Feds Rule Candidate Leadership PAC ‘Slush Funds’ Are Legal

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In a decision that critics are calling “pathetic,” “troubling,” and “unfortunate,” with “limitless potential for corruption,” the country’s election regulators have for the first time explicitly authorized personal slush funds for politicians.

Slipped into a comparatively innocuous Federal Election Commission ruling published last week, the decision revolved around rent payments from former Republican congressman Lou Barletta’s leadership PAC (LOU PAC) to his wife.

That particular arrangement appears quite likely within the law, according to legal experts. But in dismissing the complaint, a majority of four commissioners also took the opportunity to make a far more sweeping statement, officially articulating for the first time that leadership PACs—long derided as personal slush funds—are entirely exempt from the ban on personal use.

In the analysis, the FEC wrote explicitly that “the prohibition against personal use applies only to the ‘use of funds in a campaign account of a present or former candidate.’”

The agency kicked the matter to Congress, writing that “absent a change in Commission regulations, the personal use prohibition is inapplicable to LOU PAC because it is not an authorized candidate committee.”

Leadership PACs are a unique type of fundraising committee. While they’re not officially “authorized” committees, they are directly sponsored by candidates and officeholders. The original idea was to give politicians a way to support allies without exceeding contribution limits.

But many candidates have also tapped their LPACs to bankroll what appear to be personal expenses, treating themselves to luxury vacations, fine meals, even trips to Disney theme parks.

Despite their notoriety, these committees have only grown more popular in recent years, with some candidates taking advantage before they’re even elected—see Rep. George Santos (R-NY), or failed GOP Senate hopeful Dr. Mehmet Oz. Perhaps the most well-known example is former President Donald Trump, who created his “Save America” leadership PAC shortly after losing the 2020 election.

Trump then raised tens of millions of dollars for that PAC on the back of misleading claims about election fraud, with many solicitations telling donors their largesse would fuel an “Election Defense Fund” that didn’t exist in the first place. In reality, Trump sent a sizable chunk of those funds to his LPAC account, putting it to a variety of uses, including expenses at his own hotels, donations to groups affiliated with former staff, and “consulting” fees to his wife’s favorite designer.

Reform groups have long clamored for the FEC to issue an official rulemaking about LPAC funds, which unlike typical PAC money are raised directly by the candidates themselves. The FEC has resisted those calls until now.

Craig Holman, head of government affairs at watchdog Public Citizen, called the ruling “pathetic,” saying the commissioners were “dancing around the law.”

“It’s a pathetic decision by the FEC,” Holman told The Daily Beast. “Leadership PACs have always been seen as slush funds, but they’ve been justified as a way politicians can raise money for other lawmakers and candidates. Now the FEC has opened a whole new can of worms and formally recognized that leadership PACs can be used for personal purposes. Any lobbyist or special interest can give money to a lawmaker to line their own pockets. That’s not what these PACs were originally designed to do, and it’s another reason they should be banned.”

Campaign finance expert Paul S. Ryan said that while LPACs have been a “sore spot” for years, the decision creates new incentives for corruption.

“One aspect of the corruption concern is that this allows someone to use money raised while they were a member of Congress to pay expenses after retirement. That creates a huge incentive to raise money while in office for later personal use,” Ryan said, noting that many officeholders retire into lobbyist jobs, where they maintain close contact with elected officials.

“This ruling represents an unfortunate and troubling deregulation, which only increases the threat of corruption,” he said.

Here’s how it all went down.

Federal law lays down a hard ban on candidates using campaign funds for their personal use. Barletta was accused of using his campaign and leadership PAC to violate that prohibition.

After losing his 2018 re-election bid, Barletta converted his campaign committee into a PAC, which inherited his leftover donor cash. The new PAC then took the money originally raised into the campaign and transferred it to his leadership PAC. The LPAC then paid monthly rent expenses to Barletta’s wife, for a property that the couple owned jointly.

The FEC ruled that the Barlettas didn’t violate regulations because they appeared to be paying fair market value for that rent. But the decision didn’t stop there. It took an extra step, saying that leadership PACs are exempt from rules against personal use.

But Barletta’s case had an additional wrinkle—he had first transferred campaign funds to his leadership PAC. That extra step, the FEC said, put the previously regulated funds beyond the reach of the law. Transparency advocates say this opened a channel for politicians to spend campaign money with impunity, both in and out of office.

