The state party faces a deadline in two weeks to resolve several alleged violations. If it remains unsettled, the matter ultimately could be referred to state prosecutors for possible charges.
The Maryland State Board of Elections found that money transferred from Steele's state campaign account, used to pay debts of the Republican State Central Committee, exceeded the legal limit, according to letters obtained by The Baltimore Sun. The violations turned up during a routine audit of political committees.
The board gave Steele, who served one term as the state's lieutenant governor, and the central committee 30 days from June 23, the date of the correspondence, to make the reimbursements and amend campaign finance reports dating back to 2002.
Most of the amount to be reimbursed stems from legal fees the central committee incurred during a redistricting fight several years ago. Steele, who was the state committee's chairman at the time, sued to have a Democratic-crafted redistricting plan thrown out by the Maryland Court of Appeals in 2002.
The debt went unpaid until 2007, when Steele's campaign account paid Baker and Hostetler LLP, the law firm that handled the case, $75,000 and classified it as an in-kind contribution to the state central committee.
The elections board directive adds to the problems, including outstanding debts and a recent spate of infighting, that have beset the Maryland GOP. It also comes in the wake of allegations that surfaced earlier this year regarding Steele's mishandling of campaign funds. Those accusations were made by Steele's former finance committee chairman for his unsuccessful U.S. Senate run in 2006, Alan B. Fabian, who was convicted of fraud unrelated to his political work.
Robert B. Ostrom, the central committee's attorney, said he planned to send a response to elections officials but declined to omment further.
"We're just waiting to see how it's resolved," said James Pelura, chairman of the state party, who also wouldn't discuss the issue. "It's an ongoing situation. There are negotiations back and forth."
Steele's attorney, Kerri L. Ruttenberg, declined to comment. Steele was traveling yesterday and could not be reached. A Republican National Committee spokesman referred questions to Steele's political campaign associates.
Republican party operatives acknowledge that it would be extraordinarily difficult for the state party to raise $77,500 in the coming weeks. The GOP has had trouble with fundraising after defeats in the last election and in the midst of the recession, and Pelura said recently that the party still owes $10,000 on what had been a $100,000 line of credit.
Nonetheless, Maryland's Republican national committeeman Louis Pope, who sits on the state party's executive committee, said he's not "overly worried" about the demand from elections officials to repay Steele. He said the party would be "financially incapable" of doing so, but he is confident the matter can be cleared up through negotiations.
"It's not like they are going to foreclose the state party and shut down its headquarters; that's not in the public interest," Pope said. "They can't raise those funds in that amount of time. The state party is having enough difficulty raising funds as we prepare for 2010 elections and meet current expenses."
According to elections officials, the 2008 annual report for Steele's campaign account logged nearly $105,000 of in-kind contributions to the state central committee, which did not have a corresponding entry in its records. Attorneys for Steele acknowledged that one entry to a vendor called the GOPShoppe, for nearly $30,000, was an entry mistake, elections officials said.
That left $75,000 that Steele's campaign paid to the law firm on the party's behalf. Elections officials said that outstanding debt to the law firm wasn't reported for several years until Steele's annual report. Such a substantial transfer is illegal, elections officials said, because in-kind contributions generally can't exceed $4,000 under Maryland law.
Steele had amassed a sizeable treasury when he left the lieutenant governor's office to launch his Senate campaign. He had $626,000 left in his campaign account.
In February, Steele confirmed that he and his sister, Monica Turner of Potomac, had been in contact with FBI agents looking into allegations that his campaign paid a company she owned more than $37,000 in 2007 for campaign work that was never performed. The allegations were made by Fabian, his former finance committee chair, in an unsuccessful attempt to gain a more lenient prison sentence after his fraud conviction in an unrelated case. Steele denies Fabian's allegations.
Attorneys for Steele in the matter currently before the state elections board argued that the money from his campaign account amounted to surplus funds that could be transferred in larger amounts. But elections officials determined that in order for the funds to be considered surplus, Steele would have to shut down his account first.
Steele hasn't done so - and in fact, according to elections officials, he inquired about using campaign funds for his election as Republican National Committee chairman because it represented a way to further a potential campaign for governor in Maryland.
Considered one of the state party luminaries, Steele's entry into the 2010 gubernatorial race would instantly raise the GOP's chances in the Democrat-dominated state.
Pope said "categorically" that Steele is not running for governor in 2010. "Beyond that, I don't think he knows," he said.
The central committee argued that the contribution from Steele was for administrative expenses, for which political donors can make unlimited contributions. But elections officials batted down that argument, saying that Steele's campaign account must go for electoral purposes, so it can't contribute to administrative accounts.
Similarly, another $2,500 transfer from Steele's account was reported by the party as an administrative contribution. If the money paid for administrative expenses, Steele would have to be reimbursed, elections officials concluded.