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Donald Trump’s Costly Pick of Mike Pence

By choosing a sitting governor, some donations to his campaign will be limited by pay-to-play rules.

The views expressed are the author’s own and not neces­sar­ily those of the Bren­nan Center for Justice.

The Trump campaign has struggled with one of the most plain vanilla, campaign 101, Federal Elec­tion Commis­sion (FEC) rules: not soli­cit­ing foreign­ers for campaign funds. If choos­ing a relat­ively main­stream running mate in Mike Pence was supposed to bring in more campaign funds, then the strategy may have back­fired. By adding a governor to the ticket, Trump has just triggered some Secur­it­ies and Exchange Commis­sion (SEC) strin­gent anti-pay-to-play rules. The regu­la­tions are designed to prevent invest­ment advisers from using large campaign dona­tions to win lucrat­ive busi­ness hand­ling govern­ment finances.  

Two anti-pay-to-play rules now apply to the Trump/Pence ticket: one applies to muni­cipal bonds and the other applies to public pension funds. Because Mike Pence is the sitting Governor of Indi­ana, any busi­nessper­son that is doing busi­ness with Indi­ana by either under­writ­ing the state’s bonds or invest­ing its pension funds is captured by these rules and can only give de minimis amounts to the Trump/Pence pres­id­en­tial campaign. If a busi­nessper­son ignores these rules and gives more than the low limit, they can be barred from doing busi­ness with the state for up to two years. This could put a seri­ous crimp in any plans by Trump/Pence to go barn­storm­ing on Wall Street for contri­bu­tions.

Trump could have consul­ted Rick Perry who was the only candid­ate hit by these rules in 2012. As the sitting governor of Texas, Perry learned that while other candid­ates could raise big checks from invest­ment firms, these donors could not give big checks to him without jeop­ard­iz­ing busi­ness with the Texas govern­ment. Ulti­mately, the choice is the donor’s. Give small, and not make much differ­ence to the campaign, or give big, and lose the chance to win busi­ness. Four years ago, donors largely chose doing busi­ness with Texas over donat­ing to Perry for Pres­id­ent. And if Hillary Clin­ton decides to pick a sitting governor as her running mate, these rules will apply to her campaign too.

The SEC adop­ted these regu­la­tions to prevent corrup­tion in the muni­cipal bond and public pension fund markets.  And it’s easy to under­stand why. A Wall Street hedge fund manager might think, “I want to curry favor with Pence so that I get more lucrat­ive deals with the State of Indi­ana now or in the future. I’ll make big dona­tions to the Trump/Pence campaign.”

As future retir­ees and current taxpay­ers, aver­age citizens don’t want bond deals or public pension fund invest­ments run by the most gener­ous polit­ical donor. The real risk is that the high polit­ical spender will also over­charge the state for its finan­cial services. Instead, from the citizen’s point of view, these deals should be done by the entity that will charge the state the least to bring their bonds to market or the best return on the state’s pension port­fo­lio.

But wait, are these SEC rules even consti­tu­tional? In a word: yes. The muni­cipal bond rule was upheld by the D.C. Circuit more than 20 years ago in a case called Blount. The public pension fund rule was also chal­lenged but that effort failed because the lawyers filed it in the wrong court. 

As I wrote both in my book, Corpor­ate Citizen?, and in this law review article, the SEC rules are strict and some of the most effect­ive means for battling pay to play. The SEC rules are followed because the agency is the gate­keeper for the U.S. finan­cial markets. This effect­ive­ness is one reason why so many people (over 1.2 million) have looked to the SEC to end dark money from publicly traded compan­ies through Peti­tion File No. 4–637. But the SEC has not acted to end dark money and so there has been in excess of $600 million in dark money in federal elec­tions since Citizens United.

So what’s stop­ping the SEC from taking steps to reveal dark money? Congress, for one, is rais­ing obstacles. Before it went on summer vaca­tion, the House passed a bill prohib­it­ing the SEC from work­ing on a dark money rule. I wonder why? Could it be they are fond of dark money over at the Capitol? For now, the chances of the SEC tack­ling the dark money prob­lem soon looks bleak.

But in the mean­time, the SEC still has its anti-pay-to-play rules which at least helps curb the most rank quid pro quos from swamp­ing the pres­id­en­tial campaign. In an increas­ingly dereg­u­lated campaign finance envir­on­ment, these rules deserve praise.

(Photo: Getty)