FEC Members Seek To Break 527 Deadlock

Posted April 30, 2004 at 6:24pm

In a last-ditch effort to craft a compromise for the increasingly rancorous debate over 527 groups, one Republican and one Democrat on the Federal Election Commission have unveiled a new proposal to regulate the controversial organizations that are poised to spend millions of largely unregulated dollars on this fall’s elections.

An effort now under way by the FEC to rein in these so-called shadow groups has generated notable controversy in recent weeks, with nonprofit organizations — known as 501(c)(3)s or 501(c)(4)s — contending that regulations being weighed by the FEC’s general counsel could have the unintended consequence of drastically hampering their activities.

At the same time, the FEC’s proposal has been labeled by some an overtly partisan attempt by Republicans to shut down such Democratic-leaning groups like American Coming Together and The Media Fund. Both groups have been raising and spending millions of dollars in an attempt unseat President Bush, who is arguably the most successful fundraiser in American political history.

But two FEC members say they now have a plan that could effectively regulate 527s without injuring nonprofit groups.

In an interview, Republican Commissioner Michael Toner touted the new bipartisan plan — which he crafted in cooperation with Democrat Scott Thomas — as one that poses no threat to 501(c)(3)s or (c)(4)s. The regulations would be “narrowly tailored to the entities within the areas of greatest concern” and where there is the “greatest potential for circumvention.”

“I really do think the future effectiveness of the McCain-Feingold law is at stake,” Toner added, referring to the new campaign-finance law enacted last year that bans soft money from federal elections.

The Toner-Thomas proposal would make clear that groups organized under Section 527 of the Internal Revenue Code that run ads promoting or attacking federal candidates are considered political committees that must register with the FEC and disclose their activities.

Moreover, groups running partisan voter-registration or get-out-the-vote activities would also have to register and file with the watchdog agency.

Several categories of 527 groups — including committees organized solely to influence state or local candidates or elections, or groups that are formed only to influence state ballot initiatives or referenda — would be automatically exempt from the regulations.

Toner and Thomas also take aim at a perceived problem with current rules that govern what types of money 527s can use to pay for expenses.

While the national party committees are prohibited under the Bipartisan Campaign Reform Act from raising or spending soft money, there is no such prohibition on 527 groups, which have continued to raise unlimited donations from corporations, labor unions and wealthy individuals to fund “non-federal” activities.

But there has been concern expressed about the amount of money such groups have been accumulating and spending and whether it is inappropriately financing federal election activities.

America Coming Together has both federal and nonfederal accounts, but it has been criticized for making 98 percent of its expenditures with soft money, and making only 2 percent of its expenditures with more precious, limited hard dollars.

Under the Toner-Thomas proposal, groups operating both federal and nonfederal accounts would have to abide by a minimum hard-dollar percentage of 50 percent when paying for administrative expenses, voter drives and certain public communications that promote only a political party or candidates associated with a particular issue.

Other communications could be paid for via a “funds expended” method, Democratic election lawyer Bob Bauer explained on his Web site in a brief analysis of the new proposal.

“Communications that promote, support, attack or oppose only Federal candidates would be payable with 100 percent hard money, while those focused on both Federal and non-Federal candidates as well as political parties would be allocated on the basis of space and time, with the party proportion allocated on the basis provided for communications focused exclusively on parties (apparently, with a 50 percent minimum for that portion),” Bauer’s analysis noted.

“Communications promoting, opposing supporting attacking both Federal and non-Federal candidates would be allocated between candidates and thus between Federal and non-Federal accounts.”

The new proposal largely mirrors suggestions made by some prominent campaign-finance reformers, and some who were interviewed soon after the proposal’s release had kind words for it.

“We believe this is an excellent proposal,” said Democracy 21 President Fred Wertheimer. “It demonstrates that the 527 problems are capable of being addressed and addressed immediately. There’s no excuse for the FEC to fail to correct its past misinterpretations of the Federal Election Campaign Act and to put new regulations into effect immediately.”

Left unclear, however, is whether the commission can cobble together the four votes to enact this proposal — or any other.

While Toner and Thomas will undoubtedly back their own proposal when it’s put to a vote, two other commissioners — GOP FEC Chairman Brad Smith and Democratic Vice Chairwoman Ellen Weintraub — have publicly voiced doubts about the wisdom of regulating 527s at this time.

Campaign-finance insiders are unsure of the views of the two remaining commissioners, Democrat Danny McDonald and Republican Dave Mason. The subject will be addressed at a public hearing on May 13.

The Toner-Thomas approach could have serious implications for 527 groups that have already begun operations — at least those whose major purpose is to nominate or elect candidates.

In addition to registering and following the new rules, such groups would have to demonstrate that they have raised the proper amount of hard money to cover their expenses and correct any discrepancies between the FEC’s regulations and any activities already under way for this election cycle.