Last week, The New Republic published the results of my four-month investigation into widespread use of a previously obscure campaign finance loophole. This involved more than 100 House Republicans leveraging their leadership PACs to skirt campaign finance limits and net their campaigns nearly $3 million in extra 2020 campaign cash.
Among the leading practitioners of the tactic was Central Valley dairy farmer David Valadao, who last November won back his House seat in California’s 21st Congressional District. As The New Republic piece chronicled, he netted $65,000 for his campaign committee by swapping leadership PAC donations with 24 other GOP House incumbents and candidates. But this was just one of many fundraising entities his campaign leveraged to reroute and funnel large sums of money from his biggest donors.
All told about $12 million was spent by or on behalf of Valadao’s campaign, including about $8 million in outside independent expenditures. But as the above chart illustrates, tracking this money flow is as complicated as unwinding a tax-evading network of corporate shell companies or tracing back money laundered by organized crime.
It’s a dizzying-by-design fundraising system. Long gone are the days when winning a seat in Congress involved opening a single campaign account and raising money for it. In 2020, the average winning U.S. House race cost $2.3 million, and most benefited from a wide variety of additional fundraising entities such as leadership PACs, joint fundraising committees (JFC), SuperPACs, hybrid Carey Committee PACs, and national, state and local party committees – each with their own complex rules.
Like complex corporate accounting practices, the main reason for all this complexity is to hide the money trail and circumvent rules or laws. The result is a system that lets campaigns leverage cash from their richest supporters in amounts multiple times larger than the normal campaign limits. Sarah Bryner with the Center for Responsive Politics provided one example of how this works.
“If a maxed-out donor gives to a JFC and the JFC gives to the party committee, at this point the money has gone through two bank accounts – the JFC and the party committee – and can be given back to the candidate” without breaking individual donor limits, she said.
If this sounds like money laundering, Bryner said it’s because it basically is.
“Laundering is the correct term. Laundering implies cleaning it, and leadership PACs are sometimes the place candidates get money from less desirable donors. One famous example was [former GOP House Majority Leader] Eric Cantor back in the day getting all of his tobacco money through his leadership PAC. When you looked at his candidate committee, it looks like he hadn’t taken any money from tobacco.”
To illustrate how this complex system can launder money from a few dozen extremely rich donors, let’s look again the Valadao campaign-money flow chart. Start with the brown box in the upper right labeled “Individual Dairy & Crop Production Donors,” which I’ve spotlighted below.
The most obvious outflow from this source is the $1.1 million donated directly to Valadao’s main campaign account. This is the sum of three agri-business donor categories tracked by OpenSecrets.com: Crop Production & Basic Processing, Dairy, and Livestock. Together, they accounted for more than a quarter of the $4 million raised by Valadao’s main campaign account in 2020.
It’s not surprising this sector strongly backed Valadao. He is a Central Valley dairy farmer. It’s only natural for them to get behind one of their own for Congress. But where it gets sketchy is that their support for Valadao went well beyond this $1.1 million. Many of these donors also gave to many of the nine other campaign entities that benefited the Valadao campaign. These are indicated by the brown arrows.
However, once this money comingled with other funds in those entities, it became impossible to prove whether or not the donations were specifically designed to support any individual candidate. But regardless of provable intent, this was clearly the result for candidates like Valadao.
For example, 38 individuals contributed the maximum amount to Valadao’s main campaign account. This equaled $212,800, or $5,600 each. But Valadao effectively doubled these contributions when these same donors gave again to one of the other entities he directly controlled. These are colored yellow in the chart and included his “Vitoria” leadership PAC and the Valadao Victory Fund, a JFC created with House Minority Leader Kevin McCarthy.
Valadao’s biggest supporters also donated millions more to other fundraising entities that ultimately either routed money back to or spent millions in independent expenditures to benefit Valadao’s campaign.
In addition, the couple donated $1.75 million to Take Back the House, another JFC co-operated by McCarthy. This entity in turn donated $236,000 to Valadao’s campaign the last two cycles. The Marshalls also gave $791,000 last cycle to The National Republican Congressional Committee, which in turn spent $4.7 million in independent expenditures to support Valadao.
Whether intentionally or not, once the Marshalls’ money mixed with other big donor money in these entities and was sent onward through the campaign money system, it was all clean and broke no technical donation limits. Thus no one can prove any of the Marshalls’ money was specifically earmarked for the Valadao campaign. However, it would seem unlikely the Marshalls would have been so generous to these entities if didn’t benefit one of their most favored candidates who implicitly understood their business.
To be fair to Valadao, his Democratic opponent T.J. Cox also benefited from many but not all of these same type of entities. (For example, Cox did not operate a leadership PAC.) Most expensive House and Senate races also feature a similar degree of complex money shifting among entities and are disproportionately financed by a relatively small number of rich money sources, who in turn enjoy outsized influence with the office holder.
And the complexity of this system is by design. It’s product of the need to pump huge amounts of money into the political industrial complex, circumvent individual donation limits, and then hide the trail from easy public notice.
Of course, the simplest solution would be to do away with all of these loophole-leveraging fundraising entities. This largely and briefly existed after the Watergate reforms in the 1970s. But through court rulings, regulatory accommodations, Congressional changes and other revisions, all sorts of exceptions and untransparent qualities have been grafted onto the system. This has resulted in the shadowy arms race of ever-escalating campaign costs and influence-buying that are the most prominent features of our system today.