LOCAL POLITICAL CIRCLES have been rife with the rumor that poor Maria Cantwell is broke. The idea is that Cantwell, who financed her successful Senate campaign with millions of dollars in stock from her former employer RealNetworks, has now been hit with a double whammy: She's got a huge tax bill, and her formerly high-flying RealNetworks shares have plummeted.
But don't cry for Maria just yet. A close look at the public documents pertaining to her finances suggests that she'll do just fine, and she may have been richer than we ever thought.
During the campaign, the media typically stated that Cantwell was worth $30 million or at most $40 million. In fact, last February, when Real was at its peak, Cantwell was twice as wealthy as reported. With more than 830,000 shares in her possession and a share price of $96, Cantwell's holdings were worth roughly $80 million. (If she'd cashed out then, maybe she could have run for president.)
Of course, Real's stock price has since plunged and now sits at around $10. But the senator still appears to have several million dollars at her disposal. Relative to her total stock holdings, she didn't actually expend that much becoming senator.
Over the course of her campaign, Cantwell contributed a total of $9.7 million of her own money, according to the Federal Election Commission. That money appears to have come from two large exercises of stock options by Cantwell—the first in February, garnering $5.8 million, the second in August, garnering $4.8 million.
The tax hit on those is brutal: 40 percent, according to Shiva Rajgopal, an assistant professor of accounting at the University of Washington Business School. Rajgopal points out that when a person immediately cashes out their stock options, as Cantwell did—rather than holding onto the shares for a year or more—the proceeds are treated as ordinary income and, in this case, would be taxed at the highest federal rate, or 39.6 percent. (If you hold onto the shares, rather than selling them, you're subject to lower capital gains rates.)
Fortunately, Cantwell seems to have anticipated this problem. Of the money she gave to her campaign, $3.7 million—or almost exactly 40 percent—was in the form of a loan, not a contribution. Now that Cantwell is in office, she's free to pay off that loan however she wishes. (Ron Dotzauer, her campaign manager, says Cantwell will continue to eschew soft money and donations from PACs as she retires this loan.) Professor Rajgopal says Cantwell's tax bill likely would not need to be paid until April 15, which gives her plenty of time.
Campaign-finance specialist Sheila Krumholz of the Center for Responsive Politics says that Cantwell was actually unusual in that she didn't give far more of her contributions in the form of a loan, as other wealthy office-seekers typically do. "It's a big risk that you'll lose that money" if you lose the election, she says, "but once in office, it's quite easy to pay off that loan."
So with the tax bill mostly taken care of, what's left in Maria's bank account? The most recent RealNetworks proxy statement suggests that she still owns 280,000 shares outright (though these may carry some restrictions on their sale) as well as 362,400 more exercisable options. These options appear to have been granted before Real went public in late 1997 and so probably carry a very low exercise price. Assuming, in the best case, that her strike price is the same as it was for the other options she cashed out last year (2 cents), these 642,400 shares would be worth almost $6.5 million right now. Plus, Cantwell has another 200,000 options from 1997, which could easily be worth another $1 million. And her financial disclosure statement from May of last year shows holdings in other investments worth $2 million or so.
So don't worry too much about Maria. She should be fine. Her Senate salary of $145,100 is almost as good as her base compensation at Real. And while there may be no options, there's always after-dinner speeches.