Top White House advisers Edwin Meese III and Michael K. Deaver received $118,000 in loans in 1981 that were arranged by their California tax accountant at a time they were getting the accountant a $10,000-a-year presidential appointment to the U.S. Postal Service's board of governors.
Meese's financial disclosure form shows two personal loans, which total $60,000, directly from the accountant, John R. McKean. McKean said in an interview that he set up the transaction, but considered himself merely the "trustee," because he raised the money from other clients who didn't know the funds were going to Meese.
Meese put up no collateral for the loans, and his financial disclosure form shows that the money is not due until demanded by McKean. The interest, of about 18 percent, is due annually and is payable to McKean. McKean said Meese is "doing all right" on the interest payments and has not paid any of the principal.
The first loan to Meese, for $40,000, was made in July 1981. Later the same month, McKean said, Deaver called him to ask if he was interested in the presidential appointment. The second loan, for $20,000, was made in December 1981, a month after McKean's nomination was announced by the White House.
Meese did not return a reporter's calls for comment. An aide said Meese used the money to pay school tuition for his children and for living expenses and that it was not connected in any way to McKean's selection.
Deaver was given a loan of $58,000, also arranged by McKean, in October 1981 to buy a tractor-trailer truck that allows Deaver and his wife, Carolyn, to defer a few thousand dollars in income taxes over five years. The note, held by a McKean business partner in Idaho, is at 18 percent interest, and is scheduled to come due in 1986. McKean said there was a $1,500 down payment on the loan.
The Deavers have leased out the truck, and Deaver's latest financial disclosure form shows at least $15,000 in 1982 income from this lease.
Deaver is traveling abroad and could not be reached for comment.
The Senate Governmental Affairs Committee, which has jurisdiction over Postal Service board appointees, asked McKean during the confirmation process why he was selected for the post.
In his Nov. 17, 1981, answer to the committee McKean wrote: "Members of the administration, namely Mr. Michael Deaver and Mr. Edwin Meese, were aware of my background, and it is my understanding that my name was submitted to the president for nomination by these parties."
The Senate committee did not ask, and McKean did not volunteer, whether he had any financial dealings with Reagan administration officials.
Initially, McKean was appointed to the nine-member board of directors for the $25 billion-a-year Postal Service operation to fill a term that expires in 1986. Earlier this year he was renominated to a full nine-year term that expires in December 1991.
The Postal Service governors are paid the $10,000 a year, plus expenses and an additional $300 for each monthly meeting they attend. Postal Service records show that McKean has been reimbursed for more than $18,000 in expenses since he joined the board in April 1982, most of that for first-class air fare back and forth from San Francisco to meeting sites in Washington and at regional offices.
McKean's relationship with the two White House aides and his appointment to the Postal Service board were discovered during a routine check on the people who had lent money to high-ranking administration officials.
Meese and Deaver, who are not wealthy, have indicated that their White House service has caused them financial hardship. As two of the most senior White House officials, they each make $69,800 a year.
The loan McKean arranged for Meese is the only outstanding financial obligation Meese listed in the financial disclosure form he filed last May 16. The loan McKean arranged for Deaver, which is held by a McKean business partner, Helmut Moss of Boise, Idaho, is one of three debts reported by Deaver. The other two are bank loans of at least $15,000 each.
McKean, 53, is the head of his own accounting firm in San Francisco. He said in telephone interviews this week that he considered the loans he arranged to be of a "purely professional nature" and "a logical extension of a professional service to a client."
He said he met Deaver before President Reagan was elected in 1980 and did some accounting and tax projection work for Deaver. Deaver recommended him to Meese and he now does tax work for both men. He said he does not socialize with either, seeing them only for an occasional lunch.
He said that a review of Meese's finances in 1981 had showed "a negative cash flow, a deficit. There was going to be a necessity for some type of borrowing." He said he didn't know why Meese didn't go to a bank. "He came to me. It was intended to be something that rolled over very, very quickly. We call them swing loans."
McKean said they didn't turn out to be short-term loans because Meese had difficulty selling his home in California. During the same period Meese was buying a home in Virginia and had to make tuition payments for two of his children.
Meese sold his home in La Mesa, Calif., in September 1982 for more than $250,000, but has not paid any of the principal on the loans. "With the situation like it is we will likely consolidate the loans and have them collateralized against his Virginia home," McKean said.
McKean said he would arrange a similar loan for any client with a "working capital impairment" and had done so for others on a few occasions.
The clients who put up the money for the Meese loan did so because they trusted that McKean would see the money was repaid, he said. He didn't tell those clients that Meese was the recipient "just in case they had some business transactions with the government."
He said he told Meese that others had provided the money for the loans and he, McKean, should only have been listed as "trustee" on Meese's disclosure form. Reporting the loans from McKean personally--the way they now appear on the disclosure form--"might be looked at askance," McKean said. He said he had no idea why the word "trustee" was not added and that, because of the omission, "I was left hanging out there as the lender."
The loan he arranged for Deaver, in the name of Deaver's wife, Carolyn, was simply to defer taxes because Deaver had "bunched up income" from a lump sum payment from his public relations firm, Deaver and Hannaford, McKean said. He said the arrangement deferred "a few thousand dollars" in taxes for Deaver, most in the first year of the lease.
The note is held personally by his partner, Moss, of Idaho Peterbilt Inc. in Boise, the accountant said, because "I didn't want to participate in anything with Mr. Deaver directly." He said he didn't want to benefit personally from the arrangement. Moss owns 75 percent of the company, a distributorship for Peterbilt trucks. McKean owns the other 25 percent.
Asked why he referred Deaver to his partner, McKean said he had found that tax syndications "are often not what they are presented to be. This is one I had direct knowledge of and could assure that it would turn out as planned."
Moss said in an interview from Boise that he has never met Deaver and was only vaguely familiar with the details. "McKean handled all the paperwork on that," he said.
Moss said he didn't know why the Deaver liability was listed with him as the creditor, rather than his company. "There must be a tax break there somehow. I leave that all up to him McKean . My end is seeing that the trucks run."
McKean said he did not expect anything in return for his financial assistance to Meese and Deaver. "And if I did it wouldn't have been the Postal Service," which he described as a "tough job and a lot of work." He also said he didn't think Meese and Deaver were returning a favor by getting him the appointment. "They saw someone performing something in a professional manner and thought I could serve" the government.
McKean, whose financial disclosure form shows his net worth to be $1.7 million, said that when he first joined the Postal Service board he didn't know much about the huge business, but now "I hope I have projected a certain competence in my field. I think I can make a contribution."