Will 527s Thunder Again in ’06? It Depends on Congress

Posted January 20, 2005 at 3:04pm

The loosely regulated political advocacy groups known as 527s flourished during the 2004 election cycle. Could they also make a killing in 2006? A lot depends on whether Congress decides to crack down on them — and there’s no surefire agreement that a crackdown is imminent.

The nonprofit political groups — known as 527s because of the section of the Internal Revenue Service code under which they are organized — raked in $254 million more in 2003-04 than they did the previous election cycle, according to the Campaign Finance Institute’s Steve Weissman, who has closely tracked such groups’ activities.

While that quarter of a billion dollars wasn’t enough to make up for the $556 million of party soft money that disappeared under the Bipartisan Campaign Reform Act, Weissman is predicting a “large potential for expansion of 527 activities in 2006 and 2008” if current fundraising trends continue.

Last cycle, those trends included a doubling in the amount of money that trade unions contributed to 527 groups and a heightened willingness by large donors to write six- and seven-figure checks to pay for everything from voter registration drives to independent ad campaigns.

“The genie is out of the bottle — people are giving bigger and bigger amounts of money,” Weissman said during a post-election wrap-up of campaign finance issues at the National Press Club.

Wealthy individuals, according to Weissman’s research, provided by far the most funding for 527 groups, about $250 million. That’s compared to about $100 million from labor unions and less than $50 million from businesses.

Moreover, Weissman found that these rich donors were a “lot more willing to give big bucks” and that they gave far larger contributions to 527s than they ever gave to the political party committees.

Add to this the fact that 527s have “only scratched the surface” in tapping former soft-money donors for contributions and Weissman concludes that 527s “could be a larger issue” in the 2006 or 2008 elections.

He isn’t the only one making such a conclusion.

“Their impact is going to increase,” Mike Russell, a Republican media strategist who in 2004 developed media campaigns for such prominent conservative 527s as The Swift Boat Veterans for Truth and Progress for America. “We’ll operate with greater resources and efficiency and have a greater impact.”

David Magleby, a senior research fellow at Brigham Young University’s Center for the Study of Elections and Democracy, is predicting the proliferation of “contest-specific 527s in 2006 in key House and Senate races.”

Whether this flow of money can be stemmed depends on whether 527s can survive scrutiny in the upcoming Congress.

Rep. Bob Ney (R-Ohio), chairman of the House Administration Committee and a key Congressional player in campaign finance, said in a recent interview that “a lot of Members on both sides of the aisle are asking … ‘Do you eliminate them? Do you not touch them? Do you restrict what I call the Soros effect?’”

Ney was referring to billionaire George Soros, who donated millions of dollars to Democratic 527s last cycle and who’s promised to funnel millions more for the 2006 Congressional races.

But it’s unclear whether there is enough interest in the GOP-led 109th Congress to crack down on the 527 phenomenon — particularly as Republican-leaning groups begin to match or outspend Soros.

No doubt, the drive to crack down on 527s will receive a boost from Sen. John McCain (R-Ariz.), the driving force behind BCRA and a key public salesman for the idea of tackling soft money.

Last cycle, McCain declared war on 527s, painting them as loopholes created by a failure of the Federal Election Commission. He and other reform advocates, including Sen. Russ Feingold (D-Wis.) and Reps. Marty Meehan (D-Mass.) and Christopher Shays (R-Conn.), plan to reintroduce a bill that would require 527s to register as federal political committees.

In a related matter, the reformers are also continuing their charge to abolish the FEC and replace it with a new enforcement agency. The failure of the agency to regulate 527s, they argue, is only the most recent evidence that the watchdog is ineffective.

But Ney said he doesn’t buy that logic.

“Some people who support the law said that the FEC messed up. Well, I really don’t think they did,” Ney said, adding that he blames BCRA for creating the legal framework for 527 groups.

In the previous Congress, Ney drove an aborted House inquiry into the activities of the nonprofit political groups. The effort encountered difficulties when many potential witnesses affiliated with the Democratic-leaning groups refused to testify.

These days, Ney appears to favor taking a softer approach to 527s than the McCain-Feingold crowd would.

He said he personally supports contribution limits and disclosure requirements for 527 groups, but he also acknowledged that many in his party are hesitant to eliminate a venue in which GOP-leaning groups hope to eventually outraise and outspend Democratic groups.

“I think from what I am picking up, you’ve got people in the party [who] don’t want to touch 527s at all — you’ve got them in the Democratic Party too,” Ney said. “But I think [among the] rank and file, you’re going to have a big middle who want to do something about 527s — let them function, but at least limit the ability for one person to have so much power. I think that’s where we can find middle ground.”

He has vowed to hold hearings on the topic later this year, but he acknowledged that the issue is not at the top of his agenda.

Ney said he first plans to tackle election-reform issues by holding hearings as early as next month to focus on feedback from secretaries of state on how they implemented the Help America Vote Act and how the first federal election since the law was enacted was carried out.