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Treasurer Given Gifts, Campaign Donations : Firms Court Unruh for State Business

Second of two parts

July 14, 1986|PAUL JACOBS | Times Staff Writer

"As far as I'm concerned, it's not a conflict of interest," Unruh said at the time. "If it is, every legislator over across the street (in the Capitol) and the governor would be precluded from signing any bills. But we try to be a little bit better than Caesar's wife, or Caesar's girlfriend."

The deputy attorney general assigned to the authority, however, advised Unruh that he could vote because otherwise there could be no majority. So Unruh voted, siding with Solid Waste Transporters. The bonds were issued in 1980. And over the next two years, the transporters partnership donated $12,500 to the Unruh campaign.

The Solid Waste Transporters went into bankruptcy court in 1984, and the company's bonds became the first state-approved issue to go into default, according to the treasurer's office.

Doug Chandler, executive secretary of the pollution authority, stressed that Unruh has acted aggressively to protect the bondholders by filing a separate suit against the partners in the transfer station business. And the authority has put in additional safeguards to protect those holding future bonds.

A three-month look at the treasurer's office has raised other questions about its operations as well.

Employees of the treasurer's office, including Unruh himself, routinely charge travel expenses connected to state bond sales to the underwriting firms that actually sell the bonds. The expenses are added to the other costs of issuing bonds and paid off as the bonds are retired. It is the taxpayer that ultimately foots the bill.

Reports Not Forwarded

Normally, state employees are required to file detailed travel expenditure reports with their departments, and these documents are forwarded to the state controller for auditing. But because the bond underwriter picks up the treasurer's office employees' costs for hotel accommodations and air fare, no reports on these expenses are forwarded to the state controller for auditing, according to officials in the treasurer's and controller's offices.

The system bypasses standard checks for extravagant expenses or double billings by state employees.

On a $2.3-billion note sale last year, for example, the underwriters charged the state $720,000 in expenses, including attorney fees, phone bills and travel expenses by underwriters and state workers. But the treasurer's office has no breakdown of expenses and maintains no detailed records of these costs, said Thomas Aceituno, the treasurer's general counsel. The treasurer's staff referred requests for the details to the senior manager on the note sale, Anthony J. Taddey of Merrill Lynch Capital Markets. However, Taddey did not respond to several calls requesting the information.

In contrast to Unruh and his staff, state Finance Director Jesse R. Huff, who each year travels with Unruh to New York to meet with bond-rating agencies and other financial institutions, has treated the payments from investment firms as a gift on his economic disclosure statements. Last year, for example, Huff reported that Merrill Lynch paid $2,300 for his food, travel, lodging and entertainment expenses in connection with the $2.3-billion note sale.

Unruh has repeatedly received significant political contributions from private companies that benefit from tax-exempt bonds issued on their behalf by one of the many authorities that he chairs.

In November, 1980, fireworks manufacturer Moriarty donated $2,500 to Unruh's political campaign treasury. One year before, the California Pollution Control Financing Authority, with Unruh as chair, approved on a 2-0 vote a $520,000 bond issue for Panamint Marketing Co. of Maricopa, Calif., a cat litter manufacturing plant owned by Moriarty's Pyrotronics Inc.

Panamint said the money from the relatively low-interest bonds would be used to buy equipment that the company needed to reduce dust emissions.

However, officials with the Kern County Air Pollution Control District contended at the time that poor maintenance at the plant was responsible for the plant's dust emission problems. And Thomas Paxson, now a supervising air quality engineer for the district, said in a recent interview that replacement of dust control equipment was not considered necessary.

A former Panamint plant manager said the new equipment doubled the plant's production capacity.

In October, 1982, Unruh provided a crucial vote to support a proposed $20-million bond issue for another Moriarty project--an attempt to build a plant for converting trash and agricultural waste into methanol at a site in the San Francisco Bay Area city of Hercules.

Air Quality Threat Noted

Months before the authority's action, officials of Bay Area Air Quality Management District complained that Moriarty's plan might "even lead to a deterioration of air quality in the vicinity."

Just 12 days after the vote, on Nov. 1, 1982, Unruh's campaign committee received two $5,000 contributions from Moriarty associates.

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