Politician 527s

Committees tied to lawmakers adjust to new regulations

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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.

Millions of dollars flowing in and out of these committees will never see the light of day, because of the lack of disclosure prior to mid-2000. Based on their publicly-reported receipts and disbursements, 64 politician committees could have funds remaining—collectively $4.2 million. The apparent imbalance between income and expenses could be explained partly by the disclosure thresholds. The committees are not required to report contributions below $200 and expenditures below $500.

Severing Ties to Stay Alive

In some cases, these committees have used a loophole in the new campaign finance laws to reorganize and continue raising money, according to campaign finance analysts. "There would have to be a lot of care involved," Steve Weissman, associate director of the Campaign Finance Institute, a non-partisan research group, said of such a maneuver. "The politician would have to be insulated from the group and that would mean contributors would be less likely to give because donors are usually trying to affect a politician with their donation."

One such committee is Americans for a Republican Majority, or ARMPAC, a leadership PAC created by House Majority Leader Tom DeLay (R-Texas). When BCRA took effect, DeLay severed his direct connection to the non-federal operation, but still has a tie-in: his former deputy chief of staff, Tony Rudy, runs the soft money fundraising component. Jim Ellis, head of both the federal and non-federal components of ARMPAC before BCRA, also disassociated from the latter. "DeLay as a member of congress could not be affiliated with [ARMPAC], and I couldn't either," said Ellis, who still runs the federal PAC.

Some federal lawmakers were not required to detach from their 527s as DeLay did because they had left office by November of 2002, as in the case of former New Jersey Democratic Sen. Robert Torricelli's New Jersey Legal Fund and former Ohio GOP Rep. John Kasich's New Century Project. Both continue to raise money legally.

In the meantime, other politician 527s have begun forming new soft money vehicles that may be even harder to track. These committees have broken off to create another type of non-profit organizations that has even fewer disclosure requirements than do 527 committees.

These non-profits, in the form of 501(c)(4)s and (c)(6)s, can raise unlimited amounts of money and do not have to disclose the identity of their donors, the amount donated, or how the donations are spent. They can run certain types of advertisements, and (c)(4)s can even lobby directly on issues. They do, however, have to pay taxes on funds used for certain types of activities. Donors to these committees also may be subject to other federal taxes, including the federal gift tax.

During the past year, many of the former politician 527s have filed papers to create 501(c) organizations. At least 11 politically based non-profits have been established outside the 527 system already—six of those leaning Democratic and four Republican.

Soft Money's Road to the White House

Before the enactment of BCRA, politician 527s played an integral role in the 2000 presidential election. During the Florida recount of 2000, Vice President Al Gore and Governor George W. Bush collectively raised and spent $14.8 million in legal costs through their respective 527 recount committees. For the upcoming 2004 elections, candidate 527s were a major component in the Democratic primary campaign, and new non-profits will continue soft money's influence through the elections.

Several Democratic primary candidates raised millions through their 527s leading up to November 2002. Sen. John Edwards of North Carolina raised $4.6 million through New American Optimists, making his the largest grossing politician 527. Rep. Richard Gephardt of Missouri brought in $1.3 million through the Effective Government Committee. Massachusetts Sen. John Kerry also raised $1.3 million, and Florida Sen. Bob Graham raised $218,000. Following the enactment of BCRA, most of these organizations dispersed their funds.

Retired four-star general Wesley Clark, who became the tenth Democratic presidential candidate on Sept. 17, recently created a 501 (c) 4 organization called Leadership for America Inc. The group is "dedicated to fostering the national dialogue about America's future," according to its Web site. The site has a page for online donations of up to $7,500, and contributors wishing to make donations in excess of $10,000 are instructed to contact the group's administrator.

Similarly, political operatives connected to George W. Bush have established a nonprofit under section 501 (c) 4 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 in his home state of Missouri on February 16, 2001.

"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 his organization has been successfully raising funds. "We're satisfied with it," he said, declining to provide actual figures. "We are not required to report contributions, so we don't."

Steve Weissman of the Campaign Finance Institute said he believes the Supreme Court will likely uphold the soft money bans established by BCRA, whose new regulations he credits with the halt in fundraising by most politician 527s. Many are still working to keep soft money flowing in the direction of federal candidates and lawmakers, however, and additional lawsuits have been brought to determine whether they should be allowed to do so.

Robert Morlino contributed to this report.

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