NRA Loses Midterm Muscle After Cash Crunch From Big Bet on Trump

(Bloomberg) -- The National Rifle Association, facing a cash crunch after pouring money into Donald Trump’s presidential bid, cut spending for the midterm elections that threaten the Republican hold on Congress.

After devoting record sums to help elect President Trump in 2016, the powerful lobbying organization had a sharp decline in working capital last year. The NRA borrowed against life insurance policies on top executives and took out a loan from its philanthropic arm. It also turned to a regional bank to refinance a long-standing credit line that it had almost exhausted from Wells Fargo & Co.

Even after borrowing the money, NRA spending by its lobbying arm in venues like television and radio has plunged this year 86 percent to $1.9 million from the last midterm elections. When this outlay is combined with spending by the NRA’s political action committee, which raises money separately, the $16.4 million total is less than half of what they deployed in 2014. The retreat comes as mass shootings in Las Vegas, Parkland, Florida, and Pittsburgh have made gun control a hot-button political issue in the Nov. 6 elections.

Andrew Arulanandam, the NRA’s spokesman, said changes in the group’s so-called unrestricted net assets, used for political activity and other purposes, are typical and not an indication of waning support.

“Like many organizations, unrestricted assets may fluctuate from year-to-year based upon the needs of the organization,” Arulanandam said in an emailed statement. He added that with 5.5 million members, the NRA is at “the highest levels of membership in our 150-year history.” He declined to provide additional details.

NRA Loses Midterm Muscle After Cash Crunch From Big Bet on Trump

The NRA PAC has focused its independent political spending on a number of Senate races. It has paid out $1.1 million to oppose incumbent Democrat Joe Donnelly in Indiana and almost $667,000 against incumbent Democrat Claire McCaskill in Missouri. It deployed nearly $683,000 in support of McCaskill’s Republican opponent, Missouri Attorney General Josh Hawley.

Threat Recedes

The gun rights movement can be seen as a victim of its own success. Trump’s victory in 2016 pushed off the threat of gun control from Democrats and firearms sales stagnated as potential customers no longer saw the need to stock up on weapons. That hurt gunmakers. Shares of Sturm Ruger & Co. are down about 12 percent since the November 2016 election compared with a 29 percent gain in the S&P 500 Index.

Two years ago, the NRA’s finances began to weaken after the lobbying arm put $34.5 million behind the candidacy of Trump and other Republicans. The group ran a $41 million deficit in 2016 as increased political spending and membership acquisition costs drove total expenditures to $419 million, according to the NRA’s financial statements.

Last year, the deficit grew by $21 million as revenue from contributions and membership dues sank. The $35 million decline in dues -- the NRA’s largest source of unrestricted revenue -- was particularly significant.

“The worst thing that happens to the gun rights movement is when they are successful politically,” said former NRA lobbyist Richard Feldman, who’s president of the Independent Firearm Owners Association.

Assets Drop

By the end of 2017, the NRA had just $1.48 million of unrestricted assets, down from $65.6 million two years prior, according to the statements. The group warned of a potential funding shortage when it told members earlier this year that their annual dues would rise $5 in August, adding in the notice, “We simply can’t compete in the 2018 elections” without the increase.

Brian Mittendorf, an accounting professor at Ohio State University who studies the NRA’s financial statements, said the group does not appear to be facing an immediate fiscal crisis. But he said multiple years of declining net assets raise concerns: The organization will need to scale down its spending or find new sources of revenue.

The lobby last year turned to a form of credit it hadn’t used since 2011. It borrowed $3.5 million against whole life insurance policies it held as funding for a deferred compensation program for executives and employees, according to the statements.

The NRA also took the step of borrowing $5 million from its charitable foundation last November. While the foundation grants roughly $19 million a year to the NRA, that money can only be used for the same philanthropic activities that the charity supports.

Foundation Loan

The loan represents a way to “slip the bounds” of these charitable restrictions, said Marcus Owens, a partner at Loeb & Loeb and former director of the Internal Revenue Service division that oversees nonprofits. Under U.S. rules, the NRA has more leeway in how it spends its foundation loan as long as it bears interest at market rates and is repaid.

Wilson Phillips, who resigned in September as the NRA’s chief financial officer, described the foundation loan as “a very short-term deal” in an interview in January. NRA financial statements disclosed that its due date was extended from February until June. It remains outstanding, according to regulatory records.

The NRA pays an annual rate of 7 percent for the loan, making it relatively expensive compared with the floating rate of 2.16 percent for the Wells Fargo credit line last year, according to the statements. But the NRA had drawn $23 million on the credit line by the end of 2017, leaving little room for additional borrowings.

In September, the NRA refinanced its line of credit. While Wells Fargo had been renewing the $25 million line for roughly a decade, the NRA’s balance sheet appears to have weakened during the past several years. With the facility set to expire Sept. 30, the NRA switched to a new credit line with Access National Bank, securing it with 18 securities accounts at Morgan Stanley Smith Barney, according to a September filing.

Susan Budak, a consultant on nonprofit accounting who reviewed the NRA’s financial statements, said the group’s liquidity “has eroded. The biggest factor,” Budak added, “is they are pledging cash, investments and receivables as collateral for their borrowing.”

Access National provided the organization with a $3 million increase in the size of the credit line to $28 million, a person familiar with the situation said. Michael Clarke, Access’s chief executive officer, declined to comment on the NRA loan.

The NRA, which has managed through deficits before, won’t release new financial statements covering 2018 until next year.

The best outcome for NRA fundraising, said ex-lobbyist Feldman, would be success by Democrats election night.

“If the Democrats take the House, there will not just be gun control bills,” he said. “There will be hearings. It’s the kind of ink the NRA wants.”

(Michael R. Bloomberg, founder of Bloomberg News parent Bloomberg LP, is a donor to groups that support gun control, including Everytown for Gun Safety.)

©2018 Bloomberg L.P.