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Hoffman pays self interest on loans


WASHINGTON — Win or lose, running for Congress looks like a sound investment for Douglas L. Hoffman.

Mr. Hoffman has paid himself more than $3,500 in interest on the loans he made to his two congressional campaigns, making a greater return from his campaign committee than from most of his stocks, his campaign finance and personal financial disclosures show.

While Rep. William L. Owens, D-Plattsburgh, and Matthew A. Doheny, who is running against Mr. Hoffman for the GOP nomination in the 23rd Congressional District, have made interest-free loans to their campaigns, Mr. Hoffman is charging his campaign 7.5 percent interest on $349,900 in loans he has made this election cycle.

Mr. Hoffman has paid himself $2,527 in interest from campaign accounts since May, even as he continues collecting campaign contributions. He also made between $1,001 and $2,500 in interest from his campaign last year, according to his personal financial disclosure.

"It was a prudent business decision, and in all likelihood, the loan may not be repaid," said Mr. Hoffman's spokesman, Robert H. Ryan.

By contrast, out of 24 stock funds listed on Mr. Hoffman's personal financial disclosure for 2009, only one made more than $2,500 in 2009.

Charging interest on personal loans to one's congressional campaign is well within the law, and the interest rate does not appear exorbitant considering the high rate a bank probably would charge on an inherently risky loan to a political campaign, said Robert K. Kelner, a lawyer who heads the election and political law practice at Covington & Burling, a Washington firm.

Still, campaign finance experts said it is an unusual practice.

"I can recall only one other case out of hundreds of self-financed campaigns where a wealthy candidate took interest on his self-loans from the funds raised from campaign contributors," said Jennifer A. Steen, an assistant political science professor at Arizona State University who studied campaign financing for a book she wrote in 2006, "Self Financed Candidates in Congressional Elections" (University of Michigan Press).

"It has happened before," said Lawrence M. Noble, a campaign finance lawyer and former general counsel to the Federal Election Commission. But candidates do not often pay themselves interest from their campaigns, he said.

Neither Mr. Noble nor Ms. Steen could name a candidate who has done so.

And while the practice is legal, Mr. Noble said, candidates sometimes run into trouble if they do not disclose the interest rate or clearly report it to the FEC as a loan rather than a straight campaign contribution.

Mr. Hoffman's FEC report shows that he received two interest payments in April for a total of $1,273 from his congressional campaign, as well as two payments in May for a total of $1,254. He has made three personal loans to the campaign this cycle — two for $100,000 each, and one for $149,900.

The first loan for $100,000 has been repaid, while a balance of $20,000 remains on the second $100,000 loan. The third loan remains outstanding, with a due date of Nov. 20, the latest FEC report shows. He also made interest-free loans to his campaign last year.

Self-financing of congressional campaigns is not at all uncommon. Indeed, Mr. Owens and Mr. Doheny have lent their campaigns money. But neither of Mr. Hoffman's rivals charged interest on his loans.

Other self-financed candidates in House races this year also have chosen the interest-free route. Thomas D. Ganley, a Republican running in Ohio, lent himself about $6.5 million through June 30, all interest-free. In Virginia, Keith S. Fimia, also a Republican, lent his own campaign $2.3 million in the second quarter, interest-free. Other candidates around the country are using similar arrangements.

As for Mr. Owens, his latest FEC report shows a loan from NBT Bank for this year for $160,500, at 3.39 percent interest. But that is a personal loan he took out before lending his campaign the same amount, interest-free, said his campaign manager, Clayton Schroers.

Candidates face a series of restrictions and requirements around self-financing, said Paul Ryan, a lawyer at the Campaign Legal Center in Washington. The U.S. Supreme Court has ruled that candidates may give or lend unlimited amounts to their own campaigns, although they are barred from converting campaign money to personal use. And while they are permitted to charge interest, he said, it cannot be at an "extraordinarily high rate" compared with what one would find in the ordinary course of business.

Mr. Ryan said the FEC judges an appropriate interest rate by what a bank typically would charge a political campaign for a loan.

He said the law also limits how much candidates can be paid back after they are elected, to prevent the appearance that special interests or lobbyists are making large contributions as a favor to help lawmakers settle their personal debts.

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