Still from an NRA TV ad during the 2008 presidential campaign, via YouTube

As House Democratic leaders raced to round up votes before the Memorial Day recess for a pivotal economic aid bill, trimming it by more than $70 billion to avoid a revolt by members of the conservative Blue Dog Coalition, the party made another concession on its agenda to far less fanfare. Last Thursday afternoon, hours before the House Rules Committee was set to take up a measure aimed at mitigating the fallout from Supreme Court’s Citizens United decision — which allowed corporations to spend unlimited amounts of campaign cash — the meeting was scrapped.

Democratic aides depicted the delay as a consequence of a packed legislative calendar, predicting that the money-in-politics bill would come to the House floor after the recess. But some government watchdogs backing the majority’s effort saw a more dire sign in the Rules Committee postponement: that behind-the-scenes lobbying by some of Washington’s biggest campaign spenders, on both the left and the right, had spooked enough Democrats to make the legislation impossible to pass in its current form.

“I’m extremely concerned about what’s going to happen with this bill,” said Craig Holman, the longtime campaign-finance lobbyist at the consumer advocacy group Public Citizen. “It’s taken months to produce a bill that was reasonably good because a number of forces were whittling this one down. … Now, suddenly, it’s been pulled again.”

Upon hearing of the Rules Committee cancellation, Holman said, “I thought, ‘Oh, no. The NRA [National Rifle Association] succeeded.’”

The post-Citizens United bill, dubbed the DISCLOSE Act by its sponsors, sets a series of new disclosure rules to shed light on the sources of campaign commercials, issue mailers and other election-season speech. Corporations, unions and politically active non-profit groups would be required to report donors who finance such political activity above certain thresholds, and the company that primarily pays for TV or radio campaign ads would have to add a disclaimer message recorded by its CEO.

Lloyd Leonard, director of advocacy at the League of Women Voters, acknowledge the grim political reality the bill faced last week. “If you have the votes, vote; and if you don’t have the votes, talk,” he said. “Obviously, proponents of the DISCLOSE Act didn’t have the votes to move ahead, or not all the details had been worked out.”

Generally speaking, the principle of disclosure has broad support on the Hill and from the Supreme Court. While the justices voted 5-4 in favor of letting corporations go beyond political action committees (PACs) to pay for electioneering ads out of their general treasuries, they released a separate but less well-known 8-1 ruling in the Citizens United case that affirmed the constitutionality of campaign-finance disclosure requirements.

But the prospect of donor disclosure has proven unpalatable to the NRA, the U.S. Chamber of Commerce and the National Right to Life Committee, all of which fired off blistering critiques late last week in a bid to push the DISCLOSE measure from the House calendar. In a May 27 letter to lawmakers, the NRA charged that the legislation would force it “to turn our membership and donor lists over to the government” and decried the bill’s “byzantine disclosure requirements that have the obvious effect of intimidating speech.”

And conservative groups have not stood alone in chafing at the current scope of the bill’s new restrictions. As Holman put it, “Traditional Democratic allies provided the NRA with a great deal of credibility in this negotiation than they wouldn’t otherwise have.” Liberal-leaning advocacy groups reportedly expressing concerns with elements of the proposal include the Alliance for Justice (AFJ) and the Sierra Club. Though the AFJ’s president warned that Citizens United would likely unshackle far more campaign cash from the corporate world than from non-profits, the group still advised other eligible tax-exempt organizations to “take advantage of” the unlimited election-year playing field set by the high court.

Abby Levine, the AFJ’s deputy director of advocacy, underscored in an interview that her group is “in favor of meaningful disclosure.”

“The question then becomes, what is meaningful?” she added. “We want the relevant information without casting too wide a net.”

Meanwhile, the AFL-CIO, the country’s largest union federation, has so far declined to endorse the DISCLOSE bill and vowed only to “carefully review this complex legislation.” That reticence has not stopped the Chamber and other conservative critics of the bill from accusing its authors of handing a victory to unions by cracking down harder on corporate political activity.

“The Chamber has done a really good job of scaring people, saying this is somehow going to help unions, and when you look at the bill, it’s clear that it’s not,” said a spokesman for one union closely following the bill.

