How wealthy donors fund the national party by giving to the states

by Bob Biersack

On September 30, 2016, Barry and Trudy Silverstein each gave $416,100 to the Hillary Victory Fund, a joint fundraising committee. The Victory Fund was a federal committee — so contribution limits supposedly apply — raising money for the Democratic National Committee, the Clinton campaign, and 38 state Democratic party committees. Each donor could write one check that included the maximum contribution to each of the participants: $5,400 directly to the Clinton campaign — $2,700 each for the primary and the general — $33,400 to the DNC and $10,000 to each of the state parties for a total of $418,800. (The Silversteins had already given to Clinton during the primary, which is why they gave less than the maximum.)

Clearly the Silversteins felt very strongly about supporting Hillary Clinton, and they weren’t alone. At least 40 individuals made single contributions of $400,000 or more, and 125 people made a donation of at least $300,000 to Hillary Victory. It may be a surprise, though, that some of this support trickled down to Democratic party committees in states where Clinton was never expected to be competitive. That included Kentucky, Oklahoma, South Dakota, Wyoming and West Virginia — states in which President Trump received more than 60 percent of the popular vote.

Why would the largest donors be willing to invest in states that were generally thought to be hopeless? The answer lies in the fact that party committees are permitted to make unlimited transfers of funds among themselves. That means that a state party committee in, say, Wyoming is free to transfer unlimited sums to the DNC, so long as the original source of the funds complied with federal contribution limits.

The vast majority of the money these donors gave to state parties through Hillary Victory was never intended to be spent in the states. Rather, much of it spent very little time in the state party accounts before being transferred back to the DNC. Of the $112.4 million that Hillary Victory transferred to state parties, $88.3 million–or 78.5 percent–was sent back to the DNC.

This sleight of hand to provide bigger donations to the national party has been used by Democratic presidential nominees since at least the Kerry campaign in 2004. 2016, however, was the first presidential election since the Supreme Court decision in McCutcheon v. FEC, which declared unconstitutional the two-year cycle limit on total contributions from a single individual. Prior to that ruling, an individual could not contribute more than a set amount to all candidates, parties and PACs combined. In 2014, that limit was set at $123,200 (which was never actually enforced because McCutcheon was handed down in April of that year). Because of additional sub-limits, it would not have been possible to give the maximum contribution to the DNC and more than four state parties during the cycle.

So while some money could flow from a single individual through state parties back to the DNC in past cycles, these amounts were generally relatively small and roughly in line with the limits on giving directly to the national committee. After McCutcheon, however, the ability of an individual to circumvent the contribution limit to a national party committee was limited only by the ingenuity of fundraisers and lawyers and the willingness of other groups — in this case, state parties — to participate by giving the proceeds back to the national party.

What was the impact of the McCutcheon decision on the DNC in 2016? The details get a little complicated here because the money is moving through several accounts and committees filing separate FEC reports, and some are better at reporting than others. The Hillary Victory Fund reports how much it received from each individual donor and how much it transferred to each recipient, including the 38 state parties. We can also see how much each state party reported receiving from Hillary Victory — though it doesn’t always match what Hillary Victory says they transferred — and which specific individual donations were the source of those transfers. Then we can see how much the DNC reported receiving in lump sums from each of the state parties.

Some states transferred every dollar back to the DNC, but many kept some portion of the Victory funds, ranging from very little to as much as one third. This means we can’t say with precision how much of each individual donor’s contributions to state committees ended up in the DNC account, but we can make a back of the envelope estimate.

If the overall cycle contribution limit had not been struck down by the Supreme Court, it would have been about $126,000 in 2016. We know that 430 individuals gave more than that total directly to Hillary Victory, combining for a total of $126.7 million. This means that $72.5 million went to the joint fundraising committee in excess of the old limits. That’s about 14% of the total receipts of the Hillary Victory Fund. (Actually, this assumes that all of these folks would have given the full cycle limit to this committee and therefore been unable to give to other federal candidates or PACs, so this is a conservative estimate. It’s likely that the “loss” to the Victory fund would have been much larger.)

The impact on the DNC, though, was even greater. We know that all of these big donors gave the maximum contribution ($33,400) directly to the DNC through the joint committee. We also know that about 78 percent of the money given to state parties ended up back in the DNC coffers. We can use a little more arithmetic here to estimate how much each donor was therefore able to give to the DNC in excess of the $33,400 limit by passing the money through states.

If we look at every donor who gave Hillary Victory more than they could have given directly to the Clinton campaign and the DNC — meaning that the excess went to state committees — and take 78 percent of that excess amount (the fraction that went back to the DNC), we find that the DNC received $82.7 million over the direct contribution limits by way of this (completely legal) circumvention. That comes to 24 percent of the total receipts of the DNC during 2015–2016.

There is nothing inherently partisan about this approach, of course. These tactics are available to both parties, and the Trump campaign joined with the RNC and twenty-one state Republican committees in 2016. The number of very large donors was much smaller in this case, however. Only 122 individuals gave more than $126,000 directly to Trump Victory and they gave only $20 million more than would have been permissible before McCutcheon. While nearly all of the $29.7 million transferred to states went back to the RNC, this represents only about 9% or the RNC revenue total for the 2016 cycle.

Changes to the campaign finance system in the last several years have focused the attention of the media, academic researchers and political operatives on the free-for-all nature of outside groups raising and spending unlimited sums. Many have concluded that one consequence of this change has been the decline of parties in the electoral process. Since parties must comply with old contribution limits and prohibitions, it is assumed that outside groups with no such barriers have become more important, and that their influence contributes to polarization.

There are, however, reasons to wonder if the actual effects are as dramatic as they seem. The Campaign Finance Institute has shown that some of the most important outside groups are really creations of party leaders in Congress and former party officials who saw an opportunity to “spin off” new organizations with the same goals and approaches. The actual separation between these groups and the party organizations and leaders who formed them may not be very large. In addition, we have seen that the parties were able to take advantage of other rules changes to accept big donations to their own accounts. (We’re not even looking at the three “special” accounts that Congress created for the national parties to use for headquarters, legal expenses and presidential conventions which together brought an additional $40 million to the DNC in 2016.)

So, parties have become important players in the big dollar fundraising system as it has evolved in the last few years. Even in the regulated world, a few hundred donors now account for far more of the DNC’s resources than the millions of small donors who gave less than $200 each in 2016.

So what happened to the Silversteins’ money? We know from FEC reports that $356,100 each from Barry and Trudy went to the Clinton campaign, the DNC, and thirty-two state parties. This is actually $60,000 less than they gave to Hillary Victory, and we know that at least five other state committees received transfers from Hillary Victory that were not fully documented in their FEC filings. We also know that all but three of those thirty-two state committees gave all of their Victory funds to the DNC around the time that the Silversteins donated. Thus, we can be pretty confident that the Silversteins were able to legally circumvent contribution limits that still exist, at least on paper. As a result, the gap between regulated parties and unregulated outside groups is, for better or worse, far smaller than some would have us believe.