Impending ban hasn't stopped soft money rush by presidential hopefuls

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Potential candidates for the 2004 presidential primaries have raised more than $7.6 million in unregulated soft money contributions since the 2000 elections through their non-federal, 527 committees, the Center for Public Integrity has found. Under the Bipartisan Campaign Reform Act, better known as McCain-Feingold, such contributions will be banned after the November 5 elections.

Documents released this week reveal that the five active soft money 527 committees so named because of the section of the Internal Revenue Code which regulates them connected to rumored Democratic presidential candidates have collected more than $2 million just during the third quarter. North Carolina Senator John Edward’s 527, the New American Optimists, topped the list by raising more than $1.2 million during the last three months. Senate Majority Leader Tom Daschle’s 527 was a distant second, receiving $361,900.

The committees are named for Section 527 of the Internal Revenue Code, and have been harshly criticized by campaign finance reformers as a means for campaigns to raise soft money that remains virtually undetected. They are regulated by the Internal Revenue Service, and not the Federal Election Commission, which normally oversees federal campaign committees. Unlike candidate committees or traditional Political Action Committees which are subject to various restrictions, including contribution limits, 527s can collect money in unlimited amounts from any source.

Edwards, a Senate freshman, is currently the front-runner in soft money contributions. His 527 has collected more than $3.6 million this year. Edwards, who made his fortune as a trial lawyer, has tapped other attorneys for substantial contributions amounting to more than $2.2 million. In fact, more than half of the dollars donated to New American Optimists have come from law firms and attorneys.

The biggest contributor to Edwards’ 527 this year is movie producer Steven Bing, who gave $550,000. Bing also wrote a $5 million check to the Democratic National Committee earlier this year. Ronald L. Motley, an attorney from Charleston, S.C., gave $200,000, and North Little Rock, Ark., attorney Tab Hunter gave $100,000.

Edwards’ 527, which has spent more than $383,000 in the early primary states of Iowa, New Hampshire and South Carolina, has showered its largesse on state and local candidates. Documents filed by New American Optimists with the Internal Revenue Service show that the 527 has also transferred more than $1 million to its federal PAC. FEC records confirm the transfers, which were for joint activity, or money intended to influence both federal and state elections.

Garnering the second-most soft money was Tom Daschle, who is affiliated with a 527 called Dedicated Americans for the Senate and the House (DASHPAC). With a strong third quarter, DASHPAC has raised more than $2.5 million since the last election with $500,000 coming from law firms; $280,000 coming from financial companies like Goldman-Sachs; and another $161,000 from telecommunications companies. While DASHPAC has spread its funds around more than $2 million in expenditures, it has spent $90,000 in New Hampshire and Iowa. Disclosure records also show that Daschle’s 527 transferred $759,000 to its federal PAC.

Other possible presidential candidates with 527s include House Minority Leader Dick Gephardt, whose Effective Government Committee has raised $690,000 this year, with $183,000 coming in the third quarter. Gephardt’s 527 spent $108,000 in Iowa, New Hampshire and South Carolina while transferring $405,000 to its FEC-regulated counterpart. Democratic Senator John Kerry’s (D-Mass.) Citizen Soldier Fund raised $474,500 since the last election, spent $53,000 in early primary states and sent $35,000 to its hard money accounts. One of the only other 527s linked to a possible presidential candidate is HILLPAC, the 527 for Senator Hillary Rodham Clinton, D-NY. Clinton has raised $196,100 this year while making $68,916 in expenditures and spent more money in New York than in any other state.

While these soft money vehicles continue to attract money, questions linger about the future of politician-led 527 groups after the November 5th elections, when the recently passed Bipartisan Campaign Reform Act takes effect.

The act fairly explicitly bans politicians from having 527s; the FEC, however, which wrote the regulations implemented the law, may have opened a loophole for the committees to remain in business.

Officials for some 527s say they plan on ceasing operations while others have not decided what to do and are trying to keep their options open. We certainly are planning to switch completely to a federally based PAC, said Anita Dunn, spokeswoman for DASHPAC. We’re working under the assumption as of November 6th that we will only have a federal account.

But other representatives of 527s are less sure about whether to stop collecting soft money. We’re still evaluating at this time, HILLPAC executive director Patti Solis Doyle told the Center of its plans for after the election. We are still debating that, so we are not prepared to comment about it.

Pending lawsuits further complicate the future of 527s. Many political analysts question whether the campaign finance reforms will survive scrutiny by the Supreme Court, which is reviewing several challenges brought by the Republican and Democratic national party organizations, labor unions, single-issue advocacy groups like the National Rifle Association, and other special interests. A federal judge in Mobile, Ala., already ruled on Aug. 27, 2002, that many of the provisions of the law are unconstitutional because they violate the First Amendment’s protection of free speech. That ruling has been appealed. Other options are available for politician-based 527s, which could re-organize themselves and re-file their statements of organization without any links to politicians; they might still be able to collect soft money.

