In the shadow of what appear to be the final days of the Democratic Party’s presidential nomination process, the formation last summer of the Hillary Victory Fund has received minimal public attention as a campaign issue in this election cycle. This is surprising, considering that the Hillary Victory Fund has fundamentally changed (compared to previous nomination cycles) not only how nominees are being chosen (on the Democratic Party side) this year, but might just change how nomination elections are done completely going forward. Once the funding mechanism behind this fund is understood – where the money comes from, who it goes to and when - it becomes clear how so many Super-delegates have been so committed to Clinton all along and why we may have just allowed our elections to be sold to the candidate who is best positioned to raise funds from the wealthiest donors.
The 2015 Invitation to Join Hillary’s Fund
The New York Times first broke the story of the Hillary Victory Fund during the sleepy late summer of 2015, when many Americans were not yet paying much attention to politics. It started as a proposition from the Clinton campaign to the Democratic National Committee (DNC) and the 50+ state and territory parties that ultimately led to the formation of Hillary Victory Fund as a joint fundraising committee consisting of the Hillary for America presidential campaign, the DNC, and the state democratic party of 33 states and territories.
In the past, such a victory fund would not have been very newsworthy, but because of a controversial Supreme Court decision in 2014 called McCutcheon v. FEC (the other bookend to Citizens United, one might say) this particular campaign financing vehicle is proving to be decisive for the Clinton campaign, ensuring to a large degree a “lock” on the loyalty from many so-called “Super-delegates” even before anyone ever cast a primary vote. But given its success, this model might emerge in future election cycles as the “new norm” for how presidential campaigns might be financed in both parties. And that last consequence, if it turns out to be true, is a disaster for democracy, opening the floodgates for big money to find its way into campaign finance in a way that makes the primary and caucus process a rigged game from the beginning.
This is what we know: sometime in mid-2015, the Clinton campaign apparently approached the DNC and each state and territory party committee with a proposition to form a victory fund – the kind of joint fund that historically in past elections has been formed to raise funds for a general election, after a national party has selected a nominee to run for President.
According to a New York Times, the proposition was initially received with some skepticism (“snags” in the NYT’s words) by both the DNC and many state parties. The biggest “snag” was apparently a bold deal term that the Clinton campaign demanded: that all funds collected in the name of the Hillary Victory Fund, whether intended as a national party contribution, a state party contribution or a candidate campaign contribution remain under the complete control of the Clinton campaign throughout both the primary cycle and – if Clinton won the nomination – the general election cycle. In other words, the DNC and state parties would only share in such funds and be allowed to spend them when and if the Clinton campaign saw fit to authorize them to spend the money. Some sources for that story expressed concern about the timing of such a victory fund with a single candidate, before a single primary vote had been cast in what was expected to be a competitive nomination.
The McCutcheon Decision: a Blessing for Big Money Politics
To understand why this is such a revolutionary proposition, and creates such an incredible advantage for the Clinton campaign, we need to remember a couple things about campaign finance law and how that law was changed by the McCutcheon decision in 2014.
This is the first time that we have had a presidential election since the 2014 McCutcheon decision, in which the five conservative Justices struck down 40-year-old campaign finance law that limited the aggregate contributions a donor could make across all candidate campaigns and national parties to $117,000 (as of the 2012 election cycle): $46,200 in the aggregate to all federal candidates and $70,800 to all national parties. The Hillary Victory Fund is set up to take advantage of the McCutcheon v. FEC decision to create a mechanism for deep-pocketed donors to give huge amounts of money to a single candidate, effectively, under the appearance of spreading the money around.
In their dissent, the minority of “liberal” Justices Breyer, Ginsburg, Sotomayor, and Kagan argued that C. J. Roberts’s majority decision “creates a loophole that will allow a single individual to contribute millions of dollars to a political party or to a candidate’s campaign… Today’s decision eviscerates our Nation’s campaign finance laws, leaving a remnant incapable of dealing with the grave problems of democratic legitimacy that those laws were intended to resolve.”
When the Supreme Court swept these limits away, it got the attention of many in the press (see, for example Chris Cillizza’s editorial in the Washington Post at the time of the decision, but at the time it was anyone’s guess what impact if any this decision might have on future presidential electoral cycles. We have now seen the future, apparently, and it is called the Hillary Victory Fund.
