Attorney General Campaign Uncovers Loophole in State Law

Candidate Amy Padden transferred loan debt from previous committee, which campaign finance law doesn’t address

A district attorney campaign in Colorado’s 18th Judicial District has highlighted an apparent blind spot in Colorado’s campaign finance laws and regulations.

Democratic candidate Amy Padden transferred an outstanding loan balance from her previous campaign committee for attorney general to her current committee, Law Week has confirmed. Although she did so at the advice of the Secretary of State’s Office, Colorado’s laws and regulations are silent on transferring loan debt between campaign committees, and it’s seemingly uncommon enough that experts in state campaign finance told Law Week they haven’t heard of it before. While political candidates can transfer funds raised for one race to another race subject to applicable contribution limits, sources said the uncommon nature of transferring a loan is probably why current law overlooks it. 

“I don’t think anyone’s necessarily thought of a reverse scenario where you have liabilities that you want to transfer over,” said Mario Nicolais, founder of KBN Law and a columnist for the Colorado Sun. “I think it’s the result of just an inadvertent oversight in drafting, and that happens all the time. … There’s no such thing as a perfect campaign finance law.” He also represented the Senate Majority Fund in the Colorado Supreme Court case Colorado Ethics Watch v. Senate Majority Fund, LLC.

But Nicolais said transferring loans between committees makes sense since the law does allow candidates to transfer contributed funds.

“It makes sense that you should be able to transfer over all assets and liabilities, just like you would when you’re doing some transactional work for a corporation,” he said. “You don’t just transfer over only assets; you transfer over liabilities as well.”

In an Oct. 15, 2019, filing, Padden transferred $80,000 of an outstanding loan to her current committee for district attorney that she made to her attorney general campaign for the 2018 midterm election when she closed that committee. In TRACER, the Secretary of State’s online campaign finance filing system, the transfer shows up as a reported loan and as a manually adjusted total funds balance in the district attorney committee to reflect Padden did not actually have the $80,000 as cash on hand when the loan was entered. 

Neither filing explicitly mentions a loan transfer. Padden first confirmed the transfer in an email to Law Week. She said she made the transfer because candidates can’t have two committees open at the same time — a previous committee must be closed within 10 days of registering a new campaign — and a committee must have a zero balance when it is closed. 

Padden would be able to use contributions to her district attorney campaign to continue paying off the loan if she chooses. However, she told Law Week she does not plan to make any payments on the loan during the election cycle and may end up forgiving it. 

“I’m going to be spending every penny I raise in this race, and then we’ll see what to do with the loan afterwards,” she said. “And I may just end up writing it off at that point in time, but I wasn’t quite ready to do it before.”

Padden said she believes transferring a loan is actually more straightforward than transferring funds between committees, because it doesn’t raise questions about whether those who made contributions to a previous campaign would support the candidate’s current campaign. 

“I think it’s actually kind of an easier scenario because it’s a loan that I loaned out of my own money,” she said. “It’s not like we’re trying to transfer donations from a different campaign to a campaign that maybe those donors don’t support.”

Sources Law Week spoke to said they don’t believe Padden’s transfer is unethical. However, Sen. Jeff Bridges, a Democrat from Greenwood Village who sponsored a package of bills in 2019 intended to make money in campaigns more traceable, said he believes the loan transfer should have been disclosed more clearly in TRACER.

“I just think from a best practices standpoint, in the future, if a debt is moved from one committee to another, it should be noted in the new committee,” Bridges said, adding transparency is the goal of campaign finance law and rules. He said he believes candidates tend to make good-faith efforts to be transparent about where the money in their campaigns is flowing to and from.

Asked whether she made a disclosure to the public that the loan reported in her district attorney campaign reflected a loan transfer, Padden said she just followed instructions from the Secretary of State’s Office to perform the transfer.

Nicolais said Padden’s loan transfer does not strike him as nefarious. But a possible downside, he said, is perception of a campaign’s viability created by starting it in debt. 

“It’s more of a PR-slash-practical sense why people don’t do it; it’s because it does start your campaign immediately in a giant hole,” Nicolais said, adding that cash on hand is “always a really big issue when people are looking at … how viable a race is.”

He characterized Padden’s circumstances as a “Catch-22 legal situation” because she needed to close her attorney general committee to run for DA but needed to address the outstanding loan balance to close it. 

Bridges echoed a sentiment similar to Nicolais’s thought that current campaign finance laws overlook loan transfers because it’s a rare circumstance. 

“Just as a lawmaker, we don’t make laws about things that don’t happen,” he said. Policymaking “is generally done in anticipation of something we think is likely to happen, or in response to something that has happened.”

In response to an open records request submitted to the Secretary of State’s Office asking for written communications related to the transfer, the office initially told Law Week it had no such records. 

However, Padden’s campaign provided Law Week with a copy of a communication from the office giving instructions on how to perform the loan transfer in TRACER by forgiving it in her attorney general committee and reporting the loan in her district attorney committee. A reconsideration of the records request by the Secretary of State’s Office is currently pending.

After an initial conversation with Secretary of State spokesperson Betsy Hart about the loan transfer, she stopped responding to Law Week’s requests for an interview with the office for this story. She eventually provided the following written statement:

“The Secretary of State’s office provides campaign finance guidance to candidates and committees regarding the interpretation of Colorado campaign finance laws and regulations. However, this guidance does not constitute legal advice. We encourage candidates and committees to consult an attorney to ensure compliance with all applicable campaign finance laws.”

—Julia Cardi

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