Rep. Colleen Hanabusa‘s re-election campaign said that it’s “insulted” by a “misleading” report that says Hanabusa profited from campaign donations by charging high interest rates on personal loans to her 2006 Congressional campaign.
A Citizens for Responsibility and Ethics in Washington (CREW) report released on Thursday contends that Hanabusa — then a Hawaii state senator — loaned her campaign committee $125,000 at a high enough interest rate that she made $31,000 in interest off of the campaign donations she used to pay herself back.
“With the interest rates Rep. Hanabusa is charging for loaning her own campaign money, she could be confused for a loanshark,” said CREW Executive Director Melanie Sloan in a statement. “Most Americans open a savings account when they want to earn a little interest on their money. Instead, Rep. Hanabusa is making a killing by investing in her own campaign.”
Civil Beat could not reach Sloan for an interview on Thursday, but CREW detailed loan figures that are also outlined in Federal Election Commission records.
“She loaned her campaign committee, then Colleen for Congress, $125,000 in two separate loans,” CREW wrote. “The first loan, for $100,000, has an interest rate of 9.2 percent, and the second loan, for $25,000, has an interest rate of 9.47 percent. Colleen for Congress reported paying Rep. Hanabusa $31,106 in interest on the loans during the 2008 and 2010 election cycles.”
Hanabusa’s campaign communications director, Richard Rapoza, said in a statement that Hanabusa “has not profited at all from those interest payments,” and that the rates were established through a loan from Central Pacific Bank.
“Those loans were fully documented to the FEC as required by law,” Rapoza wrote. “The interest rates to the campaign on those funds reflect the rates charged by the bank, and interest payments were made directly to the bank.”
If that’s the case, then “the FEC is pretty clear that the candidate can be repaid at whatever interest rate they agreed to pay the bank,” said Paul Ryan, a Washington-based lawyer who specializes in campaign finance. Ryan is a staffer with The Campaign Legal Center, a nonpartisan elections and policy analysis firm.
“The main provision of federal law that would be at play here is the ban on converting campaign funds to personal use,” Ryan said. “Just as it would be illegal for candidates to use campaign funds to pay their personal mortgage, this evokes similar concerns.”
Ryan said that candidates would be likely to face higher interest-rate loans because campaigning is a “risky investment.”
The Hanabusa campaign could not immediately provide a copy of bank documents illustrating the bank-determined interest rate. That’s critical to determining whether Hanabusa handled the loan legally, Ryan said.
But the Federal Election Commission also spells out a legal standard on how to determine appropriate interest rates in repaying candidate loans — this is because some candidates loan money to their committees from personal funds, and they are allowed to earn interest on those loans the same way that a bank would.
“A candidate that has loaned money to his or her campaign may be repaid interest at a commercially reasonable rate,” Ryan said. “The FEC has explicitly approved repayments ranging from 8.4 percent and up to 11 percent in the past.”
Those figures are based on monthly rates published by the IRS, he said. Civil Beat could not reach the IRS for details on Thursday.
Meantime, Rapoza said that CREW’s study was an attempt to “say something loud and provocative to get attention,” and he dismissed an implication in the report that Hanabusa improperly reimbursed her husband for $8,774 expenses during her 2010 run for Congress.
The CREW report focused on how members of Congress and their families appeared to benefit from campaign finance handlings, and pegged Hanabusa as one of 14 members of Congress who charged interest on personal loans made to their own campaigns.