The Center for Public Integrity

National political parties may be banned from raising "soft money" under a new campaign finance law, but partisan gubernatorial associations have gone on accepting unlimited contributions from many of the same corporate and labor union donors for use in statewide elections.

The Republican Governors Association and the Democratic Governors' Association are both organized as 527 committees and legally are not affiliated with their respective national party committees. Because they are associations of elected state officials, they can accept the kind of soft money contributions that are no longer permitted at the federal level.

To do so, the RGA had to break away from the Republican National Committee late last year, when the Bipartisan Campaign Reform Act took effect, and create its own 527 account. The DGA has been a 527 committee since at least mid-2000, after a gradual separation from the Democratic National Committee that began in the 1990s.

This year, the two committees have raised more than $10.1 million combined, according to records filed with the Internal Revenue Service. The RGA has raised the most money in 2003 of any committee—$6.4 million through August 31—while the DGA is second with $3.7 million through June 30.

The money the two groups raise cannot be spent on federal elections, but it can be used for voter mobilization and party organization, as well as for direct contributions to gubernatorial candidates. Because they are not technically party committees, thanks to their separation from the national party structure, the DGA and RGA are not always treated as non-party committees at the state level, due to differences in state election laws.

Some political committees with ties to federal lawmakers and candidates continue to raise and spend "soft money," even as the Supreme Court considers the constitutionality of the new law banning the practice.

The federal campaign finance law that took effect on November 6, 2002, and outlawed fundraising by these 527 organizations (so named because of the section of IRS code that regulates them), has produced a number of responses from affected committees. Some closed down, some reorganized by severing direct links to federal candidates, and others went underground, assuming the garb of other types of non-profits.

Many of these "politician 527s" were leadership committees that raised money for candidates of specific ideologies and were extensions of hard money accounts reported to the Federal Election Commission. FEC guidelines prohibit donations to a federal leadership committee of more than $5,000 per year from an individual or political action committee, but 527 committees can accept unlimited contributions. What's more, it was not until August 2000 that these committees were required to report receipts and expenditures to the IRS.

Before the passage of last year's Bipartisan Campaign Reform Act, there were 119 soft money accounts connected to federal lawmakers that collected almost $50 million during the last three years, according to the Center's analysis of available IRS reports. Of these organizations, only about 110 have reported receiving or spending money during that time period; most took advantage of their status to raise funds that would have exceeded federal limits. In fact, 40 percent of the total money raised was in denominations of $20,000 or more. After last year's midterm elections, only 15 of the politician 527s remain active.

A group made up entirely of college students and recent graduates—the College Republican National Committee—has become one of the most successful youth-oriented fund-raisers in the country, spending more than $10.6 million during the past two years to promote Republican candidates and issues.

Since separating from the Republican National Committee in October 2001 and becoming a Section 527 committee, the CRNC launched an aggressive direct-mail fundraising campaign that relies on thousands of individual donors. The $10 million in spending since mid-2000 puts CRNC in 11th place among the 471 committees the Center for Public Integrity analyzed.

Most of that money was spent on operational expenses: it helped to cover the group's expensive mail fundraising effort, to pay its more than 30 full-time field representatives and to support its at least 1,100 college chapters nationwide. Prominent Republicans credit the CRNC for turning out young supporters in the November 2002 elections that resulted in the GOP's victory in the House and Senate.

"We could not have had such a successful victory if it had not been for all of your efforts," wrote House Speaker J. Dennis Hastert of Illinois in a July 2003 letter to the organization.

As a 527 committee, the CRNC is an independent actor. Its Democratic counterpart, the College Democrats of America, is the "official college outreach arm of the Democratic Party" and remains tied to the resources of the Democratic National Committee. The CDA claims at least 500 chapters on its official Web site and also conducts voter registration drives.

It was the morning of November 6, 2002, the day after Democrats had lost control of the U.S. Senate, lost ground in the U.S. House of Representatives and were soundly beaten in several key gubernatorial races.

The man at the top of the party, Democratic National Committee Chairman Terry McAuliffe, had some explaining to do. Standing before the gathered media in Washington, D.C., he returned to a longtime Democratic lament: Republicans simply had more money.

Fundraising figures reported to the Federal Election Commission seemed to suggest he was right. The Republican Party raised slightly more than $691 million in the 2002 election, about $228 million more than the Democrats.

The GOP "had tens of millions of dollars of special interest money on their side," McAuliffe told the assembled reporters, and that had tipped a number of races in their favor.

In fact, the disparity was not nearly as lopsided as McAuliffe suggested. As a new Center for Public Integrity analysis shows, Democrats and their allies funneled hundreds of millions of dollars through backdoor committees designed to influence key elections. In the 2002 race, the Democratic Party's silent partners spent more than $185 million—more than double the money spent by Republican organizations.

Political committees operating in a gray area of the law spent more than $430 million during the past three years to influence elections and policy debates across the country, according to an analysis by the Center for Public Integrity. Until now, no one has put a dollar amount to these groups' collective impact on the electoral process. The Center analysis is the first to present a comprehensive view of the activity of these committees, known as 527 organizations after the portion of the Internal Revenue Code that defines their tax status. These groups take advantage of a provision in the tax code that allows 527 committees to claim tax-exempt status as a political organization and at the same time avoid regulation under state or federal election law. Due to their unique legal status, 527 committees are almost totally free from fund-raising restrictions while still being able to engage in just about any election-related activity short of contributing to federal candidates. They can, for example, promote issues through advertisements, participate in voter drives and conduct political research. Experts say this makes 527 committees ideal conduits for the millions of dollars in "soft money" unregulated and unlimited contributions by individuals, corporations and unionsthat Congress banned last year.