FROM SUNLIGHT TO DARKNESS
The Demise of Campaign Finance Disclosure in Wisconsin
Posted: April 5, 2004
Updated: April 7, 2004
Special interest money increasingly slips under the radar and voters are left in the dark about who’s really paying for election campaigns, all thanks to loopholes the U.S. Supreme Court says can and should be closed.
Wisconsin’s system of campaign finance disclosure is in a state of emergency. Political money in Wisconsin has come to resemble an iceberg, with the tip above the surface steadily dwindling in size while the submerged mass grows ever larger.
Traditionally, election campaigns were under the control of candidates and the political parties under whose banner they ran for office. That customary arrangement began to change just over a decade ago when organized special interest advocacy groups started to run their own campaigns supporting or opposing candidates for state office. The flow of campaign spending through this new pipeline started as a trickle - interest groups reported $360,599 in "independent expenditures" to influence elections at the state level in 1992 - but it has increased rapidly ever since.
In 1996, a new pipeline was opened. In addition to $771,043 in reported independent expenditures, special interests spent an estimated $229,000 on so-called "issue ads" that did not need to be disclosed on state campaign finance reports. Because they are not subject to disclosure requirements and campaign contribution limits, issue ads funded with unlimited "soft money" donations quickly have become the favorite campaign tool of special interests. In 1998, roughly $2 in reported independent expenditures still were being made for every dollar of undisclosed issue ad spending. By 2000, estimated issue ad spending drew even with reported independent expenditures. In 2002, special interests spent more than $1 million more on issue ads than they spent on independent expenditures.
This report, From Sunlight to Darkness, reviews fundraising and campaign spending at the state level by special interest groups and illustrates how the disclosure requirements and campaign contribution limits in state law are being circumvented and rendered meaningless.
The holes in Wisconsin’s now-porous campaign finance disclosure system remain unplugged despite last December’s U.S. Supreme Court ruling upholding a federal soft money ban and full disclosure of issue ads. Moreover, a 1999 Wisconsin Supreme Court decision foreshadowed the U.S. Supreme Court’s ruling by holding that the state may regulate issue ads and inviting either the Legislature or the state Elections Board to do so. Nearly five years later, neither has yet acted.
Key findings of the study include:
- An estimated $4 million in special interest donations went unaccounted for in campaign finance disclosure reports for 2002 because advocacy groups relied on anonymous and unlimited "soft money" donations to pay for so-called "issue ads" supporting or opposing candidates for state office, thereby skirting disclosure requirements;
- Hidden electioneering spending in 2002 was $1.4 million greater than the $2,603,166 in reported independent expenditures financed by registered political action committees (PACs). This marked the first time that unregulated issue ads paid for with unrestricted soft money clearly outnumbered campaign ads paid for with PAC money that is subject to disclosure requirements and campaign contribution limits;
- Of the $4 million raised and spent on issue ads, three Indian tribes alone accounted for close to $1 million of the total;
- Special interest groups connected to both major political parties are heavily involved in raising secret funds for electioneering purposes;
- Organizations favoring the Democrats appear to have raised considerably more unreported soft money to pay for issue ads at the state level in 2002 than Republican allies did - by as much as three to one. While Republican issue ad groups spent more than Democratic support groups on issue ads in state legislative races, Democratic allies raised and spent far more in the race for governor;
- Spending on issue ads funded with undisclosed soft money has grown exponentially in Wisconsin over a very short period of time, increasing by more than 1,600 percent in just the last four election cycles.
Estimates of unreported issue ad activity made for this report are based on monitoring of campaign advertising done through a variety of media including television, radio and direct mail, as well as examination of Internal Revenue Service records for national committees that facilitated the flow of soft money into state races in Wisconsin.
The state’s leading business organization, Wisconsin Manufacturers and Commerce, is unquestionably a political behemoth that pours huge sums of money into the political process - from lobbying at the Capitol to bankrolling campaigns supporting mostly Republican candidates for state office.
