Political GPS: On a Swift Boat, Without a Paddle: Should You Contribute to a 527 or other Independent Group?

"I served with John Kerry. John Kerry has not been honest about what happened in Vietnam."
From "Any Questions?," an ad aired in 2004 by Swift Boat Veterans for Truth

In 2004, the Swift Boat Veterans for Truth, MoveOn.org, and other so-called 527 organizations poured millions of dollars into hard-hitting, often controversial ads that dominated news coverage in the Presidential election. This year, with donors uneasy about how law enforcers will deal with these groups and the two leading candidates suggesting that such help is unwelcome, 527s have been much less of a factor. At least so far.

With polls showing razor-thin margins in Presidential battleground states and tight Senate races around the country, there is growing evidence that sidelined independent groups are ready to charge on the field. The question is: Should donors follow them?

Before answering that question, donors should be aware of the risks in contributing to independent groups:

1. In the FEC's world, it makes no difference whether a group is organized under section 527 of the Internal Revenue Code or section 501(c)(4) – so-called “social welfare organizations – or is a for-profit entity. The issue of whether an organization must register as a political committee and comply with contribution restrictions boils down to how it raises and spends its money.
   
   
2. Look carefully at the solicitation materials. After the 2004 elections, the FEC adopted rules to rein in independent organizations by focusing on how they raise money. Under these rules, if a solicitation indicates that any portion of the funds raised will be used to support or oppose a clearly identified federal candidate, then funds provided in response to the solicitation are “contributions” under federal campaign finance law. Raise more than $1000 this way, and you’re a political committee under federal law. Respond to such a solicitation by contributing funds from the corporate treasury and you’ve violated the federal prohibition on corporate contributions.
   
   
3. While fundraising solicitations are now subject to scrutiny, there is much greater latitude this election on the spending side. Last year, the Supreme Court dealt a blow to the McCain-Feingold law by eliminating a blackout on ads broadcast on television, cable, or satellite in the 30 days before a primary, 60 days before the general – if they are financed by a corporation and merely refer to a candidate. Under the Court's ruling, corporations may now finance such ads so long as they can be read some way other than as an appeal to vote for or against a federal candidate. ("Call Senator X. Tell him to stop supporting unconditional bailouts for Wall Street.") And financing ads that can reasonably be viewed as “issue ads” will not, in and of itself, make a group a federal political committee.
   
   
4. It's difficult to know whether law enforcement agencies will pursue donors for violating funding restrictions on independent groups. In 2004, the FEC tagged a number of groups with six-figure penalties, but left the donors alone - even large contributors like George Soros and T. Boone Pickens. This time around, however, the FEC may feel that the groundwork has been laid to pursue donors, especially if an independent group has little money on hand to pay a substantial fine.

The bottom line on independent groups? Exercise caution and look carefully at fundraising materials. If an independent group says it’s targeting candidates, who are named or identified in the fundraising materials, then donors should steer clear. On the other hand, if the appeal for funds avoids naming candidates, there is plenty of room this year for corporations – including business groups and trade associations – to finance hard-hitting "issue ad" campaigns, even ads that implicitly praise or criticize a named candidate.

Bundle of Joy? FEC Expects to Deliver New Fundraising Regulations

Last week, the FEC held hearings on the requirement in the 2007 ethics reform law that political contributions bundled by lobbyists must be reported to the FEC. At first blush, the new law seems straightforward: campaigns, party committees, and leadership PACs must report to the FEC aggregate contributions "bundled" by a registered lobbyist, if the contributions exceed $15,000 over a six month period.

Crafting workable regulations will not be as easy as you might think. Here are a few thorny issues that the FEC will need to work through:

Which contributions are bundled by the lobbyist? Certainly, recipients will have to report contributions when they’re able to credit a lobbyist for collecting checks or arranging for others to send contributions directly to the campaign. The FEC is also trying to determine whether to call for disclosure when contributions are bundled by the lobbyist’s agents – people such as assistants, co-workers and other who are not themselves lobbyists, but may be employed by the person registered under the Lobbying Disclosure Act.

What about company executives? If you attribute other employees' contributions to the company’s lobbyist, should that include contributions bundled by the corporate CEO and other high-level executives? If the answer is yes, the FEC will need to help committees figure out when an executive is acting on his own initiative to bundle contributions for his favorite candidate, and when she is bundling in concert with the company’s lobbyist. To further complicate things, since the recipient has the disclosure obligation, how would that committee be able to determine if the lobbyist and executive are acting separately or in a coordinated manner? That could be a burdensome undertaking for a busy campaign.

How do you allocate contributions? It's not too much of a stretch to imagine that lobbyists would band together to raise funds for their favorite candidate or party. If so, how should those bundled contributions be reported to the FEC? Will the public filings be more accurate if all of the funds raised are attributed to each of the lobbyists or if they are allocated among the lobbyists? If it’s the latter, then it’s easy to foresee a fundraising effort where each lobbyist raises $14,999 in a six month period – just $1 under the minimum reporting threshold.

These are all tough questions. And the FEC will have to sort it out by January 1 in order to meet its goal of having rules in place for the next election cycle. Whatever reporting system the Commission develops, more record keeping – and transparency – is in store for fundraisers and recipients. Because the FEC's database will be scrutinized by competitors, good government groups, and the press, it will be essential for recipients as well as donors to keep good records as to "who contributed what." Political GPS will keep you up to speed as the FEC finalizes the bundling regulations.

If you have any questions or would like more information, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).