Trailhead to Nowhere

Additional reporting from Colorado Confidential reporters Wendy Norris, Nancy Watzman and Cara DeGette.

As this high-stakes political season enters its final weeks, one of the biggest and most influential political committees at work in Colorado appears to be playing fast and loose with the campaign finance rules. Are they cheating? An exclusive Colorado Confidential investigation of the Trailhead Group reveals questionable financial transactions that literally don’t add up.

Over the course of several days, Colorado Confidential examined publicly available financial reports filed with the IRS by the Trailhead Group – a political committee created by some of Colorado’s biggest Republican names – and found several transactions totaling $200,000. Contributions to other political committees that Trailhead claims in its IRS filings are not found on the recipient’s books, and contributions from those committees back to Trailhead either don’t match Trailhead’s records or don’t appear at all. And on one occasion, a contribution was made to an organization for which Colorado Confidential can find no record of existence.

Some of the heaviest hitters in Colorado Republican politics – including Gov. Bill Owens, former gubernatorial candidate Bruce Benson and former U.S. Senate candidate Pete Coors – created Trailhead Group as a means to help Republican candidates get elected to office in Colorado. High-profile donors give millions of dollars to Trailhead, making it one of the richest so-called “527 committees” in the entire country. These “527 committees” are named for the federal tax code under which they are required to file; they provide for unlimited contributions and are a convenient way to advocate for or against a campaign or candidate while avoiding state and federal contribution limits (for more background on 527s, see this story from the Center for Responsive Politics). 

Trailhead receives large donations from political organizations, individuals and corporations. As of the end of July, Trailhead raised $1,825,708, or slightly less than each candidate for governor raised in their respective campaigns. The Republican State Leadership Committee was one of Trailhead’s first donors ($290,000). Pete Coors gave $150,000, while Benson Mineral Group (Bruce Benson’s company) gave a total of $75,000.

UPDATED 9/18/06: Click for a list of major donors to Trailhead

But in addition to receiving big money from a variety of donors, Trailhead has also contributed a large sum of money to other political organizations with Colorado ties.

Or has it?

Consider, for example, a $50,000 contribution that Trailhead reports making to the Colorado Leadership Fund – a separate 527 organization filed with the IRS – on April 21, 2006. Just two days later, Trailhead reports receiving a donation of $50,000 from the very same Colorado Leadership Fund (CLF). There is no rule prohibiting 527 organizations from giving money to each other, but the rules are clear that any contribution over $200 and any expenditure over $500 must be reported during the same federally-mandated reporting period.

A review of finance reports filed by CLF shows no record of either a contribution or an expenditure involving Trailhead. Only Trailhead claims both a contribution and expenditure of $50,000.

Perhaps this is just a case of sloppy accounting work, where CLF just forgot to record two $50,000 transactions. But that would be a whopper of an accounting error, given that CLF received a total of $46,565 in donations for the entire second quarter of 2006. If it was an accounting error, CLF forgot to note a single contribution that was for more money than the group raised in three months.

It’s even harder to explain how CLF might have failed to note a $50,000 expenditure to Trailhead, particularly since the group hasn’t spent $50,000 in its entire existence. Beginning on December 21, 2004, when CLF was first formed, until the end of July 2006 (when the last financial report was available from the IRS), CLF had raised a total of $186,765 but spent only $42,844. If it hadn’t bothered to note a $50,000 contribution to Trailhead, the CLF books are going to look pretty funny at some point.

Michele Austin, the custodian of record for the Colorado Leadership Fund, LLC, did not immediately return calls seeking comment.

If that were the only curious accounting maneuver made by Trailhead, this wouldn’t be a very interesting story. But this is an interesting story, so let’s go back to the money trail.

Click here to see the transactions in question as they appear on the IRS filings.

