Subject: [NEXTEL-1] Silent Partners - How political non-profits work the system

From: [email-masked]
Date: Sun, 05 Oct 2003 06:22:56 -0400

Silent Partners - How political non-profits work the system

By Derek Willis and Aron Pilhofer

WASHINGTON, September 25, 2003 — It was the morning of November 6, 2002, the day
after Democrats had lost control
of the U.S. Senate, lost ground in the U.S. House of Representatives and were
soundly beaten in several key gubernatorial
races.

The man at the top of the party, Democratic National Committee Chairman Terry
McAuliffe, had some explaining to do.
Standing before the gathered media in Washington, D.C., he returned to a longtime
Democratic lament: Republicans simply had
more money.

Fundraising figures reported to the Federal Election Commission seemed to suggest
he was right. The Republican Party raised
slightly more than $691 million in the 2002 election, about $228 million more than
the Democrats.
The GOP "had tens of millions of dollars of special interest money on their side,"
McAuliffe told the assembled reporters, and
that had tipped a number of races in their favor.

In fact, the disparity was not nearly as lopsided as McAuliffe suggested. As a new
Center for Public Integrity analysis shows,
Democrats and their allies funneled hundreds of millions of dollars through
backdoor committees designed to influence key
elections. In the 2002 race, the Democratic Party's silent partners spent more
than $185 million—more than double the money
spent by Republican organizations.

The Center's report shows that the Democrats and Democratic-leaning organizations
made great use of a special type of
political committee that can raise unlimited amounts of money to influence
elections. These committees, known as 527
organizations after the part of the Internal Revenue Code that defines their tax
status, can claim tax-exempt status as political
committees while at the same time avoiding regulation by state or federal election
authorities. In fact, 527s may raise unlimited
amounts of money from virtually any source and can spend those funds on just about
any election-related activity except
contributing directly to federal candidates. Since a law mandating disclosure
passed in 2000, such groups accounted for just
under $450 million in spending. Committees run by Democratic parties and
candidates, along with their labor, environmental,
abortion rights and trial lawyer allies, have spent nearly two-thirds of that
total.

Nor has campaign finance reform eased 527 committee fundraising. So far in 2003,
these groups reported raising around $25
million, about 40 percent of that going to two groups formerly affiliated with the
two national party committees.
Two 527 committees belonging to the American Federation of State, County and
Municipal Employees, a union of government
workers, spent a combined total of almost $38 million in the past three years, the
most of any organization. To put that in
perspective, the figure is about $7 million more than the organization has given
to federal candidates, PACs and parties—over
the last 14 years.

Overall, AFSCME and its labor allies were big donors to Democratic party
committees, together the top recipients of 527
spending. Among individuals, actress Jane Fonda was the largest donor, giving $13
million mostly in support of abortion rights,
and at least eight other individuals contributed more than $1 million each.

Of the more than 20,000 committees that filed as 527s in the IRS disclosure
system, the Center identified 471 that have one or
more of the following characteristics: They are not required to report their
financial activities to state or federal election
authorities; they are tied to or formed by a federal lawmaker; or they are active
in many states and spend most of their money
on such election-related activities as broadcast advertisements, mailings and
political research.

Because many of the filings were available only on paper, the Center had thousands
of records entered into a database and
added electronic records filed with the IRS. A searchable version of that
database—the first of its kind in the country—is
available at the Center's Web site. Although the IRS makes individual reports
available on its Web site, the agency keeps
certain records on paper and others in electronic format, making it
extraordinarily hard to search data across years.
The results show just how potent these organizations are. As of August, 2003, 527
committees included in the Center's study
have raised just under $25 million and spent about $21 million. The Republican and
Democratic governors associations have
combined to raise $10.1 million, and rank first and second among this year's most
active 527 committees. But others aren't far
behind: the Club for Growth has pulled in $1.6 million and the New Democratic
Network, an organization of business-friendly
Democrats, has raised $1.1 million. The Republican State Leadership Committee, a
national GOP effort to fund state and local
election activity, reported raising almost $1.5 million.

