Money chase leads to $1 million state Senate seat
Posted January 30, 2014
Raleigh, N.C. — Chad Barefoot is the state Senate's $1 million man.
No, he is not a rainmaker or the chairman of a particularly potent legislative committee. In fact, during the 2012 election, Barefoot was a political novice facing the usually daunting task of unseating a four-term incumbent, Doug Berger of Franklin County. Nor is Senate District 18 some especially lucrative or powerful seat. Representing rural Franklin County and suburban eastern Wake County means only one vote out of 50 and the same $13,951 per year plus expenses any other rank-and-file state lawmaker gets.
That said, the Barefoot-Berger race became the most expensive in the state, a seven-figure affair where drifts of money from official party apparatuses and independent "dark money" groups snowballed together and landed in an avalanche of television ads and direct mail.
It is also where political motive met opportunity.
"This thing is, we had the money. Let's be honest. We wanted to win, and we had the money to spend," said Sen. Tom Apodaca, R-Henderson, a key Republican leader who helped raise money for other GOP state Senate candidates.
Hagan a top target for Americans for Prosperity Because it was one of only a handful of truly competitive legislative races in 2012, District 18 boasted a number of phenomena that are becoming increasingly common in modern campaigns. Party leaders raised huge sums of money and shunted it to targeted races, while outside spending groups poured in more advertising bankrolled by a network of wealthy donors and businesses.
The strategies that helped elect Barefoot are becoming commonplace in contests ranging from Congressional elections to supposedly nonpartisan contests for the state's highest court. And they can make untangling exactly who is financing torrents of direct mail and television advertising difficult, if not impossible.
GOP push for control fueled spending
The roots of 2012's most expensive legislative campaign reach back to 2010, when Republicans won majorities in both chambers of the General Assembly for the first time in a century. Those victories gave them control of the once-a-decade redistricting process. As Democrats had done before them, the GOP divided the state's 120 House seats and 50 Senate seats in ways designed to ensure their own party would hold a majority.
The result is a map where roughly half the seats are "safe" Republican districts. A smaller number of districts overwhelmingly favor Democrats. Only about two dozen legislative districts are places where either party truly has a shot at winning. That made North Carolina's legislative races some of the least competitive in the country, said Edwin Bender, director of the National Institute on Money in State Politics, a nonpartisan group that tracks spending on legislative campaigns in all 50 states.
Only Georgia and Texas had more races that were really over before they began. In roughly a third of the North Carolina's legislative districts, either the Republicans or Democrats didn't bother to field a candidate.
"That kind of sets the tone," Bender said.
It also sets up a handful of races to become hugely expensive.Consider that in a losing effort, Berger raised $283,150. That would have been an eye-catching number by itself, considering that it is twice what the average state Senate candidate spent in 2012, according to campaign finance data gathered by the Institute on Money in State Politics.
But Berger was outspent 4-to-1.
Neither Barefoot nor Berger returned phone calls seeking comment for this story. But those with knowledge of the race who spoke on and off the record said the spending was driven by a combination of the cost of advertising in one of the state's most expensive media markets and the desire to ensure legislative super-majorities. It was enabled by a money chase that funnels cash from across the state into a handful of competitive races.
"You basically have the leadership vacuuming up money though the state and then funneling it through the parties to candidates," said Bob Phillips, North Carolina state director for Common Cause, a good-government group that lobbies for limits on campaign spending.
For example, Senate President Pro Tem Phil Berger raised $1.6 million in 2012. Because he occupies a seat where most voters are likely to back Republicans and his Democratic opponent raised less than $4,000, Berger was able turn over most of his campaign cash to the party.
Apodaca and a handful of other Senate leaders raised about $250,000 to $500,000 dollars each, also piping it through the North Carolina Republican Party, which can give unlimited sums to candidates of its choosing.
In Barefoot's case, $847,475 came from money raised by legislative leaders and shunted through the state GOP.
"I would say, 'Listen, this money you give me is going to help other candidates,'" Apodaca said of his 2012 fundraising efforts.
To be sure, Democratic leaders plied the same tactics for much of the past century and tried to keep pace in 2012. Sen. Josh Stein, D-Wake, led Senate Democrats by raising $423,247, much of which went to the state Democratic Party. But Apodaca, Phil Berger and other Republicans were able to raise much more, in part because they control the flow of legislation.
"People want to be part of a winning campaign," said Dee Stewart, a political consultant who works for Republican candidates and causes. The party in power, he said, always has an easier time fundraising.
