California's GOP Meltdown

A female bear keeps her three young cubs close at McNeil River State Game Sanctuary 2006 CBS/Max Stacy

This was supposed to be the year of the comeback for California Republicans, the year they would repair the party's divisive image with the help of a presidential nominee who claims to inject compassion into conservative politics. The last thing they needed was upheaval in the ranks.

Enter state Insurance Commissioner Chuck Quackenbush. One of only two Republicans holding statewide elected office, Quackenbush currently faces mounting charges that he mishandled fines collected from insurance companies - money intended for earthquake victims - and possibly misused some campaign contributions.

The GOP's other statewide leader, Secretary of State Bill Jones, is already in political hot water for switching his support from George W. Bush to John McCain just a few weeks before the state's presidential primary.

The Quackenbush scandal leaves the state party essentially rudderless.

"The Republican bench is basically two people," says political scientist Sherry Bebitch Jeffe, "and they’re both in trouble." Jeffe believes a lack of depth in the party could have a long-term damaging effect.

Much of the investigation surrounding Quackenbush stems from a controversial research foundation he created with $11.6 million in insurance company settlements following the 1994 Northridge earthquake. The California Research and Assistance Fund (CRAF) was supposed to be dedicated to education, consumer assistance and earthquake research. But so far none of the money has reached the quake victims.

To make matters worse, the Los Angeles Times reports the foundation has given away almost half the funds to community organizations unrelated to earthquake relief, including $263,000 for the Skillz Athletics Foundation - a football scouting and training program attended by two Quackenbush children - and $10,000 to the Black Film Makers Association.

On Thursday, the state Assembly Insurance Committee held the first of what is expected to be four legislative hearings to investigate Quackenbush's handling of the earthquake funds.

Lawmakers pressed the commissioner to explain how a $2.38 billion fine threatened against State Farm Insurance for mishandling Northridge claims was reduced to a $2 million contribution to CRAF.

Quackenbush said his department never thought it could win such a big settlement, and his attorney refused to turn over documents detailing the allegations against State Farm which prompted the proposed fines or the company's response.

Quackenbush conceded that mistakes "in judgement" were made, but vigorously denied any legal wrongdoing. He said his attorneys believe he has the authority to direct settlements into his foundations, which he called an effective, innovative way to help earthquake victims.

"With the foundations, we knew we can do even more for consumers," he said.

In a letter obtained by the L.A. Times, Quackenbush described the questionable expenditures s an attempt to reach out to minority communities underserved by the insurance industry.

Jeffe, a senior associate at Claremont Graduate University, says the nature of those expenditures suggests a political motivation - the commissioner may be "moving toward the center, building bridges for a higher statewide office."

But Quackenbush and some state Republicans call the charges politically motivated.

In a letter to the editor of the CalNews.com Web site, the treasurer of the California Republican Party called the entire investigation "pathetic." Michael Der Manouel, Jr. wrote, "We will NOT forget. What goes around comes around." Others called the Democratic lawmakers conducting the investigations hypocrites.

Though political observers say the Democrats must be careful to avoid the appearance of a political witch hunt, state Democrats say the climate in the state could not get much worse for their opponents.

"They’re down to the water boys," says Bob Mulholand, a campaign adviser for the California Democratic Party. Mulholland likens the state GOP to "a boat without a sail." He thinks every Republican candidate will suffer as a result this November, including George W. Bush.

"When Bush comes to town, they’ll have to hire everybody (to campaign for him.) There's no infrastructure for him here," says Mulholland.

  • CBSNews.com staff CBSNews.com staff

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