DFL's money woes: IRS problems and possible election fines

The DFL again is running up against its toughest political foe: money.

The party was, for awhile at least, behind in FICA payments to its own employees. There are rumblings that it also could be facing fines from the Federal Elections Commission (FEC). There even are rumblings that the heating and air conditioning system is in such a bad state of repair at the party's St. Paul headquarters that employees were wearing coats at their offices late last winter.

Update: Neil Reiff, the Washington-based attorney who represents the DFL in matters relating to the FEC, issued a strong denial this afternoon that the party has troubles with the under-staffed commission. “I can categorically say there are no pending FEC enforcement actions with the Minnesota Democratic Party,’’ Reiff said.  “What I find ironic is that it’s a violation of federal law to reveal this kind of information. If they had this information and were leaking it, they’d be breaking the law.’’

While refusing to answer specific questions about DFL financial issues, party officials are claiming any money woes they're running into are simply the result of the cycles of politics. In non-election years — such as this year, they say — contributions fall and books are harder to balance.

But a July memo from party chairman Brian Melendez to members of the party's United Democratic Fund, a committee made up of elected officials, union leaders and various other interest groups within the DFL, pretty clearly shows the party is running on empty.

"The United Democratic Fund is about to run out of money because of unpaid dues,'' Melendez wrote in the memo. "Some Partners — Representatives Oberstar and Peterson, Secretary Ritchie and the Senate Caucus — have paid their 2009 dues in full, for which I thank them. But some other Partners have not even begun paying their 2009 dues, even though we are more than halfway through the year. To date, the UDF has spent over $150K in salaries and benefits alone, but has collected only $63K in dues and we owe another $107K in national voter-file fees and other program expenses. The State Party has covered the $87K gap for payroll, even though the Party's dues are only $100K for the year, meaning that we have now advanced four months' dues to the UDF. Unfortunately, we can't keep spending more than we are collecting.''

Who owes what
Included with the memo was a chart showing the payment status of the party's elected officials. That chart showed that U.S. Sen. Amy Klobuchar, who pays annual dues of $25,000 to the UDF, is $40,000 behind in payment. Newly-elected Sen. Al Franken owes $25,000.  U.S. Rep. Keith Ellison, who is supposed to pay $15,000 in annual dues, is behind by $35,000. Rep. Tim Walz owes $15,000. State auditor Rebecca Otto and attorney general Lori Swanson each owe $5,000 and the state House caucus owes $7,500.

According to one former state party official who asked not to be identified, elected officials can pay these dues from their campaign funds.

The UDF then uses the funds in all levels of federal, statewide and legislative races.

Melendez directed inquiries about his memo and other financial questions to the party's communications staff.  The questions were passed to Andy O'Leary, executive director of the party. O'Leary refused to comment on the Melendez memo. And he would only issue vague statements regarding other financial questions.

There are reports, from unnamed sources within the party, that the DFL is on the verge of being fined $50,000 by the Federal Elections Commission for illegally co-mingling funds. That would mean the party, which has several different bank accounts which are to be used for different purposes, had switched money that was donated for one purpose to an account used for a different purpose.

"The importance of state parties is to be able to spend both federal and state money in efficient ways,'' O'Leary said in his statement. "We are able to do this by paying for certain eligible expenses with the allowable combination of federal and state money. We used every tool in the toolbox last [election] cycle and made our state and federal dollars work together and reported it to the FEC as required. The DFL has received some Requests for Additional Information and has responded to them. We do not believe there to be an issue with commingling funds.''

The FEC rules are thick, but not difficult to follow, according to the former party official. He did say the Democratic and Republican parties have "gentlemen's agreements not to blow the whistle on each other'' because both parties in all states use accounting methods to switch funds from one account to another.  

Update: Upon reading the first version of the MinnPost story about the DFL’s financial problems,  a version that did not include a strong denial of FEC action from attorney Reiff, Melendez said he had filed a complaint with the Minnesota News Council. The complaint states:

“On 5 August 2009, in a story titled ‘DFL’s money woes: IRS problems and possible election fines,’ Doug Grow wrote that  ‘there are reports, from unnamed sources within the party, that the DFL is on the verge of being fined $50,000 by the Federal Elections Commission for illegally co-mingling funds. That would mean the party, which has several different bank accounts which are used for different purposes, had switched money that was donated for one purpose to an account used for a different purpose.’

“Mr. Grow’s statement is false. There is no pending investigation ‘by the Federal Elections Commission for illegally co-mingling funds,’ let alone any impending fine. Mr. Grow spoke personally with DFL Executive Director Andrew J. O’Leary, who told Mr. Grow that this anonymous source was giving him false information. Mr. Grow did not give that side of the story, nor, evidently, did he contact the Federal Election Commission, before which there are no pending actions relating to the Minnesota DFL Party.’’

Update: A spokeswoman for the FEC said this morning that “if there was a pending complaint, we couldn’t comment on it.’’ A chart on the FEC’s website  shows that the DFL frequently has received requests for more information on its monthly reports to the FEC, but that is not unusual, the spokeswoman said. 

'All issues have been resolved'
Problems the DFL had with the IRS over falling in arrears on Social Security payments to employees have been resolved, according to O'Leary. "The DFL Party did have an issue arise with the Internal Revenue Service,'' O'Leary said in his statement. "All issues have been resolved except for a potential refund back to the party.''

This is the second time in two years that financial problems of the DFL have become part of the debate over the leadership of Melendez. But the criticisms of Melendez lose much of their impact, because his critics typically will not go public and speak on the record. He easily has been re-elected as the party's chairman.

Doug Grow writes about public affairs, state politics and other topics. He can be reached at dgrow [at] minnpost [dot] com.