Article by Erik Smith. Published on Monday, September 12, 2011 EST.

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Attorney General Rob McKenna and Congressman Jay Inslee, candidates for governor in 2012.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Sept. 12.—Here’s one for the books – a campaign-accounting dispute in a Washington-state political race that might actually matter.

            The campaign for Republican Rob McKenna, candidate for governor, is calling a new report from Democrat Jay Inslee a wretched piece of work, and is threatening to file a formal complaint. If upheld, the effect might be to severely restrict Inslee’s ability to spend the big wad of cash that he raised for his earlier campaigns for Congress.

            And while state campaign regulators aren’t convinced there’s anything wrong, the next move certainly could tie things in knots for a while and make for months’ worth of nasty headlines, maybe right up to the 2012 election.

If the McKenna campaign or any other third party files a complaint, the state Public Disclosure Commission will have to investigate. And since McKenna, the state attorney general, manages the state office that provides the agency with legal advice, you can start to see just how tangled this one might get. To avoid conflict the agency could be forced to hire a lawyer of its own.

            Campaign manager Randy Pepple says the offense is so flagrant that his side may have no choice but to force the issue: “If Congressman Inslee is allowed to break Washington state’s public disclosure rules, or the bureaucrats charged with enforcing the rules fail to do so, then unfortunately our campaign will be forced to file a complaint to ensure illegal dollars don’t fund Congressman Inslee’s campaign.”

            Inslee’s supporters say the opposition is trying to divert attention from the fact that the Democrat posted a slight advantage last month in overall fund-raising figures. But at the very least, if the McKenna campaign goes through with it, a formal complaint will mean big billings for lawyers, hearings, reports, and big groans for reporters who will be forced to discuss the sorts of issues it takes a CPA to appreciate.

            Standings Will Change Today

            The prospect emerges just as a new set of campaign fund-raising figures are about to be released. Today is the day that campaigns are supposed to file reports showing their fund-raising for the month of August. In Washington’s gubernatorial race, those numbers are some of the best-watched stats around. The race is widely seen as one of the hottest in the country, if not the hottest, and it wouldn’t be surprising to see total fund-raising exceed the $25 million that was raised for the last gubernatorial contest in 2008.

            Last month, just two months in, the total fund-raising figures gave Inslee a slight edge of about $100,000 – $1.1 million versus $1 million. It might not have been much in the scheme of things. But it certainly was enough to set off howls from the Republican camp, which pointed out that nearly $400,000 of Inslee’s total was “easy money” – a whopping transfer from Inslee’s congressional account, and an unprecendented contribution from the state Democratic party, a year before the primary.

The bulk of McKenna’s money came the old-fashioned way, from contributors who wrote new checks that are limited under state law to $1,600.

            It appears that the Inslee camp filed its new August numbers over the weekend. According to the PDC website, his campaign stands at $1.6 million. That’s a half-million-dollar gain during the last 30 days.

            The McKenna campaign has yet to file its numbers.

            An Accounting Nightmare

            The complaint stems from the fact that Inslee piled up plenty of campaign money during seven terms as a congressman from Western Washington. The money kept pouring in even after he won his last race, and the account stood at $1.2 million when he turned his sights toward the governor’s mansion. After Inslee jumped into the race in June, the first order of business was to move the federal money over to the state campaign. Job number one for the McKenna campaign was to keep him from doing it, or at least to limit the amount.

Initially the Inslee campaign asked permission from state campaign regulators to transfer all of it. At first the PDC said yes, in what it calls an “informal opinion.” Inslee just had to get permission from campaign contributors.

            Inslee entered the race three weeks after McKenna. But because Inslee’s team transferred over $191,000 on the last day of June, the Democrat had a competitive total for the month.

            But after the McKenna camp protested, the PDC staff decided its interpretation was mistaken and reversed itself with a final written opinion at the end of July. State rules applied even to money that was transferred from a federal account. That meant each contributor was limited to $1,600, and any money transferred over from the federal account counted against the state limit. At the same time, the rules restrict contributions from political action committees – any PAC contributing to a Washington-state race must have at least 10 members residing in this state.

