4
Government is supposed to exist for the good of the people, not the other way around, and clearly not for the personal enrichment of those who hold public office.
—ROD BLAGOJEVICH, FORMER GOVERNOR OF ILLINOIS, APRIL 17, 2006
IN THE CLASSIC FILM The Godfather, the Mafia boss Don Vito Corleone (played by Marlon Brando) is visited by Johnny Fortane (Al Martino), a famous singer who also happens to be his godson. Johnny’s career is fading, and he’s been turned down for a role in a movie by some sleazy Hollywood studio boss. He’s come to ask Corleone for help. His godfather is all too glad to help. “I’m going to make him an offer he can’t refuse,” he tells Johnny.
Later we see the studio boss waking up to find a severed horse head in his bed. Johnny, needless to say, gets the part.
The Mafia economy is simple. Mobsters run legitimate businesses alongside illegal ones, and they use muscle and force to protect those businesses and to extort cash. As we will see throughout this book, political fund-raising can be remarkably similar. According to Clyde Wilcox, a Georgetown University professor who studies political giving psychology, “You start your fundraising network by thinking of people . . . who can’t say no.”1 But how, exactly, do they do it? The other chapters of this book reveal the opportunities and the results. This chapter is about methods.
Campaign fund-raising generates the headwaters of the political economy in Washington. We know that it is used for winning elections. But once money has been raised by politicians, it can be moved, redirected, and shifted to other tributaries apart from campaigns. The money can be shifted into politicians’ own personal pockets, or those of their family members. And it can be transferred to the pockets of other politicians—perhaps in exchange for a vote on a particular bill.
For regulators, the river of campaign money is a challenge, since it is visible only part of the time. It flows underground at critical junctures where it is not easily visible to the general public or to journalists. Indeed, there is an Underground Economy of politicians’ money that flows through the nation’s capital that is much wider and deeper than the nearby Potomac.
Politicians spend an extraordinary amount of time raising money. By some estimates, it takes up between 30 and 70 percent of their day. Some of that effort is retail: sending out fund-raising letters and collecting small checks sent through the mail, online, or at a local county political event. But the heavy lifting is often done in Washington, D.C., in the shadow of the Capitol dome, while Congress is in session. This is wholesale fund-raising. Federal laws don’t allow lawmakers to collect checks in congressional buildings or in the Capitol Building (with one critical exception we discuss later). So politicians typically walk to a nearby location to either make phone calls or attend private fund-raising events. The number of events that take place is enormous. For well-positioned bars and restaurants, these events create a constant flow of business. Even in an off-election year, fund-raising remains constant (in 2011 congressional representatives and senators had more than 2,841 fund-raisers in the nation’s capital), and they often list their committee assignments on the invitations so that invitees know how they can do invitees favors, or cause them harm.2
Former Senate majority leader George Mitchell recalls being flooded with calls from colleagues asking that he not schedule legislative business at certain times because of fund-raising obligations. In fact, there were so many of these requests that he had to ignore them: “If I put all the requests together, the Senate would never vote. I once had my staff keep a list of such requests on one day . . . and had I honored all of the requests, there could not have been a vote that day.” The requests spanned from 9:00 a.m. in the morning until midnight.3
Politicians report making hundreds of phone calls between legislative votes, committee hearings, and nightly fund-raising receptions (sometimes multiple receptions in the same night). Closed-door fund-raisers in Washington are ritualistic events with their own set of unwritten rules. The media and the general public are not invited in. And an “invitation” to one of these events is a little like the studio boss being “invited” to reconsider his decision not to include Johnny in his movie. You can choose not to attend the event, or choose not to donate, but you may very well suffer the consequences.
