Financing the Election
Soft Money Out, Bundling In
Corporate Backers Spend More, Get More
July 22nd, 2004
|The McCain Feingold Act|
Next week John Kerry will accept the Democratic nomination to run for United States President at a gathering in Boston that will cost over $95 million to produce, the most expensive political party convention in history. The Fleet Center, a sports and entertainment arena where the meeting is being held, is named after the powerful FleetBoston Corporation, the biggest donor to Kerry's Congressional career, a company typical of the corporate benefactors floating the Democratic and Republican parties ever higher on a sea of special-interest cash.
Kerry may denounce the corrupting influence of special interests and big business and he may praise the Federal Election Campaign Act banning "soft money," the unchecked expenditures of special-interest money that distorted past elections and subverted federal limits on campaign contributions. But he may be a little more bashful about the $1.25 million dollar donation by Fleet Boston Financial to the Democratic convention host committee.
Fleet, which recently merged with Bank of America, has been Kerry's
biggest backer during his congressional career, support Kerry has
reciprocated over the years. In 1999, Kerry used his position on the
powerful Senate Finance Subcommittee to support the merger of Fleet and
BankBoston, even though the merger was opposed by local Democratic
leaders and resulted in the layoff of 2,500 workers. In the
presidential campaign, Fleet/Boston's chairman Chad Gifford is
participating in a dubious effort to skirt federal rules designed to
stop the flow of huge sums of special interest cash.
This will be the first presidential election since congress passed the Federal Election Campaign Act--better known as McCain/Feingold, after its two principal sponsors in the Senate, John McCain (R-Arizona) and Russ Feingold (D-Wisconsin)--in March 2002. The bill was widely viewed as one of the most important pieces of campaign finance legislation in decades.
But two years later, special interest cash continues to find its way into the campaign coffers of Republicans and Democrats. As of May, the two campaigns had raised over $364 million-more than Bush and Gore had raised by this point in the 2000 campaign when soft and hard money were allowed. Instead of an election less dominated by cash, and consequently by those able to supply that cash, the 2004 presidential election is shaping up to be the most expensive in American history. Meanwhile, corporate influence has become so pervasive that the very concept of impartial governance has been turned on its head: lobbyists have become government officials; and government officials have become lobbyists.
"If we know anything about the development of campaign finance laws," says Derek Willis, who tracks campaign finance for the Washington-based watchdog group the Center for Public Integrity, "it is that people will find holes."
The soft money of past elections has simply morphed into new avenues of political influence: through political organizations, ostensibly outside the party apparatus, but in fact playing the role the Democratic National Convention (DNC) and Republican National Convention (RNC) played in past elections; through huge convention funds with budgets that rival what used to be spent on entire elections; and through powerful Washington lobbyists. During the current election, the largest sums of corporate cash are flowing to candidates through a process called bundling.
The Big Bundlers
The Nahua-Kugapakori reserve in Peru was, quite possibly, the last place on earth one would want to place a pipeline. Called "one of the world's most pristine tropical rainforests" by Friends of the Earth, the reserve is home to some 7,000 Nahua, Kirineri, Nanti, Machiguenga, and Yine indigenous peoples, many with hardly any exposure to the outside world and lacking antibodies to protect them from disease such contact would bring. For the Nahua people, such contact came in the early 1980s when oil explorers from Shell penetrated their dense jungle homeland in search of oil drilling sites. The Nahua were nearly decimated by a whooping cough and influenza epidemic that killed off an estimated 50 percent of their population.
Now the reserve faces an even more permanent threat, the massive Camisea Natural Gas Project, a $1.6 billion project to pump oil and natural gas across the Andes to a newly-built gas terminal in Lima, constructed by Halliburton's Kellogg, Brown & Root (KBR). The U.S. Export-Import Bank rejected a loan request by the consortium involved in the construction after an internal report found will likely create a repeat of the Shell disaster. But when the consortium took a $135 million request to the Inter-American Development Bank, the United States, the bank's largest contributor, allowed the loan and the project to move forward by failing to cast a decisive veto and instead abstaining.
