipients must take care in how they use the money. Funds donated for voter registration is okay, Stern said, while money used for running phone banks or other get-out-the vote efforts “gets a little closer” to the line.

Federal law prohibits congressional candidates from “soliciting, receiving, directing, transferring or spending” funds on a federal campaign that haven’t been subject to federal limits. Last year the federal limit for an individual donor was $2,600 per election while the California state limit was $4,200 per election. Corporations and labor unions also can contribute directly to state candidates, but not to federal candidates.

As a result, Stern said, California state officials running for federal office may get “frustrated they can’t use their surplus (state) money.”

The Democratic Congressional Campaign Committee has raised questions about spending by Hanford Republican David Valadao, who first won election to Congress in 2012.

After Valadao announced he would run for Congress and formed a federal campaign committee, he continued using consultants with his state account, state records show. One of those paid with state money was Tim Orman, who was Valadao’s political consultant.

For instance, Orman was paid more than $7,000 from Valadao’s state account on March 15, 2012. On April 4, he was paid $5,000 from Valadao’s federal account.

Tal Eslick, Valadao’s chief of staff, said there are valid reasons for spending state money on consulting after Valadao announced his congressional run.

Orman was paid to ramp down Valadao’s state campaign activities, Eslick said. For instance, Valadao changed vendors who sent out his campaign mail when he moved to Congress. Orman had to negotiate an end to that relationship.

“There’s a lot of change when a campaign goes away,” Eslick said. “You don’t just flip a light switch.”

Republican Tom McClintock was serving in the state Senate and had gone through a campaign for lieutenant governor when he was elected to the House in 2008. Left with surplus state funds, McClintock, shortly after being inaugurated as a congressman, donated $35,000 to a separate committee he established called Citizens for the California Republic.

Democrat Ted Lieu, elected to the House in 2014 while serving in the state Senate, had $135,000 remaining in state funds as of June. Lieu has used some money to refund state contributions and has also made donations to Southern California schools and charities.

The next person facing the dilemma could be Perea.

“I’m definitely interested in running for Congress, but I’ve made no decision on any next move,” Perea said.

First elected to the state Assembly in 2010, he will reach his term limit at the end of next year. He could run for state Senate. He could enter the private sector. He’s also formed a fund raising committee for Insurance Commissioner in 2018, but like Denham for lieutenant governor, that could just be a place to park his sizable campaign war chest.

In the meantime, Perea is doling out money even as he continues to raise it in his final term.

This year he’s given to the Fresno County Democratic Central Committee, the state Democratic Party and the Fresno County Democratic Women’s Club, as well as candidates such as Karina Cervantez Alejo, a Watsonville City Council member who is running for the state Assembly seat now held by her husband, Luis Alejo.