The broad array of potential stumbling blocks raised by individual non-profits — many of which are well positioned to punish or reward lawmakers for their votes by directing ads during the coming midterm elections — underscores the delicacy of talks now going on among Democrats and affected groups. “The thing about this bill is that there is disclosure that wasn’t required before of all entities” in the politically active tax-exempt world, said U.S. Public Interest Research Groups (PIRG) democracy advocate Lisa Gilbert. “These are things people aren’t accustomed to doing.”

Could the NRA or other groups succeed in watering down the bill enough to alienate the watchdog groups that now support it? Leonard, of the League of Women Voters, pointed to a proposed amendment from Rep. Heath Shuler (D-N.C.) as a possible deal-breaker for his group. The Shuler amendment [PDF] would exempt any 501(c)4 non-profit that finances election ads using only individual donations, as opposed to corporate money, from the bill’s disclosure and coordination rules.

Bridgett Frey, spokeswoman for the bill’s chief House sponsor, Rep. Chris Van Hollen (D-Md.), said via email that her boss would examine specific amendments after the details of the bill are finalized. “Throughout this process, Congressman Van Hollen has met with any group or organization that has had questions or concerns about the DISCLOSE Act, and he continues to do so. He is open to accommodating reasonable concerns, but is committed to a bill that ensures transparency and protects our democratic process.”

The office of House Administration Committee Chairman Robert Brady (D-Pa.), which sent the bill to the Rules Committee last month, also indicated that negotiations over the bill would continue during this week’s recess.

“There’s no hard and fast line at which point disclosure would be weakened to the point at which it would become irrelevant,” Brady spokesman Kyle Anderson said via email. “We’ve gone to great lengths to address concerns expressed by both House Republicans and the groups and organizations that raised them. That process is ongoing.”

The process, however, cannot go on for too long without the new campaign-finance rules having a diminished effect on this November’s midterms. The DISCLOSE bill includes language implementing its new rules within 30 days of passage, sidestepping the need for prolonged regulatory debate at the Federal Election Commission, but Senate Democrats have already vowed to approve their version by July 4 to set up a final vote before the month-long August recess.

“If they don’t make it by July Fourth,” Holman said, “the bill will lose a great deal of momentum.”

The Chamber, for its part, is already betting on Democrats to lose — if not in the House, then in the Senate. The first hint of the DISCLOSE bill’s fate could come as soon as next week, when Democrats are likely to know more about the time frame for a House floor vote.

But even as the program gains new converts and sails toward a three-year extension, approved by the House last week, hiccups have emerged to little notice outside the financial press. Some of those questions stem from wins scored off the bonds’ rapid rise by Wall Street players, including banks that commanded higher fees to underwrite BABs and traders who made quick profits selling them in the secondary market. Another sticking point arose earlier this month, when Florida suspended its BAB sales amid concerns that the Internal Revenue Service could withhold its promised subsidy for the bonds from states with outstanding Medicare or Medicaid obligations.

“We’ve always been concerned about the federal government creating a taxable bond option, or BABs, and using it to achieve other objectives … in terms of withholding payments that may be due a state or local government,” said Government Finance Officers Association (GFOA) executive director Jeffrey Esser, whose group represents municipal financiers. “We’re also concerned that, given the bad fiscal situation the federal government is in, they’ll make promises to provide these subsidies, [then later] be forced to cut back.”

BABs are structured to offer local issuers a federal repayment for 35 percent of the interest on their debt, which can also be taken by investors in the form of tax credits. The Congressional Budget Office estimated last year that BABs would cost the Treasury $4 billion over 10 years, but the bonds have defied all expectations — with nearly $80 billion worth flying out the door since the stimulus passed, the program is now projected to add $30 billion to the deficit, a more than sevenfold increase.

State and local bond issuers agreed that such popularity is an indisputably good thing. Yet several others emphasized that climbing aboard the BAB juggernaut requires vigilance and awareness of the risks involved, of which three in particular loom large.

