Money and Democracy

Published — August 3, 2015

Limits unclear on new political party ‘slush funds’

A new law allows parties to accept more than $700,000 per person per year, provided that money goes toward specific party activities like presidential nominating conventions or election recounts. But federal regulators are in no hurry to ensure party committees don't push the limits. Shutterstock

Inaction by election cops gives Dems and Republicans free rein on spending


The Democratic and Republican parties certainly don’t agree on how to run the country, but they are in sync when it comes to capitalizing on a new law letting them raise eight times as much money from rich donors than before.

The new money technically must be used only for specific purposes, such as legal expenses and improvements to party headquarters. The limits are, however, murkier than they seem, with some lawyers saying the money could legally pay for some election-related costs such as opposition research and data mining.

And the Federal Election Commission, tasked with regulating and enforcing federal campaign finance laws, is at an impasse over whether and how to issue rules governing the new party accounts. As a result, decisions about spending the money are pretty much up to the parties and their lawyers.

“The parties will do what they always do, which is use these new accounts as slush funds to pay for anything they feel like paying for that they can possibly get away with arguing falls within the meager constraints of the plain language of the statute,” said Paul Ryan, senior counsel for the Campaign Legal Center, a nonpartisan campaign finance reform group.

The ‘cromnibus’

Their opportunity comes thanks to a December stocking-stuffer from Congress: higher contribution limits via a series of new accounts, jammed through as part of a must-pass appropriations bill.

The language on limits was on page 1,599 of a 1,603-page spending bill widely known as the “cromnibus.” The new law allows parties to accept more than $800,000 per person per year, compared to $97,200 under the old limits.

The catch: the increased contributions go into special accounts that pay for expenses related to presidential nominating conventions, election recounts and “other legal proceedings,” and “the construction, purchase, renovation, operation and furnishing of one or more headquarters buildings.”

The accounts give parties the ability to take six-figure contributions, easing restrictions they’ve chafed at since reform legislation in 2002 curtailed their fundraising ability.

“There’s a bipartisan agreement among … party leaders that they would like more money,” said Michael Malbin, head of the nonpartisan Campaign Finance Institute. “That’s not surprising. And it’s certainly easier to get that money quickly by going to large donors.”

The funds were especially important given the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission. The decision opened the floodgates for unlimited money given through super PACs and nonprofits, threatening the parties’ relevance.

Republicans, especially, have been aggressively raising cash through these new accounts — more than $16 million so far this year compared to about $1.7 million for Democrats, according to a Center for Public Integrity review of federal campaign finance filings.

Expect a lot more in coming months.

The impact of the higher limits will inevitably be more money made available for expenses directly related to elections. Republicans have used money from the convention and headquarters accounts, for instance, to cover some staff salary and benefit expenses — money that would have previously come from general funds.

FEC inaction

FEC commissioners acknowledge they’re gridlocked on writing rules that regulate how political parties use their new accounts.

Republican Commissioner Lee Goodman said he would only consider engaging in a rulemaking process around the new accounts as part of a comprehensive review of regulations about political parties that would also address “onerous regulations on state and local political parties.”

Goodman said he has long pushed for such a comprehensive look and reeled off a list of regulations he described as overly restrictive, including rules governing coordination between parties and candidates and some record-keeping requirements.

Republican Commissioner Caroline Hunter, who sits on the commission’s regulations committee, said she wouldn’t vote to change the rules this election cycle.

Four of the six FEC commissioners must vote to affirm rules, and the agency’s three Republicans rarely break ranks.

FEC Chairwoman Ann Ravel, a Democrat, said the agency needs to create new regulations around the new accounts, especially regarding how the money can be spent and whether it can be transferred to other accounts — something that’s already happening.

Ravel said she believes she and Commissioner Ellen Weintraub, a Democrat, and Commissioner Steven Walther, an independent who typically caucuses with the Democrats, agree there need to be regulations.

Parties fill in the gaps

In the absence of FEC action, the Democratic and Republican parties are free to interpret Congress’ fundraising account changes as they please.

And the parties refuse to reveal their strategies: Officials from the six national party committees either did not comment on the new accounts or referred the Center for Public Integrity to their campaign finance filings.

But the parties have a history of working together on campaign finance issues that affect them both, either publicly at the FEC or behind closed doors.