How the Hillary Victory Fund Is Designed to Collect Money
For the 2015-2016 election cycle, there are still campaign finance laws that limit how much an individual can give to a single candidate, to a single political party and to a single state political party in a given time frame. For example, a donor is only allowed to give $5,400 to the Hillary Clinton campaign ($2,700 to be spent in the primary and $2,700 to be spent in the general election). Likewise, a donor cannot give more than $10,000 to any state party per calendar year and there are per calendar year limits to contributions to the national party and to individual sub-accounts of the national party.
Now, however, thanks to McCutcheon, a campaign contributor no longer is constrained by the aggregate limits. A wealthy donor can aggregate all contributions for 2015 as a single check to the Hillary Victory Fund. The first $2,700 of the donation might be given to the candidate’s campaign – Hillary for America for immediate use in the primary campaign. Then, the next $334,000 might be allocated to the Democratic National Committee, to be allocated across its main account (still limited to $33,400) and the rest divided among designated sub-accounts (such as legal, HQ and party convention expenses). Then, depending on how many state and territory parties are participating in this victory fund, the donor might include an extra $10,000 to be allocated as a contribution to each state party participating in the joint victory fund. The full amount of a donor’s ultimate contribution – the size of the check - depends on how many states join the victory fund. If all 50 states join, a donor can contribute $500,000 to the fund to be allocated to the state parties, plus whatever contributions get allocated to the national campaigns and the DNC.
Once the money has been donated, of course there is nothing stopping the joint fund participates from giving money to each other: a state party could take a $10,000 contribution from a donor that was made in the name of the joint victory fund and give it to another member participant of that victory fund. But keep in mind: just because money is allocated as an individual contribution to a state party, or even given to it, doesn’t mean that the state party still has control over the money. That control, apparently, is always with the Clinton campaign, as per the fund’s deal terms.
Closing the Deal and Forming the Fund
When the New York Times broke the story, only Virginia, Mississippi, New Hampshire, and Wisconsin had agreed to Clinton’s deal terms. The DNC also accepted the deal shortly after the NYT reported on the story, giving in completely to the Clinton campaign’s terms and conditions, including agreeing to give complete control over funding and administration to the Clinton campaign’s treasurer and chief operating officer, Elizabeth Jones. Once the DNC and the “first mover” states took the deal, things started happening quickly, with states joining so as not to be left out of a potential fundraising bonanza, and the final participation list was defined and the fund was formed on September 16, 2015, (with FEC filing number FEC-1024982) as a joint fund between Hillary for America, DNC Services Corporation/Democratic National Committee 32 state committees of the Democratic Party and the committee for the territory of Puerto Rico.
Going back to the example above, the Hillary Victory Fund was willing and able to accept a contribution of up to $666,700 from any single donor at any time up to December 31, 2015. Then, on January 1, 2016, the Hillary Victory Fund was willing to accept another $666,700 from the same donor (with the caveat that the first $2,700 of the 2016 contribution be set aside by Clinton’s campaign until she wins the nomination).
To their credit, at least 18 states and several territories rejected the Clinton campaign’s deal. But why would the DNC and 33 state and territory parties accept such a Faustian bargain in the first place, especially so early in the electoral cycle?
In the case of the DNC, there is a simple reason: By the time the DNC signed the pact to be part of the Hillary Victory Fund, the DNC had approximately seven million Dollars of debt, while the Republican Party appeared to have as much as twenty million Dollars cash on hand. The prospect of having that debt wiped clean with the help of the powerful Clinton fundraising machine was no doubt a meaningful temptation.
For the states it is a bit more difficult. For some states, such as Virginia, one need look only as far as who sits in the governor’s office to understand: Terry McAuliffe, the millionaire businessman was co-chair of Bill Clinton’s 1996 reelection campaign. He was chairman of Hillary Clinton’s failed 2008 campaign. He is the former chairman of the DNC. And managed to get himself elected governor of Virginia in 2014 (his first ever elected office). His history with the Clintons goes back very far. Throughout the party structures of many states, there are many similarly-positioned supporters of the Clintons who are not only themselves Super-delegates, but are in positions to have influence over the decisions made by their state party, such as decisions whether to agree to the Hillary Victory Fund deal terms.
