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05/28/2006

Cash flows into Allen's unregulated funds

Gambling, landfill, tobacco interests all contributed

bmcgillivary@record-eagle.com

TRAVERSE CITY — A secret fund operated by state Sen. Jason Allen accepted more than $26,000 the past two years, including thousands from gambling and tobacco interests, and from operators of a landfill that accepts millions of tons of Canadian trash.

Allen, a Traverse City Republican who hopes to become state Senate majority leader, accepted the money into so-called "administrative" or "corporate" accounts that operate outside Michigan campaign finance law and carry no reporting requirements.

Such accounts are increasingly popular among state politicians and serve as a haven for corporations and organizations prohibited from contributing to political campaign and leadership funds.

Likewise, the funds allow politicians to solicit undetectable money from controversial companies and groups whose practices may offend some voters.

"These are pretty radioactive donors, and people don't want that as part of the public record," said Rich Robinson of the nonpartisan Michigan Campaign Finance Network.

Numerous inquires by the Record-Eagle about the secret funds prompted Allen, the top fundraiser in the current state legislature, to acknowledge and disclose otherwise untraceable money he's accepted since 2003.

Allen and his wife, Suzanne Miller Allen, operate at least two nonprofit funds under which they've obtained contributions from corporations and other organizations.

The funds are not regulated by the state and there is no limit on contributions or contributors.

"We're just following the law, and honestly, no one has ever asked me about these corporate accounts before," Allen said.

The use of untraceable accounts is not unique to Allen, said John Chamberlin, chairman of Common Cause of Michigan, a nonpartisan organization that advocates for open and accountable government.

"There's plenty of money going into these accounts from different places," Chamberlin said. "The pressures for money to get into the political system are strong and enduring. Close one door and another opens."

TRASH IMPORTATION CONTROVERSY

Carleton Farms Landfill in Sumpter Township near Wayne is the main depository for all trash from the city of Toronto. Carleton Farms Landfill, a subsidiary of Republic Waste Inc., contributed $1,000 to an Allen-controlled fund.

A search of the Secretary of State's data base back to 2003 failed to turn up any traceable public contributions to politicians by Republic Waste or Carleton Farms.

Canadian trash imports is a hot-button issue among state politicians. Democrats proposed raising the state's tipping fee on trash from 21 cents to $7.50 a ton to bring costs in line with other Midwest states and discourage trash flow into Michigan.

Allen said his acceptance of money from Carleton Farms doesn't affect his legislative positions.

"I have been absolutely opposed to the importation of Canadian trash and will continue to oppose it," he said.

But Allen's against raising tipping fees because he said it would create a hardship for Michigan families.

Among Allen's legislative roles is the chairmanship of the state Senate Gaming and Casino Oversight Committee. Operators of the Greektown Casino in Detroit contributed $1,000 to one of the secret accounts.

"There was no pertinent legislation and I have disclosed those dollars (to the Record-Eagle)," Allen said. "I showed you everything, all that I've got," Allen said.

The Internal Revenue Service defines funds like Allen's administrative account as a "527," for the related section of the IRS code.

Politicians who create state and local 527 accounts for office holder expenses — such as Allen's account — don't even have to notify the IRS of their existence, much less the public, IRS spokesman Dan Boon said.

"It's just like a black hole as far as reporting goes," said the Campaign Finance Network's Robinson. "It gives me just a sick feeling."

The Record-Eagle discovered Allen's administrative account this year, and Allen subsequently agreed to supply the same documentation Gov. Jennifer Granholm publicly discloses for her administrative account.

In 2004 and 2005, Allen received $26,083 into his administrative account from 25 sources, including $3,000 from tobacco-related organizations, and $3,000 from gambling interests.

None of the 25 funding sources in Allen's secret administrative account could legally donate to one of his public leadership or campaign funds. Donations to those public funds from casino interests, unions, and corporations are banned under state law.

Allen used proceeds from the nonpublic administrative account to pay for a $3,400 stay at a Washington, D.C. hotel, an $816 bill at a Grand Rapids hotel, an $845 reception on Mackinac Island, $662 in holiday gifts for Senate colleagues, and $2,312 for "reception souvenirs" and "Republican conference trinkets."

