Romney and the strategy that only a campaign finance lawyer could love

TESTING THE LIMITS

How Mitt Romney Avoided Campaign-Finance Rules

Governor Found Way Around Federal Caps Before Presidential Bid

By JEANNE CUMMINGS

January 30, 2007; Page A1

WASHINGTON — Federal law limits how much money individuals can give to presidential candidates — $2,300 per election. But what about Compuware Inc. founder Peter Karmanos? Last year, he gave $250,000 to presidential aspirant and former Massachusetts Gov. Mitt Romney. Since 2004, 15 other Romney backers have sunk at least $100,000 each into the Republican’s coffers, sometimes with a series of checks issued on a single day.

Because he doesn’t hold federal office, Mr. Romney became subject to the federal rules only after he set up a presidential exploratory committee earlier this month. Until then, his team took advantage of a little-noticed gap between federal and state law. While most states limit political donations, about a dozen don’t. Mr. Romney’s political team set up fund-raising committees in three of those: Michigan, Iowa and Alabama. During that time, his political action committees raised $7 million.

As a result, Mr. Romney was able to hit the ground running, a big advantage in what has already become a feverish race. A week after announcing his possible bid, having already taken care of basic campaign logistics such as hiring and office space, the former governor held a Boston fund-raiser that netted $6.5 million in pledges. Mr. Romney also used the cash to build a broad network of financial backers and grass-roots allies.

Mr. Romney’s financial network is in a long tradition of candidates working around post-Watergate campaign-finance rules. In the 1980s and 1990s, candidates dodged limits by steering big checks to party committees, which in turn paid for television ads and turnout efforts. The 1990s also saw the rise of lawmakers’ “leadership” committees, some of which were set up in a way that allowed them to collect big, unlimited checks. Members of Congress used these accounts to help colleagues and for travel expenses.

In 2000, then-Texas Gov. George W. Bush recruited volunteers who “bundled” small checks from friends and families into packets that totaled as much as $100,000. In return, top fundraisers got inside access to Mr. Bush and his team, the very result the donation limits were designed to prevent.

Congress clamped down in 2002 with a major revamping of campaign-finance laws that banned unlimited donations to party and leadership committees. But innovative fund-raising techniques continue to mushroom as the cost of campaigning rises ever higher.

In 2004, both Mr. Bush and John Kerry, the Democratic nominee, opted out of the government’s subsidized financing system to win their nominations, spending an unprecedented $250 million each before agreeing to rejoin public funding for the general election. This year, experts expect the two major-party candidates to push combined costs to over a billion dollars.

Like Mr. Romney, former Iowa Gov. Tom Vilsack has a nonfederal committee, which collected more than $500,000 from labor unions before he became a Democratic presidential candidate. The 2002 campaign-finance law forbids such contributions to federal politicians or anyone who has officially opened a committee exploring a run for federal office. Mr. Vilsack, like Mr. Romney, isn’t a federal office holder.

Ditto former New York Gov. George Pataki, who has a $100,000 backer, Patrick E. Malloy III, a Sag Harbor developer. Mr. Malloy’s September donation to the Iowa arm of Mr. Pataki’s 21st Century Freedom PAC makes up nearly half the contributions to the state account, according to the latest reports filed just before the November elections.

Meredith McGehee, policy director at the nonpartisan Campaign Legal Center, a Washington, D.C., group that tracks issues relating to money and politics, says the tactic undermines a basic purpose of federal limits: preventing big donors from buying access. “Do we expect those who gave him large amounts in the infancy of his campaign will be especially remembered later on? Absolutely. That seed money is sometimes the most critical part of your campaign.”

Based on some polls and early organizing strength, Mr. Romney is considered among the top three Republican candidates, alongside Arizona Sen. John McCain and former New York City Mayor Rudy Giuliani.

