Convention Cash: A last look at the largest loophole in campaign finance laws

What does a $57 million party look like? The Twin Cities apparently found out in September when the Republican National Convention came to town.

That’s how much money the convention’s host committee ultimately raised to produce the lavish four-day gala at the Xcel Energy Center in St. Paul. Nearly 90 percent of the GOP money came from donors who contributed at least $250,000, with more than 40 percent tapped from just 15 contributors who chipped in over $1 million.

The Democratic festivities in Denver were just as lavishly financed by corporations, unions and individuals. The Mile High City’s host committee raked in $61 million for the cause, with 72 percent of the funds coming from contributors who gave upward of $250,000.

The final contribution tallies are included in financial disclosure forms that the host committees are required to file 60 days after the close of the conventions and analyzed in a new report by the Campaign Finance Institute (CFI). Because such organizations are set up as nonprofit groups, contributors can make unlimited, tax-exempt contributions — constituting a major loophole in campaign finance laws. The party conventions provide a unique opportunity for special interests to buy access to influential people while receiving little public scrutiny. In Minnesota the fundraising drive was spearheaded by the state’s two most prominent Republican politicians, Sen. Norm Coleman and Gov. Tim Pawlenty.

“These conventions were floated by huge donors giving much more than they’re ever allowed to give normally to support political parties and presidential candidates,” says Steve Weissman, associate director for policy at CFI.

The $118 million total for both parties fell short of the $142 million raised in 2004 (when conventions were held in the pricier cities of Boston and New York), but is more than double the haul ($56 million) in 2000. The 2008 fundraising figures dwarf the $16 million in public funds provided to each party to produce their conventions.

Not surprisingly many of the major contributors to the festivities in St. Paul and Denver are also big-time influence peddlers in Washington. These organizations have spent $1.6 billion on lobbying expenses in just the last four years, while chipping in $273 million to federal candidates and parties, according to the CFI analysis. Verizon, for instance, which has a serious financial stake in telecommunications policy and has fought against “net neutrality” legislation, contributed roughly $800,000 to the two host committees. Meanwhile in the previous two election cycles it spent $76 million on lobbying and gave $5.7 million to federal campaigns and political parties.

While the bulk of the donations disclosed by the host committees prior to the conventions came from corporations (see MnIndy’s coverage of this here and here), a significant chunk of change was also contributed by wealthy individuals or the foundations they control. Such donors were responsible for $4.3 million of the GOP haul, most notably a $2 million contribution from hedge fund manager Raymond Dalio. The founder of Bridgewater Associates is also a major Republican campaign contributor, providing $152,000 in federal contributions since 2005.

Most of the Republican donations from wealthy individuals were raised in the latter stages of the fundraising drive, particularly after Robert Wood “Woody” Johnson, IV was added as the host committee’s national finance chair in July. “They had Woody Johnson going after all his rich friends,” notes Weissman.

Many of the corporations currently receiving taxpayer funds from the various federal bailout plans gave lavishly to the two host committees. American International Group, for instance, one of the country’s largest insurance companies and the recipient so far of roughly $150 billion in bailout funds, contributed $1.5 million to the two host committees. Beleagured housing finance company Freddie Mac, which was taken over by the federal government in September, also chipped in $500,000. In total, according to the CFI analysis, key actors in the ongoing financial crisis contributed $14 million to the conventions.

Under campaign finance laws, corporations are prohibited from contributing money to sway federal elections. For many years, special interests thwarted the intent of this prohibition by funneling so-called soft money donations to the two major parties. These contributions were supposedly for nonpartisan efforts such as voter-registration drives, but in reality they served as a primary means by which companies could purchase influence with politicians.

Passage of the 2002 McCain-Feingold act largely closed this loophole, barring such soft-money donations to the parties. But fund-raising to support political conventions, which is regulated by both the Internal Revenue Service and the Federal Elections Commission, falls outside the purview of this legislation.

CFI and other watchdog organizations have called on Congress to overhaul campaign-finance laws so that unlimited contributions can no longer be made to convention host committees. Under a proposal put forth by the bi-partisan Presidential Task Force on Financing Presidential Nominations, all convention expenses would be financed by the national party committees. Under such a scenario, corporations and unions would no longer be permitted to make contributions to the conventions, while individuals would be required to follow restrictions already in place for such donations ($28,500 to a party committee per year).

Sen. Barack Obama indicated during the campaign that he supports removing unlimited, soft-money contributions from the funding of political conventions — although no specific proposal was outlined. Weissman says the president-elect now has the opportunity to act on that principal. “I think if he raised it, he would be putting Congress in a position where they would have to do it,” he says.