Pennsylvania governor benefited from untraceable $1.5 million donation

Introduction

At a campaign stop near Philadelphia early in his 2010 bid for governor, Republican Tom Corbett announced “we’ve got to raise money,” that it was the “number-one” priority. In an answer to his prayers, that same July day, a $1.5 million contribution arrived from — Wisconsin?

Officially, the donation was from the Wisconsin affiliate of a D.C.-based political organization called the Republican Governors Association.

The $1.5 million could not travel directly from the RGA to Corbett. Pennsylvania law bans candidates from accepting corporate money and the RGA accepts millions of dollars from some of the nation’s largest businesses.

Also, state law requires all non-individuals to establish PACs in Pennsylvania.

In a single day, the $1.5 million gift traveled from the D.C.-based parent organization to the RGA Wisconsin PAC, to the RGA Pennsylvania PAC and finally to Corbett’s campaign account.

By the time the donation reached Corbett, it was impossible to identify the original source of the cash or whether the donation was permissible under state law.

The well-traveled donation is a prime example of “an elaborate money-laundering scheme, which is legal,” used by the RGA with success in a number of races for governor in 2010, according to Pennsylvania Common Cause Executive Director Barry Kauffman.

The RGA’s funding played a central role in Corbett’s victory. By Election Day he had received a total of $6 million from the RGA — 21 percent of his total fundraising, easily the top donor to the campaign, according to the National Institute on Money in State Politics.

Corbett’s campaign office did not return calls for comment for this story.

Corbett’s boosters crushed the competition from the D.C.-based Democratic Governors Association, which mustered $1.9 million for Corbett’s opponent, Dan Onorato, using a series of similar funding maneuvers.

The RGA spending spree did not stop in Pennsylvania.

Haley Barbour, then the governor of Mississippi and chairman of the RGA, cultivated an expansive stable of wealthy donors.

“We can’t wait until 2012 to start taking our country back,” said Barbour in an RGA promotional video released 12 weeks before the landmark 2010 election that saw 37 governors’ seats up for grabs.

Republicans won 23 races to the Democrats’ 13, including the Pennsylvania race that landed Corbett in the Pennsylvania governor’s mansion. By the time elections were over, Republicans had knocked Democrats from 10 seats, and could claim 29 governorships nationwide.

In the third quarter of 2010 alone, the RGA topped its total fundraising for 2006 — the last election with as many contested governors’ seats. Its total $87 million haul in 2010 also topped the RGA’s total fundraising for the previous three years combined, a Center for Public Integrity review of data from the Center for Responsive Politics reveals.

“It’s hard not to look at the numbers coming out of the RGA and not marvel/quake at the Mississippi governor’s fundraising capacity,” wrote The Washington Post’s Chris Cillizza on the eve of the 2010 vote.

The spending has continued this election season. The D.C.-based organization has kept money flowing by circuitous routes into several states, including North Carolina, Indiana and Wisconsin. Gubernatorial races are being fought in 11 states, eight of which currently have Democratic governors.

Through September, the RGA has spent $40 million of its $43 million haul — nearly doubling the amount raised by the DGA.

It’s legal, trust us

Life would be simpler for the RGA if it could make contributions to gubernatorial candidates directly from its D.C. bank account. But it receives tens of millions of dollars in contributions from corporations — and corporate contributions to candidates are banned in 21 states, including Pennsylvania.

Even though IRS records show direct contributions to candidates from the RGA in many of those states, including Pennsylvania, the group maintains that its activity in 2010 was legal thanks to its use of state-level PACs.

“The RGA worked with both Pennsylvania and Wisconsin campaign finance authorities in 2010 to ensure we were complying with the law,” wrote RGA spokesman Mike Schrimpf in an email, responding to questions posed by the Center.

In the Keystone State, corporations cannot give to candidates, but individuals can make unlimited contributions to both PACs and candidates.

The RGA Pennsylvania PAC, which retained the same D.C. address of its parent organization and listed the same treasurer, filed reports with the state listing contributions from individuals and not corporations.

Six-and seven-figure donations came to the state PAC from some of the RGA’s most loyal contributors, but only 3 percent of the PAC’s total fundraising came from inside the state. They included $1 million from hedge fund managers Paul Singer of New York, Steven Cohen of Connecticut and Ken Griffin and wife Anne from Chicago. Texas home builder Bob Perry gave $500,000.

Those donations alone comprise more than half of the $6 million that went from the RGA to Corbett.