Higher Underwriting Profits

When Goldman Sachs placed an ad in Politico last month trumpeting its status as a leading underwriter of BABs, Sen. Chuck Grassley (R-Iowa) went on the offensive. After firing off a letter to the bailed-out bank’s CEO, Grassley continued to hammer the program for allowing big banks to claim higher fees for negotiating BAB deals than they would for sales of traditional, tax-exempt municipal bonds.

“Of course state and local governments are big fans of the Build America Bonds program — they get federal money that they don’t have to pay back,” Grassley said in a March 16 floor speech. “And the large Wall Street investment banks love Build America Bonds — they’re getting richer off of them. However, we all know there’s no such thing as a free lunch. Federal taxpayers are footing the bill.”

The full story, as relayed by many public works officials who sell BABs, is more complicated. They say the higher fees were common during the first few months of the program but have since normalized as the bonds become more of a fixture in the market.

What’s more, the pool of potential BAB buyers is much broader and larger than that for tax-exempt bonds. Foreign investors have embraced BABs, increasing their ownership of American municipal debt by 50 percent during the program’s first year, and BAB sales often put corporate bond traders in competition with municipal bond traders.

“You’re dealing with a brand-new product and new investors; when the first few [BAB] issues are done, you’re kind of guessing,” Bay Area Toll Authority chief financial officer Brian Mayhew, whose agency issued $1.3 billion in BABs last fall. “Is it a corporate transaction selling a muni[cipal] venture, or is it a muni transaction selling to the corporate world?”

Underwriters of BABs have so far commanded fees comparable to those associated with sales of high-grade corporate bonds. But Grassley has not abandoned the issue, playing up a Wall Street Journal story this month that pegged Goldman as the number-one BAB underwriter.

The debate over big banks wringing money from taxpayers and mom-and-pop local bond issuers flared anew on Friday, when a Justice Department list of co-conspirators in a municipal bond-rigging case was “inadvertently” disclosed in court filings. Lehman Brothers, J.P. Morgan and Bank of America were among the banks complicit in the scheme. BABs were not involved in the case, which centers on a different type of investment deal.

Leaving “Money on the Table”

About a month after the first BAB sales, Bloomberg reported that the program’s five largest bond issues had seen yields fall sharply after their initial sales, suggesting that local governments could have set their interest rates even lower — thus generating more money for public works projects — and still sold plenty of bonds. A second Bloomberg analysis found that New York City’s Metropolitan Transportation Authority could have held onto $9 million, enough to buy eight subway cars, by lowering its BAB yield just 0.1 percent.

Bonds, like stocks, change in price every day, but yields generally serve as a measure of their rate of return. So when BAB sales are being negotiated, “you have to push real hard,” explained Gary Breaux, director of finance at San Francisco’s East Bay Municipal Utility District. “It’s kind of a cat-and-mouse game. Investors are trying to get as high a yield as they can.”

About 70 percent of BAB sales during the program’s first year were negotiated, meaning that banks such as Goldman worked with municipal issuers to set the interest rate most agreeable to all sides. Esser’s group, the GFOA, recently advised its members to seek out competitive sales instead, forcing aspiring underwriters to vie for their business.

“Wall Street is very good at convincing state and local governments that every deal they’re doing is so unique and so unusual that it has to be negotiated to be successful, and we don’t agree with that,” Esser said.

Several BAB issuers acknowledged in interviews that they were concerned about selling debt at interest rates too favorable to investors. “It’s a problem you have to be mindful about,” said Dallas Area Rapid Transit chief financial officer David Leininger, who sold $750 million in BABs to pay for an expansion of local light rail.

“Nobody likes to leave money on the table,” agreed University of California chief financial officer Peter Taylor, who sold two rounds of BABs last year. Still, both Leininger and Taylor said they were satisfied with the pricing of their BABs, and Taylor called the program “a big home run.”

The IRS recently opened its own inquiry into the issue, sending out a “compliance check” that asks issuers how many saw BABs rise in price after before the debt was delivered — a sign that investors were “flipping” the bonds by unloading them in the secondary market for a quick profit.

Both BAB investors and issuers said that pricing of the bonds has evened out in recent months as the program becomes more popular, offering an explanation similar to that for the higher-than-normal underwriting fees.

