♪ good evening. welcome to "kqed newsroom." what it really costs california to pay hoff a decade-old debt. >> i'm thuy vu. a convicted felon accused san francisco mayor ed lee of accepting bribes. such an a accusation coming froa man behind bars awaiting trial on money laundering charges might be easy to dismiss but the felon in question is raymond shrimp boy chow. chow previously served time for armed robbery. he was indicted last year as part of a federal criminal investigation that ended the career of a prominent san francisco politician, storm state senator leland vee. in a bid to have charges against

chow dropped his attorneys filed a court motion claiming he was unfairly targeted by the government's politically tainted selective prosecution. chow's lawyers write the fbi alleged ed lee took substantial bribes in exchange for favors and that federal prosecutors gave lee and other public officials a pass, ignoring overwhelming evidence against them. mayor lee has denied the allegations. >> so have board of supervisors president london breed and alameda county assistant district attorney charmin bach mentioned in the filing. walk has been placed on paid leave. "the chronicle" reports both the city attorney and district attorney are investigating claims pertaining to the case. >> joining us now are marisa lagos, kqed's politics and government reporter. rory middle, former federal prosecutor and professor at hastings college of law. welcome to you both. let me begin with you. federal prosecutor, you know how these public corruption cases work. if you were mayor lee how

worried would you be? >> remember these allegations come from his long-time rival, convicted felon, raymond chow. not from the prosecution, not from the government. if i'm ed lee i've got lawyers. i keep an eye on what's going on. but i don't think this filing has given any direct evidence that mayor lee did anything at this point. >> why do you call raymond chow old adversary of the mayor? >> they're political rivals. chow said, i'm going to go legitimate and i'm going to run chinatown. there's an asian-american set of rivalries there. chow sued him a year ago on these same sort of allegations, that he was taking bribes or whatever. that lawsuit, as far as i know, hasn't gone anywhere. they've been fighting a long time. >> and a lot of the -- what was in this filing was really shrimp boy's attorneys saying, you know, this was a selective prosecution and that, you thkno the people that sort of pushed this and that we think are

responsible are doing it because they didn't like the sort of stature that chow got after he got out of prison in 2002. there's this political allegation underneath all of it to begin with. >> the idea of a selective prosecution, that there was even bias involved, because he's asian-american, some of the other people involved were african-american. how does that play out? how much legitimacy is there? >> so the legal theory of selective prosecution, it is not that you can't select. prosecutors select all the time. they have to. and it's not a defense. we've all been sort of stopped for speeding and we say to the officer, "everybody else was going 70." the officer says, "i got you." there's no defense because you were selected. it has to be for an improper reason. it's not based on ethnicity, it doesn't appear to be. we indicted an asian and didn't indict an asian, there's no selection there. it's a hard theory to win. the supreme court has turned it away a number of times. he's saying it because of his speech.

but remember, he's also just distracting from his own case. there's nothing in these pleadings that says raymond chow is innocent. it simply says, maybe some other people should be indicted. >> along with. >> maybe the prosecutor will indict them, this may be further indictments. >> what do you think is driving this? is it because shrimp boy, raymond chow, feels singled out while all these other officials are, in his mind, going scot free? is it tony sarah, his attorney, enjoying kicking up a dust storm as we know he likes to do? he likes to really give it to the government. >> this is a win-win for tony serra in a sense. his client must be very angry that he is sitting in jail while people he believes did just what he did are not. so he's angry saying, go after those guys. tony serra loves to embarrass the government and the character that's filing -- the government should be embarrassed because they missed the boat on some people. >> a race of politics. what are people saying at city

hall? not just the mayor is involved but long-time city workers, people like zule jones, emory conroy who was an boy eof willie brown, now works in the u.s. attorney's office, her name came up. what are people at city hall saying? >> i think for at least critics the sort of -- if not confirmed it adds fuel to the fire of long-standing suspicions that he hasn't been totally clean. but as mentioned before there's nothing in here that directly implicates the man. peel like zule jones, former human rights commission official, somebody else who's on the human rights commission, reverend amos brown in the black community who's a huge leader, they actually are on wiretaps quoted by the defense. and so i think for them, there -- there's a little bit more concern among city hall that maybe there is something more out there. maybe the prosecutors are still investigating it. >> zule jones was the focus of previous fbi investigations, right? >> she was indicted about 15 years ago for steering city

