Where is the Money?

Some headlines from campaigns this cycle:

Super PAC backing RFK Jr. got another $5M from GOP megadonor in April ~ Politico 5/20/24

Senate GOP plans $100M ad blitz as it fights to retake chamber ~Politico 6/20/24

Trump keeps creating avenues for people to quietly give him money ~The Washington Post 9/27/24

Harris campaign concerned about money after raising $1 billion ~The Washington Post 10/9/24

Congressional Campaign Treasurer Pleads Guilty to Conspiring with Congressional Candidate in Campaign Finance Fraud Scheme ~DoJ Press Release 10/5/23

Money in politics is a throwaway line understood by few.

The headlines land the punch in the most salacious way so that you’ll click that link. For most, numbers can be confusing, and our brains often default to the simplest way to organize facts. Good-bad, right-wrong, pain-pleasure, quid-quo pro. You get it. You’d have to be living under a rock not to think that money is the grease of the political machinery.

It’s just all corrupt in Washington, and everyone’s either getting money or grifting money. Influence requires money, and those with the most money have the most influence.

Have you heard this before?

Are there any safeguards to really know how much money is flowing into and out of campaign coffers? The short answer is “Yes,” but the longer answer is “Yes, but…”

The laws are weak, and the enforcement of campaign finance laws is even weaker.

First, some facts that may surprise you about government spending:

• In FY 23, the federal government spent over 6 trillion dollars across all of government, including entitlements like Social Security and Medicare.
• A deficit exists when the government spends more than it collects in revenue from taxes. In FY24 (just ended September 30th), the deficit was 1.9 trillion dollars. Of note, the last time the federal government did not have a deficit was in 2001.
• The accumulated national debt, the result of the now 20-plus years of deficits, stands at over 35 trillion dollars.

Recall that the mechanisms of funding government are loosely defined by the Constitution in support of the government’s purpose.

“…to establish Justice, ensure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”

The US government is the largest buyer on the planet.

Influencing spending decisions in the most minute ways can move the bottom line for most companies selling to this behemoth-like customer. While agencies make final acquisition decisions, Congress shapes the decision environment long before the contract can be let. Those companies that understand this essential fact of federal spending know that congressional engagement is a part of the business development process that leads to an eventual sale.

Countless academic studies of the federal process confirm that companies that communicate with Congress reap more and bigger contracts.

What I’m pointing out is that there is money in politics because the business of government involves distributing very large amounts of money.

So, where is the money in politics that we hear so much about?

It comes in specific forms, each grounded in law and policy. Numbers 1 and 2 below are straightforward.

1. Campaign contributions—The amount of money one can give toward an election at the federal level is $3,300 per election, per candidate. Contributions above $200 are tracked and reported by the Federal Election Commission. You can see the searchable database yourself at www.fec.gov. It’s right out in the open.
2. Political Action Committees—Entities can pool contributions to contribute to a campaign’s political action committee. An entity might be a group of qualified employees at a company (typically salaried managers and seniors), a union, the Chamber of Commerce, or AARP, for example. PACs can transfer up to $5,000 from one PAC to another. Members of Congress and its leadership often have multiple PACs, such as an election PAC and a leadership PAC, allowing them to collect the $5000 maximum under multiple PAC banners.

It’s number 3, Super PACs, where the real problem is found. An outcome of the Supreme Court’s 2010 Citizens United ruling (5-4) is the allowance of unlimited contributions to Super PACs loosely affiliated with a campaign. Super PACs are not allowed to directly coordinate with campaigns; however, evidence suggests coordination happens.

An example of how it happens. A campaign can post material on its website that, in theory, is available to anyone but could be posted a few layers deep so only those who know where to look can find it. A Super PAC can go download that material and transform it into their own style of messaging that is supportive of their preferred candidate while attacking the candidate’s opponent. No direct communication takes place between the campaign and the Super PAC, but information is clearly shared.

Couple the two things: unlimited funding and favorable coordination of a message (good or bad), and you can shape public opinion in today’s world.

Not alone, but perhaps the most visible contributor this quarter, Elon Musk, is contributing tens of millions of dollars to Super PACs favorable to the Trump campaign. Several Ultra-High Net Worth Individuals (UHNIs) are doing so as well and on both sides. Soros, Thiel, Gates, Bezos, and many more you will learn about well after the election. They span multiple industries and perhaps expect future favorable policy treatment for having been so generous. Their influence is not just aimed at the top of the ticket. Efforts by Super PACs to flip control of the Senate are evident as well.

Today, this is a completely legal activity. The concept is referred to as dark money.

Why is this allowed?

Because Congress allows it to go on. President Obama came to office on an anti-lobbying wave in 2008, yet by the time of his reelection, he and others understood the potential benefits dark money allowed. Kamala Harris also supported “doing something about dark money” until she didn’t.

Today, we see the tide shift as the dark money appears to favor the Trump campaign.

There is, in fact, a lot of money in politics. For a time, the regulated nature of 1 and 2 above assured there were some boundaries and threats of punishment by the FEC for violators.

With dark money, the reporting required to track the flow of funds really shows up in IRS documentation, not a mandatory reportable FEC filing. It shows up in tax filings because some of the contributing entities are structured as companies or associations as opposed to personal contributions. Tax documentation lags by years. Sometime before the midterm elections, we will learn of the myriad layers of Super PACs that influenced the 2024 elections.

This past weekend, we saw two prominent newspapers, The Los Angeles Times and The Washington Post, each exerting outsized influence of their billionaire owners. By not publishing what would have been endorsements of Harris, their audience sees their owners tacitly if not directly endorsing Trump. New methods of funding are fueled further by a highly dynamic flow of information (truthful and otherwise) and are shaping outcomes in ways that run counter to one-person-one-vote.

Only Congress can set this straight.

Until they do, the funding flowing to your federal contracts will remain influenced by willing participants at all levels of this complex process.

“Just get my contract released,” you might say.

For now, it is a flawed system that shifts the balance of control of our elected officials and their respective chamber. Those who take the time to understand it can best position themselves and their company to make the most of it as opposed to getting steamrolled by it.

I’m the first to admit it’s not pretty. But it is the system we have until Congress changes the law.

Federal Contracting Bidding Trends in an Election Changeover Year

It was a pleasure discussing "federal contracting bidding trends during an election changeover year" with Marcia Watson Watson and Larry Allen on the Optimize Podcast. Listen to the full episode below.