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Net Net: Promoting innovation and managing change

Following the Money: The Power of the PAC


We have been hearing for weeks about the tremendous amounts of money being raised by the Political Action Committees (PAC). On January 31st at midnight, all PAC donations prior to January first will be made public.

"A ton of money has been sloshing around the last three weeks. You'll undoubtedly see six to seven figure contributions to the PACs," one PAC adviser said, who asked not to be named. 

According to the Federal Electoral Commission, in the last round of disclosure back on September 20, 2011, Governor Rick Perry was leading the PAC war with $180,998.  But those numbers were reported before the infamous flub of Perry forgetting the third agency he wanted to cut.   Since the last round of reporting, Romney has been on a tear in the GOP gauntlet.

"You'll see the pack money will follow the momentum and when the numbers come out expect Romney to be on top." predicted one PAC member.

No matter what you personally think about the money being raised, right or wrong, the process is legal.  The Supreme Court ruled on two cases which has allowed for the creation of such groups.  Citizens United vs. Federal Election Commission, which overturned the ban on corporate and union treasury funds being used in politics and the case vs. Federal Election Commission, which ruled it is unconstitutional to put a limit on political committee donations.

Michael Toner, Former FEC Chairman and Election Law & Government Ethics Practice co-chair attorney at Wiley Rein, says these so-called Super PACs will help level the playing field for the GOP candidate to go up against President Obama’s war chest.

"Super PACs are becoming institutionalized. The money they generate will help the GOP nominee compete. 2010 was a trial run for the Super Pac spending. That spending will be nothing compared to what they spend in the general election. All Super PACs combined I expect will spend over a billion dollars," Toner said.

This is not the first time in an Presidential election we have seen ad spending from outside groups. The Swiftboat Veterans ads on John Kerry and the Willy Horton ad in the 1988 contest between Bush and Dukakis are two classic examples.

With a five thousand dollar limit on the amount a person can donate to a campaign, the Super PACs offer high-net worth individuals an avenue for donations into the millions of dollars.

“PACs cannot be controlled. Campaign fundraising in general cannot be controlled; every time there's a new reform law, the loopholes are wide enough to drive a bulldozer through every provision. Both parties will take advantage of PACs and there's nothing anyone can do about them except ask for some level of transparency," Greg Valliere, Chief Political Strategist at Potomac Research Group, says.

The defenders of the Super PACs respond by pointing to the relative low level of spending on politics.

"We are promoting our candidate to the highest office in the world,” argued one PAC fundraiser.  “When you look at the amount of money spent on advertising for McDonalds (MCD) and Starbucks (SBUX) in one year, raising millions of dollars in advertising for a Presidential candidate is nothing.”

This year is expected to be a bonanza in terms of donations.

"Records will be set on both the left and right, " explained Phil Musser, former executive director of the RGA. "You'll have $750 million plus raised by the Obama campaign, you'll probably have a $500 million plus raised by the Republican campaign, American Crossroads has a goal of raising a quarter billion dollars, American Action Network, the RGA and other similar size groups will raise about the same amount and the RNC will raise $200 million dollars.  The bulk and lion share will go to voter contacts. So the connection of dollars to voters is where you see the biggest boom."

The boom will come from billionaire donors like hedge fund manager John Paulson, who reportedly gave one million dollars to the Restore Our Future Super Pac (which was formed by former Romney advisers).

The presidential contest is an expensive one and if advertising last year is any indication, media companies will see a boom in 2012.

Priorities USA, a group that was formed by two of President Obama’s former aides, spent $724,000 on advertising in the first half of 2011.

These PACs can directly advocate the election or defeat of a candidate. Run by people who have either worked for or are trusted by the individual candidate, the committees make sure their ads are in line with their candidate's central message.

"The people running Romney's PAC are all former staff members and the Romney campaign trusts the Romney Super Pac will be strategically helpful to the Romney campaign," explained one GOP PAC member. "And in the last month you have seen this clearly play out."

And as momentum builds and wanes for the GOP hopefuls, the flow of those dollars will follow that momentum and the perceived electable strength of a particular candidate.

"The constitution gives us the free speech and raising money in support of a candidate is a part of that freedom," said Musser. "I think the outside spending from third party groups will rival the money that will be raised by the campaigns."

Some say there is a “ trickle down” effect of these third party dollars can be felt across many businesses..

“The political and economic impacts of these large sums of money remains to be seen,” said Matt Slaughter, Associate Dean of the MBA Program at the Tuck School of Business at Dartmouth and research associate of the National Bureau of Economic Research. “They may extend well beyond just the nationwide presidential election that many people have been focusing on.  Indeed, in some key markets the economic impact—boosted revenues for radio stations, TV stations, print media—may be surprisingly big.”

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."