A tighter squeeze.

Photographer: Scott Olson-Getty Images

Donor Rules Pinch Walker and Christie

Jeanne Cummings writes on money, lobbying and politics. As political editor for Bloomberg News, she directed coverage of the 2012 and 2014 elections. The 2016 race marks her seventh presidential campaign.
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This summer, right when the presidential primary fundraising season is in full bloom, the Securities and Exchange Commission is expected to make running for president harder for some candidates than for others. In fact, that's already the case.

Governors Chris Christie, Bobby Jindal and Scott Walker are off limits to some financial industry donors. "Pay to play" rules restrict the governors' ability to accept contributions from investment advisers who work with state and local governments on pensions and bond deals. An SEC ruling could significantly expand that pool of prohibited contributors by July.

The original SEC "pay-to-pay" rule took effect in 1994, spurred by disclosures that investment advisers had received lucrative business contracts after contributing to political campaigns. Former New York State Comptroller Alan Hevesi served 20 months in prison, beginning in 2011, for steering $250 million in pension funds to an investment firm in exchange for more than $500,000 in donations and other benefits.

Thousands of prospective contributors, including many in New York banks, are essentially banned from donating to a sitting governor's presidential finance team. Since the 2010 Dodd-Frank financial regulation overhaul, the number of financial advisers covered by the rule has expanded twice. A third expansion -- including advisers who help structure municipal bond deals and invest the funds -- is expected by July. 

For now, the prohibition is probably less damaging to Walker than to Christie. Unlike Christie, whose donor base is on Wall Street, the Wisconsin governor built a large small-donor base during his 2012 recall election. But the inability to tap Wall Street funds could hinder Walker, too, as the campaign progresses. Former Florida Governor Jeb Bush, for example, is free from such fundraising constraints.  

In addition to SEC rules, Christie confronts a local problem. New Jersey lawmakers recently passed legislation to prohibit donations to national political committees from investors who manage the state's pension funds. Legislators confirmed that crowding Christie's political space was part of their motivation for the law. The governor hasn't yet said whether he will sign it.

A prodigious fundraiser, Christie retains ties to plenty of wealthy supporters. But SEC regulations have previously shadowed his ambitions. According to "Collision 2012," by Washington Post reporter Dan Balz, during Republican presidential nominee Mitt Romney's vice presidential search, he asked Christie if he would consider resigning to escape pay-to-play rules. Romney's campaign went on to raise $21.5 million from the securities and investment sector, the top industry backing his campaign. (Additional funds flowed from the industry to political action committees allied with Romney.)

Later this month, the U.S. Court of Appeals for the D.C. Circuit will hear arguments in a lawsuit filed by two state Republican Party committees seeking to overturn pay-to-play regulations. "Everyone running for federal office should be subject to the same set of rules," said Jason Torchinsky, a former counsel to President George W. Bush's 2004 campaign and one of the attorneys who brought the case. The plaintiffs argue that the SEC lacks jurisdiction over political donations and that the rules violate donors' First Amendment rights. Christie supporters may try to avoid the rules by creating a super-PAC that would function independently from a campaign committee. Similarly, Walker allies have created Our American Revival, another super-PAC (although Walker doesn't call it one).

It's unclear how many Wall Street executives would risk donating even to a super-PAC allied with a sitting governor. A prohibited contribution for as little as $150 could lead to a two-year ban on doing business in a state.

"There is an anti-evasion provision in the pay-to-play rules that would provide the SEC with the ability to clamp down on laundering money through super-PACs to help Chris Christie or Scott Walker," said Craig Holman, a lobbyist for Public Citizen, which supports the SEC rules. "Given the SEC's vigilance, I can see it trying to address that."

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Francis Wilkinson at fwilkinson1@bloomberg.net