Members of the Federal Election Commission deadlocked Thursday on whether a fundraising firm's decision to forgive an estimated $138,000 in interest owed by the California Republican Party constituted an improper political contribution.

The failure to reach a decision, which means the California GOP will not be penalized, came despite a finding by the commission's professional staff that the write-off by the Minnesota-based Strategic Fundraising Inc. (SFI) was not "in its ordinary course of business," which would amount to breaking campaign finance law.

The commission deadlocked, as usual, along partisan lines: The two Democratic commissioners found that it did while the three Republicans disagreed. Four votes are required for approval.

An FEC audit revealed that SFI and the California GOP reached an agreement in 2008 to waive the interest on more than $1.1 million owed to the fundraising firm as long as the party repaid the principal. SFI is a political donor in its own right, with the company contributing $10,000 to the California GOP in 2008, which is among the tens of thousands of dollars that the company and its executives have given to national and state GOP party committees in recent years, according to Influence Explorer. 

An extension of credit is allowed as long as it is done so "in the ordinary course of the commercial vendor's business" and the terms are similar to those extended to similar nonpolitical debtors, according to campaign finance regulations.

For the GOP commissioners, extending interest was reasonable practice for SFI.

"That is spare change in the couch for what they got in exchange," GOP Commissioner Donald McGahn said after the meeting.

The company was profiting handsomely from the party, and also had the value of being the party's exclusive vendor, McGahn argued, so it had an incentive to strike a deal with the party and maintain a good relationship with it.

One reason that the arrangement between SFI and the California GOP raised eyebrows for the auditors is that it states that interest must be paid on balances that are 30 days past due.

Democratic Commissioner Steven Walther called the decision a "tough call" because a vendor always hopes its client will pay it back. But said that the arrangement was not in the ordinary course of SFI's business.

The audit division's recommendation memo can be viewed here.

(Photo credit: Wikimedia Commons)