In addition to KBR, a big beneficiary of the financing is Hunt Oil and its well-connected chairman Ray Hunt, who also sits on the board of directors at Halliburton. Hunt, whose personal fortune was estimated by Forbes magazine to be $2.3 billion, has been a loyal contributor to George Bush. Hunt is a Bush "Pioneer," one of hundreds of elite fundraisers who circumvent spending limits on donations by collecting money from family, colleagues, and employees. These donations are then "bundled" under a single name, ensuring recognition, and influence equal to the money they raised. "What McCain/Feingold was designed to prohibit is exactly what is happening," says Mark Glaze, director of the ethics program at the Campaign Legal Center, which helped write the language of McCain/Feingold. "We are seeing one person able to produce an extraordinary amount of money for a political candidate."
Bundlers that raise over $100,000, like Hunt did in the 2000 race, receive the title "Pioneer." Hunt Oil's connections to the bundling machine run particularly deep. The company's public affairs chief, Jeanne Johnson Phillips, was one of the architects of the Pioneer program. And the Bush appointee to the Inter-American Development Bank whose decisive vote allowed the Camisea project to proceed was Jose Forquet, a Pioneer as well.
Money from bundlers has poured in so quickly that the campaign has invented a new title, "Rangers," for bundlers that net over $200,000. Of the $296 million George W. Bush has raised since 1998, at least one-third of that total came from a mere 642 of these super-donors, according to data accumulated by Texans for Public Justice (TPJ), an Austin-based watchdog group that has tracked Bush's political contributors since the beginning of his career.
Among them are 370 corporate executives, a whopping 148 of whom have been involved in corporate scandals or run companies involved in corporate scandals, including Enron's Ken Lay and Florida sugar-magnate Jose "Pepe" Fanjul, inspiration for the book "Striptease," phone partner of Bill Clinton during an infamous Monica Lewinsky rendezvous, and the patriarch of what Time Magazine once called "the first family of corporate welfare." These big Bush bundlers are affiliated with 102 companies that received a total of $82 billion in contracts from the federal government over the last fiscal year.
TPJ executive director Craig McDonald speculates bundlers may have supplied more than half of Bush's total cash. It is impossible to say for sure; campaigns are under no legal obligation to disclose who the bundlers are or how much they have bundled. So far, both Bush and Kerry have disclosed the names of their top bundlers, but these have been voluntary disclosures and do not reveal exact amounts. "All we know is that they have given [at least] $100 thousand," says McDonald. "We don't know if it is $300,000, $500,000, even $600,000."
The shape of the Pioneer program dates back to Bush's successful 1994 bid to unseat Ann Richards as governor of Texas, when his campaign was fueled by a tiny clique of supporters. "We're talking about the country club oil and gas industry elite," says McDonald, executive director of Texans for Public Justice,. "Almost all these guys are CEOs, able to put up all kinds of money, from the $50,000 to the $100,000 range."
Most were corporate executives; many were oil men that Bush had cultivated during his years in the industry; men like Hunt, Enron's Ken Lay, and Harken Energy's Lee Bass, an early Bush benefactor who bailed the future president out of a potential financial catastrophe by purchasing Bush's failed and debt-ridden company, Spectrum 7, in 1986. (Harken subsequently reaped a fortune when it was awarded exclusive off-shore oil rights by the Gulf emirate of Bahrain-leading to charges that Bush's influence with his father, then vice president, sealed the deal, an allegation that has dogged Bush throughout his political career.)
While Texas law placed no limits on donations from individuals, when Bush decided to run for president in 2000, he was suddenly faced with $1,000 cap on hard money donations. The solution was the Bush brain trust came up with was bundling, what McDonald calls "the new soft money."
While bundling would prove a boon to Bush's first presidential campaign, the advent of the ban on soft money would make it indispensable. Ironically, the process was enhanced by a provision in McCain/Feingold that actually raised the previous $1,000 limit on hard money-direct individual donations to campaigns-to $2,000.
And despite laws prohibiting indirect donations, it is nearly impossible to tell if bundlers are simply giving money to friends, family or employees to then be donated to the candidate, or if donations are being coerced by employers. During the primaries, Democratic candidate Senator John Edwards (D-North Carolina), now Kerry's running mate, raised more than half of his total campaign fund--$7 million--from trail lawyers.
Among them was Turner & Associates, the Arkansas firm that catapulted to national prominence when it sued Bridgestone/Firestone over faulty tires on Ford Explorer SUVs. Turner & Associates donated $198,000 to Edwards's campaign and his affiliated political organization, the New American Optimists. C. Tab Turner and four of his legal assistants each gave Edwards the $2,000 maximum contribution. An employee later told the Washington Post that they were assured Turner would "reimburse us." Under a cloud of scrutiny, the Edwards campaign returned the $10,000 which had gone directly to Edwards. (The Optimist PAC returned none of the funds.) Though few bundlers would be so naïve to admit what is happening to the press, the Turner case could be typical.
