527 Organizations: New Kid on the Block
H.R. Mahood
The University of Memphis
Ramona M. Mahood
The University of Memphis
Bipartisan Campaign Reform Act of 2002
On March 27, 2002, President George
Bush signed the Bipartisan Campaign Reform Act (formerly McCain-Feingold)
(BCRA) into law. The signing culminated a long struggle within the Congress for
campaign finance reform (Corrado 2003, 21-39). The BCRA became law effective November 6, 2002, just before the 2002
election and in time for the 2004 presidential election. With campaign expenditures at an all-time
high and the influx of million and millions of dollars of soft money (monies
not subject to existing federal regulatory law) public pressure was growing on
federal regulators and law makers to act.
As shown in the following table, the
main goals of the BCRA are to ban both major political parties and
congressional campaign committees from raising and spending soft monies and to
prevent various other political committees and organized groups from running
issue ads (TV ads either praising or attacking selected candidates) that
mention candidates by name just prior to an election. The BCR doubles the amount of hard money
(those monies subject to federal regulatory laws) from $1000 to $2000 per candidate,
per election. The law also places limits
on individual contributions to national, state, and local party committees.
Individuals may contribute an annual maximum of $25,000 per national committee,
however, contributions may not total more than $57,000 to all national party
committees and political action committees (PACs) in any two-year cycle. (Table 1)
BCRA does not allow the parties to
make unlimited independent expenditures on behalf of candidates. These are
funds spent on behalf of a candidate but not coordinated with a candidate’s
personal campaign organizations.
Shortly after Bush signed the BCRA,
Republican senator Mitch McConnell (a consistent foe of the law) and several
other groups filed a suit in federal court challenging the law’s constitutionality
on First Amendment grounds (violating free speech) (McConnell v. FEC).
On May 2, 2003, the US District Court for the District of Columbia, struck down
the law’s prohibition on soft money and retained the ban for electioneering
communications that clearly identified a federal candidate. The same court also approved BCRA provisions
that prohibit federal officials from raising and spending soft money. A stay
was issued of its ruling in May, 2003, which kept BCRA in effect as enacted
pending a ruling by the US Supreme Court.
In September, 2003, the high court
heard oral arguments in McConnell v. FEC (McConnell v. Federal Election
Commission 2003). It had to evaluate some 1,600 pages of
testimony involving almost eighty plaintiffs and numerous lawyers, as
well. In December, the court announced
its decision, probably the most far-reaching decision in campaign finance since Buckley v. Valeo in 1976. In a 5-4 decision, the Supreme Court upheld
the constitutionality of BCRA’s key provisions. The provisions struck down were
the law’s requirement that parties choose between making ‘independent
expenditures’ or ‘coordinate expenditures’ (funds a party spends for such
services as polling, or buying news media time or space on behalf of candidates
when requested to do so) and its prohibition on persons aged seventeen and
under making campaign contributions.
527 Organizations
The most significant development in
campaign finance in the 2004 election involved the appearance and spending by
organizations called ‘527’ organizations. This title comes from the section of
the federal tax code that defines them. By increasing the contribution limits
for individuals and not anticipating spending by independent groups, BCRA
actually fueled tremendous growth in campaign receipts and spending.
Predictions that the anticipated ban on soft money would diminish the
fund-raising role of parties turned out to be wrong (Edsall 2004, A23; Justice,
2004, A16). True, parties did bring more
small contributors into the process but also encouraged the emergence of a host
of 527 organizations with various titles such as: Swift Boat Veterans for
Truth, American Coming Together, MoveOn.org, and Progress for America.
527
organizations are tax-exempt under the Internal Revenue Code. These
organizations are allowed to raise money for political activities including
voter mobilization, issue advocacy and the like. Currently, the Federal
Election Commission (FEC) (monitors campaign spending of both individuals and
committees) only requires a 527 group to file regular disclosure reports if it
is a political party or political committee (PAC) that consistently engages in
either activity or advocating the election or defeat of a candidate, or in
electioneering communications. Otherwise, it must file either with the
government of a state in which it is located or with the IRS.