For many other state and territory parties (Wyoming, for example) Clinton’s reputation for fundraising prowess and the prospect that she was well positioned to win the Democratic nomination made the opportunity to join the fund an attractive one, even if it came at the expense of putting themselves at the mercy of Clinton’s campaign if they wanted to get any of the money. It is as if the Clinton campaign went to each state last summer and said “join the fund now and play nice through the nomination season, and the financial rewards will flow back to your state in the general election.” Free money can be a powerful motivator for these states and for the Super-delegates who work for these state parties or whose election in the fall depends on adequate funding.
The “Wild Hypothetical” of the McCutcheon Case
Looking back at the McCutcheon case one might ask “why didn’t anyone see this as a risk?” Amazingly, the lower courts in the McCutcheon case envisioned just such a funding mechanism, whereby state party contributions up to the limits could become pooled with national party limits and individual candidate limits, all for the benefit of or under the control of a single candidate. The prospect was persuasive enough for the lower courts to decide to keep such legislative limits in place.
But for Chief Justice Roberts, such a hypothetical was simply not realistic because such a possibility was based “on the premise that the donor would telegraph his desire to support one candidate and that ‘many separate entities would willingly serve as the conduits for a single contributor’s interests.’”
Further, in oral argument before the Supreme Court, Solicitor General Donald Verrilli made the same argument to the Court , to which J. Alito is reported to have responded by saying “Now, how realistic is that? How realistic is it that all of the state party committees, for example, are going to get money and they’re all going to transfer it to one candidate?” J. Alito then called such ideas “wild hypotheticals” that “certainly lack any empirical support.” It should be clear by now: the “wild hypothetical” that we were assured couldn’t happen apparently has happened; Alito has his empirical support.
The Hillary Victory Fund is a Good Thing?
It has been argued by some of the Hillary Victory Fund’s defenders and the Clinton campaign’s supporters that the Hillary Victory Fund is an act of benevolence on Clinton’s part, to show her support for the party as a whole, and her commitment to success in state races. For example, a blogger here at dailykos pointed this out last October. On April 5, 2016 this story was repeated on the Rachel Maddow Show on MSNBC, where a Clinton campaign press release was quoted as stating that “Clinton raised an additional $6.1 million for the DNC and state parties during the month of March, bringing the total for the quarter to about $15 million.” Which Rachel Maddows rather naively accepted at face value as a meaningful difference between Sanders and Clinton, saying “it’s probably safe to say Democratic officials who serve as Super-delegates are taking note of these developments.“
But how has the Hillary Victory Fund actually played out since last September?
Who is behind the Hillary Victory Fund?
On the fundraising side, it is definitely attracting some very deep-pocketed contributors. The list of donors who wrote checks in the hundreds of thousands of Dollars in 2015 reads like a “who’s who” of hedge fund managers, entrepreneurs and even lobbyists. Some may recall that it was reported last February that at some point in 2015 the DNC quietly rolled back the rules Barack Obama had put in place restricting corporate lobbyists from making contributions to the DNC.
Looking at the Hillary Victory Fund, we can now understand better the significance of this change in rules. At the time, the DNC tried to both rationalize eliminating the restrictions and downplay their significance when they were in place. The restrictions were called “symbolic”. Mark Paustenbach, deputy communications director for the DNC, sent out an e-mail to the press, saying that “the DNC’s recent change in guidelines will ensure that we continue to have the resources and infrastructure in place to best support whoever emerges as our eventual nominee.” This sort of statement only makes sense if you take “eventual nominee” to be a euphemism for Hillary Clinton herself. Otherwise, it is difficult to see how lobbyist contributions to the Hillary Victory Fund would ever become a support for Bernie Sanders, for example.
