The Unlimited Loopholes of Campaign Finance

June 21, 2006

With all of the talk about campaign finance reform, many people in Northern Michigan were amazed to read about the sheer size of campaign contributions to State Sen. Jason Allen’s leadership PAC.
Most notably was a $20,000 donation given by the CEO of a development company, Federated Properites, that was favored to build a controversial Traverse City parking deck. Associates of the developer’s front man donated an additional $12,000.
Isn’t there a limit, after all, on how much money can be given to one of these political action committees?
Well, in fact, it’s completely legal to give an unlimited amount of money.
That’s how an Auburn Hills housewife was able to make a contribution of $40,000 to Allen’s leadership PAC, which was reported in the Traverse City Record-Eagle a few weeks ago.
Linda Shea, the contributor, is actually married to multi-millionaire Jim Shea, who co-owns P.K. Contracting. She lists herself as a “homemaker” in campaign finance disclosure documents.
Mr. Shea’s corporation isn’t allowed to donate to the PAC, yet there’s no problem with Mrs. Shea writing a check. And in case you were wondering, P.K. Contracting earns millions of dollars of our state
tax dollars each year by painting state highway lines.
“For a minute, let’s give the elected official the benefit of the doubt. But why would a contributor give somebody $40,000? Because of the way they look? No! They’re investors and they want a return on their investment,” said Rich Robinson, who lives and breathes this stuff.
Admittedly, most campaign donors
aren’t looking for a return on their investment, but just want someone in office who agrees with them philosophically--stronger funding for schools, for example, or tax cuts for businesses. But when the donations soar into the stratosphere, it becomes easier to “connect the dots” to a bill that’s especially advantageous to the contributor. There’s not a politician in the world, however, who would ever admit acting on legislation simply because of a campaign donation.
“People think, what’s wrong with campaign contributions? It helps people get elected. So what?” Robinson said. “The ‘so what’ is that whether you’re buying a car or selling a house or paying your monthly utility bill or having a drink with a friend, there’s an interest group in Lansing who wants a bigger dip into your wallet--and they usually don’t have difficulty finding a legislator to help them. That’s really the so what.”

ANATOMY OF INFLUENCE
Robinson’s job is to bird-dog the buying and selling of public policy. He serves as the executive director of the nonpartisan, nonprofit Michigan Campaign Finance Network in Lansing.
Most people find campaign finance complex and boring. So Robinson offers up a couple of illustrations to show why it matters.
Let’s get back to P.K. Contracting.
Three years ago, the State Legislature was developing its 2003-2004 budget, and Sen. Shirley Johnson (R-Royal Oak) attached a section of what’s called boilerplate language to the Senate version of the state’s transportation budget.
Her boilerplate specified that the state “shall use the highest quality pavement marking materials for all state trunkline projects. The department shall… ensure improved durability, retro-reflectivity and wet reflective capability.”
That might sound positive, but Robinson thought it was fishy. Robinson filed a Freedom of Information Act request and learned some interesting things from a Michigan Department of Transportation analysis.
First, the higher standard for trunk line marking would cost taxpayers an additional $9 million per year. Nine million! At a time legislators and the governor were scrambling to find money for schools and poor children.
Second, only one vendor in Michigan, P.K. Contracting, handled the higher-quality material. And third, the life expectancy for the line-marking material was arguably longer than the lifespan of many roadbeds. And finally, the members of the Shea family had contributed $20,000 to the leadership PAC of Senate Majority Leader Ken Sikkema and $9,650 to the campaign committee of Sen. Shirley Johnson.
“This had the look of a $9 million bon-bon to me,” Robinson said. “Interestingly, when the Senate and House met to reconcile their two versions of the budget, that section of boilerplate was dropped.
“I don’t know, but I assume my FOIA request had something to do with it.
“And now it appears that the Sheas are showing plenty of love to Jason Allen. It looks like the Sheas are betting that Sen. Allen will be the next majority leader, and I imagine he will remember that $40,000 from Linda Shea when budget season rolls around next year.”

EVEN MORE OUTRAGEOUS …
The most outrageous example of influence buying took place during the lame duck session of 2002, Robinson said.
When you buy a car, you pay a documentary fee, and in theory, it’s to reimburse the dealer for processing the paperwork with the Department of State.
“That fee had been capped at $40 in the early 1990s as a consumer protection measure, because it usually doesn’t come into the discussion until the end of the car deal, and then they spring it on you,” Robinson said.
“Representative Marc Shulman (R-West Bloomfield), who chaired the House Appropriations Committee, said, ‘We’ve gotta change the limit on the auto documentary fee.’ He put in this bill so they could charge up to $250. And furthermore, it would be re-evaluated every year in accordance with the consumer price index and rounded off to the nearest hundred dollars.
“So the next year, it could go up to $300. At any rate, some kind of humility finally prevailed, and they passed into law a new cap of $160. They just quadrupled it! That alone is worth $100 million to the auto dealers, every year, just on new car sales, let alone used cars. You look at it and the auto dealers give money to almost every legislator who is sucking air, and the vote was darn near unanimous.”

