Stealth PACs revealed

Introduction

The 2000 election cycle promised to be a high-stakes and free-spending election by anyone’s measure. The balance of power in Congress was in question and the White House was up for grabs. The import of this election cycle meant that interested groups were going to be as active as possible in as many ways as possible.

The little known and even less understood “Section 527” of the Internal Revenue Code made a splash and was perceived as the largest dam-bursting hole in the ever-deteriorating campaign finance laws. It promised to be the new battleground for interest group involvement in elections. These new soft-money groups fell in between regulation by the Federal Election Commission on one hand and the IRS on the other, allowing the groups to campaign in anonymity and escape all disclosure requirements.

These soft-money groups also enjoyed greater tax advantages for their larger donors and could receive contributions from any source — individuals, unions, corporations, foreign interests or even other governments. With memories still fresh of illegal foreign campaign contributions in 1996, Section 527 offered a significant opportunity for fund-raisers — not only could foreign money be allowed, it would be untraceable.

Only two conditions were needed for soft money 527 groups to stay in the shadows: They could not contribute to federal or state candidates or political parties and they could not use explicit words advocating for or against a candidate, such as “vote for,” “elect,” “support,” “reject,” “defeat,” “against,” “cast your ballot for” or “Smith for Congress.” A group meeting these criteria could simply remain outside the oversight of the Federal Election Commission.

One group cloaked in this anonymity attacked presidential candidate Senator John McCain, R-Ariz. It called itself the Republicans for Clean Air, but had neither an office nor a phone number, just a post office box in northern Virginia. The news media and McCain’s campaign scrambled to identify the group’s directors and backers. Less than a week after the ads ran and McCain was defeated on “Super Tuesday,” a day of primary elections in key states, brothers Sam and Charles Wyly, Texas billionaires, one a leading Bush fund-raiser, identified themselves as the principals.

The publicity attracted by the Republicans for Clean Air ads contributed to a flurry of activity in Congress. Multiple bills targeting 527 groups were floated in the Senate and House in the spring and early summer until finally, on June 8, McCain’s bill passed the Senate. Three weeks later, Republican Representative Houghton of New York presented his version, and it passed the House 385-39. The House considered the measure under procedures ordinarily reserved for non-controversial bills, with debate limited, no amendments allowed and a two-thirds vote required for passage, rather than a simple majority.

The bill went back to the Senate on June 29 and passed the same day by an astounding 92-6 vote. There was only brief debate, primarily about whether labor unions could be added to the list of groups newly required to register and disclose activity. Republican advocates for reform opted to push through the narrower bill, believing that a broader approach would cost support. The Full and Fair Campaign Finance Disclosure Act of 2000 was the first campaign finance law passed in 21 years. The president signed it into law on July 1, 2000.

The final measure required all Section 527 organizations that spend more than $25,000 in an election cycle to register with the IRS and report all their contributions and expenditures on a monthly or quarterly basis. While it did not restrict political activity, the intent was to force this new breed of Section 527 groups to disclose to the IRS the same information as groups campaigning for candidates disclose to the FEC.

According to the Campaign for America database of all Section 527 organizations, more than 11,000 groups filed this election cycle.

In the final analysis, the Center found that most Section 527 soft money groups failed to reach their fund-raising goals and had less influence than pundits and campaign finance reformers predicted. Very few of the groups expected to be in the $10 million -to -$25 million category came close to their fund-raising goals, according to IRS financial records from July 1 through Election Day. The Center cannot draw definitive conclusions about the effectiveness of these groups because of the lack of disclosure for the first year-and-a-half of the election cycle before the campaign finance law was enacted. The law certainly affected these groups’ fundraising and perhaps took the teeth out of their planned campaigns entirely by enabling public awareness of advertisers’ identities during the election.

The Center’s Issue Ad Watch Project Report of the soft-money Section 527 groups draws thumbnail sketches of these political organizations and their impact on the federal campaign process.

The Center has updated the following group profiles to include newly released IRS campaign finance disclosures, data on broadcast expenditures that the Center obtained from the Campaign Media Analysis Group and summaries of each group’s election-related activity for the 2000-campaign cycle.

The Center for Public Integrity spent a year tracking issue advocacy groups, but particularly focusing on the new soft-money Section 527 groups created during the 2000-election cycle — following their activity, tracking their donors and identifying where the organizations operated and what they said. The Center also participated in four training conferences for reporters in New York; Washington, D.C.; Chicago and Park City, Utah; educating reporters on how to research and track Section 527 groups and issue advocacy campaigns. Campaign finance expert David Magleby of Brigham Young University conducted the training conferences, which were funded by a grant from the Pew Charitable Trusts.