Benjamin Ginsberg, the Romney campaign’s chief attorney, says the committees were set up to help state and local Republicans, not necessarily Mr. Romney’s presidential campaign. Criticism of the fund-raising tactic, he says, is “Washington-centric” and “disrespectful” of states’ power to establish their own rules. “Mr. Romney complied with the letter, spirit and intent of state laws where state candidates were on the ballot,” he says. The committees’ spending and fund-raising efforts are disclosed in state capitols.

In the past three years, Mr. Romney’s network donated $1.4 million to Republican candidates, the campaign says. A big chunk of the rest went to Mr. Romney’s travel, staff and national consultants. Spencer Zwick, Mr. Romney’s national finance director, says the national spending was needed to help raise money for local races.

Mr. Zwick says the state political action committees, as they’re called, were designed for quick fund-raising and maximum flexibility. Some local candidates are prohibited from taking money from federal committees, Mr. Zwick says. State-based operations “allow us to participate at all levels,” he says.

Kevin Madden, a spokesman for the campaign, acknowledges there could be residual benefits to Mr. Romney’s presidential bid. He adds that none of the donors wrote a check expecting to receive special favors in return. Most of them have known Mr. Romney for a long time. They’re “motivated by advocacy and what they think is right with regard to the current political and policy debate,” Mr. Madden says.

Mr. Karmanos, the Compuware founder, declines to comment.

Mr. Romney’s Alabama PAC illustrates how the network operated. In its public disclosures, the state PAC reported raising $280,000 in 2006. The money came from 11 donors, none of whom live in Alabama. Muneer Satter, a Chicago-based Goldman Sachs Group Inc. managing director, was a top giver, donating $100,000 to the account in a single day. Mr. Satter declines to comment.

From that kitty, $138,500 was donated to Alabama state and local candidates who could be important allies as Mr. Romney tests his Northern pedigree in the rural South, a region vital to any Republican presidential bid. Much of the remaining balance was used to help defray the costs of Mr. Romney’s national operation, including a portion of the rent for his Boston headquarters, bills at Jules Catering of Somerville, Mass., and services provided by Daynes Music Co. of Midvale, Utah. No Alabama vendors received money from the Alabama account, according to the public records.

Son of a former Michigan governor, Mr. Romney joined Bain & Co., a management-consulting firm, shortly after graduating from Harvard. In 1984, he co-founded Bain Capital and helped build it into a major private-equity firm. He left in 1998 and drew national attention when he took over the troubled organizing effort for the 2002 Winter Olympics in Utah.

In 2002, he ran for governor of Massachusetts, touting himself as a fiscal conservative and social moderate. When he set his sights on the White House, Mr. Romney and his allies concluded he needed to broaden his exposure, particularly among the Iowa and New Hampshire activists who will winnow the field.

Mr. Romney’s Commonwealth PACs, as they’re all called, were launched July 2004 in Michigan. All are in states with early primaries. In addition to picking Iowa, Alabama, and Michigan, the campaign chose two important states that do have donation limits: New Hampshire and South Carolina. Mr. Romney also started a federal political action committee.

Mr.
Romney’s Massachusetts and Utah backers financed the state networks from the beginning and distributed their contributions among them, records show. For others, the campaign provided a list of state committees and recommended donation amounts. Donors say they didn’t inquire about the legalities of the arrangement, assuming, rightly, that Mr. Romney had vetted it properly and that the practice was legal.

Between July and October 2004, the Michigan committee raised nearly $70,000 from a dozen donors — 10 from Massachusetts and two from Michigan. The committee issued checks to local candidates and parties, including a $4,000 donation to the state Republican Party headquarters.

In 2005, the Michigan committee covered the costs of hiring Navigators LLC, a Washington, D.C., media-consulting firm. The committee also paid more than $11,000 to Gentry Collins, a Des Moines, Iowa, consultant who helped President Bush’s 2004 campaign, records show.

