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Follow the Dark Money

The down and dirty history of secret spending, PACs gone wild, and the epic four-decade fight over the only kind of political capital that matters.

TKThe Keating Five Dark-money disaster: After receiving a combined $1.3 million in donations, five Democratic and Republican senators met with banking regulators on behalf of Charles Keating's failing S&L.
Key figure: Mildly rebuked by the Senate Ethics Committee in 1991, a chastened Sen. John McCain (R-Ariz.) said, "I'm sure that my political obituary will always have something about the Keating Five in it."
Backlash: In a roundabout way, the 2002 McCain-Feingold Act.

III. PAC ATTACK

"It was reported I once called George McGovern a grossly overeducated SOB." Pause. "I've never called him educated." Laughter filled the Riverview Room at the Watergate Hotel. It was May 18, 1983, and the 200 or so guests, among them congressmen and senators and luminaries of the Reagan Revolution, doubled over their $110-a-plate dinners and glasses of wine. At a roast in his honor, John T. ("Terry") Dolan had stolen the show.

The guests had every reason to celebrate Dolan. A Reagan disciple and brash political operative, Dolan was the founder of the National Conservative Political Action Committee, known as NCPAC (pronounced "nick pack"). Freed by the Buckley decision, which shot down fundraising and spending limits on independent groups, Dolan forged NCPAC into a formidable political machine. He raised and spent as much money as he could, and he helped pioneer the dark art of the attack ad. One ad bashing McGovern, the South Dakota senator, showed a basketball player dribbling a ball as an announcer said: "Globetrotter is a great name for a basketball team, but it's a terrible name for a senator. While the energy crisis was brewing, George McGovern was touring Cuba with Fidel Castro."

NCPAC famously spent $1.2 million in the 1980 election relentlessly attacking six Democratic lions of the Senate; four of them—McGovern, Birch Bayh of Indiana, Frank Church of Idaho, and John Culver of Iowa—would lose. On just one day during the '80 campaign, NCPAC ran 150 anti-Church ads on Idaho radio stations. NCPAC also spent $2 million to help Reagan beat President Jimmy Carter. In the 1984 presidential election, it dropped another $2 million hammering Walter Mondale. The country had never seen anything like Dolan's outside attack machine—and he knew it. "We're on the cutting edge of politics," he told the Washington Post in 1980.

Dolan made no bones about his brass-knuckles style. "A group like ours," he once said, "could lie through its teeth, and the candidate it helps stays clean." Democrats branded Dolan a lying "extremist," while patrician Republicans sneered at his smashmouth tactics. Yet when they weren't bashing Dolan, his enemies scrambled to catch up. Strategist Peter Fenn urged fellow Democrats to "get down in the gutter with NCPAC" if they wanted to win.

Slim and mustachioed, Dolan loved telling biting jokes and encouraged a loose atmosphere around the NCPAC office, where water gun fights were common and hamsters roamed the halls. Dolan also groomed future Republican operatives, including message guru Frank Luntz, conservative media watchdog L. Brent Bozell III, political strategist Mike Murphy, and PR man and political historian Craig Shirley.

Thanks in part to Dolan's audacious brand of politics, Reagan was twice elected president. Dolan, however, didn't live to see the end of the Reagan era. A closeted gay man, he died from AIDS-related complications in 1986, at the age of 36. His friends, who never spoke of his illness, hailed him as a pillar of the New Right movement and a canny tactician who changed the way politics was played—if not always for the better.

NCPAC, which faded away in the years after Dolan's death, illustrated a larger trend in post-Buckley politics: the rise of the political action committee. At the end of 1974, there were 600 registered PACs; nine years later, there were 3,500. PACs spent $23 million on congressional races in 1976; by 1982, it was $80 million.

PACs came in all varieties: independent committees like NCPAC, trade association PACs, party PACs, and more. There were PACs representing whole industries, like the mighty Business Industry Political Action Committee (BIPAC), formed by the National Association of Manufacturers, which grew so large and cash-flush that in the 1980s it rivaled the parties as the true power broker in Washington.

The presidential candidates started their own committees. Reagan's Citizens for the Republic PAC, for instance, acted as a campaign-in-waiting between his '76 and '80 presidential bids. The group held on to leftover donations and safeguarded valuable mailing lists while quietly laying the groundwork for his successful 1980 election campaign.

The rise of business and corporate PACs—and also innovations like direct mail—helped the Republican Party dominate the arms race of the 1970s and 1980s. In the 1980 campaign, for instance, the GOP spent $5 million in support of Senate candidates, compared to the Democratic Party's $590,000. Two years later, the Republican National Senatorial Committee doled out $9 million to candidates, while the Democratic Senatorial Campaign Committee gave just $2.3 million.

