Dean Group Backs Warren For Senate

A prominent progressive advocacy group associated with former presidential hopeful Howard Dean is backing Elizabeth Warren's surging campaign for Senate from Massachusetts.

Democracy For America (DFA) emailed supporters Friday, seeking $12 donations on behalf of Warren's bid to oppose Republican Sen. Scott Brown.

"She is exactly the sort of person we need fighting for us in Washington everyday and we need to have her back in this Senate race in Massachusetts. Republican Scott Brown has a $10 million war chest and big banks will go to the mat to keep a real progressive like Warren out of the Senate," says Jim Dean, Howard Dean's brother and chairman of DFA, the organization built from Howard Dean's unsuccessful 2004 bid for the White House.

Known previously as a dogged consumer advocate and adviser for the Obama administration in helping to establish the new federal Consumer Financial Protection Bureau, Warren now is campaigning for the Democratic nomination to take on Brown in next year's election.

Warren recently has attracted national attention for a popular online video in which she forcefully rebuts GOP charges of "class warfare" made against proposed tax increases on the wealthiest American taxpayers.

Although initially trailing Brown, Warren erased a 15-point deficit and has taken a small lead in a recent poll.

Initially elected early last year in a special election to fill the unexpired term of the late Sen. Ted Kennedy (D-Mass.), Brown now must compete for his own first full six-year term. Powered largely by tea party support at the time, Brown is the first Republican elected to the Senate from Massachusetts in a generation.

Warren is not the only Massachusetts Democrat looking to oppose Brown, however. Others include Alan Khazei, the co-founder of the City Year youth program; Rep. Michael Capuano; Rep. Stephen Lynch; first-term Newton Mayor Setti Warren; businessman Robert Pozen; and Robert Massie, a former candidate for lieutenant governor.

Elizabeth Warren is by far the favorite of DFA supporters, according to Jim Dean.

"When we asked our Massachusetts members who they supported for Senate, the answer was loud and clear -- 90 percent of DFA members said they supported Elizabeth Warren," he says.

"There's a movement in Massachusetts to elect Elizabeth and it's about more than taking back a Senate seat -- it's about electing someone who will get America working for regular folks again and hold big banks, insurance companies and Wall Street accountable for their actions," he adds. "Electing Elizabeth is a huge step towards getting Americans back to work and rebuilding the middle class."

Democrats have just a four-seat majority in the current Senate, and will be defending more than twice the number of Senate seats in next year's election.



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Literally Betting On High Unemployment

While most Americans will be hoping next week's federal unemployment report for September delivers some glimmer of improvement for the nation's grim jobs picture, others could be literally betting on the opposite to be true.

Millions of Americans may be out of work and struggling to make ends meet, but an outfit in the U.K. called City Index, which describes itself as a "spread betting provider" says it will be offering "one point spreads on a number of key markets to help traders take advantage of the anticipated volatility" in various global financial markets following the release of the Labor Department's anticipated October 7 release of U.S. employment data.

Betting on the outcome of U.S. employment data falls within an obscure form financial derivatives known as a "contract for difference," or CFD.

City Index says it has everything you need to bet right here.

Not likely to be participating, however, are the 14 million Americans currently unemployed and looking for work, including the 6 million locked in the fright of long-term unemployment, those who have been looking for work for 27 weeks or longer. Finding a job remains painfully difficult. The share of the population with a job, which plummeted in the recession from 62.7 percent in December 2007 to levels last seen in the mid-1980s, was 58.2 percent in August and has not been above 58.5 percent in 15 months, according to data from the Center for Budget and Policy Priorities, a Washington think tank.

The unemployed aren't likely to be worried, however, about what the September unemployment figures mean for Wall Street, the U.S. dollar, or the Euro. These folks will be more concerned with paying the rent, keeping the lights on another month, and when and if their meager unemployment benefits will run dry.

Still, City Index offers this helpful disclaimer: "Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks."

That's good advice -- if you're lucky enough to have the cash to spare in the first place.

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Wall Street Protesters To Move On To Mass., Take On Bank of America

The demonstrations which have engulfed Wall Street are moving north.

After more than a week of protests in New York against major financial institutions and the role they played in the 2008 financial crisis and subsequent economic meltdown, more than 1,000 people will be in Boston on Friday to march on the headquarters of Bank of America headquarters, according to organizers.

The action in Boston is organized by The New Bottom Line, a nationwide coalition of 1,000 faith-based and community organizations that seeks to hold Wall Street accountable. They are distinct from, but share many of the goals of, the demonstrations known as "Occupy Wall Street," according to organizers.

The Wall Street protests, which have been marked by incidents of police brutality, have attracted the involvement of activist filmmaker Michael Moore and actress Susan Sarandon.

“I’m sitting-in at Bank of America so that my neighbors, and me, can stay in our homes,” says protester Presley Obasohan, who is fighting foreclosure by Bank of America.

Obasohan is underwater on his loan for his home in Boston's working-class Dorchester neighborhood, where building values have sunk to half or less of mortgage loan debt, according to protest organizers. “So many people have been thrown out of their homes or lost their jobs needlessly because of mistakes made by Wall Street banks. Yet it’s the banks who are now rewarded with billions in tax refunds.”

Bank of America and its consumer practices have come under intense scrutiny. The bank is the target of a widened lawsuit by the state of Nevada against virtually all of its mortgage operations.

Some 61 percent of Bank of America’s subprime mortgages were concentrated in poor and majority-minority neighborhoods, revealing a pattern of pushing bad loans on minority and poor consumers, protest organizers contend.

“Across the country, we are seeing the same story: The mortgage bubble created by Wall Street pushed predatory lending on urban communities, and since the bubble burst the fall out has been catastrophic. Unemployment and foreclosure have hit communities of color first and worst,” says Rachel LaForest, executive director of the Right to the City Alliance, who is holding their national convention in Boston and leading the protest Friday. “But it is urban communities who are at the forefront of the movement to fight back. We are gathering here in Boston to strategize and develop real economic solutions for 21st century cities.”

The rally will begin on Boston Common with comments by local and national leaders from the Right to the City Alliance and Boston community groups who called for Friday’s action. The march is scheduled to begin at 3:30 p.m.



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Dem Video Exposes Lack Of GOP Leadership

The Democratic National Committee (DNC) has put together an online video which it says demonstrates the dearth of leadership demonstrated by all of the 2012 Republican candidates for president.

The video, titled "Not One Candidate," pulls together some of the most startling moments of the recent GOP presidential debates. These include such moments at the encounters as the audience cheering Texas Gov. Rick Perry's long string of executions in the Lone Star State. Another instance included the crowd chanting their support of letting an uninsured man die, and yet another when they booed an active-duty gay soldier.

In each case, the DNC notes, all of the Republican candidates on stage were silent.

"None of them spoke up to admonish the crowd and call for civility," the DNC says in a blog post. "Or as the Concord Monitor put it: 'Not one candidate, in situations that cried out for leadership, exhibited leadership.'"



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Big Oil’s Mountain of Cash: Oil Companies Cling to Tax Breaks While Hoarding Tens of Billions

This article was published by the Center for American Progress.

By Daniel J. Weiss, Valeri Vasquez

View Big Oil's cash assets and profits (.xls)

On September 19 President Barack Obama announced his plan to reduce the deficit by $4 trillion over the next 12 years, including raising $1.5 trillion by closing special interest loopholes and other revenue raisers. This includes eliminating $41 billion in tax loopholes for the oil and gas industry (p. 63) over the next decade.

Big Oil is predictably opposed to losing its unnecessary tax breaks. The American Petroleum Institute, or API, the oil industry’s lobbying muscle, quickly claimed that “the Administration plan would hurt jobs and investment.”

But this claim ignores the fact that the big five oil companies—BP, Chevron, ConocoPhilips, ExxonMobil, and Shell—have ample financial resources that dwarf the value of these tax breaks. These companies enjoy billions in cash reserves, made nearly $1 trillion in profits over the past decade, and at least one company (ExxonMobil) pays a lower effective tax rate than the average American family.

