In South Dakota, the ease with which campaign cash moves around has mostly put power in the hands of those who already had it — the wealthy and the state's top elected officials.
Because of lax regulations regarding how money can flow into and out of political action committees, political party funds and individual candidate funds, the state's top officeholders are able to legally skirt existing fundraising limits and get relatively large sums into campaign coffers with little effort.
The lack of oversight was, in part, responsible for the Rushmore State’s "F" grade for regulation of political finances from the State Integrity Investigation, released earlier this year.
South Dakota is one of 19 states with a system of campaign finance regulation that allows money to effectively move "sideways," says Ed Bender, executive director of the National Institute on Money in State Politics.
South Dakota and 12 other states place no limits on what state parties or political action committees can give individual candidates, according to research done by the National Conference of State Legislatures. Another six states limit PAC contributions but not party contributions.
Bender believes that this regulatory structure essentially makes South Dakota's $4,000 limit on individual contributions to campaigns irrelevant — by allowing individual contributions of up to $10,000 to go to friendly PACs that in turn give large sums — sometimes originating from a single source — to the candidate. South Dakota law allows wealthy donors to create multiple PACs, so even the $10,000 PAC giving limit can effectively be moot. PACS and political parties do have to report the source of their contributions.
But the system, Bender says, makes the $4,000 individual limit “meaningless.” Contributors “can simply give to PACs and … give unlimited amounts. It makes it very easy for large amounts of money to move sideways," Bender said.
"It's a hole they would want to fix if they are interested in stemming the flow of money and adding some accountability."
Top officials of the two major parties agree — in substance if not in tone — that South Dakota law makes it easy to shift large sums of campaign cash around.
"We are essentially as unregulated as they come," said Ben Nesselhuf, executive director and chairman of the South Dakota Democratic Party. "The rules aren't difficult to get around."
South Dakota Republican Party Executive Director Tony Post is a bit more equivocal, but concedes that his state’s system is relatively open. Post hails from Minnesota, where there are overall campaign spending caps. He admits to noticing the stark contrast between the two states' regulation of campaign finances.
"Our state campaign reporting requirements are fair and prudent, but there are a couple of places we can tweak them, too," Post said.
Veteran campaign watchers in South Dakota say the existing system has best served those already in power, who understand the system’s ins and outs, and have established relationships with party organizations and PACs.
Rounds and round
Most notably, former GOP governor and likely 2014 U.S. Senate candidate Mike Rounds moved $50,000 from his still-open governor's candidate campaign fund to a political action committee that he created and named for a respected governor and U.S. senator from the World War I era, Peter Norbeck.
That's big money in South Dakota, where some legislative candidates spend no money and the big races rarely rise out of the low five figures.
Rounds said he chose to create a PAC rather than to simply distribute funds from his candidate committee. The former state Senate majority leader said it's healthier for the Republican Party if a team of people contribute to support candidates.
"Money could have been used directly, but I thought, let's get people actively involved in raising funds for legislative candidates," Rounds said.
According to the most recent report filed in May, Sioux Falls banker Dana Dykhouse donated $10,000 to Rounds' Norbeck PAC, the maximum individual contribution allowed by state law. The Norbeck PAC also received $5,000 from another PAC, the GPS PAC, which itself was funded solely with a large contribution from a single individual, subprime credit card baron T. Denny Sanford.
Sanford wrote a $200,000 check to create the GPS PAC days before state law changed in 2007 to cap individual contributions to PACs at $10,000 .
Once on the Forbes' list of billionaires, Sanford's net worth has dropped from $2.8 billion in 2008 to about $600 million in 2011. He amassed much of his fortune as owner of First Premier Bank and Premier Bankcard, which issued cards that carried $256 in fees for a $250 credit limit before Congress outlawed such practices in 2010.
