Campaign Overhaul Mired In Money and Loopholes

With the White House at stake and Congress in play, campaign cash is flowing this year like a bulging stream in a flash flood. Where is the record level of money coming from? Who gets it?

These are the questions on the minds of strategists and analysts, but more than ever before in modern American history, the answers are not clear. Politicians and their benefactors are forever finding holes in an already loopholeladen campaign finance system that, at one time, aimed to curb the impact of big money and assure public disclosure of those trying to influence elections.

In 2000, the leaders of both major parties and candidates across the nation are seizing upon new ways to avoid money limits and disclosure requirements. They have established nonprofit advocacy groups that raise and spend money in the shadows. They have shifted millions of dollars between state and national party organizations and used so-called soft money to avoid contribution limits. There is no evidence that anyone is breaking the law. As the Senate prepares to discuss a campaign finance overhaul at a hearing May 17, advocates of changing the system say the real scandal is that the law lets politicians avoid disclosure.

"In the world we live in today, practically speaking, there are no limits on what you can give to a campaign," said Larry Makinson, executive director of the Center for Responsive Politics, a Washington watchdog group that tracks political fundraising. "The Federal Election Commission is more useless than ever - and so are we. We're looking at a shrinking pie of reportable money, and it's frightening."

The Federal Election Commission (FEC) estimates that even without unreported money, a record-breaking $3 billion will be spent on this year's presidential and congressional races. According to the FEC, every election cycle since 1992 has set a federal spending record. Overall campaign finance activity has nearly doubled in the past 12 years.

And little of that money comes from average voters, say political watchdog groups. According to the Center for Public Integrity, a nonprofit organization that tracks political giving, less than 5 percent of Americans contribute to political campaigns, and less than one quarter of 1 percent give $200 or more. "All the other money is coming from businesses and organizations with ulterior motives," said Peter Eisner, the center's managing director.

Eisner's group and other advocates of change say large donations from a relatively few wealthy individuals and special-interest groups have a significant influence on public policy, from sugar subsidies to tomato tariffs to Internet taxes to rules for mobile homes.

Others say the problem is time, not influence-peddling. Former Rep. A1 Swift, D-Wash. (1979-95), who led a campaign fundraising overhaul effort in the 1980s, said he believes money has become the deciding factor in winning elections - and not necessarily because it buys votes. "I don't think you can buy public policy," Swift said. "I'm more concerned about the time spent raising it."

Rep. Charles W Stenholm, D-Texas, said the fundraising strategies that worked when he first won his seat in 1978 do not suffice any more. "Going down and having to spend hour after hour after hour on personal calls, I hate doing that," said Stenholm, who raised more than $1.5 million in the 1998 cycle in the face of a stiff challenge. "I did it last time because I had to." The fundraising can be so intense, Stenholm said, that colleagues often duck out of the Capitol during key meetings and can be found at party campaign headquarters "dialing for dollars."

Swift and the watchdog groups agree that even more disturbing than the huge amounts of money flowing through campaign committees are the millions of dollars spent by outside groups that never gets reported to the FEC.

It is all legal under the "527" tax code provision. Under this newly discovered loophole in tax and campaign law, millions of dollars are being raised by special groups that do not have to disclose their contributors. They are difficult to track, let alone outlaw, and those who want to eliminate the groups face constitutional obstacles. Group organizers say they are expressing their First Amendment right to free speech. Even foreign countries can give money to affect the outcome of American elections.

"All the fundraising problems that happened in 1996 with foreign money can now be done legally and anonymously," Makinson said. The groups "are the most dangerous loophole that's ever existed in American politics."

Limited Legislation

The political landscape in 2000 presents a dilemma for advocates of a campaign finance overhaul. While the maverick presidential campaign of Sen. John McCain, R-Ariz., placed the issue at center stage, both parties' record-breaking fundraising success gives incumbents little incentive to support change.

Several bills - including one (HR 4168) by Rep. Lloyd Doggett, DTexas, and one (HR 3688) by Rep. Dennis Moore, D-Kan. - have been introduced in the 106th Congress to close the "527" loophole, a name that comes from the tax code provision that exempts the contributions raised by certain political organizations from taxation. However, none of those bills are expected to get so much as a hearing. Meanwhile, Sen. Joseph I. Lieberman, D-Conn., often mentioned as a possible vice presidential contender, plans to introduce two proposals May 17 to tackle "527s," with McCain as a cosponsor. One would require the groups to comply with federal election disclosure laws, and the other would require "527s" to register with the IRS and disclose donor information.

