The biggest loophole in American politics

The Minneapolis-St. Paul 2008 Host Committee is a nonprofit organization charged with raising millions of dollars to produce an eye-popping, Republican Party extravaganza in September. Under a contract signed with the Republican National Committee (RNC), the group is on the hook for roughly $40 million. The actual fund-raising target, however, according to the host committee, is $58 million — a goal that the organization is reportedly on pace to meet.

The host committee — and its Democratic counterpart in Denver — are the chief beneficiaries of the biggest loophole in U.S. campaign finance law: the absence of any limits on what corporations and individuals can give in support of presidential conventions. The Republican get-together may be celebrated on broadcast television as an exercise in democracy but it will serve as a unique opportunity for special interests to buy access to influential people without the public much the wiser. Ditto for Denver. The delegates will vote on floors paved with money.

The host committee’s Web site currently lists 53 companies that have contributed to the cause. They range from small, local outfits like M Design Interactive, which worked on the host committee’s Web site, to international corporations such as agribusiness giant Cargill and drug manufacturer Pfizer. Nearly all of them are for-profit companies. (The Service Employees International Union and the National Association of Home Builders are two notable exceptions).

The Minnesota Independent contacted all 53 organizations to inquire if they would voluntarily disclose the amount of their contributions. Fewer than half, 23, responded to the request for information. Only eight were willing to disclose how much money they have donated to the Republican convention.

At the top of the corporate heap is Qwest, which stated that it is providing $6 million in cash and in-kind services. The Denver-based telecommunications company also pointed out that it is contributing an equal amount to the Democratic convention slated for September in its hometown.

Another major donor that was willing to disclose the size of its contribution is Xcel Energy at $1.1 million. The company is also donating a roughly equal amount to the Denver convention. “We are not aligning with either party but supporting our communities,” the company said in a statement. “Both convention host committees are nonprofit 501c3s; they are not political organizations.”

Other substantial contributors include United Health Group, a for-profit insurance company ($1.5 million), medical-device manufacturer St.

Jude Medical ($1 million), Cargill ($250,000) and Waste Management, the largest garbage-disposal business in the country ($100,000). At the lower end of the spectrum are Kraft Foods (roughly $50,000) and CH2M Hill Companies, a construction and engineering firm ($50,000).

Most of these companies have substantial interest in favorable treatment from a possible McCain administration. Cargill, for example, benefits from ethanol subsidies that McCain opposes. Xcel Energy has spent nearly $10 million on Washington lobbying efforts over the last five years to influence legislation related to nuclear waste and environmental regulations

Earlier this year Qwest was named the official communications provider for the Republican convention, charged with providing high-speed Internet service and phone lines for attendees. The company contributed nearly $500,000 to political campaigns during the 2006 election cycle, with three-quarters of that money going to Republicans. Qwest also spent more than $3 million on lobbying operations last year to influence telecom legislation in Washington.

Many others companies, however, were not so forthcoming. A couple of corporations, most notably Northwest Airlines, stated that they are not permitted to release the specifics of their contribution. “The terms of our agreement with the RNC don’t allow us to disclose any details,” said NWA spokesman Paul Thibeau.

But most companies that responded simply declined to offer up numbers. “Our policy is not to discuss and get into details about contributions,” said Malcolm Berkley, a spokesman for United Parcel Service (UPS), in a response typical of other donors.

“We did make a contribution, but it’s for much less than we were asked,” said Maggie Jensen, a spokeswoman for Securian Financial Group, a St. Paul-based financial services firm. “We would have done the same thing if it had been the Democrats coming to town.”

One company, Georgia-Pacific, claimed not to be a contributor at all — despite being listed on the host committee’s Web site. A spokesman for the building-products manufacturer, James Malone, said he believes the actual donor is parent company Koch Industries.

Among the corporations that failed to respond to the Minnesota Independent’s inquiries in any manner: Verizon Telecommunications, pharmaceutical companies Pfizer and Merck & Co., and medical-device manufacturer Medtronic. Both of the nonprofit donors, SEIU and the NAHB, failed to return calls seeking information as well.

