Super PAC's Cash Flowing to Consultants Even as Candidates Lose

Monday, 03 Dec 2012 09:28 PM

 

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More than five months after Newt Gingrich dropped out of the Republican presidential primary, the founder of the super-political action committee backing him was still drawing a check.

In fact, almost half of the $480,000 Rebecca Burkett paid herself as founder of Winning Our Future came after the former House speaker quit the race.

“It was absolutely full-time work and beyond -- up to 17 hours of work a day,” Burkett said in an interview. “You never knew what kinds of calls you would get, and you had to be ready to respond to anything.”

While the 2012 election is over, the financial windfall for political consultants and fundraisers spawned by the millions of dollars donated to super-PACs continues -- and often with little oversight.

Entrepreneurs who set up super-PACs wrote their own paychecks. The new groups sometimes moved as much money into the pockets of employees as they did into races. And some showed evidence of self-dealing.

One example: Revolution PAC raised $1.2 million by pitching itself as a booster for Texas Representative Ron Paul’s run for president. Under the direction of Gary Franchi, the group spent $1 million, 83 percent of its cash, on administrative expenses, including about $153,000 for himself and his companies. A $1,766 monthly fee for “office rent” went to a Franchi company whose address is a mailbox at a Northbrook, Illinois, UPS Store. Franchi said in an interview there is a physical location for the companies, declining to give its address “for privacy reasons.”

‘Fuzzy’ Spending

“Political spending is a fuzzy kind of magical thing,” said Bob Biersack, a senior fellow at the Center for Responsive Politics, a Washington-based group that follows campaign finances. “It’s usually not obviously fraudulent. But you have some cases where a group is spending money to raise money to spend money. It’s a churn, and sometimes there’s no ‘there’ there.”

A super-PAC is an organization that can take unlimited sums of money to advocate for a candidate; it can’t coordinate its activities with the campaign it supports. The groups have exploded since a pair of 2010 federal court decisions helped pave the way for them. The 782 registered super-PACs spent about $537.6 million through Oct. 17 -- a more than 10-fold increase from the 2010 elections, according to Federal Election Commission reports.

About $88.6 million of that went into operating expenses such as salaries, rent, consultants, fundraisers and travel, FEC data provided to Bloomberg News show. On average, super-PACs spent 16 percent of their money on operations.

Overhead Only

The groups are defined by the FEC as “independent expenditure” committees, yet 167 of them spent everything they raised on overhead and nothing on ads or mailings advocating for candidates, the data show.

Two more reports, including one due this week, will tally the rest of this election’s super-PAC spending.

Consultants and fundraisers racked up at least $21 million, based on the disbursements clearly labeled as “consulting,” “commission,” “fundraising fees” or “donor development,” the data show. The FEC has few requirements defining how a super-PAC identifies expenses.

The super-PACs that generated the most fundraising often paid consultants and employees six-figure salaries -- regardless of how the election turned out for the candidates they supported.

Thirteenth Paycheck

On Oct. 8, 159 days after Gingrich ended his presidential run, Burkett received her 13th paycheck, for $20,000, from Winning Our Future for her work as its executive director and chief fundraiser.

The super-PAC hadn’t raised any money since the end of March. Still, Burkett, who lives outside of Atlanta, said her work didn’t end with the candidate’s departure.

“We continued to take calls from lots of people who were upset that he got out, we continued to monitor the presidential race,” Burkett said in an interview. “There was lots to do.”

Burkett was paid partly on commission, a common arrangement for a fundraiser. She hit the jackpot after landing Las Vegas casino billionaire Sheldon Adelson, whom she’d met raising money for another Gingrich-related group, as a super-PAC donor. About 84 percent of the $23.9 million Winning Our Future raised came from Adelson and his wife, Miriam.

Burkett approved the payments to herself, she said, with input from a board of directors; she declined to name any of the board members. Winning Our Future’s website doesn’t list a board, and the FEC doesn’t require super-PACs to maintain one.

