Simon’s Disclosure Raises New Doubts

Far from laying aside the issue of his tax history, Bill Simon Jr. faced a fresh round of questions Tuesday as Democrats challenged his candor and attacked his business record.

The GOP gubernatorial nominee scrubbed a radio interview and made no public appearances, leaving aides to insist the tax question was closed. “We feel this issue is behind us now,” said Mark Miner, a spokesman for Simon.

But strategists for Democratic Gov. Gray Davis stepped up their assault, plotting a new round of TV ads starting as early as today. “He didn’t get the monkey off his back,” said Garry South, chief advisor to Davis’ reelection effort.

After months of resistance, Simon released 11 years’ worth of tax returns Monday, but gave reporters only a few hours to review them.

A day later, there were new questions, including doubts about the candidate’s ability to finance the costly campaign and whether his track record matches the business acumen he touts as his chief credential for seeking California’s highest office.

In 1998, for instance, Simon reported $8.8 million in investment losses in the midst of the stock market boom. It was unclear, given the limited chance for review, whether the losses reflected poor investment decisions on Simon’s part, or a calculated move to offset more than $10 million in gains, thus reducing his tax bill.

It was also unclear whether the losses related to a tax shelter created by the KPMG accounting firm for Simon and other clients and now under investigation by the Internal Revenue Service. The IRS has gone to court to obtain a confidential opinion concerning tax advice that Simon received from KPMG partner Neil J. Tendler--the same accountant who prepared Simon’s 2000 tax return.

In addition, there was no accounting of his 1995 California tax return or those Simon filed in other states that year, which his campaign said were missing.

Leaving those details aside, many of Simon’s fellow Republicans were satisfied that Simon had done enough to sate the public’s curiosity and put an end to the political controversy, mainly by showing he paid a sizable chunk of his income in state and local taxes in the last decade.

“They released the tax returns,” said Dan Schnur, a GOP strategist and specialist in campaign communications. “The conditions under which they were released is not nearly enough to interest the average voter.”

Other Republicans disagreed, however, suggesting the view within party circles had merely shifted from a discussion of whether Simon should or shouldn’t release his tax returns--with most campaign insiders saying yes--to a debate over whether Simon had or hadn’t revealed enough.

“For those of us who support Simon, those of us who want to see him put together a smart campaign, this is something he should have done a long time ago,” said GOP consultant Allan Hoffenblum. “But what he did was whet the appetite, not quench the thirst.”

“If you’re going to do it, give them everything they want,” Hoffenblum went on. “When you have hungry dogs out there, don’t give them a piece of baloney. You’ve got to give them the whole steak, or they’re not going to be satisfied.”

The documents furnished Monday show that Simon earned roughly $36 million from 1990 to 2000 and paid about one-third of it in state and federal taxes.

But reporters were allowed little more than a cursory glimpse at the voluminous amount of material released. They were given just a few hours--on short notice--to review well over 1,000 pages of dense documents, were forbidden from making copies and were expected to use blank sheets of paper provided by the Simon campaign for taking notes.

Given the time limits, it was virtually impossible in most cases to evaluate which investments were winners and which were losers. And reporters were forbidden from turning to outside experts, such as accountants or tax lawyers, for help in deciphering the documents.

Instead, they turned to the campaign’s political strategists who confessed to their own lack of expertise. Simon’s chief campaign strategist, Sal Russo, hovered in the viewing room where reporters gathered Monday but turned aside numerous requests for more information, saying he did not know the answer.

Russo, for instance, could not name any of the investments that led Simon to file income tax returns in Oklahoma, Georgia, Pennsylvania, Massachusetts and other states.

Whatever the ultimate IRS finding on the use of tax shelters, it is clear that Simon reaped substantial tax savings from 1998 to 2000 by reporting a sharp rise in investment losses.

Beyond that, however, little more could be gleaned, besides the fact that Simon is in fact quite well-to-do and has given millions of dollars to charity over the years.

“Even people in the Big Four or Big Five accounting firms--with that limited amount of time, they’re not going to be able to give you any opinions,” said Robert Mah, managing partner of a San Francisco accounting firm. “You have to look at the details.”

Instead, Simon strategists sought to focus Tuesday on the proverbial bottom line--the more than $11 million in taxes that Simon paid--while at the same time minimizing its importance to most voters.

