By Karl Evers-Hillstrom
To increase their Washington clout, powerful corporations and trade associations often use affiliated PACs to boost the campaigns of candidates aligned with their financial goals.
PACs representing business interests have already contributed $179 million to federal candidates and party committees this cycle. These well-funded business PACs account for 73 percent of total PAC giving, dwarfing efforts from labor unions and issue-focused groups.
Business PACs are funded by employees of the company. Corporations themselves cannot contribute directly to traditional PACs, candidates or parties. But they are allowed to cover almost all expenses incurred by their affiliated PAC, including staff salaries, fundraising expenses and administrative costs. And corporations may spend their treasury funds to create incentives for their employees to fund the PAC.
This rule applies to any PAC that has a “connected organization” such as a company, labor union or trade association. It’s particularly advantageous for deep-pocketed corporations and trade groups whose PACs have dominated for decades.
For some of the top PAC contributors such as Comcast, Pfizer, Home Depot, UBS Americas and UnitedHealth Group, upwards of 99 percent of their spending reported to the Federal Election Commission consists of political contributions.
Grassroots political organizations say the current rules create an uneven playing field in the world of PAC giving. By paying for PAC expenses with corporate funds, these companies can maximize their political giving. Issue-focused PACs, on the other hand, must spend donors’ money to pay for salaries and hefty fundraising fees.
Excluding leadership PACs that are known to spend money freely, the average ideological PAC spends 13 percent of its money on fundraising expenses. Nearly 14 percent goes toward wages for its employees. Another 7 percent is lost to administrative expenses, leaving these groups with less money to contribute to their preferred candidates.
Corporations may solicit executives, shareholders and managers and their family members for PAC contributions. For employees outside of this restricted class, they may only ask for PAC contributions twice a year. In trying to convince employees or members to contribute, companies and trade associations can pay to host fundraising events, send out email or mail solicitations, or even offer incentives such as matched contributions to a charity of the donor’s choice.
“They’re looking for every possible way to raise PAC receipts because you have members of Congress forming multiple member PACs, leadership PACs, everybody’s got a PAC,” said David Rehr, professor at the Schar School of Policy and Government at George Mason University. “There’s really a race for more money.”
Rehr ran the influential National Association of Broadcasters trade group for five years. Before that, he helmed the National Beer Wholesalers Association, where he would get creative with PAC solicitations. In the mid-90s, in an attempt to get more beer distributors on board with the group’s PAC, Rehr sent his members a cassette tape recording of Rep. Joseph Kennedy II (D-Mass.) passionately arguing for restrictions on beer advertisements.
“We told our members we’re growing this PAC because we want to elect more people who understand what we do and understand who we are,” Rehr said. “And it worked.”
Lobbying experts say PAC contributions alone — which max out at $5,000 per election — don’t lead to results. Interest groups incorporate PAC contributions into a larger lobbying strategy that often includes public relations campaigns, flying in members to the capitol and dispatching revolving door lobbyists with close ties to lawmakers and government officials. Business interests have historically dominated both lobbying spending and PAC giving.
“I don’t think you can really be effective in advocating for either your association’s interests or your company’s interests just through a PAC,” said Kristin Brackemyre, director of PAC and government relations at the Public Affairs Council. “You need to have a grassroots presence, you need to employ traditional lobbying methods, a PAC is really just one prong of the strategy.”
In recent years, a handful of political groups have emerged urging lawmakers to reject money from business interests. Each of the top Democratic presidential candidates signed on to the Sunrise Movement’s pledge to reject money from fossil fuel executives and PACs. Dozens of congressional Democrats have pledged to reject corporate PAC money, an effort led by liberal group End Citizens United.
End Citizens United tries to elect candidates who share its goal of changing the campaign finance system to reduce the influence of big money. The group argues that grassroots-funded PACs like itself are disadvantaged compared with powerful corporations.
“Grassroots-funded organizations don’t have the luxury of unlimited corporate funds to offset overhead and administrative costs,” said Patrick Burgwinkle, communications director at End Citizens United. “Unlike corporations, grassroots groups must use hardworking people’s money to run their organizations. This exemption gives corporations a big advantage over other groups — an advantage that comes with no transparency — and it allows them to spend more money on elections.”
It’s difficult to know how significant that advantage is, because corporations’ direct spending on PAC expenses is not disclosed to the FEC. Only a small number of companies choose to pay for PAC expenses with donor dollars, offering a glimpse into how expensive it can be. During the 2018 cycle, the PAC for manufacturing and defense giant Honeywell International spent nearly $1.6 million on administrative and fundraising costs.
That figure might be an outlier. The Public Affairs Council’s 2019 report surveying more than 150 corporate PACs found that their budgets range from less than $10,000 to upwards of $500,000. Most large PACs are run by one or two people who work closely with various departments in the organization and receive input from an elected board of employees or members, Brackemyre said.
“In this budget-conscious era, a lot of PACs are running very lean operations,” Brackemyre said, adding that companies often look to the government relations department first when considering budget cuts.
The council’s report found that roughly half of the companies surveyed provided donors with incentives, the most popular being updates on political issues, live events with guest speakers, and an annual gift. The most effective benefits were matched donations to the donors’ preferred charity, according to the survey.
Corporations may use treasury funds to reward donors for making PAC contributions and to host special events such as raffles, concerts or golf tournaments to encourage PAC contributions. However if the value of the prizes or entertainment is more than one-third of the money raised, the PAC must pay for the difference with donor money.
Responding to legislation
When a company is particularly threatened by proposed legislation or government action, it might be more aggressive in soliciting PAC money. And if the company doesn’t have a PAC, it might create one.
US Radiology Specialists, a conglomerate of radiology practices, launched its own PAC for the first time in August 2019 amid the lobbying battle over surprise medical billing legislation. The group quickly contributed more than $68,500 to key lawmakers, giving the maximum to several vulnerable senators and bankrolling committees controlled by members of House and Senate leadership.
The group, like many physician practices, would be hurt by bipartisan bills to cap the cost of out-of-network services that are often incurred during emergency room visits. Private equity firms controlling physician staffing firms launched a shockingly expensive ad campaign pressuring lawmakers to oppose bipartisan legislation. Affected industries spent unparalleled amounts on lobbying at the height of the debate last year.
Physicians, hospitals and insurers battled for PAC superiority in committees considering the legislation. Health sector PACs poured $5.2 million into the House Energy and Commerce Committee and $7 million into the Senate Health Committee, more than any other sector.
The legislation stalled for months before the White House and congressional leaders of both parties agreed on a plan that included some concessions sought by physician groups. However the legislation did not win support from major hospital groups.
To the surprise of some lawmakers, Ways and Means Chairman Richard Neal (D-Mass.) — the top recipient of business PAC money this cycle with $1.4 million — pulled the bill from the year-end spending bill. Neal said the compromise legislation was rushed and lawmakers didn’t have enough time to scrutinize it.
In the upper chamber, Senate Majority Leader Mitch McConnell (R-Ky.) is the top recipient of business PAC money, taking over $3.1 million to boost his reelection campaign.
Lawmakers introduced another version of the surprise medical billing legislation in February, drawing mixed reactions from members of the health care supply chain. As industry forces spend big, committee and party leaders will benefit from the lobbying battle with mounds of business PAC cash.