“That may have been an issue early on,” Regional Bond Dealers Association CEO Mike Nicholas said. “But the market has matured, so I don’t think that’s a consistent problem.”

Suspending Sales

The final bump in the road for BABs came when Florida announced its temporary exit from the market after an IRS conference call that left Ben Watkins, the state’s bond finance director, uncertain about whether he should rely on the federal government’s promise of subsidies.

Watkins said the Treasury Department had tried to reassure him about BABs’ long-term viability, noting that the program was designed as a tax refund so state and local governments would not be subject to the whims of congressional appropriators. “So, the only way you couldn’t get paid is if Congress changes the law,” Watkins said. “Not a slam dunk in and of itself.”

The House has passed legislation extending BABs until 2013, while gradually lowering their federal subsidy to 30 percent of interest. The Senate is expected to make a similar push before the stimulus law’s BAB provision expires at the end of this year, though criticism from Grassley and Senate Minority Whip Jon Kyl (R-Ariz.) could slow the process in the upper chamber.

Watkins, however, is looking for more than a reauthorization of the program. “I can’t permanently increase my exposure to the federal government without getting some clarity on” whether the bonds’ taxpayer subsidy to states could be garnished by Washington, he said.

The IRS did not return a request for comment on Watkins’ concerns and whether BAB interest payments were subject to withholding.

Meanwhile, the Build America concept continues to win political praise and practical kudos. President Obama called the program “one of the most successful” stimulus efforts, proposing to make BABs permanent in his most recent budget. And local issuers of the bonds like the prospect of raising more money cheaply to pave roads, build schools and pump water.

“We’re still learning” how to make the most of the corporate bond world, said Mayhew, of the Bay Area toll agency. “We’re getting better at understanding. But we’re not there yet.”

Treasury Secretary Timothy Geithner. Photo: WDCpix

WASHINGTON — The latest political clamor over AIG, poised to combust next Wednesday at a House hearing on backdoor payments to banks that made risky deals with the company, centers on the Federal Reserve’s effort to conceal details of those payments. But senior officials, including Treasury Secretary Timothy Geithner, have so far evaded a key question: Why were AIG’s trading partners fully paid with taxpayer money instead of being told to take a loss?

“They chose to pay some people off entirely,” Bill Black, an economics and law professor at the University of Missouri and a leading critic of the government’s bailout managers, said in an interview. “They have never given a coherent explanation of why those particular folks. Under their own logic, there was no reason to pay off these parties at 100 cents on the dollar.”

Geithner, who led the New York Fed when it orchestrated the $62.1 billion payout to 16 banks that held AIG’s credit default swaps, has been asked to explain that controversial decision numerous times over the past year. And his answers have varied, depending on the questioner, causing Black and other critics to wonder whether the nation’s financial regulators can be counted on to spot the next economic crisis.

In November, bailout inspector general Neil Barofsky quoted Geithner as stating that AIG’s bank counterparties — including Goldman Sachs, Merrill Lynch and 10 foreign firms — were not at direct risk if the troubled company defaulted on its debts. “The direct effects of that failure would not have been particularly significant,” Geithner reaffirmed last month during testimony on Capitol Hill.

In May, however, Geithner suggested that AIG could not have negotiated lower payments to its trading partners without endangering the health of the whole financial system.

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”

So which explanation is true: Were AIG’s creditors hedged against the risk of a default — as Goldman has argued — or not? And if the banks had already mitigated the risk of losing their deals with AIG, why didn’t that allow Geithner’s Fed to negotiate a cut in repayments?

“There’s no way to prove it and no way to know,” former New York governor Eliot Spitzer, who took on Wall Street as the state’s attorney general, told The Washington Independent. “It’s part and parcel of the willingness of the Fed and Treasury to obscure from public view transactions involving tens of billions of dollars.”

Spitzer, who co-wrote a New York Times op-ed with Black calling for the public release of all AIG emails, said the Fed’s inability to intelligibly explain its actions cast doubt on the central bank’s fitness to lead the monitoring of systemic risk — as envisioned in the House-passed financial reform bill.