In other words, Big Oil can readily afford to contribute its “fair share” to reduce America’s debt.

A Federal Reserve report released this month documented the massive cash reserves held by American corporations. The Wall Street Journal reported:

Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century, as businesses build up buffers rather than invest in new plants or hiring.

Nonfinancial companies held more than $2 trillion in cash and other liquid assets at the end of June, the Federal Reserve reported Friday, up more than $88 billion from the end of March. Cash accounted for 7.1% of all company assets, everything from buildings to bonds, the highest level since 1963.

The big five oil companies are among those corporations that amassed huge cash reserves. In fact, a CAP analysis of company Security and Exchange Commission filings determined that the three largest American oil companies—Chevron, ConocoPhillips, and ExxonMobil—had $27 billion in cash or equivalent assets as of midyear 2011.

BP and Shell, the two largest foreign oil companies that operate in the United States, had combined cash reserves of nearly $32 billion at the end of last year (the latest data available). Added together, these five companies are sitting on cash resources of $59 billion, which is 30 times more than the estimated $2 billion in annual tax breaks that these companies receive.

The past decade was very prosperous for the big five oil companies due in part to high oil prices, including the record of $147 per barrel in July 2008. A CAP assessment determined that these companies made more than $900 billion in profit from 2001 to 2010. High oil prices this year earned them a whopping $67 billion in six months. These funds come from the pockets of American drivers forced to pay up to $4 per gallon for gasoline.

At this rate, Big Oil could easily exceed $100 billion in profits for 2011. Why can’t these companies afford to forgo $2 billion annually in taxpayers’ money?

On September 19 President Obama implored wealthy individuals and corporations to help reduce the deficit, too:

Those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible. We shouldn’t get a better deal than ordinary families get.

Yet at least one oil company, ExxonMobil, has a much better deal than ordinary families. It made $310 billion in profits over the past decade and another $21 billion in the first six months of 2011 alone. A Washington Post expose based on a CAP analysis, however, found that ExxonMobil had a lower effective tax rate than the typical middle-class family. ExxonMobil’s effective tax rate was 18 percent while average households pay 21 percent—15 percent more than Exxon’s tax rate.

The Post determined that these tax loopholes “have helped make the oil industry one of the most profitable, when measured by cash flow and return on investment.”

API claims that Big Oil needs the tax loopholes to create jobs and make investments. But are the big five oil companies investing these funds in job creation or clean energy? The evidence says no.

“Profits and Pink Slips: How Big Oil and Gas Companies Are Not Creating U.S. Jobs or Paying Their Fair Share,” by the House Natural Resources Committee Democrats, determined that Big Oil companies shed jobs over the last five years:

Despite generating $546 billion in profits between 2005 and 2010, ExxonMobil, Chevron, Shell, and BP combined to reduce their U.S. workforce by 11,200 employees over that time.

Just in 2010 alone, the big 5 oil companies reduced their global workforce by a combined 4,400 employees, while making a combined $73 billion in profits.

So if the big five companies aren’t hiring additional workers, are they investing in research and development? The Congressional Research Service found that the companies invested relatively little in overall research and development: “Total R&D expenditure of the five [largest oil] firms in 2010 was $3.6 billion.” This was just 4.7 percent of their $76 billion in profits.

The CRS noted that “it is difficult to determine how much of the R&D spending … was spent on green R&D projects from data published by the oil majors themselves.” These investments would provide financial and energy security for Americans in the grip of the volatile global petroleum market and help mitigate the climate change driven by fossil fuel consumption. But it did compile the information on alternative fuels and clean-tech investments provided by the big five companies to the Senate Finance Committee for a May hearing on Oil and Gas Tax Incentives and Rising Energy Prices. It appears that these companies spent a miserly 1.2 percent on alternative fuels and clean-tech research in 2010. (see table below)

This finding confirms a 2009 CAP analysis that determined these companies devoted a mere 4 percent of their collective 2008 earnings to clean-tech research and development. That year was their second-highest profit level.

Clearly the big five oil companies are not investing their huge profits in hiring workers or conducting alternative fuels research and development. Instead, many of these companies use their profits to buy back their own stock, an action that enriches their board of directors, senior executives, and shareholders.

These companies spent slightly more than one quarter of their profits on stock buybacks in the first half of 2011. This dwarfs the previous year’s investment in research and development. (see attached Excel spreadsheet) Yet the big five oil companies still claw to keep $20 billion worth of tax breaks.

President Obama has posed stark choices to reduce the federal budget deficit:

Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.

Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.

He proposed that the big five oil companies contribute $20 billion over a decade since these extraordinarily rich companies hold billions of dollars in cash reserves, made nearly $1 trillion in profits, and the biggest of them pays a lower effective federal tax rate than the average American family.

It’s up to Congress to support seniors, students, workers, and middle-class families instead of genuflecting to Big Oil companies and their lobbyists once again.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy and Valeri Vasquez is a Special Assistant for Energy at American Progress.

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Senator Comes To Postal Service Rescue

Declaring "that in many small towns in Vermont, post offices are more than just post offices-in many cases, they are the heart and soul of the town," Sen. Bernie Sanders joined a burgeoning effort among Democrats and progressives to save the struggling U.S. Postal Service.

Speaking at a postal rally in his home state, the left-leaning independent says he will host a meeting next week with Postal Service union leaders and other experts to help him draft legislation to keep the mail service running into the future.

Sanders' effort in the Senate will join work already underway in the House, where Democrats already have introduced comprehensive legislation to address the Postal Service’s current financial challenges and make innovative structural changes to enable it to continue to deliver for decades.

These lawmakers all agree changes must be made at the Postal Service, but they also point to a 2006 law enacted by Republicans which requires the Postal Service to make a huge, $5.5 billion to its retiree health fund, as a cause of its impending financial collapse.

“Ever since that bill became effective, we’ve been in the red,” says Fran Owens, an eastern region representative with the American Postal Workers Union. “All that we need is for that payment to go away.”

No other government agency faces such an onerous requirement, says Sanders. In fact, only one-third of Fortune 1000 companies pre-fund their health benefits, let alone in such an aggressive and expensive way, he adds.

"Should we be making changes in the postal service? I believe we should. But at a time of 16 percent real unemployment, do we want to add more than 100,000 to the unemployment rolls? Absolutely not!" Sanders told the rally.

As a first step, Sanders says, legal barriers to Postal Service modernization should be lifted to let it compete with commercial rivals and set up new lines of business.

"There is no need to eliminate six-day delivery, there is no need to close down post offices in Vermont and across the country, and there is certainly no need to lay off more than 100,000 workers," Sanders says. "We can solve this problem in a better way. We can solve it by allowing the Post Office to recover the overpayments it has made in its pension and retiree health benefits fund and by allowing the Post Office to adapt to the modern world. If we do those things, the post office will survive, and it will continue to be an institution as strong as it has always been."

Reps. Elijah Cummings (D-Md.) and Stephen Lynch (D-Mass.) recently introduced “The Innovate to Deliver Act.” It, too, would encourage new lines of business, but it also would reform that big benefits pre-payment structure to avoid an impending default.

“We, as Democrats, realize that changes are necessary and we have embraced that in this legislation,” Lynch says. “However, we also insist that there are responsible ways to reform the Postal Service while protecting the interests of postal customers, employees and retirees. This legislation is part of the comprehensive reform that the Postal Service needs in order to improve its long-term financial viability without sacrificing customer service or placing undue burden on our dedicated postal employees.”

Republicans, however, are pushing a different approach. Rep. Darrell Issa of California, chairman of the House Oversight and Government Reform Committee, reportedly is co-sponsoring a separate bill that would create a financial control board to overhaul USPS finances —- and force potential layoffs.



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Race and Beyond: The Value of National Service

This article was published by the Center for American Progress.

By Sam Fulwood III

Almost from the moment our plane landed in Tel Aviv, Israel, I was aware of the soldiers in olive drab uniforms. They seemed ubiquitous, reminiscent of the kudzu I knew to grow and root all over the landscape of my native North Carolina. Set against the tan, desert landscape, the greenery was human—and always with an automatic rifle slung over a shoulder.