The Romney network expanded in 2006. Public documents show how donors issued multiple checks on the same day to different accounts. Mark and Joseph Fuller, for example, gave a total of $145,000. The brothers’ checks to the Iowa, New Hampshire, Michigan, South Carolina committees, and to Mr. Romney’s federal committee, were all issued Aug. 17, 2006. The Fullers are both senior executives at Monitor Group, a Cambridge, Mass., management and strategic consulting firm.

Mark Fuller, the company’s chairman and CEO, says he was a student at Harvard Law School when he met Mr. Romney, who was then a recent graduate. He says his donation stemmed from his belief in Mr. Romney’s candidacy. “This is a guy who does not talk himself into ‘Alice in Wonderland’ fantasy. He will deal with bad news in a realistic way.”

Mr. Fuller says he and his wife opted to spread their money across the spectrum of Mr. Romney’s accounts because they wanted him “to get out and see some of the states that are more traditionally red states, and get in touch with a different part of the party base.”

Throughout 2006, the various state committees coordinated their activities. Each paid a portion of the expenses incurred by the national campaign in Boston, such as rent and consulting costs.

In South Carolina, a state that has donation limits, the committee says it received more than $400,000 and spent nearly $300,000. All but one of the donors lived outside the state. Most of Mr. Romney’s top-dollar national givers were among the South Carolina contributors, records show.

South Carolina state and local candidates received $100,500 in donations from the account. The committee hired South Carolina consultants Leslie Gaines and Nick Breeding to guide the committee’s work. Both advisers worked for the Bush-Cheney campaign’s South Carolina operation, experience that could boost Mr. Romney’s candidacy in 2008. The South Carolina committee also paid for furniture rental and a Boston car service for the campaign’s headquarters. Spending in New Hampshire followed a similar pattern.

Now, Mr. Romney hopes to convert his new friends into a presidential campaign team.

Former Republican Iowa House Speaker Christopher Rants was a prime recruitment target because of his ties to other local House members. State legislators are important allies because they can deliver supporters to the caucus meetings that decide the primary winners.

Mr. Rants was impressed with Mr. Romney’s willingness to help him raise money. The former governor attended events in the state, donated $2,500 to Mr. Rants’s Iowa re-election campaign and similar amounts to every other tight race. In July, Mr. Rants flew to Boston to get a better feel for Mr. Romney’s positions on policy issues, including transportation and social issues. He liked what he heard and joined the team.

At a December meeting in Westwood, Iowa, a small clutch of legislators gathered in a hotel meeting room to pepper Mr. Romney for more than an hour about his health-care plan and position against gay marriage. As legislators, they sympathized with Mr. Romney’s explanation that he couldn’t always control legislation pushed by the statehouse Democrats. “After all, we thwarted our governor a few times, too,” said Mr. Rants. By the end of the meeting, Mr. Romney had four new local supporters.

Money doesn’t always work. Former Iowa Republican Rep. Jim Nussle was a prime target for all 2008 hopefuls. In his unsuccessful bid for Iowa governor last year, Mr. Nussle received more than $70,000 from Mr. Romney’s Iowa account. As head of the Republican Governors Association, Mr. Romney also directed $1.4 million to Mr. Nussle’s Iowa race — including a $500,000 check the former governor personally delivered at Mr. Nussle’s annual Red, White and Blues fund-raiser in Dubuque last August.

In the end, Mr. Nussle joined the campaign team of Mr. Giuliani. The former mayor headlined Nussle fund-raisers but didn’t donate money directly to his campaign.

Mr. Romney now has to comply with federal fund-raising limits. His advisers say they haven’t decided what to do with the state accounts, which had a combined surplus of about $2.7 million as of Election Day in November, according to the most recent disclosure reports.

It’s unclear how much of that money remains. Much of it could have been used to finance Mr. Romney’s Boston headquarters between November and January, when the candidate officially entered the race. Year-end reports will soon clarify that.

Campaign-finance experts say Mr. Romney and his allies can’t use the remaining cash during this presidential campaign. Mr. Romney could transfer it to another person over whom he has no control. If he loses, he could save the cash for another possible bid.

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