Operating accounts

Introduction

Four states explicitly permit political parties to maintain financial accounts where unlimited donations can be received with no disclosure to the public. And a total of 18 states allow party organizations to shield some aspect of their financial activity – the identity of donors or how money is spent – from public inspection.

Even by conservative estimates, millions of dollars in political donations and expenditures go unreported each year by state political party organizations.

Alaska, Michigan, Ohio and South Carolina state election regulations make explicit exceptions to disclosure requirements for any money earmarked for so-called operating or administrative expenses. The exception is a gaping loophole that permits parties and donors to avoid public scrutiny.

Party organizations use money in their operating accounts to pay for routine administrative expenses – staff salaries, maintenance and other day-to-day costs. The definition of an operating expense has expanded over the years to include spending that promotes the party and its platform, but, technically, does not endorse an individual candidate.

In other states, such as Iowa, operating accounts may not be mentioned in statutes, but officials know they exist. Some states — including Kentucky, Maryland, New York, Rhode Island, Tennessee, Texas,Washington and Wyoming — actually know about the operating accounts and call on party organizations to disclose contributions and spending to and from the accounts. Nonetheless, vaguely drafted laws often allow political organizations to avoid reporting millions of dollars simply by declaring that the money was raised and spent, ironically enough, on “non-political” activities

“We’re left with nothing else to believe other than they’re making the rules and they want an unreported vehicle to move money,” said Richard Robinson, executive director of the Michigan Campaign Finance Network, a watchdog group that has criticized the use of administrative funds in apparent service of Democratic and Republican candidates in a recent state Supreme Court election.

South Carolina Republican Party director Ron Thomas said the public can trust political organizations are not using operating accounts to hide improper expenditures or contributions.

“The public sense is that there is something sinister going on if the account is not required to be made public. That’s simply not the case,” he said.

“The simple fact is that the law says it isn’t required to be reported, so it’s not done.”

Accounting for “Team Ohio”

Ohio Gov. Bob Taft and Secretary of State J. Kenneth Blackwell, both Republicans, are pushing legislation that would close the loophole that gives Buckeye state political parties an exemption from disclosure requirements on matters involving administrative or operating financial accounts.

“The governor is and has been for full disclosure. That is the bottom line,” said Joe Andrews, a spokesman for Gov. Taft. “The governor has always had some concern about disclosure of campaign contributions. If there is nothing to hide, why can’t we just say where it came from?”

Three years ago, the message coming from the capitol complex in Columbus was slightly different.

In 1999, political high-rollers were invited to party with Gov. Taft at the official Governor’s Residence, and to watch an Ohio State University football game from the governor’s box seat at Ohio Stadium.

All that Taft asked in return was a $25,000 or $50,000 donation to the state Republican Party’s operating account.

The donors – dubbed “Team Ohio” by the Republican Party – were virtually guaranteed anonymity. By virtue of their contributions, they had exclusive access for an afternoon to the state’s top Republican officials.

“[An operating account] provides the structure for them to be a powerhouse; they take advantage of the fact that there are no reporting requirements,” said Catherine Turcer, campaign reform director at the nonprofit Ohio Citizen Action public interest group.

The publicity caused by media reports brought about several changes. First, Team Ohio was disbanded, Andrews said, and moments later clarified. “It exists under another name. And the governor is not involved. He does no fundraising for it.”

This August, Taft and Blackwell enlisted the help of a state Senator, Randy Gardner, to sponsor the bill — that would close the loophole — in the Ohio Senate. Gardner said he expected to introduce the bill with six or seven co-sponsors.

‘We’ll play by the rules’

One of the biggest reasons full disclosure is not required of political parties is the failure of lawmakers to enact precise and comprehensive statutes.

Eight states do recognize the existence of operating accounts within party organizations, and require that activity in those accounts be reported. Tennessee recently enacted legislation closing the operating accounts loophole after allegations that the accounts were used to support individual candidate’s campaigns.

But state laws in many instances only require committees to disclose donations and expenditures made in support of “political activity,” which is loosely defined. If a donation is taken or money spent for something a committee deems to be other than “political activity,” no information is disclosed. As far as state regulators are concerned, the donation or expenditure does not exist.

Courts also have limited disclosure.

Until a 1999 decision by the Alaska Supreme Court, political parties there had to report virtually everything. In a 1998 suit brought by the American Civil Liberties Union against the State, the court upheld strict contribution limits, and a ban on corporate and labor union donations. The judge in the case also ruled that party committees did not have to report the identities of donors to or expenditures from “party building” accounts.

All state parties also maintain “federal” accounts, which are used to support candidates for federal office. The party committees are supposed to report to the Federal Election Commission all the money deposited into those federal accounts. The accounts are also subject to audit from the FEC.

Those audits have, on occasion, uncovered improper spending. Two years ago, the FEC found that $39,603 had been improperly transferred from the Michigan Republican State Committee (MRSC) to its federal account from the operating account.

Eric Doster, legal counsel for the MRSC, contended that all the committee’s transfers and expenditures of money were legal and appropriate. He added that campaign finance laws in the state could be useful for the public, though, with some reform.

“Make it all [expenditures] legal, and make everyone report every chicken-picking dime, but that’s just my opinion,” said Doster. “It would make it real easy on the public.”

Until then, he added, “we’ll play by the rules.”