WASHINGTON 2002
Follow the Money
Untangling campaign finance gets harder
To understand the future of political money in America, consider the tales of two high-flying political donors: the glitzy television producer responsible for the Mighty Morphin Power Rangers and the glamorous actress who gave us Barbarella.
Earlier this year, Haim Saban, the producer, cut a $7-million check to the national Democratic Party. After Democrats disclosed the gift to the Federal Election Commission, The New York Times put it on page one, trumpeting it as the “largest known donation in the history of American politics.”
Jane Fonda, the actress, had a different experience. She gave $11.7 million just weeks before the 2000 presidential election. Though her contribution was larger, she chose a less obvious route, avoiding the FEC. As a result, the major newspapers missed the story. The networks never buzzed with the news.
Fonda’s money, split into two checks over two weeks, went to Pro Choice Vote, a tax-exempt political nonprofit, called a 527 after its section of the tax code. Internal Revenue Service records, which few reporters examine, show that Pro Choice Vote promptly redistributed most of her money to the accounts of three other pro-choice groups. In a matter of days, Fonda’s millions had been separated from her name, free to be used for everything from televised issue advertising to mass mailings and voter mobilization.
Under the new campaign finance law, Saban’s contribution, a so-called soft-money contribution that was disclosed in plain sight to the FEC, will be outlawed. But nothing will keep wealthy individuals like Fonda, corporations, or labor unions from writing even larger unregulated checks to 527s and other nonprofits. And that’s just one of the ways more money will go, now that national parties can no longer collect unregulated contributions. With the weeks ticking down to November 6, when the new law takes effect, the old hydraulic metaphor of political money is poised to prove itself again: Try to block a flood of dollars with new regulations and the money, like water, always finds a way (see “The New Rules,” page 56). In the coming era of campaign finance, following the flow will be tougher.
“This new law is going to increase the challenge for reporters,” explains Kenneth A. Gross, a former FEC lawyer who advises candidates and Fortune 500 corporations. “With respect to disclosure, it will to some extent have the opposite effect than was intended.”
The probable new routes are myriad and evolving, dependent on future judicial rulings and a bitterly disputed FEC rulemaking process. But for reporters hoping to keep abreast of the shifting landscape, most observers agree on three broad areas to watch:
- State political parties will find themselves bombarded with new money and responsibility.
- Partisan nonprofits and interest groups will shove themselves into the spotlight.
- And grass-roots organizing, mass mailings, and phone banks — the sort of activity that isn’t regulated by the FEC, the IRS, or the Federal Communication Commission — will increasingly become weapons of choice.
None of these sources of political cash will be easy to track. “You are dealing with a sophisticated political community,” says Larry Noble, a former FEC general counsel who now runs the Center for Responsive Politics. “There is going to be a lot of smoke and a lot of fire.”
The Reborn State and Local Parties
At first glance, the Bipartisan Campaign Finance Reform Act appears to cut off unregulated donations that state or local parties can use for federal campaigns. But appearances can be deceiving. After all, this “bipartisan” bill was promptly challenged in court by both Democrats and Republicans.
In a series of highly contested rulings in June, a divided Federal
Election Commission began defining the terms of the new law in
ways that opened new loopholes for unregulated donors. This means
waves of unregulated political money will still flow to the local
level, and then flow up the political ladder. More important,
many contributions will be reported only in forms filed with harder-to-track
state agencies, says Dwight L. Morris, a campaign finance consultant
to many major media organizations. “This is going to create
a lot more confusion and problems than it will solve,” said
Morris. Many states, he says, don’t require donors to list
their occupations or even a street address.
Even before the new law took effect, during the 2000 presidential
campaign, state political parties independently collected nearly
$307 million, compared to the $500 million in soft money collected
by the national parties. The media never have tracked many of
the state contributions, allowing large donors like AT&T,
Philip Morris, and the National Education Association to pass
quietly under the radar.
The new rules are complicated, as loopholes often are. Paul Sanford, the director of FEC Watch, says state and local parties, for instance, can continue to use soft money under the new law for many administrative expenses that benefit federal candidates — some staff salaries, Internet communication, office supplies, rent, and building utilities. The parties can also use unregulated funds for “generic campaign activity” and “get out the vote” efforts that come before the last day federal candidates have to file for the primary. This means many state parties could use soft money for issue advertising, the sort that so infuriated reformers, early in the campaign season.
After the filing deadline, many of these same activities can be paid for with so-called Levin funds, a new category of campaign money that state and local parties can collect in $10,000 chunks. There is no limit on how many local party committees could collect this money, so there is likely to be a profusion of such committees down to the precinct level. (Unlike some of the party soft money, though, the Levin funds will be reported to the FEC.)
