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CENTER FOR PUBLIC INTEGRITY SPECIAL REPORT

Inside The Shadow GOP

A network of independent Republican allies represent the leading edge of the new world of campaign finance.

For many powerful GOP operatives and allied fundraisers, the luncheon last April felt like one part reunion and one part strategy summit for the fall. In reality, the get-together at Karl Rove's house and office on Weaver Terrace N.W. was a bit of both.

 

The crowd of about two dozen had assembled at the behest of Rove and former Republican National Committee chairman Ed Gillespie. The powerful pair had teamed up earlier in the year to help launch American Crossroads, a non-profit group with separate political advocacy and grassroots lobbying arms that together plan to spend $52 million this year to help a few dozen GOP Senate and House candidates with television ads and get-out-the-vote drives.

But as the crew of old GOP friends munched on chicken pot pies, Rove and Gillespie had another, larger agenda: expanding cooperation. And they found an altogether receptive audience. Among those in attendance: Bill Miller, the political director of the U.S. Chamber of Commerce which has announced a record election budget of $75 million; former Sen. Norm Coleman, the CEO of the American Action Network, a fledgling group aiming to spend about $25 million; and Steven Law, a former general counsel at the Chamber and the president of American Crossroads.

Altogether, the groups represented at the lunch -- and a few others some of whom have attended subsequent sessions -- plan to pour some $300 million into ads and get out the vote efforts to help scores of Republican Congressional candidates win in November, an effort that has been likened to a shadow GOP.

 

For Gillespie, Rove and other attendees the rationale to expand their coordination was simple: Democratic allied groups in recent elections had considerable success using cooperative tactics and GOP strategists wanted to match and even one up them. "I'm glad we're taking a page out of their playbook," Gillespie told the Center.

These independent GOP allies represent the leading edge of the new world of campaign finance, 2010 edition. Sensing a possible takeover on Capitol Hill, they have aggressively tapped a network of angry corporate and conservative donors, a task made easier by the Supreme Court's famously controversial January ruling in Citizens United v. Federal Election Commission. That decision overturned decades of campaign finance law and gave the green light to corporations and unions to spend unlimited amounts on ads and other campaign activities that urge voters to oppose or support individual candidates. Some companies in sectors hit hard by new regulations -- including financial, energy and health care interests -- are grabbing for their checkbooks, and many are actively seeking the anonymity provided by new and older independent groups in the post-Citizens United world.

The tens of millions being plowed into these groups are also partly attributable to another phenomenon: management and fundraising problems at the Republican National Committee under Chairman Michael Steele, a situation that's prompted many major donors and fundraisers to put their financial chips elsewhere.

And now Democratic constituencies are responding. Jittery about a potential avalanche of corporate money flowing to GOP allies, several unions, led by the American Federation of State, County and Municipal Employees, the AFL-CIO and the Service Employees International Union, have begun plotting a counter-strategy -- hiking their budgets, polishing their famous "ground game" tactics, and expanding cooperative efforts of their own to avoid a debacle in November.

 

Notwithstanding labor's efforts, GOP allies have built a huge lead of almost five to one in ad spending compared to their Democratic counterparts, according to the Campaign Media Analysis Group. GOP-affiliated groups spent $24.8 million on Senate and House ads from Aug.1 to Sept. 20 while their Democratic rivals spent just $4.9 million in the same period, according to CMAG data.

What this amounts to, say veteran money and politics watchers, is a virtual Wild West, with fewer rules and more cash than ever. Republicans and Democrats each now boast ten or so deep-pocketed independent groups with plans to spend $10 million plus helping Senate and House candidates by running expensive ads and/or conducting get out the vote efforts. And they're on track to spend, collectively, some $500 million dollars or more. With little oversight.

"The financial flows into this election cycle," says Marcus Owens, a partner at Caplin & Drysdale and a former IRS director of exempt organizations, "are beyond regulation and beyond the existing mechanisms of the Federal Election Commission and the IRS."

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Citizens United: A Game Changer

The high court's ruling, which initial polls showed was opposed by 80 percent of the public, has helped to open the floodgates for potentially record spending by outside groups this year while creating a new fundraising landscape.

A sharply split Supreme Court in its 5 to 4 Citizens United decision overruled two key precedents about the free-speech rights of corporations.

Most leaders of the GOP's allied groups downplay the decision's influence, but a few acknowledged its potential to change the fundraising game.

"Citizens United opened the door for the unparalleled participation by corporations at the financial level," says veteran GOP operative Scott Reed, who this summer launched a group called the Commission on Hope, Growth and Opportunity with an eye to raising $25 million to help a couple dozen GOP House and Senate candidates. "But it took the combination of the RNC being inept and the Obama administration's political agenda to bring it all together."

Corporations Flying Under The Radar

A look at both the older and newer GOP-leaning groups that are planning the most expensive drives this year makes this much clear: Many corporations seem inclined to give to groups that are allowed by tax laws to keep their donations anonymous.

Most of the independent groups raking in big bucks are set up under IRS rules as so-called 501(c) organizations, named after a section of the tax code that covers a range of non-profit tax exempt organizations.

Quite a few of the new GOP-allied groups this year have obtained 501(c)(4) social welfare status, providing their donors anonymity but requiring them to spend more than half their funds on nonpolitical activities such as legislative advocacy. Further, business trade groups like the Chamber of Commerce have long enjoyed IRS status as 501(c)(6) operations which don't have to disclose their donors.

The Chamber Of Commerce

The Chamber of Commerce is expected to have the deepest pockets of the independent conservative and business groups when this year's fundraising marathon concludes.