At least 120 of those committees were tied to a current or former federal lawmaker
or candidate, while another 58 were
created by national political party committees. The remainder were created by
interest groups, associations and state-level
organizations. In all, 227 committees were formed by Democrats and their political
allies, while Republicans could call upon
174 committees. The rest were single-issue organizations or third-party committees
or could not be identified.
Most, but not all, 527 committees are based in Washington, D.C. But 194 political
nonprofits are based outside the beltway,
concentrated in larger states like California, Florida, New York, Michigan and
Illinois. The Center found one or more 527
committees located in all but 12 states.

But the preponderance of Washington addresses does not necessarily imply a federal
focus. An analysis of the various
committees shows that section 527 organizations enjoy substantial financial
support throughout the country. They spent at least
$1 million in 36 states, and $4 million or more in 15.

The study found myriad uses of 527 committees, including funding election
recounts, raising money for a state official's
"administrative account" and raising soft money to influence congressional races.
Unlike federal PACs, which have specific uses
and normally stick within the federal election framework, 527 committees can
conduct a wide variety of political activity.
Organizations affiliated with national labor unions, for example, had a clear
strategy for state elections. Labor-affiliated 527s put
more than $22 million into five states that saw high-profile gubernatorial
elections during the last three years: Michigan,
California, Illinois, New Jersey and Pennsylvania.

The two national governors' associations are also active in the states. Now
separated from their respective national parties, the
groups have raised millions in 2003 to influence gubernatorial contests in three
states — most notably in Mississippi — and in
California's recall election. Other 527 committees have been formed exclusively to
impact state races, often without registering
with state authorities.

Leading politicians have operated 527 committees to influence the once-a-decade
congressional redistricting process. The
largest of those groups, the Democratic-supporting IMPAC 2000, spent nearly $8
million. Similar committees in Illinois and
Missouri were associated with House Speaker Dennis Hastert and former House
Minority Leader Richard Gephardt,
respectively.

At least one 527 group figured prominently in a campaign earlier this year on
behalf of a federal court nominee being
considered by the U.S. Senate. The Ave Maria List, funded mainly by Domino's Pizza
founder Thomas Monaghan, helped pay
for print advertisements charging that Democratic objections to Alabama Attorney
General William Pryor's nomination to a seat
on the 11th Circuit Court of Appeals were based on anti-Catholic views.
The College Republican National Committee pays for its extensive direct mail
fundraising program through its 527 committee,
which has spent more than $10 million in the past three years.

Prospective Democratic presidential candidates in 2004 used 527 committees to
build up support and name recognition in key
primary states, purchasing equipment for state parties and paying for travel
expenses. Senators John F. Kerry of
Massachusetts, John Edwards of North Carolina, Bob Graham of Florida and Joe
Lieberman of Connecticut all operated 527
committees before closing them in late 2002 in response to changes in federal
campaign finance laws, as did Gephardt. Some
former members of Congress, free to raise soft money, have opened their own 527
committees.

These committees have continued to raise and spend money during the current
election cycle, even as a new campaign finance
law that could curb their activity is being debated by the Supreme Court. Several
new committees have been established
recently, including Americans Coming Together, formed by opponents of President
George W. Bush. Backed by pledges from
labor unions, abortion rights groups and financier George Soros, ACT has yet to
file a financial report with the Internal Revenue
Service but according to published reports plans to spend $75 million in 17
targeted states next year. One of ACT's affiliated
527 committees, the Partnership for America's Families, has already raised more
than $1.2 million in 2003, according to filings.
(The Center for Public Integrity has received funding from Soros' Open Society
Institute, although not for this project.)
These types of committees were popularized during the 2000 election, when a group
called Republicans for Clean Air paid for
advertisements criticizing GOP presidential candidate Sen. John McCain of Arizona.
They are able to accept unlimited
contributions from individuals, corporations, labor unions and even charitable
foundations, and can spend unlimited amounts
with few restrictions.

