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Money and politics.

Can PACs buy votes or just a seat at the bargaining table? The experts say they get you a hearing, but getting the facts to lawmakers is the real currency of political influence.

The windows were rolled up on the politician's air-conditioned car to shut out the stifling summer humidity one day in the late 1970s.

Pedestrians stared as the caravan of vehicles drove through a small Southern town and stopped at a traffic light. "Who is that?" asked a disheveled man in torn, dirty clothes. Upon discovering that it was his member of Congress in the fancy car, he walked into traffic and knocked on the window.

As the congressman rolled down the glass, the man reached into his pocket and pulled out a wad of bills--more than $2,000--and dropped them in the politician's lap. "I want you to have this because you're doing a good job, and I want you to keep doing a good job," the man said, then he turned back into the crowd and continued ambling up the street.

The congressman was flabbergasted. As long as he'd been in politics, and as long as members of his family before him had been in politics, nothing like that had occurred. Even in the old days when cash flowed freely, it was given with the understanding of a return favor. But this money was completely anonymous.

Cold cash with no strings attached. Everyone wishes campaign financing could be that simple--politicians, voters, trade associations, corporations and donors.

But ever since the post-Watergate reforms that sought to reduce large donations by wealthy individuals and corporations, contributions must be carefully recorded with the Federal Election Commission. Plus, individuals are limited to giving $1,000 in the primary and $1,000 in the general election during each federal election cycle. Similarly, political action committees (PACs) are restricted to a total donation of $10,000; $5,000 each for primary and general campaigns.

Among other changes, the reforms capped contributions so that any person or group, no matter how wealthy, would be giving the same amount.

Two decades later, voters, some members of Congress, Presidential aspirant Ross Perot and the current administration are criticizing the reformed system for enabling special interests to influence members of Congress by showering them with cash.

While a Senate-passed bill that would abolish PACs is not expected to go anywhere in the House, it serves as a bellwether for the mood of the electorate. The bill also puts voluntary limits on campaign spending and provides limited public financing for candidates.

Money doesn't buy votes

The arguments surrounding public financing and campaign spending limits are complex and technical. Some versions of these solutions border on being unconstitutional. Proposals to coerce broadcasters into limiting the cost of advertising time are even more controversial.

In the course of this public debate over ways to improve the current system, PACs become an easy target. It is easy, for instance, to draw correlations between a member's voting record on a banking bill and donations to that representative from financial institutions--without noticing, perhaps, that the member of Congress received contributions from both sides of the issue. Large amounts of money breed suspicion, whether warranted or not.

As for the true effectiveness of PACs, and campaign contributions in general, politicians, lobbyists, business executives and voters line up on both sides. Most agree, that at the very least, a campaign contribution is like the donation of the bedraggled Southerner--an attempt to keep in office those lawmakers who favor one's point of view.

"Our contribution shows support for the process," says Fred Martin, senior vice president and director of government relations for Bank of America N.T.&S.A. in San Francisco. "I don't think you buy decision makers on issues. You do open up the channels of communication by showing that you care about the political process."

Keeping people in office who share an individual's or group's point of view is the overriding value of PACs as far as Representative Al Swift (D-WA) can tell, and he sees no reason to abolish them unless public financing is adopted, which is highly unlikely in light of the current budget crisis.

"Money usually comes from people who already agree with you, rather than to buy a vote," says Swift, chairman of the House subcommittee on elections and longstanding advocate of public financing and of placing voluntary limits on candidates' spending.

"I come from a committee where money is easy to get," Swift adds, referring to his place on the House Energy and Commerce Committee. "You're generally taking it from both or all sides. It balances out."

Plus, members of Congress exercise their own judgment much more often than they are given credit for, Swift contends. "This is a job in which you spend most of your time saying no to most people," he says. "Saying no is not that difficult a task."

