The $100 Million Exemption

THE $100 MILLION EXEMPTION SOFT MONEY AND THE 2004 NATIONAL PARTY CONVENTIONS THE CAMPAIGN FINANCE INSTITUTE JULY 2004 THE $100 MILLION EXEMPTION SOFT MONEY AND THE 2004 NATIONAL PARTY CONVENTIONS A CFI Report by Steve Weissman and Ruth Hassan The Campaign Finance Institute is a non-partisan, non-profit institute, affiliated with The George Washington University, that conducts objective research and education, empanels task forces and makes recommendations for policy change in the field of campaign finance. Statements of the Campaign Finance Institute and its Task Forces do not necessarily reflect the views of CFI’s Trustees or financial supporters. For further information, visit the CFI web site at www.CampaignFinanceInstitute.org. For Additional Copies The Campaign Finance Institute 1990 M St. NW, Suite 380 Washington, DC 20036 202-969-8890 www.CampaignFinanceInstitute.org Contents INTRODUCTION …………………………………………………………….….. 1 I. PAYING FOR POLITICS: The Escalation of Private Financing and What It Lets Parties Buy.…........ 4 Convention Expenses …………………………………………….. 6 Large Contributions ………………………………………………. 9 II. LEADING FUNDRAISERS: The Political Element in Host Committee Fundraising ......……………….. 10 Boston Host Committee (Democratic Convention) ……………… 11 New York Host Committee (Republican Convention) …………... 14 III. MAJOR DONORS: The Political Contributions of Host Committee Donors …………………. 20 Boston Host Committee (Democratic Convention)…….………… 21 New York Host Committee (Republican Convention)……….…... 29 IV. AN EQUALLY FAULTY HYPOTHESIS: Political Conventions as Promotional Opportunities – Comparing Olympics, Super Bowl and Convention Host Committees …36 V. TAX-EXEMPT HOST COMMITTEES: Does Tax Policy Reflect Contemporary Political Reality? ……………….. 39 VI. CONCLUSIONS AND RECOMMENDATIONS: Implications for Campaign Finance and Tax Policy ……………………. 42 Campaign Finance ...…………………………………………….... 42 Tax Exempt Organizations ……………………………………….. 43 ENDNOTES ………………………………………………………………………... 44 APPENDIX ………………………………………………………………………… 49 ABOUT THE AUTHORS …………………………………………………………… 52 Tables and Figures Figure 1 Changing FEC Rules on Contributions to Host Committees.….……. 2 Figure 2 Private Fundraising for Conventions, 1992-2004 …………………... 4 Table 1 Sources of Funding for Major Party Presidential Nominating Conventions, 1980-2004……………………………………………... 5 Table 2 2004 Projected Host Committee Expenditures from Private Funds..... 7 Table 3 The Evolution of Large Donations to Host Committees, 1992-2000... 9 Table 4 Leading Fundraisers for the Boston Host Committee: Their Presidential Fundraising and Contributions …………………... 13 Table 5 Leading Fundraisers for the New York Host Committee …………... 15 Table 6 Leading Fundraisers for the New York Host Committee: Their Presidential Fundraising and Contributions ...………………… 17 Table 7 Boston Host Committee Company Donors Who Contributed Soft Money to the Democratic Party ……………………………………... 22 Table 8 Boston Host Committee Company Donors Who Contributed PAC Money to the Democratic Party or Candidates ……………………… 24 Table 9 Boston Host Committee Company Donors Who Contributed Soft Money and/or PAC Money to the Democratic Party or Candidates… 26 Table 10 Boston Host Committee Company Donors Who Are Also New York Host Committee Company Donors ………………………………… 28 Table 11 New York Host Committee Company Donors Who Contributed Soft Money to the Republican Party ……………………………………... 30 Table 12 New York Host Committee Company Donors Who Contributed PAC Money to the Republican Party or Candidates ………………... 32 Table 13 New York Host Committee Company Donors Who Contributed Soft Money and/or PAC Money to the Republican Party or Candidates.... 33 INTRODUCTION n July 1980, Republicans gathered in Detroit to nominate Ronald Reagan as their presidential candidate. The next month, Democrats renominated Jimmy Carter. ISomehow, the two parties managed to run effective conventions that year with only one percent of the private money that the parties will spend for their conventions in 2004. The 1980 GOP convention was financed by: a federal convention grant of $4.4 million, $2 million in city funds, a $3.5 million federal grant to the city from the Federal Law Enforcement Assistance Agency, and last and least, $700,000 in private contributions raised by a civic “host committee.” This committee, headed by Thomas Murphy, President of General Motors Corporation, “spearheaded a drive to welcome” thousands of delegates and media representatives. It “organized an opening regatta to welcome convention visitors,” helped with hotel assignments, staffed information booths and sponsored a press party with food from sixty area restaurants. It also contributed funds to help the Republican National Committee “cover some convention expenses.” At the Democrats’ convention in New York City, a host committee led by Loews Corporation magnate, Preston Robert Tisch, conducted a similar program with even less private money – $400,000.1 Nearly a year earlier, in 1979, the Federal Election Commission had adopted regulations exempting local, nonprofit host committees from the Federal Election Campaign Act’s ban on contributions to party convention committees that accept federal convention grants.