.Dellums Fails to Pay at Least $239,000 in Taxes

Sources say the couple's financial troubles could rule out a reelection bid as the mayor is forced to return to lobbying.

Oakland Mayor Ron Dellums and his wife Cynthia Dellums owe at least $239,000 in back income taxes, according to the Internal Revenue Service. Sources say the couple’s serious financial troubles could rule out a reelection bid next year and force him to return to his once-lucrative Washington, DC lobbying practice.

The IRS says the Dellumses failed to pay enough personal income taxes in 2005, 2006, and 2007. On October 14, the IRS placed an official lien against all of the couple’s personal property for failure to pay adequate taxes in each of those years, according to records filed with the Alameda County Recorder’s Office. Typically such liens remain in place until the back taxes are paid off.

In a statement made through his spokesman Paul Rose, Dellums disputed that he and his wife owe as much money as the IRS contends, although he acknowledged that they have not paid as much taxes as they should have. “There are previous disagreements with the IRS, regarding the amount owed,” Dellums said. “The issue is being addressed and the matter will be resolved in short order.”

Jesse Weller, a spokesman for the Bay Area office of the IRS, declined to comment on the Dellumses’ case, citing the agency’s rules on taxpayer confidentiality. But a knowledgeable source says Dellums and his wife have faced financial difficulties ever since they moved back to Oakland and he took over as mayor. “Their financial issues have weighed heavily on his mind from day one,” the source said. “There’s no question.”

The mayor’s federal income tax delinquency doesn’t speak well for his ability to steward public resources in a city facing severe financial challenges. It also raises serious doubts about his ability to make good decisions. And being a tax delinquent violates his civic duty as both a public official and a citizen. “Public officials are supposed to be leaders for the rest of us,” noted Oakland good-government activist Charlie Pine, a frequent critic of the mayor.

The revelations about the mayor’s failure to pay taxes — first revealed Monday on the East Bay Express web site — also could sink his chances of winning reelection if he still harbors any plans of running again.

But that looks highly unlikely because he and his wife apparently don’t earn enough from his official Oakland salary of about $184,000 a year to sustain the lifestyle to which they have become accustomed. For example, the couple rent a stately four-bedroom, three-bath home on Skyline Boulevard in the Oakland hills that appears to be out of their price range. The Dellumses don’t have to reveal how much rent they pay each month, but according to public records, their home is rather large. It’s 3,204 square feet and sits on 9,667-square-foot lot. According to Zillow.com, it’s valued at $924,500, and was likely worth much more than that before the housing crash.

The Dellumses also are well known for their expensive tastes. The mayor dresses in exquisitely tailored suits, and his official mayoral calendar reveals that they eat out often, usually in upscale restaurants. In addition, Cynthia Dellums has held no paid positions since he became mayor, sources said. Instead, she acts as his unpaid advisor and is a fixture at City Hall.

Dellums took an unpaid leave of absence from his DC lobbying firm, Dellums and Associates, when he became mayor. Oakland’s City Charter requires that the mayor have no outside jobs while in office. A source said the couple took a big financial hit when they came to Oakland because he was making much more money as a lobbyist.

But that doesn’t square with the IRS lien and other public records. The Dellumses appear to have gotten into serious financial trouble at least a year before he became mayor and while he was still a lobbyist. In 2005, the couple, who file jointly, failed to pay $124,199 in federal income taxes, according to the lien. In addition, federal lobbying records culled by the nonpartisan Center for Responsive Politics reveal that Dellums and Associates reported only $90,000 in lobbying income that year. As a result, it’s unclear exactly how the Dellumses incurred so much tax trouble on so little income. (Although Dellums also likely gets a congressional pension in excess of $100,000 annually, exactly how much he receives is unknown because he does not have to report it on his official statements of economic interests filed with the city.) In short, it appears that Dellums’ lobbying firm wasn’t doing well, and he was in serious tax trouble long before he took his mayoral oath.

The IRS lien states that the Dellumses failed to pay $66,554 in taxes in 2006, which was also before he became mayor in January 2007. Lobbying records, however, show his lobbying firm did much better that year — earning $240,000 in income. But that’s still substantially lower than the $370,000 the firm reported making in 2004. The IRS also maintains that the Dellumses failed to pay $48,247 in personal income taxes in 2007 — his first year as mayor.

Regardless of when the Dellumses’ tax problems began, they likely have known about them for several years. The IRS routinely sends repeated notices to tax delinquents, demanding payment, before placing liens on their personal property.