In the days leading up to the contentious Dodd-Frank financial reform bill vote, Congressman Joseph Crowley, a member of the powerful House Ways and Means Committee, held four fund-raising events targeting financial institutions that stood to gain or lose from the vote. The day before the final vote, Crowley held two fund-raising events, including a cocktail hour hosted at a lobbyist’s home. Of the forty-two guests who showed up, thirty-one were lobbyists for the financial reform bill or their coworkers. After cocktails, Crowley then went to a dinner with thirteen other lobbyists who were working on the financial reform bill. The cost to attend was $2,500 for PACs or $1,000 for individuals. Emails from his campaign show that he specifically targeted financial industry lobbyists for donations. Crowley raised $90,000 in one night.4
The day before the final vote on Dodd-Frank, Congressman Tom Price of Georgia, a member of the Financial Services Committee, solicited donations at a “Financial Services Industry Luncheon.” It was organized with the input of Bank of America employees, who helped to write the invitation list. All but three of the individuals who attended Price’s luncheon were lobbyists for the bill.5
Congressman John Campbell of California, also a member of the House Financial Services Committee, asked representatives of several large financial institutions—Bank of America, Chubb Corporation, MasterCard, and New York Life—if they wanted one-on-one meetings about the bill. Campbell also held a “Financial Services Dinner” in October 2009, one day before the markup of the bill in committee. Like Price and Crowley, Campbell also held multiple fund-raising events in the days before the final vote.6
John Hofmeister, the former president of Shell Oil, recalls, “If you are invited, you are expected to be there. There is an implicit aspect of the request that makes that clear. And when you get there, you better show up with a check.”
Hofmeister’s description of these events resembles a shakedown. Not much needs to be said, unless you fail to comply. “You are standing in the room, and there is a glass bowl in the center. You are supposed to place your check in that bowl. Someone who works for the politician is watching from the corner to make sure everyone puts their check in the bowl. It’s public. If you don’t—they are going to come and ask you why. That is the expectation.”
And if you fail to pay your tithe? Politicians will be very blunt, says Hofmeister. “‘Why am I meeting with you?’ they will ask. ‘What have you done for me?’”
Many executives and corporate PACs do what Hofmeister did—they purposely give to both sides. It’s kind of like paying protection money to two rival gangs. “I made it a practice to give to each side equally,” he told me. “If you want access or to raise something with them that concerns you, they check to see if you are a donor before they meet with you.”
Politicians spend so much time raising money because that is how you win elections. Outspending your opponent is no guarantee, of course. American politics is full of examples of wealthy candidates going down in flames. But the evidence is pretty overwhelming that money matters. Nine out of ten times in the House of Representatives, and eight out of ten times in the Senate, the candidate who spends the most money wins.7
Campaigning has always required money to reach voters. Back in 1757, a young fresh-faced former Army lieutenant named George Washington ran for a seat in Virginia’s House of Burgesses. He “provided his friends with the customary means of winning votes” by delivering a quart and a half of cider, wine, and beer to each of the 391 voters in his district.8
Today you can substitute media advertising and data sets for wine and beer as the best way to reach voters.
Most politicians absolutely hate raising money. Many will echo the words of former congressman Walter Minnick of Idaho, who said, “It’s absolutely the most distasteful thing to do as a congressman, or a senator, or a candidate.”9 Connecticut’s Senator Chris Murphy laments having to squeeze fund-raising events between floor votes and says, “The conditions under which we labor are pretty depressing.”10
This very fact, that politicians generally hate raising money, is a good reason to keep the current system. Having to raise money is one of the few things that keeps these people humble. As former senator Slade Gorton recalls, “I felt that for all of us who were senators, and who were being treated as minor nobility, that the fact that we had to go ask people for money was very healthy and that it gave you at least a slight degree of humility.”11
The problem is not that politicians need to raise money; the problem is in how they do it, and in how they can redirect funds once they have them. Reformers want to restrict fund-raising (some even call for taxpayer-funded elections) because they believe that fund-raising is ultimately about “buying votes.” But the reality is that there is little evidence that vote-buying actually goes on in the way most people think it does. Three political scientists compared more than forty studies on the links between PAC donations and votes and found that, “in three out of four instances, campaign contributions had no statistically significant effects on legislation or had the ‘wrong’ sign—suggesting that more contributions lead to less support.”12
Two other scholars looked at a large amount of academic data on campaign contributions and congressional voting and concluded that, with the preexisting views of politicians factored in, there is very little evidence that campaign contributions directly influence voting.13 So why give money? If you are a CEO and you are spending millions of dollars on lobbying, without any statistically significant result, you are letting down your shareholders. Why do it?
