“Hey Bidder, Bidder . . . the Sequel”

How Campaign Contributions Became a Big-Donor Protection Program During the State Budget Crisis

April 22, 2002

INTRODUCTION

The governor and legislators want to squander the state’s tobacco fund or bill every Wisconsin citizen $189 in order to shield wealthy campaign contributors from helping to mend the state’s $1.1 billion budget deficit.

That is ironic considering part of the reason for state government’s credit card spending and subsequent budget problem is years worth of tax cuts, breaks and costly programs that benefit those special interests and shift the cost to average citizens.

The most recent example is the 2001–03 state budget approved last summer. A WDC report issued last fall called "Hey Bidder, Bidder." revealed three dozen items worth at least $819 million – the equivalent of $211 per state taxpayer – that legislators or the governor tried to stuff in the budget in order to benefit well–heeled special interests. At least $493 million worth of the items were ultimately approved.

Meanwhile, legislators accepted $3.3 million in campaign contributions in 2001, much of it from these same special interests during and shortly after their work on the budget. Gov. Scott McCallum raised $2.8 million, most of it in large contributions from special interests who had a stake in whether he would approve their pork, or veto it.

Since then a worsening economy cut tax collections used to pay the state’s bills and opened a $1.1 billion budget deficit.

In response, McCallum proposed a budget repair bill that has been revised by the Joint Finance Committee, Assembly Republicans and Senate Democrats. All of these plans raid the state’s tobacco fund and cut state government or aid to communities in varying degrees.

At the release of this report, “Hey Bidder, Bidder. The Sequel,” a group of legislative leaders is meeting as a committee to winnow a compromise from the proposals that would be acceptable to the full Legislature.

KEY FINDINGS

The 2001–03 budget process last summer was an auction block where special interests with a history of generous campaign contributions repeatedly got the items they wanted in or out of the budget.

It is evident by the content of the repair bills and the solutions to solve the deficit that special interests with a history and a future of making generous contributions got to keep what they received in the past – and some receive a little more – at the expense of taxpayers.

The key findings were:

  • None of the proposed budget repairs eliminated any of the special interest pork – worth at least $493 million – signed into law last summer in the 2001–03 state budget, perhaps because the special interests that benefit from those items contributed a hefty $1.4 million to legislators and the governor in 2001.
  • The state’s most powerful special interest groups representing teachers and the business community got what they wanted – no cuts in education spending and no tax increases. The governor and legislators plug the budget deficit by taking money from shared revenue to local governments and spending most or all of the state’s $1.2 billion tobacco settlement. This strategy plucks cash from sources that do not have voices as powerful as those who make large campaign contributions and cuts aid to local government equivalent to $95 or $189 per person.
  • The budget repair proposals crafted by legislative leaders give wealthy special interests at least $49 million in new breaks and windfalls.

PRESERVED PORK

Despite the $1.1 billion deficit, budget proposals by McCallum and legislative leaders never considered scaling back or eliminating most of the $493 million in spending and breaks for special interests in the 2001-03 budget approved last summer.

In some cases, it would have been too late. Soon after the budget was passed, the state went ahead and paid $75 million for a privately built prison near Stanley. Now the state cannot even afford to open it. The developer, Dominion Venture Group, lobbed $6,901 in campaign contributions to legislators and McCallum during budget negotiations to buy the prison. Curiously, Dominion did not make any contributions in the last half of 2001 – after the deal was sealed.

However, there were several million dollars worth of breaks that could have been delayed, scaled back or eliminated in order to close the deficit. These include $292 million worth of new road projects that were added to the $1 billion–plus list of major highway construction projects scheduled over the next decade; a $45 million tax credit program for high–tech companies; $6 million in state aid to help Saks Fifth Avenue renovate its downtown Milwaukee Boston Store; $5.4 million in property tax exemptions created or preserved for the banking, business and cable industries; and $3 million in subsidies for ethanol plants.

Given the current pay-to-play way of doing business at the State Capitol, it is no secret why these items were untouched – the influence of large campaign contributions particularly in an election year.

The following table shows the amount of large individual and political action committee campaign contributions that these special interests contributed to the governor and legislators in 2001 alone.

SPECIAL INTEREST MCCALLUM LEGISLATORS TOTAL
Banking $200,033 $220,233 $420,066
Manufacturing & Distributing $161,438 $257,020 $418,458
Business $161,325 $145,489 $306,814
Road Builders $110,478 $42,863 $153,341
Agriculture $79,557 $50,654 $130,211
Cable $3,000 $15,522 $18,522
TOTAL $715,831 $731,781 $1,447,412

Since 1993, these same interests have contributed a total of $5,489,895, including $4,209,631 to the present legislature and $1,280,264 to the governor.