No one, including Allen, knows exactly how many such accounts exist. Just three current state officials publicly report their accounts on the IRS Web site.

Estimates from Lansing lobbyists asked to contribute to the secret accounts ranged from a low of 30 to as many as 70 or more.

Bob LaBrant, senior vice president of political affairs for the Michigan Chamber of Commerce, blames term limits and the elimination of publicly disclosed state office holder expense accounts for creating two different fundraising systems in Michigan. One is highly regulated. The secret account system is not.

"When (office holder expense accounts) were repealed in 1994 the floodgates for nonprofit accounts were opened," LaBrant said. "It's an example of the law of unintended consequences."

Other funds that are not disclosed also exist.

Granholm has been accused by the Michigan Republican Party of collecting more than $1 million in corporate and union contributions for Partners for Progress.

Partners for Progress is not controlled by Granholm but is a fund of the Democratic Party, said Granholm campaign spokesman Chris DeWitt. He declined to reveal how much money the fund has raised.

"The Republicans operate similar funds and we are not going to unilaterally release the financial information," DeWitt said.

Used for party-building expenses, the funds, sometimes referred to as sub-accounts and soft money, are exempt from reporting requirements at the state level.

Regardless of who controls them, Robinson said the funds exist as a way to accept corporate, union, and casino money banned from political funds.

"This, to me, is the most insidious area of money and politics," he said.

Another way for politicians to accept banned money is to file under IRS section 501c(4) for social welfare organizations. Allen has such an account — the Northern Michigan Community Fund.

Such nonprofit groups can't participate directly in political activities but commonly are used for indirect activities such as political polling, hiring staff, and voter education, Robinson said.

Former Speaker of the House Rick Johnson of Leroy may have had one of the largest 501c(4)s, Robinson said. His Michigan Promise Fund collected over $600,000 by the time Johnson left office in 2004 to work for a Lansing lobbying firm.

Lawmakers are attracted to the nonprofit accounts in large part because money accumulated there can be retained after they leave office, said Michael Traugott, political commentator and professor at the University of Michigan.

"That gives an elected official more discretion on how the money can be spent, including when their term limits are up," he said.

Allen is not listed as an officer or director of the Northern Michigan Community Fund, but its principal business office is Allen's home address and the account is administered by Suzanne Allen.

The fund's president is Traverse City Area Public Schools board member David Barr, who refused to disclose fund contributors.

"It's all corporate contributions, pretty much, and they want to remain anonymous," he said.

Since its inception in 2003, the fund raised about $25,400, Barr said. Jason Allen is their "principal fundraiser," he said.

Because they don't raise more than $25,000 a year they are not required to file a public tax return with the IRS.

Based on its bylaws and statement of organization, the Northern Michigan Fund may focus 50 percent of its resources on providing forums to educate citizens on issues, proposed legislation, and ballot issues and "may engage a public relations firm to help deliver the fund's message to citizens."

Barr said Northern Michigan Fund officials focus on giving money to charitable causes in Allen's district. The fund donated about 300 state flags to organizations on Allen's behalf. It's donated books to schools and libraries for national reading month, provided a scholarship for an unnamed youth and made several awards to Boy Scout organizations.

Allen gets credit for the donations, and recipient groups typically have no idea about their gift's origin.

Using such funds for donations benefits politicians by allowing them to cultivate goodwill among constituents, LaBrant said.

Both Robinson and LaBrant said 501c(4)s are not uncommon in the state Legislature. Robinson, however, said most are impossible to connect to a specific legislator.

Robinson wants the state legislature to require more financial transparency, including the reporting of all soft money and nonprofit donations, real-time reporting of contributions, and personal financial disclosure by legislators.

Chamberlin also wants more restrictions on contributions from corporations and unions. LaBrant refers back to the unintended consequences of previous reform efforts.

"Money is difficult to regulate," LaBrant said. "It's like water running down hill. You can dam it up, but the money will always find a way around it."

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