Online Extra: Courting Politicians on the Sly

The ban on corporate contributions hasn't completely eliminated companies' influence. Here are two loopholes

By Richard S. Dunham

Even with a flat ban on corporate contributions to federal political candidates, there are still plenty of ways that companies can make their presence felt in national politics. About 300 corporations have assisted politicians by taking advantage of a loophole that allows businesses to fly candidates on their company jets for a fraction of the cost of charter service (see BW Online, 5/22/06, "Loopholes a Jet Could Fly Through").

However, there are other obscure but increasingly popular ways that politicians can get extra help from companies, their political action committees, and like-minded executives. Here are two examples:

The Virginia Connection

It may seem odd to the casual observer that Republican New York Governor George E. Pataki has a political action committee registered in Richmond, Va. Pataki has never run for anything in the Old Dominion and has announced no plans to, unless you count the 50-state Presidential campaign he's considering. The reason he and other Presidential hopefuls create PACs in Virginia is that the state permits corporations and individuals to give the groups unlimited amounts of money.

Pataki's 21st Century Freedom PAC has received more than $25,000 apiece from Verizon Communications (VZ ), Kawasaki Rail Car, Metropolitan Life (MET ), Delta Air Lines (DALRQ.PK ) and chewing tobacco maker UST (UST ). All told, it has taken in more than $1 million since 2000. Pataki has spent most of that to travel to early Presidential battlegrounds such as Iowa and New Hampshire, as well as for donations to GOP candidates around the country. The Virginia PAC, says one Pataki strategist, allows the governor "to remain a very active voice in the Republican Party" as he contemplates his future.


  This kind of "soft money" was banned at the federal level by the McCain-Feingold reform law of 2002. But Virginia never changed its laws and has become a haven for corporate donors. Other states could do the same, but Virginia's proximity to the nation's capital has created a cottage industry of out-of-state politicians' PACs. "Virginia is for PACs what Delaware is for corporations," says Kent Cooper, co-owner of PoliticalMoneyLine and former disclosure chief of the Federal Election Commission.

There's a catch, though: As soon as a politician officially declares for President, McCain-Feingold kicks in and the candidate can no longer take advantage of the Virginia loophole. In addition to Pataki, at least nine other politicians and national political committees are taking advantage of the opportunity. Among them are potential Presidential aspirants Mike Huckabee, the Republican governor of Arkansas; former Virginia Governor Mark R. Warner, a Democrat; and former Senate Majority (and Minority) Leader Tom Daschle (D-S.D.).

Huckabee's Healthy America PAC, named in honor of his 100-pound-plus weight loss, has collected $180,845 since its creation last summer. His corporate patrons include Beverly Healthcare, an Arkansas-based nursing home chain, and PepsiCo (PEP ). Huckabee says that registering a committee in Virginia provides "a definitive advantage" over PACs registered in most other states. "Virginia's laws are very friendly to a much broader range of activities than other states allow," he says.

The Capitol Hill Bonanza

Hillary Rodham Clinton (D-N.Y.) looks like she's coasting to an easy reelection in 2006, but her campaign is still raising gobs of money. "We take this election very seriously," says Ann F. Lewis, a senior Clinton adviser. "We have no doubt that there will be harsh, hard-hitting attacks from independent groups, and Senator Clinton intends to be prepared for the attacks."

That may be so, but there's another good reason for Clinton to build up her war chest: Federal officeholders are permitted to transfer unused congressional campaign funds to a future Presidential race. So it's no surprise that in the 2006 election season, several senators with White House dreams are raising tens of millions more than they are likely to spend this year. The Capitol Hill loophole provides an advantage over Beltway outsiders who can't transfer money from state-campaign coffers into a federal race.

"A Southern governor may have a strategic advantage, but the congresspeople have tens of millions more to start with," says Ellen Qualls, a longtime aide to Warner, the former Virginia governor. "If Mark Warner were to declare for President, he'd start with zero."


  Warner does have a personal fortune from his time in the wireless communications industry that he could use to level the playing field, but the general point holds. Thus far, Clinton has banked $19.7 million, and Democratic insiders predict that she could end the year with more than $30 million.

Senator Evan Bayh (D-Ind.) has followed a similar strategy. He's not up for reelection for four years, but he had amassed $9.8 million as of Mar. 31. Two prospective Republican candidates, Virginia Senator George Allen and Pennsylvania Senator Rick Santorum, each have squirreled away more than $7 million. But they both face tough competition this fall and, unlike Clinton and Bayh, can't take the risk of hoarding cash for '08.

There's one other big name who can take advantage of the federal loophole. Senator John Kerry (D-Mass.) still has $14.6 million left over from his losing 2004 Presidential campaign that he could use as a nest egg for an expensive intraparty struggle with Senator Clinton and others.

The federal loophole gives these officeholders more than just a jump-start in Presidential fundraising. The loophole also effectively allows individuals and corporations to legally give double the limit by donating the maximum amount to those senators this year and then contributing again if the same person runs for President in 2008.

Dunham is BusinessWeek's Washington Outlook editor

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