The Center received more than 150 calls from the news media during the campaign on the issue of Section 527 soft money groups. The Center was also cited in more than 50 media outlets nationwide, including U.S. News & World Report, The Washington Post, and The San Francisco Examiner.

527 Groups

The Christian Coalition: The Christian Coalition has been in a bitter dispute with the IRS for 10 years over the IRS’s refusal to approve its 501©4 tax status application. The Christian Coalition has been a longtime campaign force, widely distributing voter guides and placing mass get-out-the-vote telephone calls. In 1996, the Virginia Beach, Va.-based group sent out 46 million voter-guides to 125,000 churches. This primary season it sent out 2.5 million voter guides in California alone. In 1999, the Christian Coalition decided finally to retract its application for tax-exempt status, and created a 527 fund.

The group is now splintered between Christian Coalition International, using the existing headquarters in Virginia Beach and working under 527 status, and the Christian Coalition of America, headquartered in Bedford, Texas. The Texas Christian Coalition had already received tax exempt status as a©4 . It has since changed its name to Christian Coalition of America and plans to absorb the Christian Coalitions’ nationwide efforts at voter education. According to leader Pat Robertson, the group plans on distributing 75 million voter guides, scorecards and other resources as well as mobilizing volunteers through his expansive congregation network to elect George W. Bush in 2000.

Citizens for Better Medicare: The Citizens for Better Medicare Action Fund is a Medicare reform advocacy organization bankrolled almost entirely by the pharmaceutical industry. The group formed as a Section 527 organization in July 1999. CBM said in news media reports that it would spend up to $40 million in the 2000 election cycle, focusing its effort on attacking Democratic prescription-drug plans. Broadcast data obtained by the Center showed that the group spent more than $20 million on television advertisements alone.

Executive director Tim Ryan is a former marketing director for the drug industry’s lobbying arm, the Pharmaceutical Research and Manufacturers of America, or PhRMA. Ryan acknowledged that the group gets most of its funds from drug manufacturers, but was unwilling to disclose specific amounts. The CBM Web site lists some of its donors, including pharmaceutical corporations, health-care awareness and senior citizen advocacy groups, and university medical and research centers.

Citizens for Better Medicare was deeply involved in the national discussion on campaign-finance reform in the 2000 election cycle — mentioned by Senator John McCain and President Clinton alike as a prime example of a misleading issue-advocacy campaign that had escaped disclosure. Public Citizen, a public health and safety watchdog founded by Ralph Nader, released a report on the Citizens for Better Medicare in June 2000 calling it a front group for the pharmaceutical industry.

According to broadcast records obtained by the Center, the group ran television advertisements throughout the election cycle in 30 states on bipartisan House and Senate bills expanding drug benefits for senior citizens. Some ads attacked Democratic members of Congress who escorted groups of senior citizens into Canada to purchase less expensive prescription drugs and supported drug price controls for the elderly. CBM spent an average of $400,000 per market on more than 30,000 advertisements run in the 2000 election cycle.

Deputy Director Laura Dove declined comment on the organizations specific campaign efforts this cycle.

According to The Washington Post, Citizens for Better Medicare is abandoning its 527 tax status in part to avoid the recent disclosure law enacted last summer. Its re-organizing itself as a 501©(4) advocacy organization. CBM reported no contributions to the IRS for the third quarter, but did report spending $8.5 million during this period, with almost the entire amount going to National Media, a Republican broadcast media production firm in Alexandria, Virginia. Alex Castellanos, a strong-arm in the political advertising world, heads National Media. Castellanos’ previous clients include the Republican Party, Senator Jesse Helms, R-N.C., and George Bush’s 1992 presidential campaign.

Citizens for Reform: Citizens for Reform was created in May 1996 by Peter Flaherty, chair of Conservative Campaign Fund PAC and chairman of Citizens for Reagan lobby. Citizens for Reform was one of two nonprofit fund-raising arms employed by Triad Management Services in 1996 to conduct issue advocacy campaigns against 15 Democrats in the most hotly contested House and Senate races nationwide. The group is best known for its ads against Montana House candidate Bill Yellowtail over domestic abuse. Republican Rick Hill won the election after Citizens for Reform ran ads telling Yellowtail to stop the abuse and to work for family values.

