Money = wins

Thanks to judicial decisions over the last two years that radically altered federal campaign-finance rules, the fate of the nation lies in the hands of about 100 wealthy Californians—or, to be more precise, in their checkbooks.

An analysis of super PAC (political action committee) fundraising data following the Republican presidential primary shows that a tiny slice of California’s elite turned out to have a major influence over the selection of Mitt Romney as the GOP candidate. Furthermore, the new rules have strengthened the role of California’s small but extremely affluent network of Republican Party financiers tilting the state’s overall balance of political influence on the national stage away from its reliable mass of blue voters and toward its concentrated few with red dollars.

A close look at the money trail also reveals the importance of a certain stratum of California’s wealthy political donors—private-equity investors—who were instrumental in funding attacks against Romney’s rivals.

Anthony Corrado, a senior scholar at the Brookings Institution, points to the Supreme Court’s Citizens United decision (2010), and the lesser known D.C. District Court’s SpeechNow.org ruling (2010), which together allow virtually unlimited cash grants to committees making “independent expenditures.” Corrado says these decisions “have allowed wealthy donors to essentially have a disproportionate influence on the election process.”

The now-familiar problem comes with a twist in California.

While there are more than a few liberals among the state’s super rich, California’s wealthy are notably more conservative, especially regarding economic issues, than the majority of the population. So in California, what’s important about the rise of the super PAC isn’t just the unlimited spending and shadowy tactics they’ve become synonymous with: It’s that at a level of greater detail, a small network of wealthy conservatives seem to have increased their influence in the national political arena over that of the more liberal majority.

“California is blue state,” explained Thad Kousser, professor of political science at UC San Diego. However, California’s blue politics is mostly tied to its votes. Kousser says California generates “lots of money for Republicans.”

“When you look at the mass level, California voters are strongly Democratic. But at the elite level there are still a lot of Republicans. Lots of the money in Hollywood, Silicon Valley—San Francisco is Democratic, but there are more than enough wealthy Republicans there to make this a really fertile soil for conservatives trying to raise funds.”

Super fun packs

The tilt of super PACs has been reported elsewhere; more registered super PACs are conservative than liberal. Conservatives have also raised more money for super PAC spending, including the current campaign season, according to data from the Center for Responsive Politics.

California has 750,000 households (roughly 6 percent of the state’s total) with more than $1 million in investable assets, according to Phoenix Marketing International, a firm that tracks trends in wealth distribution. The actual number of families holding wealth above $10 million is much smaller, less than 1 percent. California has exactly 100 billionaires according to the latest Forbes survey, most of them residing in Los Angeles, Silicon Valley and San Francisco.

As of the end of May, a select few of these super-rich Californians have donated approximately $11.4 million to the top five super PACs that were most active in shaping the Republican presidential-primary campaign. In other words, one in every $10 raised by these five super PACs came from just several hundred of the Golden State’s wealthiest residents. But the real impact of California’s wealthy political funders has been even more concentrated.

The Romney-linked Restore Our Future super PAC has been a favorite of California’s conservative elite, receiving $5.4 million from 89 California residents, an average of $60,000 per donor. The majority of donations, however, came from a smaller group who contributed more than $100,000 each. The 17 individuals who gave more than $100,000 to Restore Our Future accounted for 70 percent of the PAC’s California-raised funds.

Similar to how California money is key to helping fund super PACs, one in $10 raised by Restore Our Future, and spent to influence voters in key primaries such as Iowa, South Carolina and Florida came from a wealthy Californian.

Mitt Romney’s ability to fend off the insurgent campaigns of Newt Gingrich and Rick Santorum was very much a result of the nominally independent television ads bought by Restore Our Future, financed very much by a small network of West Coast donors. Restore Our Future spent millions in Iowa blasting Gingrich and then millions more to take down Santorum in later stages of the campaign.

“In December, 45 percent of the political ads in Iowa were Gingrich takedowns; the super PAC Restore Our Future, which supports Mitt Romney spent nearly $3 million on such ads,” reported Ariel Levy in The New Yorker. “In one month Gingrich went from top horse to underdog.”

A primary battle of this nature, fought largely through “independent” super PACS, was a first in American politics, say experts who track campaign trends.

Their inability to benefit from super PAC contributions made by California conservatives may partly explain Gingrich’s and Santorum’s defeat. The Gingrich-linked Winning Our Future —funded largely by casino mogul Sheldon Adelson—received virtually no support from Californians. The committee reported only $9,700 in donations through May this year from state residents. The Red White and Blue Fund, a super PAC supporting Rick Santorum, fared better in raising cash from California thanks to five wealthy businessmen, including Richard Barry, a Marin County hedge-fund manager; David Segel, another hedge-fund manager who resides in Pacific Palisades; and William Duhamel, a former manager at San Francisco’s Farallon Capital Management hedge fund. In the end, however, these super PACs were simply starved of West Coast cash and therefore came up short of Restore Our Future.

