Checks Without Balances

Money talks: Because of 527s, is poised to unleash repeated assaults on the Bush administration

When the U.S. Supreme Court upheld the long-awaited McCain-Feingold campaign finance reform last December, it was supposed to usher in a new era in American politics. The unlimited contributions from big businesses and other interest groups to political parties, known as soft money, were to become a thing of the past. Also curtailed--although not abolished--were political advertisements paid for by outsiders that lambasted a candidate's position or record, but fell short of telling viewers how to vote.

Getting rid of the slush funds, the thinking went, would be the first step toward leveling the playing field for Mr. and Mrs. John Q. Voter. Just six months later, however, the issue ads are back, and the new kind of bottomless political coffer behind them proves to be even better at hiding big donations than the soft-money system. As a result, in coming weeks, voters in key battleground states will be subjected to an estimated $1.6 billion worth of political advertising. In Minnesota, that's likely to add up to $30 to $40 million.

Named for the tax code governing them, 527 committees are nonprofits established for the purpose of political activity, including voter registration drives and issue advocacy. Congress's intent in creating them was to discourage traditional nonprofits from engaging in partisan activism, explains David Schultz, a professor of political science and law at Hamline University. Although the law authorizing their existence has been on the books for 30 years, relatively few 527s existed until 2000, when a handful of groups, most notably the Sierra Club, caught on to the advantages of such committees.

Unlike other political fundraising entities, 527s can accept unlimited donations, and need make only limited disclosure, essentially showing only money going in and out, to the Internal Revenue Service. They don't have to disclose their dealings to the Federal Election Commission, and donors may remain anonymous, provided they pay taxes on their gifts. When the Supreme Court closed the door on soft money by upholding McCain-Feingold, the number of 527s mushroomed and a, America Coming Together, and among them--became household names.

The best known,, has spent more than $14 million in the last eight months on ads attacking President Bush's "campaign of misinformation" concerning the war in Iraq and such issues as Medicare reform and job creation. Insurance tycoon Peter Lewis and financier George Soros put up $5 million in seed money; currently the group is soliciting donations via the internet to air ads calling for Secretary of Defense Donald Rumsfeld to resign in the wake of the Abu Ghraib prison scandal.


According to the Washington, D.C.-based Center for Responsive Politics, which tracks campaign spending, Minnesota's largest 527 donors include the Prairie Island Indian Community, at $80,000, the Service Employees International Union with $71,000, Target Corp., the Mille Lacs Band of Ojibwe, UnitedHealth Group, philanthropist Alida Messinger, and the law firm Lockridge Grindal Nauen.

So far a majority of 527s have Democratic leanings. Traditionally, Republican candidates have attracted a lot of "hard money," limited and recorded donations from individuals, because Republicans typically enjoy the support of medium to large donors. Democrats, on the other hand, have tended to attract a lot of small donations and a few really big ones. Because the law limits how much any individual can contribute, wealthy Democratic donors have rarely been able to give enough to close the gap with Republican givers.

Because of this advantage, a number of Republicans who have historically opposed McCain-Feingold joined forces with liberal groups that have long sought campaign
finance reforms to lobby the FEC to begin regulating the 527s, just as it does other groups that raise election money. But in May, the FEC, composed of three Democrat and three Republican appointees, voted to table the issue for at least three months. Critics on both sides complained that the panel is politicized, poorly run, and in need of a shake-up--if not shuttering.

"It's hard to imagine more damning evidence that the agency is hopelessly politicized and flatly incapable of doing its job," former FEC commissioner Trevor Potter told Political Finance, The Newsletter. "The decision to ignore Congress and the Supreme Court is just part of a continuing pattern of abdication by the Commission.... We need to start the process of creating a new agency that will objectively enforce the law."

In the wake of the FEC decision, Republicans have rushed to form (or revive) their own 527s, but have found their corporate sponsors far less interested in donating to the committees than the Democrats' wealthy ideologues. (One theory is that the corporate donors Republicans would seek are waiting to see how much impact 527s might actually have come election time.) Donors on both sides are increasingly taking advantage of the provision that allows them to withhold their identities.

At the same time, the amount of hard money is rising, too. With McCain-Feingold, Congress raised limits on other kinds of donations. Individual donors used to be limited to $25,000 in contributions to candidates, political parties, and political action committees in any given election cycle. New rules raised the limit to $95,000 per two-year election cycle.

"This is not going to lead to less money being spent," Hamline's Schultz predicts. "To the 50 percent of the American population that doesn't vote, money is one of the looming issues. And for many, there is the belief that it doesn't matter how I vote on Election Day, it's the money that matters.

"Yes, Congress can reform the FEC," he continues. "It won't happen. I just see a stalemate out there, because neither of the parties wants an effective FEC."

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