The Democrats and 527
Formation
Democratic efforts in 527 formation
emerged with the passage of McCain-Feingold in 2002. A task force was
established that included DNC chair Terry McAuliffe, Harold Ickes, former
Deputy Chief of Staff to President Bill Clinton, and other former White House
staffers like John Podesta and Doug Sosnik (Edsall, 2002, A1). The idea was to begin adopting various
technologies and strategies for attracting money for the 2004 presidential
campaign. An outgrowth of the task forces’ deliberations was the formation of
two 527 organizations—the Media Fund and Grassroots Democrats. Looking beyond
national party structures, Ickes saw the need for state party participation and
gained the involvement of Joe Carmichael, then-president of the DNC’s
Association of State Democratic Chairs. Carmichael resigned his position with the DNC and took up a leadership position
with the newly established Grassroots Democrats (Edsall, 2002, A1).
Over the following months from late
2002 into 2003, task force members interacted with leaders of a number of
supportive organizations such as Gina Glantz, Assistant to the president of
Service Employees International Union (SEIU), former AFL-CIO Political
Director, Steve Rosenthal, Emily’s List President, Ellen Malcolm (also a member
of the DNC executive committee), and Carl Pope, Executive Director of the
Sierra Club. Discussions focused on the need for better interest group coordination
during political campaigning (Cummings 2002, A4; Mayer, 2004, 176). In May, 2003, discussions led to the
establishment of a new 527 organization, America Votes. This was to avoid
duplication with other politically active groups. Also, in reaction to a split
between Rosenthal’s Partnership for America Families and some of its previous
labor union backers, a new, broader-based voter mobilization group came into
being, America Coming Together (ACT). For its funding, two businessmen—George
Soros and Peter Lewis—pledged over $20 million for seeding other 527s as well.
ACT operated under the direction of Steve Rosenthal and its mission was to
expand its ground war activities from just a few states to 17 ‘battleground’
states. Additional fundraising involved both Ickes and Ellen Malcolm through
another 527 called the Joint Victory Campaign (Stone 2004, 730; Mayer 2004,
176).
In the final months of the 2004
presidential campaign, the DNC decided to involve former President Bill
Clinton. As a former president, he is a vital force in national party efforts.
By making his presence highly visible, potential donors to 527’s were
energized. Speaking to large donors, Clinton continually emphasized the importance of ACT in
getting people to the polls (Vandehei 2004, A14). He also addressed other potential donors to
the Media Fund and energetically raised money for both the DNC and John Kerry’s
campaign (Stone 2004, 730; Sweet 2004, 1).
Leaders of ACT and the Media Fund
were visible and quite active at the national Democratic convention in Boston. Their headquarters were at the Four Seasons Hotel,
just down the hall from the DNC Finance Division, catering to party donors.
Both Ickes and Malcolm were quite visible on the convention floor and at various
interest group meetings (Rutenberg 2004, A21).
The Republican and 527
Formation
Republican efforts involving 527
formation, developed more slowly. They centered at first on a 501(c) (4)
advocacy group, Progress for America (PFA), which indulged in grass roots work in
behalf of Bush administration policies. From its very beginning, PFA was
closely tied to the Bush White House and its consultants. The PFA was founded
in 2001 by Tony Feather, Political Director of the 2000 Bush-Cheney campaign,
and a law partner in a campaign consulting firm working closely with the
Republican National Committee (RNC). From 2001 to 2003, PFA paid no salaries,
benefits, or occupancy costs. To avoid potential legal conflict, between the
Feather’s law firm, any future political campaign work, and its status as an
independent political group, Feather relinquished his leadership position in
the PFA where McCain-Finegold (BCRA) became law. Chris LaCivita was chosen to
head the PFA, having extensive political
experience in Republican party affairs (Stone 2003, 3804-3805).
One of the early problems facing
LaCivita was wrestling with the problem of how to achieve the organization’s
goal of running pro-Republican federal campaigns through a soft money 501(c)(4)
that is prohibited by law. At one point, he recommended spending 49% of PFA’s
funds on ‘issue advocacy’ directed at the general public and 51% on express
candidate advocacy directed to an enlarged group of party members. In October
2003, at an Issues Conference of party leaders, no final decision on fund
allocation was attained.
LaCivita departed PFA in the spring
of 2004 to work on two Republican senate campaigns. Brian McCabe, from Tony
Feather’s law firm took over the LaCivita. While working on senate campaigns,
LaCivita was a key strategist for the pro-Bush Swift Boat Veterans and POW’s
for Truth. The PFA highly recommended LaCivita to these fledgling
organizations.