The FEC voted 4-to-2, with a pair of Democratic commissioners dissenting. But the commission’s third Democrat joined the three GOP members to tip the scales—Dara Lindenbaum, a former private sector attorney whom President Joe Biden appointed to the FEC in August.

Lindenbaum told The Daily Beast she was “surprised” to have learned that the issue was “remotely controversial.”

“I try not to comment on particular matters. That said, I don’t believe this is a significant decision because it is well established that the personal use restrictions do not extend to PACs,” Lindenbaum said. “I was surprised to learn that this was a remotely controversial issue as the FEC has years of unanimous legislative recommendations asking Congress to amend the personal use restrictions to include leadership PACs.”

Campaign finance groups did not see it that way.

Saurav Ghosh, director of federal reform at bipartisan watchdog Campaign Legal Center, wondered why the commission buried a major new proclamation within a small matter.

“The corruption potential is really limitless. While this has been a something of a de facto reality for years, it’s unfortunate to see the FEC move to this formal position of a four-vote statement saying the rules don’t apply. That’s only going to encourage politicians to view these vehicles as a way to use their donors’ money to advance their own personal goals and interests,” Saurav told The Daily Beast.

He noted that the Barletta case “didn’t necessarily have to involve a statement as pronounced as the one they issued,” noting that rulings typically adhere to the language of the initial reports from the Office of General Counsel.

“This reflects an intentional statement that makes this rule official. It only adds a layer for candidates and officeholders to use these funds for improper purposes, and be assured the FEC isn’t going to take action,” Ghosh said.

Jordan Libowitz, communications director for Citizens for Responsibility and Ethics in Washington, said the FEC created an “end around” for candidates to spend campaign cash on themselves.

“This ruling says that while you can’t convert campaign money to personal use, you can just take the extra step of transferring that money to your leadership PAC, and then spend it freely on yourself,” Libowitz told The Daily Beast. “This gives candidates and officeholders a pathway to benefit personally from money raised into their campaigns. You go out, hold a fundraiser, move that money to a leadership PAC and then do what you want with it.”

The other two Democrats expressed their dissent in a joint statement last week. One of them, Commissioner Ellen Weintraub, elaborated on those points to The Daily Beast.

“The statute says that the personal use restrictions apply to contributions ‘accepted by a candidate, and any other donation received by an individual as support for activities of the individual as a holder of Federal office,’” Weintraub explained, quoting from the U.S. Code. “If money comes into a principal campaign committee, then that’s a contribution accepted by a candidate. I don’t think the money loses that characteristic when it’s transferred to a leadership PAC.”

(The ruling cited what appears to be possibly conflicting language in the Federal Election Commission Act, which defines “personal use” as “any use of funds in a campaign account of a present or former candidate.”)

Weintraub also argued that, in her view, leadership PAC contributions would also qualify as being accepted by a candidate. “Most of the folks who have leadership PACs are candidates, and donations are in support of ‘activities of the individual as a holder of Federal office.’ But a lot of people don’t see it that way,” she said.

(One of those people is GOP Commissioner Sean Cooksey, who referred The Daily Beast’s questions to an independent interpretive statement from 2021. In that statement, Cooksey wrote that the ban “does not apply to funds lawfully transferred by an authorized candidate committee after the funds have left the campaign account, and does not apply to other types of non-candidate political committees, including leadership PACs,” referring the matter back to Congress.)

But Weintraub pointed to the Ethics Reform Act of 1989 as suggesting that Congress has already expressed its intent to curtail personal use when a candidate leaves office.

“Members were previously allowed to literally pocket whatever was left in their campaign accounts, and Congress changed that,” she said.

The new ruling also passes the buck back to lawmakers, according to Brett Kappel, a campaign finance attorney at Hammon Curran.

“The FEC was considering a petition for rulemaking that would clarify that the personal use prohibition applied to leadership PACs, but that effort now appears dead,” Kappel said. “The only way this loophole will be closed will be by Congress enacting legislation.”

Libowitz viewed that as a “silver lining.” While lawmakers would have to weigh new legislation against their own personal financial incentives, he said, public pressure could change that.

“It would take an outcry from constituents and donors, who generally give because they want to get a candidate elected, not send them on vacation,” he said. “I’d wager that the average American isn’t reading opinions put out by the FEC. But they’re not going to be happy when they find out.”

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