contracts. the charges were ultimately dropped. but i think it duts raise questions, why was she involved in fund-raising efforts 15 years later for -- 10 years later for mayor lee when he was running for re-election? >> remind folks in case people haven't followed the story, zule jones is accused in this case of trying to solicit improper campaign contributions on behalf of ed to retire campaign debts. in one case, $10,000, broken up into smaller $500 checks to make it seem like it was following campaign contribution law. >> she's on -- if you believe the filings and that these are directly from the feds' discovery, she's on tape talking to undercover agents saying she did this. >> you've got -- if you believe the filings, these are not filings by the government. >> no. >> the government hasn't responded yet. they've got a couple of weeks to respond. >> they have said they didn't think all this information should have been disclosed. >> they're not saying it's not accurate? >> they haven't said anything,

they haven't said one way or the other, and they're not going to. they'll file their response when it's time to file. you may hear them say, this is wrong. you may hear them say, there's other things, you've only taken an excerpt out of the transcript, there's more to the story. >> let me ask about the scope of the investigation. how common is it for prosecutors to carve out a chunk of a case at a time? say they have enough to indict these people. they'll do so at this time. but they're still investigating all these other people. they may rule out other chunks down the line. >> absolutely right. i mean, you go out with an undercover operation and a big wiretap, you're going to get all kinds of tangents, different ideas, and you're going to focus on the people that you were focused on to begin with. but you're not going to let everything else go and drop it. so they've indicted what they felt they could indict immediately. >> and leland yee is not even a focus. >> a tangent, the corruption thing became a tangent fom the shrimp boy thing. >> that's important, this was

not a political correction investigation, this was an armed dealings, money laundering, trafficking, guns, other things investigation that sort of spun off into leland yee stuff. what's interesting about what chow's attorneys are alleging is that essentially they got information about other public corruption and sort of didn't go down that path, if anything else, and what they're saying is it was political reasons, that the people involved have very high connections. >> let me just say that that just is not going to hold water. the federal prosecutor and the fbi agent whose promotions depend on successful prosecution in a public corruption context aren't going to back off of somebody who's the mayor. the federal -- that's the value of having federal prosecutors, frankly, is they don't care about the local politics and they want the most bang forba their buck. >> so that means this filing by tony serra and his law firm is a hail mary pass? >> you know, hail mary -- tony

serra is a great lawyer, he's a legend in the bay area. and he is distracting. he is reviving interest in his clients' case. he's speaking to jurors, potential jurors. >> through the media? >> through the media. he's got the judge more inrested than maybe the judge was two weeks ago. so this accomplishes something for him. is he going to win on this motion? not based on what i've seen. >> when they scramble the deck, something may happen? >> something may happen. >> a card may drop. >> if the government says something too aggressive or overconfident so the judge breyer, an experienced judge, is not happy with the government, you could see further development. >> ll bus judge charles breyer. he's overseeing this case. how do you think he might be reacting to this latest -- all these latest allegations coming out this week? >> chuck breyer is a very smart and experienced judge. he's nationally prominent. his brother is stephen breyer,

who's on the u.s. supreme court. i always introduce chuck as the smarter and better-looking brother. he knows where the ground is. my guess is he's reading press but not absorbing it. it's going to wait to see what the government filing is, decide it based on the law. he doesn't really have a side. he's been a prosecutor and defense attorney and a judge for a long time. i don't think you're going to see anything immediately coming from the judge until there's a hearing on the case. >> coming back to the politics of this. a lot of the people named here, starting with ed lee, zule jones, and murray conroy, amos brown, keith jackson who was indicted earlier, and others, they do have ties to willie brown. and i'm wondering, what does that tell you? is this just what we expected? that willie's a very influential guy, even though he hasn't been in office for a long time? or is there a way of doing business around him and the people that he's worked with and mentored maybe that suggests something else? >> i mean, i think there's

suspicions of that. they've never been nproven. willie brown was the target of fbi investigations in the past. it is interesting, somebody -- an insider this week noted to me there was never this kind of suspicion around mayor gavin newsom, for all his enemies in town and all his faults. but i do think that, you know, there have been questions around ed lee and his association with willie brown and with chinatown powerhouse rose park ever since he was appointed our mayor and decided to run after promising he wouldn't. there were multiple investigations and accusations leveled against the independent expenditure account that pushed him to run that was very heavily involved with bruin and pak. there was actually allegations that that same group was essentially engaging in voter fraud around the election by filling out ballots for people in chinatown. >> he's not running unopposed. there's election in november, there's no one running against him. >> that's the fascinating thing. unless we see some explosive indictment, i don't think this

