Gingrich to pay tab with loan from Dole $300,000 for penalty to be repaid in 8 years with personal funds

THE BALTIMORE SUN

WASHINGTON -- In a twist that stunned many of his colleagues, House Speaker Newt Gingrich announced yesterday that he was obtaining a personal loan from former Republican presidential candidate Bob Dole to pay the $300,000 ethics penalty levied against him last winter.

Gingrich, speaking from the House floor with more defiance than contrition, said that after considering several options, he concluded he had a "moral obligation" to pay the money out of his own pocket.

"As a person of limited means, I have arranged to borrow the money from Bob Dole, a close personal friend of impeccable integrity," the Georgia Republican said, "and I will pay it back."

Republicans, who packed the House chamber for Gingrich's announcement, gave him a standing ovation and hearty handshakes. But Democrats, who largely stayed away, expressed reservations about the unorthodox arrangement between two politicians who have not always been comrades.

Gingrich's lawyer, J. Randolph Evans, said the loan, for the full $300,000 amount, would be paid at an annual interest rate of 10 percent -- the prime rate plus 1.5 percent -- and has to be paid in full within eight years.

Comparing the note to a student loan, he said Gingrich would not have to make any payments until 2005, although interest will compound. By paying nothing until the due date, Gingrich would have to pay about $640,000.

If the speaker leaves office in 2002, as he has said he plans to do, he could raise all of the money from lucrative jobs, book deals and speaking fees that are likely to come his way in his post-congressional life.

'Investment' in GOP's future

Dole, the former Senate majority leader who with his wife, Elizabeth, has assets estimated at more than $4 million, said in a statement, "I consider this not only an opportunity to support a friend, but a long-term investment in the future of our party."

Political Washington reacted with surprise and amusement, since the two men were anything but ideological soulmates. Many recalled that Gingrich once labeled the more moderate Dole the "tax collector for the welfare state."

After a two-year investigation by the House ethics committee, Gingrich admitted last December that he had brought discredit upon the House by violating its rules. He said he failed to get proper legal advice in his use of tax-exempt organizations and admitted that he submitted inaccurate information to the ethics committee. He said he did not do so knowingly.

For his actions, House members voted in January to formally reprimand Gingrich -- the first such disciplinary action against a speaker -- and to impose a $300,000 penalty that Republicans have characterized as a "reimbursement" rather than a fine.

Republicans insisted yesterday that Gingrich's decision to pay the penalty with personal funds would finally put the matter to rest. "He's done the right thing," said Rep. Peter T. King of New York, often critical of the speaker. "We should go on from here."

'It's over,' Armey says

House Majority Leader Dick Armey of Texas said the speaker's actions reflected "a level of compliance and integrity that I have not seen before in this body and have rarely seen in this town."

"It is the end," he said of Gingrich's ethics troubles. "It's over."

But Democrats signaled that the controversy may not be over, raising questions about possible conflicts of interest arising from Dole's new position with a law firm that engages in lobbying, as well as the terms of the loan.

"Could you get this loan at a bank?" asked Maryland Rep. Benjamin L. Cardin, a former member of the ethics committee that recommended the monetary penalty.

Democrats raise questions

Cardin said he thought Gingrich was doing the right thing by using personal funds, but questioned whether the loan from Dole was comparable to a loan available to average citizens at a commercial bank. If not, the Baltimore Democrat said, the arrangement could be considered a gratuity, thus a violation of the House gift ban.

"Is this a sweetheart deal for Newt Gingrich?" asked the speaker's chief nemesis, Democratic whip David E. Bonior of Michigan.

Evans said the loan meets commercial bank standards. A loan obtained from a commercial bank might have posed conflicts, he said, since many banks have business pending before Congress.

Meg VanDeWeghe, a professor of finance at the University of Maryland business school and a former banker at J. P. Morgan, said the terms of the loan sounded "relatively reasonable." But, she added, "It looks more like a loan to a small company than a loan to an individual. Maybe that's how they were looking at it, since Gingrich is in a position to generate cash flows more like a small company than an individual."

Although he called himself a man of "limited means," Gingrich is paid a salary of $171,500 a year and earned more than $400,000 from a 1995 book. Evans said the speaker's payments will come largely from the money he will make once he leaves office, when his earning power will likely be considerable.

Cardin and other Democrats also questioned possible conflicts of interest arising from Dole's new $600,000-a-year position with the firm of Verner, Liipfert, Bernhard, McPherson and Hand, which represents such giants as NBC, the National Football League, the Federal Home Loan Mortgage Corp., Lockheed Martin Corp. and Motorola Inc.

The loan agreement states that should Dole become a lobbyist -- he has said his job does not currently involve lobbying -- the loan would be taken over by a commercial bank. Still, Cardin said Dole has been retained to advise clients who have issues pending before Congress. "He says he's not a lobbyist, but I don't know what the distinction is."

Loan said to be Dole's idea

Gingrich spokesman Christina Martin said Dole came up with the loan idea and called Gingrich with his offer on Tuesday morning. The two met on the balcony of the speaker's office that evening and sealed the deal. It needs the approval of the House ethics committee.

The speaker had been considering several alternatives for paying the penalty, including using campaign funds or setting up a legal defense fund. Both of those options, however, might well have ignited a furor, especially among Democrats who said the penalty was intended to inflict some pain and sacrifice.

The speaker's wife, Marianne Gingrich, has been steadfastly against using personal funds. But the Dole arrangement was palatable to her, said Gingrich's lawyer, because "all of their assets are not necessarily tied up."

The loan does not require a lien on Gingrich's house or other personal accounts. It requires Gingrich to maintain sufficient term life insurance to cover outstanding interest and principal.

In the past week, Gingrich and his wife both came to the conclusion that the only politically viable choice was to use his own money. "Any other step would simply be seen as one more politician shirking his duty and one more example of failing to do the right thing," Gingrich said yesterday.

He said he accepted responsibility for violating House rules, but blamed his previous lawyers for developing the inaccurate documents that he signed and sent to the ethics committee. He said he was considering suing the lawyers.

Loan terms

The loan amount is $300,000.

The rate is 10 percent, simple interest, calculated on an annual basis.

Principal and all accrued interest due and payable within eight years. No payments are required before then.

Gingrich may make payments prior to the due date at any time, without penalty. All payments would first be applied to interest, with remaining amounts applied to principal. By paying nothing until the due date, interest would compound and Gingrich would pay back about $640,000, his lawyer says.

Gingrich must maintain sufficient term life insurance to cover outstanding interest and principal.

The loan will not be forgiven by Dole.

If Dole becomes a registered lobbyist, the loan will be replaced with a commercial loan from a commercial institution.

The loan must be approved by the House Committee on Standards of Official Conduct, the ethics panel.

Pub Date: 4/18/97

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