Sanford, whose primary residence is in Sioux Falls, made BusinessWeek's 2008 list of top 50 philanthropists, and he has given away hundreds of millions in South Dakota. Several entities in South Dakota bear his name, from an underground science lab in a former gold mine to the Sanford Health conglomerate headquartered in Sioux Falls to, most recently, a new events center under construction in Sioux Falls.
Since its creation, Sanford's GPS PAC has contributed a total of $100,000 to two different gubernatorial candidates, sitting Gov. Dennis Daugaard and 2010 primary challenger Dave Knudson; contributed $10,000 to the South Dakota Republican Party, contributed $1,000 to a state senate candidate and $1,000 to a U.S. Senate candidate. According to the most recent campaign finance reports, the GPS PAC has a balance of about $20,000.
So far, no distributions from the Norbeck PAC have been reported. Rounds has said he would be distributing money from the Norbeck PAC this past summer, but the next campaign finance report is not due until late this week.
Rounds might very well owe his political career to the state's loose campaign finance regulations.
He benefited from large PAC contributions as a fledgling gubernatorial candidate in 2002. Rapid City lawmaker and philanthropist Stan Adelstein funneled $60,000 to Rounds' campaign via two contributions from the Building Rapid City PAC, which was almost entirely funded by Adelstein. Of that $60,000, $25,000 came at a critical point late in a three-way primary race when Rounds was gaining momentum but running out of money.
Candidate Rounds also received more than $200,000 in 2002 in two separate contributions from Adelstein's A Better South Dakota PAC. While that PAC was organized by Adelstein, it was funded by a series of $5,000 contributions from several individuals.
Adelstein's fortune hasn't reached the heights of Sanford's, but he has been actively involved in South Dakota politics on both sides of the aisle since taking over the family construction business as a young man in the 1950s.
Rounds won a Cinderella victory in that three-way GOP primary in 2002, and went on to easily win the general election and serve two terms as a popular governor, from 2003 through 2010.
Rounds said he is not troubled by regulations that allow for significant sums to be moved amongst political campaign funds as long as those transactions are fully disclosed to the public.
"You look at what are the laws, the tools available. If they are tools that both sides will be using, then you want to use them as best you can — correctly, staying within the guidelines of the law," Rounds said. "Disclosure is probably the most important thing, as long as there's a way to go back in and look.
You ought to be able to go to a PAC and see who's contributing money to the PAC, and you ought to see who it's giving money to."
South Dakotans elected former state lawmaker and Rounds' lieutenant governor Dennis Daugaard to the state's top elected office in 2010.
During his campaign for governor, Daugaard received $20,000 from Sanford's GPS PAC. Of that, $10,000 came in 2007 and another $10,000 came in 2008. Daugaard decided to not accept PAC contributions above $10,000 per year, said spokesman Tony Venhuizen, because he wanted to keep with the spirit of the 2007 law that capped individual contributions to PACs at that amount.
At the same time, Daugaard's opponents both in the primary and general election took advantage of South Dakota's system and accepted PAC donations exceeding the $4,000 limit on individual contributions — PAC donations that often originated from a handful of individuals.
It's possible Daugaard would push to tighten the law in question, Venhuizen said, but only after consulting others.
"I think the governor would be willing to consider a bill to make that change, but he would want to have an opportunity for others to share their thoughts," Venhuizen said.
Big money for Gant
South Dakota's chief elections officer, GOP Secretary of State Jason Gant, has also taken advantage of the state's PAC loophole for his own campaign.
In July 2010, while he was running for the Secretary of State slot, Gant founded the Committed to Victory PAC. During that campaign cycle, the Committed to Victory PAC received four contributions totaling $11,500. Of that, $10,412 went to Gant's campaign fund.
Gant did not respond to multiple phone messages, text messages and emails requesting an interview for this story.
Gant also received at least $85,000 from the South Dakota Republican Party, believed to be among the highest amounts given by the party to any candidate. Gant defeated Nesselhuf, a five-term Democratic state lawmaker, with 54 percent of the vote.
The GOP's Post said the party was able to give so much to Gant because other statewide candidates were running so far ahead.