“Maybe [that power] should go to the Treasury, maybe it should go to the New York State attorney general,” Spitzer quipped. “But certainly, the Fed hasn’t done very well.”

Under the House’s financial reform legislation, the Fed chief would take a senior role on an “oversight council” of regulators, including the Treasury Secretary, that would be asked to neatly dissolve failing companies. The bill also allows the Fed to declare a financial “emergency” that would allow it to extend up to $4 trillion in discounted loans to banks.

Jane D’Arista, who spent 20 years as a congressional economist and now leads the Political Economy Research Institute’s financial reform project, said the AIG saga shows Fed officials “didn’t have a real handle” on the collapsed insurance firm’s web of complex deals.

“I don’t feel the team in place in this administration … understands institutions that well, and that was shown in Geithner’s response to the crisis,” D’Arista said. “He thinks he did a good job.”

Geithner told CNBC last week that he believes that paying off AIG’s counterparties in full was “absolutely” the right thing to do, adding: “Personally, I feel like I have a good sense of what the principal failures were” that caused the nation’s lingering financial crisis.

Barry Ritholtz, chief of the financial research firm Fusion IQ and creator of the The Big Picture blog, connected the Fed’s failures to spot burgeoning bubbles and abuse of lending rules to its lack of staff with Wall Street experience.

“The Fed is filled with economists and academics, none of whom have been on a trading desk or managed assets for a living,” Ritholtz said. “They have nothing to do with what’s actually going on on Planet Earth.”

Federal Reserve Chairman Ben Bernanke and Geithner were neither traders nor financial regulators before they joined the central bank. Bernanke’s background lies in academia, while Geithner focused on international monetary policy for 15 years before ascending to the New York Fed.

“These guys were fighting a forest fire, and they did the equivalent of clear-cutting a region,” Rob Johnson, a Roosevelt Institute senior fellow and former chief economist at the Senate Banking Committee, said in an interview.

“The frontier they chose was to use AIG as a conduit … the result of using that logic is, they fortified stockholders and bondholders and management, and did so at the expense of taxpayers.”

Among the most fortified bondholders was Goldman, which played a role in an estimated $33 billion of AIG’s riskiest deals. The company has argued that AIG was a “sophisticated investor” which should not be given free rein to renege on its contracts with big banks, even in the case of an effective takeover by the government.

But Janet Tavakoli, founder of Tavakoli Structured Finance and an expert on the credit derivatives that swamped AIG, countered that the game changed when public money was used for a “backdoor bailout” of firms that took hazardous gambles.

“We, the taxpayers, are not sophisticated … I’m saying, now we should revisit it,” Tavakoli said, by clawing back some of the payments the Fed made to big banks. “Without trying to get inside peoples’ heads and trying to read particular motivations, I’d say it’s about the money. Goldman Sachs is saying they’re entitled to it all and get to keep it all.”

Two Republican members of the bailout’s congressional oversight panel made a similar suggestion last week as part of a broader report on government rescue efforts.

To tamp down furor over its role in the counterparty payments, the Federal Reserve on Tuesday endorsed a Government Accountability Office audit of the AIG rescue. A spokesman for the central bank’s New York branch referred The Washington Independent to a lengthy statement released that day, disputing that it sought to withhold public information about the choice to bail out the 16 banks in question.

For its part, the Treasury Department has said that Geithner recused himself from discussions about repaying AIG’s counterparties on November 24, 2008, when his nomination to lead the agency became public, and “began to insulate himself weeks earlier.”

Yet Geithner took at least nine meetings related to the AIG rescue in the month before his nomination, according to his official daily calendar, which was released by the New York Times last spring.

One of those meetings occurred on November 21, 2008, and another on October 30, the day before AIG’s senior vice president of financial services emailed a colleague that a New York Fed official “asked me to stand down on all discussions with counterparties on tearing up/unwinding” the trades that have sparked the current controversy.

Since the financial industry bailouts began, Wall Street and Washington have never looked closer. But as the recession deepens and banks grow to resent the stigma associated with taxpayer aid, an unexpected chill is occurring: Bank employees are slamming their checkbooks shut.