“I don’t think this tax issue was ever a real concern for the majority of Californians,” said Miner, who suggested Davis had kept the issue alive as “a shield to hide behind. Now the shield’s gone.”

The Davis campaign, however, showed no intention of backing away from the tax issue, which has plagued Simon since the spring.

“This was not full disclosure--this was a drive-by document drop,” South said. “What about the tax shelters? What about all the millions of dollars he’s claimed in losses at a time when the economy was booming? The way I read it, the guy is either a terrible businessman

The materials provided Monday also raised some concern in GOP circles about the financial strength of Simon’s candidacy. While he is clearly well off, some Republicans believed he was wealthier than his earnings in the last 10 years would suggest--or at least rich enough to spare the tens of millions of dollars he might need to keep up with the heavily funded Davis.

On the day Simon announced his candidacy in November, the campaign boasted of a $60-million budget. But by its own reckoning, the campaign has raised only about $10 million since Simon won the March GOP primary, and so far the candidate has resisted putting any personal cash into the November contest. In contrast, Davis has raised more than $50 million toward his reelection.

“Davis has always said he had to raise all this money to compete with a millionaire opponent,” said Kevin Spillane, a GOP strategist in Sacramento. “Well now he’s facing one, but even that guy isn’t wealthy enough to match all the special interest money that Davis has raised.”

Simon had said he would be one of the largest donors to his campaign. But Tuesday, spokesman Miner declined to reaffirm that commitment.

“There’s been no discussion about whether Bill Simon is going to put any money in this campaign,” Miner said. “We’re raising money, and that will increase into summer months and the fall, and we’ll have the resources necessary to run a strong campaign.”

By opening himself to Monday’s selective scrutiny, Simon became just the latest in a long line of well-to-do candidates who fought calls for financial disclosure, but ultimately bowed to political pressure. There are no laws requiring a candidate to reveal private tax returns, but disclosure has become the norm in most high-profile races.

In California, Democrat Dianne Feinstein was forced to detail her personal finances and those of her husband, investor Dick Blum, when she ran for governor in 1990. In New York, Republican George Pataki capitulated and released his tax returns in 1994 after a monthlong pounding from his opponents. (One of Pataki’s advisors was Russo.)

More recently, the affluence of New Jersey businessman Jon Corzine became a major issue in his 2000 U.S. Senate bid. Corzine, the former chairman of Goldman Sachs, spent more than $60 million to win his U.S. Senate seat. He refused to make his income tax returns public--citing a confidentiality agreement with Goldman Sachs--but eventually released four years’ worth of records detailing his income, tax history and charitable contributions.

Given today’s political climate--with the stock market in crisis, corporate corruption in the headlines and the public’s faith in business plunging--it was increasingly untenable for Simon to keep resisting the release of his tax returns.

“Every poll has shown voters are very skeptical of corporate America right now,” said Sherry Bebich Jeffe, a political science expert at USC. “Throughout the whole campaign, Simon’s mantra has been, ‘Trust me, I’m a businessman.’ So really, he had no choice.”

Times staff writer Jeffrey Rabin contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Taxing Questions

Republican gubernatorial candidate Bill Simon gave reporters a brief opportunity to examine his federal and state income tax returns. Simon’s income was offset by significant losses from investments, particularly from 1998 to 2000. Simon did not reveal his 1995 state tax returns. He has yet to file tax returns for last year.

Tax paid

Year Income+++ Fed Tax CA Tax other states

2000 $7,077,149 $1,363,373 $567,676 $8,816

1999 1,279,659 227,953 66,810 53,843

1998 4,444,505 759,000 304,992 57,924

1997 2,451,605 624,152 204,473 66,911

1996 3,272,070 798,492 259,742 64,658

1995 3,000,204 788,312 ***** *****

1994 2,886,047 855,514 202,083 22,736

1993 2,559,698 833,951 159,586 33,665

1992 3,205,654 862,728 393,542 28,884

1991 1,864,531 397,820 87,775 18,004

1990 3,989,382 1,040,148 177,698 60,655#

Notes: +++ Income figure after investment losses were subtracted. ***** For 1995, the Simon campaign says the candidate’s state tax returns are missing. Simon advisors say he paid $304,000 in California income taxes that year. No figures were provided for taxes paid to other states.

# Taxes paid to New Jersey the year Simon moved to California.

Source: Simon campaign