A place for PACs

In the absence of public financing, Swift believes that abolishing PACs takes the reform movement in the wrong direction, driving money into less accountable forms of giving. The chief executive of the Widget Manufacturers Association, for instance, might give as an individual donor and also give on behalf of his wife, who kept her own name, and his son, who lives at a different address. A reporter or political watchdog organization cannot tell if that money is supporting widget manufacturing. "These |non-PAC contributions~ are harder to trace, record and report," Swift adds.

But abolishing PACs would be the first step in campaign finance reform for Representative James Leach (R-IA), a long-time advocate of campaign and election reform.

The ranking minority member of the House Banking, Finance and Urban Affairs Committee, Leach believes that catering to special interests by legislators leads to an increase of federal spending programs or a weakening of the tax structure, or both.

"Fiscal responsibility is impossible to maintain when lawmakers--that is, successful candidates--have committed themselves in advance to support specific tax advantages or government expenditures benefiting those having made generous campaign contributions," Leach stated when introducing his bill to abolish PACs, provide public financing and implement campaign spending limits.

Leach refuses PAC contributions of all kinds, taking only small contributions from individuals in his state. As the campaign finance reform debate continues, few organizations are seriously contemplating having to dismantle their PACs, and most candidates and lawmakers are continuing to accept PAC contributions.

Most industry trade groups, including the Mortgage Bankers Association of America (MBA), instead are hoping to increase their PAC receipts from industry members, as well as their disbursements.

Offering support to candidates is a natural part of politics and government, not much different from a coffee klatch of constituents gathering to share their views with their representative or senator, says Michael J. Ferrell, MBA senior staff vice president and legislative counsel.

"What PACs are being criticized for is not a lack of success but overwhelming success," Ferrell says.

Once large contributions by wealthy individuals and companies were replaced by smaller contributions, the banding together of citizens and corporations into PACs was a natural evolution, Ferrell adds.

"People of like interests come together. That's human nature," he says. "The fact that the business culture has discovered that is not inherently evil."

No automatic return

"We still have to go in and make the sale," Ferrell says. Anyone expecting an automatic return from a PAC contribution is going about it the wrong way, he adds.

By "we" Ferrell refers to MBA's legislative counsel department, which works with members of Congress and their staff on specific legislative issues. MBA's PAC (MORPAC) complements the work of the legislative lobbyists in fostering a climate on Capitol Hill that is receptive to hearing the industry's point of view on matters of importance to mortgage banking.

"I don't know that we buy anything other than that we're players. You pay to play," Ferrell observes. "It's easier to get a hearing. There's an appreciation and a willingness to listen to people who have been supportive, whether individuals or PAC contributors," he says.

Getting a hearing

While educating members of Congress about onerous technicalities or oppressive regulations can be and is done without donations, the PAC contribution creates a greater likelihood that one's voice will be heard, say lobbyists and political analysts alike.

But elected officials say their doors are open to everyone, regardless of contribution level.

"If someone has an issue that is important to the people of Alabama or that is important to some decision that affects this country, Senator Heflin will meet with them," says Tom McMahon, staff assistant to Senator Howell Heflin (D-AL). "If he cannot meet with them personally, a staff member will," McMahon adds. "Someone here in the office will always talk to someone who comes by, be they a contributor or not."

However, there exists a vast gray area between flagrant influence-buying and total noninfluence, and it is in these shadows that special interest groups of all types hope to have an impact. But it is difficult, in these instances or any other, to pinpoint precisely what influenced a member to vote one way or another. Is the lawmaker from the heart of coal mining country protecting the coal industry because that is in the best interest of her constituents or because the mine owners donated substantially to her campaign?

"In terms of building up a relationship, you don't contribute money to buy a vote; you contribute money to be able to have the access that will put you at the negotiating table when legislation that you're interested in comes up," says Josh Goldstein, soft money project director of the Center for Responsive Politics in Washington, D.C., a nonprofit, nonpartisan research group focusing on the issue of money and politics.