Individual executives and workers at the 10 biggest beneficiaries of the TARP bailout donated slightly more than $31,000 to congressional campaigns and party committees during the first quarter of this year, according to a Washington Independent analysis of campaign finance reports filed with the Federal Election Commission.

Moreover, the total donations from employees at the top five banks receiving TARP capital – Detroit automakers were excluded – is less than 3 percent as it was during a similar period in the 2008 election cycle.

The bleak economy is undoubtedly a factor in the drop, but it appears that lawmakers as well as bankers are in agreement with the CEO of JP Morgan Chase, who quipped recently that the bailout was a “scarlet letter” he could not wait to shed.

Citigroup employees, for example, were the TARP’s second-largest congressional donors so far this year, contributing $5,450. But that number represents just 5 percent of the employee giving that occurred in the first quarter of the election cycle that just ended, when Citigroup employees gave $128,405 to lawmakers’ campaigns and party committees.

“Members of Congress really don’t want to get in the press taking money from Bank of America right after they doled out money to Bank of America,” said Craig Holman, legislative representative for Public Citizen’s Congress Watch. “And that’s perfectly understandable.”

Indeed, several senior Democrats – including Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Finance Committee Chairman Max Baucus (D-Mont.) – already have forsworn campaign contributions from the political action committees, known as PACs, of banks receiving TARP assistance.

But apart from House Financial Services Committee Chairman Barney Frank (D-Mass.), lawmakers have avoided any ban on donations from individual bank executives. And with good reason; even campaign finance watchdogs see no problem with the employees of TARP participants exercising their constitutional right to give to congressional campaigns.

Still, the bottom has fallen out of the boom in election-season largess from bank workers. The largest amount of donations coming from a single TARP beneficiary during the first three months of this year was the $6,100 given by employees at Morgan Stanley (see chart).

That number is decidedly off-pace from the contribution rate at Morgan during the 2008 election, when employees gave $910,400 to congressional candidates and party committees alone – excluding donations to presidential campaigns and the company PAC.

The donation data analyzed by The Washington Independent excludes money given to 2008 presidential campaigns, state- and county-level political committees, and company PACs – although PAC donations from bailed-out banks also are down by about one-third for the first quarter of 2009, according to Holman. Winnowing out those three types of donations allows for a specific look at how bailed-out bank employees view members of Congress this year.

“You could see that there would be a logic[al reason], with the government playing such a large role in their sector, for them to be giving a fair amount of money,” observed Meredith McGehee, policy director at the Campaign Legal Center.

So why are bank workers shrugging at the Capitol Hill money chase? Perhaps, McGehee replied, for the same reason that most ordinary Americans wouldn’t give to their favorite member of Congress: they’re strapped for cash.

“These are people that made lots and lots of money” in the past, she said. “[Now] those who have not lost their jobs fear they will, and in this case the desire to spend their own money on political contributions is not so great.”

Rising economic insecurity on Wall Street, where lost financial-industry jobs are already estimated at more than 20,000, is one possible reason for the slide in donations. Another is the “scarlet letter” factor, as JP Morgan CEO Jamie Dimon put it to reporters earlier this month (not long after he jokingly presented Treasury Secretary Tim Geithner with a fake check repaying his bank’s bailout money).

As the personal lives of bailed-out executives attract more scrutiny from the media and more frustration from the public, even mid-level bank workers may be fearful of undue attention paid to their political giving patterns. After furious lawmakers castigated AIG CEO Edward Liddy over the company’s $450 million bonus payouts, AIG employees began receiving threats of strangulation with piano wire and violence against their children.

“A lot of it has to do with keeping a low profile, not becoming a target of AIG-type speculation,” reasoned Bill Allison, senior fellow at the non-profit Sunlight Foundation. “If you give now, you may be putting a big neon light over your head.”

In fact, AIG offers a stark picture of the plunge in personal giving by bailed-out bank employees. No donations were reported from within the troubled firm’s ranks during the first quarter of 2009, compared with more than $226,000 in congressional contributions from AIG workers during the 2008 election season.

The same pattern is visible at Merrill Lynch and Wachovia, which were both bought by competitors last year in shotgun marriages orchestrated by the government. Despite the banks’ escape from imminent bankruptcy, donations from employees remain notably low.

