Politico

Kenneth P. Vogel Kenneth P. Vogel – Wed Aug 19, 5:45 am ET
Critics of President Obama’s health-care overhaul are zeroing in on his senior adviser David Axelrod, whose former partners at a Chicago-based firm are the beneficiaries of huge ad buys — now at $24 million and counting — by White House allies in the reform fight.

The unwelcome scrutiny, largely from Republicans, comes at an inopportune time as Obama seeks to shore up support for health care reform. It revolves around two separate $12 million ad campaigns advocating Obama’s health care plan that were produced and placed partly by AKPD Message and Media, a firm founded by Axelrod that employs his son and still owes Axelrod $2 million.

A separate firm, GMMB, is also handling the campaigns. Both AKPD and GMMB did millions of dollars of work on Obama’s presidential campaign, continue to tout their connections to the campaign and still maintain close ties to his inner circle.

The two firms were hired to make the health-care ads by a pair of linked coalitions supporting Obama’s health-care overhaul proposal — Healthy Economy Now and a newer offshoot unveiled last week called Americans for Stable Quality Care.

The Associated Press reported this month that Healthy Economy Now paid AKPD and GMMB to produce a $12 million national ad campaign echoing White House talking points supporting the health care overhaul.

And a spokesman for Americans for Stable Quality Care, which essentially supplanted the now-defunct Healthy Economy Now, confirmed that it is using the two Obama-linked firms to produce and air a separate $12 million ad campaign launched Thursday designed to shore up support among the conservative House Blue Dog Democrats and to target swing senators. The ad, which is airing in a dozen states, is the opening salvo in a campaign planned for this fall that will cost tens of millions of dollars more.

The coalitions are a strange-bedfellows mix of business, labor and health care groups including the Pharmaceutical Research and Manufacturers of America (better known as PhRMA), the American Medical Association, the Service Employees International Union and the liberal group FamiliesUSA.

Neither coalition would reveal how much AKPD or GMMB was paid for its work on the ads. The firms will likely net only a fraction of the $24 million total campaign price tag, but — unlike with election campaign spending — there are no mandatory reporting requirements for such so-called issue advocacy.

Some of the Healthy Economy Now ads began airing in June, around the time PhRMA was negotiating with the Senate Finance Committee on an eventual agreement to win the drug lobby’s support for a health care overhaul by capping the costs the drug industry would absorb to $80 billion over 10 years.

The deal, which was blessed by the White House, has angered some progressive activists and liberal House Democrats, who until recently counted Big Pharma as both an impediment to health care reform efforts and a Republican-aligned lobby.

Republicans are aggressively seeking to capitalize on the AKPD connection, and the House Republican Conference distributed a one-page talking points memo Tuesday asserting the White House-PhRMA deal raises “serious questions as to whether the drug lobby is helping to bankroll a multimillion dollar severance package for one of the President’s senior advisers.”

The memo points out that the drug industry will profit handsomely from the deal and asks whether Axelrod “recused himself from the PhRMA ‘deal,’ or will he work to defend an agreement with an industry that is directly funding his son’s work, and indirectly funding his own $2 million severance package?”

PhRMA vice president Ken Johnson said his group wasn’t involved in selecting AKPD or GMMB, and that, in fact, he had no idea the coalitions had picked the former Axelrod firm until he was asked about it by a reporter from Bloomberg.

“We’re very involved in reviewing ad copy and determining targeted districts and states, but not in determining which consultants are hired to carry out the campaign. That’s left to the people who you hire to manage it,” he said, adding that PhRMA had not hired either firm for ad buys the group aired on its own, which will likely dwarf the buys it helped fund as part of the coalition.

He declined to comment on the House GOP criticism, except to say, “Unfortunately, we’re a talking point and I’m not going to talk about the talking point.”

Spokesmen for Healthy Economy Now and Americans for Stable Quality Care said their groups paid AKPD and GMMB to produce the ads because they are considered top ad firms, not because of any connection to Axelrod or the White House.

Indeed, AKPD is widely recognized as a talented Democratic consulting firm with significant experience on health care-related issues.

They “are among the best in the business, so it was a no-brainer to hire them to help out this new effort to explain what health care reform means for Americans,” said Phil Singer, a spokesman for Americans for Stable Quality Care.

White House Press Secretary Robert Gibbs on Tuesday dismissed a reporter’s question about whether Axelrod was profiting from the health care fight.

“That's ridiculous,” Gibbs said during a Tuesday afternoon briefing. “David has left his firm to join public service.”

AKPD’s continued payments to Axelrod are based on “an agreement, I think, that was made because David started and owned the firm. He left the firm, and if I'm not mistaken, is being paid for the fact that he created it and sold it, which, I think, is somewhat based on the free market.”

Financial disclosure records show that Axelrod, while preparing to take a job in the White House at the end of last year, sold AKPD for $2 million. And the records show that he sold a separate corporate public relations firm he founded called ASK Public Strategies for $1 million at the end of 2008.

AKPD is now owned by a group of consultants who helped steer Obama’s campaign, mostly while working at the firm, and ASK is owned Axelrod’s former partners there. Both firms will pay his buyouts in preset annual installments starting at the end of this year, terms that were settled on prior to Axelrod’s White House service.

AKPD officials declined to speak publicly about the arrangement, but a source familiar with the firm’s operations and finances said it is not reliant on the revenue from the Healthy Economy Now and Americans for Stable Quality Care campaigns to fulfill Axelrod’s annual payments, which the source described as “a fraction” of AKPD’s operating costs.

Additionally, the source said David Axelrod never discussed the coalitions’ campaigns with representatives from the firm or the coalitions themselves. The source added that Axelrod’s son Michael is a junior-level AKPD employee who has worked there for fewer than five years and is not involved in the coalitions.

It’s difficult to determine the clientele of ASK or AKPD, since neither are required to report them. But Axelrod’s disclosure statement shows that before he left the firms, both represented clients with business interests that stand to be affected by administration policy.

AKPD, for instance, represented the AFL-CIO, while ASK has worked for power concerns including Exelon and Commonwealth Edison Co. that could be affected by the administration’s push for a cap-and-trade system to reduce carbon emissions. The company also has worked for the nonprofit corporation formed to lure the 2016 Olympics to Chicago, an effort that the Obama administration has thrown its weight behind. White House officials have said Axelrod was not involved in the Olympic push.

On his first day in office, Obama unveiled a strict ethics policy barring officials from working on issues “directly and substantially related” to their former clients or employers for two years.

The White House vigorously denied that Axelrod violated the spirit of that policy. And, in fact, Axelrod's buyout agreements were cleared by the independent Office of Government Ethics, which is headed by a director appointed in 2006 to a five-year term by former President George W. Bush.

“David Axelrod has fully complied with the toughest ever ethics rules for administration officials, including divesting from AKPD before the administration began,” said Obama spokesman Ben LaBolt. “The notion that Mr. Axelrod should decline to participate in all health care policy work because his former firm — from which he has divested himself — has retained a single client which he has had no contact with is absurd.”

Nonetheless, the selection of Axelrod’s former firm to push the president’s top initiative raises appearance questions, particularly since Axelrod’s son Michael still works there, said Bill Allison of the Sunlight Foundation, which advocates for stricter government disclosure and ethics rules.

“The big issue seems to me whether there is a quid pro quo with PhRMA,” said Allison, adding “there’s no evidence that Axelrod steered the business to the firm. But the fact that special interests like PhRMA and the American Medical Association working hand in glove with the White House picked a firm that is so close to the White House shows how incestuous Washington can be.”

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