Bloomberg News

Political Donors Hit Up for Cash Hours After Court Ruling

April 03, 2014

Charles Schwab Corp. Chairman Charles Schwab

Twenty donors were nearing or had hit the limit for the 2014 elections, Sunlight found, including Charles Schwab, a Republican donor and chairman of the discount brokerage firm that bears his name. Photographer: Daniel Acker/Bloomberg

Within hours of a U.S. Supreme Court decision paving the way for a new gusher of political cash, Ben Barnes’s telephone starting ringing.

He and his daughters had already given the maximum amount for this year’s congressional elections to candidates and committees under federal law. After that donation cap was overturned in a 5-4 court ruling issued by the justices yesterday, Barnes found himself on the telephone with two Democratic members of Congress seeking more money.

“This will make the phone ring all that much more,” said the longtime Texas donor who expects to be kept busy managing new solicitations in the days ahead. “Tomorrow’s going to be like Saturday at the grocery store,” said Barnes.

In a case brought by Shaun McCutcheon, an Alabama Republican official, the court struck the $123,200 overall limit on campaign contributions, which critics said hamstrung the number of candidates and committees that donors could support. The majority justices said the limit violated the donors’ free speech rights. The court left in place restrictions on how much a donor can give to one entity; for example, no more than $5,200 total to a candidate for a cycle's primary and general elections.

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As a result of the ruling, a contributor will be able to spread $3.6 million -- about 30 times the old limit -- among party committees and candidates for the 435 House and 36 Senate seats in play.

“I’m in favor of expanding the number of people I can give money to,” said Bernard Schwartz, a Democratic donor and chairman and chief executive officer of BLS Investments, a New York-based private investment firm.

New Committees

Political parties will establish joint-fundraising committees so donors aren’t saddled with the task of writing hundreds of checks, said Bob Biersack, a retired Federal Election Commission official. These new entities will need to file paperwork with the FEC -- something Biersack said probably already is in process.

Yesterday’s decision enlarges the pipeline for wealthy donors who prefer to give their money the traditional way, to candidates and parties, as opposed to outside groups that emerged after the Supreme Court’s 2010 Citizens United ruling, which, along with other decisions and regulatory action, eliminated restrictions on political spending by unions, corporations and individuals.

“High net worth individuals are now an even more productive source for fundraising,” according to an analysis of the decision by campaign-finance lawyers at the Washington-based firm Covington & Burling LLP.

Maxed-Out Donors

Schwartz is part of a stable of 1,323 donors who gave as much as they legally could in the 2012 elections, according to a report by the Sunlight Foundation, a Washington-based group that tracks campaign spending.

Twenty donors were nearing or had hit the limit for the 2014 elections, Sunlight found, including Charles Schwab, a Republican donor and chairman of the discount brokerage firm that bears his name; George Krupp, the Democratic co-founder of Boston-based Berkshire Group, a privately held investment company; and Scott Bommer, president of SAB Capital Management LP, a New York-based hedge fund, who gives to Republicans.

The FEC itself hadn’t seemed to be paying much attention to the limits, said Lee Drutman, a senior fellow at the Sunlight Foundation. His research also identified almost 600 donors who exceeded the $117,000 aggregate limit for 2012 giving.

Not all donors will embrace the ruling. “Sorry, I’m maxed out for the cycle” has been a common way for them to politely dodge a candidate’s request for money.

Phones Ringing

“If you’re a donor, you’d better prepare to get lots of calls from a much wider number of candidates,” said Kevin Madden, a strategist who worked on Republican presidential candidate Mitt Romney’s 2012 campaign. “They’ll see an uptick in those solicitations.”

One Democratic donor says he won’t change his pattern of contributions in light of the ruling.

“With the caps removed, I can’t imagine that my giving levels would change. I give to whom I want to give, and I give what I think is an appropriate amount,” said Robert Glovsky, the vice chairman and senior financial counselor at The Colony Group, a Boston-based wealth-management fund. “I, like many people, wasn’t aware of the aggregate limits.”

Standing to gain the most from the change are the Democratic and Republican parties. Until now, aggregate limits were so tight that it prevented donors from giving the maximum amounts to all three of the national party committees: one for House candidates, another for Senate contenders and the third to finance operations at the national headquarters.

State Kitties

In addition, contributors may now give $10,000 per year to federal units attached to the 50 state parties. Those state parties can transfer money freely to one another, enabling those with hotly contested races to stockpile funds from less-competitive states.

The bottom line: On April 1, a donor could give no more than $74,600 to all of the political parties every two years. Today, party contributions can be as much as $1,194,400.

“Probably the most important aspect of this decision as a practical matter is that it strengthens the parties,” said Dirk Van Dongen, president of the National Association of Wholesaler-Distributers and a longtime Republican fundraiser. “Campaign-finance reforms and Citizens United have weakened the party committees such that they are often the caboose of contribution-consideration sequencing,” he said. “Strong parties are better for the political system than weak parties.”

Yesterday’s ruling doesn’t affect the pathways that previous Supreme Court rulings have opened for contributors to super-political action committees and politically active nonprofit organizations.

Super-PAC Loyalists

For example, billionaire former hedge-fund manager Tom Steyer has pumped $11 million this year and last into a super-PAC he formed to help Democratic candidates interested in environmental issues. And billionaire energy executives Charles and David Koch invest in Republican-aligned organizations that don’t disclose their donors.

Those three also typically have reached the aggregate limit on traditional kinds of giving, FEC records show.

John Jordan, a California winery owner who gives to Republican candidates, said doing away with the aggregate contribution caps won’t affect the largest donors, including himself.

‘Choke Point’

The “real choke point” for money in politics is the restriction on what donors can give each candidate, he said, currently $2,600 per election, or $5,200 per cycle.

“I’ve raised and spent millions of dollars and never bumped up against these aggregate limits,” he said. “If you want to spend $2-to-$3 million on an election, you can’t even hardly do that in $2,600 chunks. Plus, there are only so many competitive races out there with candidates I’d want to give to.”

He doesn’t expect to get a new flood of phone calls, saying savvy candidates have long known how to extract money from him. He said he continues to see super-PACs as the best way to have an impact on a race. He invested $1.5 million in his own super-PAC last year to help fellow former Naval officer, Gabriel Gomez, in the Massachusetts Senate race. Gomez lost to Democrat Ed Markey.

To contact the reporters on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net; Annie Linskey in Washington at alinskey@bloomberg.net; Greg Giroux in Washington at ggiroux@bloomberg.net

To contact the editors responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net Mark McQuillan


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