Poison Pill

When Rep. Bob Ney (R-Ohio) pleaded guilty in September to selling legislative favors to clients of the disgraced lobbyist Jack Abramoff, it signaled that the fallout from the corruption scandal is far from over. Indeed, prosecutors are still issuing subpoenas, using information fed to them by Abramoff and three associates who pleaded guilty earlier this year: Tony Rudy; Michael Scanlon; and Neil Volz, Neys former chief of staff. Other key Abramoff associates remain under scrutiny, most notably Ed Buckham, a former staffer of Rep.Tom DeLay (R-Texas), and the founder of the Alexander Strategy Group consulting firm, and the U.S. Family Network, the nonprofit that formed the nexus between DeLay and many of Abramoffs clients. And while DeLay stepped down last September as House majority leader and departed Congress in June, the scandals shadow still hangs over others who remain on Capitol Hill, including Sen. Conrad Burns (R-Mont.) and Rep. John Doolittle (R-Calif.).

Abramoffs influence-peddling scheme has already figured prominently in many mid-term election campaigns. Democrats accuse Republicans and their lobbyist allies of being motivated by greed. Ney, who recently checked himself into an alcohol rehabilitation clinic, blames the bottle. Theres no shortage of either greed or booze in Washington, but the root cause is much deeper. After Republicans took the House in 1994, and especially since they gained the White House in 2000, DeLay and others in the GOP leadership built a vast political machine operating largely outside the scrutiny ofcampaign-finance laws.The coterie of lobbyists surrounding Abramoff was at the heart of that system. The role of these lobbyists was not just to enrich themselves or to attract large sums from corporate America to Republican campaign coffersalthough they certainly did both those things. The lobbyists were also an essential component of a governing strategy the leadership used to get laws passed.

Subscribe Online & Save 33%Theres perhaps no better example of this than Medicare. The Medicare prescription-drug bill, passed in late 2003 after a bitter partisan struggle, represented the programs biggest expansion since it began more than 40 years ago. But with its enormous expense and inadequate coverage, it has proved to be a disaster. Twenty percent of enrollees have higher drug costs than they did before signing up. In the next three months, an estimated three and a half to seven million people will hit the notorious donut hole, in which coverage stops until their drug spending reaches $5,100. We ended up with a program that undermines Medicare and costs way too much for a program with major gaps in coverage, said Roger Hickey, co-director of the Campaign for Americas Future and a founder of Americans United, a coalition of consumer and labor groups demanding that Congress fix the plan.

Its well known that in his crusade to pass the bill, DeLay drew on more than 800 pharmaceutical-industry lobbyists, millions of dollars in campaign contributions, and the efforts of numerous business and healthcare groups. But this grossly flawed legislation could never have passed without the help of the same players who were central to Abramoffs lobbying operation: Tony Rudy and Ed Buckham. Using a nest of nonprofits flush with corporate cash, the discredited lobbyists played a vital, albeit hidden, role in whittling down congressional opposition to the bill for more than a year before the final vote. In particular, Alexander Strategy made use of three senior nonprofit groupsthe United Seniors Association, the Seniors Coalition and 60 Plusand a Christian evangelical group, America 21, which were all funded heavily by the pharmaceutical industry. This is the story of how this shadowy network helped saddle the American public with the Medicare drug billthe biggest, most important piece of policy in which the dubious talents of Abramoffs acolytes were brought to bear.

All in the family

Ed Buckham is a balding lay minister who, as chief of staff to then House majority whip Tom DeLay, often led prayers in the office. In 1997, Buckham quit to answer a higher calling, establishing his own consulting firm, Alexander Strategy Group. Hed also founded a nonprofit called the U.S. Family Network, ostensibly to promote a pro-family agenda. But after Buckham entered the lobbying world, it was hard to tell that hed left DeLays employ. He continued as DeLays spiritual adviser and remained in close contact with his office. Alexander Strategy employed DeLays wife, Christine, as well as Karl Gallant, who had headed DeLays PAC, Americans for a Republican Majority (ARMPAC). For more than a year, ARMPAC, Alexander Strategy, and the U.S. Family Network shared a D.C. townhouse, which DeLay sometimes used to make fundraising calls. Dick Armey, the former House majority leader, told The New York Times this year, Tom DeLay sent Buckham downtown to open shop and set up a branch office on K Street. The whole idea was whats in it for us.