Wachovia workers and executives sent $2,520 to Capitol Hill campaigns during the first quarter of this year, or less than 1 percent of the company’s $368,200 in individual donations ahead of last year’s election.

An even bigger drop occurred at Merrill, where workers and executives have given $3,250 to campaigns so far this year after pouring $93,600 into congressional coffers during the same period in the 2008 election cycle – when their total giving topped $976,200.

But the downturn in contributions from bank executives and workers should not be mistaken for a diminishment in Wall Street’s long-term influence. The current lull also may be driven by the financial industry’s acceptance of newly heightened regulations as a foregone conclusion, while other industries gear up to fend off still-uncertain government involvement.

“I’m not sure there’s quite the same [volume of] talk of rewriting the rules that there is in health care,” Allison, of the Sunlight Foundation, said. “The bank battle is more midstream.”

Even the most outspoken inter-office critic of the bailout — AIG vice-president Jake DeSantis, who wrote a New York Times op-ed defending his performance — is a lapsed campaign donor.

DeSantis gave $2,100 to Dodd at the very beginning of the 2008 election, after donating the same amount to ex-Rep. Nancy Johnson (R-CT) during the 2006 cycle. This year, FEC reports show that he gave nothing.

Elana Schor writes for the Washington Independent.

Capitol Hill (WDCpix)

As the nation’s economy mires in recession, most Americans are anticipating lower earnings by making do with less – but not those who call Capitol Hill home.

Fundraising by 10 House incumbents in the chamber’s most perennially competitive districts topped $2.56 million during the first three months of this year, according to a Washington Independent analysis of campaign-finance reports filed this week to the Federal Election Commission. That total represents an 18 percent increase from the 10 House districts’ incumbent fundraising during the similar post-election period in 2007.

The Senate money chase is also hitting dizzying heights despite the dismal economy. Total fundraising for the five closest races in the upper chamber, as rated by the independent Cook Political Report, hit $8.3 million during the first three months of 2009, an increase of 39 percent compared with five similarly competitive races during the same period in 2007.

The congressional fundraising juggernaut is pushing onward this year even as the U.S. savings rate climbs higher than it has in a decade and personal spending falls into negative territory. Paradoxically enough, campaign-finance analysts said that the economic crisis is likely pushing even more cash into Washington coffers as lawmakers embark on an unprecedented marathon of spending and legislating, from health-care reform to a possible second stimulus bill.

“The federal government is getting more intimately involved in the economy than we’ve seen in history, except perhaps for the Great Depression,” said Craig Holman, legislative representative for Public Citizen’s Congress Watch. “So we have special interests, the executive and management class of business in particular, investing much more heavily in lobbying Capitol Hill, and in fundraising on behalf of congressional candidates.”

The Washington Independent chose 10 House districts and five Senate races to analyze based on Cook’s ratings of competitive races for the first quarters of 2005, 2007, and 2009. Each of those three-month windows represents the first fundraising lap of a new cycle.

The 10 selected House districts run the gamut in terms of income and state-wide political preference. Only three of the seats are held by the same incumbent that was in office in 2005, and the partisan makeup of the 10 has changed dramatically during the past two election cycles: The seats are controlled by seven Democrats and three Republicans today, compared with two Democrats and eight Republicans four years ago.

That GOP-dominated slate actually experienced a better fundraising climate in early 2005 than the mostly Democratic incumbents enjoyed during the first months of this year. Sitting lawmakers in the 10 districts raised $2.66 million in the first quarter of 2005, nearly $100,000 more than was raised in the same areas in the comparable period this year.

If campaign fundraising tracked the economy’s overall performance — which grew steadily before showing the first signs of decline in early 2008 — the 10 House incumbents could be expected to have reaped more cash in 2007 than in the previous cycle before falling in 2009. But the 10 districts actually saw less incumbent fundraising in early 2007 than in the same period in 2005 or 2009.

As Sunlight Foundation Senior Fellow Bill Allison pointed out, the political season after the Democrats took back Congress in 2006 was hardly ripe for heavy giving.

