Tuesday, October 4, 2016

October 4, 2016 - At first glance, gambling appears to be one of the many issues on which Donald Trump and Mike Pence differ. Trump is an East Coast casino magnate who has boasted of using his fortune to influence lawmakers. Pence is a socially conservative Midwesterner who says he has never even bought a lottery ticket. He has cast himself as an opponent of expanding gaming in a state whose campaign finance laws aim to limit casino moguls’ political power.

But a closer look shows the Republican standard-bearers have plenty in common: As casino industry cash went around Indiana’s anti-corruption laws and into groups supporting Pence’s campaigns, the GOP governor used his power to help gambling interests. While Trump has promised throughout the 2016 presidential campaign that his personal wealth would insulate his administration from donor influence, the actions of his running mate on the gaming issue challenge that pledge.

A review of campaign finance records shows that despite Indiana statutes officially banning gaming industry donations to state officials, Indiana gaming interests gave more than $2 million to groups supporting Pence since he first began running for governor. That includes gaming-linked lobbying firms and their employees donating nearly a half-million dollars directly to Pence’s campaign account.



Photo Credit: Darren Hauck, Getty Images News



During much of Pence’s term, he was serving in a leadership and fundraising role at the Republican Governors Association while the group raised money from Indiana gaming operators. Meanwhile, casinos hit a legislative jackpot at Indiana’s state Capitol: Pence signed tax legislation benefiting the gaming industry; and, by not vetoing the bill, he allowed for the passage of separate landmark legislation permitting riverboat operators to move casinos on shore. His administration also helped a major RGA donor from the lottery industry, GTECH. (That company has since merged with a competitor, International Game Technology.)

In an emailed statement, Pence’s 2016 campaign spokesperson, Marc Lotter, said the gaming companies in question “have a long history, dating back a decade, of supporting the Republican Governors Association because they want to see the type of strong, pro-growth leadership that has led to Indiana becoming one of the best states in the nation for business continue and expand to other states. Gov. Pence is proud to support and have received support from the RGA.”

Referring to the gaming-backed bills that became law under Pence, Lotter added: “Since taking office, Gov. Pence has held the position that gaming should not be expanded in Indiana and every executive action he has taken on legislation has been consistent with that principle."

This look at Pence’s relationship with the gaming industry is the first in a series on how companies are circumventing longstanding anti-corruption laws designed to restrict their election spending and political influence. The trend has occurred just as court decisions deregulating the nation’s campaign finance laws have let a torrent of cash into state and local races. In many cases, the donations arrived shortly before or after governments cemented everything from road contracts to economic development subsidies to pension deals. The continued flow of cash has defanged pay-to-play laws that were supposed to make sure government decisions are based on the public’s best interest -- not political favoritism.

In Indiana, that larger trend has played out in gaming policy. Pence initially pledged to oppose efforts to grow the state’s gambling industry. “I do not support an expansion of gaming in Indiana,” he said in March of 2013, just two months after becoming governor. The statement won praise from a major religious group in the state. Pence also trumpeted his congressional efforts to outlaw Internet gaming, and said, “I’ve never bought a lottery ticket.”

Our review, however, shows that since 2011, Pence received roughly $2.2 million from Indiana gaming operators and their lobbying firms. That includes about $490,000 from nine gaming-linked lobbying firms and their employees directly to Pence’s campaign; at least $360,000 more from gaming industry lobbying firms and their employees to the Indiana Republican Party; and $1.4 million from Indiana gaming interests and their lobbying firms to the RGA, which backed Pence’s gubernatorial bids.

With that money flooding into the state, the governor helped Indiana’s gaming industry just when it was facing increased competition from neighboring states.

Indiana’s campaign finance laws look strict: It is a felony for gaming operators and lottery contractors to donate directly to state lawmakers. Election regulators say donations to the Pence-linked groups are permissible because the law does not cover the gaming industry’s Hoosier State lobbyists or national third-party organizations that spend money in Indiana. The firms that donated to Pence-linked groups echoed that interpretation, saying their contributions were fully compliant with Indiana’s statutes.

“The contributions were permissible,” RGA spokesperson Jon Thompson told us in an emailed statement. “The RGA does not use casino contributions for political expenditures at all. The RGA receives contributions and makes expenditures only in compliance with federal and state laws. The RGA’s anti-earmarking policy and other compliance policies ensure that candidates to whom the RGA contributes do not receive prohibited funds.”