Citizens for Reform spent $2 million in 1996. Triad and its two non-profit wings were investigated by the Democrats on the Senate Governmental Oversight and Ethics Committee for campaign finance violations in 1996. The Democrats found violations, but no action was taken. Flaherty told the Honolulu Star-Bulletin in 1997 that his issue ads were “like electronic voter guides. We don’t use advocacy words, so we don’t cross the line.” In 1997 Citizens for Reform spent $1 million accusing Democratic Wisconsin Senators Russell Feingold and Herb Kohl of supporting “partial birth” abortions. Citizens for Reform was one of the first groups to change its status to 527, in 1997. Citizens for Reforms attorney, Mark Braden, downplayed the change, stating it was just a matter of “what form you file,” but the change has helped the group maintain anonymity for future campaign involvement.

Citizens for a Sound Economy: The Citizens for a Sound Economy has also jumped on the 527 bandwagon this spring.

The Washington-based consumer-advocate conservative think-tank is financed by corporate donations. Microsoft, Koch Industries, Exxon Corp., General Electric and Philip Morris all contribute to the group, which has an income in excess of $15 million. C. Boyden Gray, White House counsel in the Bush administration, is chairman of the board of trustees.

Although CSE has battled candidates in previous election cycles, this time it decided to separate its political activities from its nonprofit foundation and consumer advocate wings. Its leaders created two separate funds this spring to handle all election-related activity-a black hole fund and a federally registered political action committee. The black hole 527 fund will handle all CSE’s issue advocacy campaigns that avoid federal election disclosure and regulation by avoiding direct support of a candidate with the magic words like “vote for,” and “vote against.” This fund will receive unlimited and undisclosed contributions from corporations and individuals. According to Michelle Mitola, treasurer of the CSE PAC, the federally registered PAC will spend its limited and reported contributions on educating its membership base and conducting independent expenditures supporting business-friendly conservative candidates.

CSE has announced its plan to be involved in the New York race for the U.S. Senate, and will also be canvassing its 250,000 nationwide members for contributions to fund-tailored voter guides, score cards and get-out-the-vote drives as well as to television, radio and print advertisements opposing Hillary Rodham Clinton. The Gannett News Service reports that CSE plans to spend more than $1 million this election cycle in various states, with New York chief among them.

Its principal founders are David and Charles Koch. The brothers own Koch Industries, the nation’s second wealthiest privately owned business, which was recently given a $35 million federal fine in connection with 300 oil spills in six states. As a part of the settlement agreement with the Environment Protection Agency, Koch Industries wasn’t required to admit fault, but it is paying the most expensive civil fine ever levied under United States environmental laws.

Citizens for the Republic Education Fund: Citizens for the Republic Education Fund is the second nonprofit arm of Triad Management Services. It raised and spent $2 million in 1996 on issue advocacy. Citizens for the Republic is headed by Angela “Bay” Buchanan, Pat Buchanan’s sister and closest political ally, and GOP strategist Lyn Nofziger, a former Reagan aide. Dick Dresner, a big-time Republican consultant, also works with the group. Citizens for the Republic spent $500,000 attacking Democratic Senate candidate Winston Bryant in Arkansas in 1998, and went after Democrat Jill Docking, a Kansas Senate candidate, in 1996. The group changed its status from 501©4 to 527 in 1997, at the same time as Citizens for Reform.

Citizens for the Republican Congress: Though this group publicized a $35 million fundraising drive to promote the GOP agenda in 30 districts, IRS records filed by the Citizens for the Republican Congress indicate that the group neither raised nor spent any money the second half of 2000. According to its original filing with the IRS, the organization was created to “educate the public in support of the Republican legislative and public policy issue agenda in the Congress of the United States, and to promote the political and philosophical objectives of the Republican Members of Congress without engaging in express advocacy for the election of any clearly identified federal candidates.” In August 1999, former member of Congress Pat Saiki, R-Hawaii, established Citizens for the Republican Congress as a Section 527 organization, and reportedly shopped image ads for a planned massive advertising campaign to Republican leaders. The prospective ads touted the partys role in tax cuts and welfare reform. Cleta Mitchell, the group’s attorney, told the Center early on in the election cycle that Citizens for the Republican Congress wasn’t actually going to be active this cycle and that the financial goals of the group reported in the press were misleading.