They can act as independent political operators through broadcast advertisements
or provide voter turnout and mobilization to
the benefit of a particular party or slate of candidates. They cannot contribute
money directly to a federal campaign, but they
can and do give to state candidates and party organizations, depending on state
laws. There are no limits to how much one 527
committee can give to another, or how many such committees an organization can
operate.

"These became a principal vehicle in the 2000 cycle for conducting issue
advertising campaigns and types of voter mobilization
and turnout programs that can be funded with unregulated money," said Anthony J.
Corrado, an associate professor of
government at Colby College in Maine who studies campaign finance.

A union of moneyed interests

Soft money permitted the national parties to finance extensive voter outreach
efforts using money contributed by party allies, but
now that the national parties can only raise money under federal limits, the role
and stature of 527 committees could change.
The Americans Coming Together effort aims to replicate the Democratic Party's
outreach effort under its structure, which
permits unlimited contributions.

Other 527 committees have been successful with a more narrow scope. The Club for
Growth offers financial assistance to
economic conservatives running for office and airs issue advertisements against
their opponents, often in Republican primaries.
Based in Washington, the Club for Growth has a federal PAC allowing it to
contribute to federal candidates but also a 527
account to pay for advertising and other independent efforts. Environmental and
abortion rights organizations also maintain 527
committees to help the causes and candidates they support.

The Center's study, the first to present a comprehensive view of 527 committees'
activity since disclosure began, also found
that while the list of top individual donors has long been dominated by white men,
a surprising number of women rank among
the top-givers to 527 committees. Actress Jane Fonda, a longtime supporter of
abortion rights groups, was the leading overall
donor to 527s with $13 million.

Labor unions, typically among the most generous donors to Democratic candidates
and committees, have been active users of
527 committees. Political activity by national and large regional labor unions has
topped $113 million in the past three years.
While corporations and trade associations, some of the biggest GOP backers, employ
other types of political committees, their
527 activity is a far cry from organized labor's effort.

The American Federation of State, County and Municipal Employees and the Service
Employees International Union, two of
the largest unions and Democratic supporters, gave the most to 527 committees.
AFSCME poured $42 million into various
527 accounts—close to $38 million to its own, the rest to other 527
committees—more than double SEIU's $13 million in
contributions. Other unions, including the Laborers, the United Food & Commercial
Workers and the National Education
Association, gave at least $4 million each to their own 527 committees or those
belonging to other organizations.
National Democratic Party committees collected almost $32 million from 527s
affiliated with unions, but smaller party
organizations also benefited. State parties in Florida and Missouri got at least
$1 million each, and Democratic gubernatorial
candidates raked in hundreds of thousands of dollars. Republican organizations
haven't been shut out completely by union
527s; the moderate Republican Main Street Partnership received $100,000 from labor
committees.

But the unions also spent money on their own, paying Democratic advertising firm
Media Strategies & Research more than
$6.2 million and pumping $775,000 into American Family Voices, a
Democratic-friendly group that posts congressional voting
scorecards and reports on corporate malfeasance on its Web site.

Labor's spending covers more than just activity designed to influence federal
elections, and in fact it's tough to tell how much of
labor's spending was intended to benefit federal candidates. Even with disclosure
of spending, "we don't know what they're
doing, it may be mixed," said Steven Weissman, associate director for policy at
the Campaign Finance Institute, a nonpartisan
research group.

National and large regional labor unions spent six times what corporate and
business 527s spent during the past three years.
Attorneys and other experts said that unions and single-issue organizations
benefit from a relatively homogenous membership,
making it easier to justify the creation of political committees to achieve their
aims. Corporations, in particular, have little
incentive to set up their own political organizations beyond political action
committees that contribute to state and federal
candidates.

"People associated with labor groups, environment groups, abortion rights groups
are all by definition of one mind on their
issue, which is not true of a shareholder who invests in GM," said Trevor Potter,
a former FEC commissioner who is part of the
legal team defending the new federal campaign law before the Supreme Court.