But it was during a midnight walk in a Jerusalem park late into my first, jet-lagged night that I was first awed by them. There, a group of the soldiers came up behind us as we looked down into the Old City below. Chatting and laughing among themselves, at first they didn’t see the group of American tourists. But as they drew closer to us, one shushed the other to stop their noisy merriment. I assumed it was a sign of respect to us.

And that’s when I noticed how very young the soldiers were. Kids, actually, little more than postpubescent, it seemed to me, carrying such fearsome-looking weapons.

“You know,” I remarked to someone in my party, “if a group of teenagers with those guns came up on me like that in a downtown park in Washington, D.C., I’d have run away.”

“No, you wouldn’t,” said my traveling companion. “If they’d come up on you like that, it would have been too late to run,” he quipped.

For all the seemingly intractable domestic politics and impossible international conflicts that dominated the conversations I had while in Israel, I returned home with one absolute: We need a form of youth-oriented, national service in this country. Of course, there’s a world of difference between the two countries that prevents this issue and many others from being directly fungible. But it’s something we should take seriously and find a way to adapt to life in this country as well.

Unlike young people in the United States, Israeli youths come of age with an overarching sense of insecurity that comes in the wake of repeated wars and acts of terrorism. The country is small and surrounded by political enemies. Young people grow up faster and are more politically aware and—dare I say—politically involved than their counterparts in the United States because the obligations to their nation are real and practical.

From the beginning of the country in 1948, the government set up its military to conscript every 18-year-old and obligate the males to serve three years and females to serve two years in the Israeli Defense Forces. For the most part, there’s no getting around it. Rich or poor, all Israeli citizens muster into the IDF. Typically, college enrollment is delayed until the service commitment is fully paid. (A notable exception, however, does allow very religious Orthodox Jews and some Arab Israelis to opt out.)

Here in the United States, where the draft ended in 1973 when President Richard Nixon allowed it to expire, an 18-year-old has no statutory obligation to serve his or her nation. Absent a pressing need to serve their country or fellow citizens, young Americans often feel adrift in the relative comforts of a consumerist culture driven more by video games, Facebook, and cell phone texting. Increasingly, the high costs associated with college tuition makes the dilatory retreat onto a campus difficult to impossible. And the prolonged downturn of the nation’s economy renders life-supporting work all but impossible for young people to find.

But that’s not to say young Americans aren’t patriotic or unwilling to be of service. Quite the contrary, as a host of federal service programs have offered young people an opportunity to give back to their community and nation.

All that’s necessary is for someone to ask, as President John F. Kennedy did in 1961 with the establishment of the Peace Corps. Similarly, President Lyndon Johnson created Volunteers in Service to America, or VISTA, to help fight the war on poverty. VISTA is now a part of AmeriCorps, a program that sprang out of President Bill Clinton’s enactment of the National and Community Service Trust Act of 1993. Since 9/11, still more youth-oriented volunteer programs came into being such as President George W. Bush’s U.S.A. Freedom Corps.

These programs suggest that if the demand is made, young people will rise up to the cause. But someone has to ask.

My colleagues Melissa Boteach, Joy Moses, and Shirley Sagawa wrote that federal investments in national service programs are an important way for Congress and the Obama administration to tackle high unemployment and growing poverty across the United States.

More recently, Sagawa, a national expert on national service and a Visiting Fellow at the Center for American Progress, lamented the fact that this year’s budget compromise failed to accommodate scheduled growth in vital national service programs.

“Instead, the FY 2011 budget cut thousands of national service positions, leaving many outstanding organizations with fewer resources than they need and other deserving organizations with no AmeriCorps grants program, VISTA, and National Civilian Community Corps, all of which are funded under the Serve America Act,” she wrote.

When right-wingers in Congress succeed in underfunding vital programs that encourage young people to give back to their nation, it sends a chilling message. Worse, it tells young people that their service to the nation isn’t really needed or wanted. Perhaps that’s why I would be not too pleased to run into an 18-year-old with an automatic gun at midnight in this country, but thought nothing at all of it while traveling in a foreign land.

Sam Fulwood III is a Senior Fellow at the Center for American Progress and Director of the CAP Leadership Institute. His work with the Center's Progress 2050 project examines the impact of policies on the nation when there will be no clear racial or ethnic majority by the year 2050.

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Capitol Idea: Will Obama Get Re-elected? Don’t Just Watch The Polls; Instead, Follow The Money

By Scott Nance

Love him or hate him, you probably want to know whether Barack Obama will be re-elected to a second term next year.

One might turn to the endless stream of opinion polls — which increasingly have been spelling doom and gloom for the president’s 2012 prospects.

Beware of these polls, however, especially this far out from an election.

They can shift dramatically, in a fairly short of period of time.

Just ask Scott Brown.

The first Massachusetts Republican elected to the Senate in a generation, Brown was riding high just weeks ago. The polls had him beating all potential opponents, including Democrat Elizabeth Warren.

Now that Warren has begun her campaign in earnest, however, she recently took a small lead over the incumbent.

This is not to say Brown is certainly headed for defeat. Rather, because opinion polls can tilt this way and that, they aren’t necessarily the best predictor at this time.

To get a clearer picture of Obama’s chances to hold the White House, you need to follow the money. Instead of the polls, watch the president’s fundraising.

Barack Obama is a campaign fundraising titan, hauling in a record $750 million in 2008. His campaign officials have suggested they want to do better for 2012, and Obama could become the first presidential candidate to raise $1 billion.

He’s already gotten off to a good start. He brought in $86 million just in the second quarter of this year alone, setting another record.

It also was much more than the $35 million combined that all of his potential Republican rivals raised during the same period.

It’s also important to note that most of that $86 million came not from wealthy contributors, but rather from small-dollar donors. The average contribution was $69.

So this is Obama’s baseline. This is a good time to return to watching his fundraising because the deadline for third-quarter fundraising is Friday.

Of course, you can compare Obama’s numbers to those of his GOP opponents in absolute dollar terms to see how they stack up. Does Obama stay way out ahead, or do the Republicans start closing the money gap?

But as the numbers come in, you can start asking other questions, too.

For instance, the Obama campaign reported 552,462 donors in the second quarter. Does that figure go up, or down in the third?

How the president stacks up against the Republicans will be important, but even if he holds a commanding lead, that’s not necessarily the determining factor.

That’s because even if the Republican nominee is behind in fundraising, the fact is that there will be enough outside “super PACs” and other groups ready to jump in and help fill the gap with their own attack ads.

Instead, it will be more important to watch the internals of the Obama fundraising.

Do his supporters continue to show the same commitment to the campaign, quarter after quarter? Do they remain sufficiently confident, or at least hopeful, of an Obama win that they are willing, in the parlance of Obama 2012 campaign manager Jim Messina to continue “to own a piece of this campaign”? Or do they jump ship by closing their wallets?

That level of enthusiasm will say much about whether Barack Obama will once again be taking the oath of office.

By watching these numbers unfold through the campaign, you will have an understanding of where the president stands that is deeper than whatever the polls written in quicksand proclaim at any given moment.

Scott Nance has covered Congress and the federal government for more than a decade. Capitol Idea is his regular column from Washington. This article was first published as “Will Obama Get Re-elected? Don’t Just Watch The Polls; Instead, Follow The Money” on Blogcritics.

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In a First, SEC Warns Rating Agency It May Bring Financial Crisis Lawsuit

by Marian Wang, ProPublica

Though they’ve been faulted for their central role in the financial crisis, the major credit-ratings agencies have thus far weathered the fallout of the crisis with no sanctions from federal regulators and little more than a bruised reputation.

But that could change soon.

In a formal warning known as a Wells notice, the Securities and Exchange Commission informed credit-ratings firm Standard & Poor’s that it’s considering civil charges tied to the firm’s ratings of a 2007 mortgage-backed securities deal. It’s the first such warning to be given to a credit-ratings agency over matters directly related to the financial crisis.

