Gray Davis: Did He Use State’s Phones for Fund Raising?

SACRAMENTO — Shortly after his victory last November, Controller-elect Gray Davis set up a bank of state phones in a government building where a small staff began making more than 1,000 long-distance calls--many of them to major campaign contributors and political allies in California and throughout the country, according to records obtained by The Times.

This was a period in which Davis was aggressively raising money to retire a substantial campaign debt, appealing directly to potential contributors and holding a series of pre-inaugural fund-raisers in New York City, San Francisco and Sacramento.

The question of how Davis’ staff used the state phones is of interest, because the use of state facilities for campaign fund raising is illegal in California. Violations have been prosecuted as misappropriations of taxpayer funds, according to state attorneys familiar with the law.

As a result, many elected officials, including Gov. George Deukmejian and Davis’ predecessor, Ken Cory, install private phones in their offices to avoid spending state money on campaign-related calls. But Davis and his staff said they did not know of any such phone in the transition office, which was housed on the third floor of the state Department of Veterans Affairs building, a block from the Capitol.

Telephone records of calls made from Davis’ office in December, obtained by The Times under the state Open Records Act, list the numbers that were called on the state phones. They do not reveal the nature of the conversations, of course. But the pattern of calls--to contributors, a campaign committee, a professional fund-raiser and other politicos--explain why some controller’s office employees strongly suspect that the state facilities were used for political purposes.

“You couldn’t help but hear they were still running the lousy campaign,” one official of the controller’s office said.

Davis aides who served on his transition team assert emphatically that they did not work on campaign fund raising or place calls to solicit funds from their temporary state office.

Davis himself told The Times: “I never stepped foot in that office. I didn’t even know where it was.”

The veteran politician said his top aides were aware that state facilities could not be used for campaign-related purposes and “I am confident they observed those rules.”

But just in case, Davis said, he makes it an annual practice at the start of every year to write a $1,000 check from his political committee to the state to cover any “personal expenses” he may charge to taxpayers during the coming year. He wrote such a check in early 1986, he said, and followed with another one in January, 1987. “If anything fell through the cracks, the $1,000 would cover it,” he said.

Noel Gould, who ran Davis’ election campaign and now is one of the new controller’s top staff members, said: “There were no campaign fund-raising calls from that (state) office. We did call people to ask for advice who happened to be contributors. . . . But those were policy phone calls.”

Added Davis’ chief deputy, Jim Tucker: “There was so much activity (between the election and taking office) getting this thing off the ground in terms of the inauguration, the lands commission. . . . We had no time for fund raising.”

However, phone records show repeated calls from Davis’ temporary state office to his campaign headquarters in Los Angeles and his San Francisco-based fund-raising consultant, as well as to major campaign contributors and political professionals throughout the country.

Davis, who has a reputation as a tenacious, even brazen, fund-raiser and a politician with a driving ambition to become governor, ended his election campaign roughly $900,000 in debt. He acknowledged that he was determined to retire a significant portion of the deficit by the time he took office on Jan. 5. In December alone, his three campaign committees reported receiving more than $300,000 in contributions.

As controller, the state’s official accountant, Davis is automatically a member of the state Franchise Tax Board and the Board of Equalization, which make important decisions that can affect the tax liability of individuals and corporations. He also chairs the State Lands Commission, which manages state property and plays a crucial role in the leasing of tracts for oil-drilling. Additionally, Davis is a member of the Public Employee Retirement System and the State Teachers Retirement System, two of the largest public pension programs in the country, as well as another score of boards and commissions.

In short, Davis is in a position to play at least some role in decisions that affect the financial well-being of virtually every business and individual in the state.

Attempts to Reach Davis

The Davis transition team, which varied in size from about five to eight individuals, according to Gould, placed 167 calls on state phones to the campaign headquarters in December. Gould said many of those calls might have been attempts to reach Davis or himself when they were in Southern California.

Another 40 long-distance calls were made to Marianne Gaddy, a political consultant who said she coordinated Gray’s fund-raising activities in San Francisco. She recalled hosting a fund-raiser for Davis on Dec. 18 in San Francisco and then became a volunteer, helping to plan for Davis’ inauguration. Almost half the calls to Gaddy, however, were placed early in December, when she still was being paid for fund raising.

In several instances, phone calls to businesses preceded contributions from those businesses by only a few days.

For example, the Irvine Co., a major contributor to Davis’ Republican opponent, Sen. William Campbell of Hacienda Heights, met with Davis at his request in early December. Company officials agreed at that meeting to make a donation to Davis. But the check still had not arrived by Dec. 30. The transition team placed a call to the Newport Beach company on that day and the check showed up on Dec. 31, according to records.

‘Helpful Insight’

Jack Flanigan, vice president of corporate affairs for the company, said Davis called on Irvine executives because he wanted “some helpful insight into the business community.”

The six state phones, answered at times by civil servants, were also used to place calls to Eastern Democrats with entree into the world of high finance and big-time contributions.

The Davis transition team made numerous phone calls to Wall Street firms and other New York businesses, several of which sent representatives to a cocktail party fund-raiser that Davis attended in New York City on Dec. 11.