By late spring and summer of 2004,
the PFA and Feather’s law firm were intimately involved in Bush’s campaign for
re-election. First its part, the law firm conducted message phone calls and
telemarketing. Its representatives also contacted personnel at the Republican
national convention. The firm also acted as a strategic advisor for Republican
candidates and indulged in fund raising. Seeking additional funding, PFA faced
a number of obstacles. Initially, the RNC called upon the FEC, to limit financing
of 527’s. (President Bush took this position, during his debates with Kerry).
Moreover, corporations that PFA initially looked to as sources of funds proved
reluctant, often citing counsel warnings about the uncertain legality of 527s.
Given this situation, the PFA was forced to hire a number of Republican
consultants. This was done during the party’s national convention for purposes
of fund raising, which did turnout to be relatively successful. As noted, the
FEC approved rules in August 2004 that made it more difficult for 527s to spend
freely. But, the commission also added that new rules would not take effect
until 2005. The PFA took the position that the FEC ruling was subject to
differing interpretations so they were relatively free to indulge in fund
raising. In a joint statement RNC Chair
Ed Gillespie and Bush-Cheney Campaign Chair Marc Raciot stated:
The 2004 elections [are] a
free-for-all. Groups like the Leadership Forum, Progress for America, the Republican
Governors’ Association, GOPAC, and others now know they can legally engage the same way. Democratic leaning groups like
ACT, the Media Fund, MoveOn and Moving America
Forward have been engaging (Weissman & Hassan (in press), 10).
The 2004 Election: More
Money, More Donors
The most remarkable development
between the 2002 elections and those of 2004 was the increase in the size of
contributions, especially by top donors. Among labor unions, the donor base
remained relatively stable (increasing from 40 to 46 unions). As in past
elections, the main donors in 2004 were unions comprised of SEIU, AFSCME, and
the AFL-CIO. These 3 were almost entirely responsible for the near doubling of
union contributions from 2002 to 2004. Their donations rose from 67% ($38
million) to 85% ($80 million) of total donations (Weisman & Hassan (in
press) 13).
Business donations show a different
pattern. For example, the number of business associations contributing at least
$5,000 fell dramatically from 2002 to 2004 (from 1,034 to 361). On the other
hand, business contributions rose from $30,286 to $81,886. This increase was
largely the result of increased giving by larger donors. In 2002, it took 78
businesses to generate 50% of the total money, in 2004 it took only 8 donors.
The most notable change occurred
among individual donors. This was largely powered in 2004 by surge in 527
donations. In 2002, 1,232 individuals provided an average donation of $30,113.
But, in 2004, 1,887 donors contributed an average of $135,805. Although the
amount given by the individual donor did not increase all that much, the median
donation rose from $10,000 to $12,000. The average donation went up
dramatically because of the increased generosity of higher end givers in 2004.
What might be overlooked in all
these figures is that while the top 25 donors provided $142 million other
individual large donors (especially $100,000+) contributed an additional $114
million as the table below shows, the general generosity to give in larger
amounts was the basis of the expansion of individual donations from $37 million
in 2002 to $256 million in 2004 Weisman & Hassan (in press), 13-14. (Table 2)
Individual
Donors and 527 Organizations
Who are these generous individuals
that contributed heavily to 527 finances in the 2004 election cycle? Although
not shown here completely many of the individuals noted below contributed soft
money to either the Republican or Democratic party in 2002. Nonetheless, in
2004, they contributed heavily to 527s either affiliated with the Republican or
Democratic parties (Weisman & Hassan (in press) 13-14). (Table 3)
The bulk of the large contribution
of George and Susan Soros went to 527s affiliated with Democrats, as did that
of Peter Lewis, additionally $13,085,000 was contributed by actress Jane Fonda,
along with that of Hollywood executive Steven Bing of $13,500,000 and
$2,946,000 by John R. Hunting, outdoorsman and environmentalist. Other large
contributors to 527s in 2004 were the afore-mentioned Ellen Malcolm from
Emily’s List, Robert McKay, heir to the Taco Bell fortune, previously mentioned
Steve Rosenthal, and Harold Ickes.
