Campaign Finance Group Analyzes Soft Money in 2006 Campaigns, Makes Predictions for 2008

 Table of Contents

Will unlimited corporate, union and individual "soft money" be a significant force in the 2008 federal elections? At this point, the answer is almost certainly yes, but the specific roles of the various kinds of nonprofit soft money vehicle remains to be seen.

CFI analyzed the broad array of nonprofits active in the 2006 election: 527 political organizations, Section 501(c)(4) social welfare groups, (c)(5) labor unions and (c)(6) trade associations, and "taxable" entities that operate as nonprofits. We compared their activities with those undertaken in 2002 and 2004. We assessed how the changing legal and political environment affected their operations in '06 and might do so in '08. In this regard, we inquired how parent interest groups and large individual donors might react to changing circumstances by reshuffling their nonprofit organizational cards.

We found that:

• 527s were as active in '06 as in the previous midterm elections, although well down from the level of 2004.

• New Federal Election Commission (FEC) regulatory moves have forced some prominent 527s out of business, but left considerable space for other kinds of 527, 501(c) advocacy groups and newer "taxable" nonprofits to expand their operations in the hot races of '08.

• There was significant energy among the 501(c) advocacy groups and newer "taxable" entities in '06. As regulatory pressure has increased on certain 527s, some leading organizations and donors have switched their funding emphasis from 527s to these alternative groups. This trend should be considered if and when further restrictions on 527s are considered.

• We predict, based on what we have seen in 2006, and afterwards, that an increasingly diverse roster of nonprofit soft money vehicles is likely to ratchet up activities in the elections of 2008; and

• There needs to be a conversation among people with different perspectives on campaign finance issues concerning the meaning and policy implications of the above developments.

As Table 1 (in the Appendix) shows, 527s played a significant role in federal congressional elections during the 2005-06 cycle, raising $117 million and spending $143 million -- slightly more than the $114 million and $125 million respectively of the mid-term 2001- 02 cycle. The $143 million spending figure may be compared with the $108 million that Democratic Party committees and $115 million Republican ones spent on independent expenditures supporting or opposing candidates during the same cycle. Democratic-oriented 527s spent almost two-and-a-half times what Republican-oriented ones did, a little less than the 3:1 ratio of '02. 527s were by no means isolated political ventures. Looking at the 527s with the highest contribution totals, nine of fourteen had associated PACs or (in the case of the two America Votes 527s) provided campaign services to affiliated interest groups with PACs.

Nearly half of total contributions -- $53 million -- came from 104 individual $100,000+ donors, mainly from 15 individuals who gave between $600,000 and $9.75 million. Large ($100,000+) donors were much more important in this cycle than in 2002 when they contributed only $18 million. For nearly all of the $100,000+ donors, 527 giving was part of a broader '06 political strategy that included substantial donations of regulated "hard money" to candidates, PACs and parties. They donated an average of $513,384 (and a median of $195,000) to 527s and $68,590 (and a median of $75,475) to federal political committees (see Appendix, Table 2).

 

Federal 527 Giving by Type of Contributor in 2002 & 2006 (in

 

millions of dollars)

 

 

 

With the addition of an unusually expensive presidential campaign in '08, and the continuing desires of interest groups and large donors to shape election messages and outcomes, there is a strong possibility that 527 activity will increase substantially over '06 levels -- though it seems unlikely to approach the '04 high. Given the "arms race" mentality of political campaigns, no matter how much money is available to candidates and parties, their supporters are driven to seek an advantage through additional contributions. One likely development is the resumption of substantial federal 527 spending by certain labor unions (most notably the American Federation of State, County and Municipal Employees or AFSCME and the Laborers Union) that chose to focus on state and local elections in '06 but were quite active federally in '04. Also, since 527s are now far more dependent on large $100,000+ donors than they were in 2002, decisions by a relatively small number of wealthy people to increase their contributions in '08 could boost 527 operations substantially and quickly.

THE FEC'S RULINGS LIMIT CERTAIN 527S

One restraining influence on certain 527s will be recent FEC regulations, investigations, and civil settlements. Yet while these actions have limited or threatened to limit some types of 527 activities, they have not curbed 527 groups in general.

