Reform Is Good for Business

Posted July 10, 2007 at 6:40pm

Amid a steady supply of political scandals and high-profile legislation, campaign finance reform has become a big business during the past decade, complete with hefty six-figure executive salaries and multimillion-dollar budgets for the groups that bird-dog the issue.

During a recent three-year period, presidents, chief executive officers and executive directors at eight prominent Washington, D.C.-based advocacy and watchdog organizations saw their overall compensation — including salary, health insurance and pension payments — increase by 25 percent, according to an analysis of Internal Revenue Service documents filed by the eight groups.

But industry experts warn that the gold rush may soon be over, as the foundations that largely fund the work of the reform groups seem to be putting their money into other research projects and causes.

The groups in Roll Call’s analysis were: League of Women Voters, Democracy 21, Campaign Legal Center, Citizens for Responsibility and Ethics in Washington, Campaign Finance Institute, Center for Responsive Politics, Public Citizen and Common Cause.

Totals for half of the groups include fundraising and executive compensation figures from affiliated education funds and foundations. Fundraising totals include direct and indirect gifts, but not real estate or other investment income.

Higher-ups at the eight organizations made an average of $179,000 in overall pay in 2005. The median executive salary and benefits package for the groups was about $171,000.

The groups’ executives in 2003 earned an average of $143,000, with the median compensation package around $140,000. The following year, the average overall pay soared to $168,000, an 18 percent increase. Median executive pay in 2004 was about $160,000.

In 2005, Democracy 21 President Fred Wertheimer took home the heftiest compensation package — almost $226,000 — while Public Citizen President Joan Claybrook took in $117,000, the least amount paid to an executive of the eight groups that year.

Compared with her counterparts who rely primarily on big foundation gifts to keep the lights on, Claybrook may have missed her pay day. She said her 10 percent pay increase reflects only compensation adjustments for inflation and jumps in health insurance premiums paid for by the organizations.

“What have I missed?” Claybrook joked. “I get the exact same salary increase as everyone else at Public Citizen … a cost of living adjustment.”

Many of the groups confirmed that special compensation committees made up of board members set the executive pay and benefits packages. One major factor in the process, they said, is what executives at other advocacy groups are paid.

Susan Manes, who chairs Democracy 21’s board of directors, said her group first looks at surveys to find an acceptable salary range before it “particularize[s] the process.”

“We look at … Fred’s qualifications and Democracy 21’s achievements and then reach a recommendation,” said Manes, a retired Capitol Hill staffer who also worked at Common Cause, which Wertheimer ran from 1981 to 1995. “We’re a very small organization with a modest budget, ambitious goals and pretty substantial achievements. We make sure the salary we set reflects that — and is pretty affordable.”

Potter’s Many Hats

Campaign Legal Center President Trevor Potter’s pay has increased by nearly one-third during the three-year period, from $169,000 in 2003 to $221,000 in 2005. Potter, the lawyer for Sen. John McCain’s (R-Ariz.) presidential campaign, is listed as a part-time employee at the organization, a designation Executive Director J. Gerald Hebert said doesn’t give a full picture of his day-to-day involvement.

“He’s got extensive contacts [and] he’s a tremendous fundraiser,” Hebert said of Potter, who has recused himself from working on the group’s federal campaign finance matters this cycle because of his involvement in McCain’s White House bid. “I always laugh when I hear anyone say he’s part time at the Legal Center — he and I talk throughout the day as if he’s in my office.”

“Even though he is not involved in [campaign finance reform] for 2008, the amount of time he is devoting to the Campaign Legal Center has not changed in spite of that,” Hebert added.

Michael Malbin, the Campaign Finance Institute’s executive director, watched his salary and benefits increase by roughly double during the period — the second-biggest spike among the eight groups. On sabbatical from his teaching duties, Malbin made $163,600 working at the organization in 2005.

“My CFI compensation [in 2005] reflects the fact that I was working full time at CFI,” Malbin told Roll Call in an e-mail. “For previous years, I was also teaching at the State University of New York at Albany and my CFI compensation was prorated accordingly.”

While not a factor in setting pay, Manes and Hebert suggest that it’s important to consider what Wertheimer, Potter and others are worth in the for-profit world. Both Potter and Wertheimer are lawyers, and Potter is a partner at the D.C. firm of Caplin & Drysdale.

“Fred has a very substantial private-sector earning potential,” Manes said. “We couldn’t hope to match what he would earn elsewhere, but we think the salary we’ve set is a fair and reasonable one. We’re not setting a salary to keep him, we’re setting a salary to fairly recognize what he brings to us.”