Because you think you have no choice. Campaign contributions are not about buying votes, they are often about extortion. Legislators have the bargaining power, and they largely initiate solicitations of money. It isn’t a bribe. In white-collar crime, the distinction between bribery and extortion is often based on the determination of “which party initiates the exchange.”14 This also explains why many corporate executives and PACs largely give to incumbents regardless of party. A challenger can’t do very much to them. But if they fund only the losing candidate, there might be hell to pay from the winner. If it’s a close election, execs might hedge their bets and give to both candidates to secure protection from both sides.15 Of course, once an election is over, there is only one extortionist left. Corporate PACs send money “disproportionately to incumbents, majority party members, and those serving in leadership positions, especially those on the most powerful committees.”16
Committee chairs and ranking party officers (leader, whip, etc.) face their own pressure to extort. The underground money economy of the Permanent Political Class works in hidden ways. When newly elected members of Congress come to Washington, D.C., they often find that they—much to their surprise—are already in debt. And we aren’t talking about the national debt.
Both Democrats and Republicans in the House of Representatives have created a largely hidden system of “party dues” that requires members to extract money beyond their own campaign donations to fund their respective parties.
These party dues are not voluntary. Members are not asked to pay—they are required to pay. And paying those dues greatly influences which committee or subcommittee assignment they get.
We want to believe that committee assignments are based on knowledge, expertise, and background. But a member of Congress will end up on a powerful committee like the House Ways and Means Committee or Financial Services Committee only if he or she can raise money. The more powerful their committee assignments, the more money members are expected to extract from the industries they have oversight over or regulate. For a newly elected member of Congress on a weak committee—for example, the Ethics Committee, which is considered the least attractive committee for a variety of reasons—the annual party dues can run around $150,000. And for those on a powerful committee? The sky is the limit. Those in leadership positions or on powerful committees can be expected to raise $600,000 or more as part of the system.
The Democratic and Republican Parties both have internal party dues lists in the House of Representatives that make it very clear that leadership positions and committee assignments come with a price tag.
For the Democrats, being the ranking member on an exclusive committee like Ways and Means or House Financial Services will run you $500,000 in the 2013–2014 election cycle, according to internal party documents. Being the ranking member of a less powerful committee means giving the party $250,000. If you’re happy being a rank-and-file member, you only need to raise $125,000.17
The Republicans have a similar system. At the National Republican Congressional Committee, they actually post the price list for each Republican member of Congress on the wall. If you are behind in what you need to pay, it is marked in red for everyone to see. The list is broken down into sixths for any calendar year. So Congressman Fred Upton, chairman of the powerful Energy and Commerce Committee, is required to raise $990,000 for this election cycle for the party.18 Congressman David Camp, chairman of the powerful Ways and Means Committee, is expected to do the same.19 Congressman Lamar Smith, chairman of the less prestigious House Judiciary Committee, is expected to kick in $405,000, according to party documents.20
Democrats have a “members points system” that rewards congresspersons for collecting cash and attending party fund-raisers. The amount of money raised is extraordinary and separate from the fund-raising they do for their own campaign committees. Congresswoman Nancy Pelosi, according to internal Democratic Congressional Campaign Committee (DCCC) documents, raised a stunning $52.9 million for the party in 2011–2012. Speaker of the House John Boehner raised even more.
Raising money is what helps an ambitious member of the House rise in the ranks far more than ideas or competence. For example, according to DCCC documents for the 2011–2012 election cycle, Congressman Joe Crowley of New York was a vice chairman of the DCCC in that election cycle and raised over $8 million. As a result, he is now the Democratic Caucus vice chairman.21 Congresswoman Alyson Schwartz also raised millions and in early 2013 was reappointed to the powerful House Ways and Means Committee, after being removed the cycle before.22 On the other hand, the failure to raise funds means the possibility of being cut loose. Congressman Gary Miller of California, according to internal Republican Party documents, was more than $359,000 behind in his 2012 dues and was not going to receive support through the party’s “Patriot Program,” a “goal-oriented program” that offers extensive support and assistance for those seeking reelection, even though Miller is in what some analysts have said is the most vulnerable district in the country.23 (Internal party dues documents from both parties are reprinted in Appendix 1.)
But you get what you pay for. Built into these valuations is the implicit extortion value of the seat. Sitting on the House Financial Services Committee means you can extract lots of money from wealthy financial institutions. But a slot on the Ethics Committee gives you little opportunity for extortion—except perhaps from your fellow members of Congress who are facing ethics investigations. Members of the Ethics Committee can and do receive donations from their colleagues and party leadership! The modern congressional-assignment pricing system is very much like the old Tammany Hall machine in New York City. At its height, Tammany could charge a candidate a fee to allow him to run for office (which meant winning that office, since New York City was a one-party town). If you wanted to be a senator, you paid. Once you were in office, you could earn back your investment through graft.
