In the 2000 elections, Democratic and Republican state party committees raised $570 million, with 46 percent comprised of soft money transfers from national party organizations, according to an unprecedented study of party activity at the state level.
The transfers of unregulated soft money from federal party committees to their state counterparts confirm a commonly held perception that state parties are used to launder soft money and influence presidential and congressional elections in a way never envisioned nor intended by federal election law. Of immediate concern to state parties is the fact that after the 2002 mid-term elections, those national soft money transfers will in effect be banned as a result of the passage of the Bipartisan Campaign Reform Act—more familiarly known as McCain-Feingold or Shays-Meehan, after its Senate and House sponsors. The act, which Congress passed and President George W. Bush signed earlier this year, bans soft money contributions at the federal level.
However, the Federal Election Commission is adopting rules that will allow members of Congress to raise soft money for state parties. The sponsors of the act claim this exemption is counter to the law and will create a huge loophole that simply transfers soft money activity from Washington to the states.
The year-long study of state parties' role in federal elections was conducted by the Center for Public Integrity, the Center for Responsive Politics and the National Institute on Money in State Politics. The end result is a unique, detailed roadmap of the party money system at the state level in American politics. Records used to compile the report were collected from elections officials in every state as well the FEC.
For the study, the three groups collected campaign finance reports filed with state agencies for the 2000 election cycle by 225 Democratic and Republican committees. Some reports were electronic; more than half were available only on paper. All were standardized and entered into a database—the most comprehensive collection of state party contribution and expenditure information ever compiled.
Of the $307 million in contributions to state parties that were not federal transfers, the study shows contribution patterns that, in many ways, mirror soft money donations at the national level. State parties, like their national counterparts, collect millions from labor unions, corporations and rich individual donors, according to information gleaned from reports collected from elections offices across the country. But unlike the federal parties, a number of states limit or ban contributions from those sources.
Of the $570 million given to state parties in 2000, $263 million (46 percent) came from the soft money accounts of the national party committees, by far dwarfing any other category. Of those transfers, the largest amount went to state parties in critical swing states in the 2000 presidential election, like Florida, Michigan and Pennsylvania.
We collected national transfer information from the FEC due to unreliable reporting by the states. The states actually reported a much lower number, $247 million, according to our findings. For example, the Washington State Democratic Central Committee reported receiving just $705,040 in soft money from the national Democratic party committees. That figure was $6.6 million less than FEC records show. For other contribution information, the state-reported totals were used.
According to our analysis, the biggest non-federal contributions came from businesses, unions and other organizations ($120 million); followed by individual contributors ($86 million); non-national committees and candidates ($74 million) and "unknown" ($27 million).
Breaking it down still further, the top industry sector contributors were lawyers ($21 million); followed by real estate professionals ($11 million); public sector unions ($10 million); and securities and investment firms ($8 million). Following a federal trend, state Republican parties received a much higher percentage of money from businesses and Democrats received more cash from labor unions.
Leading the list of donors is labor unions, with five of the top 10 spots. The National Education Association, through its political action committee and its affiliated teachers' unions, contributed $3.6 million for the top spot.
The second biggest donor was the Association of Trial Lawyers of America at $2.5 million; third was the Service Employees International Union at $2.4 million; fourth was Steven T. Kirsch,* a technology tycoon from California who spread $2.15 million around to 10 different states; and fifth was the International Brotherhood of Electrical Workers at $2 million.
Sixth was another union, the American Federation of State, County and Municipal Employees at $1.9 million. Seventh overall is also the No. 1 corporate donor, AT&T with $1.4 million. Eighth is the AFL-CIO with just under $1.4 million; ninth is S. Daniel Abraham with $1.3 million; and tenth is tobacco giant Philip Morris at $1.2 million.
Kirsch and Abraham are the top individual donors. Next are Bernard and Marsha Daines, another high-tech success story with $1.2 million; Donald Carter at $600,000; and Stanley Fulton at $565,000.
The study measured expenditures as well as contributions. Two states, Arkansas and North Dakota, do not require political parties to report expenditure information. Of the 48 states that did report, the tally was $552 million.
The top type of expenditure by far was transfers. State parties transfer funds from their non-federal, or soft money accounts, to their federal, hard-dollar accounts to cover expenses for federal activity, primarily issue advertising. The state parties reported transferring $204 million to their federal accounts. However, records from the FEC show this amount is millions of dollars less than what was actually transferred.