Longtime companions

Regardless of previous affiliations, all of the major conservative super PACs are now shifting their devastating abilities to raise cash and produce negative ads onto President Barack Obama, reported The New York Times last week. By shifting their focus, these PACs may soon see spikes in contributions from wealthy California conservatives.

According to Kousser, there are several obvious reasons why Romney did better among California’s GOP. “He’s more of a California Republican than Gingrich or Santorum. Romney is more moderate than the national Republican Party. Second, he’s a Mormon, and California has more Mormons. It’s not surprising that a candidate who fits the ideological mold and is knit into a religious group with deep roots in the state fits better here.”

However, there was another key reason for Romney’s success. California’s conservative political donors decided early on to pool their money behind the Restore Our Future super PAC. Numerous hedge-fund and private-equity executives with major California financial companies like TPG Capital, Altamont Capital Partners, Chaparal Investments, Canyon Partners, Sutter Hill Ventures, Trident Capital, and more widely known investment banks that have California offices, like Goldman Sachs, constitute the richest core of Romney’s California allies.

Kousser isn’t surprised. “These are his friends. He has a long relationship working with them from Bain Capital. They feel like he understands their issues.” The predominance of private-equity and hedge-fund managers in the super PAC scene is very much the product of personal networks that stem back decades, and Romney personifies these links like no other politician. Romney’s ability to raise big money, especially from California, is thanks largely to his former business colleagues and employees at Bain & Company and Bain Capital.

Dick Boyce, Romney’s go-to guy in Northern California, once worked in Bain Capital’s sister company, Bain & Company. Dick Boyce donated $300,000 to the Restore Our Future PAC to fund attacks against Romney’s rivals during the primaries. For Romney’s several fundraising forays into California in recent months, Boyce has been among the welcoming committee, hosting parties with $2,500 covers at the door and $50,000 per-plate dinner charges.

Decades ago when Romney and colleagues in Bain Capital engineered takeovers of companies, Boyce would move his operations team into the executive offices to restructure the business and squeeze out bigger profits for investors, mainly Bain Capital partners. The seed money for their current fortunes, out of which they peel campaign contributions today, was created in the 1980s and ’90s orchestrating leveraged buyouts and restructurings—practices that have been widely criticized for leading to job cuts and bankruptcies.

One of Dick Boyce’s earliest gigs for Bain Capital was taking over FTD Flowers, at the time a nonprofit organization. When Boyce exited FTD as Bain’s profit-engineering CEO, he brought in another Bain & Company employee, Margaret Whitman, to fill his shoes. Today Meg Whitman is better known as Hewlett-Packard’s CEO, and a former candidate for California governor (having the distinction of spending a record sum of personal wealth on her own bid to buy that office). Whitman also has the distinction of being ranked No. 331 on Forbes’ global billionaires list, with a personal fortune valued at $1.3 billion. Her Atherton mansion is not too far from Dick Boyce’s Portola Valley residence. Whitman is another friend and key supporter of Romney, having donated her limit of $2,300 to the candidate’s campaign, but more importantly having made a $100,000 contribution to the Restore Our Future super PAC.

Two other major contributors to the Restore Our Future super PAC have Bain & Company backgrounds: Duhamel spent several years at Bain & Company after graduating from Stanford Business School. Co-founder of Altamont Capital Jesse Rogers is a Bain & Company alumnus. Rogers gave $125,000 to Restore Our Future.

Excepting this handful of conservative California millionaires and billionaires who have already made their imprint in the GOP primaries, Kousser said, “I think Californians for the most part haven’t been engaged in this presidential race. That was reflected in the poor turnout for the recently passed primary elections.” Even if California’s majority of liberal voters remain irrelevant in the electoral strategies of Obama and Romney, Kousser believes wealthy residents will engage further. “Californians will play an increasingly larger role in funding this race. California and New York City are ATMs for both parties.”

In the general election now underway, the biggest super PACs are expected to expend many millions more on attack ads in key states. The Romney-friendly Restore Our Future PAC has held a decided edge over liberal PACs expected to support Obama. According to the Federal Elections Commission, Restore Our Future has raised more than $61 million so far and has about $14 million in cash on hand. By contrast, Priorities USA Action, the Obama-linked super PAC, has only raised $14.5 million, and only has $5 million in cash on hand. While liberal funders are expected to become more engaged in the presidential campaign now, conservative funders are still outspending them.

When asked once which competing teams of private-equity capitalists “win” in a competition to takeover a public company, Romney’s friend and former colleague Dick Boyce once said, “The one with the most money.” Having already helped to bankroll the GOP’s primary, and selected Romney through a battle of super PACs, wealthy California residents like Boyce seem to be intent on proving this dictum in politics, too.