Today’s Congress is similar. It’s a largely pay-to-play system. Politicians who get on a powerful committee but refuse to pay their dues will get yanked from the committee no matter how knowledgeable they might be on the relevant issues. House Minority Whip Steny Hoyer suggested such a thing might happen when several members on powerful committees weren’t raising enough money. He threatened them with a “separate vote on their panel [committee] assignments if they fail to pay their party dues,” reported the National Journal Daily. One of Hoyer’s top aides told the magazine, “You sit on an exclusive committee and you have a responsibility to do more.” It was a thinly veiled reference to extracting more money.24
What this system does, of course, is encourage members of Congress from both parties to amass more power for their committees. If you have more industries and companies under your purview, it will be easier for you to pay your party dues, not to mention easier to raise your campaign funds. Reducing the power of committees makes both tasks more difficult.
Current members of Congress acknowledge the existence of these “dues” in private conversations but don’t want to talk about them publicly, for fear of retribution from party and congressional leaders uneager to see the pay-to-play system exposed. Those who have recently left Congress are more willing to speak openly. Former Democratic congressman Jim Cooper of Tennessee has spoken about the clear link between paying your dues and getting on key party committees.25 Former Republican congressman Thaddeus McCotter from Michigan denounced the practice while in leadership as akin to a “pay-to-play.”26
Lawmakers who have trouble raising money to pay off their yearly debt can wipe out portions of it by performing certain tasks. The National Republican Congressional Committee will give members of Congress “credits,” such as $5,000 for attending a congressional fund-raising dinner or making a certain number of fund-raising calls.
Apart from the hidden dues system, there is another major—but also hidden—source of politicians’ funds: each other. Federal laws are very clear: a politician can’t solicit or receive campaign contributions in congressional buildings or in the U.S. Capitol. But there is a little-talked-about exemption to that rule. It’s an exemption that doesn’t get talked about, but is a major tributary in the flow of money into the hands of the Permanent Political Class. The exemption states that “the rules and standards of conduct enforced by the Standards Committee do not prohibit Members from soliciting (or receiving) campaign or political contributions from other Members in the House buildings” (emphasis in the original). It’s a huge loophole that makes it possible for members to link their votes to cash.27 This can involve large sums of money. Members of Congress receiving these funds can even convert them into personal cash in their own pockets!
The Federal Election Campaign Act of 1971 allows for the transfer of unlimited campaign funds from campaign committees to any national, state, or local committee of any party.28 Politicians can also transfer money to another candidate, with certain limitations. Leadership PACs are not just about electing fellow party members to office. They also play a key role in determining how much time you get on the House floor or whether your bills get voted on. One academic study found that politicians who transfer funds to their colleagues “enjoy more success in getting their bills scheduled for legislative action.”29
Raising money is far easier for a powerful member of Congress than for a junior member. If you are the Speaker of the House, you have maximum power to move or halt bills. So you can amass large sums of money and then transfer those funds to junior colleagues in exchange for favors and votes. Suppose you are the Speaker of the House and in your leadership PAC you currently have $2 million. You are trying to push some recalcitrant members from your party to join you on a vote for something. It is perfectly legal for you to meet with those members in your office and offer to transfer cash from your PAC to their campaign funds.