The DGA Pennsylvania PAC also took contributions from a smaller stable of mostly out-of-state donors, including Texas trial lawyer and Democratic mega-donor Steven Mostyn, who gave $400,000. Mostyn did not return numerous calls for comment.

Though these large gifts are permissible under Pennsylvania law, the RGA and DGA confirm that its donors give to a general fund, not to any specific state. The D.C.-based organizations then make the call on whose money is counted toward which race.

The result is a listing of donors to Corbett and Onorato who were not aware their donations were attributed to a specific campaign.

“It is legal,” said Ron Ruman, spokesman for the Pennsylvania Department of State, “as long as the contribution that went to Pennsylvania was from an individual.”

Still, the practice calls into question the accuracy of the governors associations’ disclosure reports.

Billionaire hedge fund manager Singer, for example, has spent years, and millions of dollars, advocating for the right of same-sex couples to marry. He has a gay son who married in Massachusetts, and The New York Times reports he gave $425,000 to back New York’s gay marriage bill.

Corbett ran as a staunch opponent of gay marriage in the state and has maintained that stance in office.

A spokesman for Singer declined to comment.

How we got here

The RGA took in about $117 million from 2009-2010, according to CRP, while its Democratic counterpart, the DGA, received less than half of that, $55 million.

Like the national political parties, the RGA is a nonprofit political organization, regulated and tax-exempt under Internal Revenue Code Section 527. But because the RGA is focused on state, not federal, elections, it is largely unregulated by the Federal Election Commission.

It is, however, required to comply with IRS rules. The agency collects the RGA’s fundraising and spending reports every quarter.

The RGA has argued in court, with some success, that no single state overseer can regulate its activity because its “major purpose” is to influence elections in a variety of states.

“The governors associations are everywhere,” writes Ciara Torres-Spelliscy, of Stetson Law School, but “are regulated almost nowhere.”

The organization has existed in a legal gray area that has spurred investigations and lawsuits in several states since it emerged as a force in state elections.

It’s “subterfuge,” says former FEC official Bob Biersack, now a senior fellow with the Center for Responsive Politics. “They’ve figured out this weird hole in the legal structure.”

The RGA has maneuvered skillfully, winning in court when states have challenged its practices. In the past four years, says Schrimpf, the organization has “in no state had a final judgment issued requiring us to pay a fine.”

Interstate travel?

If the $1.5 million July contribution from the RGA to Corbett via Wisconsin had come by car, it would have traveled 1,700 miles to get to the Republican’s campaign account in Pennsylvania. Based on state disclosure forms, the money appeared to come from one account and pass through two others — all based in the RGA’s Pennsylvania Avenue headquarters in D.C. — before making it to Corbett.

The triple transfer effectively cloaked the original source of the money, thanks to a loophole in Wisconsin disclosure laws.

Wisconsin law only requires the PAC, which lists the RGA’s D.C. address, to report donations from Wisconsin residents. The vast majority of the RGA Wisconsin PAC’s money, however, came from out of state.

In the months ahead of the 2010 primary vote, the RGA Wisconsin PAC reported spending at least $5 million, including the $1.5 million gift that ended up with Corbett. The PAC listed its in-state donors, whose contributions amounted to barely more than $31,000.

“It’s very difficult to get to the bottom of where their money came from,” said Nathan Judnic at the Wisconsin Government Accountability Board.

When the money arrived in Corbett’s campaign account, no one, including the Pennsylvania Secretary of State, could decipher the source.

The RGA attached a letter to its campaign filings with Pennsylvania in September 2010. While the origin of the $1.5 million Wisconsin donation was not detailed, the RGA assured the state that it was composed of individual, not corporate, donations.

“In the interest of complete transparency,” wrote RGA Counsel Michael Adams, the organization enclosed its full list of individual donors between January and June of that year. The list contained more than $1.5 million in contributions, but did not say explicitly which of those donations made up the $1.5 million that went to Corbett.

The RGA also offered to provide copies of bank statements and cleared checks for verification.

“These contributions are aggregated into personal money-only accounts, and are not commingled with other funds,” wrote Adams.

This appears to contradict statements by RGA spokesman Schrimpf, who told the Center in July that “expenditures come out of our general fund.”

Contacted again for this story, he said explained that “general fund” is not a “legal nor a literal term.” Schrimpf said he uses it to convey that contributions aren’t earmarked for specific states. A “clearer way” would be to say that the group “has a general political budget” but “we segregate personal from corporate dollars.”

