Buying influence

Introduction

Political committees operating in a gray area of the law spent more than $430 million during the past three years to influence elections and policy debates across the country, according to an analysis by the Center for Public Integrity. Until now, no one has put a dollar amount to these groups’ collective impact on the electoral process. The Center analysis is the first to present a comprehensive view of the activity of these committees, known as 527 organizations after the portion of the Internal Revenue Code that defines their tax status. These groups take advantage of a provision in the tax code that allows 527 committees to claim tax-exempt status as a political organization and at the same time avoid regulation under state or federal election law. Due to their unique legal status, 527 committees are almost totally free from fund-raising restrictions while still being able to engage in just about any election-related activity short of contributing to federal candidates. They can, for example, promote issues through advertisements, participate in voter drives and conduct political research. Experts say this makes 527 committees ideal conduits for the millions of dollars in “soft money” unregulated and unlimited contributions by individuals, corporations and unionsthat Congress banned last year.

Among the few requirements of 527s is that they disclose their donors. Since July 2000, these committees have been required to report their finances to the IRS. But the agency’s web-based system to disseminate those reports has been plagued with problems. The IRS continues to post thousands of disclosure forms submitted by state and occasionally federal candidates and committees, even though they are exempt from filing with the agency. To date, more than 20,000 organizations have sent financial disclosure forms to the IRS, but only a small fraction belong to committees required to file, making an accurate assessment of 527 activity extremely difficult. To determine which committees to include in its analysis, Center researchers identified 448 groups among the more than 20,000 in the IRS system that all possess one or more of the following characteristics: They are not required to report their financial activities to state or federal election authorities; they are tied to or formed by a federal lawmaker; or they are active in many states and spend most of their money on election-related activities like broadcast advertisements, mailings and political research. Because virtually all the reports were submitted to the IRS in paper form, the Center had tens of thousands of contributions and expenditures keypunched into an electronic database. This fall, the Center will release a more detailed report, which will include a searchable version of that database on the Web. Among the Center’s initial findings:

• Although the IRS has yet to release a majority of 2003 filings, it appears campaign finance reform has done little to curb fundraising. Two groupsthe Republican Governors Association and the Club for Growthhave already raised more than $1 million each in 2003. Most of the RGA’s money has come from corporations, which are prohibited from making campaign contributions under federal election law but can donate to 527 committees. The 22 committees whose forms are currently available reported raising more than $3.3 million during the first few months of 2003.
• The 448 committees included in the Center’s study reported slightly more than $379 million in contributions and $430 million in expendituresmost of that amount during the 2001-2002 election cycle. The level of financial activity surprised Trevor Potter, an attorney with Caplin & Drysdale and chair and general counsel of the Campaign Legal Center, a Washington-based nonprofit that monitors enforcement of campaign finance laws. Like many other experts, Potter had assumed that forcing disclosure would dry up the activities of many 527 committees. “The theory has been that a lot of the 527 money has been allergic to sunlight,” Potter said.
• Some 75 committees raised $1 million or more, and 19 raised more than $5 million. Those backed by labor unions, abortion rights and environmental groups were among the most active. The American Federation of State, County and Municipal Employees, a union representing state and local government workers, topped the list with nearly $36 million raised over three years.

The 527 maze

Little-known before the 2000 presidential election, 527 committees became notorious that year after a group known as Republicans for Clean Air paid for broadcast advertisements attacking Arizona Sen. John McCain’s environmental record during his run for the Republican presidential nomination. Because the group did not have to file any records of its donors or expenditures, its financial backers were unknown until newspapers ferreted out their names. Subsequently, President Clinton signed a law in July of 2000 requiring such groups to register and report contributions and expenditures with the IRS, and also mandating that the IRS build a Web-based disclosure system. Confusion over the law’s reach led many state and local candidates and committees to file information with the IRS when they did not need to do so. Even federal lawmakers who supported campaign finance reform were confused by the scope of 527 regulations. Democratic Rep. Jerry F. Costello of Illinois closed down his Illinois-based JFC Leadership Committee early in 2003. Seeking clarification on his filing responsibilities, Costello wrote the IRS in January 2003 complaining that his conversations with three IRS officials about whether his state committee had to file did not result in a clear answer. “The first representative said yes, the committee needed to file, the second said no and the third said he didn’t think so,” Costello wrote in the letter accompanying his committee’s filings. Costello declined to be interviewed for this report, but his spokesman, David Gillies, said “the issue certainly was confusing, so he decided to shut [his committee] down.” Those interested in researching 527 activity face an equally daunting task. The IRS’ own Internet-based disclosure system, which was revamped on June 30, 2003, still contains filings from committees that never should have been included. The system also makes it difficult to determine the true amounts raised and spent by 527 committees by failing to collect disclosure reports under a single identification number. In many instances, a single 527 group has been assigned more than one identifier by the agency, each of which may contain multiple reports. The IRS has adopted an electronic filing program for 527 committees, but the bulk of the reports are available only as scanned images of paper filings. As a result, the IRS’ disclosure site has a multi-tiered search engine that permits, for instance, searches for the date of a particular contribution, but only for reports filed since December 2002. In addition, the IRS’ disclosure system does not readily indicate whether filings have been amended and which reports are considered the most authoritative. The Federal Election Commission, by comparison, indicates in its disclosure system whether a report has been amended and links to the updated filing.

Skirting campaign finance laws

Prior to the passage of the Bipartisan Campaign Reform Act last year, many of the most well-known 527 committees had ties to federal lawmakers and their political action committees. For example, House Speaker J. Dennis Hastert, R-Ill., maintained his Keep Our Majority PAC’s 527 account. Democratic senators John Kerry of Massachusetts, John Edwards of North Carolina and Bob Graham of Florida, along with Rep. Richard Gephardt of Missouri, all operated 527s as they prepared bids for the presidency in 2004. To maintain their status as 527s, these committees could not directly coordinate with any federal candidate. But they could spend money in ways that ultimately improve their sponsors’ chances in the 2004 election. For example, Kerry’s 527 committee, Citizen Soldier Fund, gave more than $256,000 to candidates and parties in New Hampshire, Iowa and South Carolinathree key Democratic primary states. In addition to banning national political parties from raising soft money, BCRA prohibits a federal candidate from involvement with a committee not regulated by the FEC. The law effectively forces federal candidates to close or distance themselves from their 527 committees. Hastert has officially shuttered his 527 committee. Senate Minority Leader Tom Daschle of South Dakota also closed the non-federal account of his PAC, Dedicated Americans for the Senate and the House. Since the law took effect, many new 527s have appeared on the scene. Some that have received a great deal of media attention, such as the labor-backed Partnership for America’s Families, have yet to file their initial financial reports with the IRS. Other committees changed their legal status in order to continue receiving unlimited contributions, including both major parties’ governors associations. The Republican Governors Association’s switch meant severing its ties with the Republican National Committee, but no change in the sources and amounts of money it would accept. “BCRA does not affect what donors can give to the new RGA,” reads a memo on RGA’s Web site that was written by attorneys from Washington law firm Patton Boggs LLP. “Thanks to its new status, the RGA may continue to accept contributions from corporations, trade associations, unions and individuals in any amount.” The same concept applies to the RGA’s counterpart, the Democratic Governors Association. After BCRA went into effect, the DGA continued to raise money from corporations and labor unions that would have exceeded federal limits. “Contributions to the DGA are not subject to federal election law limits,” the DGA’s Web site reads.

Alex Knott contributed to this report.