Although they formed relatively few of their own committees, corporations did not
shy away from contributing to other 527s.
AT&T Corp. gave $2.3 million in corporate money to 527 committees, the largest
amount by a single corporate entity, and
was the sole funder of Floridians for Fairness Action Fund, a state-level 527.
Tobacco giant Philip Morris (now Altria), sugar
company Florida Crystals Inc., and SBC Communications Inc. each topped $1 million
in their donations. Three different firms
listed at the same address—7440 Woodland Drive in Indianapolis, Ind.—combined to
give $2,250,000 mostly to
Republican-leaning 527s. That address is home to Golden Rule Insurance Company,
one of the biggest backers of medical
savings accounts and a longtime GOP supporter.

A spokeswoman for Golden Rule said she had never heard of Woodland Group Indiana
LLC, one of the contributors listed at
that address. The name of the third company was Rooney Marketing. Golden Rule's
chairman emeritus is J. Patrick Rooney.
The leading recipients of spending by 527 committees, after Democratic national
party committees, included several media and
advertising firms. Media Strategies & Research, a Democratic firm with offices in
Virginia and Colorado, received $14.8
million, while National Media Inc., a Republican advertising firm, received $8.4
million and UniWorld Group Inc., a marketing
company specializing in outreach to African-Americans and Hispanics, got $3.6
million.

In all, 527 committees spent at least $45 million on advertising and media
consultants during the three years examined. Millions
more went to direct mail and other types of consultants, or was transferred into
the federal accounts of some 527 organizations
in order to pay for shared administrative expenses, such as rent and salaries.

Some 527 committee contributions to national party committees have been disclosed
by the national parties on their Federal
Election Commission forms, but the Center's study is the first to detail not only
the source of 527 committee funds but also
where that money has gone. The searchable database released as part of the project
includes expenditures as well as
contributions.

527s in the States

A number of state-level interest groups, party organizations and even candidates
have found political nonprofits to be a
convenient way to circumvent state regulations, just as national organizations
have used them to work around federal limits, the
Center study found.

Take, for example, the 2001 governor's race in New Jersey, which has some of the
strictest campaign finance laws on the
books. The state has comparatively low contribution limits along with bans on
contributions from many deep-pocketed
corporate interests. It also is one of the few to offer gubernatorial candidates
public funds in return for accepting spending limits.
A year before the election, the state's two top-ranking Republican state
legislators—then Senate President Donald
DiFrancesco and Assembly Speaker Jack Collins—were considering running, raising
the possibility of a bruising and expensive
primary election season. Their solution was to form their own 527 organizations,
which would not be subject to state
fund-raising limits.

The two committees raised a combined $1.6 million dollars, and spent more than $1
million of that on political consultants and
advertising agencies. Both committees accepted numerous contributions that
exceeded state limits, or came from sources
prohibited under state regulations.

New Jersey is hardly the exception. Although it is impossible to determine whether
a given 527 is targeting state or federal
elections (or both), it is clear that these organizations are active at all levels
in all states.
In Illinois, a network of 527s funneled more than $2.4 million into the state
during the second half of 2002—just before voters
elected Rod Blagojevich to the governor's office. He became the first Democrat
elected to that office in 30 years.
And in Florida, which also has highly restrictive campaign financing laws, a
number of 527s have cropped up over the past few
years, including several with ties to lawmakers. The Florida Mainstream Forum, for
example, is affiliated with a number of
moderate Democratic state legislators. It raised more than $230,000 in 2002.

Citizens for a Stronger Florida, a political nonprofit with ties to Florida trial
lawyers, raised and spent more than $700,000 to
influence state elections during the past two and a half years. Neither group is
registered as a state political committee, or is
subject to state or federal fundraising laws.

Even those committees that are affiliated with a national party or federal
candidate often engage in state or local political
activities. The KOMPAC State Victory Fund, for example, which was until recently
affiliated with House Speaker Dennis
Hastert of Illinois, is based in the D.C. area, but over the past three years, it
has spent more than half of the money it has raised
– about $1.4 million – in Illinois, primarily to support state and local
candidates.

An overtaxed regulator

After the Republicans for Clean Air episode in 2000, Congress passed legislation
requiring that 527 committees register with
the IRS and report their finances on forms similar to those that federal
candidates and committees file with the Federal Election
Commission.

