Mitt Romney's campaign-in-waiting is straddling the boundaries of federal law. End run: Romney's crafty financing

The maximum donation a person can give a presidential candidate under federal law is $2,400. Yet Edward Conard, a Mitt Romney supporter, has already donated $90,000 to the former Massachusetts governor’s campaign apparatus.

How is that legal?


Romney’s end run around the federal campaign finance rules is rooted in his status: He is a presidential aspirant, a hopeful, a wannabe. In other words, he is not yet an official candidate. And that’s what allows him and his campaign-in-waiting to straddle the boundaries of federal law.

It’s a loophole whose measure was tested and mastered by Romney in 2006, when he first established five state political action committees to underwrite the expenses of his federal headquarters and dole out money to local candidates in early primary states who could help his presidential quest.

This year, Romney’s 2006 experiment is becoming all the rage among Republican presidential prospects. Mississippi Gov. Haley Barbour, Minnesota Gov. Tim Pawlenty and former Arkansas Gov. Mike Huckabee have all adapted some form of the Romney model in order to solicit big checks and establish a presence in key primary states.

Pawlenty, for instance, has opened a federal committee called the Freedom First PAC and two state committees, one each in Iowa and New Hampshire, that go by the same name.

“Gov. Pawlenty wants to do whatever he can to help conservatives running in this fall’s elections,” said spokesman Alex Conant. “We have a lot of opportunity in Iowa and New Hampshire, and we want to build on that excitement through these PACs.”

But Pawlenty’s operation already has shown its broader ambitions by retaining the services of Sarah Crawford, a New Hampshire grass-roots organizer and former campaign adviser to Republican Sen. John McCain’s 2008 presidential campaign.

While Pawlenty and Barbour are building their empires, Romney’s operation has the canniness of a veteran — and this cycle, it is breaking new ground in testing and besting the limits of state campaign finance laws as well as the federal rules.

In South Carolina, for instance, state law limits donations to candidates from PACs to $3,500 per election, which means a committee can give a local candidate a combined total of $7,000 for a primary and general campaign.

Romney’s team blew the roof off those caps when the five state committees and the federal headquarters gave maximum donations to GOP gubernatorial candidate Nikki Haley for a grand sum of $42,000, compliments of the Romney Empire.

Here’s how Romney’s complex political network operates:

To keep his presence high and key campaign staff on the payroll after the 2008 presidential campaign, Romney re-named his Commonwealth PAC, a federal political action committee, and its five, corresponding state-based committees the Free and Strong America PACs.

The state committees are located mostly in early primary states — Iowa, New Hampshire, South Carolina, Michigan and Alabama — and each operates under different contribution rules established by local statute. That means Romney can collect corporate checks in Alabama, unlimited donations from individual backers in Iowa and regulated donations in South Carolina and New Hampshire.

The arrangement provides Romney’s most loyal and generous backers with multiple opportunities to grease the gears of his political machine.

Take the case of Marc Leder, a Florida investor, who in a single day — March 2 — banked $50,000 on Romney’s political future.

He did that by cutting six checks to Romney’s far-flung network: $3,500 for the South Carolina committee, $10,500 for the Alabama, Iowa and Michigan PACs, $10,000 for the New Hampshire operation and $5,000 to the federal headquarters in Boston.

Conard, a retired executive from Romney’s investment house, Bain Capital, was even more generous on May 20 when he invested $67,500 in the Romney political operation. He gave $3,500 to the South Carolina committee, $27,000 to both the Alabama and Iowa branches and $10,000 to the New Hampshire PAC.

It’s a pattern that repeats itself among a very elite circle of Romney supporters.

Leder’s business partner, Rodger Krouse, co-founder of the private equity firm Sun Capital Partners Inc., gave $50,000 to the state and federal committees on March 2. Palm Beach venture capitalist Howard Cox replenished the state accounts May 6 by issuing six checks totaling $45,000 to the Romney PACs.

According to a POLITICO analysis of information from the federal Free and Strong America PAC, the combined $486,700 raised by the state committees from Jan. 1, 2009, to June 30, 2010, came from just 24 individuals.

Those individuals also happen to be regular donors to the federal PAC, which has a much bigger contribution base and has raised nearly $6 million since January 2009. None of the donors, some of whom were traveling, returned calls for comment.

Eric Fehrnstrom, a Romney spokesman, said creation of the interconnected committees “allows us to raise more money and help more candidates.”

According to campaign finance experts, Fehrnstrom is right. Federal PACs are subject to the McCain-Feingold law, which limits their ability to participate in state races. Additionally, some state laws make it difficult for federal PACs to engage in statewide and local campaigns.

By creating a string of state committees, Romney is able to operate around those barriers dolling out big checks to state Republican parties and candidates alike.

According to disclosure reports and data provided by Fehrnstrom, Romney already has contributed more than $500,000 to candidates, party committees and conservative caucuses. The federal Free and Strong America PAC has made more than $418,000 in donations, while the state PACs have contributed a combined total of $111,050.

But the vast majority of the money raised by Romney’s five state committees, which exceeds $480,000, is actually spent to support the Boston-based operation of the federal PAC — and home of Romney’s campaign apparatus.

Each state committee is regularly docked to pay a portion of Romney’s paid staff costs in Boston and for various presidential campaign consultants who remain on retainer. The local committees are even charged a portion of the headquarters’ phone bills and shredding service.

In the Field Consulting, a political consulting firm established by a former Romney campaign adviser, has been paid about $112,480 since 2008 with portions of the payments rolling through the Iowa, New Hampshire, Alabama, Michigan and South Carolina accounts, according to data provided by Romney’s staff.

Another key consultant is SJZ LLC, a fundraising firm founded by Spencer J. Zwick, who is one of Romney closest and longest-serving advisers. In the past two years, SJZ has been paid nearly a million dollars for its work and that of its consultants.

POLITICO’s analysis showed that no money has been spent with local vendors or strategists in any of the states where the committees are registered. There aren’t even rent payments since the address listed for each of the state committees is the Lexington, Mass., offices of the federal PAC.

Of course, that could change, as Romney, like Pawlenty, begins to hire key strategists and field directors in the early primary states.

In the months leading to the 2008 primary season, Romney used the largesse of his network to retain some of the best advisers in the primary states. His opponents were also left seething when his official presidential campaign rollout included a state-of-the-art website and an expensive fly-in of fundraising volunteers — all of which his critics charged were improperly underwritten and planned by the nonpresidential committees.

Trevor Potter, a former adviser to the McCain campaigns and president of the nonpartisan Campaign Legal Center, which tracks campaign financing law, said Romney’s operation is just one of many models employed by candidates to boost their profile and expand their base before the presidential season officially begins.

But the rhythms of the 2012 cycle may prove to be an uncomfortable fit for the Romney model in this cycle, he noted.

“The problem these potential candidates have is after the midterms. How do they justify doing anything between the midterms and the start of the primary season?” he asked.

In the 2008 presidential cycle, the primary season was launched unusually early — just months after the 2006 midterms in January 2007. That was largely because there was no incumbent president in the race and both sides drew crowded candidate fields.

But this cycle, some candidates may not want to officially file to challenge President Barack Obama with nearly two years to go before Election Day and no clear read on their chances of winning.

If they do file to run for president, Romney and the other candidates who have created the state committees will immediately have to abandon them and begin abiding by federal campaign finance laws and limits. They also would be restricted from transferring any of the funds to their presidential account.

If they don’t file to run for president in January, said Potter, “how do they maintain their political activity without the cover of the midterms? It could become a legal question.”

Kenneth P. Vogel contributed to this report.