Bundlers have played a key role in the Kerry campaign's drive to pull even with the Bush money machine. Instead of Pioneers and Rangers, the Kerry campaign has the more officious-sounding "Co-Chairs" (for those raising at least $50,000) and "Vice-chairs" ($100,000). According to Public Citizen, these "Chairs" account for at least one-third of Kerry's total cash and perhaps much, much more, meaning that Kerry is getting almost as much as Bush through his bundling program. This is not surprising. Although Kerry supported McCain/Feingold, he has been a prolific fundraiser has been caught up in some of the nation's most well-publicized campaign finance scandals.
As chair of the Democratic Senatorial Campaign Committee in the 1980s, Kerry selected Florida banker David Paul to head an important Democratic fundraising organization. Paul was later indicted in the Savings and Loan scandal. He was also among the congressional recipients of illegal contributions from a San Diego-based defense contractor, Science and Applied Technology, whose head was charged with 40 counts of conspiracy, illegal campaign contributions, and fraud.
The industry that has long fueled Kerry's political ambitions is telecommunications, heavily represented in Massachusetts and with a vested interest in the powerful Senate Commerce, Science and Transportation Committee, upon which Kerry sits. Bundlers from the industry have raised at least $3 million for Kerry, who has long-standing ties to the industry's powerful trade group, the Cellular Telecommunications and Internet Association (CTIA).
Kerry's younger brother, Cameron, is an attorney for Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, which represents the CTIA, and Kerry's former chief of staff, David Leiter, now is vice president of ML Strategies, a lobbying subsidiary of the lawfirm. Among Kerry's elite bundlers are Tom Wheeler, former head of the CTIA, and Ivan Schlager, an attorney for Skadden, Arps, Slate, Meagher & Flom, the nation's largest legal firm, representing Rupert Murdoch's News Corp and AOL Time Warner. Schlager once worked for Kerry as the Democratic Chief Counsel and Staff Director to the Committee on Commerce, Science and Transportation; and he has hosted numerous meetings between industry lobbyists and the candidate. Meanwhile, Kerry has helped the industry gain access to new markets and pushed the FCC to approve the 1999 merger between Bell Atlantic and GTE.
But in the presidential race, the finance industry has jumped ahead of telecom to become Kerry's main corporate benefactor, contributing at least $8 million through bundlers. Goldman Sachs executives alone account for four of Kerry's chairs, making the company the most represented among the Democratic bundlers. Also among them is Chad Gifford, the Fleet/Boston chairman.
Wall Street is also the number one patron industry of the Bush campaign. From October 2003 to January 2004, the Bush campaign drew nine of its top 10 bundlers from the industry's ranks. And with three Pioneers, Delaware-based MNBA, the world's largest issuer of credit cards and advocate of tighter bankruptcy regulations for the ill and unemployed, recently surpassed Enron to become Bush's top all-time contributor, having sent the president $605,000 by last March. The industry's intense interest in the campaign has much to do with a public outcry for new laws, regulations and accountability in the wake of scandals like WorldCom, Enron, and New York Stock Exchange debacles, as well as ensuring the Bush administration's massive cut on dividend taxes is maintained by any future Kerry administration.
But undoubtedly the most important issue in the eyes of Wall Street is the privatization of social security. Although the bad stock market made the plan a political impossibility during the first Bush term, the industry is desperately trying to revive an idea that would mean billions of dollars annually in increased fees for brokerage houses.
While influencing legislation is probably their primary goal, bundlers also move into political positions inside the administration. No less than 24 Pioneers or Rangers from the 2000 campaign have been appointed ambassadors to such key countries as Austria, Belgium, Saudi Arabia (which went to an oil executive from Harken), and France, as well as much-coveted picturesque locations, like Maritius and Seychelles. And 47 were appointed to the transition team. Two, Homeland Security Secretary Tom Ridge and Labor Secretary Elaine Chao, were appointed to cabinet positions (see sidebar). If Kerry follows in the footsteps of his Democratic predecessor, such perks are sure to flow to Democratic bundlers as well.