Because of their tax status, 527 committees offer some advantages to donors that
aren't available to other political non-profits,
including so-called social welfare organizations, known as 501(c)(4)
organizations. Social welfare groups can conduct political
activity, but it cannot be their primary goal, and contributions to such
committees can be subject to other federal taxes, including
the federal gift tax. But contributions to 527 committees are not subject to such
taxes and the money can be used for nearly any
political purpose save direct contributions to federal candidates.

There is one advantage that 501(c)(4) groups hold over 527 committees, from a
donor's point of view: contributions are not
disclosed anywhere. A 527 committee funded by the pharmaceutical industry,
Citizens for Better Medicare, reorganized as a
501(c)(4) after Congress mandated disclosure. The committee's 527 filings before
the switch show $8.9 million in spending, but
only $55,000 in contributions, since most of the money was contributed before the
disclosure bill became law.
The IRS' own disclosure system, which was upgraded in July, has received mixed
reviews from advocates and experts. The
agency implemented an electronic filing program and makes data from those filings
available on its Web site, but many of the
filings are still on paper. To complete its study, the Center had tens of
thousands of records entered into a database.
The rise of the IRS as a political finance regulator is also unusual, experts say.
The intersection of tax law and election law is a
gray area that can lead to uncertainty for donors and political operatives alike.
The task of regulating 527s was specifically
given to the IRS by Congress in the 2000 disclosure law, giving the nation's tax
agency authority over some types of political
activity.

"The IRS is very concerned about this -- they see this shift as complicating their
job of setting tax standards," said Lloyd H.
Mayer, a tax attorney at Caplin & Drysdale who represents clients that use 527
committees. "The IRS has tried its best, but it's
a task they never wanted and they never were designed to handle."

For two years, 527 committees were not required to list the date of contributions
on their reports, and some filings contain even
less information. A filing for the non-federal PAC of Nevada Democratic Sen. Harry
Reid contains a contribution of $60,000
with no other information accompanying it to identify the donor. A filing from
Citizen Soldiers Fund, a 527 belonging to
presidential candidate John Kerry, listed $332,000 in contributions but did not
itemize any of them, as required by the IRS.
And employer and occupation information are missing from 48,814 of the 105,341
contributions in the Center's database.
In addition, the lack of restrictions on the types of donors to 527 committees can
make it easier for donors to mask their
identities. Only individuals, partnerships and registered PACs can donate to
federal candidates and committees, but 527
committees can accept money from practically any entity. Personal trusts have
contributed tens of thousands of dollars to 527s
since 2000, and some charitable foundations also have made contributions.

Jane Fonda gave most of her donations to 527 committees in her own name. But
$70,350 came from the Seymour 1989 Trust,
which belongs to Fonda (her middle name is Seymour, and the trust listed an
address belonging to television network CNN;
Fonda was married to CNN founder Ted Turner). Fonda did not respond to a request
for comment, according to an assistant.
Giving to a 527 via a personal or family trust is legal, according to Mayer.

"Many wealthy people set up living trusts, and all their financial activity runs
through that trust, and it's not different from that
person giving," he said. He called it "a cloaking device" that could be used to
avoid having to put an individual's full name on
disclosure forms.

Disclosure isn't an issue for labor union 527s because they typically move money
in aggregate amounts from a local affiliate to
the national organization and thus do not identify individual contributors on
their IRS filings. At most, the records indicate the
name of the business manager of the local affiliate transferring the money to
national headquarters.
Individual donors who previously gave to 527s without the risk of being identified
can no longer do so, which has expanded the
opportunities for 501(c)(4)s and other types of committees that can engage in some
kinds of political activity without revealing
their contributors, Mayer said.

"The disclosure requirement drove political activity into 501(c)(4)s," he said.
"It's certainly a new niche—we're getting more
and more questions from organizations who were not interested in those areas of
the law."
Non-profits also have crossed into politics by contributing to 527 committees, the
Center found. They include the Edward S.
Gould Human Rights Trust, the Nature Conservancy and the Peconic Land Trust, a New
York land conservation group. The
Gould trust gave $208,348 to the Gay & Lesbian Victory Fund, while the two
conservation groups contributed a combined
total of $54,550 to the Community Preservation Fund 2020 Coalition, a New York
environmental group. All of these donor
organizations appear to be tax-exempt organizations under Section 501 of the tax
code, raising questions in the minds of some
experts about the propriety of their political involvement.

