Public Citizen Applauds New FEC Regulation to Restrict “Soft Money” Spending by Section 527 Groups

May 7, 2004

Public Citizen Applauds New FEC Regulation to Restrict “Soft Money” Spending by Section 527 Groups

Thomas/Toner Proposal Appropriately Does Not Impact Advocacy Work by 501(c) Non-Profit Groups

WASHINGTON, D.C. – A proposed regulation that would ban Section 527 groups from using “soft money” in federal campaigns while not interfering with the activities of non-profit organizations is laudable and should be approved, Public Citizen said today.

Two Federal Election Commission (FEC) commissioners, Scott Thomas and Michael Toner, drafted the proposed regulation, which would subject Section 527 groups, whose primary purpose is to promote the election or defeat of candidates, to a ban on raising and spending money from corporations, unions and wealthy individuals (“soft money”). Appropriately, 501(c) non-profit groups are explicitly excluded from the reach of the regulation. The proposed regulation, which the FEC will consider on Thursday, May 13, is worthy of our support.

The pending FEC decision will end   a long and contentious discussion within the reform community as to who should be subject to the reporting and contribution limits of the Federal Election Campaign Act (FECA), especially the new soft money ban re-affirmed by the recent McCain-Feingold law. That law, which took effect   in 2002, revolutionized federal campaign finance law by closing down the loophole in federal election law that allowed unlimited “soft money” contributions to the national parties.

After the law took effect, numerous Section 527 groups pledged to reopen the soft money spigot in the place of the national parties. Encouraged by party leadership, these groups are threatening to bring back $200 million to $300 million in special interest soft money to influence the 2004 elections.

“Section 527 groups have always been little more than a loophole in the federal campaign finance law,” said Joan Claybrook, President of Public Citizen. “Hiding in the tax code, Section 527s have claimed immunity from the contribution limits of federal election law, all the while raising and spending unlimited special interest money expressly for the purpose of affecting federal elections.”

Corporations and unions have long been banned from making campaign contributions, and individuals have strict limits on how much they may contribute to candidates and parties. But the FEC in the 1980s revised the campaign finance rules to allow money from corporations, unions and wealthy individuals in excess of the contribution limits to flow to the parties for so-called party building activities. Prior to McCain-Feingold, this soft money amounted to $500 million in the 2002 election cycle, buying all kinds of favors for special interest groups, from simple Lincoln bedroom sleepovers to more serious corruption of public policies.

A recent proposal to extend the ban on soft money beyond the parties went too far, inappropriately capturing 501(c) non-profit groups that conduct legitimate advocacy and educational work. This poorly drafted proposal prompted an outcry of opposition from Public Citizen and the non-profit community. The new Thomas/Toner proposal corrects that mistake and unequivocally limits the reach of federal campaign finance law to Section 527 groups and the traditional political committees whose principal purpose is the election or defeat of candidates.

“The new FEC proposal properly captures electioneering shadow groups under federal campaign finance law, while explicitly placing advocacy and educational non-profit groups outside the reach of disclosure requirements and contribution limits,” said Craig Holman, legislative representative for Public Citizen. “This is a good, solid regulation that will help protect the integrity of FECA.”

The Thomas/Toner proposal also narrows another loophole invented by the FEC: the “allocation ratio.” In the 1980s, the FEC developed a series of formulas in which committees could pay for some election activities (such as voter mobilization and television issue ads) with soft money, under the presumption that these activities did not expressly advocate the election or defeat of candidates. The allocation ratio has resulted in absurd evasions of the campaign finance limits, such as current plans by one political committee – America Coming Together – to finance its 2004 electioneering activities with 98 percent soft money and only 2 percent hard money.

The new proposal to be considered by the FEC would automatically cap the allocation ratio for political committees at no less than a 50-50 split between hard and soft money. Public Citizen finds no justifiable basis for any allocation ratio, contending that election activity should be paid for only with funds permissible under federal election law. But the Thomas/Toner proposal offers a vast improvement over the current system.

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