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The FEC looks into the regulation of political groups created after McCain-Feingold.

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The Democratic Party prides itself on having pushed through the landmark 2002
McCain-Feingold campaign finance reform bill. The Bipartisan Campaign Reform Act (BCRA), as the legislation was called, was supposed to clean up politics and
restore integrity to a discredited system where lobbyists shaped legislation,
politicians spent most of their time chasing down campaign contributions, and
special interests gave a lot – and expected a lot in return.

But it
didn’t quite work out that way. Although the BCRA was by any measure a landmark
legislative achievement, it didn’t quite turn off the spigot pouring special
interest money into politics; in a sense, it just slightly redirected the flow — and largely, thanks to a loophole, to Democrats’ advantage.

It’s ironic, then, that as the Democratic Party’s presidential hopefuls were
vowing to kick special interests out of the White House, the Federal Election Commission (FEC)
has shifted media attention to precisely the loophole in question, which
Democrats have capitalized on to leverage a new-ish breed of political
organization, the so-called 527, named after the Internal Revenue Service section that governs them.

The Wall Street Journal reports (subscription) that the FEC this week “launches one of the most important if arcane endeavors of the 2004 election: the regulation of new political groups created after the McCain-Feingold campaign-finance law.” The FEC’s decisions, notes the Journal “will have a major impact on how deep-pocketed interest groups influence federal elections, shape their messages and recruit voters.”

The Journal goes on:

The greatest immediate effect will be on Democrats, who are at a big financial disadvantage against President Bush and his party this year. The new law banned the ability of political parties to tap “soft” money, or unlimited donations from corporations, labor unions and wealthy individuals. That money has been a critical source of funding in recent elections. It also has allowed Democrats generally to stay competitive with Republicans, who get far more contributions from wealthy individuals, by accepting large donations from labor unions and other stalwarts.

This year, Democrats are being forced to rely on the new organizations, such as the Media Fund, to conduct advertising and voter-mobilization projects that the party can’t. The law has had much less practical effect on Republicans, since the president already has raised record campaign funds by tapping wealthy individuals.

There are about 20,000 527 organizations in the United
States; 500 or so are actively involved in the political
process, according to the Center for Public Integrity, and in 2003 they raised more than

$93 million. Republican 527s do exist; in fact, while most of recent
attention has been focused on the anti-Bush America Coming
, the wealthiest 527 is the Republican Governors Association. Nevertheless, the Republican
Party would not mind seeing the 527s gone for good. The Republicans already have
the edge over the Democrats in raising “hard money,” (individual contributions, the limit of which BCRA raised from $1,000 to $2,000). Though political non-profits are not new, they have proliferated following the passage of BCRA as a handy way of skirting the soft-money ban. Republicans fear that the success of Democratic 527s is threatening the fund-raising advantage that the Republicans currently enjoy.

All indications are that FEC will vastly increase its regulatory control over political non-profits and tighten loopholes allowing the spending of soft money in federal races. Its new guidelines are to be finalized by May.

As the
Los Angeles Times
, observed last month, the FEC:

…ruled that groups registered as federal political committees —
so-called ‘527 committees…’ — must use contributions subject to the federal
limits on giving to individual candidates to finance ads that ‘promote, support,
attack or oppose’ a federal candidate. Such funds are called hard money. But it
left open, and will have to address, the much wider use of soft money for ads
that purport to be only about issues such as healthcare reform and for partisan
voter mobilization….

The precise ratio of soft to hard money that the 527s will be required to raise
in order to participate in federal campaigns is yet to be determined. This week,
the FEC suggested that at least 25% of the funding will be required to come in
hard money contributions.

As the New York Times pointed out last month, this tightens, but still
leaves the loophole by which soft money can be spent on ad campaigns on the federal level:

An advertisement promoting or supporting a federal candidate
can no longer be paid for with soft money. But if it contains references to a
federal and a state candidate, it can be financed through a mixture of soft money
with hard money, which is regulated and collected in smaller amounts.

According to The Hill, the agency is also considering:

• Requiring a group to register with the FEC if its public pronouncements, such as
fundraising letters and organizing documents, indicates its purpose is to promote
or attack a federal candidate and it spends more than $10,000 on federal election

• Requiring a group to register with the FEC if it spends 50 percent or more of
its disbursements on federal activities.

• Requiring groups that simply spend more than $50,000 on federal election
activities to register with the agency.

• Requiring all 527 groups to register and be regulated by the FEC with a
possible exception for groups that operate in only one state.

It is not
clear if the FEC will wait and see until after November Elections to implement
the final ruling that it is expected to hand down in May. One reason is that may
wish to monitor 527s’ activities throughout the election season before moving on to
the implementation stage. Another reason would be to avoid accusations of
partisanship, since its ruling will disproportionately harm the Democrats’
fund-raising efforts., one of the most successful Democratic 527s, which has 2.3 million members, asks the visitors to its site to join a
petition drive demanding that “Congress … censure President Bush for misleading the country about Iraq’s
weapons of mass destruction.” The billionaire George Soros and his business
partner Peter Lewis have pledged $5
billion dollars
in matching funds for’s grass-roots fundraising

The president of the Voter Fund, Wes Boyd, insists that last month’s FEC

“makes clear that the Voter Fund is operating
within the intended meaning of the McCain-Feingold campaign finance law, and that
we can continue our activities and ads that focus on the policies and performance
of George W. Bush.”

Boyd and other Democrats have accused the Republicans of trying to use the
FEC to “silence” the administration’s critics while the Republic Party fills its
coffers with special interest money.

Publicly, the Democrats have refused to see the recent FEC guidelines as
a defeat, pointing out that the restrictions don’t prevent 527s from operating. But there’s is no question that the FEC’s proposals
are a major set-back for Democratic fundraisers, who are already fighting an
uphill battle. According to the Center for Responsive Politics, which included
the latest FEC data for the fourth quarter of 2003, Bush has so far
raised $131,774,275
to Kerry’s $28,209,341 for his re-election bid.
Democratic fund-raisers pinned their hopes on the 527s as a means to bridge the
president’s fund-raising advantage. As the
Washington Post
points out:

“Many top Democratic
strategists this year have raised about $20 million, with a goal of $300 million
for 2004, for the new 527s, to be spent on television commercials and intensive
voter registration and turnout programs in about 17 key battleground states.”

No matter what the future of 527s is, as Time magazine points out:

way Kerry is going to be outspent. In a world where soft money is technically
banned, the Republicans have the advantage…That is why, as Howard Dean’s campaign
sputters to what looks like its end, the Kerry campaign and the Democratic Party
are devising a way to capture the Internet-driven fund-raising potential that
Dean unearthed.

‘One of the keys to victory for
us,’ says Florida Democratic fund raiser Mitchell Berger, ‘will be to take those
$100 middle-class donors and convince them that their $100 really means
something.’ But even though it has vastly expanded its donor list, the D.N.C.
still managed to raise less than half of what its Republican counterpart

The Bush White House is not yearning to make campaign finance an election
attack issue. The administration’s cozy relationship with Enron, Halliburton, and
company is reason enough to downplay the issue. But Kerry has special-
interest ties of his own, and campaigning on the claim that your-special
-interest-backers-are-bigger-and-badder than mine is a questionable
strategy. In the end, the Democrats would be better off to take the moral high
ground and stick not only to the letter, but the spirit, of campaign finance
reform. But don’t count on it.


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