Jerry Brown Escapes Scrutiny?

As Ron Dellums’ fortunes plummet, the chances of his predecessor winning the California governorship received a significant boost late last week. San Francisco Mayor Gavin Newsom dropped out of the 2010 race, leaving Jerry Brown as the only major Democratic candidate running for governor. Newsom’s announcement also came at just the right moment for the attorney general because he was weathering a mini-scandal at the time.

Brown’s spokesman Scott Gerber had been under fire for secretly taping a phone call with San Francisco Chronicle reporter Carla Marinucci. It is illegal in California to tape a conversation without the consent of all parties involved, and Gerber later resigned after Brown placed him on administrative leave.

At the time of the taping, Marinucci was working on a story about Brown allegedly doing a favor for an influential campaign donor. Brown and his office have maintained that no favors were given, but Gerber’s decision to secretly tape a reporter working on a possibly damaging story raises doubts about their truth telling. “They knew what they were doing was wrong,” said Doug Heller, executive director of Consumer Watchdog. “And when it became clear that someone was looking into it, they decided to break the law.”

The controversy at the heart of the secret-taping incident involved a statewide ballot measure sponsored by Mercury Insurance, the state’s third largest auto insurer. The measure would allow insurance companies to lower rates for some motorists, while raising rates for others, depending on whether they have let their car insurance lapse. The measure is regarded as being bad news for low-income drivers. It also contains almost exactly the same wording as a law backed by Mercury Insurance and carried by former State Senator Don Perata in 2003 that was later invalidated by the courts. Perata had agreed to sponsor the law after Mercury poured $75,000 into one of his campaign accounts.

At first, it looked as if Brown’s office wasn’t going to play ball with Mercury as Perata had. When Mercury submitted its new ballot measure to Brown’s office in July for certification, the attorney general responded with official ballot language that the insurance company didn’t like. Brown’s office at the time stated correctly that Mercury’s initiative would result in lower premiums for some people and higher premiums for others.

Because Mercury officials knew that such wording would doom their initiative, they withdrew it. But in September, the company came back to Brown with a slightly altered version. Brown’s office, in turn, responded with new a new ballot summary that highlighted the positive side of the measure — that some people would qualify for discounts — while omitting the negative part, which was that others, particularly low-income motorists, would probably see their insurance rates go up.

Consumer groups, including Consumer Watchdog, immediately cried foul, alleging that Brown had changed the official ballot wording because Mercury had given him a $13,000 campaign donation. That’s when Marinucci called Brown’s office for comment, and his spokesman decided to secretly tape her. Officials from Brown’s office did not return a phone call seeking comment for this story, but in their interview with Marinucci, they maintained that there was no quid pro quo with Mercury and that they altered the official ballot measure wording because the insurance company had made substantial changes to its initiative.

But did it? Copies of the two initiatives reviewed by Full Disclosure reveal that while Mercury made a few minor changes between July and September, none altered the basic meaning of the measure. Both initiatives clearly allow auto insurance companies to give discounts to people who don’t let their insurance lapse while also allowing rates to go up for people who do.

Although Mercury’s initiative doesn’t specifically mention raising rates, the 2005 California appellate court ruling that invalidated Perata’s law revealed that rates automatically go up for some drivers when they go down for others. The court specifically cited testimony from two industry experts who explained that insurance companies are required by law to bring in enough revenue to cover their potential losses, so that if they award discounts to some customers, they’ll have to charge more to others.

The court also pointed out that Perata’s law ultimately would have led to higher rates for everyone. The court cited testimony from experts who said that because Perata’s law would result in much higher rates for some motorists, particularly poor people who are more likely to let their insurance lapse, then those drivers would be less likely to buy car insurance at all. And if fewer people get insurance, then rates automatically rise for everyone else, the court noted.

Heller of Consumer Watchdog believes that this is Mercury’s ultimate goal. The company claims that it supports the measure to promote “competition.” That is, Mercury wants to attract customers from other insurers by offering them discounts. But that will also allow Mercury to raise rates for people it considers too risky. But raising rates on low-income drivers will force more of them to drop their insurance, which will allow Mercury to raise rates across the board. “It’s not about getting new market share,” Heller said. “It’s about getting rid of the people they don’t like.”

The court invalidated Perata’s law because it said the state Legislature could not alter Proposition 103 — a statewide initiative passed by voters in 1988 that prohibited insurers from giving discounts to people who don’t let their insurance lapse. The court ruled that only state voters could amend Prop. 103, which is why Mercury is now sponsoring its new initiative.

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