is going to affect his political career in the short-term. you know, state senators mark leno had weighed a run against him. to leno but i'm sure he's kicking himself a little bit right now. >> what are people seeing around city hall in light of all these allegations? >> you know, there's a ton of interest. i think that there is a lot of -- because some of the other people named on this, we mentioned london reid, supervisor cohen. there's nothing in here that directly implicates them. there's other people talking about them. as you mentioned, people like keith jackson who's pleaded guilty to severe charges around racketeering, like senator yee, these aren't people that are necessarily the most trustworthy but they were still part of this political world. i think that's where the questions are. why are these people involved in this when you know that they have this history? >> coming back to the investigation, one of the names that also popped up was david chew, the former san francisco supervisor now in the assembly, had run for mayor. he wore a wire to a meeting --

>> apparently he wore a wire to protect himself. >> he was feeling threatened. >> he believed he had been threatened and was threatened by chow and the fbi views this as an evidence-gathering technique. >> sure. >> i don't think he wore it because he was sort of cooperating on an immunity deal or something. i think he wore it for his own protection. >> sends chills through the halls of city hall. >> it's a bit of a shame his name was wrapped up in this because compared to everything else in here, even though allegations -- his case was a very different one. he had been contacted independently by the local police after chow made some very public threats on david chew. the fbi approached him. sounds like he wore a wire one night at one chinatown event and that was the end of it. i don't think any politician wants to be known as the person wearing a wire. >> if everybody in politics thinks everybody else is wearing a wire, maybe we'll get more honest politics. >> this was not such a bad thing. >> yeah.

i have a question about how these pieces are pursued. when you have a case with so many multiple targets all of a sudden, how do they decide who to go after? is it the quickest and easiest target? or do they kind of hold off and wait for the bigger fish down the line? what can we expect to see? >> well, first, you can expect a large number of prosecutors focused on this and they divide it up. they say, you're the shrimp boy chow prosecutors, you're the leland yee prosecutors, you're the investigators of the other aspects of the wire we haven't charged yet. you'll see that division. i think prosecutors basically wait until they have a good case, then they charge it. and they don't wait for everybody. so you can seal off chunks as they've done here. there may be more cases to come. >> on that note, i know that rory and i believe there wouldn't be a sort of political reason for a prosecutor, fbi agent, not to pursue somebody for political reasons. but i think that in the court of public opinion, this filing raises interesting questions. the only politician charged was

leland yee, who didn't have a lot of friends and connections. everybody else in here who does have ties up to the obama o administration, senator dianne feinstein, sort of part of the political muscle in this town, hasn't been touched. i think that does raise questions. >> it does. this sort of reminds me or brings up the u.s. attorney's investigation of barry bonds. which was very controversial. a lot of people wondered if it was a waste of time, a fishing expedition. now the charges have been dropped by the federal government. so it does -- they're not totally clean in all this. >> right. but let's remember, there was not an investigation of barry bonds, there was an investigation of steroid use in major league baseball. barry bonds was called in as a witness and given immunity. it wasn't until he lied to the grand jury and he hasn't been convicted of that lie, but many people think he did lie -- that the u.s. attorney's office went after him. so, i mean, the government follows the evidence. and they don't -- i hope they don't play politics. >> on the issue of immunity, it's too late for leland yee, he

pleaded guilty already to racketeering charges. he hasn't been sentenced. do you think that there's a chance that the feds are perhaps getting information out of him and going for some kind of bargain here? >> you just can't know. but it's not out of the question. and when someone is facing a serious federal sentencing, they have every incentive to cooperate. even though his plea agreement has no cooperation mentioned in it. when you're dealing with shrimp boy chow that may be a valuable thing to not put that in your agreement. >> what happens next? >> we keep watching this. it seems like every time there's a new filing we have something else to chew over. and it doesn't seem -- i mean, shrimp boy chow and his attorneys have made clear they want to go to trial. this could get really fun. >> all right. rachel lagos, rory little, thanks so much for coming in, always entertaining. >> my pleasure. >> thank you. ♪ arnold schwarzenegger rode into the governor's office on the promise of putting