Bill Miller, the national political director of the Chamber, told the Center that its political program is "an outgrowth of the frustrations of the business community." Miller said the "continued assault on industry by the policies put forth in this Congress has caused a recognition that the composition of this Congress has to change." The Chamber bills itself as bipartisan, but the lion's share of its issue ads and contributions has typically benefited GOP candidates.

Miller said corporate frustration is especially acute over four big issues that "have had, could have, or will have very negative consequences for the business community." They are: financial services reform, health care reform, and the specter of both cap and trade and "card check" legislation that would make it easier for unions to organize.

One mega corporate donor has been identified: News Corp., whose CEO is billionaire Rupert Murdoch, reportedly has given $1 million to the Chamber for its political drive.

Early this summer, the Chamber's feisty chieftain, silver-haired Tom Donohue, told a private gathering of about 100 trade group leaders that the Chamber planned to up the ante this year by spending $75 million on its election program -- more than double the $36 million it spent on the 2008 campaign.

As of mid-September, the Chamber had spent about $20 million on issue ads and other political activities, Miller says. The Chamber will focus on nine or ten Senate races and about three dozen House races in such key states as California, Florida, New Hampshire, Ohio and Pennsylvania.

Rove And Gillespie Lead Money Charge

American Crossroads opened its doors in March as a section 527 group. Under IRS rules the group can accept unlimited donations and can spend all its monies on political advocacy, but must disclose its large donations monthly.

In early June a second money front was opened with the founding of Crossroads GPS, a 501(c)(4) which can also accept unlimited donations, but doesn't have to disclose its donors at all.

Steven Law, the president of both groups and a former chief of staff to Senate Minority Leader Mitch McConnell, said that as of Sept. 20 the two had pulled in just over $32 million, a sum that owed much to money harvesting by Rove and Gillespie both of whom are "informal advisers."

Early this year the duo made a successful fundraising foray into Texas. Two companies in which Dallas-based billionaire Harold Simmons boasts major holdings -- Southwest Louisiana Land LLC and Dixie Rice Agricultural Corp. -- have plowed a total of almost $2 million into the 527. Simmons is one of three Texans who via their companies or on their own are its top financial angels.

Paul Singer, the New York-based founder and CEO of the $17 billion hedge fund Elliott Management Corp. has also written a seven-figure check to Crossroads GPS, say sources familiar with the group.

Both entities combined had spent close to $13 million by the end of September on hard hitting ads with a major focus on Senate contests in Colorado, Missouri, Nevada and Ohio, Law says. And it also has plans to run ads to assist a dozen to two dozen House races.

Other New Groups Pulling in Big Money

Meanwhile, lobbyist Reed's fledgling Commission on Hope, Growth and Opportunity, a 501 (c) (4) raised over half its $25 million goal to run ads in 20 House districts and a few Senate contests, Reed says. Where's the dough coming from? "The big three stepping into the batter's box are the financial services industry, the energy industry, and the health insurance industry," Reed said.

GOP Groups Mimic Liberals

The money and the energy on the GOP side have been spurred by expanded coordination among allied groups. There are more cooperative fundraising initiatives, regular meetings of key leaders like the April 21 session at Rove's, and a division of labor in terms of which states and races different groups are spearheading. Coordination among independent groups is legal under campaign finance laws, but the outside groups are strictly barred from conducting any joint activities with party committees or the candidates themselves.

One example of the new cooperation: the shared office suites on the 12th floor of an office tower on New York Avenue in Washington, which are home to both American Crossroads and the American Action Network. The network also has two arms one of which is a 501 (c)(4) advocacy group that's been running TV ads in states such as Washington and Wisconsin to knock off Democratic incumbents.

The two organizations have also "done a few joint fundraising events," former Sen. Norm Coleman, the CEO of the Network told the Center, adding that Gillespie and Rove provided some early money harvesting help to his group. "We're all going after folks who care about government-run health care, higher taxes and more government stifling economic growth."

Big Unions, Liberal Groups Play Defense

Democrats worried about an enthusiasm and money gap are looking to their traditional union allies for help -- and they'll get it. Unions are banking on their ability to mount a more aggressive get-out-the vote drive. Some unions have responded by boosting their spending and trying to do more in concert as well. In late August, the AFL-CIO announced it would mount a joint national political operation[1] this year with the SEIU and the United Food and Commercial Workers. The three union giants, who for the last couple of election cycles have worked separately, have plans for a combined political drive in 26 states that could cost close to $94 million.

AFSCME Capitalizing On Citizens United

Gerry McEntee, the long time president of AFSCME -- which belongs to the AFL-CIO -- told the Center that his union will spend at least $50 million, a 25 percent jump over the 2006 cycle. McEntee says his union will spend its funds on a mix of ads and get-out-the vote work to help Democrats in some 60 to 65 House races and 18 of the 37 Senate contests.

"We're in the race of our lives," McEntee said. And while labor may be outspent, it should have a big advantage in voter mobilization drives, he said.

But he acknowledged that the labor movement may be challenged in its efforts by the recession and disappointment on the part of some union members that Congress hasn't done more to help them, especially on card check legislation. "It's hard to get your people juiced up," McEntee added.

Peter Stone is a staff writer at the Center for Public Integrity. A longer version of this article and accompanying profiles of AFSCME President Gerry McEntee, Dallas billionaire Harold Simmons, Democratic Party operative Craig Varoga, Washington venture capitalist Fred Malek, and former RNC Chairman Ed Gillespie appear at the Center for Public Integrity website at: http://www.publicintegrity.org/articles/entry/2462/

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