The deal, known as Delphinus, was one of more than two-dozen collateralized debt obligations linked to the hedge fund Magnetar, whose role in creating and betting against risky CDOs was detailed in a ProPublica investigation last year. Completed in the summer of 2007, Delphinus was one of the last deals done by Magnetar and was underwritten by the Japanese bank Mizuho.Details on S&P’s potential violations are still unclear. But last year’s Senate investigation of the financial crisis may contain some hints.

The report, which blamed inaccurate ratings as “a key cause” of the financial crisis, said agencies failed to do due diligence in grading securities and too often bent to the wishes of the banks that paid them. The report also flagged Delphinus as a “striking example” of the failures of ratings agencies, noting that the CDO was downgraded “a few months after its rating was issued.” Moody’s and Fitch, S&P’s main rivals in the United States, had also rated Delphinus and had to downgrade or withdraw those ratings after it went into default in 2008.

Senate investigators also released an internal S&P email chain in which analysts discussed whether to address the fact that about two-dozen “dummy assets” in the Delphinus portfolio were swapped out at the last minute for assets that “made the portfolio worse.” (Asked during congressional testimony about the use of dummy assets, two S&P execs told lawmakers they were unfamiliar with the practice in the CDO business.)

In a statement [11] disclosing the SEC’s Wells notice, S&P’s parent company, McGraw-Hill, noted that the letter was “neither a formal allegation nor a finding of wrongdoing,” and that “S&P has been cooperating with the Commission in this matter and intends to continue to do so.” A S&P spokeswoman declined further comment.

The SEC also declined comment.

Three big banks—Goldman Sachs, JPMorgan Chase and Wells Fargo—have already settled fraud charges related to specific CDO deals, and more banks are under investigation. Mizuho, which marketed and sold Delphinus to investors, is also under investigation for a separate CDO deal involving Magnetar, as we noted last week.

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Poll: Romney, Paul Would Beat Obama

Either Mitt Romney or Ron Paul would defeat President Obama in next year's election, according to a new poll.

If Romney, a former Massachusetts governor, was the 2012 Republican nominee, he would win over Obama 53 percent to 47 percent, a new poll from the Harris polling organization says. If Rep. Ron Paul of Texas was the Republican nominee, he would beat President Obama 51 percent to 49 percent.

GOP Texas Gov. Rick Perry would lose narrowly: the president would win 51 percent to 49 percent, the poll finds.

Once the clear frontrunner for the Republican nomination, Romney is now jousting with Perry for rights to that perch. Although Paul has a devoted following, the libertarian has not been a leading contender for the nomination.

This Harris poll was conducted online within the United States between September 12 and 19, among 2,462 adults aged 18 and over.

Among Republicans, over one in five (22 percent) say they would vote for Perry while just under one in five (18 percent) would vote for Romney, the poll results say. The nearest challengers are all under 10 percent -- Paul (7 percent), former Alaska governor Sarah Palin (7 percent), and Rep. Michele Bachmann (Minn.) (7 percent). The rest of the field falls out as businessman Herman Cain (5 percent), former House Speaker Newt Gingrich (4 percent), former Utah governor Jon Huntsman (1 percent) and former senator Rick Santorum (1 percent) with over one-quarter of Republicans (28 percent) still undecided.

Among independents, who can vote in some Republican primaries, the lead changes. Romney claims the top spot (15 percent) followed by Paul (12 percent). Perry falls to third place at 11 percent with all other candidates at 6 percent or less. But, over two in five independents (43 percent) are not at all sure who they would vote for in the Republican primary.

Among conservatives, over one-third (35 percent) are still not at all sure which candidate they would vote for in a primary. One in five, however, would vote for Perry (21 percent) while 14 percent would vote for Romney. All other candidates are under 10% among Conservatives.

Looking at those who say they support the Tea Party, Perry is the top choice for one-quarter (24 percent) while 14 percent would vote for Romney and 9 percent for Paul. All other candidates are at 7 percent or less and over one-quarter (28 percent) say they are not at all sure which candidate they would vote for in the Republican primary.

"The Republican nomination is a moving target full of twists and turns. The post-mortems on debates could move the needle as could who wins a straw poll," the pollster says in an analysis accompanying the poll results. "With Herman Cain's surprise win in a Florida straw poll, will that give him a bump in the standings? Or is the Perry versus Romney story the one that dominates the standings? And, there is still talk about possible new entries into the race. In a few short months the field will be set, but at this stage fluidity is still the norm."



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IRS, U.S. Banks at Odds Over $1 Billion in Tax Credits From Barclays Deals

By Vanessa Houlder and Megan Murphy, Financial Times, and Jeff Gerth, ProPublica

This story was co-published with the Financial Times.

U.S. District Judge Patrick J. Schiltz of Minnesota is an educated man. He earned his law degree from Harvard, won a coveted clerkship for Supreme Court Justice Antonin Scalia and taught the law for more than a decade before joining the bench in 2006.But when Wells Fargo, the retail banking giant, and the U.S. Justice Department squared off in his courtroom last year over the legality of a fiendishly complicated tax scheme known as “STARS,’’ even Schiltz quickly realized he was not equipped to parse the facts.“I fear I may finally have met my match,” the judge told the court. “We may need a translator in this case, someone who can help us to understand these complex transactions and understand the complex tax laws to put this into English for us.”

He is not alone. The growth of an arcane, intellectually demanding area of high finance that generated hundreds of millions of dollars for banks and multinational companies is being dissected from Minnesota to Washington, D.C., as the U.S. government pursues what it calls tax avoidance fueled by the use of artificial foreign-tax credits.

STARS — short for “structured trust advantaged repackaged securities” — were deals between U.S. banks and Barclays, one of the U.K.’s premier banks in London, that have come under particular scrutiny in bankruptcy, tax, district and claims courts.

At issue is whether the transactions had a legitimate business purpose or were designed specifically to generate improper U.S. tax credits.

Barclays emerged as a key player in creating strategies that worked asymmetries in tax systems. In the STARS deals in question, Barclays realized at least $800 million in tax savings from the U.K. government — benefits it shared with other parties in the deals, according to an analysis of U.S. court and Internal Revenue Service documents by the Financial Times and ProPublica.

Six U.S. banks — BB&T, Bank of New York Mellon, Sovereign (now a unit of Banco Santander), Washington Mutual, Wells Fargo and Wachovia (now a Wells Fargo subsidiary) — have been battling the government over tax credits they claimed through STARS. In one instance, government lawyers said STARS permitted BB&T to claim $1 in foreign tax credits for every 50 cents in tax, “grossly exploiting the tax laws.’’

BB&T, based in North Carolina, responded in court that it participated “to maximize profits’’ and not “to avoid or evade’’ taxes.

The U.S. banks all contend their deals had economic substance because Barclays provided them with billions in financing at below-market costs. But each arrangement involved a complex set of transactions, including creation of a trust and multiple subsidiaries, which also provided significant tax breaks.

The U.S. government, in recent court filings, contends that STARS was a highly complex tax-shelter transaction used by the U.S. banks to generate foreign tax credits. In court filings, government lawyers allege that the BB&T and Wells Fargo deals were a “sham.’’ In Wells Fargo’s case, they assert that STARS was designed so the U.S. bank’s “entire economic profit would be totally and exclusively sourced from U.S. foreign tax credits.’’

Wells Fargo says in court papers that its deal with Barclays was a lawful way to obtain reduced-cost financing for its ordinary business.

The U.S. banks involved in pending cases declined to comment. Washington Mutual has settled, agreeing in bankruptcy court last year to forgo $160 million in claimed tax credits. The other U.S. banks are seeking repayment for disallowed tax credits totaling more than $1 billion.

Barclays is not a party to the cases and declined to discuss client matters or comment on its U.K. tax savings. "Barclays complies with taxation laws in the U.K. and all the countries where we do business,'' the bank said in a statement Sunday.