In November 2004, the FEC rejected reform groups' recommendations that 527s involved in federal elections be treated as "political committees" subject to "hard money" contribution limits. Instead the Commission adopted two broad regulatory changes that affected only some of these groups in '06.¹ First, and most significantly, it decided that any solicitation indicating that even a portion of the receipts would "be used to support or oppose the election of a clearly identified candidate" would generate "contributions" within the meaning of the Federal Election Campaign Act. An organization (whether a 527 entity or not) with at least $1,000 in contributions can be required to register as a political committee and observe federal contribution limits if the Commission also determines that the organization's "major purpose" is federal campaign activity. The first public application of the new FEC approach was the Commission's September 2005 suit against the Republican-oriented Club for Growth. In its complaint, the FEC asserted that the Club's 527 operated as a political committee during the 2004 election. Part of the case was based on the Club's solicitations under the new rule.²

The impact of this regulation can be substantial for 527s like the Club that solicit hundreds or thousands of supporters for funds and are primarily involved in federal campaigns. Recently, citing in part FEC regulations, the Club decided to abandon its 527 structure for a new 501(c)(4) entity focused on "pro-growth advocacy." (See page 9 for a discussion of the significance of this change). Based on interviews and group statements, we believe that the new regulation, and ongoing FEC investigations of other 527s, partially accounted for the relatively weak '06 performances of the Republican-oriented Progress for America³ and Democratic-oriented Sierra Club⁴ 527s, and possibly others.

Yet this restriction, based on solicitations, is much less relevant to a majority of 527 groups. The ruling has no impact on organizations that finance their own 527s with their treasuries (notably labor unions which donated over $40 million to 527s in 2006). Also unaffected are groups that depend on a small coterie of wealthy individual and organizational financiers and do not need to explain to numerous donors in letters, e-mails and phone calls how their money will help specific candidates (for example, such Democratic-oriented groups as America Votes, September Fund, Majority Action, and Grassroots Democrats and Republican-oriented ones as Economic Freedom Fund, Americans for Honesty on Issues, and Free Enterprise Committee). Nor is it excluded that a 527 group appealing to a relatively broad, issue-oriented group of donors could frame its solicitations in ways that avoid references to supporting or opposing "clearly identified candidates."

Secondly, the FEC revised its "allocation" regulations concerning political committees that share election expenses with related 527 political groups. All, or a substantial portion, of the costs of joint voter drives, certain campaign ads, and administrative costs must now be paid out of funds subject to federal contribution limits. Yet, as the Commission itself pointed out, the allocation rules apply to relatively few political committees (2%) and half of these were already within the new standards when they went into effect. It appears that this regulatory change principally affected one major 527 group, America Coming Together, which effectively expired at the end of 2004 because its major donors lost interest. To avoid this new restriction, a group would simply have to decide not to share expenses between its PAC and 527. This is in fact common among PACs with related 527s already.

The FEC's December 2006 and February 2007 conciliation agreements with five 527s (Swift Boat Veterans and POWs for Truth, MoveOn.Org Voter Fund, League of Conservation Voters 527 I and II and Progress for America)⁵ for their '04 activities indicated the potential impact of both the solicitations regulation and the Commission's revival of its earlier, broad definition of "express advocacy." This term now includes not only injunctions to, in effect, vote for or against candidates but also communications that "in context" have "no other reasonable meaning" than urging a candidate's election or defeat. This means that a 527 could also hit the necessary $1,000 threshold triggering evaluation for political committee status by making newly defined express advocacy "expenditures."

While the Commission's new approach to express advocacy has the potential for further narrowing the boundaries of non-restricted 527 campaign activity, like the solicitations regulation it does not challenge 527s per se. A review of the federal 527 advertising in 2006 available to CFI suggests that most leading groups avoided appeals that would have violated the expanded express advocacy standard. Rather than clearly indicating a preference for or against a candidate, they attacked the "issue" stances of some candidates and praised others for their positions. Typically, these ads did not focus on pending legislation, as "grassroots lobbying" generally does, but on past actions. For example:

• Club for Growth Inc. media ads in the Rhode Island Senate Republican primary praised Steve Laffey's budget policy as Mayor of Cranston and asked the audience to "Tell Steve Laffey to keep fighting for taxpayers." Other Club ads criticized Sen. Lincoln Chafee for favoring high taxes and spending and asked that audience to "Call Sen. Chafee. Tell him Rhode Island can't afford high taxes."⁶

• Majority Action ran an ad in an Ohio Congressional race attacking Republican Deborah Pryce for taking "thousands of dollars in travel paid for by big special interests in Washington" and voting "to weaken ethics rules and stop an investigation into indicted Republican lobbyist Jack Abramoff." It urged viewers to "Tell Congresswoman Pryce that her job isn't to take special trips around the globe, it's to work for us."⁷

• Americans for Honesty on Issues ran an ad in a Colorado Congressional race attacking Democrat Ed Perlmutter for supposedly sponsoring a law "giving taxpayer financial assistance to illegal immigrants." The ad concluded: "Ed Perlmutter -- helping illegal immigrants with your money."⁸

The bottom line of recent FEC actions is that, while some 527s will disappear, there is still considerable space for others financed by unions, corporations, or small large donor networks to continue to raise and spend money for "issue ads" and voter mobilization activities praising or blaming federal candidates. And, as the civil settlements also make clear, even if a 527 political organization does not strictly observe the rules on solicitations and express advocacy, it can avoid treatment as a political committee with contribution limits as long as its "major purpose" (as described in organizational statements and realized on the ground) is not "federal campaign activity" but rather state and local elections and/or federal judicial or other appointments. This would leave space for substantial (perhaps up to 49%) federal election activity. Finally, there are other alternatives that involve converting from 527s to other forms of nonprofit organization.