Both parties use donations to buy votes. In 2009, when the American Clean Energy and Security Act was up for a vote, the outcome was in doubt. During the week of June 23, 2009, right before the vote, four Democratic leadership PACs gave out $130,000 in donations to forty-one Democrats who were on the fence. Congressman Jim Clyburn’s Friends of Jim Clyburn PAC handed out $60,000 to undecided members two days before the vote.30 The bill did pass the House, by a scarce seven votes.31
It’s mind-boggling to look at all the tributaries of cash that flow underground and aboveground in Washington. Consider the 2012 elections and Speaker of the House John Boehner’s fund-raising machine. Boehner has a personal campaign committee, a leadership PAC, and a so-called joint fund-raising committee. He can tap wealthy donors for all three committees, and indeed, he often does. Boehner’s campaign committees transferred $22.4 million to the National Republican Congressional Committee for the 2012 election, according to FEC records. Over $11 million of that came from his campaign committee, Friends of John Boehner, and more than $10 million came from his joint fund-raising committee. Meanwhile, his leadership PAC, the Freedom Project, together with his campaign account, gave a total of $2.4 million directly to 2012 congressional candidates.32
With a so-called leadership PAC, Boehner can transfer money to his colleagues’ campaign committees ($10,000 a year per colleague) and donate another $10,000 to the same colleagues’ own PACs. He can also transfer unlimited amounts of money to the National Republican Congressional Committee, which can then turn around and spend unlimited funds supporting those candidates’ reelection bids. Alabama recently barred transfers of money between political action committees in the wake of a fund-raising scandal in that state. But even though it’s illegal in Alabama, it’s perfectly legal in Washington.
Leadership PACs are often larded with donations from corporate and/or labor union PACs, as well as from PACs controlled by lobbyists. House Minority Leader Nancy Pelosi’s leadership PAC, PAC to the Future, took in $457,895 in 2012 from individuals as well as $645,000 from other PACs. She transferred $854,500 to other Democrats running for office, many of them incumbents.33 Leadership PACs can raise money more quickly than regular campaign committees because while individual donations to campaigns are limited to $2,600, leadership PAC donations are capped at $5,000 (as of 2013). Pelosi and Boehner run their PACs in a similar manner. In 2012 Pelosi moved $187,700 from the Nancy Pelosi Victory Fund (a so-called affiliated committee) to her leadership PAC. “The reason you form a leadership PAC is you want to help your colleagues, because the more you help your colleagues, the more influence you have,” Congressman Rob Andrews of New Jersey told the Office of Congressional Ethics Board. “The more influence you have, the more you can get done.”34
Boehner and Pelosi can give money to candidates to help them win, but they can also give donations in exchange for votes or in exchange for support when they seek a leadership position. In 2009, for example, FEC records show that Pelosi’s leadership PAC made a series of donations to so-called Blue Dog Democrats. These were centrists who were concerned about some aspects of the health care reform bill. They ended up voting for the bill. How crucial were Pelosi’s donations to getting their support? They will never answer this question. FEC records indicate that Speaker of the House John Boehner, facing a challenge for his position in early 2013, likewise used the transfer of campaign donations to certain members of Congress to shore up support from those who might be inclined to vote against him. Perhaps we should take some vicarious pleasure in the fact that our politicians are willing to extort one another, not just us.
Politicians say that the purpose of a leadership PAC is to help elect their colleagues. But because politicians are able to discuss votes and transfer money between themselves, it is easy to see how the buying and selling of votes might very well be occurring more frequently than we think. Money often flows to incumbent members of Congress in safe seats, raising the question: why exactly is money going to incumbents virtually certain to get reelected, particularly on the eve or day of a critical vote?
Because the political class has created this exemption for themselves, they take full advantage of the opportunity to leverage their position and extract donations from others. In short, they can’t legally sell their votes to us. But they can sell them to their colleagues.
In recent years, big fights over the federal budget and the debt ceiling have erupted against a backdrop of money transfers between politicians. How are these transfers connected to those fights? And what about the cash transfers we don’t know about? Congressional leaders can direct money flows from party committees that don’t always show up right away on disclosures.
