A financial reports shows Democratic gubernatorial candidate Anthony Brown has not paid off a half-million dollar loan taken out to keep his campaign going.
Democratic gubernatorial candidate Anthony G. Brown, who took out a $500,000 loan from the Laborers International Union in October to keep his faltering campaigngoing, did not pay it off as planned, according to a financial report filed Tuesday night.
Brown's campaign manager had vowed to pay back the unusual loan in full by Election Day. But the report showed that the campaign actually made no payments.
To take out the loan, Brown signed a personal guarantee of its repayment, and could be liable if the money can't be repaid. The report showed that Brown had $137,497 in his campaign account as of Nov. 11.
Brown, who lost to Republican Larry Hogan on Nov. 4, released a statement Tuesday defending the decision.
"I believed in what we were fighting for and who we were fighting for," the lieutenant governor said. "In the campaign's closing days, we decided to expend all resources that were legally available. I intend to honor my obligations under the law."
Neither Brown nor campaign manager Justin Schall would answer further questions.
A copy of the loan agreement on file with the state election board shows that Brown agreed to pay the loan in full, with interest, by Nov. 7 — three days after the election. It was backed by a personal guarantee that gave the union the right to sue Brown himself for the unpaid balance.
Jennifer Bevan-Dangel, executive director of Common Cause Maryland, said it might be difficult for Brown to repay the loan after his loss.
"I don't know how they're going to raise the money if they couldn't do it before the election," Bevan-Dangel said. "If you lose, it becomes really tricky to pay it off."
Bevan-Dangel said such loans also raise other concerns. "They become a way to run around our individual donation limits," she said.
The loan, which would not have been legal in a federal campaign, first came to light in the Brown campaign's Oct. 24 finance report — the last such filing before the election.
The report showed that the campaign took out the loan from the Laborers Political League Education Fund on Oct. 6 at an interest rate of 4.25 percent.
The loan agreement filed with that report shows that the union was permitted to increase the rate to 10 percent when the loan went into default Nov. 7. The agreement also includes a 5 percent late charge if the loan is not repaid by Saturday.
When news of the loan became public, the Hogan campaign pointed to the loan as a sign of desperation. But Schall said the borrowing was simply a matter of cash flow.
"We took out the loan to give us some flexibility in spending in the final week of the campaign as we raise over $1 million in the next 10 days," Schall said at the time. He said such expenses as television advertising, mail and payroll had to be paid in advance.
Schall said the loan would be paid in full by Election Day.
"We will not have any debt after the election," he said.
When the loan was first reported, the union expressed confidence in Brown's ability to repay. Bevin Albertani, political director of the Laborers Union, said the group had known Brown a long time and shared his commitment to investing in infrastructure.
"We felt this was a good investment for Maryland," she said at the time.
Albertani said she did not recall the union extending such a loan before in her decade with the Laborers.
Neither Albertani nor other officials of the union would comment in recent days on the unpaid loan.
Donald F. Norris, chairman of the public policy department of the University of Maryland, Baltimore County, said Brown and his staff believed they were going to win.
"The Brown campaign believed until the very end they had a 2-3 point lead in the polls," he said.
Maryland election law limits individuals and businesses to giving$4,000 per candidate per cycle, and limits political action committees to giving $6,000. But it allows unlimited borrowing by campaigns.
Still, there is a catch: The candidate is required to personally guarantee the loan. If it isn't paid off by the end of the next four-year cycle — in this case, on Dec. 31, 2018 — it converts to a contribution in excess of the $4,000 limit. That would put the lender in violation of state election law.
Jared DeMarinis, director of campaign finance for the elections board, said the lender could reduce the severity of its violation if it could show it took all reasonable steps to collect the debt from the candidate.
Forgiving the loan would violate the law, DeMarinis said.
The campaign finance report filed by the Brown campaign on Tuesday was the first since the election. A final report is due Jan. 21.
Norris said the union will want to get paid, even though it might have qualms about taking legal action against a fallen ally.
"I imagine that would be sort of a last-ditch thing to do because it would be embarrassing to both the union and the Brown campaign," he said.
Brown's financial disclosure filed with the State Ethics Commission last February shows few assets to recover. According to the filing, he owns no real estate and rents his home in Bowie. He listed no debts and reported owning less than 100 shares of stock and no interest in any business.
Norris said he expects that Brown's friends will find a way to bail him out.
"The Democratic establishment was strongly behind Anthony Brown and I can't imagine a scenario where they would toss him to the wolves," Norris said.
Bevan-Dangel said Common Cause would like to see caps on such large loans because they foster an excessively cozy relationship between a candidate and a lender.
"The relationship is the same whether it's a gift or a loan," she said. "We see it as a loophole."
Such a loan is not permissible in a federal election.Candidates in federal elections may take out loans, but only from banks or other institutions that are in the business of lending money.
Maryland has seen large loans to gubernatorial candidates before. Martin O'Malley borrowed $500,000 from Washington lawyer John P. Coale in the home stretch of his 2006campaign against Gov. Robert L. Ehrlich Jr. O'Malley won the election andrepaid the loan.
At the time of the Oct. 24 report, the Hogan campaign was also carrying $500,000 in loans on its books, but all of it was money that Hogan lent himself during the primary campaign.
Joe Cluster, executive director of the Maryland GOP, said Hogan would soon hold fundraisers to retire those loans.
As a winner, Norris said, Hogan will have no problem raising the money.
At the time the union loan was first reported, with less than two weeks remaining in the campaign, Schall insisted that Brown was raising all the money he needed.
"Oh my God, it's flying in," he said. "Absolutely, I couldn't ask for more."