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Congress considers changes to 527 funding rules
by Margaret Talev
McClatchy Newspapers


March 09, 2005

Washington - A bipartisan plan to rein in spending by groups that exerted an influence on the 2004 presidential election - such as liberal or the conservative Swift Boat Veterans for Truth - got a friendly hearing Tuesday, with Senate Rules Committee Chairman Trent Lott saying he wants to move quickly to put limits in place by next year's midterm elections.

But critics warned that if Congress caps the amount of money individuals can give to so-called 527s, known for the section of the tax code that governs them, those groups and wealthy donors such as billionaire George Soros will find new ways to spend big money to target candidates they oppose.

"We're a feisty people and our speech is unruly," Robert F. Bauer, a lawyer and campaign finance expert who has advised the Democratic National Committee, told the panel. "If it's not done with 527 activity as we have seen, it will be done in other ways. Without tipping the hand of myself or anybody else who's endeavored to be professionally creative, there are other directions, to be sure, that people are actively considering as we speak."

The legislation would make $60,000 the maximum individuals could give to a 527 involved in federal elections each election cycle and prohibit the groups from taking money from unions or corporations. They would be required to register as political committees, and all 527s would have to make disclosures to the Federal Elections Commission, not just the Internal Revenue Service.

The bill's co-authors are Sens. John McCain, R-Ariz., and Russ Feingold, D-Wis. It was their landmark measure three years ago, banning unlimited soft money donations to political parties, which many experts say triggered the surge in 527 groups as big-money donors and political operatives looked for ways around the soft-money limits. While 527s don't coordinate directly with candidates, key Democratic and Republican party operatives helped set up and run groups that raised much of the money.

According to the non-partisan Campaign Finance Institute, federal 527 groups drew $405 million in the last election cycle, up from $151 million in 2002. Two dozen donors were responsible for 56 percent of all individual contributions, the institute found.

The Swift Boat Veterans, which sought to undermine Democrat John Kerry's record of service in the Vietnam War, generated much of the controversy because of its subject matter and some of its participants' ties to President Bush's campaign. But the institute found Democrat-oriented groups actually out-raised ones aligned with Republican issues and candidates, by about 4-to-1.

That's one reason leaders in the Republican-controlled Congress - including opponents of the original McCain-Feingold limits such as Lott - are paying attention now.

"By 2006, these groups will have an exponential effect on our federal election process and by 2008 their effect will be cataclysmic," Lott, a Mississippi Republican, said Tuesday. "I think we clearly need to act."

"Suppose Mr. Soros or others . . . decided to spend $10 million on a congressional race," McCain told the panel, referring to the donor to Democratic causes. "An average candidate might be overwhelmed by it. That's one reason why there's some urgency associated with this legislation."

Because of how the U.S. Supreme Court interprets the nation's free speech protections, experts say wealthy individuals can effectively spend as much as they like to make their feelings about a candidate known - even if what they give to individual campaigns or advocacy groups is limited.

Meanwhile, Federal Election Commission members cautioned that rushing through the legislation could have unintended consequences that actually could obscure campaign finance transparency. Loopholes in laws governing charitable donations might allow groups now organized as 527s to reconstitute under 501(c)(4) law or to affiliate with such existing charities, whose major purpose is not political but that can engage in some advocacy activities, including voter drives and criticizing members of Congress.

While 527s must disclose their large donors to the FEC or the IRS, charitable groups under other provisions of the tax laws are often shielded from disclosing just who their funding sources are and how much each individual is giving. "It may still be worth doing," commissioner David M. Mason said, "but in that process you'll lose disclosure." Also, some members of Congress have talked about moving in the opposite direction, to relax restrictions on nonprofit groups' political activism.

MoveOn's Eli Pariser said his group is watching this year's McCain-Feingold legislation "with both interest and concern." He and other activists have raised concerns that the language is overreaching and could hamstring state campaigns or the non-political operations of nonprofit groups. At the same time, Pariser said in an e-mail interview Tuesday that he understands the argument for limiting contributions.

"If the law is left unchanged, will 527 organizations continue to promote a flowering of views on the issues of the day, challenge the political establishment, and increase voter interest, registration, and turnout?" he said. "Or will 527 funds become the vehicles by which rich conservative donors will be able to spend whatever is necessary to defeat progressive candidates?"


Distributed by Scripps Howard News Service.

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