In 2012, Republicans were looking to leverage that easy money into locking down their hold on the state legislature. In the Senate, the goal was to win 30 seats, Apodaca said. That's the number needed to override vetoes and send constitutional amendments to voters at will.
"We felt confident we would have 30 anyway, but we wanted to make dead-certain sure," Apodaca said.
Thanks to Barefoot's victory and a handful of other hotly contested wins, Republicans took a 33-17 majority. House Republicans also claimed a super-majority, and together the two chambers pushed through legislation from tax reform to unemployment insurance changes stridently opposed by Democrats, who could do little but voice their opposition as measures were sent on to Gov. Pat McCrory for his signature.
According to the Institute for State Money and Politics analysis, health professionals, lawyers, real estate professionals, hospital executives and those in the banking and insurance industries were the most generous donors to state legislative candidates."My first response is the one most people in the country would have: 'What are they after?'" the institute's Bender said.
Candidates and campaign professionals give varying answers to that question. Some say they are merely trying to elect like-minded individuals. Others will quietly acknowledge that campaign donors, particularly generous ones, can count on at least better access to plead their cases on matters of policy.
But increasingly, donors who want to influence state politics and policy are bypassing campaign donations entirely. And that's a trend that showed up in the Berger-Barefoot campaign as well.
Outside money plays bigger role
The candidates weren't the only ones sending voters direct mail and airing television ads in competitive 2012 campaigns like the Barefoot-Berger race. Outside spenders poured another $141,676 into Senate district 18 alone.
One of the biggest independent players in legislative campaigns was Real Jobs NC, which bills itself as "a nonprofit, nonpartisan organization" that supports business-friendly candidates. By and large, those candidates have turned out to be Republicans since its founding in 2010.
"It's building a pro-business, job-creating majority. That's the official mission statement," said Roger Knight, a lawyer who works with many nonprofits founded by conservatives. "Unfortunately, it's often hard to determine who is pro-business other than through political party affiliation."
The importance of outside spending groups is important, but can be overstated. The National Institute on Money in State Politics documented $15 million in outside spending across the state in 2012, which is roughly 25 percent of the documented money flow through official party channels.
But it's also important to know that some outside spenders almost certainly escape detection, and experts say its not only how much independent groups spend, but where they spend it that makes the difference.
Real Jobs put $107,719 into the Barefoot-Berger race – or about three-quarters of the outside spending there. Much of that went toward an ad that slammed Doug Berger for voting in favor of a budget that raised taxes while sponsoring a separate bill that would have raised lawmakers' salaries.
It's unclear how much of a role Real Jobs' ad played in unseating Doug Berger, but some candidates who have been on the losing side of independent attack ads say they made all the difference.
"My opponent did not defeat me. Art Pope defeated me," said Cullie Tarleton, a Democrat and former lawmaker who lost to Rep. Jonathan Jordan, R-Ashe, in 2010 and again in 2012.
Pope, who now serves as state budget director, has been a bogeyman for the state's political left. He and his family's foundation and business have helped fund think tanks and policy groups that have helped create some of the intellectual underpinnings for conservative legislation moving through Raleigh. He also is a former board member for Americans for Prosperity, the national organization that has been a big player in North Carolina.
In 2010, Real Jobs aired an ad labeling Tarleton "The Tax King." In 2012, a follow-up ad from Real Jobs called him "The King of Spending."
Pope calls the idea that he has held undue sway over elections "a myth. They cannot accept that the people rejected their policies." He points out that Tarleton's campaign spent more than Jordan's in both 2010 and 2012.
In 2010, Tarleton spent $232,944 to Jordan's $117,107, according to campaign finance documents. But three groups to which Pope or his company, Variety Wholesalers, has been a donor, including Real Jobs, spent more than $90,000 in the 2010 Tarleton-Jordan race, effectively evening the score.
While Pope is a big donor toward Republican causes in North Carolina elections, he is not the only one. For example, Real Jobs also raised money from sources such as RJ Reynolds' parent company RAI Services, and Gardner Payne, a player in the video sweepstakes industry.
Democrats use the same avenues. In 2012, for example, North Carolina Citizens for Progress raised $2.6 million that was mainly spent on ads hammering then-candidate McCrory. Political circles are currently buzzing with the prospect for a new Democratic organization that would provide a more effective counterweight to Pope and other Republican spenders.
"There really isn't a great deal to say at this phase," said Adam Abram, an executive in the specialty insurance industry who has been involved in some of those conversations.
"I am in the early stages of talking with business and civic leaders who are concerned about our state's direction," Abram said in an email. "A consensus is building that North Carolina should be a leader in public education, have a strong economy, protect our weakest citizens and take care of the environment. We may start a broader public conversation later in 2014."