Hebert added: “For the time he spends at the Legal Center, [Potter] could be making more money at Caplin & Drysdale.”

Although these executives’ potential value in the corporate world often is invoked, nonprofit executive recruiter John Isaacson said it is wrong to draw such parallels. Isaacson suggested that such a comparison is akin to speculating what a professional bowler could make playing football: While he may be a great athlete, the skills are not transferable.

“They wouldn’t get a [for-profit] job to start with … you don’t leave the corporate world and come to nonprofit world and you don’t do the reverse easily,” Isaacson said. “People have to retool themselves to make it happen. It’d be a complicated re-entry unless you had previous experience.”

Generally speaking, Isaacson said ethics and campaign finance groups tend to pay their executives less than other nonprofit organizations. For an advocacy organization with a $1 million budget, he said a typical salary range is $75,000 to $110,000. For a $5 million organization, the range is usually $100,000 to $125,000; for a $5 million to $15 million organization, $125,000 to $175,000. Bonuses are rare, he said, and executives usually are rewarded with pay raises.

“‘Nonprofit’ is a tax status, not a [professional] field, so pay doesn’t follow the tax status,” Isaacson said. “If you’re a neurosurgeon you get paid one way and if you’re an elementary school teacher you get paid nothing.”

While executive pay at the government watchdog organizations has increased by one-quarter in recent years, fundraising has puttered along at around 7 percent. Public Citizen and Democracy 21 both have experienced double-digit cuts in direct and indirect fundraising, while CREW, which was started in early 2003, watched its funding balloon by roughly 190 percent — a spike the group attributes to the bumper crop of Congressional scandals.

“CREW’s funding has increased because we have been so effective in exposing the wrongdoing in both Congress and the administration,” spokeswoman Naomi Seligman Steiner told Roll Call in an e-mail.

Sins of the Father

Information provided by Wertheimer suggests his group’s tax forms obscure Democracy 21’s significant reserves, crucial for the organization to sustain itself in off years and a testament perhaps to his skillful management. While the group’s IRS Form 990 indicates that the group raised about $750,000, Democracy 21 actually had more than $1.1 million in liquid assets.

For Public Citizen, Claybrook said the majority drop-off in revenue was because of lagging direct-mail returns and a 2003 membership spike followed by a regular down-cycle in a presidential election year.

“When [Public Citizen founder] Ralph Nader ran for the presidency in 2000, one-third of our membership quit and we had a big decrease,” she said. “In 2003 many of them came back.”

But unlike some of the other groups, Claybrook said a diverse income stream means her group can bounce back from an off year better than most. Many of the groups rely overwhelmingly on handouts from a small stable of foundations, which are warning that this may be the last round of big grants for pricey campaign finance projects.

“We get money from a wide variety of sources: We do direct mail and we also get foundation funding; we have a litigation group that gets court-awarded fees,” Claybrook said. “We have two buildings and rent part of one. We sell books and magazines. And [we receive] large donor gifts.”

Trying to Break the Habit

One group trying desperately to partially wean itself off foundation cash is Center for Responsive Politics, which runs the popular money-in-politics Web site Opensecrets.org.

Sheila Krumholz, executive director of the organization, said big foundation gifts historically have paid most of the group’s bills, but increasingly “they want us to also become more self-sufficient.” But without the ability to raise small-dollar donations from members, the group is increasingly trying to market years of financial information sitting in its computer servers.

“We’re not a membership organization where we can rely on the hundreds of thousands of members that Public Citizen or Common Cause can,” she said. “We’re trying to get people to value our data.”

Similar to the Center for Responsive Politics, the Campaign Legal Center gets the bulk of its funding from foundations such as the Pew Charitable Trusts and The Joyce Foundation, grants that are frequently paid out in periodic payments over one- and two-year increments.

But the well for these groups is nearly dry, both foundations said. With the passage of the Bipartisan Campaign Reform Act of 2002 and with other big-picture priorities on their agenda, both groups say it is time to move on.

“We have focused on [campaign finance reform] during the past decade, but we’re slowly beginning to move out of the area,” said Sue Urahn, a managing director at Pew Charitable Trusts. “It’s a natural policy cycle.”

The Joyce Foundation, which wrote steady checks in recent years to Democracy 21, Campaign Legal Center, Campaign Finance Institute and the Center for Responsive Politics, also will no longer bankroll national campaign finance projects and will move to state-level issues.

“This is our last go-around with them,” said foundation spokeswoman Mary O’Connell. “We have been shifting our funding to concentrate on the Midwest.”