Yet the explosion of new PACs soon ended, and though they remain a fixture of electoral politics to this day, their luster faded. As the '80s wore on, a loophole opened by the FEC gave rise to soft money—unregulated, undisclosed, unlimited money given to parties (as opposed to candidates) by unions, corporations, and wealthy individuals. At first, the FEC let the parties raise and spend soft money solely for "party-building activities": building a new office, say, or a TV studio. But election lawyers and savvy strategists soon widened the loophole.

Politicos remember 1988 as the first election when soft money figured in a big way. Joseph Sandler, then a lawyer at the Democratic National Committee (and later its general counsel), recalls soft money from unions and corporations pouring into the party's coffers after Michael Dukakis seized the nomination. "We thought, 'What do we do with it?'" Sandler says. "So we invented new uses for soft money for general party stuff to get out the vote." That included phone banks, surveys, direct mail, and other administrative costs.

The parties raised $45 million in soft money in 1988; in 1992, it was $86 million. By then Wertheimer, the reformers, and newspaper editorial boards around the country were decrying what they saw as a perversion of the campaign finance laws. In May 1993, a newly elected President Bill Clinton paid lip service to banning soft money, but a bill to do just that died in conference, after passing both the House and Senate.

The bill's demise would prove a blessing and a curse for Clinton. Soft money would power his reelection campaign two years later—yet it would also trigger the biggest campaign finance scandal since Watergate.
  

IV. "The White House Is Like a Subway"

On September 7, 1995, Bill Clinton joined his top aides and advisers for a strategy session in the White House's second-floor Treaty Room. It was here, on a muggy August day in 1898, that William McKinley had presided over the signing of a treaty that had ended hostilities in the Spanish-American War. Now, Clinton and his lieutenants faced a war of a different kind: winning reelection in the face of vicious GOP attacks and a hobbled US economy.

The loudest voice in the room that day belonged to Dick Morris, the charismatic and controversial political strategist. "It's complicated" was the best way to describe the relationship between Clinton and Morris. The president had hired, fired, and rehired Morris throughout his two-decade ascent from obscure Arkansas official to governor to leader of the free world. Shortly after the Democrats' midterm hammering in November 1994, Clinton turned to Morris once again to chart a course to victory in the 1996 election.

Morris, as usual, had a plan.

The party, he said, needed to saturate the airwaves with TV ads starting now, 14 months before Election Day, in Colorado, Iowa, Michigan, and other swing states. Advertising early and often, getting out in front of the GOP, was key to winning the '95 budget fight and the '96 election. "If we win now, we'll win later," Morris said at the meeting. "If we lose now, we'll be dead no matter what we do."

The Democrats' weapon of choice were so-called issue ads slamming the GOP and its leader, House Speaker Newt Gingrich, for a budget that cut funding for Medicare, Medicaid, and Head Start. The ads would also tout Clinton's pledge to cut taxes on the middle class, beef up environmental protections, and balance the budget without axing popular programs. In reality, the ads were campaign spots. All that was missing was the "Vote for Bill Clinton" tagline. Why the feint? As long as Democrats claimed they were running issue ads, they could fund them with soft money.

Clinton signed off.

TKThe Clinton Years Dark-money disaster: In 1996, a California Buddhist temple illegally funneled $65,000 to the Democrats at an event attended by Vice President Al Gore. The Dems eventually returned nearly $3 million in illegal donations, some from foreign donors. Meanwhile, big donors were offered Lincoln Bedroom sleepovers, coffees, golf outings, or morning jogs with President Bill Clinton.
Key figure: Fundraisers Charlie Trie, John Huang, Johnny Chung, Maria Hsia, and James Riady, an Indonesian businessman who was fined $8.6 million.
Backlash: Spurred passage of McCain-Feingold in 2002, which banned unregulated soft money to parties.
There was just one problem: The DNC was broke. Democrats would need to raise tens of millions of dollars, fast; thankfully, they had the ultimate rainmaker in Clinton. The president hated asking for money, a former aide recalls, yet no one schmoozed a room full of rich people like Clinton. "He was a master at talking to them about what he was doing and where he wanted the country to go—and by the way, we need some money to get there," the aide says.

In the months that followed, the White House and DNC sent a clear message to donors: Bring your checkbooks; we're open for business. Clinton attended more than 230 fundraising events in the 10 months before the election, sometimes five or six a week. "Every minute of my time is spent at these fundraisers," the president griped. Donors, meanwhile, knew access was just a six-figure check away. "The White House is like a subway," said one contributor. "You have to put in coins to open the gates."