The only campaign finance bill poised to get a hearing this year is a measure (S 1816) by Sen. Chuck Hagel, R-Neb., that is scheduled to be discussed by the Rules and Administration Committee on May 17 and marked up June 14. But while Hagel's bill would limit soft money contributions to parties and committees from corporations and labor unions, it would not address the phenomenon of unreported political money. It also is silent on the parties' common practice of shifting money between national and state organizations, a strategy that would easily circumvent Hagel's soft money limits.

Even bill supporters say the measure would do little to stem the flood of campaign money. "If I started loading on to this bill every perceived problem to cure every perceived ill, I think the reality is it would go nowhere," Hagel said in an interview May 2. McCain, whose presidential bid won only four Senate endorsements, including Hagel's, offered a blunt commentary on Hagel's bill in a May 2 interview: "It's a joke."

The House passed legislation (HR 417) in 1999 that would ban soft money in federal elections and crack down on "issue advocacy," unregulated political spending that does not directly urge the election or defeat of a candidate. McCain and Russell D. Feingold, D-Wis., offered a similar measure (S 1593) in the Senate, but a filibuster engineered by Rules and Administration Committee Chairman Mitch McConnell, R-Ky., and Majority Leader Trent Lott, R-Miss., prevented passage.

Most agree the chances of passing significant legislation this year are slim. "The political reality is that this is a presidential election year," Hagel said. "Need we say more?"

Political Impact

Even if Congress does not act on campaign finance, McCain's ability to turn the issue into the centerpiece of his presidential campaign put it center stage for the political season. McCain may have lost the GOP nomination to Texas Gov. George W Bush, but he forced other candidates to take a stand. Now they are finding that the issue can be a useful tool.

Vice President A1 Gore, the presumptive Democratic presidential nominee, has promised to make McCain's bill his first domestic policy initiative. It could prove politically astute for a candidate dogged by criticism for his 1996 fundraising tactics, including a gathering at a Buddhist temple in California.

Bush unveiled an overhaul plan earlier this year as he scurried to halt McCain's threat in the GOP primaries. The Bush plan would ban corporate and union soft money, but would allow unlimited contributions by individuals, a change that McCain said in the campaign would do little to curb big money. Bush has not made campaign finance a centerpiece of his campaign, though the issue could enhance his outsider status. Despite their differences, McCain endorsed Bush on May 9 after a brief meeting in Pittsburgh during which they discussed several issues, including campaign finance - but McCain conceded that they came to no agreement on the issue.

McConnell is a longtime opponent of campaign finance changes. But he said in an interview that Hagel's bill "seems to be a step or an approach toward campaign finance that might receive bipartisan approval." McConnell is chairman of the National Republican Senatorial Committee (NRSC), which raised $40.4 million between Jan. 1, 1999 and March 31, 2000. He opposes contribution limits because he says they violate First Amendment free speech rights. McConnell said he has not decided whether to support Hagel's plan.

Democrats have jumped on the issue in the battle for control of the House, filing a civil racketeering lawsuit against Majority Whip Tom DeLay, R-Texas, for his fundraising tactics. The Democratic Congressional Campaign Committee (DCCC) filed the suit May 3, accusing DeLay of extorting campaign funds from lobbyists by exchanging policy for money and intimidating donors who tend to favor Democrats.

DeLay denied that he had broken the law, but did not disagree with the notion that he was using the nonprofit groups for campaign purposes. Rep. Patrick J. Kennedy, D-R. I., chairman of the DCCC, said that if the courts do not stop DeLay and the Republicans, they will stockpile money in secret places, and Democrats will be at a huge disadvantage in November. "We could be up against something that we don't know the full extent of, nor do the American people know the full extent of this," Kennedy told reporters May 3.

But the contradiction inherent in calling for an overhaul of a system that allows everyone to raise unprecedented sums, according to scholars, raises questions about everybody's sincerity.

"Frankly, McConnell is pursuing [Hagel's bill] as a way of deflecting political pressure," said Thomas E. Mann, who studies campaign finance issues at the Brookings Institution, a Washington think tank. "And the Democrats, they're doing so well in the soft money raising business now, especially through their campaign committees, that they're not so anxious to eliminate it."

McConnell, as his party's top Senate campaign strategist, also must walk a tightrope on the campaign finance issue, with several GOP incumbents facing tough challenges in November.

"You've got a lot of nervous Republicans, particularly a lot of nervous Republicans up" for re-election, said Norman J. Ornstein, resident scholar at the American Enterprise Institute, a Washington think tank. Opposing campaign finance changes "makes you look foolish if you have a Republican Party that uses as its core strategy against A1 Gore his campaign finance violations. If you're saying what Al Gore did is outrageous and wrong but the system is dandy, that's not a tenable position."