Occasionally, Buckham coordinated a little too closely with the Republican House leadership. In 1999, the National Republican Congressional Committee (NRCC) made a $500,000 payment to the U.S. Family Network. Buckham then transferred $300,000 of this sum to a shell group called Americans for Economic Growth to run ads against House Democrats on Medicare issues. The Federal Election Commission later fined the NRCC $280,000 for this transaction, which violated campaign-finance laws. But for the most part, Buckhams connections generated rich rewards. Early on, a major contract from Enron secured with DeLays assistance helped launch Alexander Strategy. Abramoff also steered some of his biggest clients to the firm, funneling their money through the U.S. Family Network. And in 2000, Alexander Strategy landed what would eventually become its biggest account: Pharmaceutical and Research Manufacturers of America (PhRMA), the drug industrys powerful lobbying arm.

As Abramoff, Buckham, and their associates built their influence empire, one of their most useful instruments was the nonprofit organizationgroups like the U.S. Family Network that existed in name only and acted as conduits for money from lobbying clients, often donated for political purposes. In their Medicare campaign, Alexander Strategy operatives also made creative use of nonprofits in a different way, this time employing a favored modus operandi of the DeLay era. Groups registered under section 501c of the tax code arent required to disclose their donors, but theyre also not supposed to make electioneering their main activity. However, thanks to vague language in the tax code and the fact that the IRS rarely polices violations, some nonprofits became havens for unlimited, untraceable corporate wealth, used to run grassroots campaigns for partisan causes and political candidates.

The obscure nonprofit that would play a central role in Alexander Strategys Medicare work was the United Seniors Association. United Seniors was founded in 1991 by Richard Viguerie, the Republican who pioneered political fundraising by soliciting small donations through direct mail. Viguerie (who is no longer associated with the organization) had intended United Seniors as a conservative alternative to the American Association of Retired People (AARP), but it never threatened the 35 million-member groups dominance. United Seniors was run by economic conservatives concerned about tax cuts, balanced budgets, and Social Security privatization; their Medicare platform revolved largely around defeating President Clintons healthcare plan and promoting private, tax-free healthcare accounts. It employed a grassroots organizer with a small network of contacts, and its budget of $8-11 million, raised mostly by direct mail, never quite covered its needs.

All this changed in 2000, when United Seniors long-time president and CEO was replaced by Charles Jarvis, a veteran of the Reagan and George H.W. Bush administrations. Jarvis soon decided that the grassroots organizing was too costly. He fired the coordinator, let the direct-mail lists languish, and started soliciting money from corporate America.

His first success came in 2001 with energy policy, which Jarvis unabashedly proclaimed to be a seniors issue. United Seniors joined three industry-backed organizations promoting the Bush administrations energy program, including drilling in the Arctic National Wildlife Refuge. The group was also one of 10 members of the 21st Century Energy Project, an Enron-funded group set up by former Republican National Committee chair Ed Gillespie.

At the same time, Jarvis sought to boost United Seniors fundraising power by filling its board with powerful Washington players. He was aggressive in finding ways to get us to resign, said former board member Craig Shirley. He wanted the group to be more active and better financed. One of United Seniors new recruits was Jack Abramoff. At their request, I invited him to be on the board, said David Keene, the chair of the American Conservative Union, who began working for United Seniors as a lobbyist in 1998 (Keene, who was still registered with United Seniors in 2003 but opposed the Medicare drug bill, said he did not actively work for them that year). Abramoff, said Keene, was very successful. He had been on a number of groups and was interested in issues. And it was our thought that if we could get him on the board he would help raise money. Keene and others associated with United Seniors at the time say they dont think Abramoff raised funds for the group, although they couldnt say for sure. Jarvis and his top aide, who handled donations directly, refused repeated requests to comment for this story.

Whatever Abramoffs role, Jarviss new business model produced dramatic results. By 2002 United Seniors revenue had leapt to $25 million. According to its tax returns, none of this amount came from membership dues, while $20 million was contributed by a single donor. Neither PhRMA nor Jarvis ever admitted that the sum came from the drug industry, but PhRMA has confirmed that it gave United Seniors an unrestricted educational grant in mid-2002.

