Lawyers for Redistrict California, the committee controlled by Steve Poizner to pass Proposition 77, say they have returned $1.75 million in campaign contributions to Gov. Schwarzenegger and the California Recovery Team, after Democrats threatened legal action against the committee.

Democrats say they are waiting to make sure the committee returns the money, and remain ready to file a complaint against Gov. Schwarzenegger and the redistricting committee controlled by Poizner for breaking the same state financing laws Speaker Fabian Nuņez's initiative committee may have broken.

Last week, Nunez returned $140,000 in donations after Capitol Weekly reported those contributions may have been in violation state campaign contribution limits. The Republican Party threatened an FPPC complaint against the speaker.

Now, it's the govenror's team who is caught in a fundraising snafu. "I'm not sure what the legal answer is, but I think we'll take a page out of their playbook and refund the money," said Tom Hiltachk, who is the attorney for both the California Recovery Team and Redistrict California. "I'm not going to test the limits of that law."

"We're returning all $1.75 million." Hiltachk said.

Hiltachk said the governor can, and will, continue to help Poizner raise money to pass Prop. 77, but not give directly to Redistrict California.

Poizner, a candidate for insurance commissioner, also controls Redistrict California, a new account established to help pass of Prop. 77. Democrats say $1.75 million in donations to the redistricting effort from Gov. Schwarzenegger are in violation of state campaign spending limits.

As in the Nuņez case, the issue is the transfer of funds between two candidate-controlled committees. Democratic attorney Lance Olson says in addition to the $500,000 moved from the governor's California Recovery Team to the Redistrict Califorina committee, the $1.25 million donation from the governor is also in violation under state campaign finance laws.

All of this could have been avoided if Poizner's name was not on the Prop. 77 committee. But since Poizner is on the ballot in 2006, donations from any other candidate, like Schwarzenegger, or any candidate-controlled committee, like CRT, are limited to $3,300.

"They stepped in it big time," Olson said.

Gov. Schwarzenegger's California Recovery Team gave Redistrict California $500,000. The governor also wrote a personal check to the committee for $1.25 million.

Steve Poizner's insurance commissioner campaign chipped in another $1.25 million, but that donation is not in question because Poizner controls both committees.

"The beef is not with Poizner. The issue is the governor," said Olson. "The governor is the one who violated the law here."

"If they don't return the money [Thursday], we will take necessary steps to see the law is enforced," said Olson. He did not say whether that meant filing a complaint with the FPPC or a formal lawsuit.