WMC maintains a registered political action committee, Concerned Business and Industry, but reported making only $450 in PAC contributions to candidates for state office in 2002 and reported no independent campaign spending for or against candidates from its registered PAC.
While WMC has largely avoided regulated electioneering activity since it started funding undisclosed issue ads in 1996, it did report modest activity through its registered PAC in past years before almost completely evading disclosure in 2002. For example, in 2000 the Concerned Business and Industry PAC reported making $10,549 in contributions to candidates and $24,998 in independent expenditures for or against candidates.
The state’s largest teachers union, Wisconsin Education Association Council, is a perennial leader in expenses related to direct lobbying at the Capitol and also is a major financial backer of primarily Democratic candidates for state office at election time.
WEAC traditionally funded its election-related activity out of its registered PAC but abandoned this practice in 2002, opting to engage in undisclosed electioneering as well as PAC-financed campaigning. In 2002, the union spent $1,396,273 on independent expenditures supporting or opposing candidates, up from its 2000 total of $1,051,369. But the union also spent hundreds of thousands of dollars on undisclosed issue ads to support Jim Doyle’s campaign for governor. Overall, WEAC’s involvement in campaigns was far more extensive in 2002. The union was involved in state legislative races as it had been in 2000 but also figured prominently in the most expensive race for governor in Wisconsin history.
IRS records show that WEAC also donated $300,000 in 2002 to the Washington D.C.-based Democratic Legislative Campaign Committee, which in turn ran issue ads supporting incumbent Democratic Senator Kimberly Plache of Racine as well as ads opposing Republican Senate candidate Tom Reynolds of West Allis. WEAC’s donation to the DLCC accounted for much of the $681,000 IRS records show it raised in 2002, but the committee reported sending only $4,000 directly to a Wisconsin independent expenditure group, Citizens for Clean and Responsible Government, for campaigns in two state legislative races. The rest of the money likely was funneled through party committees in other states before returning to Wisconsin to influence elections here. Last July, it was learned that the DLCC had come under investigation by the FBI for money laundering and other campaign finance violations in Maryland and Wisconsin.
Unlike true issue advocacy, which focuses on discussing matters of public interest and articulating a position on those issues, phony issue ads are electioneering communications that clearly identify candidates and plainly aim to persuade voters to support or oppose candidates. But they carefully avoid using terms such as "vote for," "vote against," "elect" or "defeat." Instead, sham issue ads make often misleading claims about candidates and conclude with statements such as "Joe Leibham. Wrong on taxes. Wrong for Wisconsin." or "Call Jim Doyle today.and tell him you want to keep your job. No more new taxes."
Thanks to this semantic two-step, sponsors of such campaign ads are not currently required to file reports of their activities with the state Elections Board. Because they do not have to disclose their fundraising, they are free to use campaign funds that would be illegal under Wisconsin law if disclosed.
For example, organizations that are incorporated may not spend their general treasury funds for political purposes under Wisconsin law, but they may establish and maintain segregated funds as political action committees. Activities paid for with PAC funds are subject to disclosure requirements and campaign contribution limits. By evading disclosure requirements through the use of phony issue ads, advocacy organizations get around the prohibition against the use of general treasury funds for campaign purposes.
Over a dozen organizations raised unrestricted soft money to pay for undisclosed issue ads in 2002. Among them are well-known groups such as WEAC and WMC’s Issues Mobilization Council, but many of the rest are mysterious front groups with often patriotic-sounding names. Examples include the Alliance for a Working Wisconsin, Citizens for Wisconsin’s Future, Coalition for America’s Families, Coalition to Keep America Working, Independent Citizens for Democracy and Working Families of Wisconsin. Other prominent interests that sponsored issue ads in 2002 include both major state political parties, the Metropolitan Milwaukee Association of Commerce and the Forest County Potawatomi.
Collectively, these interests spent an estimated $4 million on issue ads in 2002, an increase of 1,647 percent over the estimated $229,000 spent on issue ads in 1996. Issue ad spending more than doubled in 1998 to an estimated $500,000, then grew fivefold to $2.5 million in 2000 before nearly doubling again two years later.