United Seniors wasnt the only seniors group whose fortunes had become entangled with an Alexander Strategy client. By 2002, two other Viguerie-founded groups, 60 Plus and the Seniors Coalition, had also received substantial sums from PhRMA. In 2000, the Seniors Coalition received more than $2 million from the trade group, around 15 percent of its revenue. In 2001, 60 Plus received $275,000 from PhRMA, three drug companies, and another industry group; and in 2002 PhRMA acknowledged giving 60 Plus another unrestricted grant. 60 Plus shared other benefactors with Alexander Strategy: In 2001, they received $300,000 from a Korean explosives, chemical and insurance conglomerate called the Hanwha Group, whose CEO was a major Alexander Strategy client. Combined, the funds from Hanwha and the drug industry comprised nearly a third of 60 Pluss revenue. And in an August 2001 email, Jack Abramoff directed the Louisiana Coushatta tribe to reissue a $25,000 check made out to DeLays ARMPAC, and redirect it to 60 Plus. Jimmy Faircloth, a Coushatta attorney, said that the Coushatta had no interest in 60 Plus, but were told that the donationthe largest contribution Abramoff asked them to give to a single recipientwould help them win clout with the congressional leadership.

The fourth group connected with Alexander Strategy was an evangelical nonprofit, America 21. Its financial fortunes were even more closely entangled with the Alexander Strategy-Abramoff network. America 21s president, J. Thomas Smith, had been the lawyer for Buckhams U.S. Family Network, and the secretary-treasurer for the Republican Majority Issues Committee, another DeLay PAC run by Alexander Strategys Karl Gallant. In 2002, Abramoff directed the Louisiana Coushatta to reissue a $10,000 check made out to yet another DeLay PAC to America 21. That year, America 21, which had raised less than $25,000 in both 2000 and 2001, was also heavily funded by the drug industry. Its 2002 tax return shows that $3.6 million of its $3.7 million revenue came from a single source. Although the donors name is redacted, the words pharmaceutical and association can be made out. According to reports in the National Journal, Smith has been subpoenaed this year by federal investigators scrutinizing Buckham, the U.S. Family Network, and America 21.

By 2002, PhRMA had become a lynchpin of Alexander Strategys business. That year, Tony Rudy, DeLays former deputy chief of staff, joined Alexander Strategy as a partner. Rudy was a tough New Jersey native and a former ice hockey player with a reputation as DeLays enforcer. While in DeLays office, Rudy had been Abramoffs stalwart ally, inserting provisions into bills for Abramoff clients in exchange for gifts and approximately $86,000 in payments to a consulting firm run by Rudys wife. When Rudy left DeLays office in 2000, his boss saluted him in the Congressional Record, noting that Rudys departure was a personal loss to him. But like Buckham, Rudy didnt really leave. He went first to work with Abramoff at the law firm Greenberg Traurig, and maintained contact with his former Hill colleagues, in defiance of federal lobbying laws. Increasingly, he sought to win staffers allegiance by showering them with gifts, as Abramoff had once done to secure his assistance. When Rudy joined Buckham in 2002, he was at the height of his influence, and he quickly helped to make PhRMA Alexander Strategys largest client.

Senior moment

At 2.30 a.m. on June 28, 2002, House Republicans pushed through a $350 billion prescription-drug benefit, to be administered by the private sector, on a party-line vote. The Democrat-controlled Senate refused to go along with the plan, attempting unsuccessfully to add a drug benefit to the government-run Medicare program. But the Houses efforts were hardly wasted. With the mid-term elections approaching, the GOP House leadership was anxious to neutralize the Democrats historic advantage on healthcare issues. The Houses protracted debate over the drug bill may have not produced much in the way of actual legislation, but it achieved its real goal: to convert Medicare into a Republican weapon in many close races. Because of the McCain-Feingold law, 2002 was the last election year in which national and state parties could raise unlimited, unreported money. It would also be the last election in which corporations could secretly fund nonprofit issue ads that could appear right up until election day. With the help of Alexander Strategy, Republican leaders made the most of their last unfettered opportunity to coordinate election activities that would ultimately foster passage of a private-sector-based Medicare drug bill.