Ron Reese, a spokesman for Adelson, declined to comment in an e-mail.

Presidential PACS

The three largest super-PACs, Restore Our Future, American Crossroads and Priorities USA Action, spent proportionally less on operating expenses than the average of all super-PACs -- a point they may use to market themselves to future donors, said David Larcker, a professor at the Stanford University Graduate School of Business.

“There’s an issue of scale at play here,” Larcker said. “To some extent, there are the same start-up costs for everyone. But you would expect the bigger groups to be able to get better deals than the smaller ones.”

Restore Our Future, which backed Romney, spent $7.8 million of the $131.6 million it raised on administrative costs.

“Restore Our Future had sophisticated and generous donors who expected us to be efficient and effective with their contributions,” said Charles Spies, the super-PAC’s treasurer. “We felt a duty to them to keep our overhead as low as possible and deploy their resources into direct election activity.”

Romney Backers

Restore was co-founded by Carl Forti, who was an aide to Romney during his 2008 presidential run. Restore paid about $45,000 to Forti’s Black Rock Group. The Alexandria, Virginia- based group also collected $132,427 in consulting fees from American Crossroads, a super-PAC formed with guidance from Karl Rove, a former adviser to President George W. Bush. Forti served as a political strategist to Crossroads, which backed Republican candidates.

Priorities USA Action, which supported Obama, put $7.6 million into salaries and other administrative expenses as it raised more than $63 million.

Paul Begala, a Priorities strategist and former aide to President Bill Clinton, was paid about $400,000 since May 2011 as a communications consultant. He also was reimbursed for about $20,000 in travel.

Obama Consultant

“I dropped my other political consulting work and focused all my political time on Priorities,” Begala said in an e-mail. “I’m glad I did. With a comparatively small budget and low overhead, we made a crucial difference in the presidential election.”

The presidential candidacy of Paul inspired the formation of several super-PACs, and some of them invested little in politics while spending large sums on overhead.

Revolution PAC raised more than $1.2 million and spent just $172,000 on independent expenditures to help him. Steering the group’s $1 million in administrative spending was Franchi, Revolution’s founder.

Franchi paid himself $38,000 in management fees and fundraising commissions. The super-PAC gave more than $60,000 to One Touch Media and about $53,000 to Restore the Republic --also owned by Franchi, according to Illinois corporate filings.

Revolution PAC was $63,375 in debt as of the end of September. In August, Washington-based campaign finance attorney Dan Backer took over the group’s FEC paperwork.

Franchi Out

Backer said in an interview that Franchi is no longer involved. “Like many grassroots people, Gary was very enthusiastic about the cause but didn’t have the background to run a business or large organization,” Backer said.

“With super-PACs, a lot of people were getting paid what is probably not the optimal rate. We’re looking at how we can become more effective in that area,” he added.

Franchi said he was “actually impressed” with what his super-PAC accomplished. He left the group to focus on his other companies, which provide social media services, he said.

PayPal founder Peter Thiel was the super-PAC’s top monetary backer, contributing $85,000. Thiel also gave $2.6 million to a different pro-Paul super-PAC, Endorse Liberty, late last year. Thiel declined to comment through spokesman Jeremiah Hall.

“It’s really a donor-beware situation,” said Biersack, who was employed by the FEC for more than 30 years. “It’s up to donors to ask for a business plan and to understand what they’re investing in.”

Ways to reassure donors: Develop a clearly defined mission, hire capable staff and install an active board of directors, said Fred Malek, a Republican fundraiser who works with the Congressional Leadership Fund super-PAC, which raised about $10 million for 2012 and spent less than $500,000 on administrative costs.

“A super-PAC can do what they want with the money if they can raise it,” Malek said in an interview. “But there is with many of them a lack of accountability. Donors need to distinguish the good ones from the bad ones.”

 

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