EASY MONEY
“The direct-to-consumer wine ship-ment was another example where the beer and wine wholesalers gave money to everybody in the legislature, except half a dozen teetotalers. And they easily found legislators who were perfectly willing to carry water for them.”
The background on this: Michigan consumers historically could buy wine directly from Michigan wineries, but not from wineries in other states. The U.S. Supreme Court ruled last year that Michigan had to allow its citizens to order directly from all wineries in the country or none at all. Rep. Chris Ward (R-Brighton), who had received $7,300 for his leadership PAC and his campaign account from the Michigan Beer and Wine Wholesalers PAC, introduced a bill to ban direct sales from all wineries, a move to protect sales of wholesalers.
Suddenly, thanks to this PAC and Rep. Ward, the state’s little wineries were facing the prospect of ending direct shipments to their customers, and perhaps closing altogether.
“The way they packaged it was, ‘We don’t want children ordering wine off the Internet.’ Well, people had been ordering wine on the Internet and there were protections to keep it away from minors. Did they think the young wine snobs who weren’t interested in Michigan wine were suddenly going to get crafty enough to outsmart the law to get a bottle from California? No, this was all about protecting the wholesalers’ monopoly.
“If it hadn’t been on every editorial page in the state, editorial writers asking, ‘How does this square with a free market?’ they would have gotten away with it.
“People do buy and sell public policy. Everybody has a vague, uneasy feeling about money in politics, and when they see how the game is played, their uneasiness turns into outrage.”

FIXING THE LEAKS
When a candidate runs for office, he or she forms a committee to help pay for the campaign. That committee can only accept a limited amount of money from a PAC or an individual, but those limits are practically meaningless.
Why is that? Because a PAC can work together with the candidate’s election committee on how to best spend its money.
For example, the candidate committee can say to the PAC, okay, we have enough money to pay for the airtime on the major networks, so why don’t you pay for the commercials running on the cable channels.
This cooperation contrasts to federal rules that say there must be a “wall” between a PAC and a candidate committee, Robinson said.
Corporations can’t legally give money to PACs, but that rule is also pretty meaningless. That’s because a corporation can simply form its own PAC and collect money from all of its board members, shareholders, and managerial employees—even set up a payroll deduction.
The redeeming feature of an independent PAC is that the donations and donors are open to public scrutiny. (See sidebar on how to research political donations.)
Another problem: there’s a huge time lag between donations and the time that donations are finally publicly reported. That means a company can “influence” a certain piece of legislation, and it’s old news or too late by the time the donations are public. Robinson wants “real-time” reporting, or at least quarterly reporting.
HIDDEN MONEY
The truly significant problem is what’s called soft and hidden money.
First the hidden money. There’s a type of 527 account specifically created for officer holder expenses that the Record-Eagle reported on in its May 28 issue.
This type of account can accept donations from corporations; there’s no donation limit, and no one—not the IRS or the public—must be notified that the account exists. The money is supposed to be used for office holder expenses such as meals, travel and gifts. (Allen, to his credit, did provide the paper with the same documentation that Gov. Granholm publicly discloses for her 527 account. But the paper subsequently reported he was the only officeholder in the area who even holds such an account).
Why is that a problem?
The “so what” on this is that a tobacco company contributed $2,000 to Allen’s 527 account at the very time he chaired the Commerce and Labor Committee, which refused to hold a vote on a bill to ban smoking in Michigan restaurants. The Michigan Restaurant Association gave $2,500 to the account 10 days before the hearing on the bill, according to the Record-Eagle article.
Allen told the paper that contributions didn’t influence his vote; he’s opposed to regulation on businesses and felt the issue was handled best at the local level. The bill died in Allen’s committee without a vote.