On October 15, 2002, astute voters in the North Carolina mill towns of Kannapolis and Concord may have been surprised to see television ads lambasting Democratic congressional candidate Chris Kouri for profiting from thousands of dollars of drug company stock. Kouri had never purchased such stocks, and the $3,000 worth he had inherited from his father had already been sold. The Republican incumbent, Rep. Robin Hayes (R-N.C.), by contrast, owned $6.8 million in pharma shares.
The ads, which were paid for by the NRCC, jump-started a major campaign against Kouri, in which United Seniors played a critical role. While the GOP attacked Kouri with mailings that labeled him a hypocrite, United Seniors ran a stream of television ads praising Hayes position on Medicare from Sept 14th until the election. United Seniors spent over $400,000 on television ads in the districtmore than the NRCC, and more than Kouri and Democratic Party groups combined. 60 Plus and Seniors Coalition also mailed letters to voters praising Hayes for supporting the Houses prescription-drug bill. Kouri was defeated by nine points.

That year one or more of the three seniors groups, as well as America 21, waged television or mailing campaigns in 39 House and Senate contests, many of them competitive races. (More than 90 percent of the mailings and ads contained a pro-Republican or anti-Democratic message, according to the liberal watchdog group Public Citizen). A study of the 2002 election, edited by Brigham Young University professors David Magleby and J. Quin Monson, found that spending by issue advocacy groups outpaced candidate spending in 10 of the 26 races they examined. But even in this melee, United Seniors led the pack, they noted. As the House considered Medicare drug legislation in May and June, United Seniors ran a $4.6 million TV ad campaign supporting the Republican bill. In July, they spent $2 million on ads thanking members who voted for it. In September, they launched a $4 million campaign targeting 20 members, mostly in competitive races, again thanking those who voted for it and urging people to call Congress in support of the Medicare drug plan.

United Seniors ads were produced by Sawyer Miller Advertising, which had done many major campaigns for PhRMA. But according to a person involved with the effort, the location of the ads and the strategy of the message were orchestrated by PhRMAs lobbyistsincluding Buckham and Rudy at Alexander Strategy, and former congressman Bill Paxon, a lobbyist at Akin Gump and longtime DeLay protg who had once headed the NRCC. Rudy was known to be particularly adept at mobilizing interest groups in the service of a DeLay pet project. All the outside groups had to deal with Tony when he was with Tom, said a former leader of a major Christian evangelical group. He knew all the pro-gun, all the pro-life groups. It was part of his job. Thats why Jack decided he was worth having.

Meanwhile, two other Alexander Strategy lobbyists, Mike Mihalke and Chris Bertelli, also worked with the seniors groups. The pair were Republican operatives who had fine-tuned their skills in several underhanded campaigns (see Dynamic Duo). Although both Bertelli and Mihalke worked out of the Alexander Strategy office, they created a separate company, Advocacy Technologies, which officially did the work.

Mihalke supervised a mail campaign for the Seniors Coalition in at least 11 competitive districts. The mailing was strikingly similar to letters sent by America 21 and 60 Plus. (In Colorado, all three contained an identical misspelling of a Republican candidates name). David Breaux, a political science professor at Mississippi State University, analyzed the mailings of the three groups in his state, and concluded in a report that they were so similar it caused one to wonder if there was any coordination. Neither Mihalke nor Bertelli would say whether Advocacy Technologies produced all three letters (both failed to respond to numerous requests to comment for this article). However, Mac Haddow, a top Seniors Coalition official, acknowledged that the campaign was intended to prevent Democrats from using the Medicare issue against Republicans. The mailings were prophylactic, he said, to make sure that we didnt allow this issue to be politicized in the context of election warfare. John Powell, who headed the Seniors Coalition at the time, worked closely with Advocacy Technologies on this effort, and soon afterwards went to work for Alexander Strategy. Since the firm shut its doors this January, Powell has been trying to form his own consulting firm with Mihalke.

Kouris North Carolina race wasnt the only election in which United Seniors and the other groups helped to tip the scales against a candidate. In a newly created Colorado district, the NRCC waged a vicious campaign against Democrat Mike Feeley, portraying him in mailings as a rabid dog. And they spent almost $2 million dollars on TV ads, more than both candidates combined. Some ads attacked Feeley, a former lobbyist for independent pharmacies which are often at loggerheads with drug companies, for backing a powerful drug industry group that wanted to drive up pharmaceutical prices. At the same time, Seniors Coalition, America 21, and 60 Plus inundated seniors with mailings praising his opponent (no groups offset this with support for Feeley). United Seniors didnt participate directly in this race, but it flooded the local airwaves with ads targeted to the Colorado Senate race, supporting the Republican Medicare drug proposal. Asked if all these activities affected the outcome, Feeley told me simply, I lost by only 121 votes.