Sen. Spencer Abraham, R-Mich., for example, is facing an intense challenge from Democratic Rep. Debbie Stabenow in a state whose GOP primary voters backed McCain over Bush. Abraham, who did not support the McCain-Feingold bill, has signed on as a cosponsor of the Hagel bill. "He does talk about it" on the campaign trail, said spokesman Joe Davis. "He thinks campaign finance reform is on the voters' minds." Abraham had raised $6.5 million for his campaign as of March 31. Stabenow had raised $3.4 million.

Sen. John Ashcroft, R-Mo., also is in a tenuous re-election position. Asked whether he had decided to ask McConnell or Lott to pass a campaign finance bill, Ashcroft said, "Not yet." But Ashcroft's opponents at home hope the issue will haunt him on the campaign trail in November. That is when advocates for public campaign financing hope to put an initiative on the Missouri ballot, similar to one that has passed in Maine and is being debated in Oregon, which would allow taxpayer financed campaigns for state offices.

Ashcroft "will be forced to take a position on it," said Harriett Woods, a former Democratic lieutenant governor of Missouri and unsuccessful Senate candidate. She is on the steering committee for the state ballot initiative and a member of the national advisory board of Public Campaign, a nonprofit organization that promotes limiting the power of special interests in elections through state-level initiatives. Woods said that as more states approve campaign changes such as public financing, Congress might take notice. "Every time a state passes it, the congressional delegation is on the hot seat," she said.

Changing Loopholes

The DCCC lawsuit may be the first effort of the new century to politicize campaign fundraising, but lawmakers have made political hay of the issue since the turn of the last century.

During his annual message to Congress in 1905, President Theodore Roosevelt called for a ban on corporate donations to political committees. Roosevelt's call for reform came after congressional hearings revealed that several corporations had secretly financed Roosevelt's 1904 campaign.

Efforts to overhaul the campaign system have generally surfaced in the wake of political scandal - and when one party has benefited from a campaign finance loophole more than the other.

During the 1970s and '80s, contributions from political action committees (PACs) exploded, with Democrats as the main beneficiaries. In the 1978 elections, PACs contributed $35 million to federal candidates. That rose to $60 million in 1980 and to $159 million by 1990.

During the 1988 congressional elections, House Democrats took in 66 percent of all PAC contributions. Republicans received 34 percent. The lopsided giving to Democrats continued until 1996, when PAC donations split evenly between both parties in the House.

Political watchdog groups charged that the hefty PAC donations gave big corporations special access to elected officials, who were beholden to their financial backers.

Congress attempted to curb PACs in 1989 after former Speaker Jim Wright, D-Texas (1955-89), came under attack for ethical violations and questionable financial dealings. The controversy put pressure on House Democrats to act on campaign finance legislation. Wright appointed a bipartisan task force, co-chaired by former Reps. Swift and Guy Vander Jagt, R-Mich. (1966-93), to develop an overhaul plan.

But they found little common ground. Democrats were leery of Republican efforts to enhance the role of political parties, a GOP strength. Republicans sought to curb PACs and regulate political activity by labor unions, two sources of Democratic strength.

The House and Senate also took differing positions on PACs. The Senate, whose members generally received less PAC money than House members, voted to disband PACs. The House passed language that only limited the amount candidates could take from PACs. In the end, conferees failed to reconcile their differences.

The House and Senate tried again in 1992 but again partisan differences could not be bridged. The Democratic controlled Congress cleared legislation that set up separate systems for House and Senate races. The bill placed voluntary caps on overall spending and replaced limits on PAC and other contributions with public financing. Republicans objected, instead favoring an overall ban on PACs. President George Bush vetoed the measure, saying it unfairly favored Democrats.

The PAC controversy began to subside in the 1990s, as both parties mastered PAC fundraising and a new form of campaign cash emerged: soft money. In contrast to "hard money," which is limited and goes to individual candidates, soft money is unlimited and can be used only for generic party-building activities - although in practice it often does help specific candidates through issue ads.

As the use of soft money grew in the 1990s, so did criticism.

In the 1992 federal election cycle, the Democratic and Republican campaign committees raised $36.3 million and $49.8 million in soft money, respectively. Those numbers grew to $123.9 million for Democrats and $138.2 million for Republicans in 1996. Today, political parties are on their way to a new soft money record.

In the first 15 months of this election cycle, Democratic and Republican party committees raised a combined $160.5 million, according to a study by the government watchdog group Common Cause. That is nearly double the $84.6 million raised during the first 15 months of the 1995-96 cycle.

The two parties received 140 soft money donations in single amounts of $100,000 or more during the first three months of 2000, according to Common Cause.

