Playing the Policy Market

A Report Examining Why Special Interests Invest in State Policymaking

January 17, 2001

INTRODUCTION

A $10,000 investment a year ago in one of the most profitable stocks on the market - Genstar Therapeutics – would be worth $162,500 today, a 1,525% gain. That’s a lucrative return, but it doesn’t compare to the gains that special interests received from investing in state policymaking in the 1999-2000 legislative session.

This report, “Playing The Policy Market,” found that special interests affected by 16 proposals or actions by the governor or the legislature realized an average 33,043% gain from large individual and political action committee campaign contributions to legislators between Jan. 1, 1999 and Oct. 23, 2000 and to the governor between Jan. 1, 1999 and June 30, 2000.

This analysis shows that there were dozens of proposals that benefited industries both big and small; that financially healthy businesses received millions of dollars in state aid through tax breaks and grants to expand in a strong economy; and that others benefited from lucrative contracts, or from negotiated legal settlements that reduced the penalties they face in court.

The proposals highlighted in the report and accompanying tables were chosen to show the wide array of interests that do business at the State Capitol, and because the benefits they gained could be determined or described from information provided by the state or the “investor. ”

The report also includes examples of proposals or actions expected in the 2001-02 legislative session where special interests will focus their attention and contributions at the expense of policies that benefit general public interest.

Key findings in the report are:

  • Gains by the special interests that benefited from the legislation, contracts or other action ranged from 396% to 103,221% (Table 1). The largest documented industry winners and the policy return on their contributions included payday lenders, 103,221%; the road builders 92,582%; the vending machine industry, 20,605%; and waste disposal, paper and business interests, 19,751%.
  • Individual companies got lucrative returns on their investments (Table 2), particularly if they were generous, long-term contributors or from industries whose collective campaign contributions have made them influential. Some of these companies and their returns were: Maximus, 99,900%; C.D. Smith Construction Co., 69,722%; and 3M Corp., 6,726%.
  • Several special interest groups, ranging from utilities to taverns, influenced regulatory, business or market expansion issues for which there were no fixed monetary estimates but which meant millions of dollars in profits, savings or some other type of financial benefit.
  • Some powerful special interests, such as the Wisconsin Education Association Council, cannot be accurately portrayed in a return on investment scenario. The influence they wield on policymaking does not come solely from direct campaign contributions, but rather through the $1 million-plus in independent expenditures they spend during the campaign season.
  • There are numerous budget and legislative proposals worth millions of dollars in the upcoming 2001-02 session during which special interests will invest considerable campaign contributions to legislators and the governor.

While some will claim there is not a direct connection between campaign contributions and the policy benefits to the groups discussed here, there is an appearance – if not a real connection – because big money contributions propel legislative and gubernatorial campaigns. And it is this perception that undermines public confidence in the decisions made by elected representatives.

INVESTMENTS AND GAINS BY INDUSTRIES

Payday Lenders

Campaign contributions by the payday lending industry have grown as quickly as the number of outlets placed in Wisconsin by the companies, which are mostly located outside of the state. The industry has drawn criticism by advocates who say it preys on the poor, while check-cashing stores respond that they are making high-risk loans to a clientele that traditional lenders won’t serve.

The industry’s growth here is fed by the lack of state limits on usury rates, and its increase in campaign contributions in 1999 and 2000 were aimed at protecting the status quo. The increase in contributions coincided with a legislative proposal to limit the industry’s interest rates to 26 percent, compared to the 390% to 780% they now charge.

Based on Department of Financial Institutions and Legislative Reference Bureau records on the growing industry’s 1999 loan activity, the bill would have slashed their interest income, which amounts to at least $30 million a year on loans to Wisconsin citizens, to $2 million. The Democratic proposal never made it out of a Democratically-controlled Senate committee, even after the usury rate ceiling was increased to 36 percent, and then to 66 percent.

Total large individual contributions from check cashing industry employees skyrocketed from $2,500 in 1997 to $27,127 from Jan. 1, 1999 through Oct. 23, 2000. The bill’s fate prevented a potential loss of at least $28 million in interest collections, making for a 103,221% return on the industry’s campaign contributions.

Road Builders

The road builders and other members of the transportation industry are one of the most influential and free-spending special interests at the State Capitol. They contribute tens of thousands of dollars each year to elect and persuade policymakers to fatten the state’s $3.9 billion transportation budget. The 1999-2001 state budget was ultimately passed with about $309 million in increased spending and bonding for road construction, maintenance and rehabilitation.