K Street Connection
Not surprisingly, the group most represented among both Bush and Kerry bundlers are lobbyists. In Kerry's case, lawyers and lobbyists have given at least $9 million through bundling; and lobbyists account for 89 of the Bush campaign's bundlers. Since his 2000 campaign, Bush has received donations from a whopping 1,300 lobbyists.
Despite the ban on soft-money, the power and influence of K Street-the Washington corridor where the majority of lobbyists and big trade associations have their offices-has never been greater, as evidenced by the recent success of one of Washington's most powerful industries.
In 2003, the pharmaceutical industry, spearheaded by its powerful trade lobby, the Pharmaceutical Research and Manufacturers of America (PhRMA), launched the most expensive lobbying campaign in American history. PhrMA spent nearly $109 million and hired more than 800 lobbyists to ensure the passage of the Bush Administration's $535 billion Medicare/Prescription Drug Bill.
The bill faced opposition from progressives, who saw it as a massive corporate giveaway to drug companies, devoid of regulations to ensure fair pricing and containing provisions that move some Medicare services to HMOs, creeping privatization.
Due to the sheer expense of the legislation, some fiscal conservatives also opposed the bill. One, Representative Nick Smith (R-Michigan), charged in his website column that "other members (of the House) and groups made offers of extensive financial campaign support and endorsements for my son Brad, who is running for my seat. They also made threats of working against Brad if I voted no." With the weight of pharmaceutical industry's powerful lobby behind it, the legislation passed.
PhRMA's victory showed that the pervasive power of lobbyists is still alive and well in Washington, where big trade associations hold weekly meetings with leaders from the two main political parties. It also showed the success of a Republican effort to dominate the lobbying game. During the Clinton presidency, PhRMA split its campaign contributions relatively evenly. In recent years, PhRMA has given about 80 percent of its donations to Republicans.
Those figures mirror a more general beltway trend for lobbyists. In past election cycles, the corrupting influence of Washington's big trade groups was split evenly between the two parties. Now, according to the Center for Responsive Politics, about two-thirds of lobbyist money flows to Republicans, a testament to the power of the GOP's aptly named K-Street Project, the brainchild of conservative strategist Grover Norquist, founder of Americans for Tax Reform, and House Majority Leader Tom DeLay (R-Texas).
In some ways, the K-Street Project mirrors the genius behind the republican's use of bundlers: They have taken an old idea-in this case lobbyists-and refined it to make it work for them. They use a database to systematically track and tally what lobbyists are doing for which candidates. Lobbyists could then be confronted for supporting Democrats or playing both sides, thus keeping the money flowing to the party in power.
"The K Street Project was Tom Delay's way of saying to trade associations, 'If you want to do business with us, the lobbyists in charge better be Republicans," says Celia Wexler, vice president of advocacy for Common Cause. "And that is bad for two reasons. One is that lobbyists are too often becoming fundraisers themselves. The second is that it is creating a loop between government and lobbyists." Trade associations are simply hiring the very people who used to regulate their industries.
Just two months after the passage of the Medicare/Prescription Drug Bill, PhRMA offered one of its top jobs to the powerful chair of the House Energy and Commerce Committee, Representative Billy Tauzin (R-Louisiana), a key player in the passage of the bill. Tauzin, according to the Washington Post, was offered an annual salary of about $2 million, which would have been "the biggest deal given to anyone at a trade association." Meanwhile, Thomas Scully, the highest ranking administration official in charge of Medicare and a point man on the legislation, received an ethics waiver allowing him to secure a position with the prominent law firm Alston & Bird, which represents a variety of drug manufacturers and other health care industry concerns.
The revolving door between lobbying and government has become all-too-typical in Washington. In 2002, when congress barred the newly created Homeland Security Department from granting contracts to offshore-based firms, potential contractors went on a hiring spree of former government official in an effort to overturn the regulations. Among them were such heavyweights as former Reagan chief of staff Kenneth Duberstein and Bob Livingston, the former Republican congressman from Lousiana (whose bid to become Speaker of the House was ruined by Larry Flynt's revelations of Livingston's own affair during the Monica Lewinsky impeachment debacle). Soon, White House and congressional Republicans issued a new bill without the offshore restrictions; and Duberstein and Livingston were named the top lobbyists of 2002 by the Capitol Hill newspaper, The Hill.