Undisclosed electioneering spending in 2002 in the form of issue ads exceeded reported independent expenditures financed by registered PACs by an estimated $1.4 million. This election year marked the first time that unregulated issue ads paid for with unrestricted soft money clearly exceeded campaign ads paid for with PAC money that is subject to disclosure requirements and campaign contribution limits.
A common misconception among state political observers is that interest groups allied with the Republicans are responsible for most of the soft money fundraising and sham issue advocacy at the state level. In fact, special interest groups connected to both major political parties are heavily involved in raising undisclosed funds for electioneering purposes. And organizations favoring the Democrats appear to have raised considerably more unreported soft money to pay for issue ads in 2002 than Republican allies did.
Of the estimated $4 million in undisclosed issue ad spending in state contests, upwards of $3 million or more traces to Democratic soft money fundraising, mostly to support Jim Doyle’s campaign for governor.
In late October, the Democratic National Committee received $500,000 from the Ho-Chunk Nation, $200,000 from the Potawatomi and $25,000 from the Oneida Nation. The DNC also received $200,000 from La Crosse-area road building firm Mathy Construction, $25,000 from Miller Brewing, $15,000 from Milwaukee public relations firm Zigman Joseph Stephenson, $15,000 from Wisconsin Energy Corporation and $10,000 from another utility, Wisconsin Public Service Corporation. The DNC then donated this money to the Democratic Party of Wisconsin to fund issue ads in support of Doyle and the rest of the party ticket.
The DNC transferred $1.23 million to the Democratic Party of Wisconsin between October 26, 2002 and November 4, 2002 for last-minute issue ads. All told, the DNC transferred $1.88 million to the state Democratic Party in 2002.
On top of the Potawatomi’s support of the Democratic Party’s issue ad campaign on behalf of Doyle, the tribe also spent an estimated $250,000 on its own television ads supporting Doyle. The Potawatomi, Ho-Chunk and Oneida tribes collectively spent at least $975,000 on issue ads supporting Doyle.
WEAC spent a reported $222,000 in soft money on a radio advertising campaign during the primary election boosting Doyle’s bid. As previously mentioned, IRS records show the Democratic Legislative Campaign Committee raised $681,000 in soft money from Wisconsin in 2002, including the $300,000 donation from WEAC. Other sources the DLCC tapped include corporate contributions from Alliant Energy, Madison Gas & Electric, MG&E subsidiary Central Wisconsin Development Corporation, Oneida Tribe of Indians of Wisconsin, Dairyland Greyhound Park, Mathy Construction, Air Wisconsin Airlines Corporation, Badger Liquor Company, General Beer Distributors Company, building contractor J.F. Ahern Company, Racine road builder James Cape & Sons Company, Black River Falls road builder Lunda Construction Company, Elkhorn road builder Mann Bros. Inc. and over 20 other Wisconsin corporations.
The Washington D.C.-based DLCC not only ran its own issue ads in at least two state legislative races in Wisconsin, but also has longstanding connections to at least five Wisconsin-based independent campaign groups including Independent Citizens for Democracy, a front group run by former Senate Majority Leader Chuck Chvala. ICD’s fundraising is a subject of criminal charges filed against Chvala.
In addition to the activities carried out by the DNC, the Democratic Party of Wisconsin, the DLCC and WEAC - which together potentially account for upwards of $3 million in soft money fundraising to pay for issue ads supporting Democratic candidates - other groups such as Citizens for Wisconsin’s Future and Working Families of Wisconsin also are known to have funded issue ads supporting Democrats in 2002. Working Families of Wisconsin, for example, is reported to have spent an estimated $192,000 on television ads in Milwaukee, Green Bay and Madison supporting Doyle’s gubernatorial candidacy.
Republican groups clearly spent more secret soft money on issue ads than Democratic allies did in state legislative races. But most issue ad activity in 2002 centered on the race for governor, and Democratic supporters outgunned Republican groups by a substantial margin in this campaign. One reason for the Democrats' apparent edge in soft money fundraising and undisclosed issue ad spending is that well-heeled Republican allies such as WMC and the Wisconsin Realtors Association opted not to infuse large sums of money into issue ad campaigns supporting then-Governor Scott McCallum. That political calculation may have been the deciding factor in a close race.