And how those coins added up. The DNC raised more than $122 million in soft money during the '96 cycle. The RNC did even better, raking in $141 million. Together, the two parties unleashed $120 million in soft money on faux issue ads.

Yet Morris' strategy put the Democrats' soft money to far more devastating use. One issue spot, crafted by ad man Marius Penczner, depicted a patient's beeping EKG monitor slowly flatlining as a narrator read the GOP's proposed health care cuts. In another, a little girl played in her crib while the narrator rattled off GOP-backed education cuts. And the ads ran relentlessly: By Election Day of November 1996, the average TV viewer in targeted states saw one Democratic issue ad every three days.

The barrage was later credited with opening a wide lead for Clinton nearly a year before the election. Although the RNC caught on to Morris' strategy and mimicked it, GOP candidate Bob Dole never closed the gap. Looking back on his ad strategy and the '96 election, Morris later wrote, "There has never been anything even remotely like it in the history of presidential elections."

"There will be huge scandals," predicts Sen. John McCain, "because there's too much money washing around…we don't know who's behind it."

Then, after Election Day, the details of the Democrats' fundraising scheme exploded into a full-blown scandal. Sen. Fred Thompson (R-Tenn.), who had worked on the Senate's Watergate investigation two decades earlier, launched a probe that eventually forced the Clinton administration and the DNC to admit to plying donors with coffee klatches with the president, sleepovers in the White House's Lincoln Bedroom, rides on Air Force One, and other exclusive perks. It emerged that John Huang, a major Democratic fundraiser and the DNC's vice chairman of finance, had laundered nearly a million dollars in illegal foreign contributions to the DNC from an Indonesian conglomerate and a Korean electronics company, among other sources. Democrats also accepted $65,000 in illegal donations at a now-infamous luncheon at a Los Angeles-area Buddhist temple. The DNC would later return about $3 million.

For Fred Wertheimer and the reformers, Clinton's soft money operation marked a return to the dark-money days of Watergate. "Though still on the books, campaign finance laws have been replaced by the law of the jungle," Wertheimer fumed at the time.

The pendulum was swinging back to reform.
 

V. "LEGISLATIVE SLEDGEHAMMER"

A few days after Republicans recaptured the Senate in the 1994 midterm elections, Russ Feingold was driving through Wisconsin in his used, blue, wood-paneled Buick Roadmaster station wagon. Before the "tsunami of '94," Feingold had ranked last in seniority in his party, but at least Democrats controlled the Senate. Now he had even less clout on the Hill. Somewhere outside Madison the wagon's hulking car phone rang. The ensuing conversation changed Feingold's life.

On the line was Arizona's John McCain. The veteran Republican senator praised Feingold's work, his independence, and his determination, and suggested that the two men team up on legislation. Feingold—knowing that McCain had remade himself as a reformer after getting ensnared in the 1989 Keating Five banking scandal—suggested campaign finance.

Thus began one of the unlikeliest yet most influential partnerships in the history of money in politics.

In the decade before, reformers in Congress had introduced new campaign finance laws every session. Each time the legislation perished on the floor or met the veto of the president. McCain and Feingold would face the same pattern until, in the wake of the '96 scandal, a window for reform opened once again.

A pivotal moment came in 1997. The two senators had watched in horror at the explosion of soft money in the previous year's election. At a meeting in Feingold's Senate office, McCain pressed to scrap their existing bill and replace it with a straightforward soft money ban, which he believed held the best hope of passing. Fein-gold wouldn't hear of it, since doing so would entail jettisoning measures dear to his heart, including one that would abolish PAC contributions. McCain left Feingold's office furious. McCain-Feingold almost died right then and there.

The next day, the two met in the Republican cloakroom just off the Senate floor. Feingold could see that McCain was still unsettled by their argument. "Russ, I was up all night," he said. "I was so upset."

"I think you're right, John," Feingold told him. "We gotta get this. We gotta pass the soft money ban." The men hugged.

Following the '96 election, Wertheimer had predicted that Congress had only a 90-day window to pass a soft money ban before the public's anger dissipated. In fact, it took more than five years, by which point McCain had begun calling himself Sen. Quixote.

McCain and Feingold had plenty of help. Wertheimer, who'd moved on to Democracy 21, lobbied relentlessly. More crucial was a decadelong influx of money from the nation's biggest charities and foundations that started in the mid-'90s—upward of $140 million—to fund reform groups and underwrite new campaign finance research. "The idea was to create an impression that a mass movement was afoot, that everywhere [politicians] looked—in academic institutions, in the business community, in religious groups, in ethnic groups, everywhere—people were talking about reform," Sean Treglia, who led Pew Charitable Trusts' campaign finance program, later said.

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