Although the story was reported in February 2016, it is now clear from FEC filings that the Hillary Victory Fund was taking very large donations from corporate lobbyists during 2015, most prominently among them, Jeff Forbes. Forbes is a well-known corporate lobbyist with a colorful list of active clients that includes the National Rifle Association and Pharmaceutical Research and Manufacturers of America, as well as a whole network of telecommunication and related companies and industry associations. In 2013 Forbes lobbied successfully to block gun control legislation on behalf of the NRA and represented the telecommunications industry in its fight against the FCC to destroy Net neutrality. This hired gun for the gun makers, drug makers, and enemies of the Internet gave over $300,000 to the Hillary Victory Fund in 2015 and is actively giving check after check to the Hillary Victory Fund again this year.
Other deep-pocketed donors in 2015 included George Soros, Alice Walton (of the Wal-Mart fortune), Susie Tompkins Buell, Fred Eychaner, J.B. Pritzker, Laure Woods, Avie Glazer, Jeffrey Katzenberg, Phillip Munger, Jon Stryker, Haim Saban, Imaad Zuberi, S. Donald Sussman, and J. T. Snyder (many of these people are founders and directors of hedge funds, private equity funds and known, highly successful Wall St. risk takers). 2016 promises to have an even more colorful list of deep-pocketed donors. John Podesta, who is Clinton’s campaign manager, has been co-hosting private, high-priced fundraisers frequently over the last two months with the help and support of the likes of Jeff Forbes and Mr. Podesta’s own brother, Tony Podesta (another known Washington corporate lobbyist).
The Hillary Victory Fund is not a Super PAC … (its better)
It is important to keep in mind that the Hillary Victory Fund is a direct contribution that is under the control of the candidate. In this respect, it is very different from a Super PAC. But, many of the names that have given deeply to the Hillary Victory Fund are also major donors to a SuperPAC called Priorities USA. For example, S. Donald Sussman in 2015 he wrote a check for $2.5 million to that SuperPAC. George Soros has already given $6 million to the same SuperPAC. The opensecrets.org contribution list to this SuperPAC reads like a who’s who of hedge fund and private equity fund managers.
Priorities USA is in principle a SuperPAC that has a history of promoting and advancing Democratic Party causes in general. However, in 2014 a man named David Brook took control of Priorities USA. Currently Priorities USA is run by Harold M. Ickes. Brooks and Ickes both have extensive resumes working for the Clintons. Under the guidance of both of these men, the Priorities USA SuperPAC has been transformed over the last two years from a Democratic Party SuperPAC to a candidate-specific SuperPAC spending money in support of Hillary Clinton to help her defeat her Democratic Party rivals to secure the nomination. With a donor list that is suspiciously similar to the donor list of the Hillary Victory Fund and under the control of people who have supported the Clintons extensively over the years, it is difficult to see just how independent or free from candidate influence such an allegedly independent political action committee is.
Clearly the Hillary Victory Fund is succeeding in taking in very large quantities of money from individual donors, well in excess of any pre-McCutcheon campaign finance limits and in complete contradiction with the stated fundraising values President Obama attempted to introduce into the culture of the national party eight years ago.
The Hillary Victory Fund is Good for the States?
But what about the states? Are they really reaping the benefits of this fundraising? Consider Wyoming, in part because the Wyoming caucus just happened recently with very surprising results (where an unusually high majority of absentee voters designated the state party officials to act as their surrogates in support of Clinton, inconsistent with the results of voters who actually physically came to the caucuses, but also because Wyoming is one of those states where Sanders won the vote by double-digit margins (even with the unusually large and highly irregular surrogate vote count) and yet 100% of the state’s Super-delegates have pledged their support for Clinton.
According to its year end disclosures filed with the FEC for the year ending on December 31, 2015, the Hillary Victory Fund reported making transfers to affiliates (to the DNC and to state parties) of $7,366,036, of which $64,100 was reported to have been transferred from the Hillary Victory Fund to the Wyoming state party (a transfer of $24,000 on October 1, $19,500 on November 2 and $20,600 on December 1).