That explanation does not satisfy those like former state Sen. Larry Borst, a Republican who wrote the original statute banning the contributions. He said that while the money flowing into Indiana may be legal, the goal of his statute was to stop the gaming industry from financing Indiana elections, and from circumventing those restrictions.

"That was supposed to be prohibited,” said Borst, who added that he was unaware the RGA was getting around the statute he wrote. “I absolutely intended that those kinds of donations were prohibited. I thought I had included everybody.”

Julia Vaughn, executive director of the campaign finance watchdog group Indiana Common Cause, said, "Pence did display a lot of public angst over gambling, but he didn’t want to ruffle feathers of an industry that has deep pockets and is well-connected.”

Casino operators rely on the government officials who have the power to grant a finite number of coveted gaming licenses. That dependence, coupled with the industry’s vast resources, has long stoked concerns about corruption. A 2013 study from researchers at the College of Charleston found that corruption convictions increase in states after they legalize casinos and suggested that casinos are “more likely to be adopted in states with a ‘culture of corruption.’”

Since 2010, gambling interests have spent almost a quarter-billion dollars on state elections across the country, according to data compiled by the nonpartisan National Institute on Money in State Politics. In an attempt to combat gaming-related corruption, at least a half dozen states -- including Indiana -- have banned campaign contributions to state officials from gaming interests that operate in those states. However, campaign finance records show that in the last six years, the gaming industry has spent millions on elections in those states.

One route around campaign contribution bans has been through employees and lobbyists who are affiliated with the gaming industry but who are not owners of casinos and therefore are not covered in some states. Another way around the laws has been through national groups like the RGA that spend money in state elections but assert they are not regulated by state law and say they do not permit donors to earmark money for specific races.

As the RGA’s spokesperson said in response to questions about gaming industry donations: “None of these contributions were, and none of the many thousands of other contributions RGA receives were or are, earmarked for the benefit of any particular candidate.”

‘I Oppose An Expansion Of Gaming In Indiana’

Pence’s state has in recent years become one of America’s biggest gambling locales. Indiana is now the fifth-largest gaming state in the country with more than a dozen major race tracks and casinos (including one in Gary that had been operated by Trump), and gambling has become a $2 billion industry in the state.

In 1996, Indiana made it a felony for casino license-holders to donate to the campaigns of state officials. The law, however, has been interpreted to permit donations to candidates from lobbying firms that represent the gaming industry. State regulators also say the law’s prohibitions do not cover gaming industry donations to federal 527 groups, such as the RGA, that can raise unlimited sums of money and spend on state elections.

“The issue here is we have to follow what the legislature wrote, and the legislature designed this part of Indiana code to read the way that it is,” said Angela Nussmeyer, the co-director of the Indiana Election Division. “Sometimes it makes it more difficult to regulate or enforce contributions or expenditures as a result of how the law was written.”

There’s another big quirk in Indiana’s campaign finance regulations: The law restricts corporations and labor unions from donating more than $5,000 in aggregate to statewide candidates, but its definition of “corporation” doesn’t apply to all businesses. Limited liability partnerships, a structure employed by the lobbying firms that have donated to Pence, can make unlimited donations.

Pence and state lawmakers have benefited from those gaps in the statutes.

During the 2012 election cycle, as Pence battled for the governor’s office, he received nearly $150,000 from firms registered to lobby for gaming interests in Indiana. On top of that, the RGA gave $1.1 million to Pence’s campaign through a political action committee. Caesars Entertainment and Centaur Gaming were among the donors to the RGA during that election cycle, giving $150,000 and $50,000, respectively.

At the time of the 2012 donations, Caesars was the parent company of two casinos in Indiana -- and the company still lists the Indiana facilities among its holdings today. Centaur Gaming’s website shows it owns two Indiana racinos (combined racetracks and casinos). Both Caesars and Centaur Gaming maintain their Indiana casino licenses today, according to state records.

As a newly elected governor, Pence said he opposed expanding Indiana’s gaming industry, drawing praise from the Indiana Conference of the United Methodist Church.

“I am pleased to have a governor oppose the expansion of gambling in Indiana," the group’s spokesperson told the Associated Press. "I am encouraged by fewer gamblers visiting casinos. Maybe people are wising up to casinos’ deceptions."