The road builders also backed a bill that created a $10 million “roads for jobs ” fund designed to build roads to cater to business retention and expansion. The bill was passed last spring to build a new $10 million road to serve a General Motors plant expansion in Janesville.

The industry’s seemingly generous $344,189 in contributions during the legislative session paved the way for a king-size 92,582% return in the form of future business.

Like bankers, realtors and other powerful special interests, road builders have a lengthy track record of generous campaign contributions to Gov. Thompson, who crafts the transportation budget, and to legislative leaders who guide and protect large outlays for new projects through the legislative process. The result has been a string of transportation budgets since the early 1990s that were packed with hundreds of millions of dollars in new road projects that are paid for by state residents every day through an escalating state gasoline tax that is one of the highest in the nation and an annual $45 per-car registration fee.

Any suggestion of lowering the state’s 26.4-cent-a-gallon gas tax – even for two months during skyrocketing fuel increases in summer 2000 – is turned back by swift opposition and safety warnings by this powerful industry.

In addition to the cost to drive an automobile, state aid to local governments for mass transit and other transportation programs have lagged, forcing local governments to raise property taxes in order to shoulder more of the burden of paying for these costs.

Business, Paper and Waste Disposal Interests

Proposals inserted into the state budget to increase garbage dumping and tipping fees in order to help pay for local government recycling programs were substantially reduced or removed by the big money and influence exerted by the state’s business, papermaking and waste disposal interests. A reduction or loss of state aid for recycling, which has been partly funded by a surcharge on businesses since recycling became effective a decade ago, means property taxpayers will pay a greater share for those services. In addition to funding local recycling, some proponents of increased fees see them as an effective method to turn back the huge increase in out-of-state trash being dumped in Wisconsin landfills.

Gov. Thompson used his veto authority to reduce by nearly $31 million tipping and dumping fees sought by the legislature. The vetoes cut a proposed $2 per ton solid waste recycling fee to 30 cents; eliminated a 30-cent per ton industrial waste fee; and reduced the amount of surcharges paid by the business community to fund the program. Thompson said in his veto message that he reduced these fees and taxes by more than 50 percent because “they place an unreasonable tax burden on businesses.”

In the end, these interests effectively saw a 19,751% return on their $155,659 in contributions to the governor.

Later in the session, papermaking and business interests successfully squashed two legislative bills that sought to increase the solid waste recycling fee from 30 cents a ton to $2 a ton. The $1.70 per ton increase would have cost these interests about $10.4 million a year, effectively making for a 1,943% return on their $509,004 in campaign contributions to legislators.

Benefits That Cannot Be Specifically Determined

Many special interests, such as utilities, builders, cranberry growers and the tavern industry, lobbied on regulatory, business or market expansion issues for which there were no specific monetary estimates but that meant millions of dollars in profits, savings or some other type of financial benefit. Some of these examples include:

  • Labor unions, the University of Wisconsin System and other groups representing state and municipal employees, whose members and PACs contributed $294,873 to the governor and the legislature, successfully pushed a bill that increases the pensions of state, municipal and public school employees through changes in the employer contribution formula. If the new law survives a legal challenge before the Wisconsin Supreme Court, it means state and local governments and school districts will pay more into the state pension system. The exact amount will depend upon annual evaluations, but one retirement system official estimated the bill could cost taxpayers an average of $28.5 million a year through 2012.
  • The state’s tourism industry finally succeeded in getting a law on the books that requires public schools to begin after the Labor Day holiday unless the local school board officially decides not to do so. The industry, which made $273,638 in campaign contributions to the governor and legislators, contends that it loses millions of dollars in business due to fewer vacationers during the summer’s last busy travel holiday. Meanwhile, educators and other opponents say that tourism industry profits should not dictate education policy and that making such a law mandatory, which the industry is likely to attempt to do in the 2001-02 legislative session, strips control from local officials and citizens. The Department of Tourism estimates that a statewide post-Labor Day school start could mean an additional $66 million for the industry, putting the return on their campaign contributions at 24,019%.
  • The tavern industry successfully moved a proposal that will increase video gambling opportunities by reducing the penalties for possession of the machines. Previously, offenders faced losing their license and a Class E felony punishable by a $10,000 fine and two years in prison for each machine. Now, they simply face a $500 fine per machine. They contributed $108,715 in large individual and PAC contributions to the governor from Jan. 1, 1999 through June 30, 2000 and to legislators from Jan. 1, 1999 through Oct. 23, 2000.
  • The banking industry also successfully opposed several bills that would have regulated or restricted fees, the sale of credit card holder information and the disposal of private information about customers. Another measure died that would have increased consumer choices by letting a banking industry competitor – credit unions – expand their membership base and the types of customer services they can offer. One of these bills would have prevented banks from charging certain ATM fees. There were no state estimates available, but the U.S. Office of Thrift said banks nationwide collected about $2.1 billion in user fees in 1998. The bill failed in the Senate 17-16 last spring with one Democrat joining minority Republicans who opposed it. The Democrat, Sen. Kevin Shibilski, of Stevens Point, received $11,747 in banking industry contributions in 1999 and 2000. Previously, Shibilski, who was elected in 1995, had only received $2,435 in large, individual banking contributions.
  • Wisconsin’s cranberry growers, who contributed $8,385 to legislators and the governor and have a long and generous contribution history, focused most of their energy on more than a dozen rules or bills that affect how they use wetlands, which are key to growing and harvesting their crop. Their influence, which has grown through a lengthy history of large fund raisers and generous campaign contributions to the governor and key legislators, has helped them retain a unique exemption dating back to 1867 from certain state water regulations. Perennial bills to remove their exemption have died without even receiving a public hearing, including one in the last session. Meanwhile, a measure supported by the growers and other special interests that allows businesses to expand on certain wetlands if they create another wetland elsewhere was passed.

