Rep. Tom Cole’s (Okla.) decision to overhaul fundraising operations at the National Republican Congressional Committee appears to be a key factor in the NRCC’s precarious cash position. The changes are expected to pay dividends in future election cycles — but not in time to help House Republicans in what is turning out to be a very difficult 2008 cycle.

Cole, the NRCC chairman, indicated in an interview this week that his move to transform the committee’s fundraising from a telemarketing-based operation to one built around direct mail is partly responsible for the NRCC’s nearly $30 million cash-on-hand disadvantage compared to the Democratic Congressional Campaign Committee. Still, Cole contends his committee’s thin $6.4 million war chest is largely the result of his desire to spend 2007 paying off $14 million in debt.

Cole declined to reveal what the NRCC has spent on building its direct-mail fundraising program since January 2007, citing the need to protect trade secrets. But the chairman acknowledged that the committee continues to invest significant resources to build a small-donor fundraising base that he hopes will eventually rival what new NRCC Finance Director Janice Knopp built for the Republican National Committee during her 15 years there.

“You have to think of the long term. That usually calls for some people being willing to have less so that their successors can have more,” Cole said. “It will take several cycles, in my opinion, to get where we need to go.”

Cole served as executive director of the RNC during the 2000 cycle and observed Knopp’s leadership of that committee’s fundraising program firsthand. He recruited Knopp to the NRCC at the beginning of this cycle.

According to Cole, when he took the reins of the committee in January 2007, two-thirds of its donations came from telemarketing and about one-third of its donations came from direct-mail appeals. One year into Cole’s fundraising project, that ratio is roughly the same, although the plan ultimately is to see those numbers reversed.

Cole said the direct-mail donor file was profitable when he became NRCC chairman. But the Congressman said it had “atrophied” over the years as House Republicans — in the majority from 1995 to 2006 — had generally relied on telemarketing, large checks from major donors and contributions from K Street.

Trying to Raise More for Less

Regardless of where the bulk of the money comes from, there are five components to the NRCC’s fundraising: telemarketing, direct mail, Member transfers, and major donors, who this cycle can donate a maximum of $28,500 to national party committees, with a small amount of donations received via the Internet.

But at the DCCC, where contributions have spiked considerably now that the Democrats are in the majority, the fundraising breakdown is approximately one-third grass roots, which includes phones, mail and especially online contributions; one-third Member transfers; and one-third major donors.

Direct-mail fundraising is generally preferable over telemarketing, since it costs less to raise money through the mail than it does over the phone. Internet donations are even less expensive. The DCCC, with an online donor file of more than 2 million contributors, would appear to have an edge over the NRCC.

Building a direct-mail file of regular donors is time-consuming and expensive. It involves renting mailing lists from other entities and “prospecting” for donors by repeatedly sending out mass mailings. Those mailings require a significant investment in printing costs and postage — not to mention time.

One Washington, D.C.-based Republican who has worked as a political fundraiser commended Cole’s goal, saying that putting a larger emphasis on direct-mail donations, as opposed to telemarketing, was a move that had to be made at some point. But it doesn’t come without risk to this year’s House Republican incumbents and challenger candidates.

“It’s a Catch-22,” this individual said. “It takes time to build a file, and it’s costly to build a file. You have to do a lot of prospecting. Eventually it will pay off, but in the short term you are spending money to get names that will not raise you tons of money and will not raise you money right away.”

The NRCC last year added approximately 100,000 new donors to its direct-mail file. But Cole would not disclose any specifics regarding what the committee spent to secure those donors. The NRCC runs several direct-mail programs targeting new donors, regular donors and prospects.

Cole said that, overall, these programs are netting a profit in contributions. But he declined to disclose any numbers, including what the NRCC spent to find those 100,000 new mail donors, how much money the committee invested in direct-mail fundraising last year, and how much it plans to invest this year. Cole would only say that the NRCC continues to re-invest significant funds earned from direct-mail fundraising into prospecting for more donors so as to build the direct-mail file.

“We’re pretty careful about what we’re doing, so we’re not putting ourselves in a hole,” Cole said. “But turning this around is a little like turning a battleship around.”