california's fiscal house in order. but when the smoke cleared, it was evident he left behind a serious debt hangover. >> we all know what a relief it is to pay off a big debt. a student lobe loan, a credit card bill. this week california taxpayers are finally off the hook for a debt that has loomed for more than a decade. >> the state took on this $14 billion debt under the schwarzenegger administration. our political editor john meyers is here to tell us what it costs to pay off that huge debt. >> a lot. that's the headline, i think. if you talk about these debts that people pay off and try to envision $1 million. $1 million a day, every day, for 11 years. that is the average of what it took in interest payments to pay off. enormous amount of money. but the reality is there was nothing about the plan that was normal. the stakes were huge. the capital was polarized. no borrowing plan had ever been sold to californians like this one. >> do i have your help? >> yes!

>> i don't hear you. do i have your help? >> yes! >> reporter: shortly after taking office arnold schwarzenegger needed help from california voters. the state was running out of money to pay its bills. schwarzenegger had defeated gray davis in the 2003 recall campaign by promising to fix the state's budget deficit. his solution, a bailout. required voter approval to convince skeptical californians, schwarzenegger repeatedly made this claim. >> it's very important for people to understand, we are not borrowing new money. we are refinancing an inherited debt. >> reporter: but it was borrowing new money. a lot of it. proposition 57 required voter approval to sell up to $15 billion in state bonds to investors and repay them with sales taxes. the republican governor was able to sell the idea as bipartisan when the state's controller, democrat steve wesley, agreed to campaign for the measure. >> we were elected to fix problems. you can't fiddle around with politics when you're on the edge

of potentially not making payroll for 300,000 people. >> reporter: wesley and schwarzenegger appearedat town halls and on television, selling prop 57 and its companion the ballot 58. >> the legislature faced two measures and a ballot that comprised a bipartisan plan. >> proposition 57 will refinance -- >> reporter: prop 57 set in place a long and expensive payback plan, largely hidden from the public. wesley now concedes that plan put a big burden on the state. >> i think some of those criticisms are founded. the catch is, we had such an immediate financial crisis. because there had been so many commitments made in the past. the governor and i did the only thing we could do. >> reporter: there were others in the capital and around california who wanted more than just a quick fix. one was john capol of the taxpayers association. the anti-tax group preferred more limits on state spending

but reluctantly backed schwarzenegger's plan because it required voter approval. >> but what he did do is he transformed it into something that would pass legal muster, but also kind of invest the california voter into, we're part of the solution as well. >> reporter: other critics thought voters should have been asked to solve the state's long-term budget problems. >> there's a lot of at the time talk about, oh, there's broad bipartisan support. but in fact, it was bipartisan support to kick the can down the road. >> reporter: democrat phil an angelites had proposed a tax increase on the wealthiest californians. >> no one wanted to say the "t" word, taxes, no one wanted to be under subject to that attack. the result was when the great recession came on, california was in woeful shape. >> reporter: in 2004, the focus was on the problem at hand. voters overwhelmingly passed both propositions 57 and 58.

which lead is us to this this week in sacramento when the state officially paid off its budget deficit from 2003. the final tab included a big interest payment. here's what those bonds cost taxpayers. colorado borrowed $14 billion total. the state paid $4.8 billion in interest. an effective interest rate over time of almost 34%. what 62 $4.8 billion buy? enough to pay the state's share of the university of california's budget for more than a year. or two and a half years of funding for cal fire. the state agency that fights wildfires. or it's the equivalent of an extra $658 of spending for every student in california's k-12 schools. the state could have spent even more money on interest payments. governor jerry brown used a tax revenue windfall to help pay off the debt sooner. >> saying simply the state is definitely on the rebound from just a few years ago -