501(C)(4)S, (C)(5)S, AND (C)(6)S

Social welfare organizations [organized under section 501(c)(4) of the tax code], labor unions [501(c)(5)s] and business associations [(501(c)(6)s] have been growing in importance in federal elections. They may get a further boost from the new FEC constraints because they primarily affect 527s. Under federal tax and election law respectively, these 501(c)s have been permitted to use unlimited soft money contributions to conduct virtually the same election activities as 527s, as long as "political campaign intervention" or "federal campaign activity" is not their "primary" activity or "major purpose." Unlike 527s, 501(c)s' contributions and expenditures are largely undisclosed to the public. Yet it is clear from available information that corporate and union treasuries and large donors are major financing sources.

Although the new FEC enforcement regime applies to 501(c) "advocacy" groups as well as 527 political organizations, it appears the former will not be treated as federal political committees if they comply with the Internal Revenue Service's requirement that political campaign intervention be secondary to their social welfare, labor union, or trade association roles. As a result, the FEC rulings appear to leave the 501(c)s largely untouched. In theory, such groups are subject, under the Internal Revenue Code, to a 35% tax on either their political campaign expenditures or their investment income, whichever is lower. In practice, weak enforcement by the IRS and low investment income can often neutralize this constraint.¹⁰

How important were 501(c)s' election activities in 2006? Based on some organizations' voluntary public claims about their activities, press reports, academic research, and limited official data and interviews, we know about approximately $90 million in reported 501(c) spending on federal election activities in 2006. (See both Table 3 in the Appendix and discussion below.) Due to the lack of official disclosure, this is clearly an underestimate. Discussions about increasing restrictions on 527s need to take into account the availability of these alternative outlets for political spending. As we shall see, there are already signs of such a migration in reaction to the FEC's flurry of rulings.

Table 3, which does not pretend to be comprehensive, portrays the activities of those 501(c) groups that, according to reports, conducted significant IRS or FEC-defined election campaign activities in the '06 cycle. (Sources of information used in this and the following section on non-527 groups are listed, by group, at the end of the paper.) Most of these groups also had related PACs or 527s, which is consistent with our earlier finding of broad multi-entity election efforts by groups with 527s.

The leading business and labor union "peak associations," the Chamber of Commerce of the U.S. and the AFL-CIO, reported major expansions of their 501(c) election activities in '06. The Chamber claimed a five-fold expansion of its 2004 spending on federal elections to "$20 million plus" including: a $10 million TV advertising campaign on behalf of incumbents who took "pro-business" stands; tens of millions of mail pieces, phone calls, and e-mails; and extensive voter registration, voter guide, and get-out-the-vote efforts.

The AFL-CIO stated that it spent $40 million on its total political program an increase of $5 million over the previous mid- term election (the $40 million total also includes relatively minor PAC and 527 spending). The AFL-CIO concentrated on communicating election messages to its millions of members, including non-union participants in its affiliate, Working America. Such activities are far from fully disclosed under current federal election law.

Other 501(c) groups that CFI selectively followed during the '04 campaign -- such as Americans for Job Security, Defenders of Wildlife Action Fund, League of Conservation Voters Inc., NARAL Pro-Choice America, National Rifle Association, and National Right to Life Committee -- continued to be active in '06. However, Planned Parenthood Action Fund focused on state issues and on building infrastructure for future federal action. Little is known about these groups' donors, although Americans for Job Security has said it is funded by about 500 companies, trade associations and individuals.

Four of the groups in Table 3 are 501(c)(4)s that either did not exist in '04 or were much more active in '06 than before. All happened to be Republican-oriented:

• American Taxpayers Alliance has focused for several years almost exclusively on state judicial and other elections. In the midst of the 2006 campaign, though, it ran an estimated $987,000 in TV ads in Pennsylvania that praised Republican Senate candidate Rick Santorum for his past legislative work in improving health care. While ATA does not generally disclose its funders, it has received large contributions in the past from the U.S. Chamber of Commerce and power companies.

• Common Sense Ohio was formed in the summer of '06. It supported Republican candidates in six Senate races, often working through subsidiaries: Common Sense 2006, Common Sense Missouri, Common Sense Maryland, Common Sense Montana, and Common Sense Tennessee. Its tactics included running radio ads shortly before elections that referred to candidates and sponsoring automated "push polls." The latter, in the guise of surveys, supplied information about candidates' positions using language designed to promote the group's favorites. Common Sense Ohio's federally disclosed "electioneering communications" (TV and radio ads mentioning candidates within 60 days of the election) and "independent expenditures" totaled $827,000. The ads were funded by Carl H. Lindner, a leading 527 donor who is Chairman of American Financial Group, and Raymond Ruddy, a member of the Board of Directors of Maximus Corporation.