One indicator of how the United Seniors campaign betrayed the fundamental conservative principles that the group professed was its own political action committee. When Jarvis took over United Seniors, he didnt want the PAC, so it remained in the hands of conservatives sympathetic to the organizations original mission. Because the PAC relied on small donations from conservative seniors, it actually reflected their views. Consequently, United Seniors PAC funded primary and election candidates who opposed a Medicare drug proposal, while Jarvis backed candidates who supported the idea. Congressmen would call me screaming and say, I thought you liked me? said Paul Erikson, a longtime conservative political activist who headed the PAC. And wed say, We do, we gave money to you. And theyd say, Then why are you running ads in my district?

The 2002 elections set the stage for the passage of the Medicare drug bill the following year. The large sums poured into competitive races by the seniors groups served as a warning to lawmakers who had doubts about the leaderships Medicare drug proposal. No one wanted this kind of money directed against them in the next election if they opposed the plan. And for some conservatives, the impression of a groundswell of senior support for the proposal offered a useful cover to justify their vote for a bill contrary to their principles. A person involved with one of the seniors groups campaigns confirmed this fact: The strategy was to shore up conservatives, he said. And, of course, the elections delivered Republicans control of the Senate, and in 2003, DeLay ascended from the House whip to the majority leaders post.

Just say yes

By 2003, both the House leadership and the White House were determined to force a Medicare drug bill through Congress in time for the 2004 election. In addition to its political benefits, the bill had the extra advantage of attracting staggering sums from the drug industry to the GOPs campaign coffers. Drug companies were desperate for a privately run program without price controls, in order to mute demands for reimportation of drugs from foreign countries, where they are cheaper. In its effort to defeat the drug import law, PhRMA again called on Alexander Strategy and its allies (see Murder, Inc.). Meanwhile, DeLay unleashed the full might of his machine to get his must-have measure passed. The leadership always saw passage of this bill as a political imperative, said a former senior House Republican aide who helped coordinate the effort. We had our main message point. Democrats had controlled the House for 30 years and couldnt pass a drug benefit, and we did it in 10.

But to grasp this valuable prize, DeLay had to wage an extraordinary battle for his colleagues votes. House Democrats wouldnt touch the bill, because the program was run by the private sector and didnt allow for bargaining over drug prices. Conservative Republicans were outraged at what they saw as an extravagant government expansion. With Democrats virtually united in opposition, the bills fate rested with about 30 conservative Republicans. Don Devine, a vice chair of the American Conservative Union who led a coalition of 30 fiscal conservative groups opposed to the bill, called the scenario a lobbyists dream. They needed every Republican vote, coming down to four or five votes, he said. So they could really target resources.

This was good news for Alexander Strategy. In 2003, PhRMA was the firms largest client, paying them $720,000. Individual drug companies paid them another $240,000. Overall, drug companies accounted for 15 percent of the firms lobbying income.

But the team at Alexander Strategy was evidently still not satisfied. In 2002, Buckham and Rudy had helped to direct United Seniors election advocacy as part of their work for PhRMA. However, they didnt actually handle the campaigns nuts and boltsespecially the massive purchase of television and radio ads, which pay handsome commissions. In January 2003, United Seniors dropped its media consultants and agreed to a deal in which it would pay $13 million to Advocacy Technologies (the company run by Alexander Strategy partners Mihalke and Bertelli) to create and place ads.

The Alexander Strategy partners were certainly well-positioned to help United Seniors pinpoint their efforts. As the bill moved through Congress, Rudy and Buckham met frequently with Dave Mohler, PhRMAs chief congressional lobbyist. According to one of Rudys former colleagues, Mohler was the person who was driving point on this stuff at PhRMA. He worked closely with Buckham and Rudy and Alexander Strategy… working with the outside groups, targeting members what members are up and what members are down, who we are targeting and why.

