The Fall of the 527

The rise of 527s was one of the big political stories of 2004. But the influence of these groups could be relegated to a historical footnote if a bipartisan group in Congress can fast-track the next phase in campaign finance reform.

In 2002, Sens. John McCain (R-Ariz.) and Russell Feingold (D-Wisc.) wrote and helped pass the 2002 Bipartisan Campaign Reform Act (BCRA) which banned unlimited contributions to political parties and candidates. On February 2, the two senators introduced the 527 Reform Act of 2005, supported by Sen. Trent Lott (R-Miss.), who has previously opposed any reform to the campaign finance system. The proposed legislation requires 527s to register as political committees with the Federal Election Commission (FEC) and subjects their fundraising to current campaign finance laws.

If passed, the bill would affect 527s ranging from the progressive-leaning America Coming Together (ACT) and the Media Fund to the right-wing Swift Boat Veterans for Truth and Progress for America. During 2004, these groups used unregulated contributions to finance political advertisements and voter education efforts, bringing national voter mobilization efforts to a new level. According to the Center for Public Integrity, 527s raised more than $550 million for state, issue and federal elections in 2004. Fifty-three of these 527s focused their activities largely or exclusively on the presidential election and raised $246 million during the 2003-2004 election cycle.

“The legislation is intended to put groups like ACT and Progress for America out of business. But it won’t affect the ones that don’t play in federal elections,” notes Aron Pilhofer, co-author of “The 527 Project,” a series of reports issued by the Center for Public Integrity. “But if this bill passes,” writes Pilhofer, “it is simply naive to think that all this money is just going to evaporate. Every time legislation is passed to tighten campaign finance laws it makes it harder to track this money. The 527 Reform Act is just the latest in this constant muddling of the campaign finance system.”

Organizations formed under the 527 section of the tax code are defined as tax-exempt political organizations working to influence elections, but were not limited by the 2002 McCain-Feingold legislation. Since 2000, many 527s worked on local and single issue-based campaigns and were not a factor in national politics. Capitalizing on the opportunity presented by 527s to skirt the 2002 ban on soft money donations in federal elections, Democrats began to gather funds from traditional progressive sources, including labor, women’s organizations and environmentalists, along with tens of millions of dollars from a few wealthy individuals. (See “Door by Door” January 5, 2004.) After initial efforts to stop their political counterparts, Republicans jumped on the 527 bandwagon.

The proposed legislation will require that if a 527’s sole purpose is to influence a federal election it must be funded with “hard money”—donations subject to the limits and reporting requirements of the BCRA. The bill also caps individual donations to $5,000. If a 527 is working on a combination of local and federal campaigns, at least 50 percent of these expenditures must be financed with hard money, and individual, non-federal “soft money” donations would be capped at $25,000.

“The end of soft money influence with passage of the McCain-Feingold Act made a difference. It meant that federal officeholders weren’t in the business of raising this money and eliminated the toxic link between donors and policy-makers,” says Celia Wexler, vice president of Common Cause. “In 2004, the 527s may have obeyed all the rules in place about not physically coordinating with the political parties. But basically that was just a wink and a nod.”

But stricter rules don’t always make an level playing field, says Nick Nyhart, executive director of Public Campaign, a nonprofit group organizing public financing election reform in states across the country.

“No matter how far you draw those regulatory lines, at the end of the day you still have a situation of wealthy candidates or candidates connected to wealth going up against candidates that don’t want to play that game,” Nyhart says. “No matter where you strike that balance, there is still a political bias toward people with wealth or access to wealth.”

Supporters of the 527 Reform Act, including nonprofits such as Common Cause, Public Citizen and the League of Women Voters contend the proposed legislation would force 527s to follow the same rules as other tax-exempt organizations working to influence the outcome of federal elections, including political action committees and candidates’ campaigns. Such a reform would limit the influence of millionaires such as Democrat George Soros—who donated almost $22.5 million to ACT, Joint Victory Campaign 2004 (which passed out money to organizations such as ACT and the Media- Fund) and MoveOn.org—and Republican- Bob J. Perry—who donated more than $8 million to the Swift Boat Veterans for Truth and Progress for America.

“Some people think that the standards of soft money are not just corrupting candidates, but that some people’s free speech in politics is more influential multiple times over because they have more money than the average citizen,” says Steven Weissman, associate director for The Campaign Finance Institute, a non-partisan nonprofit.

But opponents of the proposed bill contend that instead of limiting average citizens’ access, 527s have reconnected them to the political process.

“527s invoked issues that no one wanted to talk about. Without them, you remove the independent voice,” says Liz Towne, director for advocacy programs for the nonprofit Alliance for Justice. “Everyone likes to talk about the unsavory things that 527s did during the election, but they also brought a larger number of people to the polls for the first time in decades.” Further, 527 supporters argue that they are not subject to regulation by the FEC or fundraising restrictions if their efforts do not directly coordinate with political parties and their outreach focuses on issues rather than the support of one candidate.

Along with Alliance for Justice, groups such as the League of Conservation Voters, NARAL Pro-Choice America and Sierra Club warn that the bill could be the first step in targeting 501(c) organizations, the tax-exempt nonprofits that many people predict will be the next drop-off point for large political donations.

“Nonprofits must also ask the question, ‘Who’s next?’ ” says Alliance for Justice President Nan Aron. “Despite promises from proponents of this legislation, the 501(c) community is an obvious next target.”