• Focus on the Family Action (FOFA) was founded in 2004 as the advocacy branch of James Dobson's leading Christian conservative group. In '06 it stepped up its federal campaign activities, sponsoring pro-Republican radio ads in four key Senate races; distributing "voter guides" in eight Senate "battleground" states; and producing voter registration kits "making it easy for people to register at church." At pre- election rallies in Minneapolis-St.Paul, Pittsburgh and Nashville (locales chosen partly because they had competitive Senate contests), Dobson told crowds it would be a "sin" not to vote for a politician who "wants to protect children from immorality, who understands that we are at war with those who want to destroy us, and who understands that liberal judges are undermining us and need to be reined in." Although he expressed disappointment with the Republicans, he warned, "The alternatives are downright frightening."

• FreedomWorks arose in 2004 from the merger of two economically conservative advocacy groups favoring lower taxes, less government and more economic freedom (Citizens for a Sound Economy and Empower America). In September 2006 the group, chaired by former House Republican Majority Leader Dick Armey, said that it was operating on a $4 million federal campaign budget and would be involved in three Senate and 13 House races. It relied on almost a million experienced volunteers to "stage events with candidates, handle phone banking and GOTV calls, canvass neighborhoods with literature and call into local radio talk shows."

Under the FEC's interpretation of the 1976 Federal Election Campaign Act, independent groups that are not political committees and do make express advocacy expenditures do not have to disclose any of their $200+ contributions if the contributions are not specifically earmarked for these communications. In this respect, contributions to such groups are under less stringent disclosure requirements than contributions made to the same groups for "electioneering communications," which are defined as certain communications that refer to an identified candidate without express advocacy. Under the 2002 BCRA, a group making electioneering communications must either (a) establish a segregated fund for these communications, disclosing all of the fund's $1,000+ donors, or (b) if it fails to set up such a fund, divulge all of the entire organization's $1000+ donors. Thus, the two different rules -- adopted nearly 30 years apart -- allow certain organizations to avoid disclosing large donations funding express advocacy, but not contributions supporting electioneering communications.

This inconsistency in disclosure rules for independent groups conducting express advocacy, including 501(c)(4) "qualified nonprofit corporations," has the potential to leave an increasing amount of federal campaign activity outside the reach of disclosure. This would especially be the case if the regulatory regime becomes more difficult for 527s alone.

For example, the leading Republican-oriented 527 in 2006, the Club for Growth, recently informed members that it is being replaced by a new 501(c)(4), Citizens Club for Growth. This advocacy group "will take the lead role in pro-growth advocacy," adding new functions of direct and grassroots lobbying including support or opposition to state and local ballot initiatives. However, the Club is reassuring members, "Many key things will not change. The new Club will continue the aggressive and effective pro-growth advocacy made famous by the old Club's efforts." Its "powerhouse" PAC will continue. Significantly, one of the claimed advantages of this restructuring is that under a "landmark Supreme Court decision," (clearly MCFL) the Club will "have a significant new ability to run advertisements that directly call for the election or defeat of candidates for Congress. The vast majority of non-profits, including the previous Club, could not run such ads." Another benefit, says the Club, is that "Unlike in the past, your donations to the Club will not be disclosed to the public, except in very limited circumstances."¹¹ On the Democratic-oriented side, the League of Conservation Voters, one of the groups that concluded a 527 settlement with the FEC, did not use its 527 in '06 but is continuing to make independent expenditures through its own 501(c)(4) qualified non-profit corporation.

501(C)S UNDERTAKING "ISSUE" CAMPAIGNS WITH STRONG ELECTORAL OVERTONES

Of course, organizations can do a great deal of election year advertising without promoting or attacking a candidate. For example, a communication that does not directly or indirectly refer to a candidate, party or election, and is not coordinated with candidates or parties, is generally not subject to federal campaign finance regulation. Even if it could be reached under the Constitution, many would argue that attempting to extend federal election law that far, no matter what the context, would raise troubling concerns about restricting free speech. Nevertheless, one must at least note that such communications can be conducted in a manner that parallels explicit campaign themes, in a time frame that occurs close to an election, in a fashion targeted to key voters, and in a context in which the activities closely support other direct campaign activities being undertaken by other legal entities within an interest group's organizational umbrella.

In addition to the groups listed in Table 3, three 501(c)(4)s mounted grassroots education and lobbying campaigns supporting major partisan themes in the 2006 election. Many of these efforts were targeted to "battleground" states and districts. Unlike the activities of organizations in Table 3, these groups' actions did not invoke current IRS/FEC standards for political campaign intervention, largely because their main messages did not generally or directly focus on candidates' or parties' strengths and weaknesses. Yet there was an apparent electoral cast to some of their campaigns, and the groups themselves were closely connected to organizations more directly involved in the election.