In key state legislative races, a squadron of Republican front groups financed a blizzard of TV, radio and direct mail advertisements. Republican issue ad sponsors included WMC’s Issues Mobilization Council, the Republican Party of Wisconsin, the pro-school voucher American Education Reform Foundation, the Alliance for a Working Wisconsin run by self-described "political hit man" Todd Rongstad, the Virginia-based Coalition for America’s Families, Coalition to Keep America Working, and Metropolitan Milwaukee Association of Commerce. The undisclosed soft money infused by these groups into key battleground districts played a major role in the Republican takeover of the state Senate.
While undisclosed issue ad spending has grown rapidly, reported independent expenditures supporting or opposing candidates financed by registered political action committees remained roughly the same - $2,603,166 in 2002 compared to $2,507,674 in 2000 (See Appendix - Table 1). This is particularly noteworthy because far more money overall was spent in 2002 due to the record-shattering cost of the race for governor.
PAC contributions from special interest groups to candidates were up in 2002 (See Appendix - Table 2). Adding the $2,062,150 in PAC contributions to candidates for state office in 2002 to the PACs’ independent expenditures financing their own campaign ads brings the total for disclosed PAC activity in 2002 to $4,665,316.
Of the $2,062,150 in PAC contributions in 2002, over half - $1,123,093 - came from labor unions that mostly support Democrats. The leading labor PACs include WEAC PAC, Service Employee International Union (SEIU) Wisconsin PAC, Wisconsin Laborers District Council, United Auto Workers (UAW) Wisconsin State PAC, Wisconsin People Conference run by two AFSCME public employee union locals, and two Teamsters PACs.
Leading PACs that tend to support Republicans include Realtors PAC, Wisconsin Builders’ Building a Better Wisconsin PAC, Northwestern Mutual Life Insurance Company PAC, Wisconsin Bankers Association PAC, Wisconsin Farm Bureau’s Volunteers for Agriculture PAC, Wisconsin Right to Life PAC, the National Rifle Association’s Political Victory Fund, and WMC’s Concerned Business & Industry PAC.
WEAC accounted for more than half of disclosed independent expenditures financed by registered PACs in 2002. While overall PAC spending on campaigns leveled off in 2002, the next biggest spender was a newcomer to big-money independent electioneering in Wisconsin. SEIU Wisconsin PAC, which is based in Washington, D.C. and is sponsored by the national union’s head office, spent $656,664 in 2002 - a quarter of the total independent expenditures for all registered PACs. All of the campaign spending by the union, which represents service workers in health care, security services and a variety of other economic sectors, was done in support of Kathleen Falk’s unsuccessful bid for the Democratic nomination for governor. The union also made $43,128 worth of direct contributions to the Falk campaign, the maximum allowable under Wisconsin law.
Offsetting organized labor’s edge in PAC giving to candidates is the registered committee of the Republican Party of Wisconsin, which made $704,159 in contributions to GOP candidates in 2002 - more than twice as much as the $309,130 in candidate contributions from the Democratic Party of Wisconsin and over six times as much as the top-giving labor PAC donated to candidates.
Another counter to labor’s predominance in PAC giving are the fast-growing special interest committees known as conduits that give three times more to Republican legislative candidates than to Democrats. Conduits are set up by corporations, professional associations, political parties and other special interests to collect contributions from individuals, bundle them together and send one large check to the candidate. The large committee donations never appear on candidates' campaign finance reports, however. Instead, they are recorded as smaller, relatively indistinct contributions from numerous individuals.
Giving through conduits increased by 89 percent from $1.17 million in 1998 to $2.22 million in 2002, and conduit contributions surpassed total PAC contributions in the 2000 election cycle. The surge in conduit contributions is occurring because PACs are subject to limits on the amount of money they can give to a candidate, while conduits can give candidates unlimited sums.
For more on conduit giving, see a March report by WDC.