D.C.-based governors’ associations provide back door for corporate donors

Introduction

It was no secret in the 2010 race for governor of Pennsylvania that Republican Tom Corbett, the state’s attorney general, was the favorite of the burgeoning natural gas industry.

Corbett collected almost $1.3 million from donors with oil and gas interests, according to the National Institute on Money in State Politics.

Aubrey McClendon, the CEO of Chesapeake Energy, the nation’s No. 2 natural gas producer and the top driller in the lucrative Marcellus Shale region of Pennsylvania, gave the campaign $5,000 while his company’s political action committee contributed $12,000.

But that’s a small fraction of what Chesapeake gave to Corbett’s top donor.

McClendon’s company gave a little over $300,000 in 2010 to a so-called “527” organization called the Republican Governors Association, according to the Center for Responsive Politics. The RGA gave Corbett’s campaign more than $6 million, 21 percent of the $28.7 million he raised, according to the National Institute on Money in State Politics.

The RGA acts as a central depository and distributor of funds from wealthy individuals and corporate treasuries that are used to underwrite governors’ races in the states.

The organization routinely accepts six- and seven-figure contributions and deals out the funds to state candidates and parties. In states like Pennsylvania, where corporate contributions are banned, the group appears to be skirting the law.

But the RGA says it keeps track of where the money comes from and adheres to all state laws and regulations. Corporate and non-corporate funds are segregated. Critics say, however, that such segregation is meaningless thanks to the wide variation in state campaign finance laws.

Nothing, for example, would prevent Chesapeake’s donations to the RGA from being spent on state races that allow corporate contributions — and a like amount from individual donors being shifted to Corbett’s campaign.

Donors can say “they’re not trying to influence policy in a particular state,” said Ciara Torres-Spelliscy of Stetson Law School. “But only that donor and the staff at the governors association know if this money is given without strings attached.”

RGA spokesman Mike Schrimpf said the group “fully complied with all Pennsylvania campaign finance laws” during the 2010 election.

Chesapeake did not respond to a request for comment.

Pennsylvania’s gas boom

Times were tough in Pennsylvania in 2010 — unemployment peaked in February and March at 8.7 percent. Economic issues were at the forefront of the state’s race for governor. But a controversial technology that allowed access to deposits of natural gas deep underground brought with it the promise of new jobs and new revenue for the state.

Hydraulic fracturing involves the pumping of millions of gallons of water into wells to break up layers of shale and release natural gas deposits. Environmentalists say the practice — exempt from portions of the Clean Water Act and other laws — contaminates private wells, lowers property values and ultimately harms communities, not helps them.

Top Pennsylvania ‘fracker’ donors to RGA 2009-2010

Source: Center for Responsive Politics, Internal Revenue Service.

During the 2010 campaign, Corbett promised not to impose a gas extraction tax on drillers and said he would eliminate red tape and regulations, said Brian Nutt, his adviser and former campaign manager, in an interview with the Center.

His opponent, Democrat Dan Onorato, then-chief executive of Pittsburgh’s Allegheny County, urged the passage of the same tax Corbett opposed, calling the Republican a representative of Pennsylvania gas drillers instead of Pennsylvanians.

Corbett’s position attracted large contributions from major players in the state’s natural gas industry.

Christine Toretti gave nearly $98,000 to Corbett’s campaign, support that was reported to state campaign regulators. Unlike in federal races, contributions from individuals are not capped.

Toretti is the former chairwoman and CEO of the S.W. Jack Drilling Co., which was the largest privately held, land-based driller in the U.S. She also gave $110,000 in 2009-2010 to the Pennsylvania Republican Party, which was the No. 2 donor to Corbett at $2.1 million.

What wasn’t reported to the state was $50,000 in donations she made to the RGA, according to CRP.

Likewise, Texan Trevor Rees-Jones, founder and chairman of drilling company Chief Oil & Gas, gave Corbett’s campaign $50,000 and the RGA $100,000.

Toretti and Rees-Jones could not be reached for comment.

Donors get say in future development

Some of Corbett’s biggest contributors were awarded spots on his Marcellus Shale Advisory Commission, a group that included executives from Chevron, Exxon Mobil and EQT, each doing business in the Marcellus Shale region.