One of these groups, American United for Change, ran a multimillion dollar advertising campaign during the election year. One national TV ad, entitled "Time," described the current environment as "time for a change" in a manner that illustrates the intrinsically difficult issues involved in legal definitions. The advertisement contained neither an explicit electoral message nor mentioned a candidate but in context -- given the timing and placement of the ads -- could be seen as implicitly supporting a partisan electoral change:

According to press reports, Americans United was organized after months of negotiations among AFSCME and other labor unions, MoveOn.org, Senate Democratic Minority Leader Harry Reid, House Democratic Minority Leader Nancy Pelosi, and others. Its financiers included AFSCME and wealthy Democratic and 527 donors; Reid and Pelosi also met with potential donors. The group's political advertising campaigns "closely followed" major "message" efforts by Congressional Democrats. Both TV ads and on-the-ground efforts were strongly directed towards 25 targeted states that "would host the most critical House and Senate races in 2006."

Likewise, Communities United to Strengthen America established a dozen centers around the country to promote education and grassroots lobbying regarding several Democratic "middle class" issues including the Medicare drugs program and college tuition assistance. All of the centers were located in House districts with vulnerable Republican incumbents. In one of them, Communities United sent automated telephone messages to constituents to demand that Rep. Christopher Shays (R-CT) "stop acting on behalf of the special interests and start acting in the interests of seniors by extending" the May 15^th deadline for enrollment in the Medicare Prescription Drug Program. All the centers disbanded immediately after the election. The President of Communities United, Gerald McEntee, is the President of AFSCME. The union's PAC reported making contributions to the candidates in 11 of the 12 districts targeted by Communities United.

On the Republican side, Progress for America reportedly spent around $3 million on ads run nationally and in two states with close Senate races. The ads supported the Bush administration's pre- election argument that terrorism and Iraq were linked, American troops were making progress, and Democrats might make the country less safe. The ads implicitly criticized the previous Democratic administration and many Congressional Democrats, saying that "we" took little action before September 11, 2001; "many" today would "cut and run;" and "some" would end "proven surveillance." PFA's 501(c)(4) program emerged as its 527 grew mute under FEC pressure. Progress for America was originally established and run by overlapping leading figures in Feather, Larson, Synhorst-DCI (FLS- DCI), a Republican political consulting group, and its lobbying offshoot, the DCI Group. During the 2006 cycle, it was run by DCI group. In the same period, FLS-DCI fulfilled large contracts with the Republican National Committee, National Republican Congressional Committee and numerous Republican State party committees in the '06 elections.

"TAXABLE" SELF-DECLARED OR DEFACTO NONPROFITS

Lloyd Hitoshi Mayer, a professor at Notre Dame Law School who specializes in non-profits, recently cautioned that "the use of [nonprofit] tax categories in order to eliminate 'stealth' 527s could lead to the creation of a new category of 'stealth' taxable entities."¹² Two such entities appeared for the first time in the 2006 elections: Catalist and Democracy Alliance.

Catalist is the trademark name for Data Warehouse, a Limited Liability Corporation formed in 2005 by Harold Ickes. Ickes also headed two major pro-Democratic 527s in 2004 (ACT, Media Fund) and one in 2006 (The September Fund). He is a longtime member of the Democratic National Committee's Executive Committee and a leading strategist for the Democratic Party as well as Democratic Presidential candidate and Senator Hillary Rodham Clinton. Catalist had a $9-$10 million spending budget for 2006 and $8.5 million for 2007. It provides information from a sophisticated "voter file" to a wide range of "progressive" Democratic organizations with PACs, 527s or 501(c) entities. The file includes contact information, voting history, and consumer preferences of individual voters. Among the 19 clients (as of October 2006) using the data to "microtarget" voters were major labor unions, environmental groups, Emily's List, MoveOn.org and America Votes. While the company's expenses are met by private capital and users' fees, Ickes told CFI that Catalist will not make a profit until 2010. In the meantime, Catalist is, in effect, a nonprofit supported by political investors. These include financier and leading 527 donor George Soros -- its "largest" angel according to Ickes -- and certain wealthy members of the "Democracy Alliance" (see below). During the 2006 cycle, Catalist was co-located in the same office suite as America Votes, a 527 that coordinated the electoral efforts of many Catalist clients. America Votes also received very large contributions from Soros.

