Political Financing’s New State

Johnny Crawford is a state lobbyist whose self-effacing charm belies the millions of dollars in campaign contributions he has at his disposal.

“I’m just little old Johnny down here,” the stocky political operative says from behind a puff of cigarette smoke in his well-appointed office in the state capital.

Using a single post office box for no fewer than 10 political action committees, he has amassed a war chest of nearly $2 million in just 18 months from some of the country’s biggest corporations and richest businesspeople.

And he has doled it out by the hundreds of thousands to everyone from the mayor to Alabama’s governor to the Democratic National Committee in Washington--which on one recent day received $300,000 from an array of Crawford’s committees.

Crawford may well be one future face of how America pays for its politics post-Nov. 5, a major money broker who personifies loopholes in the landmark campaign-finance reform law that kicks in at the federal level after midterm elections.

The law severely curtails how money can be raised and spent by national parties. But most of those rules don’t affect how contributions are amassed and distributed by state PACs: Those are governed by 50 different sets of regulations, and Alabama’s are among the loosest in the nation.

Crawford’s are among more than 400 PACs registered in the state. And since the current election cycle began in January 2001, they have collected more than $31 million in corporate, union and individual contributions--known as “soft money”--often moving the money through a series of PACs, which erases public traces of their original donors.

It’s a political treasure trove that analysts say almost certainly will grow exponentially after Nov. 5.

The Bipartisan Campaign Finance Reform Act, signed into law this year, bans the use of soft money at the federal level.

Soft-money contributions are unregulated, unlimited donations that companies, unions and others pour into the national political party committees for advertisements, voter registration and other activities intended to influence elections. Because the money is not spent directly on a specific candidate, it has not been subject to federal contribution limits.

The national parties have collected and distributed hundreds of millions of dollars worth of it in the last decade but can’t touch it as of Nov. 6, the day after the midterm congressional elections.

The special interests that have been sending that cash to Washington will be looking for new ways to use it to back candidates and to finance the issue ads and direct mail campaigns now funded by federal soft money, according to political analysts and reform activists.

Many predict that money will gather at the state level in loosely regulated PACs and from there find its way into the coffers of state party committees and their candidates, where it can have much the same effect.

“These PAC managers become instant money brokers,” said Ed Bender of the Montana-based National Institute on Money in State Politics. “People and corporations will go to them from all over the country with bundles of checks to spread around at political fund-raisers and to party committees, not only in their own state but in other states.”

Thousands of state PACs already are raising hundreds of millions worth of campaign contributions. Reform advocates say soft money is legal in all but one state: Connecticut. Many state legislatures have tried to limit the amount of such contributions, but restrictions often are riddled with loopholes that keep the special interest money flowing far beyond intended maximums, Bender said.

Campaign finance law in California, for example, prohibits the more than 2,000 state PACs from receiving or distributing individual contributions of more than $5,000. But a loophole lets far greater sums flow through PACs that support or attack ballot initiatives, rather than specific candidates.

The bottom line, according to Bender and other reformers: The hard-fought federal campaign finance reform law may well end up being a giant step backward. It will, they fear, merely shift many of the soft dollars from the national level, where they have been subject to strict accounting and rigorous monitoring, to states such as Alabama, where the money trails are obscure at best.

With just 2.4 million registered voters, Alabama has 486 registered PACs, which can be created overnight and take in and distribute unlimited amounts of soft money. The proliferation of PACs stems in large part from the way the state set up limits on contributions.

Corporations can give a maximum of $500 per election, per PAC, per year. With as many as 17 state and local elections in a given year, the true ceiling is as much as $8,500 per PAC per year. The PAC then may spend the money on any candidates, races or issues--or donate it to another PAC.

Unlimited numbers of PAC-to-PAC contributions are permitted, which PAC managers such as Crawford concede are used to disguise the money’s source, though the politician at the receiving end is almost certain to learn the source through informal channels.

“We’ve tried to pass legislation that would prohibit these horizontal PAC-to-PAC contributions,” said Chuck Grainger, general counsel to Alabama’s secretary of state. “That would bring some sanity to it, as these horizontal contributions are oriented strictly toward money laundering. But so far, the bill has died in Senate every time.”

The result, according to James L. Sumner Jr., director of Alabama’s State Ethics Commission: “Today, we just have a huge conglomerate of PACs. We have an enormous system of PAC-to-PAC transfers. It has grown exponentially in the last five to seven years. And most of us expect it’ll probably explode after Nov. 5.”

Alabama also boasts a ready-made industry of campaign finance middlemen such as Crawford. More than 500 licensed contract lobbyists can set up PACs and raise unlimited amounts of corporate money for candidates, then lobby those same politicians after they take office.

The lobbyists generally don’t charge fees for managing the PACs. They get something more valuable for their money-raising efforts: access to lawmakers, which attracts top-dollar clients to their lobbying enterprises.

Crawford said he hadn’t thought through the effect of the federal reform law on his operation.

But he agreed generally that money machines such as state PACs--in Alabama or elsewhere--will become far bigger players at the national level after Nov. 5.

