By Susan Crabtree - 08/09/06 12:00 AM EDT
Rep. Gary Miller (R-Calif.) may have violated House ethics rules when he took out nearly $7.5 million in promissory notes in 2004 from a campaign contributor and business partner, Lewis Operating Corp., which he used to purchase real estate from the company.
Lewis Operating Corp., a real-estate development company based in Southern California, is one of Miller’s top campaign contributors; employees of the company have donated $19,300 to Miller’s campaign committee since his election in 1998.
Miller has partnered or has been involved with a number of real-estate transactions with the company in the past few years. In 2005, he made $1.1 million to $6 million in profits from real-estate deals involving Lewis Operating in some part of the transaction, according to his financial disclosure report.
The House Rules explicitly state that before entering into loans from an entity other than a financial institution, members of Congress and staff must submit the terms of the loans for review and a determination from the ethics committee on whether the loan is acceptable under the gift rule.
“Whether a loan from a person other than a financial institution is on terms that are ‘commercially reasonable,’ and hence acceptable under the committee’s determination, will depend on a number of facts and circumstances,” the rules state.
The rules governing loans intend to ensure that House members, officers and employees accept opportunities and benefits that are “in the form of loans from banks and other financial institutions on terms generally available to the public.” The rules go on to say that members may accept loans provided that “the loan is on commercially reasonable terms, including requirements for repayment and a reasonable rate of interest.”
Miller’s office has not responded to several calls seeking information about the terms of the loan or whether the congressman submitted the terms of the loan to the ethics committee for review. The congressman has denied any wrongdoing.
Miller took out three separate promissory notes in 2004 from Lewis entities: one for approximately $4.75 million from Lewis Investment Co., one for approximately $1.26 million from Fontana Library Co., and another for approximately $1.45 million from Church Haven Co., all part of the Lewis Group of Companies, which share the same address as Lewis Operating’s Southern California regional offices.
Miller bought land from Lewis Investment using that money in seller-financed deals for land in areas that the company is developing into planned communities or retail space, some of the same land where Lewis Investment has business dealings with the city of Fontana, Calif., in developing tracts of homes and stores.
Seller-financed deals occur when the landowner lends the money directly to the buyer without a mortgage company involved. The loans typically provide many advantages to the purchaser in terms of lower costs, lower down payments and potentially lower interest rates. They also give the seller more control over the land.
The majority of the parcels Miller bought from Lewis Operating and later sold to Fontana are adjacent to Interstate 210, a little more than a mile from an eastern expansion of the freeway, and about two miles from the city of Rialto’s municipal airport, which Miller helped to close in last year’s transportation bill.
As a member of the Transportation and Infrastructure Committee, Miller pushed for a provision in the bill that allowed the city to close the airport, the first time an act of Congress has ever shuttered an airport. It is a power the Federal Aviation Administration traditionally has had sole authority to exercise.
The closing of the airport paved the way for Lewis Operating to win a multimillion dollar contract from the City of Rialto, Calif. to develop the airport land and build a planned community consisting of 2,500 homes, parks and 80 acres of retail space on the former airport and adjacent land.
As first reported by the Los Angeles Newspaper Group, watchdog groups have criticized Miller for helping to secure $1.28 million in last year’s transportation bill for street improvements in front of a planned housing and retail center, including a Target store that he co-owned with Lewis Operating in his district.
Stan Brand, a former chief counsel for the House ethics committee, said the committee wants to make sure that House members and staff keep outside entities at “arm’s length” and do not engage in financial arrangements under terms that other members of the general public would not have access to.
But without knowing the terms of the promissory note, Brand said, it’s impossible to know whether Miller is complying with the gift rules.
“In the current climate with the U.S. attorneys of America prowling around and scrutinizing every one of these members’ deals, it strikes me as overly aggressive to be engaging in this type of transaction without getting some kind of assurance from some body that the loans meet the [ethics] standards.”
Specifically, Brand said, the ethics committee would need to review what collateral Miller had offered and what kind of interest rate applied to the loan. If Miller did not submit the information, he said, prosecutors would be very interested in scrutinizing the terms of the loan.
“Hopefully it will stand up as an arm’s-length, real transaction,” Brand said.