Also in 2005, the Democracy Alliance registered as a [non- 501(c)] "taxable" corporation with the Washington, D.C. government. Alliance founder and Board member Rob Stein describes it as a nonprofit donors' "cooperative" whose goal is to build a "center- left" movement ranging from the "Democratic Leadership Council" to the "liberal left" over the next 5-10 years. The Alliance's approximately 100 "partners" reportedly include such wealthy 527 donors as Soros, Peter Lewis (Progressive Insurance), Rob McKay (McKay investments), Pat Stryker (Bohemian Corporation), Tim Gill (Quark Inc.), Bernard Schwartz (Loral Corp.) and Esprit founders Mark and Susie Buell, as well as the AFL-CIO and Service Employees International Union (SEIU). All agree to contribute at least a $200,000 a year to Alliance-recommended organizations in the areas of "policy, media, civic engagement and leadership development." According to Stein, the latter two categories include 527s and 501(c)(4)s. Although the Alliance's predominant thrust has been in the realm of longer range ideas and messages, some recent grants appear to have been chosen to coincide with upcoming elections. For example, among the groups recommended for support were Emily's List, Sierra Club and Catalist. Because the Alliance handles little money directly, its taxes are low. Because it is not tax-exempt, it does not report to the IRS or disclose to the public. Hence, its critical role in influencing its partners' donations to election-oriented nonprofits is, to a considerable extent, invisible.

ELECTION 2008: A WORLD OF MULTIPLE POLITICAL CHOICES FOR INTEREST GROUPS AND DONORS

As we have seen the electoral programs of 527s and 501(c)s should not be viewed as isolated initiatives that can be pigeonholed into narrow legal categories. Most of the top 527s are associated with related PACs and most of the 501(c)s we have chronicled have related PACs and/or 527s. Furthermore some of these groups also have close ties with political parties and their consultants. These multi- entity activities reflect the parent interest groups' broad political and policy interests and their flexible utilization of nonprofit organizations.

Similarly, large individual 527 donors pursue their political strategies through a variety of hard as well as soft money entities. In the 2006 election for example, Democrat George Soros, Chairman of Soros Fund Management, gave $95,382 in hard money contributions to federal candidates, PACS and parties, $3,890,000 to 527s; he was also the largest investor in Catalist LLC (amount undisclosed) and one of 100 financing partners in the Democracy Alliance (amount undisclosed). And Republican Carl Lindner, Jr., Chairman of American Financial Group, gave $99,800 in hard money to candidates, PACs and parties, $800,000 to 527s and $479,224 to the 501(c)(4) Common Sense Ohio.

 

 

In fact, business and conservative interests are already heavily invested in 501(c)(6)s and (4)s, such as Americans for Job Security, the Chamber of Commerce, the National Rifle Association, National Right to Life Committee and Focus for the Family Action. As mentioned earlier, the Club for Growth is engaged in establishing a 501(c)(4) to take over from its 527 and Progress for America is headed in the same direction.

Labor unions are reluctant to use their 501(c)(5)s for non- member election communications because they have considerable investment earnings that might then become subject to the 35% tax. But they already use 501(c)(4)s like Americans United, Communities United, and American Family Voices for combined advocacy and electoral purposes.

Finally, as we saw in 2006, many of the largest individual 527/ hard money donors were prepared to invest in 501(c)s and "taxable" entities like Americans United for Change, Common Sense Ohio, Catalist, and Democracy Alliance. The Club for Growth, for one, is betting that its supporters will follow the same path.

Clearly the flora and fauna of nonprofit electioneering will be on display in the 2008 election, though it is too early to see which species will predominate and by how much. There is little question that the soft money involved will not approach the approximately $600 million in 2002 political party soft money eliminated by BCRA. The great majority of the nonprofit soft money we saw in 2006 was already available to nonprofits in 2002 and therefore should not be seen as a replacement for party soft money. Nevertheless it is very likely that there will be a substantially larger sum of soft money present in the 2008 presidential as well as congressional elections. These funds will be provided and wielded by individuals and groups using broad, multi-entity strategies to influence elections.

A POLICY CONVERSATION THAT NEEDS TO HAPPEN

The policy implications of this changing landscape are bound to be controversial. Based on past campaign finance arguments, one can imagine at least four different perspectives towards the facts here presented.

• For some, the new strategies will be an argument for expanded disclosure so the public can know where the money is coming from and how much is involved.

• Others will go further and seek new regulation, arguing that organizations and wealthy individuals are exploiting a "loophole" by using legally protected entities that fall outside the sphere of election law to deploy unlimited "soft money" to support the election of federal candidates and parties.

• Still others -- seeing the adaptations of interest groups and donors as evidence of the futility inherent in campaign finance regulation -- will see the activities we document as reasons to seek a rollback of current restrictions on campaign contributions and expenditures.

• And finally, some will accept the general contours of current election law, with adjustments, but argue, on freedom of speech and association grounds, against further attempts to regulate some of the activities we describe.

SOURCES FOR DISCUSSION OF NON-527 GROUPS

AFL-CIO:

"Union Member Vote Drove Shift in Balance of Power," AFL-CIO Press Release, November 8, 2006; Amber, Michelle, "AFL-CIO Launches Ambitious Political Effort to Elect Pro-Worker Candidates in November," BNA, August 31, 2006; Federal Election Commission data on electioneering communications and independent expenditures (available online at www.fec.gov); Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007.