"If you can sit at the table to discuss your favorite piece of legislation or if you've developed a relationship with that member of Congress, that makes it very hard for that member of Congress to say no to you. You don't say, 'We don't want x,'" Goldstein continues. "You say, 'We'd like to change this little provision in the legislation,'" he says.

Small change

That small change probably does not affect the constituents very much and, therefore, is relatively easy for the member of Congress to make, Goldstein says. "Money has influence on the small changes, the little things that Congress does, which is 90 percent of what Congress does."

For the larger issues, such as federal funding of abortions or taking the nation into war, the Congress looks directly to the voters for guidance, he notes. "But the American people cannot pay attention to everything the Congress does," Goldstein says.

What may be of little significance to the larger electorate can be critical to the economic well-being of industries such as mortgage banking where a seemingly benign tax provision or regulation can dramatically alter the cost of doing business.

"You certainly want congressional members and committee staffs working with information," says Stephen Ashley, chairman and CEO of Sibley Mortgage Corporation in Rochester, New York, and former chairman of MBA's Legislative Committee.

"You don't want them working in a vacuum or on assumption. I think part of the political process is the competition of information and that information gets imparted through lobbying," he says.

A good example of effective lobbying by the mortgage banking industry was rolling back the 57 percent rule on FHA in the 1992 Housing and Community Development Act, Ashley notes. "I think the GSE |government-sponsored enterprises~ bill last year was an example of collective lobbying by a variety of trade groups and by the GSEs themselves," he adds.

MBA has had a significant and positive impact on several legislative issues in the past two or three years, says Howard Levine, president and CEO of ARCS Mortgage, Inc. of Calabasas, California. "Last year, the interest on impounds |escrows~ issue was raised, and I don't think it passed because of MBA's influence," he adds.

But not all such matters end as victories for mortgage bankers, and not all of the failures are necessarily the fault of the industry or its representatives. With the final rule on RESPA (Real Estate Settlement Procedures Act) allowing payment of unlimited fees to real estate agents for using CLOs, the 750,000-member National Association of Realtors (NAR), the nation's largest professional association, came out a winner in a heated contest for influence. NAR's PAC (RPAC's) expenditures during the 1991 to 1992 election cycle totaled $4,939,014 compared with MBA's $301,651 outlay.

More than one voice

To increase the mortgage banking industry's clout and the influence of their own companies, at least two mortgage banking firms are putting their own government relations experts to work in Washington, D.C. ARCS is one such company. It recently hired Timothy L. White as general counsel and corporate secretary to lobby state and federal legislators. It has not yet been decided where he will be based, Levine says.

"We are primarily relying on MBA and the California Mortgage Bankers Association |to~ represent us |on~ the major issues," Levine explains. "Notwithstanding that, we see that the issues are strong enough and there may be individual issues that require our own attention," he adds.

Speaking with more than one voice in Washington, D.C., could strengthen the industry's impact, Levine says, noting that, in sheer numbers, mortgage banking firms are outnumbered by other housing and financial industry groups that are not always on the same side of issues.

"I think we're being heard. I think on balance, congressional leaders are hearing a lot more from the more vocal groups that...have more members. Obviously, the Realtors' group is a good example," Levine says.

But having said that, Levine adds that numbers are not everything. "If our members really understand the importance of our PAC and the influence it has and the ability to get to the legislators, and as long as we feel strongly that the issues we present to Congress are just, and |they~ help consumers, I'm not concerned with the masses, as long as we can get equal time," he says. "Let the facts speak for themselves. We need that voice."

Similarly, Countrywide Funding Corporation, in Pasadena, California, plans to expand the industry's and its own representation in Washington, D.C., by opening an office in the nation's capital by the end of this year, and by establishing its own PAC, says Jerry Baker, a managing director of the mortgage banking firm.

