Million-dollar donation in Indiana race may skirt limits on corporate giving

Introduction

The RGA Right Direction PAC is a Washington, D.C.-based super PAC, registered with federal regulators to make independent expenditures supporting or opposing candidates. So what is it doing giving $1 million directly to the Republican running for governor of Indiana?

The donation to Mike Pence, the largest to his campaign, appears to be a way around state laws limiting corporate contributions to candidates.

“In one way, it’s legal,” said Andrew Downs of the Center for Indiana Politics, at Indiana University-Purdue University Fort Wayne. “But if you say this is a way to give in excess of corporate limits, that’s also absolutely true.”

Right Direction is funded entirely by the Republican Governors Association, a so-called “527” organization dedicated to electing as many Republicans to governorships as possible — a mission fueled by contributions from some of the largest corporations in the country. In Indiana, candidates can accept unlimited donations from individuals and political action committees but only $5,000 from corporations and unions. Corporations and unions can also give to PACs, but only in small sums.

Whether the check to Pence was drawn on a bank account that contained corporate money is not a matter of public record.

Donations come from one fund

In an email, RGA spokesman Michael Schrimpf said “nothing in our reports suggests” that the organization gave corporate funds to Pence. All RGA expenditures, he said, come from a general fund.

“It’s the new model of disclosure subterfuge,” said Bob Biersack, a senior fellow at the Center for Responsive Politics and former longtime Federal Election Commission official. “It’s not what a normal human being would call transparent.”

The donation to Pence appeared in FEC filings July 15. It is the latest in a series of campaign finance maneuvers by the RGA which have prompted legal challenges in two states claiming the group violated limits on corporate giving.

Right Direction reported receiving four contributions totaling $1.3 million from the RGA since January. Super PACs can accept unlimited donations from corporations and labor unions, thanks to the U.S. Supreme Court’s Citizens United decision.

Right Direction’s 2010 boiler-plate registration letter filed with the FEC said it “intends to make independent expenditures” — ad buys and other spending that supports or opposes candidates.

FEC filings show the group has not reported any independent expenditures, but has spent money helping state candidates in Ohio in 2010 when it was known as RGA Ohio PAC.

In addition to Right Direction’s $1 million contribution to Pence, it also made two contributions to the Montana Republican Party totaling $200,000. The Right Direction PAC is registered with both Indiana and federal election regulators.

Source of funds obscured

In federal records, it reports its donors as the RGA — which effectively obscures the original source of the $1 million check to Pence.

There is no paperwork required by the state of Indiana that shows whether those funds were derived from the RGA’s corporate donors. The RGA’s Schrimpf says it is following the relevant state and federal campaign finance laws “as efficiently as possible.”

According to Abbey Taylor with the Indiana Election Division, “It’s a pretty nice little loophole, and loopholes are meant to be exploited.”

Corporations can give directly to Indiana candidates, but are limited to $5,000 donations. Drug giant AstraZeneca and Johnson & Johnson have each given $2,500 and Nestle USA has given $5,000 to the Pence campaign since January. These same companies gave $350,000, $25,000, and $12,500 donations respectively to the RGA’s 527 organization in the same time period.

A corporation can also support the governor by passing the contribution through a political action committee. It can give $5,000 to the PAC during each election cycle and the PAC can give unlimited amounts to the candidate.

PACs registered only inside Indiana must itemize contributions in reports to the state, including those from corporations. The Indiana Merit Construction PAC, for example, gathered donations from dozens of construction companies and gave $32,500 to Mike Pence in June — bringing its total giving to the campaign to $69,000 this cycle.

Nothing to see here

Right Direction is not required to file such a report, according to state election officials.

A 527 can accept unlimited contributions from corporations, unions and individuals. They may not give money directly to federal candidates but can fund issue advertising campaigns and other political activities. They are regulated by the Internal Revenue Service but not the FEC and are required to report their donors and spending.

Because Right Direction is registered with both the state and the FEC, the Indiana Election Division cannot regulate its spending activity. Co-Director Trent Deckard says state law constrains his agency to regulating PACs that are solely registered with the state.

“I truly understand the public concern here,” said Deckard, “but there’s 150 members of the legislature who would have to vote on this question. We can always hope for greater transparency.”

The Election Division usually does not take up its own investigations unless prompted by citizen complaints. So far, none have been lodged against the RGA’s activity.

