8. Following the Money

croppedMoney 4This final piece looks at the variety of ways ALEC money may move from ALEC member corporations through lobbyists, political action committees and legislators.  And it asks the primary question, “How does an organization that many feel is lobbying under the nose of the IRS and state ethics boards maintain its 501c3 tax exempt non-profit status?”  It may be disguised by ALEC in the form of what it calls “Scholarships” which may actually be wine bars, food tables and amenities paid for by corporate sponsors for legislators at ALEC annual events.  Or it may be disguised by legislators in the form of what they call reimbursements for plane tickets or hotels at annual events.  And the report says legitimate questions asked of appropriate watchdogs sit unanswered for reasons that remain unclear.


  1. 8. Following the Money 15:40


SB – This is part of an ongoing series of reports about the American Legislative Exchange Council, or ALEC, and its influence in Oregon politics. ALEC is a self-described non-partisan partnership of state legislators and private sector members that works to produce model bills that legislators can introduce in their home states. Despite its claims to non-partisanship, ALEC’s membership is overwhelmingly Republican, as are the model bills it produces. For years, its members have admitted the organization’s strong right-wing bent. Its model legislation touches on such lightning-rod issues as immigration, energy deregulation, voter identification, the privatization of prisons and schools, and gun rights, including the extremely controversial Stand Your Ground laws that rose to notoriety after the shooting of unarmed black teenager Trayvon Martin and the exoneration of his killer George Zimmerman under Florida’s version of the law. In some states, for example Arizona and Wisconsin, ALEC bills flood state legislatures every year. In Oregon the situation is not quite so drastic, but ALEC still has a genuine presence here. ALEC operates at the state level through the leadership of public sector and private sector state chairs. In Oregon, the Public Sectors Chair is Republican Representative Gene Whisnant of Sunriver, and the Private Sector Chair is Paul Cosgrove, a lobbyist with the Portland law firm Lindsay Hart. Representative Whisnant spoke to KBOO reporters at ALEC’s Spring Task Force Summit in May. Mister Cosgrove has not responded to requests for an interview. Here’s Whisnant talking about his role to KBOO reporters Mike Klepfer and Yana Maximova:


Gene Whisnant

GW – “You know our Oregon private chair is Paul Cosgrove but he’s not here. Each state has a public chair and a private chair.

YM – What does it exactly, what does it mean?

GW – Recruit members. Recruit people to come to the meetings. That’s the main thing. Trying to get members . Before the attack, we were up to about 22 members out of 90 is not too bad.”

SB – The role of the private sector chair is similar. According to documents leaked to the Guardian newspaper last year, they are tasked with recruiting new private sector members. Both state chairs solicit donations to the state’s Reimbursement Fund—an account from which state legislators may be reimbursed for registration, travel, lodging and other fees associated with attending ALEC conferences. It is not easy to track Oregon legislators’ ALEC activity. In 2012, Representative Whisnant supplied a list of twenty-two legislative members to the Oregonian in the wake of ALEC’s increased media notoriety. Of those twenty-two, only seven have used their campaign committees to pay for ALEC-related expenses, meaning that the transactions can be seen on the Secretary of State’s campaign finance reporting disclosure website, called ORESTAR. The others must have paid their membership dues out-of-pocket. ORESTAR, by the way, represents one of the most transparent contribution and expenditure reporting systems in the country, and yet it is still far from user-friendly and is frequently glitchy and slow. Other ways of tracking the public flow of money in Oregon include lobbyist expenditure reports and the Statements of Economic Interest filed by public officials, both available by request from the Oregon Government Ethics Commission. It is especially tricky to trace the connection between ALEC member legislators and ALEC member companies, aside from the fact that they spend plenty of quality time together behind closed doors at the three annual conferences. Numerous ALEC member corporations have made donations to Oregon ALEC member legislators. However, explicit connections between the two are easy to assume but hard to confirm. ALEC member corporations donate to non-member legislators as well, including many democrats and ALEC member legislators get plenty of contributions from non-ALEC-affiliated companies. Some of the biggest ALEC corporations who give money in Oregon are Anheuser-Busch, Union Pacific, Comcast, ConocoPhillips, PacifiCorp, AT&T, Eli Lilly, Monsanto, Johnson & Johnson, Waste Management, Chevron, Liberty Mutual, the for-profit education company K-12, and tobacco giants Reynolds American and Altria, which includes the company formerly known as Philip Morris. There are many more. While sometimes a contribution from one of these corporations will closely follow an ALEC conference, and even fall on the same day in a few cases, in the large part they are made year-round and tend to cluster around elections and legislative sessions. Again, Representative Whisnant.