As the end of the session neared, DeLay and his network began planning for a floor vote. Around a dozen lobbyists for hospitals, physicians, drug companies, and business associations met regularly in a cozy room near DeLays Capitol office, replete with couches and a fireplace. This operation, dubbed the war room was run by Susan Hirschmann. Hirschmann had replaced Buckham as DeLays chief of staff, and left the Hill in 2002 to lobby for a range of corporate heavy-hitters, including drug companies. DeLay and other Republican leaders often stopped by to give the lobbyists a pep talk. Under the direction of Hirschmann, who had gone on a number of Abramoff-sponsored junkets, the group would swap notes on which members of Congress were still undecided on the bill, and debate strategies to change their minds. They discussed who had connections to a lawmakers district and how those ties could be leveraged to influence him or her. Susan Hirschmann was the one who made sure that people were actually going and doing it, one participant said.

At this point, United Seniors also swung into high gear, making the most of the intelligence gathered by the Alexander Strategy lobbyists. That year, United Seniors spent more than $23 million on radio and television ads and several hundred thousand dollars on mailings, according to their tax returns. This expenditure accounted for almost their entire annual revenue that year of $26.5 million, almost $25 million of which came from a single donor, according to their tax return. (On the form, the donors name has been poorly redacted: the first word begins with P and a subsequent word starts with M, suggesting that the source was the Pharmaceutical Research and Manufacturers Association). The United Seniors campaigns targeted more than 50 House members and 15 senators. While their efforts were overwhelmingly aimed at Republicans, at least 10 Democratic senators were targeted at one point, in a bid to stop them filibustering the bill. Mihalke also ran a radio campaign for Seniors Coalition pressing members of Congress to deliver on their pledge to back the Medicare drug bill.

At 3 a.m. on November 22nd, 2003, Speaker Dennis Hastert (R-Ill.) offered the bill for a vote. After the customary 15 minutes, the measure had failed to pass by 15 votes. So, flaunting procedure, Hastert famously held the roll call open while DeLay and his cohorts worked the floor, pressuring lawmakers to change their minds. After an hour, DeLay still needed to twist two more arms. At 5 a.m., President Bush called resistant members from the White House. Fifty minutes later, two Republicans succumbed, and after the longest, most unorthodox roll call in U.S. history, the bill passed just before dawn. When President Bush signed the legislation, he thanked several seniors groups, including United Seniors, Seniors Coalition and 60 Plus, for their fantastic work.

Without the Alexander Strategy-run lobbying campaign, DeLays Medicare vote could never have hinged on just two vulnerable lawmakers. And it was the PhRMA-funded seniors groups who were crucial to softening up the Republican holdouts. Devine, who led the conservative coalition against the bill, said he knows of at least three conservative lawmakers who ended up voting for the bill after telling him that they opposed it, but who were also worried about the incessant barrage of ads, particularly those from United Seniors. [They were] all people who told me they were going to vote against it but were worried about the ads going on in their districts, he said. And because the vote was so close, it didnt have to change many votes.

Take your medicine

Almost two years later, in July 2005, when DeLay was still House majority leader, he met about 50 healthcare lobbyists in a basement room in the Capitol. Enrollment was due to start soon for the Medicare drug plan, and DeLay was eager to impress on the lobbyists the importance of signing up seniors. In his view, there was one overwhelming reason to do so: the midterm elections in 2006. I have a very, very tough race coming up, he said, according to a Congressional Quarterly reporter who managed to slip into the private meeting. And Im going to be the number one guy signing up seniors in my district and seniors are going to be my friends when its over.

Clearly, things havent worked out quite as DeLay had intended. Dissatisfaction with the Medicare drug bill is widespread, and DeLays own political career is over. He has left office under indictment for money laundering in Texas, and recently prosecutors from the Abramoff investigation questioned people about the lucrative work his wife claimed to have done for Buckham. But Congress has balked at enacting a tough lobbying reform bill that would prevent DeLay, Inc.s worst abuses. Weve heard a lot about inappropriate activity by nonprofit groups connected to Jack Abramoff, noted Sen. Charles Grassley (R-Iowa), who failed this past summer to win support for a measure that would have increased penalties and required more disclosure from overly political nonprofits. The problem is much bigger than Jack Abramoff. Were seeing more and more charities used in the best interests of lobbyists and special interests, not the public. Although DeLay has gone and Abramoff is bound for jail, the system in which they prospered still stands.

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