ANOTHER LOOPHOLE
A corporation or an individual or a PAC can also give money to a 501(c)(4) or a party committee, neither of which has to report the money.
“Partners for Progress, for example, is a soft money drop box run by the Kalamazoo County Democratic Party. We don’t know who gives it money and we don’t know how much they give. It can’t be used for ‘campaign expenditures,’ but it can be used for ‘issue ads.’ No limits, no disclosure, no restrictions as to source.”
Then there are the committees set up by the Republican and Democratic parties to offer help to candidates. There are no limits on contributions, and the contributions don’t have to be reported if they are used for coyly worded advertisements.
In 2002 general election, for example, Governor Jennifer Granholm agreed to limit her spending to $2 million so that she could qualify for $1,125,000 in public campaign money.
But the state Michigan Democratic State Central Committee bought more than $7 million in issue ads that said, “Dick Posthumous, he’s not on your side.”
Was that legal?
“Oh sure, under Michigan law. This was spent by a party committee, which can collect all kinds of soft money from corporations, unions, and unlimited contributions from people.
“It can’t make campaign expenditures. It can’t say, ‘Vote for Granholm’ or ‘Vote against DeVos,’ but it can say, ‘Granholm is wonderful, DeVos is bad.’ That’s been corrected on the federal level with the McCain-Feingold reforms; if you run an ad and it has a name or an image of a candidate, it’s an election ad, and you
can’t use corporate or union money. The gist of McCain-Feingold was to end this kind
of fraud.

BIG SPENDER
So back to Granholm’s spending in 2002. Those numbers will ultimately look like peanuts compared to DeVos this year.
To find out what DeVos has been spending, Robinson drove around the state to look at the files of TV stations and added up their political advertising numbers, which are public.
DeVos had already spent $5.4 million for commercials as of June 1, five months before the election. But where is the money coming from? No one knows because finance reports don’t have to be submitted for another two months. Most people can guess: DeVos himself.
“He’ll probably surpass Geoff Fieger’s record for narcissism in a political campaign,” Robinson said.
And what about the candi-date’s billionaire father? He gave a million bucks to the Michigan Republican Party last election cycle, and he can give $50 million this time if he chooses. And if he buys the right kind of ads, there won’t be any record of it. 

FIXING THE LEAKS
“I don’t think most people know how much of our political money system is underground. But if you get the idea that what is disclosed on campaign finance reports is the tip of an iceberg, in many cases you’d be right,” Robinson said.
“I think it’s mainly the big hitters and the social pariahs, like landfills and tobacco companies, who live in the underworld. I know some stuff, but what I have learned is mostly due to dumb luck and pangs of conscience on the part of some people who’ve gotten fed up.”
But Robinson is no cynic. He feels that once people know what’s happening
and why it’s happening, reforms can happen. He said he doesn’t buy the saying that “campaign money is like water; it will always find a crack and it will always flow.”
“That’s defeatist hogwash. We can understand what they’re doing, and we can write laws to establish limits and accountability. And if politicians and interest groups break those laws, they can be prosecuted.”
In fact, public accountability is exactly why Robinson was able to call attention to the $9 million highway marking proposal and the quadrupled fee we now pay when we buy a car. The system just needs to get better, he said.
“I often struggle with this. I don’t want to feed cynicism or a sense of helplessness. I want to project hope that we can understand what’s going on and fix it.”
The problem is the system benefits the very people –and the only people—who could fix it. That’s why public pressure is so important, Robinson said.

To check out the top 150 PACs
in the state, go to the website of
the Michigan Campaign Finance Network at mcfn.org.


How to start digging
It will take patience, but here is how you can research the donations given to a particular state candidate. It is important to know the specific names of the political action committee before starting your research. For example, a leadership committee for Sen. Jason Allen was called the Republican Victory Committee.
If you don’t know the name of your candidate’s favored political action committee, you might be able to glean it from the state’s top 150 PACS posted by the Michigan Finance Campaign
Network or by calling Rich Robinson at 517-896-2246.

• First, go to www.michigan.gov/sos
• In the blue menu on the left, take “Elections in Michigan”
• Next, take “Campaign Finance Disclosure”
• Then, “Campaign Finance Reporting Searchable Database”
• From the menu in the white center of the page. Select “Search by Independent/Political (PAC) Committee” There you can look up, for example, Waste Management (#502752) or Environmental Quality/Waste Disposal (#503956).

You’ll find a number of reports listed with the most recent at the top of the list. You can go into those reports and see the PAC’s contributors and expenditures.
You can also back up to the white menu and select “Search by Expenditure Analysis”; from there you can enter a committee’s name or its number and get a list of who it has given money to.
Alternatively, you can select “Search by Contribution Analysis”; enter an officeholders name and see who has given the officeholder his/her money.

This tutorial is compliments of Rich Robinson, executive director of the Michigan Campaign Finance Network.