"The MBA has a formidable lobbying effort. They are certainly seen as a trade association though," he says. "Since we have 4,000 employees and we have 535,000 customers now around the country, we have divided our employees into congressional districts so that when we go in and visit an elected official, we are able to say that we have so many mortgagors in his or her district and so many employees," Baker explains. "I think that's what we can do as an individual organization with these officials."

Having run for the state legislature in California, Baker says he knows that candidates and lawmakers cannot have too much information. "You really need to hear from your constituency to make an intelligent, informed decision," he observes. "The more knowledge, the more information they have, the better they are able to argue a particular point with their colleagues and are better able to vote," Baker says. "The only way it can be abused is if individuals present information that is wrong or that is not in-depth enough."

The scale of effort being undertaken by Countrywide is not practical or desirable for most MBA members who rely on MBA's legislative department and MORPAC to protect their legislative interests. Some MBA members see the relationship as a partnership, and these executives regularly contribute to MORPAC and participate in activities such as MBA's annual visit to Capitol Hill in conjunction with the legislative conference. Others want nothing at all to do with politics and are grateful for MBA's expertise.

"We make major contributions to MORPAC and aside from that, we use our relationships and influence without money on other issues where a senator or representative from New Jersey is on a key committee," says Felix Beck, chairman and CEO of Margaretten & Company, Inc., of Perth Amboy, New Jersey.

Some Margaretten executives over the years have built substantial relationships with key people in Congress, in some cases with individual contributions, Beck adds. But from a corporate perspective, the firm relies on its partnership with MBA. "That joint effort is very strong, and we think MBA does a terrific job," he says.

Alvin Siegal, chairman of the board of The Leader Mortgage Company of Cleveland, likes his yearly visit to Washington, D.C., to chat with members of the Ohio delegation about issues concerning mortgage bankers, but he would not want to make a career of it.

"I think once a year is enough. We've got the professional staff. They're there. They're on the Hill. They do a wonderful job," says Siegal, former chairman of MBA's MORPAC Committee.

"I do it because I feel it's necessary to do, but I wouldn't want to be coming in on a monthly basis," he says. "It's not an easy thing to do. I happen to enjoy doing it. A lot of people don't want to do it," Siegal observes.

A nonparticipant in MORPAC and MBA's legislative activities but a member of the association, Terrance G. Hodel, president and chief operating officer of North American Mortgage Company, of Santa Rosa, California, prefers to leave politics to politicians and lobbyists.

"We are unfortunately an apolitical company. We have not gotten very involved in the politics of it," Hodel says. "We've concentrated on running the business.

"I'm slow to anger on political issues," he continues. "When I do get excited, I find that the MBA has always done a good job of expressing the point of view that I have, which is usually the point of view that the industry has."

Even the demise of PACs, including MORPAC, would not signal an end to MBA's political clout, says Margaretten's Beck.

"MBA does more than live by their dollars. They live by wits and by reason," he said. "If PACs are limited in any way, that might not be in the best interest of the system, but we might gain more than we lose. A lot of people gain all their strength from their money, and I think we gain a lot of strength from our expertise and our credibility," Beck says.

Practically speaking, a loss of PACs would mean more work for each individual company or institution. "There was a time when we didn't have a PAC," Bank of America's Martin remembers. "Individual officers did their own thing, and we worked differently. We focused heavily on grassroots involvement."

While no one expects PACs to be abolished in this Congress, most people expect some change, given the outrage among voters and the sentiment of the administration. But few expect a reform bill to solve all the suspicions--perceived or real--surrounding the relationship of money and politics.

As the adage goes: Those who like sausages and laws should never watch them being made. Putting together a campaign finance reform package will be no exception.

Christy Wise is a Washington, D.C.-based freelance writer covering politics and financial issues.
COPYRIGHT 1993 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:control of political action committees
Author:Wise, Christy
Publication:Mortgage Banking
Article Type:Cover Story
Date:Sep 1, 1993
Words:3228
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