But Pence gave himself wiggle room: While insisting he was against gaming expansion, he also said, “I have no objection to finding ways that we can permit these Indiana businesses to be more competitive financially.” Two months after saying he opposed an expansion, Pence helped the gaming industry that had supported the RGA: He signed legislation giving the industry a lucrative tax cut, draining public revenues from state coffers.

"Recognizing the competitive environment in the gaming industry and its importance to local communities, I signed this legislation to give gaming businesses within our state the tools to compete with surrounding states,” Pence said at the time. “I appreciate the opportunity to work with the legislature on this bill and am pleased that it did not include an expansion of gaming.”

The next year, Pence sent a letter to congressional lawmakers boasting of his opposition to Internet gaming; a few months after that, he tried to stake out a middle ground, telling a town hall meeting: “It is not my intention to pursue policies that reduce gaming in Indiana, but neither is it my policy to expand gaming in Indiana.”

The comments were interpreted by one local newspaper in a casino town to be proof that Pence opposed land-based casinos -- and the next year, Pence did veto a bill to expand betting on horse races. However, he also allowed for the passage of three bills to support the gaming industry.

One legalized gambling on fantasy sports and another permitted charity organizations and nonprofit groups to conduct gaming. The most far-reaching gaming legislation during Pence’s tenure allows riverboat casinos, such as the ones owned by Caesars, to move gambling operations on shore. That same legislation could also permit racinos (combined race tracks and casinos), such as the ones operated by Centaur Gaming, to add live dealers to their gaming options.

Pence did not formally sign the bill about riverboats and racinos, but he indicated he had been involved in the negotiations over the legislation -- and he ultimately let it pass.

“Most Hoosiers know that I oppose an expansion of gaming in Indiana, but I recognize that gaming has become an important part of the economy of many communities in our state and is an important part of our state budget,” Pence said in a statement. “From early in the legislative process, I made it clear that I would not stand in the way of reforms that would allow these businesses to remain competitive with surrounding states so long as it did not constitute an expansion of gaming in Indiana.”

In an emailed statement, Pence’s gubernatorial spokesperson, Kara Brooks, reiterated that message, telling us: “Governor Pence did not sign legislation that expands gambling.”

Pence was not the only Indiana Republican lawmaker to benefit from gaming industry support while working on gaming legislation. Soon after the gambling legislation was enacted, the Indianapolis Star published an investigative report showing that Centaur Gaming had allowed its facilities to be used for lawmakers’ fundraising activities.

Meanwhile, campaign finance records show that since 2012, Centaur Gaming has donated $465,000 to the Republican State Leadership Committee (RSLC), according to data compiled by the Center for Responsive Politics. In that same period -- despite Indiana’s prohibition on donations from gaming interests -- the RSLC funneled more than $400,000 to committees supporting Indiana’s Republican state lawmakers, who control the panels that shaped the gaming legislation. Centaur Gaming is now the RSLC’s 15th-largest donor, according to Center for Responsive Politics data.

RSLC spokesperson Ellie Hockenberry said that “the RSLC has long been active in Indiana,” saying the group was engaged in the state a decade before Centaur Gaming’s donations coincided with the recent changes in Indiana’s gambling laws. The RSLC “is a political committee, not a policy committee,” she said.

“The RSLC has maintained a strict non-earmarking contributions policy that applies to every one of our more than 150,000 donors across all 50 states,” she said in an emailed statement. “The RSLC will never make any contribution indirectly that cannot be made directly. As it happens, Centaur’s contributions to the RSLC have never been used for political spending and activity of any kind in any state.”

Pence announced his reelection bid in 2015, shortly after allowing the gaming legislation to pass. Six lobbying firms representing gaming companies went on to give more than $117,000 directly to Pence’s reelection campaign. One month after the passage of the 2015 gaming legislation, federal records show, Caesars pumped another $25,000 into the RGA -- part of the $50,000 it donated that year. Centaur Gaming also delivered $25,000 in 2015.

At the time the 2015 gaming legislation was being debated and passed in the legislature, Pence was serving on the Republican Governors Association’s executive committee -- a role that, according to an RGA spokesperson, involves raising money for the organization, as well as supporting the group’s chairman and advising the party’s gubernatorial candidates. The RGA spokesperson noted that fundraising is expected of all Republican governors.

For its part, Centaur said its contributions were permissible. “Centaur Gaming strictly obeys all laws,” said a company spokesperson, in response to our questions. “Centaur occasionally makes contributions to national organizations like the Republican Governors Association, over which Centaur has no control, and which are not a violation of Indiana law. Centaur requires the recipient of such a contribution to certify in writing that the contribution will not be used in violation of the laws of the United States or Indiana. Neither Governor Pence nor any member of his staff has ever requested that Centaur contribute to the RGA.”