U.S. and British tax officials also declined to discuss individual cases, saying it is forbidden by law. There is no sign that British authorities are challenging STARS deals, and the U.K. appears to have had a net tax benefit from them. One court filing by Bank of New York Mellon says: “Barclays’ transaction structure was reviewed by the U.K. taxing authority.”

Revelations about the deals arise amid a broader political debate about corporate taxes and the ability of U.S. companies to compete globally.

As the 2012 election year looms, President Barack Obama is facing direct challenges from Republicans about how best to reduce the U.S. corporate tax rate — at 35 percent, one of the highest in the world — and why U.S. businesses hold an estimated $1.8 trillion in profits overseas.

The law allows U.S. corporations to defer paying taxes on profits earned elsewhere until they are brought home.

The STARS cases are a high-stakes battle for the IRS, particularly because the tax agency and the Treasury Department gave notice in 1997 that they would issue more regulations on foreign tax credits to curb “abusive tax-motivated transactions.’’ But the IRS and Treasury Department never issued new regulations and in 2004 withdrew the earlier notice.

Participants in the market say they believed the government was signaling then that it would not challenge such deals. So, when the Treasury Department and IRS proposed new regulations in 2007 and the IRS began turning down tax credits, companies were caught unawares.

The STARS disputes have produced a vast number of court documents that offer rarely seen details about the world of tax arbitrage — deals that look to maximize profits by exploiting differences in countries’ tax systems.

More than three-dozen bankers, lawyers and accountants interviewed by the Financial Times and ProPublica would not speak publicly about transactions involving foreign tax credits, saying that to do so could jeopardize their jobs. But all characterized their work on such deals as legitimate and a sort of “cat-and-mouse" exercise: Revenue authorities would close a loophole, and financiers would look for another.

“Bankers looked on it as something to make money with. Young lawyers and accountants looked on it as a game,” one British lawyer directly involved in such deals said. “It is not hard to fool the parliamentary draftsmen.”

How the STARS deals worked

Foreign tax credits are designed in U.S. law to prevent double taxation of companies that do business overseas. Because U.S. companies are taxed on their worldwide income, they are allowed to claim a credit for taxes paid to foreign jurisdictions to keep their tax bills neutral.

But foreign tax credits have long been open to abuse.

In STARS cases, for example, the government contends that U.S. companies pursued “foreign tax-credit generator" schemes to take reap credits even when there was no double-taxation. The tax agency is also pursuing cases involving non-STARS transactions in which companies indirectly borrowed funds from a foreign bank and received tax credits.

Such deals have wound down because of investigations and enhanced regulation and because the global credit crisis changed attitudes toward risk. But a look back at STARS reveals how the deals were born and the zeal of those financiers who have been — and continue to be — eager to push the boundaries of structured finance.

The U.K.-U.S. transactions were crafted with a certain degree of confidence and ease during the heady days of the mid-1990s, when financial firms on both sides of the Atlantic saw the potential for savings, said one participant.

“The U.K. equivalent of a foreign tax-credit generator scheme was a partnership deal," he said. “What the U.S. calls foreign tax credit, we call double tax relief. What made the U.S.-U.K. deals so attractive were the English language, a foreign tax-credit system and the rules-based legal system."

Court documents and an IRS legal analysis of one transaction reviewed by the Financial Times and ProPublica show STARS deals generally work like this:

A U.S. bank transfers several billion dollars in income-producing assets to a trust and sets up a subsidiary as trustee in Britain. The bank sells shares in the trust to Barclays but promises to buy them back after a set number of years.

Barclays agrees to provide financing to the U.S. bank for less than the bank’s normal cost of credit, and it routes the money through the trust.

The banks say this structure at its core is simply a low-cost, secured loan. But the IRS says STARS went too far, creating a circular set of transactions that are principally designed to generate artificial tax benefits.

The U.S. bank’s trustee pays British tax on the trust earnings and claims a corresponding U.S. tax credit. Barclays pays some tax as well, but the arrangement also allows the U.K. bank an even larger tax benefit.

That’s because Barclays' shares give it rights to nearly all the trust income, which the British bank is required to immediately reinvest in the trust. Barclays can deduct this reinvestment as an expense, reducing its U.K. taxes.

Barclays used part of the tax savings to discount the U.S. banks’ borrowing costs and kept the rest. In court filings, BB&T calls this discount an “offset," while government lawyers call it a “kickback" from Barclays. When the deal expires, Barclays is repaid in exchange for the trust shares.

The STARS deals varied, but Barclays' financing was always attractive. Sovereign says Barclays offered a loan as much as 3.35 percentage points below normal cost in 2003. BB&T received $1.5 billion at 2.9 percentage points below normal cost in a five-year deal that began in 2002.

Wells Fargo, which received $1.25 billion at 2.50 percentage points below normal cost in 2002, told Judge Schiltz that the Barclays deal saved it “millions of dollars in interest expense each year."

Other financial firms also participated in structured-finance deals. Barclays is presented in court files as the pivotal marketer of STARS to U.S. banks.

Court documents show Barclays worked at times with the global auditing firm KPMG; in one case, KPMG, the accounting firm Ernst & Young and the law firm Sidley Austin are described as having been involved in the design, development and marketing of the transaction. None of the three firms is the focus of an IRS challenge, and all declined to comment.

In the past decade, Barclays was known for a bold approach to tax arbitrage. The British bank's structured-finance team was considered among the most aggressive of international moneymakers.

Its Structured Capital Markets unit was led in the 1990s by Roger Jenkins, whose focus on corporate tax planning reportedly made him one of London’s highest-paid bankers. Iain Abrahams, who joined the investing arm of the bank in 1995, was considered the wizard behind the deals, according to a half-dozen people who worked with or did business with him.

Abrahams remains a senior executive at Barclays Capital; Jenkins left in 2009. The government is seeking depositions from at least seven Barclays employees, court files show. The bank would make no employee available for an interview. Jenkins also declined to comment.

'It became a cozy world'

The IRS and some of its counterparts elsewhere were unaware for years that banks and other financial firms were relying so heavily on foreign tax credits, bankers and officials said in interviews.

American International Group, better known as AIG, is characterized as a pioneer in structuring transactions with foreign tax credits, arranging deals as early as 1993, according to court documents.

At the helm of its development unit was a young Joseph Cassano, the same financier who headed the AIG finance unit that imploded in 2008. Companies such as Hewlett-Packard, the global technology giant, also engaged in the transactions. Banks were the most frequent partners.

His lawyer, Joseph Warin, said in an email that Cassano would not be interviewed.

A turning point came in the late 1990s when banks realized they could do deals with each other. Knowledgeable senior bankers said they were eager to move away from corporate customers, who were less adept at structuring complex deals.

“It became a cozy world," said one. “You are dealing with your friends. You chat together, play golf together and move around each other's institutions.”

Over time, the sharp reduction in interest rates encouraged much bigger deals to create the same tax benefits. In the early 1990s, the deals were totaling $150 million to $200 million; by 2003, they were 10- to 20-fold bigger, said two experienced bankers who were active in the market.

Banks also copied each others’ deals. “It was just like the credit boom,” said one prominent financier. Accountancy and law firms were involved, according to marketing documents and court papers reviewed by the Financial Times and ProPublica.

The authorities tried to catch up. In 2004, the U.K., United States, Canada and Australia formed the Joint International Tax Shelter Information Centre to curb abusive tax transactions. Soon after, the IRS was alerted to questionable transactions by its British counterparts within Her Majesty’s Revenue & Customs Office.

The U.K. later passed measures that caused a “large portfolio" of AIG transactions in Britain to be terminated, according to public filings. The United States began its own investigations and was helped by the international effort.

The joint tax center uncovered multiple cases that might have affected the U.S. tax base. The IRS was told about “things we would never have picked up or would have been picked up years down the road,” IRS Commissioner Mark Everson told the Financial Times in 2005.

By May 2006, he informed the Senate Finance Committee that the IRS was “aware of 11 structured-financing transactions with an estimated $3.5 billion at issue." Not long after that, the IRS began denying STARS tax credits. In 2008, the IRS noted in a memorandum that foreign tax-credit deals had caused a “significant drain on the U.S. Treasury."

