Utah's top elected official in charge of enforcing campaign finance laws may have landed herself in the middle of a campaign finance brouhaha — one that could end up embarrassing two of Utah's biggest philanthropists, not to mention Utah Gov. Mike Leavitt.
Lt. Gov. Olene Walker, who oversees the Utah Elections Office, has been raising money for a Capitol Hill art exhibit, the purpose of which is to help the Capitol Preservation Fund. But Walker's office apparently didn't tell donors that their checks were actually going into a political campaign account.
More curious still, at least two donations for $5,000 each were written out to the state of Utah with notations that they were for the art exhibit. But both checks were deposited into Leavitt's campaign account, called Governors Special Projects.
A Leavitt spokeswoman blames the problem on sloppy accounting. But the mistakes have put three prominent Utah charitable foundations in the awkward position of violating federal law that bars such political contributions. The Semnani Foundation, which has spent more than $200,000 already this year on a variety of Utah and national charities, and the Zions Bancorp Foundation, the charitable arm of Zions Bank, both made contributions to Walker's fund-raiser. Also contributing was the Harris H. and Amanda Simmons Foundation; Simmons is the president and CEO of Zions Bancorp.
The Semnani Foundation, which wrote out a $5,000 check to Lt. Governors Special Projects to help fund the art exhibit, is the charitable trust for Khosrow Semnani, one of Utah's largest political contributors and philanthropists. The Zions Bancorp Foundation and Simmons Foundation also wrote out $5,000 checks.
The problem is that federal law prohibits charitable organizations like the Semnani, Simmons and Zions Bancorp foundations from making political contributions.
"It never should have gone into a political account," admitted Vicki Varela, deputy chief of staff to Gov. Mike Leavitt.
Varela said all of the contributions were put into Leavitt's political account, and she doubted whether any of the donors realized they were making political contributions.
Simmons told the Deseret News there was never any intent on the part of Zions Bancorp or Simmons foundations to make political contributions and he doesn't know how they ended up in the governor's campaign account.
"I have never made a political contribution approaching $5,000, and I certainly wouldn't do it with foundation money," he said.
Semnani told the Deseret News that he was assured by the Lieutenant Governor's Office that his donation was indeed for a charitable cause and that it was tax deductible.
However, Semnani's accountant, Larry Shelton, apparently recognized that the checks were written out to a political action committee and he signed a campaign disclosure report — a report that now lists the foundation as a political contributor.
And that could be a violation of federal tax law.
State Sen. John Valentine, R-Orem, a tax attorney, said it is unlikely in such situations that any foundation would lose its tax-exempt status. But they are typically subjected to a 10 percent excise tax on the amount of the improper contribution. Federal tax law also requires the foundation to get the money back from the political candidate or PAC or face a 100 percent fine up to $5,000.
It is unlikely that either the Zions Bancorp Foundation or the Simmons Foundation donations would be construed by the IRS as political contributions given both checks were written out to the state of Utah.
But Semnani, who owns the Envirocare low-level radioactive waste facility in Tooele County, wrote his check out directly to the fund used for political and personal purposes by Walker. Semnani said had he known it was a political contribution he would have written the check from a personal or business account, which is entirely legal and above-board.
At issue is the Utah Arts Invitational Exhibit on display through Oct. 13 in the Capitol Rotunda. The exhibit, which included a gala opening night, cost about $50,000 in materials and labor, while the free-standing walls and pedestals used to display the art will become a permanent part of the Capitol for future exhibits.
"Through the generosity of the community and those who have a love of Utah's rich cultural heritage, this project will be a lasting legacy to be enjoyed by future generations," Walker wrote in an invitation to would-be donors.
But somewhere along the line there was a mix-up about how the exhibit funds would be treated. Varela said a nonprofit account should have been set up to accept the donations, but it never happened.
"The contributions were not political and should not have gone into a political account," Varela said. "There was no political benefit to the lieutenant governor."
Varela said the governor did not know the money went into his account, nor did his campaign spend any of it. The checks stated specifically what the money was for, and "that's how it was spent," she said.
Varela said the problem is rooted in "sloppiness" on the part of the accountant who handles the political accounts.
"It happened erroneously," Varela said. "Clearly the accounting records were careless. We have discussed it with our accountant today, and they are in the process of making important corrections."
Stan DeWaal, the accountant, admitted the accounting was sloppy, and he had no idea how checks written out to the state of Utah could have ended up in Leavitt's campaign account. Nor could Varela explain why checks were written directly to the Walker campaign account.
"We had a brand new person processing checks, and she didn't catch it," DeWaal said. "I can't really explain it except that it is an oversight. We process thousands and thousands of checks, and it happens."
Varela said the donations to the arts exhibit will now be redirected to a nonprofit account.
She said about $40,000 was raised for the art exhibit, "which is a nonpolitical, permanent contribution of architectural screens that will be used for Capitol art shows in perpetuity."
"Unfortunately, the accounting details were not handled properly," she said. "I am told it is a fairly easy process to reconstruct the accounting, and that is being done now. The purpose (for raising the funds) was that it be tax deductible, so that it is being set up now as a tax deductible account."
Contributing: Dennis Romboy.