"They were heavily invested in the whole ticket, but really focused on Jason's race. They could focus in on one or two races," said Post, who started his job after the 2010 election. "They had built a solid state party, raised a ton of money and gave it out to candidates. That's what we plan to do again this cycle."
Like Rounds, Post said transparency is key in campaign finance, saying he has a "palms up" policy for tracking money. The state party's job, he said, is to support Republican candidates.
"If a dollar doesn't help us gain a vote or get another dollar, then we don't spend it," Post said. "Sunlight is good."
Nesselhuf said he doesn't believe Gant's money was the difference between winning and losing, but that much money could make a difference in other races.
"In 2010, it was such a tsunami year, I don't think it would have mattered. In a normal year, if I had had TV and he didn't, that probably would have made the difference," said Nesselhuf.
South Dakota's longest standing and least public campaign funding mechanism — the Governor's Club — has finally run its course, but its history remains a source of controversy. The club, which dates back to the 1980s, was a group of donors who were granted audiences with the governor.
Donors gave $1,000 to the state Republican Party, said Rounds, and then were invited to private meetings with the state’s chief executive. "We would invite them to come in and sit down, never at a state facility," Rounds said. "We would say what we were trying to get done. ‘These are the challenges; what are your questions?' "
Between 40 and 60 people typically attended the handful of meetings held each year while he was governor, Rounds said. Rounds said he viewed the Governor's Club gatherings more as get-togethers of the party faithful rather than as campaign contributors buying access and influence.
"That's part of the American way of doing business," Rounds said. "I don't think there's anything wrong with bringing people together who are supporters. Republicans do it. Democrats do it. I think it's healthy for the process."
Since Daugaard's election, the South Dakota Republican Party has overhauled the Governor's Club to do away with the private meetings with the governor, Post said. Now the Governor’s Club is just a fund-raising moniker to denote a level of giving. Daugaard has launched "Gaardians for Daugaard," a group that is invited to private dinners with the governor. Membership in that group is at Daugaard's discretion and given to those who have historically supported the governor. A contribution at a certain level does not get one a membership.
Dollars for Dems
The GOP dominates South Dakota's politics, as all statewide offices from governor to public utilities commissioner are held by Republicans, and the party holds greater than two-thirds majorities in both chambers of the Legislature.
But though the Democrats don’t have much power, they do have a few financial controversies of their own. For instance, the GOP's Post notes that the Democrats have $50,000 in debt that dates back to a $90,000 no-interest loan given by the Capitol Committee, a Democratic PAC, during the 2002 campaign.
"If you just give somebody a loan with no interest, then what's the point of having limits? It seems like an end-run around the limits," Post said.
Nesselhuf has said that debt is being dealt with and won’t affect the 2012 election cycle.
“That has been carried forward since ’02 and is slowly shrinking and will continue to do so. We’re getting it off the books,” Nesslehuf has said.
Disclosure at issue
In the face of these controversies, some reformers here have pushed for South Dakotans to have better access to timely information about campaign cash.
During the 2012 legislative session, state Rep. Jon Hansen, R-Dell Rapids, sponsored a bill to put teeth into the law requiring candidates to file reports. The bill would have banned candidates who fail to file campaign finance reports from running in future elections. Hansen said he felt the current fine system of $50 per day up to $3,000 doesn't deter all violations. This year, 30 state legislative candidates missed the deadline for filing reports ahead of the June primary.
Hansen's bill cleared a committee vote but got just four votes on the House floor. He accepted defeat, for now, saying he recognized the bill needed some work. He vowed to bring it back in 2013.
But there has been progress on another front. When campaign finance reports are filed, South Dakotans will now have better access to the information contained in them. A new website launched by Secretary of State Gant in early 2012 makes the reports searchable and exportable, compared to an old system that relied on scanned pdf images.
The change was praised by the Rapid City Journal's editorial board.
"The creation of a website to track political donations and donors is a leap forward toward transparency in campaign financing," the Journal wrote.