Electioneering without oversight

Section 527 of the Revenue Service code allows the financial transactions of these committees to be tax free (contributions to the committees are not tax deductible). Under current law, 527s must be primarily involved in candidate-related electioneering; they have generally been used to fund issues advertisements, which do not advocate the election of a candidate, but often will criticize that candidate’s positions or past actions. The IRS, which oversees the disclosure system, has been criticized for its lax oversight. Committees operating under Section 527 can also raise unlimited contributions from any source, including labor unions and corporations.

The IRS has no system in place to enforce existing laws. The agency’s Internet site, which posts the scanned images from 527 disclosure reports, is also riddled with problems, including misfiled documents and misspelled names of the organizations themselves, which can make searching for a particular committee’s activity nearly impossible.

Advocates of campaign finance reform say that these committees, which are little more than conduits for raising and spending soft money, can raise millions to spend on advertising campaigns while operating in relative obscurity. Without any contribution limits or a compliance system to oversee existing regulations, the 527 system permits the well-heeled to make unfettered donations to political groups that affect elections. And 527s which are operated by political candidates can raise money without contribution limits in soft money, allowing corporations, labor unions, and wealthy individual donors to contribute, indirectly, hundreds of thousands of dollars to a potential presidential candidate.

Some candidates have sworn off 527s. Officials from the campaigns of Gov. Howard Dean of Vermont and Senator Joe Lieberman, D-Conn., have told the Center that they do not have 527 committees and do not plan on having them in the future.

President George W. Bush and Vice President Al Gore both used 527s as vehicles to raise money during the recount battle in Florida in the aftermath of the 2000 election. Both have filed forms required of active 527 committees within the last few months, though both committees say they are not currently raising money. The Gore/Lieberman Recount Committee collected $3.7 million in contributions. Bush-Cheney 2000, Inc-Recount Fund filed its forms to the IRS 16 months late and reported $13.8 million in expenditures.

A new soft money wrinkle: the 501(c)(4)

While the question of whether 527s can continue raising soft money remains in doubt, some have already started forming a new soft money vehicle that may be even more nebulous.

Political operatives connected to Bush have set up a nonprofit organization under Section 501(c)(4) of the Internal Revenue Code called Progress for America. Tony Feather, a political director for the Bush-Cheney Campaign in 2000 and a key advisor to the Bush White House, registered the organization on Feb. 16, 2001, in his home state of Missouri.

We are pro-Bush, Feather told the Center. The only things that we engage in are in support of the president’s agenda.

Feather said that PFA is a grassroots organization that mobilizes the public to contact their members of Congress about pending legislation and to write local newspapers to publicize the White House’s agenda. He also said that his organization is not issue ad-based and has not spent any money on television advertisements.

News reports state that key Democratic operatives are planning on creating a comparable nonprofit to PFA that would advocate their party’s issues. The Washington Post reported that the nonprofit would be created by officials of former President Bill Clinton’s administration, including Harold Ickes, Doug Sosnik and John Podesta.

That hasn’t happened yet, Podesta, Clinton’s former chief of staff, told the Center when asked about the plans to create a Democratic counterpart to PFA. When we want to announce it, we’ll announce it.

Nonprofits like PFA give fundraisers an incredible advantage over 527s and other soft money accounts because they can raise unlimited funds without contribution limits. They can form Political Actions Committees to contribute directly to candidates for federal office. Non-profits formed under Section 501©(4) do not have to disclose the identity of their donors, the amount that they give, or how they spend those donations. Currently, PFA’s Internet site allows individuals to make online donations ranging from $25 to $1,000. The site also advertises how contributions to PFA do not count toward the $25,000 annual contribution limit to federal candidates and parties and that PFA does not disclose its contributors.

Feather said his organization has been successfully raising funds. We’re satisfied with it, but I am not going to give out numbers, he said. Given the type of organization that we are, we are not required to report contributions, so we don’t.

Looking for a loophole

One of the common criticisms of 527s is that they provide a loophole for individuals and companies to get around contribution limits regulated by the Federal Election Commission. The Center found numerous instances involving 527s linked to politicians in which individuals gave money to a non-federal account after reaching the contribution limit for the same organization’s federal account.

For instance, New York attorney Patricia Geoghegan gave $5,000 in January of 2002 to HILLPAC, a political committee for Senator Hillary Rodham Clinton. The donation was the maximum amount allowed by federal law, according to the FEC. Less than a month later, Geoghegan made another donation to HILLPAC’s non-federal 527 account this time for $10,000. While legal, such donations circumvent current contribution limit laws.

That mirrors the soft money loophole that spurred the passage of McCain-Feingold. Corporations, labor unions, special interest groups and individuals used the national parties’ non-federal accounts to make huge donations that exceeded the limits spelled out by the Federal Election Campaign Act, which was passed in the 1970s to reduce the influence of wealthy donors on the political process. For example, Bing, the largest donor to Edwards’ New American Optimists, is one of the largest supporters of Democratic candidates in recent years. During the last three years, Bing has used non-federal accounts to contribute more than $6 million in soft money to the Democratic National Committee, the Democratic Senatorial Campaign Committee and the Democratic Congressional Campaign Committee.