Bankers and advisers say that tax-driven structured finance is now a fringe activity. Bill Dodwell, head of tax policy at the auditing firm Deloitte, said that in the current financial climate, "I don’t think aggressive planning will come back seriously for years and years."

Dave Hartnett, permanent secretary for tax for Her Majesty's Revenue & Customs in Britain, sees closer cooperation among tax authorities as helping to quell the deals. But they also recognize the market forces at play, he said.

"There has been increased tax transparency from many banks," Hartnett said. “But have foreign tax-credit generators been closed down completely? No, I don’t think so."

The international task force, he said, is still “busy exchanging information."

–

Related story: Government Claims AIG ‘Gamed the Tax System’

Vanessa Houlder covers taxation and Megan Murphy covers investment banking for the Financial Times in London. Senior reporter Jeff Gerth is in Washington, D.C.

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Another Day, Another Bridge: Union Puts Pressure On GOP Freshman

Just days after President Obama stood by a bridge to make his case to pass his American Jobs Act, a labor union has turned attention to another major span -- this one in actual desperate need of repair -- to demonstrate the need for increased investment in U.S. infrastructure as a way to put Americans back to work.

LIUNA – the Laborers International Union of North America – says it is mobilizing members in the district of Rep. Todd Young (R-Ind.) to support action to repair and safely reopen the I-64 Sherman-Minton Bridge at the Indiana-Kentucky state crossing. The bridge – a high-traffic artery for commuters and commerce in the region – was closed indefinitely on September 9 by Indiana Gov. Mitch Daniels (R) after inspectors deemed it unsafe after a crack was found in a load-bearing beam.

As frustration grows amongst constituents and commuters, Young –- a freshman from Indiana's 9th District, where the bridge is located –- is on the record opposing the investments needed to build America's transportation systems and care for its bridges, the union says.

A statement issued by Young's office indicated only that Young will "stay in the loop" with officials "to assess what could be provided at the federal level," LIUNA says in a statement.

Meanwhile, Young has signed onto House Republican budget outlines which continue the pattern of tax breaks for the rich and slashed investment in the nation's basic infrastructure, including a one-third cut in the federal highway program.

Young, who won election in last year's conservative wave by defeating longtime incumbent Democratic Rep. Baron Hill, dismissed the types of infrastructure spending Obama calls for with his $447-billion jobs bill.

Currently 1.2 million construction workers are jobless; under the House Republican highway bill, investment would be cut by a third and an additional 630,000 jobs would disappear, LIUNA says.

The union says that in response to Young's inaction, hundreds of local LIUNA members in Young's district have mobilized, placing calls to his office and urging him to work though gridlock in Washington to support a U.S. Senate outline of the highway funding bill which would keep investment level and protect jobs.

According to the U.S. Department of Transportation, the Sherman-Minton Bridge is one of nearly 150,000 -– or one-in-four of the nation's bridges –- that is in need of repair.

Earlier this month, LIUNA helped pressure Congress to pass a temporary extension of its highway bill to keep a stable investment level for six months. The union is now pressing for a long-term highway bill along the lines of the more-generous Senate proposal.

"As Congress debates job-creation measures and the future of America's roads, bridges and highways on a national level, we're going to make sure Congressman Young knows where his constituents stand on the issue," says Frank DeGraw, business manager of the Indiana Laborers' District Council. "What remains to be seen now is how and when Congressman Young is going to act to repair this bridge, get it reopened, and get people and commerce moving again."



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Regulators Weaken Dodd-Frank Draft Regs, Allow More Risk

by Marian Wang, ProPublica

The regulatory agencies in charge of finalizing some of the most controversial rules mandated by the financial reform law are leaning toward making them looser and more favorable to banks and other traders, according to recent reports in the financial press.

As we noted in June, federal regulators were still puzzling over how restrictive the ban on proprietary trading—banks trading on their own behalf—should be, given that banks are still allowed to hedge against risks. The Office of the Comptroller of the Currency has argued for banks to be given more leeway in what types of trades would be permitted as hedges under the rule, but critics charge that banks could use the opportunity to take more risks rather than hedge against them.

A draft version of the so-called “Volcker rule” suggests that the ban has been significantly watered down. Here’s the Wall Street Journal:

[The language] opens the door for banks to make all manner of bets on the market, observers said, because a bank might define the risk to its portfolio broadly, such as the risk of a U.S. recession.

If the language is confirmed in the final rule, expected by late October, it would be a victory for Wall Street firms that have lobbied to relax the ban on proprietary trading.

Meanwhile, the federal Commodity Futures Trading Commission has drafted a final rule that reportedly backs down on other key provisions intended to limit excessive speculation by large banks and commodities players. Reuters reports:

The CFTC's final rule maintains that the Dodd-Frank Wall Street overhaul law requires position limits -- caps on the total number of commodity-linked contracts that any one trader can hold -- to prevent excessive speculation in oil, grain, silver and other commodity markets.

… But in the details of the plan, the CFTC modified key areas that were a major concern for big Wall Street banks like Morgan Stanley and oil companies such as Shell.

In an earlier draft of the rule, the agency had essentially proposed that all the trading positions of a company be added up and that the total be subjected to the position limits, thereby limiting a company’s overall bet on a commodity.

But the latest version, according to Reuters, allows the limits to be applied to individual trading desks within large companies, provided they trade independently. This could allow banks and other companies to accumulate far larger totals of commodity-linked contracts.

The CFTC’s rule is already months behind schedule, and its writing has been particularly contentious and hampered by internal disagreement on the commission. Nonetheless, MarketWatch reports that a vote is expected on the final draft in the coming weeks.



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Supercommittee Members Also Represent Extreme Poverty

The so-called bipartisan supercommittee is tasked with finding more than $1 trillion in federal deficit reduction over 10 years. But several members also individually represent states and districts with some of the highest poverty in the nation.

That means that the solutions the panel develops over the next two months could well hurt some of their most vulnerable constituents back home.

The Census Bureau this week released state-level poverty data, which comes just a week after the agency reported that the U.S. poverty rate rose to 15.1 percent in 2010, up from 14.3 percent in 2009, with 46.2 million people living in poverty nationwide.

"With nearly one in six Americans living in poverty, it is clear that the nation is still feeling the ongoing impacts of the recession," says Rev. David Beckmann, president of Bread for the World, a Christian relief organization. "Right now members of Congress are making tough decisions about reducing our national debt and we urge them to form a circle of protection around safety net programs that help Americans lift themselves out of poverty."

Several members of the supercommittee, formally known as the Joint Select Committee on Deficit Reduction live in states with some of the worst poverty figures—including Rep. Jeb Hensarling (R-Texas), co-chair of the committee, and committee member Rep. James Clyburn (D-S.C.). Another five members of the committee—Rep. Fred Upton (R-Mich.), Rep. Dave Camp (R-Mich.), Rep. Xavier Becerra (D-Calif.), Sen. Jon Kyl (R-Ariz.), and Sen. Rob Portman (R-Ohio)—live in states where the poverty rate is higher than the national average.

Members of the supercommittee have until Nov. 23, 2011 to provide recommendations on how to reduce the federal deficit. The committee is tasked with trimming $1.2 trillion from the federal budget over 10 years.

"Finding that amount of money is no easy task—and to do it in two months is extremely difficult," says Beckmann. "We pray that the Super Committee will put all possible options on the table when considering where to make cuts and avoid balancing the budget on the backs of our most vulnerable."

The future prosperity of millions of Americans could well hinge on which steps the supercommittee recommends, says Robert Greenstein, president of the Center for Budget and Policy Priorities, an independent Washington think tank.

"The extent and depth of poverty in coming years and decades will be strongly affected by whether the Joint Committee, and Congress as a whole, adhere to a core principle that the commission chaired by Erskine Bowles and Alan Simpson set forth in its report and the Senate's 'Gang of Six' sought to honor in its plan — that deficit reduction should be designed so that it does not increase poverty and should therefore shield low-income assistance programs from cuts — or whether the Joint Committee and Congress instead impose significant cuts in programs for those at the bottom of the income ladder," he says.