Second on the list were funds for candidate support at $127 million, or 23 percent, and third was media at $77.1 million, or 14 percent. The parties spent $59 million on administrative expenses, and made direct contributions to political candidates and PACs totaling $45 million.
The quality of state records indicates that if, as some predict, soft money donors contribute to the state parties in the wake of the Bipartisan Campaign Reform Act, tracking that money will be much more difficult.
Squeezing the most from soft money
Soft money is generally defined as the unlimited contributions that national party committees raise from sources normally prohibited from donating to candidates by federal law. Although these contributions cannot be used to directly affect federal elections, various loopholes in the campaign finance laws have allowed the parties to get around those restrictions.
National and state party committees keep two general types of accounts—federal (hard money) and non-federal (soft money). Contributions to hard money accounts are regulated by the FEC and the amount that can be given by any single donor is limited. Contributions to soft money accounts are often unlimited and may be made by corporations and unions. Soft money is supposed to be used on state and local elections by funding so-called "party-building" initiatives like "get out the vote" drives. But since 1992, that money has been used more and more to fund controversial issue ads.
In the 2000 election, a half-billion dollars in soft money was raised by the Democratic National Committee, the Republican National Committee and the four party committees that raise money to win U.S. House and Senate races. More than half of that amount was then transferred to state parties which spent the money largely on issue advertising.
So why don't national parties buy the issue advertising themselves rather than transfer money all over the country and ask the states to do it? The short answer is, they do it to conserve their hard money.
Contrary to popular perception, there are restrictions on how soft money can be spent. The FEC requires state and federal parties to use a ratio of hard and soft money, even when funding issue advertising. If a national party committee were to buy an issue ad supporting a federal candidate, it would have to use a much higher percentage of hard money than if the state party bought the same ad.
"It was a key factor in the ‘96 election, which is the first time you saw it happening," said Trevor Potter, a former FEC chairman, general counsel to the McCain 2000 presidential campaign and a defender of the new campaign finance law. "There were articles then about whether this was legal—particularly when the ads were being prepared by national party people...There was focus then, but the FEC didn't go after it—didn't object to it. So I think everyone took it as part of the landscape."
Potter said this system of transfers is counter to what the rules intended. By using state parties as their proxies in buying issues ads, the national parties were able to conserve their all-important hard dollars.
"So if you could then do the activity out of the national party committee but pay for it out of the state—what is supposed to be a state and local candidate ratio—you clearly have gamed the system, successfully as it turns out."
Florida, the state that decided the presidential election in 2000, offers an excellent example of how the system works.
D.C. to Florida and back again
According to FEC records, in the 2000 presidential election, Florida state Republican and Democratic parties received $27 million in national soft money transfers from their national counterparts, more than any other state. Of the total, Democrats received $14.2 million, more than any other state committee.
The Democratic party reported to the Florida Secretary of State that it paid some $15.7 million to three firms: Democratic Victory 2000 Inc. of Washington, D.C. ($5.8 million); Greer, Margolis, Mitchell, Burns & Associates, also of Washington ($5.3 million) and Morris & Carrick Inc. of New York City ($4.6 million).
Democratic Victory 2000 Inc. was incorporated in April 2000 by Carter Eskew, Robert Shrum, and Bill Knapp to craft issue ads for Democratic presidential nominee Al Gore. Among the most notable was a heavily aired ad that said Gore would fight the lobbyists in Washington and provide prescription drug coverage for senior citizens on Medicare.
Greer, Margolis, Mitchell, Burns & Associates is a firm with strong ties to the Democrats that specializes in issue-oriented advertising. The company had a high profile in the election of Bill Clinton in 1992 as well as in a number of other Democratic campaigns. Morris & Carrick is also a national media consulting firm with operations in New York and California; it too specializes in issue ads.
Normally, such expenditures are not reported to state election commissions. The FEC requires states to transfer soft money from their non-federal accounts to their federal accounts and then pay for the ads. So typically, the party will report only a transfer of funds to the state agency charged with overseeing campaign finance reporting requirements. But in Florida, the Democrats reported all expenditures, not just transfers.
In Florida, the transfers did not do the job for Gore, who lost in one of the most closely contested and controversial elections in U.S. history. But in Delaware, it was a different story.