Club for Growth: In April 1999, the New York-based free-market group Club for Growth spun off a Section 527 organization to conduct political fundraising. The group has been around since the late 1980s and includes Wall Street investors, media executives and fiscal-policy experts who planned to raise and spend $10 million to oust members of Congress who oppose free-market policies. The Club supported 15 Republican candidates in close races this election cycle:

Winners

• Jeff Flake (AZ-01)
• Ric Keller (Fl-08)
• Mark Kirk (IL-10)
• Mike Pence (IN-02)
• Mike Rogers (MI-08)
• Denny Rehberg (MT-at large)
• Melissa Hart (PA-04)
• Pat Toomey (PA-15)

Losers

• Jim Rogan (CA-27)
• Mark Nielsen (CT-05)
• Dylan Glenn (GA-02)
• Phill Kline (KS-03)
• Spence Abraham (MI-Senate)
• Rick Lazio (NY-Senate)
• John Koster (WA-02)

The Club supported candidates with bundled individual contributions forwarded to the candidate and issue-ad campaigns paid for by the Club. The Clubs success record was mixed: Eight endorsed candidates won, and seven lost their contests.

The Club fell short of its publicized $10 million dollar fund-raising goal, raising $712,326 and spending $815,846 between July 1 and Election Day, according to financial reports filed with the IRS. This does, however, leave out any money contributed or spent before the disclosure law was enacted on July 1, 2000. The Club touted its successes and spending in a few races.

Club members contributed $138,000 to Republican Jeff Flake in Arizona’s 1st District. The Club reported running over $50,000 in radio advertisements and a phone-bank effort of 75,000 calls during the five days before the election.

The club also bragged about its efforts in the Republican primary race for the Florida 8th District open seat, claiming victory for Ric Keller’s primary win against party veteran Bill Sublette. The Club contributed $20,000 to Keller and ran a $90,000 television and radio ad campaign and a 40,000-call phone-bank effort four days before the special run-off between Keller and Sublette. Keller said he was “just thrilled to have pro-business people backing me.” Keller said the assistance from the Club provided him a chance to “fight fire with fire.” Keller ended up winning the general election by fewer than 4,000 votes.

The club was also involved in the New Jersey 5th District Republican primary contest between moderate incumbent Representative Marge Roukema and conservative challenger State Assemblyman Scott Garrett. The Capitol Hill newspaper Roll Call reported that the group planned to spend $75,000 to $100,000 on issue ads attacking Roukema. Club members contributed more than $70,000 to Garrett’s campaign. Roukema received support from another 527 organization, the Republican Leadership Council. She won the primary, as well as her general election race against Democratic challenger Linda Mercurio.

The clubs involvement in Republican primaries like the New Jersey 5th District and the Florida 8th District sparked consternation among the GOP House leadership.

House GOP leaders told the Center for Public Integrity that the Club was ruffling feathers on the Hill because of advertising campaigns targeting Republican candidates that don’t hold the same fiscally conservative views as the Club for Growth.

Representative Jim Greenwood, R-Pa., attended a meeting on March 30, 2000 with Club for Growth members and other representatives, including Fred Upton, R-Mich., Nancy Johnson, R-Conn., and Tom Davis, R-Va., who chairs the National Republican Congressional Committee, which raises money for GOP congressional candidates. Greenwood said of the meeting: “Our purpose was to say that if you want a pro-economy Congress, then we have a common cause. But we think you [the Club for Growth] perhaps misinterpreted the record of fiscal and financial conservatives that are culturally moderate and those that are actually not pro-growth. I told them that their efforts were contrary to their own plans to target Republicans in primaries.”

Founding members of the Club for Growth include National Review magazine president Thomas “Dusty” Rhodes, Wall Street stockbroker Richard Gilder and Stephen Moore, president of the Cato Institute, a libertarian think tank. Of the founding members, only Gilder anted up major cash to support Club for Growths efforts, contributing $150,000 to the organization, according to IRS financial reports.

Contributions varied from fiscally conservative grassroots support to big bucks from financial firms. CEO Harlan Crow of Crow Family Holdings contributed $75,000, Joseph DiMenna of Zweig-DiMenna Association contributed $50,000 and Richard Weiss of Strong Capital Management contributed $40,000. The average contribution by the 154 donors was less than $5,000, according to financial records from July to November 2000 at the IRS.

The club also contributed its money to other conservative causes. It gave the American Conservative Union $34,000 and the Michigan Chamber of Commerce $50,000.