Ethics experts say the donations from gaming interests to the RGA show there’s a flaw in Indiana’s campaign finance rules.

“The casinos and other contractors who can't give directly, if you see that they're giving to the governors associations, then it's a loophole,” said Indiana University law professor David Orentlicher, a Democrat who served for six years in the state legislature. “The purpose of the law is to say we don't want them making contributions to the campaign. This really undercuts the prohibition. It's a problem, for sure.”

An Amended Lottery Contract

At the Indiana State Lottery Commission, there are similar questions about influence -- in this case involving a huge government contract that Pence’s administration stealthily amended while campaign cash flowed to a GOP group.

In 2012, the administration of Pence’s Republican predecessor, Mitch Daniels, gave GTECH a 15-year contract to run Indiana’s lottery system. Indiana bans donations to public officials from lottery contractors and according to campaign finance records, the Rhode Island-based subsidiary had not previously donated to Indiana lawmakers or political committees. However, during that election cycle, the company gave $200,000 to the RGA and $205,000 to the Democratic Governors Association as those groups spent in Indiana’s gubernatorial election.

At the time, Daniels was chairing the RGA’s public policy committee. A competing company -- which gave the RGA $46,000 less than GTECH did -- filed a protest, alleging that “the contract award was arbitrary and capricious” and that it had not been permitted to make a counter-offer.

Though Indiana was permitted to cancel the GTECH deal at any time, Pence’s new administration maintained the contract for the RGA donor, even as the lottery fell short of revenue projections. Under Pence, Indiana implemented an aggressive marketing campaign for the lottery -- which drew criticism from those who saw it as an inappropriate attempt by the government to encourage gambling.

In March 2015, as Pence was preparing his reelection bid, GTECH delivered another $100,000 to the Republican governors’ group. (It gave $25,000 to the Democrats, as well). After GTECH merged with IGT in April of 2015, the latter company gave an additional $25,000 to the RGA in May. Then in June, Pence’s administration announced it had renegotiated the state’s lottery contract to reduce revenue targets, giving IGT a better chance to make more money off the deal. IGT gave another $147,000 to the RGA in the year after Pence’s lottery commission amended the contract. (A similar sequence of transactions happened in New Jersey).

In response to questions, Bob Vincent, a spokesperson for IGT, said the company’s recent donations to the group have been for “RGA operations and conference activities.” He noted in an emailed response that the company did not directly contribute to Pence.

“Neither Governor Pence or his representatives solicited contributions from IGT to the RGA,” Vincent wrote. “IGT has been a long-term contributor to the RGA and contributions are initiated through contact with the RGA staff not the volunteer leadership.”

As Pence prepares to leave the governor’s office, gaming interests are once again funding the RGA, as that group spends big on Indiana’s gubernatorial election.

During the 2016 election cycle, GTECH, IGT, Caesars and Centaur Gaming have given nearly $450,000 to the RGA. Through its political action committee in the 2016 cycle, the RGA spent $3 million on Pence’s since-aborted reelection bid, according to Indiana campaign finance records. The same RGA-funded committee has now spent more than $2.8 million backing Indiana Lt. Gov. Eric Holcomb, who became the GOP gubernatorial nominee when Pence accepted his party’s vice presidential nomination in July.

Holcomb’s Democratic opponent, John Gregg, has also been helped by gaming-linked donors. Since 2015, his campaign has received about $145,000 from firms registered to lobby for the industry. The next governor of Indiana is expected to face a legislative push to expand gaming in the state.

For his part, the author of the original restrictions on casino campaign contributions said the tough prohibitions he thought he was putting in place have been undermined by donors’ ever-more sophisticated circumvention tactics.

"When I wrote the legislation, a lot of these sorts of PACs had not been formed,” said former Sen. Borst, whose 2003 book recounted gaming industry lobbyists organizing fundraisers for key lawmakers. “Things changed. A law written years ago does not coincide with reality at the present time."

You may see the original press release on the MapLight website here.

This story is a collaboration between MapLight political reporter Andrew Perez and International Business Times investigations editor David Sirota and IBT reporter Avi Asher-Schapiro. The article is the first in a series series on how companies are circumventing pay-to-play laws designed to restrict their political spending and influence.