Rudy: "Debate Day Dirty Trick"

Was it routine expenses, or is an apparent skeleton in Rudy Giuliani's closet really coming out to haunt him? CBS News anchor Katie Couric sat down with the national frontrunner for the Republican presidential nomination Thursday.

A report posted on Politico.com Wednesday said that at the time when Giuliani was beginning an extramarital relationship with Judith Nathan, who eventually became his third wife, he billed obscure city agencies thousands of dollars for his police security detail covering trips to visit Nathan.

But Giuliani insists that everything was done in the open, "honestly, honorably, above board."

Rudy Giuliani: I was very comfortable with it and really upset that it was put out two hours before a debate with the suggestion that certain agencies were asked to bear the cost of my security. When you had a chance to look at it, it took about 3 to 4 hours to go through all of the records. The story turns out to be a totally false story. This practice was going on in my first term as mayor. It didn't just happen in my second term as mayor. The police department paid for all of these expenses. But since the police department would sometimes be slow in payment. City Hall would pay it first, then the police department would reimburse every single penny of it. And now we've been able to confirm that. So this was really, I know what this was. This story is five years old. It came out two hours before a debate. It's a typical political hit job with only half the story told … not that second part told … that every single penny was reimbursed … that all of this was public. All of this was discoverable. It was not done in a way that nobody could see it. But it was a typical - this particular case - it was sort of a debate day dirty trick.

Couric: But according to accounts, the bills were spread across, as you're saying, several government agencies - from the NYC loft board to the office for people with disabilities. And one former New York budget director said today there's no good reason to do this except to have nobody know about it …

Giuliani: He's just wrong. And that's probably a political opponent. The fact is, that by doing it that way, it was more discoverable. Had it been paid by the police department, it never would have been discovered because their records are security records and they can't be discovered. The reality is: All those agencies that you're talking about, all of it was fully reimbursed within that year. They're all in the mayor's office. This was a way of expediting payment. All of it on the record, all of it discoverable, all of it going on for five or six years. And perfectly appropriate and three budget directors have asserted that but of course the press doesn't cover that.

Couric: Those three former budget directors have basically explained it according to the way you're explaining it to me today.

Giuliani: Every single penny repaid. And the first version of the story does not make that clear.

Couric: Having said that, Mayor Giuliani, the report was on a political Web site. It wasn't planted by your opposition and the records were gotten by a Freedom of Information Act so the notion of it somehow being a political "hit job," do you really believe that?

Giuliani: It comes out two hours before a debate when the story is five years old - so do I believe that? Of course I believe that. Do I know who did it? No, I don't know who did it. Plenty of time for the story to come out but to wait until 3 or 4 o'clock in the afternoon of the day of the debate - and it was very, very artfully done because there's a very good explanation for this … which is it took 24 hours to go find the people who did it who explained that every single penny was reimbursed. All of this was on the record. None of it was against other practices that were used in situations like this, but it took 24 hours to get that explanation so they'll be more like this.

Couric: Do you think the motive behind this story is to raise questions about your character because it involves a situation that is quite frankly, you know, probably one you're not all that proud of.

Giuliani: Look, did I expect it, yes. Did I expect exactly this one, no because it's not true. And it took 12 to 14 hours to show that it's not true. But they'll be others like it.

Couric: You have an explanation. Obviously your explanation is quite different than the original report. How do you think this will affect your candidacy? Or the way people perceive you?

Giuliani: I think it will show that we do things honestly, honorably, above board. All of this is easily explained and all of this is easily discoverable. And none of it was hidden. It's all there in records. And it is perfectly appropriate procedure. And the fact is, I had to have security. It wasn't of my own desire. The reason I had to have security was because people have been threatening to kill me for quite some time going back to when I was a U.S. attorney. So I had 24-hour security. The records were handled in a way that they're all discoverable. The police department ultimately paid for everything. Nobody was put out at all and from my point of view I prefer not to have security but this wasn't done because I wanted to have security. It was done because there were definable threats to kill me going back to when I was a U.S. attorney.

Couric: When this came out mayor Giuliani, how did you feel?

Giuliani: You know I take it very professionally. I say, ok well, two hours before a debate, three hours before a debate.

Couric: Did it throw you at all during the debate?

Giuliani: No, I don't think so; go look at the debate.

Couric: Well some have said they didn't think it was your best debate.

Giuliani: I think it was a good debate. I think I did a really good job.

Couric: You didn't really answer the question. You think it won't matter in terms of the election itself - this story?

Giuliani: Of course not. I mean there'll be 100 more stories … and we'll see.