American Taxpayers Alliance:

Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007; Public Citizen, "The New Stealth PACs: American Taxpayers Alliance," Overview, available online at www.stealthpacs.org; Storyboard of ATA television ad transmitted to CFI by Center for the Study of Elections and Democracy, Brigham Young University, on February 28, 2007.

Americans for Job Security:

Blake, Aaron, "Cornett, Fallin to Meet for Runoff in Istook's District," The Hill, August 10, 2006; Budoff, Carrie, "Soft Money Playing Hardball in Pa.," The Philadelphia Inquirer, October 3, 2006; CFI interview with Mike Dubke, President and Executive Director, Americans for Job Security, May 5, 2006; Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007.

Americans United for Change:

Americans United for Change website, especially http://americansunitedforchange.org/about; Budoff, Carrie, "Soft Money Playing Hardball in Pa.," The Philadelphia Inquirer, October 3, 2006; Email communication from Annenburg Political Fact Check (www.factcheck.org), "New Group, Old Habits: A Liberal Group Re-names Itself and Launches a $1-million Ad Campaign Making Dubious Claims," January 27, 2006; Federal Election Commission data on electioneering communications and independent expenditures (available online at www.fec.gov); Kane, Paul. "Labor, MoveOn Fund New Group," Roll Call, December 13, 2005; National Journal Ad Spotlight: Americans United's "Time," posted January 25, 2006.

Catalist:

Ambinder, Mark, "Dems Ponder 527s to Catch Up with GOP $$," The Hotline, National Journal, May 23, 2006; Balz, Dan, "Democrats Aim to Regain Turnout Edge," The Washington Post, October 8, 2006; Catalist website, www.catalist.us, particularly www.catalist.us./clients, www.catalist.us/staff and www.catalist.us/results; CFI phone interview with Harold Ickes, President, Catalist, August 8, 2006; O'Toole, James, "To Party Operatives, Elections Are Battles of Logistics; Grassroots Means Getting Voters to the Polls," The Pittsburgh Post-Gazette, November 5, 2006

Chamber of Commerce of the U.S.A.:

"U.S. Chamber Looks Forward to Working with New Congress," Chamber of Commerce of the U.S.A. press release, November 8, 2007; Ackley, Kate, "Chamber Promises Eight-Figure Effort in '06," Roll Call, July 27, 2006; Doyle, Kenneth P. "Chamber Spends Millions on TV, Bus Tour in Key Senate, House Campaigns in August," BNA, August 2, 2006; Comments of Miller, Bill, Vice President and Political Director, Chamber of Commerce of the U.S.A., at War Games Conference, Pew Charitable Trusts, Washington, D.C., February 5, 2007; Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007.

Club for Growth:

Email communication to members of Club for Growth (not dated).

Common Sense Ohio:

Drew, Christopher, "New Telemarketing Ploy Steers Voters Down A Republican Path," The New York Times, November 6, 2006;Federal Election Commission data on electioneering communications and independent expenditures (available online at www.fec.gov); Recording of sample Tennessee push poll in Whitehouse, Ken, "Proctor & Gamble Exec Behind 'Push Poll,'" The Nashville Post website, October 30, 2006, available online at http://www.nashvillepost.com/news/2006/10/30/procter__gamble_exec_ behind_senate_push_poll.

Communities United:

"Town News Briefing: Discussion Planned on Medicare Part D," The Hartford Courant, September 23, 2006; Forsythe, Michael and Kristin Jensen, "Democrats' Allies Use Undisclosed Dollars to Target Republicans," Bloomberg News, July 21, 2006; Fosmoe, Margaret, "Group Calls for College Tuition Relief from Government; Communities United Says Graduate Debt Growing," The South Bend Tribune, August 29, 2006; Loo, Jamie, "Advocacy Office Closing Down: Communities United Unable to Secure Funding," The South Bend Tribune, December 13, 2006;

Defenders of Wildlife Action:

Defenders of Wildlife sponsored website, Pombo in Their Pocket, www.pombointheirpocket.org Defenders of Wildlife website, especially http://www.defendersactionfund.org/political_campaigns/featured_ races.html. Federal Election Commission data on electioneering communications, available online at www.fec.gov; Statement of Rodger Schlickeisen, "A Tremendous Victory for the Environment: Democrats Take Back the House," Defenders of Wildlife press release, November 8, 2006.