INVESTMENTS AND GAINS BY COMPANIES

Dozens of companies whose owners and employees contributed to the governor and legislators have gleaned substantial financial returns on legislation, proposals or agreements with the state.

Maximus Corp.

This Virginia-based company has numerous contracts with the state of Wisconsin, most notably as one of five private agencies that administer the state’s Welfare Works program in Milwaukee.

One of its other contracts pays the company a 10% commission on the amount of federal human services grants it finds for Wisconsin. As of July 2000, the company had collected about $10 million for finding $102 million in federal funds since it was hired in November 1996. In fall 1999, a veto by the governor effectively preserved the contract with the company even though Maximus had fallen short of earlier claims that it could recover an estimated $118 million a year. The governor’s action gave the company the potential to collect an additional $5 million in commissions over the remaining life of the contract.

In December 1999, less than two months after the governor’s action, the firm donated $5,000 to the governor’s campaign through Max-PAC, the company’s political action committee.
The company also hired in April 1999 former Thompson campaign fund raiser Phil Prange and former Thompson aide John Tries to advise it about fund raisers, making campaign contributions and finding more contract work for the company in Wisconsin.

The opportunity to make $5 million off a curiously timed $5,000 contribution works out to a 99,900% return on their investment.

C.D. Smith Construction

The Fond du Lac construction company was awarded a rare no-bid construction contract for a prison project by the State Building Commission at a March 12, 1999 meeting. The commission members include the governor, who is chairman, Sen. Carol Roessler of Oshkosh and Reps. Daniel Vrakas of Hartland and Timothy Hoven of Port Washington.

Two weeks after being handed the $29.5 million contract, the governor’s campaign fund posted contributions totaling $37,000 from company executives. Three months later, in June 1999, Roessler received $4,000 in contributions from C.D. Smith employees. Between Jan. 1, 1999 and Oct. 23, 2000, company executives contributed a total of $42,250 to commission members, making for a 69,722% return on their investment.

3M Corp.

The St. Paul, Minnesota-based company received a tax exemption in the 1999-2001 budget that gives it a $500,000 annual tax break. The provision, which was put in the budget by the governor and later approved by the legislature, exempts the company from paying taxes on materials that it temporarily warehouses in Wisconsin.

The value of the exemption effectively gives 3M executives a 6,726% return on their $7,325 in campaign contributions.

Benefits That Cannot Be Specifically Determined

Tax breaks and contracts aren’t the only ways that companies benefit from the actions of state policymakers. Some companies successfully sought measures that helped them expand business or ease regulations. In other cases, they fought proposals that would have imposed regulations or other requirements that they claimed would have been too costly. Some of these cases included:

  • The Peoples Lottery Foundation, a New York-based company, can do business in Wisconsin after a change in lottery laws in the state budget that allows them to pay a winner’s total prize up front for a percentage of the amount. In turn, the winner signs over the yearly prize payments to the company. The change was added to the budget by the legislature. Company employees made their first campaign contributions in Wisconsin – $5,000 to former Democratic Sen. Alice Clausing – during the time the proposal was being considered.
  • Ashley Furniture Industries owners sought and received an exemption from environmental regulations that would have allowed them to fill in wetlands to expand their business. The Ashley measure was included by Gov. Thompson in his budget, but then removed by a budget-writing committee. Legislators later included the exemption in the budget they sent to the governor. Company executives contributed $8,400 between Jan. 1, 1999 and Oct. 23, 2000, and a total of $52,550 to the governor and legislators since 1993.