Those invited to the reception were told in letters and mailgrams from insurance executive Marshall Manley, president of the Home Group, which hosted the function, that “Davis has a bright future--he is already being promoted as the next governor.” Manley suggested a contribution of $2,000 to $5,000 to help retire Davis’ sizable campaign debt.

Could Not Recall Calls

Phone records show that the state phones were used to place two calls to Manley’s firm. Home Group Vice President Robert L. Woodrum, who handled arrangements for the fund-raiser, said he could not recall receiving any phone calls from Davis’ transition team office in Sacramento.

Another call from the state office was to Thomson-McKinnon Securities Inc., a Wall Street brokerage that sent a representative to the New York City fund-raiser after handing a check for $5,000 to Davis earlier in the day, according to an executive with the firm.

The same executive, who asked not to be identified, said that Peter Kelly, a political consultant based in Washington, had introduced Davis to potential Democratic contributors at his firm. Kelly is a former Democratic National Committee finance chairman. Phone records show that the Davis transition team placed three calls to Kelly’s consulting firm--Black, Manafort, Stone & Kelly--while Davis was on his East Coast trip.

Refused Comment

At the same time, the team members placed a number of calls to Washington, to the Democratic National Committee’s fund-raising offices and to the Kamber Group, a political consulting firm.

Two officials at the Democratic National Committee’s finance staff refused to discuss any conversations they had with Davis or his staff.

Lynn Cutler, a committee vice chair and a member of the Kamber Group, said that Davis’ staff “could have been returning a call.” She said that the national committee was then planning a meeting in Newport Beach of its finance council, a group of contributors who give $5,000 a year to the national party. Davis, as a prominent California Democrat, would have been consulted about that February session, Cutler said.

In addition to Thomson-McKinnon and the Irvine Co., other firms also received calls from Davis’ state phones and then contributed to his political campaign committee. Among them were Bear, Stearns & Co., investment bankers that donated $2,000; Solomon Brothers Inc., another investment banking firm that gave $5,000, and Deloitte Haskins & Sells, accountants, $10,000.

Davis, who was former Gov. Edmund G. Brown Jr.’s chief of staff, served in the state Assembly for almost four years until he was elected controller.

Tradition Among Officials

There is a tradition among elected officials of providing some facilities to help their successors prepare for assuming office. And the outgoing controller, Democrat Ken Cory, agreed to provide the Davis transition team with space and telephones. But, according to several accounts, Cory personally warned Davis that the state facilities could only be used for state business.

Many of the people phoned by the transition team refused to return calls from The Times. Others said they could not recall their conversations. Some remembered discussions of issues involving the controller’s duties, such as simplification of income tax forms or improved fraud investigations. Still others said they remembered being asked whether they planned to attend Davis’ Jan. 5 inauguration, but could not recall any discussion of a $1,000-per-couple Davis fund-raiser held in Sacramento the evening before.

Davis said people he invited to his inauguration also were invited to attend his fund-raiser for free.

$13,500 Contribution

Michael L. Trope, who said he donated $13,500 to the Davis campaign before the November election, recalled receiving a call from Davis’ staff because he had failed to respond to an invitation to the inauguration. He said no mention was made of the fund-raiser that preceded that event.

The transition team phones were used to place 10 calls to the Newport Beach law firm of Stradling, Yocca, Carlson & Rauth. In December, according to records, the law firm gave the Davis campaign a non-cash contribution of $40,571 by forgiving a loan, said R.C. Shepard, an attorney with the firm.

Shepard said that the conversations with the transition team were not about contributions but about a number of ideas the firm’s lawyers had for the controller-elect, including discussions of simplifying the state’s tax law to conform with the federal system.

However, the heavy use of state phone lines caused some controller’s employees to wonder whether Davis’ transition team--not yet officially in office, but using state facilities--had set up a “boiler room” operation for raising money to retire Davis’ debt, three of them told The Times.

Message Slips Piled Up

Message slips for the transition team members began piling up in outgoing controller Cory’s reception area in the first days after the temporary phones were installed--so many that Cory stopped any more calls from being forwarded to his Capitol office, sources said. But there was no “hard evidence” that the calls were related to fund raising, said one of the controller’s staff members, who like many of those interviewed would agree to talk only if he were not identified.

The law makes it clear that officeholders must avoid using state staff and facilities for fund-raising activities, according to attorneys contacted by The Times who are familiar with the legal restrictions.

In a series of toughly worded decisions, the state’s courts have treated the use of public staff and facilities for campaign purposes as “gifts of public money to private persons,” explicitly banned by the state Constitution.

Several aides to elected state officials said that there are times when state business and campaigning overlap and that it is perfectly proper to use state phones and staff to call campaign committees to coordinate schedules. “There are times when it gets muddy,” said an aide to one top state official. And one former legislator, who asked not to be identified, said it was difficult to slam down a phone when a conversation turned to fund raising.

Illegal Use of Phones

The incidental use of state phones by an elected official--to return a call to someone who turned out to be a contributor, for example--would probably not be prosecuted, said an attorney familiar with the legal rulings on the use of government property for campaign purposes. However, he did note that the use of state phones for long-distance calls for fund-raising purposes is illegal.