But here is where things get strange: in the Wyoming Democratic State Central Committee’s FEC filing, the state party reports within its transfers to affiliates three payments in 2015 to the DNC Services Corporation (the national party) consisting of a transfer of $24,000 on October 1, $19,500 on November 2 and $20,600 on December 1. In other words, the net cash flows from the Hillary Victory Fund and to the DNC in the name of the Hillary Victory Fund for 2015 cancelled each other perfectly. Recalling that the deal terms for the Hillary Victory Fund gave to the Clinton campaign complete control over the money, it appears to me at this point that the Clinton campaign is simply moving money through the state party’s account; even though the money is coming into the state party’s accounts, the state party doesn’t have effective control over the money nor does it have the power to keep the money against the will of the Clinton campaign.
The Wyoming case is not an anomaly. It would seem that in every state that signed up for the Hillary Victory Fund, similar such inflows and outflows netting each other out appear throughout their FEC filings. In fact, if you take the total sum of money sent from the Hillary Victory Fund to 22 state parties in the month of November it totals $938,500. The sum of money sent from those same 22 state parties to the DNC in November is also $938,500.
This doesn’t mean the state parties are not or will not get money. There are, for example, here and there records of $10,000 from many of the names of donors listed above, with the ledger notation “Hillary Victory Fund”. But given the Clinton campaign’s control over this money, these are allocations appear to be to whet appetites. The real funding, one assumes, comes later, once Clinton has assured herself of the nomination and of each state’s Super-delegates’ loyalty. But in the meantime, the Hillary Victory Fund appears to be a carrot and a stick to keep the Super-delegates of these states compliant and committed to “the plan.” Because, after all, one has to ask: what happens to unspent Hillary Victory Fund money if Bernie Sanders wins the nomination?
Somehow we seem to have arrived at a point where the party elite both nationally and at the state level in 33 states have agreed to put themselves at the mercy of a single candidate’s whims if they want any funding at all from a victory fund that – in principle – one would have expected to operate fully in the general election, not the primary.
Who Really Wins With McCutcheon?
With the Republican nomination process in such disarray it is not hard to see why a fund like the Hillary Victory Fund would have been impossible for any Republican candidate to have put in place in September 2015. The irony is not lost that it was, ultimately, a Democratic Party politician who found a way to reap the benefits of a ruling that conservative justices thought would favor and benefit Republican politicians. Despite the fact that the Hillary Victory Fund seems to be the only real post-McCutcheon campaign finance vehicle in use today, the success it is producing for Clinton in this election cycle in my mind means we can expect to see this model used with much greater frequency in future election cycles. It seems reasonable to predict that Republicans are watching and learning from the Hillary Victory Fund. Unless something is changed, this may be the model of the future in both parties.
Some may say Clinton is just using Republican rules in order to “stand a fighting chance” or “even the playing field.” Is there any moral solace in knowing that a Democrat has “beaten the Republican Party at its own game”? Do Democratic Party politicians have any claim to a moral high ground if this is the future of how nominees get onto the ticket?
The Hillary Victory Fund is such an overt and effective end-run around the nomination process and is such an effective instrument for funneling large amounts of money from a small pool of very wealthy donors – including corporations and their lobbyists – that it raises questions for all voters: why bother voting in this presidential selection process at all when this is what we are up against if we dare to choose to vote for someone other than the one who managed to lock up all of the Super-delegates last year? And why bother having campaign contribution limits at all, given how a candidate’s effective contribution limit is determined in the end by how many states the candidate can persuade to join his or her victory fund? Hillary Clinton’s approach to campaign finance this year has made a mockery of both the idea of voting in a primary and the idea of having laws that limit campaign financing.
It would be lazy to explain Clinton’s uncanny control over the Super-delegates as some sort of neutral expression of support for Hillary Clinton born of some strong preference for her or some vague aversion to Bernie Sanders. Once you take a step back and consider the stakes of the Hillary Victory Fund for state parties, the force of the “Clinton-Only” Super-PAC (Priorities USA), the financial insolvency of the DNC last fall, and the new campaign finance world post-McCutcheon, it is easy to see how the deck has been stacked overwhelmingly in Clinton’s favor. The bottom line is this: the odds are stacked and have been stacked all along in Clinton’s favor thanks to this mockery of campaign finance that puts much of the party for sale to the highest bidder. In such circumstances, you may say to yourself that you are “choosing to vote for Hillary Clinton” for any number of reasons.
But the truth seems to be that “you may never have had a real choice.”