For his part, Pope argues that Variety Wholesalers does not donate to groups that do what is known as "express advocacy" in campaign finance circles. Rather, he said, the company supports issue advertising.
"We care about our customers; we care about our state," he said, adding that the company gets "no return on investment" for the donations.
For average voters, those issues ads may be hard to separate from campaign ads. Figuring out who is paying for those commercials can be trying for even seasoned political watchers.Neither Pope's name nor Variety Wholesalers, which owns discount stores such as Roses and Maxway, shows up on IRS reports as a donor to Real Jobs in 2012.
However, Variety did give the Republican State Leadership Committee, a national PAC set up to support GOP state legislative candidates, a total of $250,000 in December 2011 and September 2012. The RSLC gave money to a number of independent spenders, including $250,000 to Real Jobs.
Pope also was a donor to the Republican Governor's Association, which in turn gave to Real Jobs and played a more direct role on behalf of Gov. Pat McCrory, who appointed Pope budget director.
The route of money from Variety Wholesalers to the RSLC to Real Jobs demonstrates that tracking the flow of campaign cash is not always straightforward. But by modern standards, the transactions involving Real Jobs are relatively transparent.
Coming and going under the radar
Real Jobs is a so-called 527 group, a category of independent spending group named for the section of the federal tax code under which they are organized. In exchange for reporting their donors, 527 groups can basically attack or support candidates at will.
"It is by far the simplest, the most flexible," of the outside spending groups, said Knight, the lawyer for conservative nonprofits.
Unlike candidates, who can accept only a limited amount of money from each donor, 527s and other outside spending groups can accept unlimited contributions from businesses and individuals.
"A lot of donors want to make sure their dollars are well spent," said Stewart, the Republican campaign consultant.
Aside from being able to make larger donations, setting up or bankrolling a nonprofit gives donors a larger voice in how their money is spent, he said.
Various organizations can spend money on campaign advertising, or ads that look a lot like campaigns. This list focuses on how these groups behave in North Carolina, although there is some common ground with how similar types of groups engage in federal elections.
Political parties accept and give unlimited donations to their own candidates, as long as the money was originally raised in accordance with campaign finance laws. They can spend run ads or send direct mail on behalf of their members, much of which is typically reported as an “in kind” donation by the candidate themselves.
The campaign committees organized by state-level candidates can accept a maximum of $5,000 in donations from a single individual per election, with primary and general elections counting as a separate election. Candidates can spend the money on their own elections or donate it to other candidates or their political parties. Candidates may not accept donations from corporations or unions.
Political Action Committees
State PACs are often set up by people in the same industry or from the same geographic area. Political action committees active in North Carolina state races must abide by the same contribution limits to candidates as individual donors do and may not accept corporate or union donations.
These are charitable nonprofit organizations and are “are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf…of any candidate for elective office.” C3 groups are allowed engage in activities that encourage people to vote and can publish voter education guides and other supposedly nonpartisan materials. Donations to C3 groups are tax deductible.
These social welfare organizations can raise unlimited sums of money from businesses and individuals, and they are not required to report who their donors are. They are not supposed to spend more than half of their time on directly advocating for one candidate or another, but the rules for that are opaque. Often, C4 groups will run issue ads that avoid triggering current electioneering definitions. They are only required to file spending disclosures when they trip certain triggers in federal or state law, primarily those having to do with naming a candidate within a certain number of days before an election. Donations to 501(c)4 groups are not tax deductible.
These are trade groups and chambers of commerce. The same basic rules that apply to 501(c)4 organizations apply to C6 groups.
527 groups are organized under a portion of the federal tax code that allows them to raise and spend money directly on campaigns. In exchange for being able to engage in electioneering communications, these groups are required to report who donates to them and where they spend their money. Donations to 527 groups are not tax deductible.
Like all independent spenders, 527s cannot coordinate their actions with the candidates they are trying to help. That said, they will often hire campaign consultants to analyze which races are worth investments. Real Jobs parceled out the $880,946 it spent on state races during 2012 by following the advice of such consultants, Knight said.
Other groups are founded by associates of the candidates themselves. Renew North Carolina, for example, is a nonprofit set up to bolster McCrory's agenda. He cannot play a part in the organization's decision-making, but its board consists of longtime allies, and it has invited him to speak at its events, using the proceeds to air a commercial featuring McCrory talking about his accomplishments in office.
Renew North Carolina is a 501(c)4 group, so named for the section of the tax code under which it is organized. These so-called social welfare organizations – along with business organizations known as 501(c)6 groups – are not supposed to spend more than half of their money on political activity. In exchange for that restriction, they are allowed to keep their donors secret.