“The use of office lights, the office desk (by a legislator or statewide elected official) would probably not lead to a prosecution,” he said. “When you start using a state car for that purpose, when you start using state phones for that purpose, when you start using any substantial amount of state supplies, it is a different ballgame.”

But, said another attorney familiar with California’s campaign laws, calls made to invite major contributors to inauguration activities are probably within the law. “The thing I would be interested in knowing,” he said, “was whether state phones were used to solicit money to pay off a debt.” That, he said, is clearly illegal.

TELEPHONE CALLS FROM GRAY DAVIS’ STATE OFFICE These are some of the 1,070 long-distance calls on state phones from Gray Davis’ temporary office in the State Department of Veterans Affairs building in December, 1986--after the election and before he was sworn into office:

ORGANIZATION / INDIVIDUAL Friends for Gray Davis Campaign Committee, Los Angeles Office (167 calls) IDENTIFICATION Davis’ principal campaign committee in his successful race to become state controller. CONNECTION TO DAVIS CAMPAIGN Raised more than $3.6 million for Davis’ successful run for statewide office and ended the year $600,000 in debt.

ORGANIZATION / INDIVIDUAL Marianne Gaddy, San Francisco (40 calls) IDENTIFICATION Coordinated Davis’ fundraising in San Francisco; paid out of campaign funds. CONNECTION TO DAVIS CAMPAIGN Held a Dec. 18 fundraiser to reduce the campaign debt; also volunteered in planning his inaugaration.

ORGANIZATION / INDIVIDUAL Democratic National Committee, Washington, D.C. (8 calls) IDENTIFICATION Raises money nationwide for the Democratic Party and provides entree to leading Democrats for those who have contributed CONNECTION TO DAVIS CAMPAIGN Democratic officials set up a meeting in Newport Beach earlier this year for some of biggest contributors to the national party and consulted with Davis.

ORGANIZATION / INDIVIDUAL Stradling, Yocca, Carlson and Rauth, Newport Beach (10 calls) IDENTIFICATION Law firm that conducts business before several commissions on which the controller serves. CONNECTION TO DAVIS CAMPAIGN Donated $40,571 to the Davis campaign on Dec. 5. Attorneys with the firm say they talked to Davis and his staff about simplifying state income tax forms and other government-related issues.

ORGANIZATION / INDIVIDUAL IDM Corp., Long Beach (16 calls) IDENTIFICATION A real estate development firm headed by Michael J. Choppin. CONNECTION TO DAVIS CAMPAIGN Choppin is serving on Davis’ task force to improve operations of the controller’s office. He donated $3,000 to the Davis campaign committe before the primary; the firm provided $20,954 including the use of an airplane.

ORGANIZATION / INDIVIDUAL The Home Group, New York (2 calls) IDENTIFICATION Insurance holding company headed by Marshall Manley. CONNECTION TO DAVIS CAMPAIGN The firm contributed $2,500 to the Davis campaign.

ORGANIZATION / INDIVIDUAL Black, Manafort, Stone & Kelly, Washington, D.C. (3 calls) IDENTIFICATION A political consulting firm, long connected to Republican politics but now with Democratics as well. CONNECTION TO DAVIS CAMPAIGN The firm’s Peter Kelly helped introduce Davis to at least one key Wall Street executive, long a donor to Democratic candidates.

ORGANIZATION / INDIVIDUAL The Irvine Co., Newport Beach (2 calls) IDENTIFICATION Orange County’s largest land and development firm; and a major donor to political campaigns, primarily Republican. CONNECTION TO DAVIS CAMPAIGN Officials met with Davis early in December and then contributed $5,000 to his campaign on Dec. 31, the day after a call from the transition team office.

ORGANIZATION / INDIVIDUAL Prudential-Bache Securities, Inc., New York (1 call) IDENTIFICATION A brokerage and investment banking firm.

CONNECTION TO DAVIS CAMPAIGN Harry Jacobs, a senior director of the firm, recently chaired the Democratic Business Council, a group of business leaders who each contribute $10,000 or more a year to the national party. Jacobs is a major fundraiser for Democratic candidates.

ORGANIZATION / INDIVIDUAL Deloitte Haskins & Sells, San Francisco (2 calls) IDENTIFICATION One of the nation’s eight largest accounting firms. CONNECTION TO DAVIS CAMPAIGN Firm gave two $5,000 contributions to Davis campaign committees on December 23--the day after the calls were placed. Company officials are active participants in Davis’ task force that is reviewing the operations of the controller’s office.

ORGANIZATION / INDIVIDUAL Thomson McKinnon Securities Inc., New York (1 call) IDENTIFICATION An investment bankingfirm. CONNECTION TO DAVIS CAMPAIGN Davis visited their offices on the day of a fundraiser for him in New York. Firm gave him $5,000 campaign donation.

ORGANIZATION / INDIVIDUAL Berman and D’Agostino, Los Angeles (9 calls) IDENTIFICATION Political consulting firm for Democratic candidates. CONNECTION TO DAVIS CAMPAIGN Ran Davis’ campaign, which ended the year owing the firm $50,000.