On April 12, 2006, Trailhead reports making a $20,000 donation to the Senate Majority Fund, another separate 527 organization. One day later, Trailhead reports receiving a whopping $55,000 from the Senate Majority Fund (SMF). A review of financial reports made by SMF, however, show only a $30,000 donation made to Trailhead. Not only does SMF fail to report receiving a dime from Trailhead (which also claims to have given SMF a $5,000 contribution on May 10), it never reports donating a sum of $55,000 back to Trailhead.

Scott Shires, the custodian of record for the Senate Majority Fund, LLC, did not immediately return calls seeking comment.

It’s not unusual for 527s to give money back and forth, according to Sheila Krumholz, active executive director for non-partisan Center for Responsive Politics (which tracks the money in campaigns nationwide). “We know that there are a lot of transfers between and among 527s, she says. “For instance, there were three affiliated 527s that were very active in 2004, and there were lots and lots of transfers between them.”

Krumholz can theorize as to why 527s like Trailhead would move money back and forth, but she’s stumped as to why the accounting wouldn’t add up. “If they wanted to present their money as coming from ideological groups and individuals and not corporations, then perhaps they would in essence trade money from individuals or acceptable sources to another organization,” she says. “This other organization would then give them back the money – or perhaps more money – and allow them cover for contributions received from sources perceived as unacceptable.”

What is particularly unusual about this case, say campaign finance experts, are donations and expenditures that aren’t accounted for. They are so rare, in fact, that they may be virtually unprecedented.

Steve Weissman, Associate Director for Policy at the non-partisan Campaign Finance Institute in Washington DC, spends a great deal of time tracking the money and the movement of funds associated with 527 organizations. He’s never seen this before.

“I don’t recall encountering situations where one group is saying they got the money and the other is saying they never received it,” says Weissman. “If someone says they gave money to another 527, it’s generally there. I can’t remember an instance when it has not been there.

“If they are not listing these transactions, that is against the law. It’s called not filing an accurate report, and that’s something the IRS should be enforcing.”

One of these groups is in the wrong, but who is it? Either the Colorado Leadership Fund and the Senate Majority Fund erred by not correctly reporting transactions, or Trailhead is wrong for reporting transactions that didn’t occur. Either way, “There’s no excuse,” says Weissman. “Someone is wrong, or their reporting is sloppy – which is against the law.”

Perhaps an argument could be made that Colorado Leadership Fund and Senate Majority Fund were only reporting net proceeds? Not so fast, says Weissman. “They are supposed to report every contribution and every expenditure over a threshold amount, and they aren’t supposed to condense things. You’re not supposed to give net funds.”

This may all sound very confusing…and those are just the transactions involving organizations that Colorado Confidential could identify.

On March 6, 2006, Trailhead reports making a generous contribution of $20,000 to something called the Colorado Good Government Initiative. The Colorado Good Government Initiative sure sounds like a nice program – after all, everybody likes good government – but does it even exist?

Colorado Confidential found no record of a “Colorado Good Government Initiative” in searches on both a state and national level. Colorado Good Government Initiative doesn’t appear as a 527 organization; as an LLC; a corporation; a 501(c)3 nonprofit; a 501(c)4 nonprofit; a political action committee or any other type of organization that came to mind. Alan Philp, the executive director of Trailhead Group, did not immediately return calls seeking comment.

This Colorado Good Government Initiative, according to Trailhead’s filing, is located at 303 E. 17th Street in Denver. That’s a pretty cool coincidence, because the offices of Trailhead Group are located at 303 E. 17th Avenue in Denver.

One of these addressed is called a street, while the other is an avenue, so Colorado Confidential went for a visit to 303 E. 17th Street – the purported home of the Colorado Good Government Initiative – to see what kind of an organization it might be.

We never made it, because 303 E. 17th Street isn’t a real address.

UPDATE: the Colorado Good Government Initiative is currently listed as a nonprofit corporation with the Colorado Secretary of State. Click here for more on this development.

How does the rest of this puzzle fit together? This is the first part of a continuing investigative series by Colorado Confidential, and more reports will appear on a regular basis over the course of the next several days. Check back at Colorado Confidential as this story continues to develop.

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