Terry Pegula gave Corbett $100,000 and wife Kim gave $180,000; Terry sits on the commission. The Pegulas founded East Resources and built it into a major independent natural gas exploration and development company before selling it to Royal Dutch Shell in 2010.

Terry Bossert, a senior executive at Chief Oil & Gas, also has a spot on the commission.

A 527 like the RGA — and its Democratic counterpart, the Democratic Governors Association — is not regulated by the Federal Election Commission and cannot make contributions to federal candidates. It is required to report its donors and expenditures to the IRS.

The DGA gave Onorato $1.9 million out of $25.3 million raised, according to the National Institute on Money in State Politics.

Companies with an interest in the development of the natural gas industry in the state, including Chesapeake, gave at least $4 million in corporate treasury funds to the RGA in the 2009-2010 election, according to a Center for Public Integrity analysis of CRP data.

Among them were Exxon Mobil ($704,900), CONSOL Energy ($338,200), Encana (151,400), the American Natural Gas Alliance ($101,000) and two natural gas-consuming electrical utilities.

To show that none of that corporate money made it into Corbett’s campaign account, the RGA created a political action committee in the state; actually, its address is the same as that of its Washington headquarters.

Pennsylvania contribution records show the PAC listed contributions from 101 individuals — three of them residents of Pennsylvania. One donation was a mysterious $1.5 million transfer from the RGA’s Wisconsin PAC (also housed in Washington).

Donors listed who were contacted by the Center were unaware their money was headed to the Pennsylvania PAC and into Corbett’s campaign account.

The DGA also created a state PAC to make its contributions.

Finding loopholes

At the same time the Pennsylvania PAC was formed, the RGA was spending large sums in states that do not ban corporate contributions. For example, it gave $8.3 million to the Florida Republican Party, which gave $5.2 million to now-Gov. Rick Scott, the Republican winner.

Corporate contributions in Florida are capped at $500 per candidate, but there are no limits on how much corporations can give to parties. Parties can make unlimited contributions to candidates as long as they are earmarked for campaign costs like research, events and staff.

“It’s such a gigantic loophole that you can drive a truck through it,” said Peter Butzin, volunteer state chairman of the Florida chapter of Common Cause.

In some states, there are no corporate limitations. In Virginia in 2009, Republican candidate Bob McDonnell collected nearly $2 million directly from the RGA.

Corbett, as governor, has been a friend to the gas companies.

Act 13, signed into law in February, was a comprehensive update of Pennsylvania’s 28-year-old Oil and Gas Act. Though the law contains updated environmental protections, the measures take a back seat to industry interests, say some anti-drilling activists.

One such group, PennFuture, said the act did not bring in enough money for the state, is weak on environmental safeguards and favors drillers over other businesses.

“Pennsylvania citizens will get little in return,” said Jan Jarrett, then-president of the group, days before Corbett signed the act into law.

The act’s most controversial provisions allowed drilling almost anywhere — even in residential areas. Since municipalities are required to abide by state law, Act 13 nullified most residential zoning restrictions on drilling. For example, drilling operations were allowed to be located as close as one football field from buildings.

Patrick Henderson, the governor’s energy executive, says Act 13 was aimed at streamlining regulations allowing drillers to start work more quickly.

Since Act 13’s passage, the zoning provisions have been overturned in court.

Time equals money

“[We’re] making sure we’re protecting the environment,” said Nutt, Corbett’s former campaign manager and current adviser, but dealing with unnecessary regulations takes time, and “time means losses of revenue.”

The act does levy an annual impact fee of $5,000 to $60,000 per well on natural gas drillers, but these monies can be used only to offset the impact of drilling — not for the benefit of the state at large.

Pennsylvania’s impact fee brought in more than $200 million in 2011. In Texas, where each unit of natural gas is taxed at 7.5 cents on the dollar, $1.4 billion was raised in 2009.

James Browning, the author of a Common Cause report critical of the industry’s activity in Pennsylvania, said the state is a “worst-case scenario” for natural resource exploitation.

But the Corbett administration defends its practices.

“[Act 13] helped to realize and maximize economic benefits,” Henderson said. “And we think that’s a good thing.”

Paul Abowd contributed to this report.