ANOTHER MODE OF INVESTING

There are a handful of powerful special interests that don’t depend upon campaign contributions as their only means, or their major mode, of investing for a gain in state policymaking. Some make independent expenditures, which are monies spent independent of the candidates’ campaigns on mailings and advertisements in order to benefit the candidate they support.

Others engage in soft money spending which is never publicly disclosed. Some of this activity includes attack advertisements against candidates.

Directly comparing these groups to the majority of special interests that seek their gains through campaign contributions would be mixing apples and oranges. However, this alternative method of influencing the system is worth a prominent mention because of the amount of money involved and the negative mood and sense of disenfranchisement it has created among voters.

The cadillac among independent expenditure groups is the Wisconsin Education Association Council, the state’s largest teachers union, which spent more than $1 million on behalf of Democratic candidates in the 2000 elections. Meanwhile, WEAC’s PAC and public school teachers made $39,325 in large individual contributions to the legislature and the governor between Jan. 1, 1999 and Oct. 23, 2000.

As cited earlier in this report, WEAC and other education-related unions and employees were key backers of AB495, a new law before the Wisconsin Supreme Court that seeks to substantially increase the pensions of employees of state and local governments and school districts.

Much of WEAC’s 1999-2000 legislative agenda involved issues, such as education policy and school workplace and safety issues, that did not provide a direct monetary benefit for their members. However, they play a critical role in persuading policymakers to spend tax dollars on public school education.

For instance, WEAC and school administrators and officials backed increases in a state program called Student Achievement Guarantee in Education (SAGE) that provides money to local school districts to reduce class sizes. The program’s 1998-99 budget was $15 million. Gov. Thompson initially proposed a $17 million – or 113% – increase in his two year budget for the department. By the time the legislature and special interests finished their work, SAGE’s budget for 2000-01 was up to $58.7 million, a 291% increase from two years earlier.

The other major independent player is the Wisconsin Manufacturers and Commerce, the state’s largest business lobby. The group pools hundreds of thousands of dollars worth of contributions from its corporate members to spend on issue ads. Because the law doesn’t require disclosure about the source of these ads, WMC is able to protect the identity of the businesses that fuel attack campaigns against candidates.

THE 2001-2002 LEGISLATIVE SESSION

Like past sessions, the upcoming 2001-2002 legislative session will see hundreds of proposals to benefit narrow special interests rather than the general public.

These proposals will draw millions of dollars in special interest campaign contributions, particularly since the governor and legislators must pass a state budget in 2001, and 2002 represents an election year for half of the Senate, all of the Assembly and the governor’s office.

Energy deregulation  – Utilities are floating a plan that they claim will benefit customers in the long run by holding down rate increases, but critics say it will pay handsome dividends to utility stockholders, increase customer bills and weaken state regulation.

Prescription drug assistance – Numerous approaches at varied costs may be floated in order to help low-income elderly residents pay for prescription drugs. The pharmaceutical industry is likely to weigh in heavily against plans that try to impose anything resembling price controls.

Single sales factor tax – The state’s influential business community, led by the Wisconsin Manufacturers and Commerce, is again likely to push a plan that would reduce taxes on Wisconsin businesses by an estimated $80 million a year, most likely at the expense of individual taxpayers.

School spending – WEAC and other teachers union will continue their efforts to repeal state laws that control school district spending and teachers’ salaries.

Tourism industry – The multi-billion dollar industry is likely to pull out all the stops to revise a state law and require all local school districts not to begin classes until after the Labor Day holiday. As noted earlier in this report, tourism scored a significant gain last session by persuading the legislature and the governor to approve a post-Labor Day start day. But to the disappointment of the industry, the law was made optional, and most school districts decided to start classes before the holiday last year.

Private prison lease – The state is poised to lease a 1,326-bed medium-security private prison near Stanley after Dominion Venture Group, an Oklahoma company, constructed it in 1999 on the presumption the legislature would change Wisconsin law in order to let the state lease or buy it. There were no large campaign contributions from Dominion executives before 1999, but since then they have contributed $6,800 to legislative campaigns – much of it while a proposal to lease the prison for $8.1 million a year was under consideration. That bill failed, but lawmakers have signaled that such a proposal will pass in the 2001-02 session. If this occurs, company executives will realize a 119,018% return on their campaign contributions through Oct. 23, 2000.