* The FEC also exempted host committee donors from the law’s prohibition on corporate and union contributions in connection with elections, and from its restrictions on the amounts individuals could contribute to political parties.2 The Commission had previously explained that the premise behind these exemptions was that donations to host committees “are presumably not politically motivated but are undertaken chiefly to promote economic activity and good will of the city.”3 * Under the Federal Election Campaign Act, each major political party receives an inflation-adjusted amount for its convention that comes to $15 million in 2004. Major parties “may not make expenditures with respect to a presidential nominating convention which, in the aggregate, exceed the amount of payments to which such committee is entitled” 26 USC 9008(d)(1). Expenditures made in coordination with the party would normally be considered contributions to and expenditures by the party, prohibited by this provision, if not for the Host Committee exceptions created by these regulations. To make sure that premise held, the Commission imposed two kinds of restrictions on the contributions host committees could receive, depending upon the purposes of their expenditures. The committees could: Spend unlimited funds to “promote the convention city and its commerce” – like Detroit’s information booths and welcoming parties – provided the unlimited contributions were from “local businesses, unions, organizations, municipal agencies and individuals;” and Spend unlimited funds to defray more politically sensitive “convention expenses” –like Detroit’s assistance to the RNC – provided the contributions came from “local retail businesses” and only in amounts “proportionate” to the commercial returns they anticipated during the life of the convention.4 The Commission in 1979 emphasized that its special restrictions on donors for convention expenses were “necessary to insure that such donations are commercially, rather than politically motivated.”5 In recent years, the Commission has markedly changed its approach to regulating host committees (see Figure 1). In 1994 it responded to difficulties in defining “retail” and estimating “commercial returns” by eliminating these special restrictions on donations for convention expenses, without imposing alternative limits.6 After 2003, there essentially is no longer any requirement that contributions be related to a business’s expectation of an economic return from the convention, or to a business’s local presence in the host city. Figure 1 Changing FEC Rules on Contributions to Host Committees 1979 1994 2003 If the money is spent to promote the host city and its commerce: Who may give: Any “local” business, The definition of “local” The “local” requirement labor or other is loosened to include is eliminated. organization or branches, offices, etc. individual. How much: Unlimited Unlimited Unlimited If the money is for convention expenses: Who may give: Only local retail Same as above. Same as above. businesses. How much: Only in amounts Unlimited Unlimited “proportionate” to what a retailer might expect to get back during the convention. The Campaign Finance Institute 2 Over the same time period as the FEC’s regulations were loosened, the economics of national conventions changed dramatically. Host Committees for the 2004 Democratic and Republican Conventions in Boston and New York are collecting $39.5 million and $64 million respectively in corporate, union and individual private funds, not the $400,000 or $700,000 they collected in 1980. Furthermore, the host committees are using these funds overwhelmingly for “convention expenses,” rather than the traditional welcoming activities linked directly to civic promotion. We do not see this timing coincidence as an accident. Private funding of the conventions was able to grow partly because the regulations became looser. This happened in the same years, incidentally, as the growth of unlimited political party soft money, which were finally banned by Congress in 2002. Interestingly, the commission has loosened its host committee contribution regulations while continuing to maintain its historical premise that contributions are “motivated by a desire to promote the convention city and not by political considerations.”7

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