Note (10/3/12, 11:41 pm): This post has been updated to reflect the more accurate mathematical calculations described in a subsequent post.
The race in the 30th district has come a long way since Rep. Howard Berman was touting his effectiveness and Rep. Brad Sherman was hammering his opponent on all sorts of somewhat arcane yet nefarious-sounding practices in debates and ads.
Today, with Sherman still leading in the polls, the roles have been reversed.
Yesterday, the Berman campaign debuted for reporters its new attack line on Sherman – that for 17 years, Sherman used his campaign funds as an investment vehicle, a legal practice that campaign manager Brandon Hall said is very convincing to voters.
What a difference a few months makes. Back in May, it was Sherman hitting Berman, in a 30-second spot, accusing Berman of “charg[ing] taxpayers $186,000 to lease a car.”
Now consider Berman’s new attack on Sherman. The campaign accuses Sherman of “making a personal profit of nearly $500,000” on monies loaned to his campaign committees.
When Sherman attacked Berman with this line of attack in a debate, Berman responded that the practice is legit -- House rules allow members to lease a car at the government’s expense.
Like Berman’s reaction to the car assertion, the first response by the Sherman campaign about the practice of charging interest on personal loans is perfectly legal.
And in the case of the $186,000 car, people close to Berman’s campaign pointed out that the number is deceptive, because it’s actually the total sum spent by Berman on car leasing for his three decades of service in Congress
But now it’s the Berman campaign that’s using its own deceptive numbers.
In its data dump to reporters, Hall focused on the big numbers – that Sherman collected as much as $461,000 in personal profit from interest on loans made to his campaign funds. The document referred to the sum as a “19 percent return on investment.”
Of course, the Sherman campaign responded that Sherman charged his campaign less in interest than he could have made had he put that money in the bank. And if you actually break the numbers down, the Berman attack seems less convincing.
Take the loan of $237,399 made by Sherman on December 29, 1989 to his California State Campaign Account. By the end of 2000, when the account appears to have been closed, that loan had accrued $111,148.97 in interest – a profit of nearly 47 percent on the original investment, Berman’s campaign manager said yesterday.
But that’s the total return, though, not the rate of return. I’m no investment guru, but a simple financial calculator app online helped me determine that Sherman appears to have made that particular loan to his campaign at a rate of about – drumroll please --
3.5 5.4 percent interest per year.
And if you consider what Sherman could have made had he invested that money elsewhere, the Berman campaign’s basic assertion -- that Sherman used his campaign accounts as a “vehicle for self- enrichment” – looks even more dubious.
Say that instead of loaning his campaign that money, Sherman bought $237,399 worth of shares in a fund that tracks the S&P 500 companies at the end of 1989. On the day he made the loan, the S&P closed at 353.40. Eleven years later, when the last of the interest was paid out to Sherman, the S&P closed at 1334.22, a gain of 277.5 percent over those years.
By the end of 2000, when the fund was closed, those shares would have been worth $658,782 -- 277.5 percent more than at the beginning of the investment period. The return on that hypothetical investment -- $421,383 – far exceeds the $111,148.97 in interest Sherman actually accrued on the loan he made to his campaign fund.
Now, I’m not saying that Sherman’s practice of loaning money to his campaign and collecting interest and compound interest on those loans is a good practice – watchdog groups clearly find it to be problematic.
What’s notable is that this campaign has gotten to the point that Berman’s campaign has taken up the tactics that the Sherman camp has been using against it.
Nevertheless, as the Berman campaign’s Hall said yesterday, this “nearly $500,000” attack on Sherman appears to have sway with voters. And that’s why the brought him in to run the campaign in the first place.
Over his 30 years in Congress, Berman has been charging taxpayers about $500 a month to lease a car. Sherman, meanwhile, regularly loaned his campaign funds money, in one case at a rate of about
3.5 5.4 percent interest.
Both campaigns hope these facts -- presented in the worst possible light, of course -- inspire voter outrage.
Five weeks to go.
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