Democracy Alliance:

Ambinder, Mark, "Democracy Alliance 2.0," The Hotline, National Journal, January 12, 2006; Berman, Ari, "Big $$ for Progressive Politics," The Nation, October 16, 2006; Comments of Rob Stein, Founder, Democracy Alliance, at "How Vast the Left Wing Conspiracy?" Conference, Hudson Institute's Bradley Center for Philanthropy and Civic Renewal, Washington, D.C., November 30, 2006; VandeHei, Jim and Chris Cillizza, "A New Alliance of Democrats Spreads Funding," The Washington Post, July 17, 2006;

Focus on the Family Action:

"Conservative Leader Urges Christians to Vote their Values," Associated Press, October 4, 2006; Federal Election Commission data on electioneering communications, available online at www.fec.gov; Goodstein, Laurie, "I.R.S. Eyes Religious Groups as More Enter Election Fray," The New York Times, September 18, 2006; Rodgers, Ann, "Dobson Preaches Mixed Message; Conservative Leader Criticizes, Praises GOP Leadership," Pittsburgh Post-Gazette, September 21, 2006; Statement of Tom Minnery, Senior Vice President, Focus on the Family Action, "Focus on the Family Action Member Update," September 2006.

FreedomWorks:

"Citizens for a Strong Economy (CSE) and Empower America Merge to Form FreedomWorks," FreedomWorks press release, July 22, 2004; "FreedomWorks Rolls Out Fall Campaign Battle Plan," FreedomWorks press release, September 6, 2006; Kurtz, Josh and Nicole Duran, "Armey Mobilizing Troops for Battle," Roll Call, September 5, 2006.

League of Conservation Voters:

Federal Election Commission data on electioneering communications, available online at www.fec.gov; League of Conservation Voters website, especially http://www.lcv.org/campaigns/dirty-dozen/; Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007.

NARAL:

Federal Election Commission data on electioneering communications, available online at www.fec.gov.

National Rifle Association:

CFI phone interview with Chuck Cunningham, Director of Federal Affairs, National Rifle Association, February 26, 2007; Fields, Gary, "NRA Backs Both Sides of the Aisle," The Wall Street Journal, October 12, 2006; Weissman, Stephen R. and Kara D. Ryan. 2006, October. "Nonprofit Interest Groups' Election Activities and Federal Campaign Finance Policy." The Exempt Organization Tax Review, 54(1), 21-38.

National Right to Life Committee:

Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007; Weissman, Stephen R. and Kara D. Ryan. 2006, October. "Nonprofit Interest Groups' Election Activities and Federal Campaign Finance Policy." The Exempt Organization Tax Review, 54(1), 21-38.

Progress for America:

"PFA Launches Issue Advocacy Effort on Security: Blunt Message is a Reminder of Terror's Horrifying Goal," Progress for America press release, September 7, 2006; Gerstein, Josh, "Avalanche of Cash is Set to Descend on Election Battle," The New York Sun, September 7, 2006.

The Seniors Coalition:

Magelby, David B. and Kelly D. Patterson, eds., War Games: Issues and Resources in the Battle for Control of Congress, Center for the Study of Elections and Democracy, Brigham Young University, 2007.

²Federal Election Commission v. Club for Growth, Inc., U.S. District Court for the District of Columbia, September 19, 2005.

³ See Federal Election Commission, Advisory Opinion Request 2006-32, August 25, 2006.

⁴ E-mail communication from Carl Pope, President of Sierra Club, to Steve Weissman, February 15, 2007.

⁵ Respectively available from the Enforcement Query System on the FEC website as MURs: 5511 and 5525, 5754, 5753 and 5487.

⁶National Journal Ad Spotlight, "Club for Growth: 'Impossible," posted January 28, 2006, text and video available online at http://nationaljournal.com/members/adspotlight/2006/02/0201cfg1.htm; National Journal Ad Spotlight, "Club for Growth: 'Bells and Whistles," posted January 28, 2006, text and video available online at http://nationaljournal.com/members/adspotlight/2006/02/0201cfg2.htm.

⁷ Annenberg Political Fact Check, "Democratic 527 group attacks a member of the GOP leadership for privately-funded junkets, but relies on old data," September 13, 2006, text and video available online at http://www.factcheck.org/article433.html.

⁸ Osher, Christopher N., "Ad Watch: Benefits for Immigrants," The Denver Post, October 10, 2006; Schrager, Adam, "Truth Test: '527' attacks Perlmutter on helping illegal immigrants," KUSA-TV, 9news.com, October 9, 2006.

⁹ Federal Election Commission, MUR 5634, First General Counsel's Report, August 10, 2005; Second General Counsel's Report, February 3, 2006.

¹⁰ See pp. 21, 26-27 in Weissman, Stephen R. and Kara D. Ryan. 2006, October. "Nonprofit Interest Groups' Election Activities and Federal Campaign Finance Policy." The Exempt Organization Tax Review, 54(1), 21-38.

¹¹ "Club for Growth -- Club Bulletin," E-mail from Patrick J. Toomey, President, Club for Growth, to a member (identified only by first name), 2007.

¹² Lloyd Hitoshi Mayer, "The Much Maligned 527 and Institutional Choice," Notre Dame Law School Legal Studies Research Paper No.06-15, August 14, 2006, p.52.