The Coalition to Protect Americans Now: Created in March 2000, the Coalition to Protect Americans Now raised funds and ran attack ads critical of the Clinton administration defense policies. The coalition presents itself as a group of “ordinary citizens who want to send a message to our political leaders that it is time to protect Americans from missile attack — now.” The message that the Clinton administration left America vulnerable to nuclear attack was sent through ads that ran in Washington, D.C., New Jersey and elsewhere. A closer look at who funds the coalition reveals that these are not just ordinary citizens, but wealthy conservative activists. Billionaire heiress Helen Krieble, daughter of the late sugar king Robert Krieble, founded and bankrolls most of the group’s operations. Krieble financed the first $100,000 ad buy criticizing the Clinton administrations defense policy. The Krieble family sponsored other conservative movements, including Newt Gingrich’s leadership PAC, GOPAC, the Club for Growth and other conservative efforts. According to media reports, Helen Krieble donated a total of $250,000 in seed money to the Coalition earlier in the year; Krieble’s mother, Nancy, also contributed $200,000, according to IRS records.

Other founders include Frank Gaffney, adviser on defense issues for President Reagan, and Henry Cooper, who directed the Strategic Defense Initiative (“Star Wars”) under Reagan. Thomas Mead is the executive director and is a former missile-defense policy analyst at the conservative Heritage Foundation. According to its inaugural press release, the coalition is “dedicated to immediately beginning the deployment of effective missile defenses.”

At a press conference early into the presidential campaign, the group urged George W. Bush to initiate a sea-based anti-missile system and voiced its dissatisfaction with the Clinton administrations position on this issue. “Unfortunately the Clinton/Gore administration has delayed the development of effective anti-missile systems and proposes not to deploy any protection for the American people until 2005 at the earliest. The American people deserve and expect to be protected now,” the press release said. The coalition launched a second advertisement in late July praising Bush and attacking Al Gore for his stands on a national missile defense system. Just days after the ad run began, Bush announced his support of a missile defense system. The ad buy in Pennsylvania, New Jersey and Washington cost over $115,000, according to data from broadcasters. According to IRS financial records, the coalition raised $220,000 and spent $244,964 since the disclosure policy was enacted in July.

Executive Director Tom Meade could not be reached for comment. CPAN’s phone has been disconnected, but Craig Shirley & Associates, CPAN’s press relations firm, is taking calls.

Committee for New American Leadership: Former House Speaker Newt Gingrich converted his PAC to a 527, called Committee for New American Leadership, at the beginning of the year. “We changed over to a 527 because we are not going to donate to campaigns or candidates anymore. We just want to talk about issues,” Mike Shields, spokesman for the group, said. The group will not disclose fund-raising goals, but according to Shields, 100,000 people are working for the group in some capacity. Gingrich plans to spend the group’s money on tax- , Social Security- and emerging-technology issues to influence the political debate. The group’s Web site reads, “people should influence politicians, not the other way around.”

The Council for Responsible Government: The Council for Responsible Government is a conservative soft money Section 527 group that planned to raise $3 million for issue advertisements in the election cycle. It stands for “traditional moral and cultural values, free market economics and greater accountability of elected official to people,” according to IRS records. The council is made of three volunteers. Spokesman William Wilson works full-time for U.S. Term Limits, an interest group that planned to run a $20 million campaign in the 2000 election cycle. Candidates refusing to sign the group’s term limits pledge often face stiff television, radio and direct mail campaigns criticizing the candidate’s refusal to sign. Chairman Gary Glenn is a former Idaho county commissioner and is also president of the anti-gay rights, anti-pornography and anti-abortion American Family Association in Michigan. William Hillman from Pennsylvania is the Council’s vice chair.

The council was created prior to the summers disclosure law and has subsequently filed a statement of organization with the IRS, but no financial disclosure reports.

Previous interviews conducted by the Center revealed that the council targeted two Republican candidates in Idaho and New Jersey.

The council attacked Gov. Butch Otter, Republican congressional candidate in the Idaho first district in television ads alleging he was soft on pornography and drugs, “having a left-winged stance on every social issue,” according to the council’s press release. Otter convincingly won the state primary and the general election. It is possible that the motivation for this attack was personal; there was a very public feud reported between Otter and Glenn during Glenn’s time in Idaho.

The council also targeted New Jersey Assemblyman Joel Weingarten during his primary run for the Republican Party nomination for the open seat Bob Franks vacated in northern New Jersey. The council attacked Weingarten as “pro-tax” and “spend.” Weingarten lost his primary bid. Both the Otter and Weingarten campaigns told the Center for Public Integrity that the allegations raised by the council were baseless.

The council did not campaign for or against any candidates in the general election.

Faith and Family Alliance: The Faith and Family Alliance is a Section 527 group established in February 1999 that made its first and only political appearance in the June 200