Denise Rich and dollars for Delaware
For nearly a year leading up to the November 2000 elections, then-Delaware Gov. Thomas R. Carper, a Democrat, led incumbent U.S. Senator Bill Roth, a Republican, in polls for the race for Senate. His lead eroded in the summer of 2000, and by mid-summer, Carper was in a dead heat with Roth. Until that point, both candidates seemed to rely for the most part on hard money raised by their campaigns.
When the race tightened, the DNC and the Democratic Senatorial Campaign Committee began flooding the Delaware State Democratic Committee with money for party building, get out the vote drives and generic party ads. Democrats transferred a total of $4.9 million through the DNC and the DSCC to the state committee—an insignificant sum in the politics of states like neighboring New Jersey or Pennsylvania. But in Delaware, a state where even the largest city does not have a commercial television station, $5 million is enough to turn an election.
Almost 70 percent of the DNC and DSCC money was raised and transferred to the Delaware Democratic committee in the final two months before the November election. And it came in from the most unusual of places.
One Democratic fundraiser—a joint fundraiser for Carper and another senatorial hopeful, Hillary Clinton—took place at the elegant Fifth Avenue apartment of Denise Rich, wife of then-fugitive financier Marc Rich. It was attended by then-President Bill Clinton.
" ... I really do believe that a lot of these decisions [about voting] are going to be made by people who never get a chance to come to dinners like this," Clinton told the crowd. "Even if they could afford to come, they wouldn't do it, because it's just not their thing. But they will vote, because they're patriotic citizens, they love our country; they want to make a good decision. But they've never had an encounter like this, and probably never will."
Clinton spoke for more than 20 minutes. It is unclear how much the fundraiser brought in for Hillary Clinton and Carper. But that night, the New Yorker, Rich, added a $15,000 check to the Delaware Democratic Committee.
Thanks in large part to the media blitz and voter mobilization paid for by soft money, Carper won the election.
But in presidential politics, the significance of soft money traveling to state parties is even greater.
The swing states
It seemed everyone with a television set tuned in to the election results on Nov. 7, 2000 to watch the bizarre tableau. National television network anchors called the race for Gore, then dramatically reversed themselves. Anchors used maps with red and blue to identify states that had been called for either Bush or Gore. Similar maps colored green might have illustrated how large the national contributions were to the states, as well.
A total of $263 million in soft money was transferred from the national parties to the state committees that election cycle. The money was fairly evenly distributed between the GOP and the Democratic Party. The DNC and the congressional campaign committees shifted $147 million to state Democratic parties. Republican committees in Washington sent $116 million to their counterparts in the states.
On election night, 2000, there were a handful of pivotal states where results were too close for the television networks to call. Among the most important states that night were Pennsylvania, Michigan, Missouri, as well as Florida. These were the so-called swing states.
Florida's share was high for another reason. In addition to the presidential race, the state was also host to a key U.S. Senate race and two competitive congressional races. The election lacked a high-profile state race like governor, but did host a couple of cabinet elections.
In all, the national parties shifted $95 million to those swing states—more than one-third of all transfers of soft money during the election cycle. Florida led the pack with $27 million, followed by Michigan ($24 million), Pennsylvania ($22 million), and Missouri ($22 million).
Rounding out the top ten were Ohio, Washington, New York, Illinois, California and Virginia.
The top donors
An examination of the top donors to state parties (other than transfers) shows once again a stronger interest in affecting federal elections than helping the local party.
Steven T. Kirsch founded two high tech firms in the 1980s before launching Infoseek, an Internet search service. He sold Infoseek to Disney in 1999. He then launched Propel, a California e-commerce company. Kirsch's Web page once described his reasons for supporting Democrats. At the time, it also contained a blunt message for those seeking to reform campaign finance. "I hope this is the last time I'll be legally allowed to make a donation this large. The current system sucks. It allows wealthy people like me to get special access and influence public policy."
In the 2000 election, Kirsch spread $2.1 million in six-figure chunks among 10 different state Democratic Party committees, virtually all in key swing states in the 2000 presidential election. Democratic parties in Florida, Pennsylvania, Oregon, Michigan, Missouri, Iowa, Arkansas, Nevada and Minnesota each received checks ranging from $100,000 to $200,000.
By spreading his contributions around, Kirsch was able to come in "under the radar" according to one former elections official, and avoid the type of media scrutiny endured by people who make big donations to the national parties.
"There's a difference between an individual giving $100,000 to his own state and writing $100,000 to several different states," Potter said. "The question would be for Kirsch—presumably someone's telling him where to give."
"I got advice from the DNC and my own political advisers," Kirsch said when asked how he decided where to direct his contributions.