>> reporter: brown convinced voters last november to change the budget process to avoid a similar crisis in the future. lawmakers now have to set aside more tax dollars in a rainy day fund. >> we can't think ahead a few years and realize you don't have the money. you do that in your personal life, you go bankrupt why are you can't do that here. >> you have to say this is not arnold schwarzenegger's finest hour. what is the former governor saying, if anything? >> he hasn't said much. i did ask for some comment. i got an e-mail back that basically said, he's happy that the prop 57 chapter is over, this fiscal issue. and he's also happy that the voters passed prop 58. it's important to note prop 58 really didn't have a lot of teeth. the one thing it did do is it said you could never borrow for a deficit again. this really was a one-time deal and it was a heck of an expensive one-time deal. >> take us back to that time. it was the recession, but were there other things during that time, whether the structure of the political government or the

budget process, that really made it necessary for california to borrow so much money back then? >> yeah, it was a mess. i mean, in covering this you felt that there were no good options. so the first one was, there was a structural problem with the budget. it took a super majority, each house of the legislature, to pass the budget, which was almost impossible. the republicans wouldn't tax, the democrats wouldn't cut enough. we were running out of money. then there was this need to try to find some quick fix. it's important i think to point out that the deficit bond idea actually predated arnold schwarzenegger. there were people in sacramento who had been talking about it. schwarzenegger took it to the voters. made this great big sales pitch. probably too big. and that was the rest of the story. >> has it changed over the past decade? >> the big thing that's changed is it's easier to pass budgets, so democrats can pass them on their own. if you look at who's elected, the open primary system changed things. there's a slightly different feel in sacramento. the structure of how we spend money is the same and that

raises questions. >> i get the fact that there weren't a lot of good options. one of the eye-popping numbers is 33-plus interest rate. why was it so high? who negotiated that? why couldn't they get a betterer deal? >> i think the bottom line is this was very unusual debt, deficit debt, paying your operating expenses. i think investors on wall street wanted a higher yield, a higher interest rate, and they got it. it was lower than it could have been. i think it's important to point out that jerry brown's push to pay it off earlier saved us some money. but yeah it still was a lot of money. rolling it off of the books is a big deal. it's almost $1.5 billion more every year the state now has to use for other services. now that we're not paying the debts of 2004. >> what are the political implications going forward? steve wesley, for example, we saw him in the ad, told me recently he plans to run for governor in 2018. could this come back to haunt him? >> yeah. i mean, the short answer, yeah. if you think about the steve wesley ran for governor in 2006, both the men in our story ran,

wesley got reminded through that 2006 campaign of his partnership with schwarzenegger. i think it could easily happen again. schwarzenegger used to call him my little buddy. >> they finished each other's sentences in that ad. >> not a great thing for politics when you're a democrat. >> who was standing up saying what we would think of as the right thing to do? raise taxes, do it in a more measured, balanced way that would be more prudent for the taxpayer? >> i think both the men in our story, steve wesley, phil angelites, thought we did the right thing. i think the clock was ticking. people were worried about the state running out of money. and again, voters have had a tendency to pass bonds thinking -- not really seeing the impact of all the borrowing that cost. and i don't think that that was emphasized in this campaign. the governor ran around with a great big credit card. a big photo op. but there wasn't a lot of talk about, this is a ten-year payback plan. >> under jerry brown we have this rainy day fund. we can't do what we did pack then, the proposition prevents

that. are we now going to avoid this kind of thing in the future with the rainy day fund, higher tax rates? >> i think it helps stave this off. i mean, you're going to have money that's going to be set aside. but the long-term structure of how we spend money, the tax revenues, the volatility of relying on income taxes, that is still there in california. and we've got to hope the economy keeps going well. >> this is the end of an ugly chapter and i think everybody should celebrate that. >> bottom line, what is the biggest lesson here for state officials and for taxpayers? >> be a little smarter with your money. i think the bottom line probably is that you've got to look for long-term fixes. i think you've heard governor brown talk about we've got to fix the long-term structure. he hasn't pushed those forward. i think until we change the balance of revenue and spending and how we get and it when we do it, i think we're always susceptible to great big ups and great big downs. >> $1 million a day in interest, astounding. i'm blown away by that number.

>> it's huge. >> john, thank you. and that will do it for us for tonight. for all of kqed's news coverage, go to kqednews.org. >> i'm scott shafer, thanks for joining us. >> i'm twee boo. have a good night.

announcer: the following kqed production was produced in high definition. ♪ >> must have soup! >> the pancake is to die for! >> it was a gut-bomb, but i liked it. >> i actually fantasized in private moments about the food i had. >> i didn't like it. >> you didn't like it? >> dining here makes me feel rich. >> and what about dessert? pecan pie? sweet potato pie?