Consider what happened in 2011, when Capitol Hill was in full gridlock mode over the federal budget. On September 20, Speaker of the House John Boehner scheduled a floor vote on a stopgap spending bill. It included spending for the victims of a series of recent natural disasters—most notably those who suffered massive hurricane damage in New Jersey and New York—but the bill also included spending increases in other areas. The bill went down to defeat, but in a very unexpected way. Fiscally conservative Republicans joined with an overwhelmingly large group of Democrats to oppose the bill. The two groups opposed it for different reasons, but together their opposition sent the bill crashing to defeat on a 230–195 vote.35
It was a stinging rebuke to GOP Speaker John Boehner. As the New York Times put it, the vote “showed the Republican leadership’s continuing struggle to corral the most conservative members of the caucus, as more than 40 Republicans rejected the measure because they did not believe it cut spending enough.”36 For Democrats, it was a huge victory. Even though they were in the minority, they had managed to throw a wrench into GOP plans. Republicans knew that they would need some Democrats to cross the aisle to make up for the Republican freshmen in revolt. However, only six Democrats supported the bill in the end. “The most important part of the vote was Democratic unity,” as one senior House Democratic aide told the National Journal.37
When a contentious vote on another budget bill came up in December, events played out differently this time. An infusion of money helped. Under fire from Senate Republicans, the House leadership prepared for another critical vote to determine the fate of an important budget bill (H.R. 3630: Middle Class Tax Relief and Job Creation Act of 2012). The bill included the extension of a payroll tax cut and unemployment benefits. The night before the vote it was still open as to whether House Republicans had the votes. On December 20, John Boehner’s leadership PAC sent out a whopping $420,000 in contributions to his Republican colleagues.38 The bill was referred to the conference committee on a narrow vote of 229–193, the same day, a huge win for Boehner.39
Many of these donations went to incumbent Republicans who were in safe seats. For example, $5,000 went to Congresswoman Diane Black, who would win reelection less than a year later by over fifty-three percentage points.40 Scores of other colleagues in safe seats who won reelection by twenty percentage points or more received contributions as well. These individuals ended up voting in favor of the bill, helping to quell what the New York Times called a “revolt” against Boehner.41 Likewise, Republican whip Kevin McCarthy used his leadership PAC to send donations around the same time to safe incumbents, including those in safe seats who won by margins of 20 percent or more.42 Why give campaign cash on the day of a vote or near a vote to incumbents in safe seats?
Democrats do the same thing, particularly when they are in the majority. As we saw earlier, this happened during the 2009 vote over the Clean Energy Act. The vote came down to a handful of members. Democratic Majority Leader Steny Hoyer pumped cash to Congressmen Gregory Meeks, Ed Markey, and Jan Schakowsky, all of whom won reelection by more than thirty percentage points.43 And all voted in favor of the energy bill.44
But leadership PACs are not only helpful in buying votes. They are also key in getting a member’s own bills through a committee and voted on by the full House. One key determining factor in who politicians donate to is whether they serve on the same committee.45 It helps smooth the way for their bills.
Academic studies show that giving money to your colleagues is helpful if you want to get your bill voted on. Because the House leadership sets the legislative agenda and creates the calendar, you have to go through them to get your bill to a vote. And one of the best ways you can accomplish that is by donating to colleagues through your leadership PAC. One scholar scrutinized every piece of legislation, “including bills, resolutions, and amendments,” that was presented in the House between 1987 and 2002.46 She then correlated that data with all contributions from members of Congress to each other. She found that increasingly raising money and giving it to colleagues significantly boosted your chances of getting your bill to a vote on the House floor.47 The problem has become even worse since then as more and more members have created leadership PACs.
The simple fact is that members of Congress build alliances to pass legislation, and the currency they often use is money.48 As one member bluntly put it, “Having a leadership PAC helps me tremendously with my colleagues, whether it’s getting legislation through, getting their support for it . . . or if I ever get in trouble, they will be more willing to help me.”49
Leadership PACs also allow yet another way around fund-raising restrictions, a little-known technique called “conduit contributions.” These are contributions that a politician solicits for a colleague but funnels through his or her own leadership PAC before transferring it to the colleague’s campaign coffers. There is no cap on the amount of money that can flow. Obviously, this can be a key method for getting colleagues to support a bill or something else you might want. During the 2010 election cycle, for example, Congressman Nick Rahall from West Virginia received over $82,000 in “conduit contributions” funneled through West Virginia senator Jay Rockefeller’s leadership PAC, Mountaineer PAC. Another colleague, Congressman Alan Mollohan, received over $77,000.50 The most adept at this method during the 2010 cycle was Democratic whip Steny Hoyer’s Ameripac, which funneled over $2 million to his colleagues and to party committees.51
Politicians are not allowed to use campaign cash for their own personal use, but they have managed to find a way around even this restriction. And the tributaries of the Underground Economy in Washington allow for the creative transfer of campaign money into the private pockets of politicians and their families. Water always flows downhill, but this is a real low point.
Many Americans struggle to decide how to invest their money. From year to year, the stock market, the bond market, and money market accounts have all featured inconsistent and unpredictable returns. But for members of Congress there is a unique “investment” that can guarantee them essentially any rate of return they think they can get away with.