The mysterious July gift of $1.5 million from the RGA Wisconsin PAC came to Corbett just in time. The candidate had suffered a month of bad press after criticizing the state’s jobless for relying on unemployment benefits.

The contribution helped launch the Corbett campaign’s first ads and a bus tour, which shifted the focus away from the gaffe. By the end of August, his lead in the polls was again more than 10 points, and he was on the road to victory.

In the three weeks before the vote, the RGA would send about $3.6 million more to Corbett to help seal a victory.

States of play

Pennsylvania is not the only state where the RGA directed its funds.

The RGA was “the Laundromat and the repository for a lot of the money that was spent all over the country in 2010, there’s no question about it,” said Jay Heck, executive director of the good government group Common Cause Wisconsin.

In Iowa, the RGA gave about $1.2 million directly to Terry Branstad, according to data from CRP. As in Pennsylvania, Branstad could not receive corporate money, but could take unlimited sums from individuals. Similar to what it did in Pennsylvania, the RGA fed it through its RGA Iowa PAC, and listed individuals as donors to the PAC.

Also as in Pennsylvania, the RGA Iowa PAC received donations from the RGA’s PAC in Wisconsin totaling $340,000.

In Texas, the RGA gave $3 million directly to Gov. Rick Perry, according to the CRP data. The donation was routed through its PAC in Michigan, apparently in an attempt to comply with a state law banning corporate donations.

On Perry’s campaign filings, the donation appears as a contribution from the RGA Michigan PAC — because PACs can give candidates unlimited funds to candidates in Texas, as long as the money isn’t corporate.

The seed money for the RGA Michigan PAC came again from wealthy individuals, including prolific political donor Texas homebuilder Bob Perry (no relation to Rick). The homebuilding magnate gave the RGA $4 million earlier in 2010.

The RGA also gave contributions in the millions directly to Republican parties in states where corporate contributions to parties are banned. Through its PACs in Michigan and Pennsylvania, it sent $5.3 million to Michigan’s Republican Party and $2.3 million to bolster the Pennsylvania Republican Party’s efforts.

By contrast, the RGA uses a more direct method in states where corporate contributions to candidates are unlimited.

The organization sent roughly $2.5 million directly to Oregon Republican Chris Dudley, according to both data from CRP and state campaign finance reports. Dudley, who lost a close race for governor, reported the donations as coming from the RGA’s “Corporate Unlimited Account” — no pass-through and no state-affiliated PACs were necessary for the corporate cash infusion.

A repeat performance

Republican candidates are leaning heavily on the RGA again as 11 more governors’ races head to the November finish line. The organization continues its maneuvers through state and federal election law, and is on pace to break Barbour’s prodigious 2010 fundraising record.

It continues to tap the deep pockets of hundreds of donors who have pledged at least $25,000 annually as members of the RGA’s Executive Roundtable — led by venture capitalist Fred Malek, who worked in the White House under Presidents Nixon and Ford and served as campaign manager for President George H.W. Bush in 1992.

Hundreds of these executives met with Barbour, Malek, American Crossroads strategist Karl Rove and presidential candidate Mitt Romney in August for an Aspen fundraising and strategy session, according to Politico. Republican gubernatorial candidates Rick Hill of Montana and Rob McKenna of Washington were also present.

The RGA is devoting millions to four possible pickups as Democrats leave open governorships in North Carolina, Washington, Montana, and New Hampshire. The RGA has dedicated millions to challenge Democratic incumbents in four additional states, including Missouri and West Virginia.

The RGA also dropped about $8 million to protect Wisconsin Gov. Scott Walker from being recalled, and has shored up incumbents in Utah, Puerto Rico and Indiana.

In the Hoosier State the RGA used its RGA Right Direction super PAC to sidestep the state’s corporate ban and give $1 million to candidate Mike Pence while obscuring the original donors.

The RGA has also used the super PAC, registered to make independent expenditures on federal races, to sponsor ads attacking Democratic candidates for governor in West Virginia and Montana. Donors and spending on these ads were not reported to the states in question after they ran. They were finally reported, however, in mid-October filings with the FEC.

Whether the RGA and the DGA are intentionally evading state laws is difficult to say because of the structure of the organizations.

“Their structure provides plausible deniability to underlying donors,” said Stetson’s Torres-Spelliscy. Donors can “pretend” they’re only giving to the associations and not influence policy in a particular state, “but only that donor and the staff at the governors association knows if this money is given without strings attached.”

John Dunbar contributed to this report.