The fact that Mitt Romney, the former Massachusetts governor who is weighing a run for president in 2012, has an active political action committee in Alabama might seem puzzling.
It is, after all, not a critical early-voting state for the Republican nomination, where these kinds of leadership PACs are often set up by potential presidential candidates.
Upon closer inspection, though, Romney's interest in Alabama snaps into focus. The state has among the most permissive campaign finance rules in the nation, allowing contributions of unlimited size from individuals and corporations.
As a result, the Alabama affiliate of Romney's federal PAC, Free and Strong America, has raised more than $440,000 this year, with many of the contributions amounting to tens of thousands of dollars each.
Yet it has donated $21,500 — less than 5 percent of what it has raised — to state and local candidates in Alabama, for which these state PACs are ostensibly intended. (The PAC also contributed $3,500 to Nikki Haley's successful campaign for governor in South Carolina.)
Instead, a vast majority of the just over $300,000 Romney's Alabama PAC has reported spending this year has been directed back to the Boston headquarters of Free and Strong America, paying for, among other expenses, a significant part of the salaries of Romney's political staff, who will almost certainly form the core of his presidential campaign if he decides to run.
The financing Romney has used, leaning on not only his Alabama PAC but also on similar vehicles in other states, allows him to tiptoe around federal campaign finance limits. It also illustrates how potential candidates willing to be creative with the nation's Rube Goldberg-like campaign finance system can manipulate it to their greatest benefit — and Romney has been by far the most assertive in this approach among those believed to be weighing bids for the Republican nomination.
Leadership PACs cannot, by law, be used to finance a presidential run, but they can distribute money to other candidates, help pay for travel and even finance the nucleus of a political operation. In the process, the PACs must be careful not to cross over into actually footing the bill for a presidential candidacy.
Romney is testing these limitations, as are other potential 2012 contenders, like Gov. Tim Pawlenty of Minnesota, who has set up state PACs in Iowa and New Hampshire, along with a federal PAC. But Romney has gone further in squeezing maximum legal advantage in other areas.
It is generally illegal for a state-based PAC, like Romney's Alabama affiliate, to finance activity geared toward federal elections. In other words, money raised by the state PAC is not supposed to be used for work on federal races, as opposed to contests at the state and local level.
In his filings with the election commission, Romney is essentially contending that his leadership PAC's work is divided evenly between federal and non-federal election activities and that the financing of administrative expenses is accordingly divided between the state and federal PACs.
As a result, for example, roughly half the salary of Eric Fehrnstrom, a senior adviser to Romney who was his traveling press secretary in his 2008 presidential run, is paid for by the federal PAC, while the rest is divided up by the state-based PACs Romney has set up in Alabama, Iowa, Michigan, New Hampshire and South Carolina.
Not surprisingly, the PACs in the three states that do not cap donations to these kinds of organizations — Alabama, Iowa and Michigan — pay the largest parts of Fehrnstrom's salary, as well other expenses of the federal committee, with the Alabama PAC assuming the biggest share.
The Alabama entity has covered a little less than 20 percent of Fehrnstrom's salary, which has totaled about $75,000, according to the most recent campaign finance filings available. It has provided a similar percentage of the roughly $50,000 that the PACs have reported paying this year to Matt Rhoades, the group's executive director who was the 2008 Romney campaign's research director, and paid Beth Myers, formerly Romney's campaign manager, about 13 percent of the more than $75,000 in consulting fees she has taken in this year. Romney's federal PAC has covered about 50 percent of their salaries, with the state PACs taking on the rest.
In all, the state PACs have funneled more than $600,000 into Romney's federal PAC, paying for half of the organization's legal fees this year, which totaled $84,000; they have paid about 50 percent of the PAC's office supply budget, which came to $4,000; they even picked up the tab on half of the $560 the PAC spent for paper shredding.
Yet only about a third of the $1.1 million Romney's PACs have together contributed to candidates has gone to those at the state or local level. By that indicator at least, Romney's PACs appear decidedly more focused on federal races. Romney's advisers, however, point out that about half the candidates they have supported have been in state and local races.
Regardless, the election commission tends to give committees the benefit of the doubt on these kinds of questions, campaign finance lawyers said.
"As a practical matter, they're not going to question it," said Lawrence Noble, a former general counsel for the election commission and a lawyer at Skadden, Arps, Slate, Meagher & Flom.
And Ben Ginsberg, the lawyer for Romney's PAC, said that Romney had been doing this for several election cycles and that the election commission has never challenged the way the committee allocated its expenses.
"It's what the law allows us to do," Ginsberg said.
The use of leadership PACs by potential presidential candidates is not new, but the elaborate architecture of state and federal PACs Romney has set up is unusual, campaign finance lawyers said. Romney leaned on a similar setup ahead of his last presidential run as well.
Having the state PACs subsidize a significant part of his federal PAC's expenses enables Romney to maintain a larger political operation in Boston than he could if he were restricted to the capped donations his federal committee can accept.
The offloading of expenses on the state PACs also allows Romney's federal PAC to be more generous with the money it distributes to federal candidates, who might be counted on for favors down the road.
Romney's committees in the three states that do not restrict donations to these kinds of organizations, essentially gives him a flexible pot of "soft money" — or unregulated contributions — before he formally decides to run and becomes subject to strict federal limits on political donations.
Indeed, a number of megadonors have written checks to Romney's various PACs that total in the realm of $100,000.
Together, the state PACs have reported raising about $1.5 million in contributions this year, while the federal PAC has collected $4.2 million.