Ensuring a Profit from Campaign Financing

California Congresswoman Grace Napolitano, Chair of the Natural Resources Committee’s water and power subcommittee, sure knows how to make a profit on a loan. Bloomberg’s Timothy J. Burger reports that she has pocketed $221,780 “by charging as much as 18 percent interest on money she loaned to her campaign” in 1998.

In a situation that Michael Toner, former chairman of the Federal Election Commission, properly characterized as “extraordinary,” Napolitano has used campaign donations made by lobbyists and PAC’s with business before her subcommittee (like the owner of California’s largest electric utility, Edison International) to collect interest in an amount that exceeds the loan balance by over $70,000. Her campaign has reduced the principal on the loan by less that $65,000, so she will obviously be able to continue to collect interest payments for some time to come.

Napolitano certainly has made a good investment. According to Burger, this loan has far outperformed stocks since it started accruing interest: “Over the same period, an investment in the Standard & Poor’s 500 stocks, with reinvested dividends, would have lost more than 7 percent.”

The ethical impropriety of a congressional officeholder making a profit from campaign contributions made to her campaign is obvious. I don’t usually agree with Public Citizen, but their government affairs lobbyist pegged it exactly when he said that “this practice is reprehensible…candidates are not supposed to personally benefit from these campaign funds.” Rather than easily paying off the principal years ago, Napolitano’s campaign organization has instead paid interest to Napolitano to provide her with a continuing profit.

Perhaps some of the banks who are besieging the Treasury for TARP funds because of their losses should hire the congresswoman as a consultant – after all, she seems to have done a better job of making a profit from investing other people’s money then they have.