            That’s sort of the technical way to put it. What it basically meant was a great big accounting nightmare, in which the Inslee campaign had to stipulate exactly where each dollar of that $191,000 came from. The campaign aimed to clear things up with a 70-page amendment to its June report on Sept. 2. But Pepple says the whole thing is clear as mud. And he’s convinced there’s a campaign-finance violation in there. Maybe more than one.

            About Those ‘Mistakes’

            Pepple says that when he went through that new report, he found plenty of mistakes. For instance, there were 10 people who were credited with more than the maximum allowed under state law. That totaled $13,050. Actually, he said, there might be more – his check wasn’t exhaustive.

            Then there’s the fact that Inslee is claiming contributions made as far back as 2009. Under the state’s first-in, first-out rule, Pepple says only the last $1.2 million in contributions to Inslee’s campaigns ought to be considered. Without such a restriction, Inslee could use money that was donated to his congressional campaign years ago, while claiming that more recent contributions from impermissible sources had been spent. Pepple maintains that Inslee shouldn’t be able to spend money contributed before the first quarter of 2010.

            And then there are in-kind donations from lobbyists on the federal reports that are claimed as cash donations on the state reports. For things like catering and donations of food and beverages at Inslee events. Those are no-nos, too, Pepple says.

            “It is unfortunate that Congressman Inslee continues to break the rules of public disclosure in Washington state,” he said. “He had over two months to clean up this mess and instead is showing a blatant disregard for our state Public Disclosure Commission.”

            Pepple also notes that the new accounting says Inslee has permission to transfer over $215,000, not $191,000. How come $25,000 more?

            “It is hard to see how Congressman Inslee could have messed up his financial reports this badly, if indeed he had permission from all these donors back in June,” he said. “If Congressman Inslee had permission from all these donors on June 30 to move all this money, then why did it take two months to report it, and why don’t the numbers add up correctly?

            “Congressman Inslee needs to prove that he had written permission from these donors by filing those papers with the Public Disclosure Commission. Our hope is that Congressman Inslee will step up and do the right thing and comply with the rules of Washington state. It would be unfortunate if we have to spend the state’s time and money to file a formal complaint to make them follow the rules.”

            Everything Jake

            The Inslee campaign points out that the only party that seems to have a problem with its campaign reports is the opposition team. Certainly the PDC hasn’t raised any questions.

             “I don’t know that there is a long-running dispute from anybody except for the McKenna campaign,” said spokeswoman Jaime Smith. “We got advice from the PDC, we followed it, and they changed it, and we have been following their new directions and such, and there is a little bit of clean-up work that we have to do, now that they have provided new guidance.

“I would just say that we are doing a great job of talking to a lot of folks who are excited to support Jay Inslee. He has talked to a lot of folks who were excited about supporting him for Congress and who now are supporting him for governor.”

Meanwhile, the PDC is untroubled. The whole thing started when the agency gave bum advice, said spokesman Lori Anderson, and so the agency is giving Inslee time to straighten things out.

“We don’t see any problems,” she said.

If some contributions are over the limit, Inslee ought to be given the opportunity to make refunds, she said. As for potential violations of the first-in, first-out rule, Anderson said the date of the donation doesn’t matter. That’s because the Inslee campaign took some of the leftover money from earlier congressional campaigns, invested it in high-yield bank accounts, and kept it sequestered from money raised for the 2010 campaign. So that means money collected earlier ought to be usable. As for the in-kind contributions, she said the agency has not been presented with proof of a violation. “No one has complained to us,” she said.

 Anderson said the agency has the highest regard for campaign treasurers on both sides. “Both of those campaigns have very experienced treasurers who I have a lot of respect for,” she said. “They don’t make many mistakes. Until someone gives us some proof that there is something wrong with some wonky contributions, I’m not too excited about it.”

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