Back in 1998, a member of the California State Assembly, Grace Napolitano, loaned her congressional campaign committee $150,000. She won the election and has served in the U.S. Congress ever since. She never asked for the money back. Instead, she charged her campaign an eye-popping 18 percent interest for almost twenty years, never paying off the loan. She pocketed more than $200,000 in interest payments during the first decade of the loan.52 In 2006 she dropped the interest rate to 10 percent, but kept paying herself interest.53 During the 2008 and 2010 election cycles, she pocketed another $94,245 in interest.54 Napolitano is a longtime member of the House Committee on Natural Resources and the House Transportation Committee, which means that donations from industries in those areas were not only donating to her campaign but also putting money in her pocket.
Napolitano is not alone in using this technique to convert campaign donations into cash lining her own pocket. At least fourteen other members of Congress do the same thing. They are supposed to charge a “commercially reasonable” rate on loans to campaign committees, but that number is never defined, nor is the provision enforced. Congresswoman Colleen Hanabusa of Hawaii loaned her campaign $125,000 and pocketed more than $31,000 in interest payments during the 2008 and 2010 election cycles. (Hanabusa sits on the powerful House Armed Services Committee.) Congressman Paul Broun of Georgia loaned his campaign $309,000 and collected nearly $29,000 in interest during the 2010 election cycle. (Broun originally told the Federal Election Commission that he wouldn’t charge any interest at all.)55
Like many things related to politicians, there are no strict rules here—or no rules that cannot be skirted. A politician can carry a loan like Napolitano’s on the books for years and generate considerable cash flow by doing so. The FEC doesn’t enforce requirements about interest rates or put caps on how long loans can be kept in place. Candidates carry these loans even though they often have the cash to pay them off. Why would they ever pay them off? Who wouldn’t want to be able to loan money to themselves and get a guaranteed double-digit interest rate in return? It provides a hidden way to convert campaign donations into personal cash.
Though it is actually legal for politicians to pay themselves a salary when they are running for office (few do in fear of negative publicity), nothing stops them from paying their family members and family businesses for ill-defined services or undefined purposes. During the 2008 and 2010 election cycles, eighty-two members of Congress had their family members on the campaign payroll or hired them as “consultants.”56 Here is a sample:
Members of Congress also hire family businesses for services:
Often campaigns with little or no opposition are prime locations for family members pulling down salaries.
There are some other ways in which campaign dollars can be used to benefit politicians and their families. Like many members of Congress, Congressman Randy Forbes of Virginia pays rent to himself. During the 2010 election cycle, his campaign paid $35,400 to rent a building that he owns in Chesapeake, Virginia.63 Congressman Gary Miller is the founder and president of G. Miller Development Company, a California-based construction company. You might think that a construction company can’t do much for a campaign. You would be wrong. In 2010 Miller’s campaign committee paid his construction firm $61,975 for “fund-raising.”64
Congressman Robert Andrews of New Jersey might get the award for creativity and artistic ability: He funneled campaign money to several theaters that would engage his daughter (an actress and singer) to perform. His campaign donated money to the Rock School of Dance, where his daughter trained, and then paid the Prince Music Theater and the Walnut Street Theater, both in Philadelphia, tens of thousands of dollars in donations for events and “expenses.” His campaign also bought tickets for school groups to attend performances. His campaign committee donated to the Broadway Theater in Pittman, New Jersey, where his daughter performed. And when she performed at Six Flags Great Adventure Theme Park in New Jersey, his campaign picked up meal expenses.65
Congressman Silvestre Reyes of Texas must eat a lot of food and travel in high style. During the 2010 election cycle, his campaign committee reimbursed him $144,115 for travel, office supplies, and food. His campaign also reimbursed his niece for $90,905 worth of “office supplies, travel expenses, campaign gifts, and charitable donations.” Congressman Aaron Schock of Illinois used campaign funds to reimburse stays at five-star resorts in Miami and in Athens, Greece. No word if there are any Illinois district voters in those locales.
So much for our partial tour of the hidden rivers of cash in Washington. They flow in many directions, and via some very clever culverts and springs. But now it is time to go back to the headwaters. With so many uses and recipients, the system needs a lot of cash at the start. Aside from milker bills, what else can the Permanent Political Class deploy?