From the New York Times

Advocacy Groups Allowed to Raise Unlimited Funds

February 19, 2004

By GLEN JUSTICE
— The Federal Election Commission said on Wednesday that
advocacy groups that were established to get around fund-raising
restrictions in the new campaign finance law could continue to spend
unlimited contributions for television commercials and other communications,
though they must do so under far more restrictive rules.
The commission's ruling on so-called 527 committees could have profound
effects on the 2004 election by helping Democrats, who have been much more
aggressive than Republicans in creating these committees to help the party
compete with the Republicans' overall 2-to-1 fund-raising advantage. None of
this money winds up in the candidates' hands but it can be used to raise
issues and attack or promote candidates by name.
Perhaps the best known of these groups, America Coming Together and
MoveOn.org, gained widespread attention when George Soros, the
philanthropist and international financier, pledged millions to each.
Another organization, called Americans for Jobs, Health Care and Progressive
Values ran television advertisements attacking Howard Dean's presidential
bid, showing a close-up of Osama bin Laden and questioning Dr. Dean's
ability to compete with President Bush on foreign policy. Robert G.
Torricelli, the former Democratic senator from New Jersey and a fund-raiser
for Senator John Kerry, helped finance that organization with $50,000.
The Federal Election Commission took up the matter after Republicans filed a
request hoping the commission would curtail the use of unlimited donations,
known as soft money contributions, by the committees. Republicans object to
the use of the committees because it far outraises the Democrats in
so-called hard money, which parties raise in smaller increments.
Before the McCain-Feingold bill was passed last year, Democrats were more
dependent on soft money than Republicans. Preventing 527 committees from
using soft money could have solidified the Republicans' advantage. Democrats
say they hope to raise and spend hundreds of millions of dollars through
these groups. The committees are required to disclose their donors, but the
timetable is such that reports are often filed months after financial
activity is conducted.
One question now is whether the Republicans will try to fortify their own
527's to match the Democrats. But many campaign finance experts say
Republican donors are not as inclined as Democrats to give to third-party
organizations.
Some Republicans objected on free-speech grounds to their party's own drive
to prohibit 527's from using soft money. In fact, Bradley Smith, a
Republican who is chairman of the Federal Election Commission, said he does
not understand the Republican drive to further regulate 527's.
"I'm disappointed that so many people in the party hierarchy feel that this
is important," said Mr. Smith, who voted against Wednesday's ruling. "It
comes at the cost of good law."
In its ruling, the election commission placed some restrictions on the way
these committees operate, including a prohibition on certain advertisements
paid for solely with soft money.
But Democratic operatives said that, despite this limitation, their
committees would continue to be a force in this year's elections.
"We'll be plowing forward as planned," said Jim Jordan, a spokesman for
America Coming Together, one of the most active 527 organizations. "It's
clear that today's action is limited in its scope. We remain confident that
we'll have the room we need to operate robustly and effectively."
Though the commission's advisory does not carry the force of law, it is a
first step by the commission to define how 527 committees — which were named
after the section of the Internal Revenue Code that created them — can
legally raise and spend money under the McCain-Feingold campaign finance law
and the Supreme Court decision that upheld it.
While some Republicans hoped 527's would be further prevented from using
soft money, party leaders portrayed the commission's move as a victory.
"The Federal Election Commission should be commended for its campaign
finance ruling to uphold the new law of the land," Ed Gillespie, the
chairman of the Republican National Committee, said in a statement. "Today's
ruling effectively shuts down illicit 527 groups that operate in the shadows
by using unregulated soft money to influence federal elections."
Some important questions about what these committees can do and how they are
regulated were left for the commission to take up in March — and could take
several more months to complete.
The advisory opinion passed by the six-member commission, which is evenly
divided between Democrats and Republicans, was a compromise proposal. Some
other proposals placed even tighter restrictions on 527 committees and some
gave them more latitude. It passed on a 4-to-2 vote, with a Republican
commissioner, Michael Toner, joining the panel's three Democrats.
The ruling came about when a group of Republican operatives filed an 18-page
request for an advisory from the commission in November on how 527
committees could raise and spend soft money.
Republicans made the Federal Election Commission request through a 527
committee of their own called Americans for a Better Country. Frank
Donatelli, a leader of the organization and one of the lawyers who requested
the advisory, said the ruling was an effort to provide Republican donors
with a sense of what is legal.
"We wanted clarity to entice our donors," he said.
But Democrats argued that the request was part of a broader Republican
offensive to try to curtail the work of 527 committees backed by Democrats.
In addition to the commission action on Wednesday, Congressional Republicans
held a hearing last year on the Democratic groups and threatened to subpoena
their leaders. Republican leaders also spoke out publicly against the
committees. Mr. Donatelli and his colleagues went so far as to write letters
to Democratic donors last year, warning that the new law presented "legal
gray areas and traps" for 527 committees and suggesting they wait for the
commission's opinion before acting.
"We do not want to see our donors and leaders caught in a repeat of the
grand jury and Congressional investigations of the late 1990's," they wrote.
The commission ruled that these organizations cannot use soft money alone to
pay for mail, phone, broadcast or other communications that promote,
support, attack or oppose federal candidates by name. They can, however, use
a mixture of hard and soft money to finance communications that mention both
federal and nonfederal candidates. Similarly, communications that do not
mention a candidate, but make an appeal based on party affiliation or an
issue, can also be paid for with a mixture of money. These rules apply only
to advertisements made outside the blackout periods created by the law
around primary and general elections.
Charities and some of the 527 committees — those that do not register with
the commission and collect hard money contributions — are not covered by the
ruling, though they will likely be dealt with when the commission sits to
make new rules next month.
The ruling drew a mixed response from political operatives and others who
track campaign finance. Watchdog organizations, which supported the
McCain-Feingold law and its abolition of soft money, generally applauded the
ruling.
"It was a very narrow decision that was made and they made the correct
decision," said Fred Wertheimer, president of Democracy 21. "But they left
the really big decisions for the rule making."
However, commissioners in both parties said that the decision is unlikely to
keep most 527 groups from using soft money, though it may become more
difficult.
"Republicans are dreaming if they think that they are closing Democratic
groups out of the game," Mr. Smith said.
Ellen Weintraub, the commission's Democratic vice chairwoman and the author
of the proposal that passed, also said it will not halt organizations from
using soft money.
"I don't think it will put anybody out of business," she said. "But it might
make business more expensive."
Copyright 2004 The New York Times Company