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As Virginia governor's race turns ugly, outside funds flow in

By Gary Robertson

RICHMOND, Virginia (Reuters) - The battle between a Tea Party favorite and a former top Democratic official to become the next governor of Virginia has set a record - more out-of-state money has poured into this race than any gubernatorial campaign in the state's history.

In the contest between Republican Ken Cuccinelli and Democrat Terry McAuliffe, about 70 percent of the nearly $30 million raised for the campaigns has come from outside Virginia, according to the Virginia Public Access Project, a non-profit group that monitors spending in state politics.

The largesse underscores the thinking among political operatives, lobbyists and special interest groups: When it comes to elections this year, Virginia is the only game in town. The biggest U.S. political contest of 2013, to take place November 5, is widely seen as a testing ground for next year's congressional mid-term elections.

It is the first time in the state's history that a gubernatorial candidate has raised more than half his funds outside Virginia, the Virginia Public Access Project said, referring to both Cuccinelli and McAuliffe.

The list of donors includes special interest groups such as Planned Parenthood and the National Rifle Association, and hedge fund executives from as far afield as New York and California.

"I'd be surprised if there weren't massive out-of-state contributions," said Larry Sabato, director of the Center for Politics at the University of Virginia. "Virtually every Democratic contributor knows Terry McAuliffe, and Ken Cuccinelli is a national Tea Party hero, and a favorite of most groups on the right, from the NRA to social issue organizations."

Cuccinelli, Virginia's attorney general, led an unsuccessful legal challenge to President Barack Obama's healthcare law, while McAuliffe is a former chairman of the Democratic party.

The surge in out-of-state funding underscores the rising importance of Virginia in electoral politics.

Long considered reliably Republican, Virginia has been put squarely in the swing state category by changing demographics, particularly in the northern suburbs. President Barack Obama won the state in 2012, following up on his 2008 victory, the first time a Democrat had won the presidential vote there since 1964.

Hoping to capitalize on Obama's win, McAuliffe, 56, has run a campaign on national party touchstones including the environment, abortion rights and gun control.

The candidates have traded bitter personal attacks, with each describing the other as unfit to govern.

Cuccinelli, 45, has dredged up scandals dating back to the Clinton administration, when McAuliffe was chairman of the Democratic National Committee, to remind voters that he "invented the scheme to rent out the Lincoln Bedroom" in the White House to raise funds for the Democratic Party.

McAuliffe, in turn, has played up the fact that Cuccinelli had been sucked into a donor scandal involving gifts from Star Scientific Inc Chief Executive Jonnie Williams. An ethics probe cleared Cuccinelli of any wrongdoing, though he has made a public apology.

TURNOUT IN DOUBT

The campaign has grown uglier in recent weeks.

With Republicans shutting down large parts of the federal government in a bid to repeal Obama's healthcare reform law, the Virginia election is seen as a barometer of which party is winning the battle for public opinion.

So far, the 11-day-old shutdown has given McAuliffe a boost in a state that is home to a larger percentage of federal workers than the national average. A Politico poll released on Tuesday showed McAuliffe with a 9 percentage point lead.

In a campaign appearance this week, McAuliffe called on Cuccinelli to denounce the shutdown. Cuccinelli has said he wants to see the government up and running, and called for the president, members of his cabinet and all members of Congress to decline their pay during the shutdown.

As the attacks have grown sharper, political donations from national lobbying groups have followed. McAuliffe has been the biggest beneficiary: Some 74 percent of the $17.4 million in itemized donations above $100 - the threshold the Virginia Public Access Project uses to track donations - came from outside Virginia.

Sixty-six percent of the $11.6 million in large donations to the Cuccinelli campaign has come from out of state.

Planned Parenthood vowed to spend $1 million on advertising to educate Virginia voters about what the group described as Cuccinelli's "dangerous" views on women's health.

The National Rifle Association, a frequent player in Virginia politics, has contributed nearly $500,000 to finance TV and Internet advertising opposing McAuliffe, who wants universal background checks for gun sales.

Hedge-fund operators have also emerged as big contributors.

Robert Mercer, of East Setauket, New York, has given $600,000 to the Virginia Principle Fund, a pro-Cuccinelli political action committee. Tom Steyer, a hedge-fund billionaire and environmentalist in San Francisco has formed the NextGen Climate Action Committee, which donated $439,000 to McAuliffe and $125,000 to the pro-McAuliffe National Wildlife Federation.

"Tom sees a significant difference between Terry McAuliffe, who is committed to creating clean economy jobs as part of an overall economic plan and Ken Cuccinelli, who sneers at the very idea of basic climate science," said Mike Casey, a consultant for Steyer's NextGen.

Cuccinelli in 2010 launched an inquiry into whether a University of Virginia climate scientist manipulated data to support his research correlating an increase in global temperatures and growing fossil fuel consumption. The Virginia Supreme Court later ruled that Cuccinelli had no authority to issue such a demand.

The donations have fueled negative campaign advertising, sparking fears among some observers that it could turn off voters and depress turnout on election day.

(Editing by Scott Malone, Ross Colvin and Gunna Dickson)

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