In addition, powerful special interests with the governor in tow flatly rejected suggestions by the Wisconsin Counties Association and others to reexamine some of the dozens of tax exemptions worth an estimated $3 billion annually.

Opponents argued the suggestion to expand the tax base was a tax increase even though repealing $1.6 billion worth of the smaller categorical sales tax exemptions would pay off the deficit and allow for a reduction of Wisconsin’s 5 percent general sales tax.

Some of these exemptions and their annual value include coin-operated laundries and dry cleaning services, $2.3 million; waste treatment, $30.1 million; long-term real estate rental payments, $323.3 million; vehicles sold to contract carriers, $24.1 million; legal services, $77.6 million; accounting services, $45.8 million; beauty and barber services, $16.7 million; advertising, $80.8 million; computer services, $118.8 million; interior decorating services, $2.7 million; and manufacturing equipment, $240 million.

It is clear that the dependency by McCallum and legislators for large special interest contributions in an election year blocked any attempt to reconsider even a handful of the smallest, parochial exemptions. Repeals would have cost millions for roughly 20 special interests - many of them major campaign contributors, including business, manufacturers and distributors, lawyers, realtors, the construction industry and health professionals.

A review of campaign contributions from these groups shows they have contributed $9.35 million to McCallum and legislators since 1993, a staggering 49 percent of the total amount of the large individual and PAC contributions - $19.2 million - that McCallum and legislators accepted during the period.

But for McCallum the need to remain in these groups’ hearts and pocketbooks is even more acute. The governor alone accepted $2.4 million in campaign contributions from them since 1993, most of it - $1.7 million or 71 percent - between December 2000 when it became apparent he would become governor and December 2001.

McCallum said soon after he took office in February 2001 that his campaign needed to aggressively raise campaign funds so that he could run for his own term as governor in 2002.

THE BIG BIDDERS

Two similar characteristics among the budget repair proposals leave K-12 education spending unscathed and contain no corporate or individual tax increases. The state’s most powerful special interest groups representing teachers and the business community got what they wanted from the governor and legislators, who fill the budget deficit by taking money from aid to local governments and/or the state’s $1.2 billion tobacco settlement.

The state shared revenue program is funded with taxes paid by state residents and then redistributed to help communities pay for health, safety, snow and garbage removal and other local services.

Under the governor’s plan, the entire $1.03 billion shared revenue program would be slashed over the next two years and then eliminated. Based on the most recent state population estimates, this translates into an average cut in aid to local governments of $189 per person.

Proposals by the Joint Finance Committee and the Assembly Republicans eventually cut shared revenue by 50 percent, or an average of $95 per person. These two plans and the Senate proposal which does not cut shared revenue buffer the aid reductions by drawing on most or all of the state’s tobacco settlement money.

Wisconsin was to receive $5.9 billion in tobacco settlement money over 30 years. The legislative proposals squander the settlement by selling off future payments for an astonishing 20 cents on the dollar in order to immediately raise $1.2 billion. A third of it was used to balance the 2001-03 budget passed last summer and most or all of the remainder would be used under the proposed budget repair bills to plug the current deficit - something akin to a teenager blowing his college savings in one afternoon at the mall.

Many of the same groups that support the sales tax exemptions also voiced their support of proposals by McCallum and others that did not raise any taxes. Add the political muscle of WEAC and their opposition to cuts in education spending and it is evident why the proposals were drawn up as they were. The governor, majority Senate Democrats and majority Assembly Republicans all depend on the shear size and onslaught of campaign contributions these groups can deliver in an election year.

In addition, these groups are responsible for a large portion of the $5 million spent on independent expenditures and issue ads in the 2000 elections.

A review of campaign contributions McCallum has accepted from special interests that support his budget repair proposal shows he received $1.35 million from those interests in 2001. These groups are a campaign lifeline for the governor. Their contributions represent 48 percent of all the large individual and PAC contributions he received from special interests in 2001.

Meanwhile local elected government officials and librarians contributed only $2,100 to the governor’s campaign last year.

During the 2000 election cycle those interests contributed $2.4 million in large individual and PAC contributions to legislators, which is 48 percent of the total $5 million in large individual and PAC contributions they accepted during the two-year election cycle.

NEW PORK

In addition to all of the past breaks and benefits for special interests that were left untouched in the budget repair bills, the governor and legislators included dozens of new non-budgetary items. Those which can be quantified provide at least $49 million in new breaks, but there are several others for which no dollar value can be assigned.