Kirsch is a political player at the national level as well as a big donor to the states. In the 2000 election cycle, he and his wife, Michele, donated $619,000 in soft money, according to the Center for Responsive Politics.
More than half of Kirsch's giving at the state level came in the waning days of the election. On October 27, the California internet entrepreneur distributed $1.1 million to Arkansas, Iowa, Michigan, Missouri and Pennsylvania. One day earlier, he gave $150,000, split between New Mexico and Nevada.
S. Daniel Abraham and his wife, Ewa, ranked second among individual donors to the states with $1.3 million in contributions. The two were also big contributors of soft money to the national parties. Abraham gave $1.5 million to Democratic causes, according to the Center for Responsive Politics.
Abraham is former chairman of Slim-Fast Foods in Palm Beach, Fla. The sale of Slim-Fast to Unilever in 2000 placed him on the Forbes magazine list of the 400 wealthiest people in America. He also recently sold his interest in the pharmaceutical company Thompson Medical for a reported profit of $200 million. Forbes estimates his net worth at $1.8 billion.
Rounding out the top three are Bernard and Marsha Daines with $1.2 million in contributions to state parties in the 2000 cycle. Daines is a native of Spokane, Wash., and has worked in the high-speed networking industry for more than three decades. He is currently CEO and president of World Wide Packets, a hardware developer for Internet connections. He also gave $550,000 to national Republican parties.
Donors often aren't forthcoming about why they give.
Bernard Daines, through a company spokesperson, declined to comment. Jim McGann, a press officer with AT&T, also chose not to comment on its $1.4 million in political party support.
At the NEA headquarters in Washington, spokesperson Denise Cardinal said political contributions are carefully selected. The National Education Association PAC handles federal political activity. "Decisions are made by the PAC council," she said. Other donations are coordinated with the state affiliates.
When the McCain-Feingold campaign finance reform bill, known formally as the Bipartisan Campaign Reform Act, goes into effect after the 2002 elections, it will eliminate the colossal loophole through which corporate, labor union and individual political donors poured a half-billion dollars in "soft money" into national party coffers in the 2000 election cycle.
The reform bill bans soft money at the national party level, limits controversial "issue ads" and raises hard money contribution limits to candidates. The bill also contains a provision that gives state party committees the opportunity to raise soft money in support of voter registration and get-out-the-vote activities that may also help federal candidates.
One of these, known as the "Levin Amendment," allows contributions limited to $10,000 per party committee from each source that can be used for "party building" activities, but not broadcast ads. They are also subject to state contribution limits and prohibitions.
So where will all the money go? While many supporters of the act are convinced much of it will simply go away, cynics (or realists depending on one's point of view) are convinced donors will find new ways to give. And state parties may well be the option.
That is especially true for party committees in the 14 states that allow unlimited contributions from corporations, or in the 19 states that allow unlimited contributions from labor unions.
With few restrictions on corporate and union giving to state parties, states like Florida, Virginia and Illinois could take a more prominent role in national politics. By contrast, states that ban corporate and union contributions would not—at least not directly. Nothing in state laws (with the exception of Connecticut) prevent unlimited transfers from party to party.
Adding to the problem, the FEC is adopting rules that many believe will create large loopholes in the reform bill. For example, the FEC is allowing members of Congress to directly solicit soft money for state parties at state party events. The new rules also broaden the types of state party activities that will not be considered to influence federal elections. The four co-sponsors of the Bipartisan Campaign Reform Act—Reps. Christopher Shays and Marty Meehan and Sens. Russ Feingold and John McCain—found the rules so distressing that they have publicly criticized the agency. The fear is that big donors will reroute their contributions through the state parties, using the new loopholes.
The campaign finance package is also being challenged in the courts. Within days of its enactment, the legislation was challenged in a lawsuit by long-time campaign finance reform foe Sen. Mitch McConnell, R-Ky., and others. The suit alleges that the measure violates free speech rights. A special three-judge panel will hear the case initially, before passing it directly to the Supreme Court.
The Republican National Committee and California Democratic Committee filed a lawsuit in federal court on May 8 that also claims a violation of free speech. Finally, a coalition of public interest groups is also challenging the law for raising hard-dollar contribution limits.
There are also those who say the act is a "federalization" of state parties and may not withstand constitutional muster.