Large donors to Republican
affiliated 527s as noted are Bob and Doylene Perry, T. Boone Pickens, Alex
Spanos, Harold Simmons, and Alice Walton, Walmart heiress. Other heavy
Republican contributors were Richard DeVos and Jan Van Andel, founders of Amway, Missouri financier, Sam fox and Harlan Crow, a Dallas real estate magnate. The latter, incidentally,
contributed heavily to the founding of the Swift Boat Veterans 527 that worked
to discredit John Kerry’s service in the Viet Nam War.
Nowhere was 527 spending more
evident in the final months than on television. Between early March 2004 and
the election, 527s and their respective candidates spent approximately $575
million on television ads. The bulk of the monies were spent in the key states
of Florida, Iowa, Ohio, Pennsylvania, and Wisconsin. In the final three weeks of the campaign, as the
following chart illustrates, pro-Bush 527s outspent pro-Kerry 527s by almost 3
to 1. (Table 4)
Summary
The Bipartisan Campaign Reform Act
has done more to change the way campaigns for federal offices are financed than
any legislation since the 1970s. The Act ended the system that for more than a
decade allowed both major political parties to collect millions of dollars in
soft money. But, an important loophole allows 527 groups to both raise and
spend soft money in virtually the same way that parties did before the passage
of BCRA. Although the sponsors of this legislation in both houses of Congress
argue that its primary goal is to stop federal officeholders from soliciting
corporate and union soft money, it was never intended to reduce the total
amount of money spent in elections.
In reality, some 527 organizations,
are operating as ’shadow parties’ and are aligned with either the Republicans
or the Democrats. They injected literally millions and millions of dollars into
2004 federal elections at all levels. Controversy exists as to what might be
done to limit the existence and spending of 527s. Some argue the Federal
Election Commission is not enforcing existing legislation with respect to soft
money and that the FEC should be replaced by a newer agency better able to
regulate 527 activities. For their part, however, 527s are passionate about
continuing to participate in elections and vow to continue the fight.
Much
depends on whether the FEC, Congress or IRS develops a common and coherent
policy in determining when and how such 527 groups have as their major purpose
of influencing elections. After all, not all 527s make contributions to parties
or selected candidates or coordinate activities with them. Some 527s and their
donors are only furthering their own political ideas or supporting some
‘cause’.
Finally, we can expect that the 527
system will expand and become more complex. Existing 527s will attempt to build
on their recent growth. ACT, for example, is already seeking new ways of
institutionalizing its successes in representing broad party interests. But,
the elections of 2006 and 2008 will undoubtedly feature a host of new
organizations geared to short term candidate and party interests. This emerging
system will be more difficult to monitor and promote accountability. In this
context, what has the BCRA really accomplished as a reform policy?
Endnotes
Buckley v. Valeo (1976) 424
US1, 96 S. Ct. 612.
Corrado, A. (2003). The legislative odyssey v. BCRA. In Malbin, M.B., (Ed.) Life after reform:
Where the
bipartisan Reform Act meets politics (pp. 21-39). Boulder, CO: Littlefield.
Currinder, M. (2005).
Campaign finance: Funding the presidential and congressional elections, in
Nelson,
M. (Ed.), The elections of 2004 (114). Washington, DC: CQ Press.
Cummings, J. (2002, December
21). A hard sell in soft money. Wall Street Journal, p. A4.
Edsall, T. (2002, August 25).
New ways to harness soft money in the works. Washington Post, p. A4.
Edsall, T.B. (2004, April 4).
Proposed rules for “527” groups lead to serve unusual alliances.
Washington Post, p. A12.
McConnell v. Federal
Elections Commission. (2003).124 S.
Ct. 619.
Mayer, J. (2004, October
18).The money man. New Yorker Magazine. p.176.
Rutenberg, J & Justice,
G. (2004, July 29). A delegate, a fund raiser, and a very fine
line. New York
Times, p. A21.
Stone, P. & Barnes, J.
(2003, October 4). Democrats’ money mavens unite. National Journal, p. 3050.
Stone, P. (2004, March
6). Bill Clinton helps Ickes 527 Group. National Journal, p. 730.
Stone, P. (2003, December 20) Inside two soft money havens. National Journal, p. A21.
Sweet, L. (2004, July 1). Clinton brings fund-raising march to Chicago. Chicago Sun Times, p. 1.
Vandehei, J. (2002, October,
18). For ex-president, a careful return to the fray. Washington Post,
p.
A14.
Weissman, S.& Hassan, R.
(in press). BCRA and the 527
groups. In M. J. Malbin, (Ed.) The election
after reform: Money, politics and bipartisan campaign reform act.