Nowhere will the pervasive power of Washington's army of 24,000 registered lobbyists-and the influence of the corporate interests they represent-be on display more than at the two parties' upcoming national conventions. The RNC has set a goal of $64 million. And the Democrats, not to be outdone, are expected to spend $95 million on their convention in Boston, which would dwarf the record $36 million the party spent in Los Angeles in 2000, making it the most expensive convention in history. And those figures only include expenditures by the parties themselves, not the lavish events hosted directly by corporate interests. The 2000 Democratic convention featured 130 invitation-only parties and receptions, while the Republican convention in Philadelphia featured golf tournaments, rock concerts, and yacht cruises.
"The conventions are the last bastion of soft-money giving at the federal level," says Steve Weiss, communications director of the Center for Responsive Politics. "We're talking about vast sums of money, all of it spent with the goal of gaining access. Money paves the way for the lobbyists to come and do their work." The Center filed a petition with the FEC protesting that the convention host committees were actually soft money conduits for the political parties, but despite the fact that their combined take will be over $125 million the FEC failed to act.
Already, a cloud of scandal is settling over the Republican convention involving senate majority leader Tom DeLay's (R-Texas) attempt to raise money for a Republican-affiliated group called Celebrations for Children. DeLay scrapped the fundraising after press revelations that much of the money was to be used to pay for a yacht cruise, Broadway shows and parties. But he was too late to stop an investigation by New York state attorney general's office and a grand jury in Texas. If DeLay is indicted, one of the most influential members of congress, perhaps the most influential, could be toppled.
The other half of the DeLay scandal lies in his ties to ostensibly non-party groups, called 527s after their IRS tax designation. At the heart of the scandal is the conservative Leadership Forum. According to its mission statement, the group has no ties to the Republican Party. It is simply a nonprofit devoted to supporting issues important to Republican candidates for the House of Representatives. But critics charge the committee is really just a tool for DeLay to skirt the federal ban on soft money. The group's president is Susan Hirschmann, Tom DeLay's former chief of staff. And its vice president is Bill Paxton, a former congressman and one-time aide to DeLay.
The Leadership Forum is typical of what bothers critics of 527s. The groups can play a role identical to the role once played by national party organizations: conduits for huge, unregulated contributions that circumvent federal limits, in essence soft money. These donations can then be used to purchase attack ads during the campaign.
It is ironic that a Republican organization has been thrust to the forefront on the debate over 527s. Democratic 527s, like MoveOn.org, the Media Fund, and America Coming Together, have been far more successful in raising money. So far, national Democratic-affiliated groups have raised $135 million since August 2000, as opposed to $40 million for their Republican counterparts. Many of the Democratic groups have ties similar to those of the Leadership Forum, and House Minority Leader Nancy Pelosi has spoken at several fundraisers for 527s.
In the 2004 election, most of the money has come from unions and wealthy individuals, like financier George Soros, Progressive Corp Chairman Peter Lewis and Hollywood writer/producer Stephen Bing. A recent study by the Wall Street Journal found that only half of the top soft money corporate donors were contributing anything to 527s. Among the top 25 donors to 527s, the only clear corporate sources of cash are the National Association of Realtors ($3 million), the Hyatt Corporation ($5 million) and AT&T ($4 million). Those figures pale compared to the mammoth $48 million contributed by the American Federation of State County and Municipal Employees union.
But in future presidential races, corporate money could begin to flow more steadily to 527s. The Republican Party had challenged the use of 527s before the FEC, saying the groups amounted to illegal violations of McCain/Feingold. The bid was unsuccessful and may have scared off the traditional Republican base.
FEC Chair Bradley Smith, the nation's most important appointee charged with enforcing McCain/Feingold, has made no secret of his disdain for the legislation. Smith, who calls any limits on campaign contributions violations of First Amendment rights to free speech, even told the Wall Street Journal that "the most sensible reform is a simple one: repeal of the Federal Election Campaign Act."
Most advocates of reform say the single biggest obstacle to removing the special interest money from American democracy is, ironically, the FEC. The nation's most important watchdog against abuse of the political system, is an ally of special interests, beholden to the two main parties, and condemned to permanent deadlock on issues of importance because of structural problems.
Mark Glaze of the Campaign Legal Center sums up the current state of reform when he says, "The FEC may be the only agency that works exactly as congress intended it to, which is to say, not at all."