Frances Hill, a tax law professor at the University of Miami who has written
extensively on 527 committees, said that the IRS
has not defined and enforced clear rules on charities' political involvement.

"The law is unsettled, partly because the IRS for 25 years has been hiding on
this," Hill said. She compared the lack of
definition to the gray areas of accounting and tax law that were exploited by
energy trader Enron Corp.
"Just like with Enron, you plan in those areas of mismatches, and that's what's
gone on in campaign finance. Until that's
addressed, we're going to have just fun and games with planning."

Filling a legal void

The foundations of campaign finance law changed dramatically last November, when
Bipartisan Campaign Reform Act took
effect. Although the law made few changes specific to 527 committees, it did
prevent federal candidates and lawmakers from
using 527s to raise money outside federal limits, and barred the national parties
from raising such "soft money" via any type of
committee.

If that ban is upheld by the Supreme Court, it will make a significant dent in the
fundraising activities of national Democratic
Party committees, which used 527s, especially joint committees that raised money
for state and national parties, to great effect.

The Democratic Senatorial Campaign Committee, the official fundraising arm of
Senate Democrats, had at least 38 such
committees during the 2000 and 2002 election cycles. The National Republican
Senatorial Committee, by comparison, had
four.

Federal leadership PACs and party committees raised $98 million through their 527
accounts between mid-2000 and the end
of 2002, according to the Center's analysis, nearly a quarter of the total amount
raised during that period. Unless BCRA's soft
money prohibitions are overturned, those committees are essentially out of
business.

To adjust to the new legal environment, some individuals with ties to federal
lawmakers announced the creation of new 527
committees designed to raise unlimited contributions. The Leadership Forum was
established in 2002 by GOP House leaders
and received a $1 million contribution from the National Republican Congressional
Committee, which it subsequently returned
after concerns were raised about top congressional Republicans' role in the
Leadership Forum. It has had no further financial
activity, according to IRS filings, although The Hill, a Capitol Hill newspaper,
reported that the committee had recently
resumed fundraising.

Most of the others haven't raised much money, something experts attribute to their
lack of official status. If the quasi-party
committees are found to have direct ties to the parties or leading lawmakers,
contributions to them could run afoul of the law.
"My guess is that it's going to be difficult for these groups because there are
some legal risks involved here and because they
don't have the clout with the donors that the candidates had and the parties had,"
said Weissman. "The only reason that soft
money went from $80 million to $500 million is not because rich people wanted to
spend more, but that they were being
pressured."

Labor unions, membership groups and non-national party ideological committees can
continue to operate 527 committees, with
some restrictions on activity that could impact federal elections. One of BCRA's
most contentious provisions bans broadcast
advertisements within 30 days of a primary or 60 days of a general election that
refer to a federal candidate unless those ads
are paid for by money raised and disclosed under the federal campaign finance
system.

If that provision is upheld, 527 committees would be left with several choices:
they could continue to air broadcast ads up to
the pre-election period or pay for new ads that do not mention a specific
candidate but espouse general positions. The law
exempts from the ban national ad campaigns that mention House or Senate
candidates, meaning that a well-funded 527 could
pay for advertisements that ran on network or national cable television.

Most other forms of voter contact – direct mail, newspaper ads and Internet
communications, to name three – are not
restricted by the law, and 527 committees can spend unlimited amounts on those
types of activities. The only exception is voter
mobilization activities that could benefit a federal candidate; 527 committees can
only give up to $10,000 in non-federal money
to a state or local party committee for such an effort. Until the legal challenges
are decided, however, the activity of 527
committees could be dampened by uncertainty.
"This is still a gray area," Corrado said.

http://www.publicintegrity.org/527/report.aspx?aid=7

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