Here are the ones we found:

Prescription Drugs

Assembly Republicans included a budget repair proposal that would remove a Medical Assistance and SeniorCare requirement that physicians get prior authorization before they prescribe a brand name drug over a less expensive generic equivalent. The Department of Health and Family Services estimates this will cost taxpayers $40.4 million and translate into a windfall for drug manufacturers. Drug manufacturers contributed $6,375 to Assembly Republicans in 2001 and $25,975 since 1993, the most to any of the four caucuses in both periods.

Business Tax Break

Assembly Republicans backed a proposal to change the way corporate taxes are calculated that cuts taxes $8.8 million a year. It benefits corporations, insurers, financial institutions and utilities, which contributed $276,798 in 2001 and $2.2 million since 1993 to the Assembly GOP.

Environmental Breaks

Assembly Republicans backed a plan to create two programs at a cost of $553,000 a year that would reward businesses for meeting or exceeding state environmental laws. One program would provide immunity to companies that report and correct violations discovered through audits. The other program would subject companies to fewer state inspections if they show they exceed environmental standards. Business and manufacturing interests contributed $150,160 to Assembly Republicans in 2001 and $1,150,663 since 1993, the most to any of the four caucuses.

Ashley Furniture

Senate Democrats fashioned a budget repair proposal that lets a Trempealeau County furniture manufacturer have its long-sought exemption from state environmental laws to fill 13 acres of wetland in order to expand its operations. The proposal received bipartisan support. Ashley executives contributed $11,550 in 2001, including $9,550 to McCallum. Since 1993, Ashley has contributed $11,550 to the governor and $18,600 to legislators.

Insurance Coverage

Senate Democrats inserted provisions in the state budget from two regular session bills that died to require insurance companies to cover mental health and drug abuse treatment and contraceptive devices, medications and surgeries. The state says the mandates will increase insurance costs several million dollars and insurers and other opponents claim the increase costs will be too costly for many businesses to insure their employees. Both proposals were backed by unions, various health professionals and a variety of social organizations. Senate Democrats accepted $219,928 from unions and health professionals in 2001 and $1.2 million since 1993.

Wage Claims

Senate Democrats inserted a proposal in the budget that failed to pass in the regular session. It would revise a state law and allow wage claims by workers to take precedence over payment claims by banks against companies that go bankrupt. The proposal was strongly backed by labor unions which contributed $147,020 to Senate Democrats in 2001 and $791,566 since 1993, the most to any of the four caucuses.

Builders’ Break

The governor included a break in his budget that benefits construction companies that win state contracts. Currently the state retains 10 percent of the money owed a contractor until the project is 50 percent finished. The governor’s proposal cuts the amount to 5 percent which will be paid to the contractor when the project is finished. In 2001, the construction industry was McCallum’s largest special interest contributor. It gave him $486,940 in 2001, which accounts for 20 percent of the $2.4 million in large individual and PAC contributions he accepted. Since 1993, the industry has contributed $622,205, or 17 percent of McCallum’s $3.6 million in large individual and PAC contributions during the period.

Bank And Credit Union Rules

The Assembly Republicans proposed extensive changes in state regulations on banks, savings and loans and credit unions that would let them expand their investment, merger and other business opportunities. The Assembly GOP unsuccessfully sought to include the same rules in the 2001-03 budget last summer. Assembly Republicans accepted $99,833 from the banking and finance industry in 2001, and $787,775 since 1993

the most to any of the caucuses in both periods.

New Highways

Despite budget cuts that substantially affect many programs, projects and state agencies, the governor and legislators did a good job of protecting a fund that benefits one of their most generous contributors – road builders. Their budget repair bills call for pulling $10.5 million from the transportation fund, in addition to $13.4 million taken from the fund in the 2001-03 budget. That is not pocket change, but it is less than 2 percent of the $1.2 billion in gas taxes and registration fees that the fund typically receives each year. The fund is jealously guarded by the road builders because it is used by the state to pay them for the multi-million dollar roads they build. Their budgets also demand that the department not let the meager cut affect road budgets, saying at one point, "Require DOT (Department of Transportation) to make every effort to avoid adverse impacts on activities related to highway planning, design and construction." Road builders contributed $110,478 to McCallum and $138,317 since 1993, ranking ninth among 24 special interest groups that contributed to the governor. Legislators accepted $42,863 in 2001 and $430,589 since 1993 from the road builders.

Teacher Salaries

Senate Democrats offered proposals that would modify elements of the qualified economic offer (QEO) law that governs teacher salary increases. One modification would allow for binding arbitration if contract negotiations reach an impasse. The Democrats also proposed requiring that teacher preparation time be a subject of contract negotiations. Teachers unions or their members who generally oppose the QEO law contributed $13,460 to Senate Democrats in 2001, and $191,603 since 1993. WEAC made $1,454,248 in independent expenditures on behalf of Senate Democrats or against their opponents in the 1996, 1998 and 2000 elections.

Press Release