Although the supercommittee and Congress could choose to further slash federal spending on programs vital to the poor, such as SNAP (formerly known as food stamps), policymakers could choose a different path, as the three major federal deficit-reduction packages of the last two decades — those in 1990, 1993, and 1997 — demonstrate, Greenstein says.

Those measures actually reduced poverty and income inequality even as they shrank deficits substantially, as a result of increases in the earned-income tax credit (in the 1990 and 1993 packages) and food stamps (in the 1993 package), the creation of the federal CHIP children's health coverage program (in the 1997 package), and the protection of low-income assistance generally, Greenstein says.

"The United States already has higher degrees of poverty and inequality than most other Western industrialized nations. Deficit reduction need not make these problems more severe," he says.



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The Hidden Hands in Redistricting: Corporations and Other Powerful Interests

by Olga Pierce, Jeff Larson and Lois Beckett, ProPublica

Their names suggest selfless dedication to democracy. Fair Districts Mass. Protect Your Vote. The Center for a Better New Jersey. And their stated goals are unarguable: In the partisan fight to redraw congressional districts, states should stick to the principle of one person, one vote.

But a ProPublica investigation has found that these groups and others are being quietly bankrolled by corporations, unions and other special interests. Their main interest in the once-a-decade political fight over redistricting is not to help voters in the communities they claim to represent but mainly to improve the prospects of their political allies or to harm their enemies.

The number of these purportedly independent redistricting groups is rising, but their ties remain murky. Contributions to such groups are not limited by campaign finance laws, and most states allow them to take unlimited amounts of money without disclosing the source.

Today’s story is the first chapter in an in-depth examination of how powerful players are turning to increasingly sophisticated tools and techniques to game the redistricting process, with voters ultimately losing.

For special interests, there’s a huge potential payoff from investing in such efforts.

“Reshaping a map is very powerful” for donors, said Spencer Kimball, a political consultant who is executive director of Boston-based Fair Districts Mass. “It’s a big opportunity to have influence at the state level and the congressional level not one race at a time but for 10 years.”

Skillful redistricting can, of course, help create Republican or Democratic districts, but it can also grace incumbents with virtually guaranteed re-election or leave them with nearly no chance at all. In the process, it can also create seats almost certain to be held by minorities or break those same groups apart, ensuring that they have almost no voice.

But it’s not cheap, and that’s where corporations and other outside interests come in. They can provide the cash for voter data, mapping consultants and lobbyists to influence state legislators, who are in charge of redistricting in most states. Outside interests can also fund the inevitable lawsuits that contest nearly every state's redistricting plan after it is unveiled.

In Minnesota, for instance, the Republicans’ legal efforts to influence redistricting are being financed through a group called Minnesotans for a Fair Redistricting.

Fair Redistricting describes itself as independent, but it has much of its leadership in common with the Freedom Foundation of Minnesota, a group with ties to the political empire of the Koch brothers, industrialists from Kansas who’ve spent millions funding conservative causes. The head of the Freedom Foundation, Annette Meeks, told ProPublica she has “no involvement” with Fair Redistricting. But both organizations’ tax filings list the same address: Meeks’ home address.

Fair Redistricting is registered under the name of her husband, Jack Meeks, who is also on the board of the Freedom Foundation. He did not respond to requests for comment.

Who is actually paying for Fair Redistricting’s lawsuit and lawyers? And what district lines are they pushing for? The group doesn’t have to say and has so far kept its finances and plans under wraps. Annette Meeks did not respond to questions about the group’s donors or its ties to the Koch brothers, but she said the group complies with all legal filing requirements. But the group’s public tax filings contain no information on its contributors.

Fair Districts Mass, which says it’s advocating better representation of minorities in and around Boston, is another window into how money can move through the system. The group describes itself as "citizen-funded." But it also sought permission from state election officials for unlimited corporate funding. Donations “can include corporate contributions,” the group’s website announces. “Better yet,” the site notes, “we are not required to file reports regarding donations or expenditures.”

The group says its proposed maps would lead to better representation of Latinos and African-Americans.

“Minorities are very underrepresented in Massachusetts politics,” said Kimball, the group’s executive director. “We’re here to change that.”

But minority groups say Fair Districts' proposed maps would not likely help them. (See our interactive feature showing the group’s maps and our analysis.)

“I don’t see a person of color getting elected in this district, if that’s the goal,” said Alejandra St. Guillen, executive director of Oiste, looking at one of the maps Fair Districts has touted as helping Latinos and African-Americans. Oiste has been fighting for increased Latino representation and civic participation in the state for more than a decade.

“Even though the numbers might look as if that might be favorable to communities of color,” St. Guillen said, “if you look at voting patterns, it actually wouldn’t be.”

Others from Massachusetts have said the proposals made by Fair Districts Mass wouldn’t help them at all. At a town hall meeting in Lynn, which would be cut out of its historic district along Boston’s North Shore by the proposal, labor unions, the city's chamber of commerce and politicians from both parties converged on the town hall, urging that the board not adopt a plan that would carve out Lynn.

Lynn's Latino business owners are "very proud to be a part of the North Shore," said Frances Martinez, executive director of the North Shore Latino Business Association. "Our business owners decided to come here because they know this is a place to stay and grow for their families. Please keep the district together."

What Fair Districts’ proposals would do is hurt the traditional pro-labor and Democratic incumbents in the area. For instance, Lynn’s notably pro-union congressman, John Tierney, would effectively be drawn out of a seat—a finding included in the group’s own research.

Fair Districts can raise unlimited, undisclosed cash for its efforts, thanks to an innovative argument it made to state election officials.

This strategy had its roots in a lesson learned 20 years ago by a Republican redistricting guru named Dan Winslow. During the 1990 redistricting cycle, Winslow twice sought permission from state election officials for a group called the Republican Redistricting Committee to accept unlimited corporate donations without having to disclose them.

At the time, Winslow argued that the group didn’t have specific political aims and would also provide redistricting resources to minority groups.

Each time, the board refused to exempt the organization from campaign finance laws on the grounds that a group with "Republican" in its name and Republican politicians as leaders could not credibly claim to be independent.

Last year, a lawyer in Winslow’s firm filed an almost identical request to accept unlimited corporate donations, but this time for a group that left "Republican" out of its name. The state agreed to his request. The group he was filing for? Fair Districts Mass.

Winslow, now a Republican state representative and legal adviser to Fair Districts, said the group has no partisan agenda.

“It’s not about shifting Massachusetts from Democrat to Republican,” Winslow said. “It creates an opportunity for challenges, for challengers to challenge the status quo.”

Fair Districts Mass Chairman Jack Robinson has run unsuccessfully for Congress three times as a Republican. Last year, when he announced the formation of Fair Districts, he said he was changing his registration to Independent.

Robinson said that change was important to Fair Districts’ “unique” ability to accept undisclosed corporate donations.

“In order to show that we are really nonpartisan, I decided to become an independent,” Robinson said.

Robinson also said the lack of disclosure has benefits.

“This is a very political process,” he said. “If you’re running a company in Newton, Mass., where Barney Frank is, and you want to donate to us, and our plan says Barney Frank has to run against another congressman, I could understand why people would not want to disclose their donations.” Frank is, of course, a powerful Democratic congressman.

The national Democratic and Republican parties are also working to limit disclosures about fundraising for redistricting. Both parties have raised and spent tens of millions of dollars on redistricting through their traditional conduits of money into state politics, the Republican State Leadership Committee and the Democratic Legislative Campaign Committee. And both have been pushing to keep increasing parts of those efforts exempt from disclosure requirements.

Last year, the National Democratic Redistricting Trust sought and was granted permission by the Federal Election Commission to allow members of Congress to solicit unlimited, undisclosed donations for the trust. The group, set up to fund lawsuits that inevitably spring up during redistricting fights, argued that redistricting is not a primarily political activity. Legislators doing the same fundraising, but directly for their parties, would be violating McCain-Feingold campaign finance laws. The trust is currently funding the Democratic legal response to Minnesotans for a Fair Redistricting.