"People fear boycotts and reprisals," Knight said. "No matter what, if you get involved in politics, you're going to hack off one side or the other."
Variety Wholesalers, for example, has been the target of pickets by the NAACP and other groups opposed to polices put forward by Real Jobs-backed candidates.
Current rules for 501(c)4 groups are murky, leaving what counts as "political activity" poorly defined. The Internal Revenue Service has begun drafting new rules in an attempt to clear up the ambiguity, but campaign finance reformers such as Common Cause's Phillips say it's far from clear how the new regulations will turn out and whether they will address what many see as problems with the groups.
The interaction of 501(c)4 groups and 527s can further obscure the money chase.
For example, a group called the Constitution Trust spent $272,594 in 2012 to air a biographical ad for Grey Mills, a Republican House member running for lieutenant governor. The bulk of the Constitution Trust's money came from the Alliance for Tomorrow, a 501(c)4 based in Cabarrus County.
"The Alliance is a group of local businessmen who have some interest in the area," said Sen. Fletcher Hartsell, R-Cabarrus, a member of the group's board.
Originally, the group was formed to promote the prospects for an agricultural research campus in Kannapolis. That campus' first building opened in 2008.
Asked why a group founded to boost the prospects of a research campus might have an interest in a campaign for lieutenant governor, Hartsell said, "I don't want to get into the rationale. The board makes its decisions."
Donors to the Alliance are not a matter of public record.
Another statewide example involves the North Carolina Supreme Court, where races are putatively nonpartisan. One 2012 contest was generally understood to be a race between a Democrat – Sam Ervin, a state Court of Appeals judge – and a Republican – incumbent Associate Justice Paul Newby. Ervin, the scion of a famous political family, led Newby in early polls but ended up losing the election by 4 percentage points.
According to the two candidates' campaign finance reports, Ervin out-raised Newby by $12,000.
However, Newby was backed by the North Carolina Judicial Coalition, a 527 group that ran one of the most memorable ads of the campaign, which extolled the Republican as "tough but fair" as viewers listened to banjo picking and watched a pair of bad guys unsuccessfully scamper away from the law. The group spent $1.3 million on the race and is generally seen as turning the tide for Newby.
Nationally, political parties and independent spending groups spent 43 percent of the money put into state supreme court elections in 2011 and 2012, according to the Brennan Center for Justice, a group that advocates for better disclosure and less spending in judicial elections.
The Judicial Coalition was backed by the Republican State Leadership Committee, the same group that donated to Real Jobs. Why would a group primarily focused on state legislative leaders and chaired by Senate leader Phil Berger bother with a judicial campaign?
Outside observers point out the court will decide whether laws passed by the General Assembly, including the newly drawn legislative districts, are constitutional.
Coming flood of campaign spending
Newby's race was just be the warm-up for outside spending in Supreme Court races. This year, elections will be held for four of the seven seats on the high court.
"North Carolina is likely to be a national story," said Alicia Bannon, co-author of the Brennan Center report. "Control of the court is at stake for groups on both sides."
While campaigning has yet to begin in earnest for the Supreme Court, outside spending has already topped $8 million in the U.S. Senate campaign, where Democratic Sen. Kay Hagan will face the winner of a decidedly unsettled Republican field.
Americans for Prosperity has blasted Hagan with millions of dollars worth of ads, decrying her support for the Affordable Care Act. Hagan herself has not answered those ads, but the Senate Majority PAC has run an ad on her behalf.
"I think the story you will undoubtedly see in this race is that the amount of money a candidate is able to put into the race may be a de minimis part of what's spent on their behalf," said Joe Stewart, director of the N.C. Free Enterprise Foundation.
Campaign consultant Dee Stewart said that money has been driven to these outside spending groups by campaign finance laws that limit donor contributions.
"Really, it has had the unintended consequence of creating all these other entities," Dee Stewart said.
Rather than trying to regulate the flow of money, he said, the state and federal government should merely ensure that donations are disclosed.
As confusing as the slosh of money was in 2012, spending by outside groups will be harder to follow this year.
Independent groups have been legally required to disclose their spending to the State Board of Elections after the close of the candidate filing period in February.
But a change made last year to state elections law now requires independent expenditure committees to report only on spending after Sept. 15, closing off official notice of all but roughly six weeks of spending by outside groups. That prospect for an unprecedented level of hard-to-track independent expenditures in 2014 worries Common Cause's Phillips.
"The fear is that outside money is beginning to dominate the campaign," he said.