Gene Whisnant

GW – “But I don’t have staff and in a day’s time, I may be looking at road issues, health care issues, safety issues, police issues, I don’t have a staff to research and do that stuff. And that’s why the lobby becomes your staff. Because in every issue, there’s going to be someone that supports it and someone that opposes it. And they come into my office, I’ve never refused anyone in my office to come in and hear from some. I know I’m not going to agree with their position, but they come in, I listen to them, and make my decision of what’s best for Oregon.

MK – So one of the issues, uh maybe you can dispel this for us, that people have in terms of ALEC isn’t direct giving. It’s not like, it’s not like somebody from Altria for instance is going to come with pocketsful of money and just hand it out, like that never happens.

GW – I get money donated to me from them every year. But it comes through Mark Nelson, he represents them or Gary Oxley represents them, the other tobacco company.

MK – And so, OK …

GW – But not based upon ALEC

MK – Right ALEC, it’s not that they’re doling out cash and gifts to people or whatever. Everyone knows that. But …

GW – They do support some of our functions and some of our lunches. Just like it happens at NCSL and [CSG], the Council of State Governments.”

SB – Despite the local and bi-partisan nature of Oregon political contributions by corporations, there is still plenty of suspicion directed at ALEC with some observers accusing them of facilitating tax and disclosure-exempt lobbying. Wisconsin State Representative Chris Taylor is one of the few ALEC members from the Democratic Party. She attends ALEC conferences as a sort of open mole, describing her experiences in left-wing publications such as the Progressive. Here is Representative Taylor speaking in Kansas City about the nature of the interactions between legislators and corporate representatives at these events.


Chris Taylor

“This is a political machine. ALEC is a powerful, well-resourced political machine. When I was at that ALEC conference, so many of these right wing policy groups who were there told me ‘Here’s my card. Call me anytime. I can get you anything you need to pass these bills. We have the talking points. We have the research. We have the money to get these bills passed.’ So they are a well oiled, well financed political machine. And it was a shock to me. I actually started feeling quite sick to my stomach when I realized how effective they are doing what they’re doing. These corporations dominate at ALEC. It’s not the legislators who dominate. Every discussion that I witnessed, when there was a disagreement, at the end of the day, it was the corporation, it was their representative that carried the day, that really decided what was going to happen with these model bills. So make no mistake about it. You might have legislators in the room, legislators are the mere footsoldiers. That’s all they are. And we were admonished and encouraged to go out and pass these bills. And in exchange, we were promised bundled campaign contributions and grassroots support for doing it.

SB – The central question about ALEC is this: how does an organization that many feel is lobbying under the nose of the IRS and state Ethics boards maintain its status as a tax-exempt charity? Among other things, 501c3 status exempts ALEC from reporting any lobbying expenditures or releasing its membership information, but they are also, in the words of the IRS, “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office”. However, one entry in ORESTAR depicts ALEC engaging in the most unmistakable form of campaign intervention—directly contributing money to a candidate for the Oregon House of Representatives. This candidate was Medford Republican Sal Esquivel. Esquivel was an incumbent at the time and the year, 2009, was not an election year, but that doesn’t matter. This is such a blatant violation of tax law that I assumed somebody on the receiving end must have made a mistake. According to a report issued by Common Cause Oregon in 2012, if ALEC were to lose its 501c3 status it would put a significant damper on the large contributions that they receive from corporate interests, since contributions to a non-profit are tax-deductible. ALEC knows this too. In an email, their Senior Public Affairs Director Bill Meierling told me, “Let me say once more in no uncertain terms: ALEC does not offer campaign contributions.” In fact, it seems as though ALEC is not really all that interested in making campaign contributions anyway. In documents leaked to the Guardian newspaper last year, ALEC is shown developing a now-operational 501c4 organization, the Jeffersonian Project. Even though 501c4’s are allowed to make campaign contributions and other expenditures to influence politics, ALEC makes no mention of contributions when discussing the Jeffersonian project. Instead, the group is focused more on providing a less ethically troublesome avenue for corporations to donate to ALEC’s cause and still claim the tax deductions. Nevertheless, the single contribution to Sal Esquivel is a useful point of reference for understanding how ALEC’s money moves at the state level, and how Oregon campaign finance reporting works in general. I called Rhonda Bohall, the treasurer of the Esquivel campaign, who told me that the alleged contribution was made before she understood ALEC’s scholarship programs, in which legislators who attend ALEC events can be reimbursed up to a certain amount. She said that the contribution was a reimbursement for Esquivel’s expenses at that year’s Annual Meeting at the Hyatt Regency in Atlanta. Wisconsin’s Representative Taylor explained the scholarship program and the nature of ALEC events to Mike and Yana in Kansas City:


Chris Taylor

“All of the alcohol and the food was paid for for legislators. Legislators come to these ALEC conferences, first of all most of them have gotten a corporate funded scholarship that comes from ALEC but it comes through the corporation, they pay for it. And then legislators get here and they’re wined and dined and they hobnob with lobbyists and industry executives and people who will probably become their campaign donors”.

SB – ORESTAR shows several Oregon legislators receiving reimbursements from ALEC: Representatives Esquivel, Wally Hicks, and Sherrie Sprenger, Senator Bill Hansell, and former Representatives Matt Wingard, Linda Flores and George Gilman. However, these were all labeled as reimbursements, whereas the contribution to Esquivel was unlabeled. Scholarships are capped at even amounts—five hundred, a thousand—which is why it is not unlikely that the $500 contribution to Esquivel was simply a misfiled reimbursement. It appears that that is in fact the case. However, when we spoke, Esquivel’s treasurer emphatically told me that it is not illegal for a 501c3 to make political contributions as long as they are under a limit and they report them on their Form 990 when they file their tax returns. This isn’t true. 501c3’s are expressly forbidden by the IRS from giving money to a political campaign under threat of losing their tax-exempt status. Among other things, this is an illustration of a problem with Oregon campaign finance reporting. Individual filings are not vetted by the Secretary of State’s office as long as the forms are filled out correctly. For example, no description or purpose is required when filing a cash contribution, but other transactions do require them—for example, all expenditures require a short explanation, which is why we can see legislators using campaign funds to pay for airline tickets, hotels and meals explicitly related to ALEC conferences. Sometimes, when legislators don’t pay money directly to ALEC, it’s still possible to place them at conferences using these incidental purchases. For example, former Representative Matt Wand, a Troutdale Republican, never used his campaign to pay registration fees for ALEC’s 2011 State and Nation Policy Summit in Scottsdale Arizona, but he did use it to pay for a hotel room in Scottsdale at the time with the simple explanation “Lodging slash conference.” When I showed the contribution to Esquivel to an investigator with the Oregon Department of Justice’s Charitable Activities Division, he said it was illegal but not in their jurisdiction. When I filed a formal complaint with the IRS, I received no response, and regulations prohibit them from disclosing the progress of an investigation anyway. This is a familiar story. Back in 2012, the watchdog group Common Cause submitted a wide ranging whistle blower complaint against ALEC to the IRS. Their vice-president for policy and litigation, Arn Pearson spoke to me about the fate of that complaint.


Arn Pearson

“We filed an IRS Whistleblower complaint against ALEC for tax fraud for allowing corporations to contribute money to them and obtain tax deductions and claiming on their tax forms that they do zero lobbying when in fact we had a lot of evidence about them doing lobbying. We turned in close to 5,000 pages of documents from whistleblowers and open records requests documenting their lobbying.”

SB – What’s the current status of that investigation?

AP – So because it was filed as a whistleblower complaint, the IRS is obligated by law to investigate. We know they’re looking into the complaint but we don’t have any idea what’s happening until they reach a conclusion. So it’s pretty much a black box in the meantime.”

SB – It’s up to the Esquivel campaign to file an amended transaction correcting the mistake, but as of this broadcast it’s still there as transaction number 600653. For KBOO Evening News, this is Sam Bouman. This piece includes additional reporting by Mike Klepfer, Yana Maximova, Don Merrill and Sam Smith.

Last update on October 23, 2014 reflects most recent changes.

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