The GOP formed its own opaque group dedicated to redistricting. Making America’s Promise Secure, which was headed by prominent Republicans Newt Gingrich and Trent Lott, was able to secure 501(c)4 status from the IRS as a "social welfare"organization—the same status granted Disabled American Veterans and the Lumberjack World Championships Foundation. Groups with that status do not have to disclose donors or how they spend money. And there is no limit on how much individual donors can contribute.

Florida, railroads and friends

As old hands at redistricting like to say, it’s personal. Working at the state level, you can give lasting help, or demonstrate your loyalty, to not just one party or the other but to specific candidates, who may one day return the favor.

Congresswoman Corrine Brown, an African-American Democrat from Florida, appears to be a case in point. Brown represents one of the most irregularly shaped districts in the nation. It is 150 miles long but only the width of a highway bridge at its narrowest point and scoops heavily African-American neighborhoods out of Orlando, Gainesville and Jacksonville. (See our interactive map of Brown’s district and our analysis.)

The result of a deal between Republicans and minority representatives in the state legislature, the district and ones like it helped elect a more diverse congressional delegation but also ensured that the remaining districts would be whiter—and more Republican—because minority voters, who tend to vote for Democrats, had been carved out. Redistricting professionals call that “bleaching.”

Republicans gained control of the state legislature in 1996 after decades of Democratic control and have held it ever since.

Brown, then a state assemblywoman, had worked with Republicans to create the district. She subsequently ran for Congress in it and won. She has been unbeatable ever since. (Even though 2010 was a tough year for Democrats in Florida, she still won by a landslide.)

Her seat finally was threatened last year when a coalition of unions, civic groups and Democrats got a pair of anti-gerrymandering amendments on Florida’s ballot. The amendments banned legislative districts drawn to help or hurt particular incumbents or parties. To make it clear that the amendments were not an attempt to pre-empt the Voting Rights Act of 1965, they also explicitly ban the drawing of districts to deny representation to minority groups.

Florida’s black legislative caucus and the state chapter of the NAACP endorsed the amendments, as did Democracia, a Latino political group.

But Brown opposed the effort, becoming the “African-American Chairwoman” of a group called Protect Your Vote. The group, Brown said at news conferences and in public statements, would be a bulwark against the harm the amendments would do to minority voting rights.

The NAACP strongly condemned Brown’s position and issued a statement criticizing “the blatant use of scare tactics with African-Americans and Hispanics to justify the continued gerrymandering of districts that benefit only politicians.”

Though Protect Your Vote had little support from representatives of the minority groups whose rights it was supposedly trying to protect, it had a lot of support from corporate donors, who gave nearly $800,000. (The contributions were reported because they related to a ballot measure. Normally, donations to Florida redistricting efforts don’t have to be disclosed.)

Among Protect Your Vote’s supporters were two of Brown’s own corporate donors.

Last year, Honeywell International PAC gave Protect Your Vote $25,000. The same year, the PAC gave Corrine Brown’s campaign $10,000. Also in 2010, Honeywell hired a former Brown aide as a lobbyist, according to federal lobbying disclosures. And many of the company’s government contracts fall under the purview of Brown’s membership on the Transportation and Infrastructure and Veterans’ Affairs committees.

In a statement, Honeywell said its PAC contributed money to defeat the anti-gerrymandering amendments because it supports “redistricting that is consistent with the historical practices that have served the State’s many diverse constituents well for decades.”

Another $25,000 donation to Protect Your Vote came from CSX Transportation Corp., a Jacksonville-based railroad and trucking company.

CSX has a long, friendly history with Brown, the ranking Democratic member of the House subcommittee on railroads.

Brown championed the controversial SunRail commuter rail project, using her position on the subcommittee to help secure federal funding that made the $1.2 billion project possible. The SunRail deal is worth more than $600 million to CSX. (Here's a video of Brown on the House floor extolling the virtues of the plan.)

Federal officials raised questions about just how many commuters the project would serve, and the Federal Transit Administration ranked the SunRail project last in terms of cost effectiveness on a recent list of national projects in the “final design” phase.

“The Protect Your Vote campaign had strong, bipartisan support, and was intended to maintain the integrity of reapportionment,” said CSX spokesman Gary Sease. “As a Florida-based corporation, we supported this bipartisan initiative.”

In November 2010, the Florida amendments passed despite Protect Your Vote’s efforts. The group filed an appeal in federal court shortly thereafter, alleging, among other things, that the new redistricting methodology outlined in the amendments did not do enough to protect incumbents. The suit was thrown out Sept. 9.

Brown and Protect Your Vote filed an appeal, vowing to take the case as far as the Supreme Court.

Brown declined to comment, saying it was a legal matter.

Unions and others play the game in California

Corporations, of course, are not the only special interests that have intervened in the redistricting process in less-than-transparent ways.

Last year, unions and others spent millions in an ultimately unsuccessful effort to kill a proposition making redistricting fairer and more transparent in California. The proposition put redistricting in the hands of a nonpartisan commission, a move opposed by Democratic politicians in the state legislature and Congress who stood to lose comfortable districts that in many cases were drawn personally for them.

The group called itself Yes on Fair, Yes on 27, No on 20—A Coalition of Entrepreneurs, Working People, Businesses, Community Leaders Such as Karen Bass, & Other Concerned Citizens Devoted to Eliminating Bureaucratic Waste. But most of the more than $7 million the group raised came from unions, large individual donations from prominent Democratic donors like George Soros—and no fewer than 35 Democratic politicians. (Disclosure: A Soros foundation has also provided a small portion of ProPublica’s funding.)

Among the group’s donors were Nancy Pelosi; above-mentioned "community leader" Karen Bass, who was speaker of the state assembly at the time and has since been elected to Congress; and Congresswoman Lois Capps, whose coast-hugging district was so long and narrow it was nicknamed the “ribbon of shame.”

Bass now says she supported the idea of an independent redistricting commission. However, based on how the commission was designed, “I was concerned about the impact on representation from communities of color.”

Capps did not respond to requests for comment.

The group immediately spent its cash to deploy some of the most questionable tactics endemic to California’s ballot-measure system. Nearly $3 million was spent on professional signature gatherers and another $1.8 million on California’s notoriously misleading voter guides. The mailers come from legitimate-sounding groups that are actually fictions cooked up by political consultants to mislead voters.

Though Yes on Fair was funded exclusively by Democratic interests, it spent $64,000 on the “Continuing the Republican Revolution” voter guide, which featured a bald eagle and a quote honoring Ronald Reagan at the top but urged voters to reject the citizens’ redistricting commission on the grounds that it represented bureaucratic waste. Similar voter guides were sent out representing fictitious religious, feminist, environmentalist and law-enforcement groups. Perhaps the most insidious was the “Our Voice Latino Voter Guide,” which urged a vote against establishing the citizens' commission even though Latinos stood to greatly benefit from it.

Despite Yes on Fair’s efforts, the measure for the commission passed anyway.

Once the commission was created, it offered another, limited glimpse into business interests’ attempts to influence redistricting.

An early participant in the state’s redistricting process was the California Institute for Jobs, Economy and Education, which submitted proposed district maps and testified before the redistricting commission.

But there is little evidence of the institute’s existence. It has no website and has published no scholarly research. The institute first shows up in public records, registered as a corporation in California in May 2011, just after the redistricting process had begun. It is registered with the same street address and suite number as Bell, McAndrews & Hiltachk, a law firm that specializes in campaign finance and lobbying law.

The entity’s true purpose, according to someone close to it, was to represent “business interests” across California. Top-level individuals involved with the so-called institute also have ties to JOBS PAC, a pro-business committee in California that lists Philip Morris, AT&T and Chevron as donors.

Tom Hiltachk, managing partner at the firm that shares its address with the institute, didn’t respond to requests for comment.

Intern Ariel Wittenberg also contributed reporting to this story. Azavea provided geographic services.



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