The News & Observer


Published: May 23, 2004
Modified: May 23, 2004 12:30 AM
Firms get breaks, Dems get bucks
Legislature's boon tied to fattening fund




Democratic House Speaker Jim Black, center, consults with other legislators during a special session on Dec. 9. In the wee hours of Dec. 10, the tax incentives were tentatively approved.
STAFF PHOTO BY ETHAN HYMAN

In nine hours in December, state legislators handed more than $240 million in tax incentives to tobacco and biotechnology companies to encourage them to expand in North Carolina.

Bipartisan majorities in the rare special session said it was an easy call to trade tax breaks for jobs.

But the vote also highlighted another confluence of public policy and political money: Just days before the session, R.J. Reynolds Co., a chief beneficiary of the legislation, chipped in $50,000 to the national Democratic Legislative Campaign Committee, whose finance chairman is Democratic House Speaker Jim Black.

The tobacco giant plans to merge with Brown & Williamson Tobacco, which gave $25,000 to the committee in late November. The state gave RJR $82 million in tax incentives to make sure the new company stays in Winston-Salem and adds 800 jobs.

Those incentives also apply to Philip Morris, even though it made no plans to add jobs in North Carolina. Its parent company, Altria, kicked in $62,000 last October.

Merck, the pharmaceutical company that received $39.4 million in various incentives to build a new vaccine plant in Durham, gave $12,000 in March 2003 and another $12,000 this February.

One tax break offered to Merck could also be used by other biotechnology companies, and they too, donated to the committee. Since the end of November, GlaxoSmithKline has given $50,000, and early this year Novartis and Pfizer gave $25,000 and $32,500 respectively.

The companies say the contributions are not connected to the tax incentives.

The tobacco and pharmaceutical industries, through their political action committees, have long been big campaign contributors to legislators, Democrats and Republicans alike. But what they gave the campaign committee rivals what they handed out to all legislators in the last two-year election cycle.

Black actively sought the special session, called by Gov. Mike Easley, and Black supported the tax incentives. But Black, a Mecklenburg County Democrat who has led the House since 1999, said he didn't even know about the donations to the Democratic committee and said the political cash was never a consideration.

"What about the fact that we need jobs in this state and that we're trying to replace 140,000 jobs?" he asked.

Those who follow money in politics, however, say the contributions raise questions.

"Rarely do we see evidence like this where the dates coincide so closely with the actions of representatives," said Sheila Krumholz, research director for the Center for Responsive Politics, a nonpartisan campaign finance watchdog group in Washington that compiled records on the donations.

"This isn't going to look good to voters," she said, "when money goes in and policy goes out in such rapid succession."

More disclosure

The Democratic Legislative Campaign Committee was formed 10 years ago to help state legislatures become or remain controlled by Democrats. It has traditionally given money to state Democratic committees, which spend it supporting their candidates with ads and get-out-the-vote efforts.

Until 2000, millions of dollars of contributions to such political groups stayed in the shadows. That year, federal law began requiring these groups to publicly report their finances to the Internal Revenue Service. In late 2002 that the IRS began making the reports available electronically, so watchdog groups such as the Center for Responsive Politics could compile the data in ways that give the public more information.

These political committees are now best known as 527s, their classification in the tax code.

They are rapidly becoming bigger players in national and state politics, because campaign finance reforms in 2002 banned national political parties from raising "soft money" -- unlimited contributions from unions, corporations and wealthy individuals -- that they then funneled into campaigns. The 527s can collect and spend soft money on "issues campaigns" -- usually in the form of ads that play up or put down a candidate without telling voters how to vote -- and on voter registration drives.

On May 13, the Federal Election Commission delayed imposing any limits on 527s for at least the next three months, meaning that changes are unlikely before the election Nov. 2.

Election laws in some states allow these organizations to continue pumping cash into state and local races. But Black said the 2002 federal election law reforms have "neutered" the committee as far as helping North Carolina Democrats is concerned.

Before the change, the committee could send money to the state Democratic Party and other Democratic groups to spend on advertising and other services to get candidates elected, he said. Now the committee can engage only in issue campaigns that don't endorse specific candidates.

Black said that interests him little, and he doesn't know of any plans for the committee to spend the money in North Carolina.

"My new focus is on small individual donors," Black said. "I think it's important to get grass- roots people involved."

The Democratic Legislative Campaign Committee is made up of state legislative leaders from across the country. Black has been the finance chairman for three years, and the committee's major fund-raiser is held at the Pinehurst Resort in late spring.

Michael Davies, director of the Washington-based committee since 1999, said the fund-raiser brings in about $250,000. The committee paid Pinehurst about $80,000 for last year's event.

Black's role

He said Black, as finance chairman, is the point person for fund-raising events and calls potential contributors for money, but is not involved in raising money on a daily basis.

"He's been for us an example of a speaker who has kept a Democratic majority, or at least a power- sharing arrangement, through some pretty tough election cycles," Davies said.

Davies said the committee does not push state legislation in exchange for contributions.

RJR and the other companies say they have often contributed to the committee over the years. Their PACs have also given directly to candidates for the N.C. legislature. In the 2002 election cycle, the big four tobacco companies contributed $125,000, and the pharmaceutical industry kicked in $125,000, according to campaign finance reports.

"It's not unusual because we've supported Democrats and Republicans alike," said Glaxo spokeswoman Mary Anne Rhyne. "We believe in the political process and citizen participation."

But Brown & Williamson's spokesman, Mark Smith, said that it was unusual that Glaxo gave the committee $25,000 on Nov. 28, 11 days before the special session started. The company had already given its typical $50,000 annual contribution nine months earlier. He said the company may have accelerated this year's donation, but said he didn't know exactly why. Brown & Williamson's PAC gave no money in 2002 legislative races.

According to IRS data collected by the Center for Responsive Politics, the Democratic committee has raised $2.5 million from corporations, unions, individuals and political action committees since Jan. 1, 2003. Many of the givers have major business before the N.C. General Assembly.

For instance, Harrah's Entertainment, which manages the Cherokee casino in Western North Carolina and other gaming resorts, gave $50,000 last October. The Cherokees are seeking legislative action to expand to table games such as blackjack. In 2002, the tribe gave $60,000 to the committee, IRS records show.

BellSouth, Sprint PCS and Verizon, which lobbied hard for a telecommunications bill that the legislature passed overwhelmingly in May 2003, gave a combined $92,000 from February 2003 to February 2004.

Such 527 committees are growing at the state level. Republican House Speaker Richard Morgan and his allies created the N.C. Republican Main Street Committee two months ago. Paul Shumaker, Morgan's political consultant, said it will be only an issue advocacy group, basically producing advertising that emphasizes Morgan's leadership in the House.

"We aren't looking to take the hide off anybody," Shumaker said.

Morgan has received an opinion from the state Board of Elections that his committee is not for political purposes, which means he does not have to file regular reports throughout the election season. Shumaker said Morgan did that to protect donors from retribution by his political foes.

(News researcher David Raynor contributed to this report.)



Staff writer Dan Kane can be reached at 829-4861 or dkane@newsobserver.com.

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