San Diego Mayor Roger Hedgecock's former chief of staff testified Wednesday that political consultant Tom Shepard may have been "a stupid businessman" who suffered a heavy financial loss by running Hedgecock's 1983 race, but emphasized that the deficit could not be construed as an illegal campaign donation because Hedgecock's campaign had a "fair, valid contract" with Shepard's firm.
J. Michael McDade, one of Hedgecock's closest political advisers, testified in the mayor's felony retrial that because of the contract between Hedgecock's campaign committee and Tom Shepard & Associates, "it would be inappropriate (and) inaccurate" to describe--as the prosecution does--the overhead expenses of Shepard's firm as an unreported contribution to Hedgecock.
"If we entered into a fair, bargained-for contract to pay (Shepard) what we thought his services were worth . . . that's all that's necessary," said McDade, who resigned as head of Hedgecock's City Hall staff in June to become a partner in a local law firm. "If in hindsight (Shepard lost money), there's no way we could have anticipated that."
During McDade's more than three hours of testimony, Deputy Dist. Atty. Charles Wickersham and defense attorney Oscar Goodman focused on the conflicting interpretations of Tom Shepard & Associates' financial history that lie at the heart of Hedgecock's felony conspiracy and perjury case.
Prosecutors characterize Shepard's firm as a political laundry used to funnel allegedly illegal donations from former J. David & Co. principals Nancy Hoover and J. David (Jerry) Dominelli to Hedgecock's 1983 campaign.
The defense, however, describes Shepard's firm, founded in January, 1982, as a legitimate business that simply treated Hedgecock's campaign as a "loss leader" in an attempt to enhance the young firm's reputation by running a successful citywide campaign.
One of the prosecution's guiding tenets in the case is the contention that Hedgecock received purportedly illegal contributions from Shepard's firm in the form of unreimbursed services, staff time and other overhead expenses. A local accounting professor who testified as a prosecution witness last week argued that if a pro-rated share of Tom Shepard & Associates' overhead expenses had been assigned to the Hedgecock campaign, the firm "lost" more than $130,000 on the race.
McDade, however, said that Shepard's overhead expenses--as well as Hoover's and Dominelli's capital investments in the firm--were "outside the scope" of what Hedgecock needed to report as campaign contributions on his financial disclosure statements. Under state election laws, a consulting firm's overhead expenses are not considered campaign contributions, provided that the company has a legitimate contract with a political client.
"The issue is whether or not we had a fair and adequate contract with Tom Shepard & Associates," McDade said. "In my opinion, we had a fair contract. Beyond that, there are no reporting requirements."
Initially paid a $750-per-month retainer by Hedgecock's campaign committee, Shepard's firm later received a 15% commission on all electronic media advertisements purchased on Hedgecock's behalf--a formula that resulted in a fee of about $30,000 throughout the special May, 1983, mayoral campaign. Whether that fee--which McDade described as generous in light of Shepard's limited experience as a political consultant--was sufficient to cover the firm's operating expenses "had no bearing" on Hedgecock's committee, McDade added.
"If (Shepard) is a stupid businessman, that's his problem, and (that) would not separate him from other political consultants," McDade said.
Throughout his testimony, McDade frequently sparred verbally with Wickersham, who persistently tried to get the former Hedgecock chief of staff to concede that Shepard's firm was rendering unpaid--and, therefore, illegal--services for Hedgecock both prior to and after receiving an August, 1982, contract to run the mayoral campaign. McDade, however, just as doggedly sought to craft his answers in ways that reflected favorably on his close friend Hedgecock.
Wickersham pointed out, for example, that Shepard wrote a series of detailed memos in early 1982 describing preparatory work being done on Hedgecock's behalf in anticipation of a potential mayoral race, a possibility that became a reality when then-Mayor Pete Wilson won the November, 1982, U.S. Senate race.
McDade, though, characterized those "very speculative" discussions as the kind of casual "what-if" brainstorming common in politics, emphasizing that serious planning for Hedgecock's mayoral campaign did not begin until after Wilson won the Republican senatorial nomination in June, 1982--and that the race did not become a certainty until Wilson's general election victory five months later.