This article originally appeared in the CQ Weekly 2012 Democratic Convention Guide

In setting out to pay for a $37 million “people’s convention” with low-dollar citizen donations instead of big corporate checks, Democrats have either embarked on a fool’s errand, a bold experiment or both.

Convention organizers drew few accolades and much skepticism when they announced last year that they would accept no contributions from lobbyists, corporations, political action committees or donors giving more than $100,000. The ban rang especially hollow when reports surfaced that Bank of America Corp., Duke Energy Corp. and Wells Fargo & Co. had donated to a nonprofit civic league that is paying for overhead and promoting the city of Charlotte.

For all that, campaign finance watchdogs nonetheless hailed the Democrats’ fundraising limits as an unprecedented step. In recent decades, national party conventions have become notorious as rules-free zones where big, special-interest donors are rewarded exclusive access to government officials. The Democrats’ new rules at least attempt to change that, watchdogs say.

“I give them a great deal of credit,” said Craig Holman, government affairs lobbyist for the advocacy group Public Citizen. “This has never been done before for a convention, and it’s going to have an impact.”

The most immediate effect has been to make it painfully difficult for the Democratic National Committee and its affiliated host organization, known as Charlotte in 2012, to squeeze the needed millions from a shrunken pool of donors. President Obama and the DNC are struggling to keep pace with the money-raising efforts of Republican nominee Mitt Romney and with several well-financed conservative super PACs and other groups that are spending millions in unrestricted money to back the GOP ticket.

“The big push so far has really been to raise money for the campaign, and it should be,” says Don Peebles, chairman and chief executive of the New York City real estate development firm, the Peebles Corp., and a member of Obama’s national finance committee. In the fundraising pecking order, the convention ranks as a poor stepchild to the presidential race and the DNC.

“The president has imposed limitations well beyond what is mandated by law,” Peebles says. “So, it makes it more difficult, and the pool of potential donors is smaller for the convention. So, it makes the dollars harder to come by.”

That said, prominent officials are still rounding up checks from deep-pocketed corporate donors. As in past years, big money is underwriting events in Charlotte this week, thanks to a complicated fundraising apparatus that relies on unrestricted nonprofits to do some of the heavy lifting. The definition of “convention” has also proved somewhat fluid, with such events as a kickoff street festival and a lavish welcome party for the news media falling outside the definition of what constitutes an official event.

As at the Republican National Convention in Tampa last week, the money comes from several pots. Both cities received a $50 million federal grant to cover security costs. The Democrats and Republicans also received about $18 million each in public money, paid for by the voluntary $3 tax return checkoff that underwrites the federal election financing system. The bulk of the money, however, is private.

Labor Opts Out

Making matters worse for Democrats, many labor unions opted not to help underwrite this week’s convention in Charlotte, a venue that drew controversy from Day One because of the state’s labor-unfriendly “right-to-work” laws. In 2008, five of the top 10 donors to the Democratic National Convention in Denver were unions, according to the nonpartisan Campaign Finance Institute, which tallied $8.3 million in donations of $100,000 or more from labor organizations.

One of the top donors in Denver was the International Brotherhood of Electrical Workers, which this year helped underwrite a labor rally in Philadelphia instead of backing the convention in Charlotte. Also among the unions stiffing the Charlotte convention are the AFL-CIO and Unite Here, which represents American and Canadian workers in the hotel, airport and other industries.

This year, the AFL-CIO “will not be making major monetary contributions to the convention or host committee for events or activities around the convention,” wrote AFL-CIO President Richard Trumka in a July letter to top federation officials. “We won’t be buying skyboxes, hosting events other than the Labor Delegates meeting or bringing a big staff contingent to the convention.”

The decision reflects changes in the AFL-CIO’s political program and its “desire to engage in politics in a more effective and grass-roots way,” the letter went on. Since beginning an AFL-CIO super PAC in 2011, federation organizers have signaled plans to shift away from national party politics and toward building a long-term, pro-worker activist movement and ground organization.

Changing the Rules

In theory, federal election laws dating to the aftermath of the Watergate scandal require public money to underwrite the entire convention. But starting in the 1990s, increasingly relaxed Federal Election Commission regulations cleared private donors to steer unrestricted checks to committees ostensibly set up to promote the host cities.

Democrats say they’ve changed all that this year by signing an elaborate, restrictive “master contract” with the Charlotte in 2012 host committee. The 53-page document spells out that the committee will raise exactly $36.65 million and reject all corporate, lobbyist, PAC and unlimited cash. Donations must be screened and reported monthly to the party.

“Adopting these rules has allowed us to include more people in the process,” says Joanne Peters, press secretary for the Democratic National Convention Committee. The goal “was really to include the grass roots more and make them part of this convention,” she says.

The number of individual donors to the Charlotte host committee is 85 times larger than was the case for Denver four years ago, according to Suzi Emmerling, press secretary for Charlotte in 2012.

Not surprisingly, however, there are exceptions to the ostensibly tight rules. First, in-kind corporate donations are permitted. Second, a 501(c)6 civic league known as New American City Inc. faces no limits and is paying for all of the host committee’s overhead costs, including staff salaries and insurance. New American City’s ostensible role is to promote Charlotte, not to pay for official convention costs.

The group has accepted donations from Bank of America, Duke Energy, Wells Fargo and other corporate backers that are prominent in Charlotte. Bank of America and Duke Energy are headquartered in Charlotte, and Wells Fargo has its East Coast headquarters there. All three have giant corporate offices within a few blocks of the convention site.

Third, the definition of “official convention activities” used by the Democrats has shrunk to exclude several major events. These include a Labor Day “CarolinaFest” party in Uptown Charlotte that will be open to the public.  New American City and its corporate sponsors also are paying for “unofficial” welcome bashes for the news media and the delegates. Time Warner Cable Inc. is sponsoring the media party at the North Carolina Music Factory.

Finally, the party’s contract with the host committee stipulates that all contributions “shall be disclosed publicly,” but the first donor reports won’t be made public until Oct. 15. That’s consistent with federal reporting deadlines, Emmerling says. But it also means that donor names won’t be public until long after the convention leaves town.

Duke Energy Draws Notice

The environmental group Greenpeace has called on the DNC to sever its ties with Duke Energy, the largest electric power holding company in the country. Company CEO Jim Rogers is co-chairman of Charlotte in 2012, alongside Mayor Anthony Foxx. Duke Energy has also reportedly guaranteed a $10 million line of credit to the host committee, in case fundraising falls short.

The company might have to step forward. The host committee has received some big assists, including a March visit to Charlotte by first lady Michelle Obama that featured entertainment by singer James Taylor at two fundraisers for both high-dollar and low-dollar donors. Also toiling to round up checks have been spine surgeon Dan Murrey, executive director of Charlotte in 2012; North Carolina Gov. Bev Perdue, a host committee honorary co-chairwoman; and Foxx.

Still, convention organizers’ low-dollar fundraising gimmicks, launched with the help of a full-time grass-roots finance director and a five-person marketing staff, range from the campy to the quixotic. An online store would have to sell an awful lot of $15 convention mugs or $17 “Future Delegate” baby onesies to get anywhere near $37 million.

A special fundraising appeal from Michelle Obama promised any donor who pitched in “$5 or whatever you can” the chance to win an all-expenses-paid trip to the convention and to meet the president.

“Has it been a challenge? Absolutely,” says Emmerling. “But a lot of people have been very responsive to it and appreciate what we’re trying to do.”

It remains to be seen, however, whether Democrats will score any political points for trying to run a less-corporate convention – or even manage to bring their people-powered shindig into the black.