Among those contributing massive amounts of soft money this year was tobacco giant Philip Morris Companies, which gave gifts of $100,000 each in soft money to the Republican National Committee, the National Republican Congressional Committee and the National Republican Senatorial Committee. On the Democratic side, telecommunications company SBC Communications Inc. gave the largest single soft money contribution of the year: $350,000 to the Democratic National Committee (DNC).

"We have come a long way from the days when the national parties represented their voters and acted as true grass-roots organizations," said Scott Harshbarger, president of Common Cause. "In today's soft money dominated system, the parties have become glorified mail-drops for special interest money."

Companies that give large donations say they are merely participating in the democratic process. "No," said SBC spokesman Matthew Miller when asked if its donations are aimed at influencing public policy. "We area major Fortune 500 firm, and as a major participant in the political process, our role is to give money not just to candidates but to political parties as well."

Miller said the large donation to the DNC was prompted by the Democratic convention being held this summer in Los Angeles, a major market for SBC.

"We want to be a good host to the Democratic Party when they have their convention in our city," Miller said. He added that SBC also gives to the GOP, and company contributions to both parties will likely even out by the end of the cycle.

Unreported Money

Although soft money has been the focus of recent campaign overhaul efforts, a new fundraising technique is emerging that some say could eclipse all other fundraising controversies.

A growing number of political groups are forming the "527s." Such groups were originally expected to report their fundraising and spending to the FEC. But as long as the groups do not expressly advocate the election or defeat of a specific candidate, they are not required to report anything. They can run ads attacking or praising a candidate; they can distribute voter guides condemning the political philosophy of candidates; and they can engage in other political activities that fall under the broad title of "issue advocacy" all without having to abide by disclosure laws.

The use of issue ads has grown dramatically in recent years. A study by the Annenberg Public Policy Center of the University of Pennsylvania found that more than $114 million has been spent on or committed to issue ads so far this cycle. That is nearly equal to the amount spent on issue ads during the entire 1996 cycle. With six months to go until the elections, issue ad spending is expected to hit an all-time high, the study said.

The "527" groups that run issue ads can accept unlimited amounts of money from any source, including foreign governments. Because there are no public registration laws for such groups, their numbers and influence are incalculable.

The Center for Responsive Politics and Common Cause have so far compiled a list of more than a dozen "527" groups. They range ideologically from the far left to the far right. Several are affiliated with prominent specialinterest groups, such as the Christian Coalition, the League of Conservation Voters and the Sierra Club. Others are independent groups, such as the Committee for New American Leadership, which was founded by former House Speaker Newt Gingrich, R-Ga. (1979-99), and seeks to cap taxes at 25 percent of income and enhance the United States' global role. The group uses the Internet and "other mechanisms for mobilizing voters so that candidates who support such issues will be elected to office," according to its Web site. Several "527s" are closely affiliated with current congressional leaders.

Makinson of the Center for Responsive Politics calls "527s" dangerous, but officials who work with the groups defend their activities.

DeLay has worked closely with the Republican Majority Issues Committee, a "527" group that wants to spend $25 million on voter registration, voter turnout and issue ads this year to counter labor union activities in behalf of Democrats.

"527" groups "are legal," DeLay said. "They have been used by the left for many years." He mentioned a "527" group organized by the Sierra Club, an environmental group. "I am for full disclosure, but not for unilateral disarmament. We will continue to use legal organizations to express our point of view."

Another group, Saving America's Families Everyday (SAFE), is working to raise more than $1 million this year to conduct polls for the GOP. House Republican Conference Chairman J.C. Watts Jr. of Oklahoma is a leading fundraiser for the group.

"We're playing by the rules as they are," said Tim Crawford, executive director of SAFE. "If they change the rules and say you need to disclose your donors, we wouldn't have a problem with that." Crawford added, however, that not having to disclose donors helps fundraising. "Some donors don't want their names used so they're not pestered," he said.

Calls for Change

As Congress continues its attempts to change campaign fundraising, even those who support an overhaul concede that there is no quick fix. "No matter what system you set up, someone is going to figure it out, and you will have to pass a new law," Swift said.

Ornstein said campaign finance overhaul advocates might eventually have to agree to raise certain limits to keep up with inflation. In today's dollars, the limit on individual contributions should be about triple the $1,000 set a quarter-century ago.

Given the brain power of lawyers and experts searching for loopholes, McCain said, no law will stand forever. "There will always be corruption in American politics," he said. "That's why there are cycles of reform throughout our history. If it's cleaned up, it will stay cleaned up for another 10 or 15 years or so, and then there will be another McCain and Feingold."

As Swift put it, Congress can always pass regulations, but "you can't enforce virtue."