|BUSINESSWEEK ONLINE : OCTOBER 9, 2000 ISSUE|
Political Fund-Raising: Any Which Way They Can
Both Dems and Republicans are devising creative schemes to rake in campaign contributions
The idea hit longtime Democratic fund-raiser Bob Burkett while surfing Internet auction sites for political memorabilia. If eBay can make money auctioning junk art collecting dust in America's garages, why not raise funds for the Democratic Party by selling real works of art online? On Sept. 11, the political equivalent of eBay went live on the Net: DNCart2000.com offers works by more than 50 leading contemporary artists, from Andy Warhol to photo-realist painter Chuck Close, and could raise millions for Democratic candidates.
The e-vent is a testament to Campaign 2000's no-holds-barred dash for cash. Both the Democratic and Republican parties have amassed record hoards. But with Election Day just five weeks away, Al Gore and George W. Bush running neck-and-neck in the polls, and control of the House up for grabs, both parties are employing increasingly creative fund-raising schemes such as soliciting stock donations from Silicon Valley executives.
The ultimate goal of both parties is to reel in wads of ''hard dollars.'' These are smaller, individual donations--$1,000 per candidate per election and no more than $20,000 to a political party--that can be spent directly on campaigns. Unlimited checks from wealthy individuals, corporations, and labor unions--also known as soft money--can't be spent on individual campaigns because that money is technically meant to help with party-building activities. In the closing days of a campaign, hard money is crucial because it can fund last-minute ''vote for me'' ads by candidates. And it helps pay for issue ad blitzes by the parties, which by law must spend a ratio--usually 35%-65%--of hard and soft money for such spots.
HUNGRY. The Democrats are especially hungry for hard dollars. While they have caught up with the GOP in the soft-money contest, they trail badly in hard dollars because of a smaller donor base. ''Until there is campaign-finance reform, Democrats have to be incredibly creative,'' says Louis Weisbach, chairman of HA-LO Industries Inc., a Niles (Ill.) marketing company. Weisbach and his wife have given $350,000 in HA-LO stock to Dems.
With more of their wealth on paper than in the bank, many corporate execs who want to contribute have to be inventive, too. Take Kim Polese, a lifelong Democrat who is chairwoman of Marimba Inc. ( MRBA), a Net software provider in Mountain View, Calif. With 99% of Polese's assets in company stock, she gave the Democratic National Committee $5,372 by donating 100 Marimba shares.
Thanks in part to the bull market, stock gifts to candidates and political parties are mushrooming. And other stock-related deals are emerging. Derek W. Smith, a Republican running for Congress in Utah, is financing his campaign largely with sales of restricted stock in his privately held iEngineer.com. Buyers of the shares include some of his campaign supporters. Dot-com execs are even seeding political action committees with pre-IPO stock in hopes of being able to give big to candidates in 2001. ''It's part of the Nasdaq culture,'' says Simon Rosenberg, president of the New Democrat Network, a fund-raising arm for centrist Dems.
WATCHDOGS. But to campaign-finance watchdogs, turning shares into campaign contributions raises ethical and regulatory concerns. And their suspicions are fueled by the refusal of Dems and Republicans to release a list of stock donors or reveal how many shares they have received. Despite Federal Election Commission rules requiring that stock donations be identified, parties report them as cash gifts. That makes it impossible to determine who is giving stock or how long the party has held it.
To the critics, political parties that become shareholders would have an incentive to protect the companies whose shares they hope will appreciate. And it could also bust hard-dollar caps if stock prices soar. Say shares valued at $20,000 this week--and thus qualifying as hard money--zoom in value to $50,000 down the road. Under FEC rules, that $50,000 still qualifies as hard money. ''It's giving a contribution...that will grow in value,'' says Larry Makinson, executive director of the Center for Responsive Politics, a campaign watchdog group. ''It stinks to high heaven.'' FEC Commissioner Scott E. Thomas disagrees, saying the potential conflicts from stock donations are no different than those from soft-money gifts.
Political parties so far have been careful to avoid conflicts by liquidating stock swiftly, sometimes within 24 hours. In nonelection years, however, political committees might be tempted to hang on to their shares and play the market in hopes of rebuilding war chests.
And the stock-for-pols trend is likely to grow. To cash-strapped dot-com execs, equity contributions are one way they can compete with more established corporations for lawmakers' attention. In Silicon Valley, a handful of execs have created PAC.com, a political action committee that will be funded with their personal holdings of pre-IPO stock. Once the shares in the PAC's kitty hit the market, the committee will make cash donations to candidates. That could be as soon as 2001. Wade Randlett, vice-president of San Francisco Internet startup Red Gorilla and a co-founder of PAC.com, says he's helping execs form similar PACs in San Diego, Northern Virginia, Seattle, and Boston.
HARD-MONEY CAP. While trolling for stock donations is bipartisan, auctioning art online for political gain is strictly a Democratic venture--so far. The idea grew out of a live auction at a New York gallery last year that raised $1.8 million for Hillary Rodham Clinton's Senate race. Buoyed by that take, DNC Deputy Finance Chairman Peter S. Knight was casting about for ways to do the same for other candidates when Burkett suggested an art auction in cyberspace.
Knight tapped two Democratic backers from the art world to solicit limited editions and original works from artists: Close and Ron Feldman, a New York gallery owner. So far, they have rounded up more than 2,000 items for the auction, which will take bids through Oct. 12. Among the artists represented: Robert Rauschenberg, Claes Oldenburg, and Roy Lichtenstein. Potential bidders pay $1,000 for the chance to buy online, $500 of which can be applied toward their first purchase.
While the cyber auction isn't controversial, it lets the party maximize the $20,000 hard-money cap. If a bidder pays more than that for an item, the DNC just routes the excess to soft-money coffers. ''We have long thought that investing in politics was an auction where candidates are sold to the highest bidder, and this confirms it,'' says Ellen S. Miller, president of Public Campaign, a nonpartisan group that advocates public funding of elections.
Such concerns are far from the minds of participating artists, who get nothing for contributing their work. Architect Frank Gehry, who donated a star-spangled guitar valued at $50,000, says he's ''terrified'' that Bush's election could usher in an era of drastic cuts in federal funding for the arts.
Apparently he has company. The DNC says the art auction is so popular that writers and performing artists are offering to auction their time, too. For example, the Democratic faithful can bid on a golf outing with Martin Sheen, who plays the President on the hit TV series The West Wing. And there's a walking tour of New York with author E.L. Doctorow and a chance to have Tony Randall play butler at your next dinner party. Why, even Republicans might be tempted to give to the enemy in exchange for having Felix Unger serving the lobster bisque.
By Amy Borrus and Lorraine Woellert in Washington
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