The Interest-Group Explosion
Reporters should also expect party officials and former political aides to establish new “Astroturf” organizations — fake grass-roots groups that can collect and spend unregulated volumes of money as long as they do not explicitly advocate the election or defeat of a candidate. Founded in the past by labor unions, corporations, and wealthy individuals, these groups invariably come with names like Republicans for Clean Air, American Family Voices, or The United Senior Association. But the names mean little or nothing.
For reporters like The Washington Post’s Jim VandeHei, who covers Congress, they are a constant source of stories — and aggravation. The financial backers of Astroturf often hide behind limited disclosure requirements, obscure post-office boxes, and tight-lipped consultants. “A lot of these things are set up by the same people,” VandeHei said. “They know they can get away with it.”
The new law barely regulates independent organizations like labor unions, trade associations, 527s like Pro Choice Vote, and issue-oriented groups like the Sierra Club and the National Rifle Association. These groups are all free to expand without limits. Already, fundraising by 527s is exploding, with the fifty most active of them raising nearly $11 million in just the first three months of 2002. If the fundraising pace continues, that will amount to a 52 percent increase in more than a year, according to a report by Public Citizen.
The good news is that reporters can crack the outer walls of disclosure if they know where to look. It was the media, after all, that helped uncover Republicans for Clean Air as a front for a Texas energy executive, American Family Voices as the project of a former aide to Bill Clinton, and The United Senior Association as a repository of drug company dollars.
Marianne Holt, who tracked interest groups in 2000 for the Center for Public Integrity, says she often began her investigations by electronically searching for the groups’ names under incorporation records. These are filed with state governments, but can often be accessed through database services like WestLaw and Lexis-Nexis. If the group had taken out television ads, then she went to television stations to review public files, which by law contain basic information on the groups’ identity. “That is sometimes a launching pad to figuring out who is active and what is going on,” says Holt, who now directs the Campaign and Media Legal Center.
The Internal Revenue Service can also be a treasure trove of information for secretive groups. If a group is incorporated as a 527, it must make public filings to the IRS, including detailed lists of contributors and expenditures, which are then posted on the IRS Web site. If the group is incorporated as a 501(c) organization — which includes charities, schools, unions, trade groups, and some lobbying organizations — reporters can request the group’s annual tax return, or Form 990, from the group itself. The tax return does not offer names of contributors, but it does list top officers and basic balance-sheet information.
In recent years, groups like the U.S. Chamber of Commerce have exploited the 501(c) loophole, concealing the sources of millions of dollars in political spending under its nonprofit umbrella. Such tactics require reporting that goes beyond public documents.
“There are still people out there who still think that some things are crossing the line,” explains the Post’s VandeHei. Last year, one of those people handed him a list of contributors to many of the chamber’s political television campaigns, exposing public companies like Wal-Mart, Home Depot, Merck, and Bristol Myers Squibb as million-dollar donors. It was the sort of scoop that public records rarely provide.
Off the Airwaves, Into the Streets
Public records are also of little help when it comes to tracking grass-roots organizing. The AFL-CIO, for example, spent a whopping $40 million on the 2000 elections, but less than 25 percent of that went to television advertising. Roughly $770,000 went to national Democratic Party committees as soft money. Where did the rest go?
A study by the Campaign Finance Institute found that during the campaign, organized labor hired more than a 1,000-person staff, distributed fourteen million pieces of mail, and placed eight million phone calls. Such tactics appear to work: though only 13.5 percent of workers have union jobs, 26 percent of voters in 2000 came from union households. Business groups, learning from their opponents, have also begun redirecting their resources. “We learned that we have to get more employers talking with employees out in the field where it counts,” says Greg Casey, the president of the Business-Industry Political Action Committee, which has substantially shifted its efforts toward grass-roots organizing in recent years.
If upheld by the courts, one provision of the new law could accelerate this shift — by banning certain broadcast advertisements paid for with unregulated donations in the weeks leading up to an election. This will increase the importance of direct mail, telephone solicitation, person-to-person contact, and other forms of outreach — all of which cost money. Almost none of this spending is disclosed to the FEC.
“It’s going to be important to follow what is happening on the ground level in contested districts,” says Michael J. Malbin, executive director of the Campaign Finance Institute. He suggests keeping tabs on politicians’ speaking schedules, since such engagements often yield support through back channels like direct mail. (According to one study, campaign spending on direct mail exceeded $3 billion between 1992 and 1997.) Malbin also recommends that reporters get on mailing lists by subscribing to magazines like National Review or The Nation, or on the contact lists of local political parties. “Have some way to keep track of these things,” he says.
His point is clear. In the future of political campaigns, activities
that reporters have long neglected will become increasingly important,
as will the corporations, unions, and wealthy benefactors who
support those efforts. “Reporters have to get beyond the
horserace and beyond the disclosed numbers,” says Malbin.
“You have to go beyond the usual disclosure sources.”
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