Airline tax break – Midwest Express Airlines is likely to push again this session for an exemption from paying property taxes on airplanes and equipment, a break that would save the company at least $1.5 million a year. Pundits said the Wisconsin-based company, whose executives contributed only $1,225 through Oct. 23, 2000, lost due to a lack of political prowess. Midwest Vice President Carol Skornicka, a former Thompson cabinet member, said the company felt it was inappropriate to make campaign contributions while the proposal was under consideration.

Compare and contrast Midwest’s result with that of St. Paul, Minnesota-based 3M Corp., whose PAC and employees contributed $7,325 to the governor and legislators. It requested and received a $500,000 annual tax break tailor made by the governor and approved by legislators.

Workers’ Pay – Another attempt is planned to change a state law in order to restore the priority given to wage claims by workers when an employer goes bankrupt. In 1998 the legislature changed state law to give money owed to financial institutions the first priority in bankruptcy proceedings. Sponsors of the measure and anecdotal media reports say this pecking order often leaves nothing for workers. Similar bills in the 1999-2000 session were opposed by lending institutions, whose executives are consistently among the top special interest contributors to legislators and the governor.

AppendixPress Release

Appendix

Table 1: IndustriesTable 2: Companies

Table 1
Industries

CONTRIBUTOR (INDUSTRY) CAMPAIGN CONTRIBUTIONS* LEGISLATION/
PROPOSAL
RESULT BENEFIT TO SPECIAL INTEREST RETURN ON CAMPAIGN CONTRIBUTION
Payday Lenders $27,127 (legislature) Limit maximum interest rate to 26% (Industry rates range from 390% to 780%) Fails to pass- SB96 Continue to collect at least $30 million a year, versus about $2 million. 103,221%
Road Builders and Transportation Interests $344,189 (governor and legislature) 1. "Roads-for-jobs-preservation" bill;
2. Transportation budget increases for road projects, rehabilitation and maintenance.
Approved-
1. SB432;
2. Budget
1. Create annual $10 million fund to build roads for big business;
2. $309 million in revenue and bonding increases.
92,582%
Vending Machine Industry $17,870 (legislature) Sales tax break Approved-Budget $3.7 million annual tax reduction 20,605%
Waste Disposal, Paper and Business Interests $155,659 (governor) Increased dumping and tipping fees on garbage to fund recycling programs Reduced by governor’s veto - budget  Proposed increases by legislature were decreased $30.9 million annually by governor’s veto  19,751%
Agriculture $92,227 (governor and legislature) 1. Full-year sales tax break on electricity used in farm operations;
2. Subsidy to ethanol producers
Approved-
1. Budget;
2. SB378
1. $2.2 million annual tax break;
2. $3 million annual subsidy
5,538%
Business, Utility and Paper Interests $265,372 (legislature) Establishes industrial mercury emissions requirements Fails to pass- SB177 Cost to industries would have been ranges $12-$30 million annually  4,422% to 11,204%
Business, Insurance, Banking, Manufacturing and Distributing $1,097,923 (legislature) Combined reporting of corporate income and franchise tax Removed from governor’s proposed budget Increase business taxes by $47 million annually 4,181%
Paper and Business Interests $509,004 (legislature) Increase garbage tipping fees from 30 cents to $2 per ton Fails to pass- AB702, SB355 Increase of $1.70 per ton would have cost affected interests $10.4 million annually 1,943%
HMOs, Insurers and Business Interests $741,647 (legislature) Require health insurance plans to pay for smoking cessation programs Fails to pass- SB115 State formula puts estimates at $5 million to $24 million annually  574% to
3,136%
Banks $242,160 (governor and legislature) Exclude ATMs from property tax exemption Budget veto; AB645 fails  Continue to receive $1.2 million annual tax break  396%

Table 2
Companies

CONTRIBUTOR (COMPANY) CAMPAIGN CONTRIBUTIONS* LEGISLATION/
PROPOSAL
RESULT BENEFIT TO SPECIAL INTEREST RETURN ON CAMPAIGN CONTRIBUTION
Maximus Corp. $5,000 (governor) Continue contract to find unclaimed federal human services funds for state Governor continued state contract with company $5 million in financial incentives 99,900%
CD Smith Construction $42,250 (governor and legislators on Building Commission) Awarded no-bid prison construction contract Approved- Building Commission $29.5 million contract 69,722%
3M Corp. $7,325 (governor and legislature) Tax break for temporary product warehousing  Approved- Budget $500,000 annual tax break 6,726%

* Figures represent large individual and PAC contributions from Jan. 1, 1999 through Oct. 23, 2000 to the legislature, and from Jan. 1, 1999 through June 30, 2000 to the governor.