The Vander Jagt Model

In the 1992 cycle, Cole served as executive director of the NRCC. The Oklahoman said in the interview that he would like to see the committee’s fundraising run much like it was during the lengthy reign of former NRCC Chairman Guy Vander Jagt (Mich.).

While Cole won’t reveal what the NRCC is investing in direct-mail fundraising, a clue can be gleaned from an examination of what the committee paid last year to the five consulting firms it used to create its direct-mail appeals.

According to a review of the NRCC’s Federal Election Commission filings for 2007, those firms — New Response America, Derby Watkins, Luken Co., Oxford Communications and Burch Munford Direct — were paid $330,887. Additionally, the NRCC in 2007 reported expenditures of $2.3 million for “generic postage,” $396,138 for “generic list acquisition” and $950,444 on “direct mail production.”

The NRCC’s February FEC report showed the committee with $6.4 million on hand as of Jan. 31, compared with the $35.5 million on hand for the DCCC.

The DCCC had a large cash advantage over the NRCC throughout 2007, leading to a prevailing opinion on Capitol Hill and on K Street that the NRCC has failed miserably to raise money this cycle, even when considering the results of the 2006 elections and Republicans’ newfound minority status. But as of Jan. 31, the NRCC had only been outraised by the DCCC by about $18 million for the cycle — $71.3 million to $53.4 million.

Cole believes that the perception of this cycle’s NRCC as a poor fundraiser is related to his decision to pay down debt.

Cole and officials from the previous NRCC regime, led by Rep. Tom Reynolds (N.Y.), have disagreed over the size of the debt that Cole inherited from the 2006 cycle. They have also disagreed about how much cash Reynolds left in the bank when he relinquished control of the committee after House Republicans lost 30 seats in 2006.

The highest available debt figure for the 2006 cycle, according to an examination of several different FEC reports labeled as either 2006 “year-end” or “post general,” was $14.5 million, although Cole contends that bills kept arriving after he took over the committee, driving the debt up to $16 million.

Meanwhile, NRCC officials claim that there was only about $1.8 million in the bank when Cole assumed command of the committee. But members of Reynolds staff at the committee say that they left about $5 million in the bank at the end of 2006, and in fact, an FEC report filed after the midterm elections showed $4.6 million in cash on hand.

In the interview, Cole appeared to walk the line between making assurances that the NRCC would have the resources it needs to compete this November, and conceding that his strategy of shifting NRCC fundraising away from a reliance on telemarketing was a significant though necessary investment that would cost the committee campaign cash in the short term but pay off big down the road.

One Republican strategist who is partial to the way the NRCC raised money under Reynolds questioned Cole’s fundraising philosophy.

This individual acknowledged that it costs less per dollar to raise funds via direct-mail appeals, but said telemarketing is where the major donors tend to come from. Letting the NRCC’s file of phone contributors diminish could mean fewer supporters who write large checks and attend events like Wednesday’s March dinner. The NRCC announced Wednesday that it raised $8.6 million for the March dinner, $1.1 million over the committee’s goal.

“The phones get people to give more,” this GOP strategist said. “Phone donors are the type of people that come to the big D.C. dinners.”

An NRCC official said the committee is still prospecting for phone donors via telemarketing, but said that the amount of telephone prospecting has been purposely diminished as the NRCC transitions to direct-mail-based fundraising.

Paying Off Debts

Reynolds partisans note that when the New Yorker took control of the NRCC in January 2003, he had to pay off a debt of approximately $8 million and was forced to do so without relying on soft money, as the Bipartisan Campaign Reform Act had just taken effect. Under soft-money rules, national party committees could solicit large corporate and individual donations in unlimited amounts.

Paying off the debt from the 2002 cycle and putting House Republicans in a position to defend their majority in 2004 required cultivating major donors and money that could be raised quickly. Telemarketing is good for both.

But with House Republicans now in the minority, Cole believes it is imperative that the NRCC broaden its donor base and build a legion of financial supporters who might give less on an individual basis, but who will give loyally, year after year. Not only will it cost the NRCC less over time to raise money through the mail, but any windfall from mail solicitations could offset losses in bigger contributions. Major donors and K Street contributors are fickle and tend to donate less to the minority party.

“We had moved to phones, which can be very effective,” Cole said. “In retrospect, that was a mistake.”