527s Receive Boost at FEC

Posted May 11, 2004 at 6:51pm

The free-spending campaign entities known as 527 organizations received a major boost Tuesday, as the Federal Election Commission’s general counsel recommended that the watchdog agency temporarily halt any new rules that would crack down on the tax-exempt political organizations.

“Careful line-drawing is difficult to do at this pace,” FEC lawyers wrote in their 11-page recommendation to the FEC. The lawyers suggested that the agency’s six commissioners wait at least 90 days before deciding on a course of action to deal with the thorny issue.

The document, which commissioners will consider at an open meeting Thursday morning, recommends that the FEC wait for 90 days, then do one of three things. One alternative would be to issue final rules. Another would be to issue a second notice of proposed rulemaking that would offer a “more focused proposal.” And a third would be to “decide — at least for now — to defer the issuance of new rules and instead look for guidance for Congress.”

Even the initial 90-day delay urged by the general counsel’s office would effectively allow 527s to continue operating unfettered by new prohibitions through the November elections. Even in the unlikely event that the FEC acts in mid-August — when Congress is slated to be out of session and when many Washington officials have scheduled vacations — a complex set of rules regarding the implementation of new regulatory measures makes it unlikely that the new rules will be in place early enough to have an effect on the 2004 election.

The prospect of maintaining the status quo delighted some Democrats but outraged members of the reform community.

Prominent Democratic-leaning 527 groups such as America Coming Together and the Media Fund have been raising and spending millions of dollars in unlimited funds from corporations and labor unions to spearhead massive get-out-the-vote and media campaigns intended to help defeat President Bush. Such practices sidestep a major restriction set by the Bipartisan Campaign Reform Act passed in 2002.

Republicans — who pioneered the use of 527s in the pre-McCain-Feingold era — have been slower than the Democrats to adopt the approach on a massive scale for the 2004 elections.

One Democratic election lawyer who has followed the issue closely said that “the general counsel is absolutely right — that time is short and that the issues are complex and novel and that there is no feasible or satisfactory proposal before the commission.”

But 527 critic Fred Wertheimer, who heads a watchdog group called Democracy 21, blasted the general counsel’s recommendation. Wertheimer contends that such groups are acting outside the law and should be required to register as federal political committees with the FEC.

“This is the worst kind of bureaucratic farce,” Wertheimer said. “It shows that three or four FEC commissioners, in the guise of being deliberate, are preparing to ensure that 527 groups illegally spend millions of soft- money dollars to influence the 2004 presidential elections.”

Instead, Wertheimer encourages the FEC to adopt a 527 regulatory proposal floated by Scott Thomas, a Democrat who sits on the FEC, and Michael Toner, a GOP commissioner.

“If the FEC postpones action here, after itself proposing the adopting of new regulations months ago, it will prove beyond a shadow of any reasonable doubt that the FEC must be abolished and replaced with an agency that actually believes in enforcing the campaign finance laws,” Wertheimer said.

The proposal by Thomas and Toner has drawn fire from nonprofits, who contend that attempts to rein in the 527 groups could have the side effect of devastating the activities of 501(c)(3)s and 501(c)(4)s.

In a letter, a group of nonprofits called the Coalition to Protect Nonprofit Advocacy argued that, “like the February proposed rules, the Toner-Thomas proposal takes aim at a handful of 527s that are engaged in 2004 election activities. In doing so, they have once again misfired. If passed, the rules would exceed the FEC’s Congressional mandate under the McCain-Feingold law and the Supreme Court’s McConnell opinion upholding it — and jeopardize many nonprofits in the process.”

The coalition urges that the FEC “not rush in the middle of an election year to decide these issues, which Congress previously had the opportunity to consider and rejected.”

This line of argument already appears to have substantial support at the FEC.

Vice Chairwoman Ellen Weintraub, a Democrat, said it would be unprecedented for the agency to attempt to change the definitions of key terms in the middle of an election cycle and the general counsel’s memo suggests other reasons for waiting.

The recommendation noted that one common assumption — that the FEC may in fact have the ability to enforce the law without the benefit of new regulations — “merits closer consideration.”

“Additional time,” the general counsel’s office wrote, “would also help the Commission ensure that any regulations it promulgates are not unacceptable over- or under-inclusive as applied to the organizations they will affect. Here, new rules would potentially affect thousands of organizations, including many registered political committees (who would become subject to new allocation rules), 527 groups that are currently not registered with the Commission, and 501(c)4 groups that would be likely to shoulder at least some portion of the activity now conducted through 527s,” the general counsel’s office wrote.

The memo also noted that the different proposals drafted thus far “raise complex legal issues” while noting that the “Toner/Thomas proposal has the virtue of taking an incremental approach to the issue, conferring political status on organizations that have made a statement of avowed purpose through the formal act of seeking 27 status under the Internal Revenue Code.”

The memo goes on to say, however, that the Toner-Thomas proposal “clarified some areas of the law” but also “raises important questions that deserve appropriate study.”

“In sum, we recommend that the Commission continue its work on this rulemaking, building on the substantial progress that has been made so far,” the memo stated. “It is just as important not to drop the issue as it is to get it right.”