(pp.1-22). Latham, MD.:
Rowman
& Littlefield.
Table 1
New and Old Campaign Contribution Limits
To any candidate To any national To any PAC,
Committee party
committee state/local party,
(per election)1 (per year) or other
political
Committee (per year) Aggregate total
Individual can give2 Old law: Old
law: Old law: Old law:
$1,000 $20,000 $5,000 $25,000 per year
New law: New law: New law: New law;
$2,000, $25,000 per $10,000 to each $95,000 per two-
Subject to party state or local party year election
aggregate committee, subject committee (Levin cycle as
follows:
limit3 to aggregate limit funds)4
$5,000 to each PAC $37,500 per cycle
or other political to all national
committee, subject party committees
to aggregate limit and PACs (of
which no more
than $37,500
per cycle can go
to PACs)
Multicandidate Old law: Old law: Old
law: Old law:
committee can $5,000 $15,000 $5,000 no limit
give5
New law: New law: New
law: New law:
same same same same
Other political Old law: Old law: Old
law: Old law:
committee can $1,000 $20,000 $5,000 no limit
give
New law: New law: New
law: New law:
same same same same
_____________________________________________________________________________________
Source: The Center for Responsive Politics.
1Primary and general elections count as separate
elections.
2Individual contribution limits under the new law will
be indexed for inflation.
3Individual contribution limits under the new law are
higher to candidates facing wealthy opponents financing their own election
campaign.
4Levin funds also can come from corporations and labor
unions if allowed by state law.
5Multicandidate committees are those with more than 50
contributions that have been registered for at least six months and (with the
exception of state party committees) have made contributions to five or more
federal candidates.
(Currinder,
M. 2005, 114)
Table 2
The Changing Patterns of Individual Giving to Federal
527s
2002 Cycle 2004 Cycle
__________________________________________________________
%
of %
of
Range of Donations N Amount Total N Amount Total
$2 Million and Over 0 $0 24 $142,497,241 56%
$1 Million to $1,999,999 2 $ 2,152,000 6% 28 $35,216,957 14%
$500,000 to $999,999 8 $ 6,132,190 17% 25 $16,380,500 6%
$250,000 to $4999,999 13 $ 4,238,550 11% 36 $12,297,148 5%
$100,000 to $249,000 43 $ 5,872,372 16% 152 $20,360,946 8%
$5,000 to $100,000 1,165 $18,672,941 50% 1,617 $29,511,550 12%
Total 1,231 $37,068,053 100% 1,882 $256,264,342 100%
Source: 2005 Campaign Finance
institute, Washington, D.C. (Weissman & Hassan (in press), 10).
Individual Donors and 527
Organizations
Table 3
Individuals’ $250,000+ Contributions to Federal 527s
in the 2004 Cycle
(Top 18)
Name Money to 527s Employer
Soros, George $24,000,000 Soros Fund
Management
Lewis, Peter $22,545,000 The Progressive
Group
Bing, Stephen $13,902,682 Shangri-La
Entertainment
Sandler, Herb & Marion $13,007,959 Golden West
Finance Group
Perry, Bob $ 8,060,000 PerryHomes
Arnall, Dawn $ 5,000,000 Ameriquest
Capital
Spanos, Alex $ 5,000,000 AG Spanos Companies
Waitt, Ted $ 5,000,000 Gateway
Pickens, Boone T. $ 4,600,000 PB
Capital
Perenchio, Jerry & Living
Trust $ 4,000,000 Chartwell
Partners LLC
Rappaport, Andrew $ 3,858,400 August
Capital
Simmons, Harold $ 3,700,000 Contran
Corp
Messinger, Alida $ 3,447,200 None
Levy Hinte, Jeanne $ 3,425,000 Self/Writer
Pritzker, Linda $ 3,354,000 Self/investor
Eychaner, Fred $ 3,075,000 Newsweb
Corp
Cullman, Lewis $ 2,651,000 Self/Philanthropist
Walton, Alice $ 2,600,000 Rocking
W Ranch Inc.
Table 4
HOW MONEY TALKS
527 groups broadcast spending during
final three weeks
MILLIONS OF DOLLARS
These figures represent
spending on TV and radio advertising by 527s from Oct. 13, 2004, through
Election Day.
Source: Federal Election
Commission |