Jamie Raskin, a constitutional law professor at American University and a longtime observer of campaign finance law, disputes that characterization. "Because of the supremacy clause, I don't think that state organized entities have constitutional standing to override a federal law regulating elections. I do think this is an aspect of federal supremacy," he said.
Raskin was noncommittal about how the Supreme Court would ultimately rule. He noted that Chief Justice William Rehnquist "has come close to taking a position similar to mine [on the legality of restricting corporate contributions]," but added, "I imagine he will be mobilized with the conservatives who are clearly gunning for McCain Feingold."
Effect on state parties
Of great concern to campaign finance reform advocates is the ease with which states are able to transfer money. There is considerable evidence that there is already quite a bit of money going back and forth across state lines, especially transfers from states with no limits on party contributions.
For example, the top five states where transfers of money going out of the state are greater than transfers coming in are all states that allow unlimited contributions to party committees. In the 2000 election, parties transferred at least $3.6 million across state lines.
Take New York. Some $100,000 was transferred there from other states. But $1.3 million was transferred out. In New York, there are no limits on national party transfers. The state election law also allows unlimited transfers from any corporate, union or individual source for money spent on "party housekeeping."
"New York is for some reason famous for this," said Potter, the former FEC chair. "They are a bank. They do a money exchange," he said. "If a state party needs hard money, they can go to New York."
Nevada transferred out $634,075 and brought in $20,000 from other states. It has no contribution limits at all.
Virginia took in no money, but transferred out $255,820. Washington transferred $211,000 to other states while taking in just $40,000. Florida, with no limits, sent $169,100 out of the state, but received only $17,000 from other states.
Among the 50 states, only Connecticut has a campaign finance law that prevents the national parties from flooding its elections with transfers of unregulated, soft money donations. The 1998 soft money law was a response to the revelation of a $1 million soft money transfer from the Democratic National Party in support of President Clinton's reelection campaign. The 1998 law explicitly banned such transfers by limiting the national parties to transfers from their federal FEC-regulated accounts.
Large money donors—individuals, corporations and labor unions—will still have an open door to political parties in at least 30 states, even after a federal soft money ban takes effect later this year. And in some places, the donors and dollar amounts won't be publicly disclosed.
Laws in other states on contributions and transfers differ dramatically. Nine states allow donors to give unlimited amounts to political parties for party-building or administrative expenses. Three of those states don't require parties to disclose the donors of these funds or account for how they spend the money. Thirteen states allow unlimited contributions to political parties. Eleven states only limit donations from corporations and unions. Other donors are unlimited.
With lax rulemaking from the FEC and barring intervention from the courts, some experts predict that state political parties—and particularly state leaders—will play a greater role in how money is raised and where it is spent. This would be a reversal from the current system, where the national parties direct money and resources to the states they see as having important races.
"There's no doubt [the campaign finance reform law] is going to make it much more difficult for party leaders in Washington to control the money," said Raymond La Raja, a political science professor at the University of Massachusetts who has studied state political parties.
Further complicating the issue, in nine states parties are allowed to maintain administrative or "operating" accounts which can receive unlimited contributions from any source, including corporations and unions. The money is supposed to be solely designated for party activities that are not candidate or campaign-related, such as paying salaries, rent, and financing generic party-building activities.
Only three of those states—Washington, New York and North Carolina—require separate disclosure of these accounts. During the 2000 election, these accounts raised more than $48 million combined.
It's impossible to determine how much more money was pumped into operating accounts. In some states, contributions to the accounts were either lumped in with other party activity, or not reported at all. In those states—Michigan, South Carolina, Ohio and until recently, Tennessee—operating accounts are exempted from disclosure. Tennessee started to require disclosure of operating accounts in late 2000.
The jury is out on how states will cope with the loss of the $263 million in transfers from the federal parties. Mark Brewer, Chairman of the Michigan Democratic Party, did not seem worried when he was in Washington testifying before the FEC on the new rules. "The vast majority was spent on issue ads," he said.
However, while the vast majority of the money does appear to be simply passing through the states, some of it is also used for some basic party functions—like keeping the lights on, the rent paid and voter registration drives up and running. Regardless, the new law will have a huge impact on how state parties do their business.
"It's a total restructuring," said Bob Poe, chairman of the Florida Democratic Party. "And I don't know how we get it done by Nov. 6 in the middle of an election."
However, Poe said the law may actually create an opportunity for the states.
"I think the state parties may take a whole different role in the future." Why? "Well because ...whereas the national committee cannot accept any soft money—we can."