For example, last year the parties filed a joint request with the FEC asking permission to establish separate committees that could accept contributions toward party nominating conventions. The FEC approved the request, allowing donors to give up to $32,400 to such committees, contributions that don’t count toward federal contribution limits.

John Ryder, the current general counsel of the RNC, said he has participated in RNC discussions about the new accounts “to a limited degree,” though he said the RNC’s in-house counsel has taken the lead. He acknowledged the two parties share a “common institutional interest,” though declined to be more specific.

“People need to be both creative and cautious as they approach this,” he said, stressing that he would speak only generally.

Joseph Sandler, a former general counsel of the DNC, said that during his tenure, party lawyers worked together on issues such as these, adding “I would not be surprised” if the parties are doing so now.

Campaign finance watchdogs were furious about the new accounts, despite the restrictions. Democracy 21 President Fred Wertheimer called them “the most corrupting campaign finance provisions ever enacted.”

The purposes of the new accounts sound straightforward enough, but the potential for creative interpretation is easy to find — depending on how lawyers choose to read the law.

TV is king

Take, for example, the headquarters account.

Parties need headquarters, but putting money into them usually takes a backseat to buying television ads and other expenses directly related to expenses. This leaves the party faithful complaining about aging boilers and outdated tube televisions — infrastructure needs they say the building funds could address.

“I was at the senatorial committee in the ‘90s. It looked great then — period,” joked Craig Engle, a Republican campaign finance lawyer now at law firm Arent Fox.

But the money could also be put toward the less obvious.

The account could potentially fund data mining or opposition research, according to an update issued in December by Covington & Burling’s election law practice.

“This is the account to watch to determine how much of an impact these amendments will have on the balance of power between national parties and super PACs,” the firm’s lawyers wrote.

Thanks to the new law, the DNC and RNC may also directly accept money toward their presidential nominating conventions.

Although it’s difficult to predict how much money these new accounts will attract, both parties certainly know how to pull in big cash.

The DNC raised 43 percent of its money in contributions of $20,000 or more during the 2012 presidential election cycle and the RNC raised 42 percent, according to data provided by the nonpartisan Campaign Finance Institute.

In a callback to the heyday of “soft money” — unlimited cash used for so-called “party-building” expenses, rather than to support candidates — the accounts have allowed lawmakers to directly solicit five- and six-figure-checks from contributors. This is something contribution limits barred for years in the wake of soft-money corruption scandals.

Big donors

Republicans, including members of leadership such as House Speaker John Boehner and Majority Whip Steve Scalise, have snagged six-figure contributions for the new funds via joint fundraising committees that funnel the proceeds to the National Republican Congressional Committee, the party’s House campaign arm.

So far, many of the super donors that have given big to the party committees — casino magnate Sheldon Adelson, coal executive Joseph Craft III, hedge fund billionaire Paul Singer, billionaire environmentalist Tom Steyer, Arkansas investor Warren Stephens, financier Donald Sussman — also have a history of writing big checks to super PACs.

Such megadonors aren’t exactly on a budget, so giving more to the parties doesn’t necessarily mean they’ll give less to other organizations, although most donors didn’t respond to inquiries from the Center for Public Integrity.

Big donors that automatically write the maximum check allowed aren’t always asking too many detailed questions about the purposes of the accounts.

That might be good for the parties. It isn’t clear how attractive donors will find the prospect of paying for upgraded buildings and big-dollar legal fees, theoretically the main purpose of the accounts, though conventions have historically been a draw.

Take Rex Sinquefield, a multimillionaire who is the biggest political donor in Missouri. Together with his wife, he contributed $453,600 so far this year to the National Republican Congressional Committee — the maximum allowed before the FEC adjusted amounts for inflation earlier this year.

Travis Brown, a lobbyist and spokesman for Sinquefield, said Sinquefield simply contributed the maximum amount permitted in connection with an NRCC fundraising dinner held in Washington, D.C., at the end of March.

In the meantime, expect Congress to consider additional ways to loosen campaign finance laws.

Senate Majority Leader Mitch McConnell, R-Ky., for one, is trying to repeat the maneuver this year, recently inserting a provision into draft spending legislation that would weaken rules limiting coordination between candidates and political parties.

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