“Whether it passes the smell test is for voters to decide,” said Downs. “This is part of the shell game that concerns people about campaign finance.”

The RGA donation to Pence is nothing new.

National campaign

The organization gave seven-figure sums to six different gubernatorial candidates in 2010. The group was a top donor in the Pennsylvania, Illinois, Texas, Oregon, New Mexico, and Iowa races. In 2004 and 2008, its PAC also gave a total of nearly $3.9 million directly to Mitch Daniels’ successful bids for Indiana governor, according to the National Institute on Money in State Politics.

“The RGA is confident they can get away with this — they’re riding on a new level of hubris,” said Edwin Bender, director of the institute.

The RGA’s 527 raised $16.7 million since April, nearly twice as much as its Democratic counterpart. Fifty-seven percent of that money came from corporate treasuries and corporate PACs, according to a Center for Public Integrity analysis of IRS records.

Koch Industries has given the RGA $2 million, health insurance giant Blue Cross/Blue Shield $1.6 million, and Sheldon Adelson’s Sands Casino group $1 million in the 2012 cycle. The U.S. Chamber of Commerce and Bob Perry have each added $750,000 to the RGA coffers, according to the Center for Responsive Politics.

If Pence were running to keep his 6th District congressional seat, his campaign couldn’t touch a dime of donations from the RGA super PAC. But because he’s running for a state office, and doing so in a state that allows unlimited PAC contributions to candidates, the RGA super PAC can wire cash direct to his war chest.

The $1 million gift accounts for a third of Pence’s haul since April in his race to replace Daniels in the governor’s mansion. A week after getting the super PAC infusion, Pence launched an early TV ad blitz — the first of which featured his wife recounting Pence’s homegrown Hoosier credentials.

Pence leads money race

Pence has twice as much cash as his Democratic opponent John Gregg as of July 16. The Democratic Governors Association has given Gregg $29,000 since January. The DGA’s June filing with the FEC contains small donors as well as $250,000 checks from each of the national teachers unions.

Its state-registered PAC only lists the DGA’s 527 as the donor, raising similar questions about the origin of its contributions to Gregg. Officials at the DGA say the contributions in Indiana are in compliance with state election law.

On top of “the RGA’s million-dollar bailout,” Gregg’s spokesman Daniel Altman cited large donations from billionaire donors including the Koch brothers and Rick Santorum-backer Foster Friess as evidence that Pence is “financed by out-of-state donors who do not have Indiana’s best interests at heart.”

The Pence campaign did not return calls for comment.

The state has not seen a seven-figure direct contribution to a candidate since 2003 when Bren Simon, the widow of an Indiana mall magnate, gave $1.3 million to former Democratic National Committee chairman Joe Andrew’s unsuccessful gubernatorial bid.

The $1 million contribution dwarfs one made by conservative industrialist David Koch, who gave $100,000 to Pence in January. Koch also gave $1 million to the RGA in February.

Pervasive force

The RGA has been a pervasive force in state elections. It has spent $80 million on state races in 40 states since 1999 — more than half of that money has gone directly to candidates, according to the National Institute on Money in State Politics. Some states have been concerned about the national group’s influence.

North Carolina and Vermont agencies have taken legal action against the RGA, claiming it violated the states’ caps on corporate giving and must be regulated as a state PAC. In both cases, the RGA has used its pervasive reach as a defense, claiming that its “major purpose” is not to influence elections in any one state. Therefore, it has argued, no state can regulate it as a state PAC.

“By that logic, they’re not a PAC anywhere, and can’t be regulated anywhere,” said Stetson Law professor Ciara Torres-Spelliscy. “Do we have political entities that are too big to regulate?”

In North Carolina, the RGA carried the day, despite spending way above the state’s limits for PACs.

Vermont’s Attorney General claims that both governors associations have violated state campaign finance laws. The state’s challenge to the DGA-funded Green Mountain Future 527 is headed for the state’s Supreme Court. The case against the RGA claims the organization bought ads through its 527 during the 2010 campaign, but did not report that spending to the state. The RGA is yet to present its defense in the case.

“You need a state that’s willing to pick a fight with the RGA,” said Torres-Spelliscy, “but they’re so powerful that there’s this natural reticence to ticket them for running the red light.”

Center for Public Integrity reporters Michael Beckel and Reity O’Brien contributed to this report.