An inventory of Crawford’s top PAC contributors helps explain why. They are corporations that rank among the biggest givers of soft money at the national level as well. Contributions include tens of thousands of dollars from the Arkansas-based national nursing home giant Beverly Enterprises, Alabama’s multinational coal-mining powerhouse Drummond Co. and Birmingham-based HealthSouth, which bills itself as the country’s largest single provider of nonemergency medical care, with 1,900 facilities in 50 states.

Those companies each have given tens of thousands of dollars at the federal level for the coming elections--soft money that will be banned under the reform law.

Most say they have yet to decide how they will redistribute their soft money after Nov. 5. In a typical response, a Beverly spokeswoman said, “It’s not a science, and the amounts aren’t set in stone.”

But other companies privately said that their state-level contributions almost certainly will increase.

One of the most striking differences between giving to a national party versus a state PAC is how difficult it is to trace the money.

In Alabama, PACs take in tens of thousands of dollars from major corporations, state contractors and individuals that are seeking anonymity to all but the ultimate recipient of the contribution, according to state officials. And those PACs, in turn, can contribute to other PACs, which often move the money to still other unrelated PACs, which then contribute the money to targeted candidates.

The donors are legally barred from telling PAC managers where to spend the money. And the managers are not supposed to tell politicians where the money came from. This serves to hide big donors from the public, while still having the desired political effect.

“I can assure you that, on the receiving end, the person knows exactly where it came from,” said Sumner of the ethics commission. “Otherwise, what’s the point?”

Crawford said he complies with the law. Each contribution to one of his PACs, he said, is met with a letter from his firm that states: “We appreciate your contribution to our PAC, but you know that under state law it is totally under the discretion of the PAC committee how it will be spent.”

He said his PACs do not directly tell politicians who gave the money the PAC is contributing, although he added, “I might say, ‘OK, this is Franklin PAC. We’ve got some good pro-business contributors who believe in your candidacy and they include Company A or Company B.’ ”

Many of Crawford’s PACs are an alphabet soup: ENVIRO, ECODEV and one with his own initials, JDC. But there’s also the Franklin PAC, named after Benjamin Franklin, whom Crawford calls America’s first paid lobbyist.

Crawford has been in business since 1996, after leaving his job as assistant secretary to the state Senate. He got a break in the run-up to the 1998 state elections, when, he said, the Democratic National Committee hired him to identify four key state Senate races that would help the party keep its legislative majority in Alabama. Crawford picked wisely. The Democrats won all four, and Crawford’s reputation was made.

He got a chance to return the favor this year, in a move that may boost his profile after Nov. 5 as a key state-based fund-raiser.

Crawford said he has been solicited regularly by fund-raising colleagues and by the DNC for contributions to the national committee, but the pitches intensified as the soft-money deadline approached. So he pulled together $300,000 from his 10 PACs for the DNC “as a favor to a friend,” he said.

If national party officials are hoping for success stories like Crawford’s in all 50 states, campaign reform advocates are fearing more tales like that of John Teague and Jimmy Butts.

Butts was the director of the Alabama Department of Transportation in the 1990s. His childhood friend, Teague, was a lobbyist who created a series of PACs that distributed contributions for the governor who had appointed Butts. Teague sought contributions from highway contractors and other clients, all of whom were seeking future contracts or favors from Butts, according to documents on file in federal court here.

A 42-count indictment the grand jury handed down in December 2000 asserted that Teague and another lobbyist also shook down their clients to contribute tens of thousands of dollars to finance the car-racing career of Butts’ son.

Butts, Teague and another lobbyist pleaded guilty to reduced charges of bribery and tax fraud in October and are serving federal prison terms; documents filed by the FBI in the case indicate that investigators believed Teague was using at least five of his PACs to move the illicit money.

Despite such cases, there is little popular pressure for reform, said Auburn University political science professor Bradley Moody.

“The assumption by most Alabamians is, ‘Par for the course, the poor [guys] got caught,’ ” he said of the Butts case. “It is part of a larger assumption that the whole blooming process is corrupt, and there’s nothing you can do.”

The roots of Alabama’s system are grounded in “reform” efforts that began with the state’s Fair Campaign Practices Act, which was drafted amid heavy lobbying by the state’s Democrat-leaning labor unions. The act set a ceiling only on corporate contributions, which favor Republicans, at $500 per election.

But the act was broadened through a series of rulings by the state attorney general’s office, which was headed at the time by a politician who would later use the PAC system to raise millions of campaign dollars to become Alabama’s current governor, Democrat Donald Siegelman.

Those rulings are what effectively erased the corporate limit, because the attorney general interpreted “election” to mean any election in the state--from governor to dog catcher--in any given year. So far, there have been as many as 17 a year, officials said, generating the $8,500 figure. But that could go higher in the future. And the “per PAC” ruling meant corporations could give the maximum to any number of PACs, each of which could then give to a politician.

This spawned the massive proliferation of PACs almost overnight.

“The lesson to be learned from Alabama,” Moody said, “is: As soon as new campaign finance legislation is in place, the people who work within that industry have already found ways around it.”