Many of these organizations have major business interests pending in Washington that a McCain or Obama administration could exert great influence over. Last year, Pfizer doled out contributions to 1,050 candidates through its national political action committee, giving equally to Democrats and Republicans. Among the Minnesota delegation, however, only the state’s three Republicans — Sen. Norm Coleman, Rep. Michele Bachmann and Rep. John Kline — benefited from the company’s largesse.
In the first quarter of 2008 alone, Pfizer spent $2.8 million on lobbying efforts, seeking to influence elected officials on such issues as extending drug patents internationally and curbing restrictions on gifts to physicians.

Verizon (along with Qwest) has been among the primary companies seeking to overturn “net neutrality.” These telecom businesses want a free hand to engage in such practices as deciding which Web sites load quickly or slowly and discriminating in favor of their own Internet services. The Web site Save the Internet claims that “the big phone and cable companies are spending hundreds of millions of dollars lobbying Congress and the Federal Communications Commission to gut Net Neutrality, putting the future of the Internet at risk.” Verizon alone has spent close to $50 million to influence policy in Washington over the last four years.

Under campaign finance laws, corporations are prohibited from contributing money to sway federal elections. For many years, businesses thwarted the intent of this prohibition by funneling so-called soft money donations to the Republican and Democratic parties. These contributions were supposedly for nonpartisan efforts such as voter-registration drives, but in reality they constituted a major means by which companies could purchase influence with politicians.

Passage of the 2002 McCain-Feingold act largely closed this loophole, barring such soft-money donations to the parties. But fund-raising associated with political conventions, which is regulated by both the Internal Revenue Service (IRS) and the Federal Elections Commission (FEC), falls outside the purview of this legislation.

“Literally what you have here is one of the granddaddy loopholes for corporate money in American politics,” says David Schultz, a political science professor at Hamline University in St. Paul and an expert on campaign-finance laws. “This becomes one of the few areas where corporations can still make direct contributions to federal campaigns without violating the law.”

Companies have clearly taken advantage of this opportunity in recent presidential campaigns. According to a report released earlier this month by the Campaign Finance Institute (CFI), a nonpartisan, nonprofit, political-reform advocacy group, funds doled out by corporations to support party conventions have skyrocketed over the last two decades. In 1984, just $1 million was raised to support the national party gatherings, but by 2000 that number had ballooned to $56 million. During the last presidential cycle, the two parties raised an astounding $142 million to produce national conventions. This year, they are expected to tap donors for $112 million — although that number could still rise.

There are no limitations on how much companies can contribute to party conventions. And disclosure requirements for such donations are less stringent than for direct campaign contributions. The host committees are not required to make public the names of any contributors until 60 days after the convention — by which time, interest in the lavish party celebrations has largely flagged.

Even better for businesses seeking to curry favor with politicians: The donations are tax-exempt. That’s because the money is directed to supposedly nonpartisan, nonprofit groups. But the CFI report points out that the host committees are rife with partisan political connections. In the case of the St. Paul convention, the group’s chief executive officer is Jeff Larson, a principal at one of the largest Republican consulting and fund-raising firms in the country and a longtime political confidant of Coleman’s. Similarly the organization’s fund-raising efforts are being directed by executive director Kara Ahern, whose political resume includes serving as political director for Vice President Dick Cheney.

Furthermore, Minnesota’s two most prominent Republicans — Gov. Tim Pawlenty and Coleman — have “overwhelmingly shaped” the money hunt, according to the CFI. The pair has been intimately involved in recruiting a chairman for the effort (Douglas Leatherdale, retired CEO of The Travelers Companies and a longtime GOP contributor), courting donors and arranging convention events where corporate executives can hobnob with GOP bigwigs.

“The myth that they’ve created and the IRS feeds by classifying these groups as [nonprofit organizations] is that these are nonpartisan,” says Steve Weissman, associate director for policy at the CFI. “They take at face value what the host committees tell them and they say, ‘We’re nonpartisan.’”

The CFI and other political-reform advocacy groups are pushing to ban corporate contributions to party conventions. But so far there has been only a lukewarm reception from both legislators and the FEC, according to Weissman. “There is interest, but it hasn’t gelled into a major reform push,” he says. “It is a major loophole.”