“You had a Republican president who wasn’t eager to endorse the ideas of the new Congress,” Allison said. “Between the vetoes and the slimmer [Democratic] majority, not as much was getting done in Congress, which might have been less incentive for people to give … if there’s less on sale, there’s going to be less money coming in.”

Meredith McGehee, policy director at the Campaign Legal Center, concurred that those most likely to donate to a congressional campaign are even more concerned with getting bang for their buck during a productive legislative term.

“Remember that givers are [part of] a small elite, particularly in congressional and Senate races,” McGehee said, “Less than 1 percent of all Americans give $200 or more. Because of that, what you have are people who want to stay active in the political system, because they feel like the system has a fairly big impact either on their business or on an issue they care passionately about.”

Another possible reason why fundraising hasn’t dropped along with Americans’ bank balances is the role played by “ordinary” donors in the 2008 presidential campaign. The Obama campaign often touted small contributions as the key ingredient in its success, raising the prospect of a radical re-orientation of the campaign-finance landscape.

But in reality, as the non-partisan Campaign Finance Institute found after the election, low-dollar donations made up about the same percentage of Obama’s war chest, 25 percent, as they did of George W. Bush’s – making everyday folks less important to candidates’ fundraising future.

“There was no indication that [small-dollar giving] had spillover into congressional races,” said Holman, of Public Citizen, “and I would expect it to completely fade away after the 2008 presidential election.”

What has faded slightly, thanks to the flailing economy, is individual donations to corporate political action committees (PACs). A Wall Street Journal analysis conducted earlier this month concluded that corporate PAC contributions fell by 6 percent during the first two months of this year relative to 2007, after increasing by at least one-third during the first quarters of the three previous election cycles.

Why would giving to corporate PACs slow down while giving to candidates rises? Sheila Krumholz, executive director of the Center for Responsive Politics, noted that donors who give to their senator or congressman have different motivations than workers who write a check to the company PAC.

“Individuals giving to corporate PACs represent a slightly broader spectrum of a company’s workforce,” Krumholz said. “With PACs, it’s relatively smaller donations coming on a routine basis. For large individual donors [to candidates], these are CEOs, vice-presidents, partners – they’re giving in a concerted way.”

Looking at the rise in fundraising this year for the five most closely contested Senate seats reveals more unexpected trends. While the total amount raised for competitive Senate races has increased steadily, rising about 30 percent between the first quarter of 2005 and the same period in 2007, the rising pace of retirements has pushed more candidates into the hunt early.

Three of the five top races this year, in Ohio, Florida, and Missouri, are to claim open seats, and all are expected to draw at least three serious candidates. The remaining two, in Kentucky and Connecticut, have already drawn two challengers to the incumbent. (The Pennsylvania Senate field was firmed up too late in the quarter for significant fundraising to occur, and the New York and Illinois fields have yet to be settled.)

By contrast, the first quarter of 2007 saw only two of five competitive battles already joined: Sen. Susan Collins (R-Maine) knew she would face Rep. Tom Allen (D-Maine), and Democrat Al Franken had begun raising money to take on Sen. Norm Coleman (R-Minn.). Senate campaigns were even sleepier in the first months of 2005, with Minnesota’s open seat attracting interest but no other race drawing a challenger to the incumbent.

Perhaps because of that boom in Senate fundraising, the average amount raised per candidate has fallen for the most competitive races as winners and losers are crowned at a notably early point in the election cycle. Average fundraising per candidate in the five Senate races studied by The Washington Independent hit $768,000 in the first quarter of 2005 and $858,000 during the same period in 2007, before falling to $761,000 in the same period this year.

The first quarter of 2009, however, is only the beginning of the money tree-shaking that will occur as the two parties gear up for next year’s midterm election. And whether or not the weak economy starts to impede congressional fundraising, the primacy of economic rescue efforts will ensure that lawmakers have plenty more openings to dial for dollars.

“For the average citizen, the election is over and they’re not even going to think about it for the next four years,” Allison, of the Sunlight Foundation, said. But the donors “who are paying close attention,” he added, have a vested interest in what Congress does – or does not – pass into law this year.

Elana Schor writes for the Washington Independent.