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Week Ending April 7, 2006
H.R.513 To amend the Federal Election Campaign Act of 1971 to clarify when organizations described in section 527 of the Internal Revenue Code of 1986 must register as political committees, and for other purposes.
When Senator John McCain’s (R-AZ) be-all-end-all campaign reform act was passed in 2002 no one thought to consider that unregulated money would find its way as an effective tool into campaigns under the section 527 rule of the IRS. Consequently, tens of millions of dollars poured into the coffers of organizations that supported one candidate or another but a large percentage of the funds came only from a few wealthy donors. In a sense, that goes against the original intention of the bill, to limit financial influence in elections. Congress now intervenes with a bill that is unfavorable to Democrats who reportedly benefited the most from 527 donations.
The 527 was defined as an organization “not controlled by or involved in controlling a particular candidate for office and whose function is to influence or attempt to influence the selection, nomination, election or appointment of an individual to a federal, state or local public office or office in a political organization or the election of presidential or vice-presidential electors, whether or not such individual or electors are selected, nominated, elected or appointed,” the Congressional Research Service summarized.
The bill then defines further what it takes to be a 527 or to not be one.
It is not a 527 if it is organized, operated and makes disbursements exclusively for paying certain tax-deductible business expenses or expenses of a certain kind of political newsletter fund; consists solely of candidates for or individuals holding state or local office, but only if the organization refers only to one or more non-federal candidates or applicable state or local issues in all of its voter drive activities. There must be no reference to a federal candidate. Election or nomination activities of the organization must relate exclusively to elections where no candidate for federal office appears on the ballot or to influencing the selection, nomination, election or appointment or one or more candidates to non-federal offices or influencing one or more state or local issues.
Organizations would not be excluded is it makes aggregate disbursements more than $1000 for public communication that promotes, supports, attacks or opposes a clearly identified candidate for federal office within one year ending on the date of the general election and any voter drive activity during a calendar year or makes contributions to federal candidates.
527 organizations can receive $5,000 from an individual if the group is supporting a candidate in a federal election and $25,000 if it is involved in partisan voter registration.
The bill would also change spending by political parties on candidates and on coordinating with individual candidates. Parties can spend unlimited on helping candidates get and the bill would allow for that same unlimited spending by parties in coordination with a candidate.
Court procedures for appeal and complaint are included.
Sponsor: Rep. Christopher Shays (R-CT-4th)
Vote: Passed House 218 to 209 April 5, 2006 (RC 88)
Cost to the taxpayers: “CBO estimates that implementing H.R. 513 would cost about $1 million in fiscal year 2006, subject to the availability of appropriated funds. In future years, we estimate that the increased costs would not be significant.”
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The stated purpose of the Bipartisan Campaign Reform Act of 2002 (`BCRA') was to `sever the link' between federal office holders and large `soft money' donors. The minority members of the committee, all of whom voted for BCRA, assert that it has accomplished this goal. The current state of federal campaigns and election activities, however, belie this assertion. Although BCRA prohibits federal officeholders and candidates from directly soliciting soft money, the link between soft money organizations established under section 527 of the Internal Revenue Code (`527s') and federal officeholders, candidates, and top party officials has clearly not been severed. 1
[Footnote] In fact, the record set forth below demonstrates that `independent' 527 groups are often intertwined with federal office holders and national parties, and that soft money continues to play a role in federal elections. H.R. 513 seeks to remedy this situation by adding 527 groups to the definition of `political committee' under FECA, thus subjecting them to the full panoply of federal election law regulations.
[Footnote 1: The fundraising restrictions in BCRA, of course, extend not only to federal officeholders themselves, but also to their agents and to the national party committees.]
After the passage of BCRA, many groups began to organize under section 527 to avoid the restrictions it imposed. Some groups organized to benefit Republicans, some to benefit Democrats. Though ostensibly `independent', there were numerous connections between top party officials and major 527 groups during the 2004 election cycle. In some cases, there was steady movement of individuals between political campaigns and 527 organizations. A case in point is MoveOn.org. Although MoveOn.org describes itself as an `independent' organization, a closer review reveals its close ties to the official party structure.
MoveOn.org is organized into three separate organizations: MoveOn.org Civic Action, a 501(c)(4) organization that focuses on issue advocacy; MoveOn.org Political Action 2
[Footnote] , a political action committee registered with the FEC that works directly to elect `progressive' candidates; and MoveOn.org Voter Fund, an organization constituted under section 527 of the tax code. It is this final organization, MoveOn.org Voter Fund, that, as a 527 organization, can accept unlimited contributions from individual donors. During the 2004 election cycle alone, MoveOn.org Voter Fund raised over $12 million in such funds, the majority of which came from three individual donors who gave at least $2.5 million each: George Soros, Peter Lewis, and Herbert Sandler. 3
[Footnote] These multi-million dollar soft money contributions made by wealthy individuals are not subject to the type of limits BCRA imposes on other political committees.
[Footnote 2: MoveOn.org Political Action was formerly known as MoveOn PAC. As a political action committee registered with the FEC, contributions to MoveOn.org Political Action must conform to FEC rules regulating political committees.]
[Footnote 3: MoveOn.org Voter Fund: Liberal Advocacy Group, The Center for Public Integrity, available at http://www.publicintegrity.org/527/search.aspx?act=com&orgid=682 (Jan. 31, 2005). This summary will be included in the appendix to this report.]
While circumventing BCRA's regulatory scheme, officials at MoveOn interacted with officeholders and federal campaign officials. For example, during the 2004 presidential campaign, top officials for MoveOn worked simultaneously for the John Kerry presidential campaign. 4
[Footnote] This interaction between MoveOn and Democratic lawmakers did not end with the conclusion of the presidential campaign. Instead, it has grown considerably. Members of Congress are now openly working with MoveOn.org. The House Minority Leader or her staff has `calls and meetings `on a weekly basis' with representatives of MoveOn.' 5
[Footnote] Many prominent members of Congress have spoken at MoveOn rallies. 6
[Footnote] MoveOn's Executive Director was recently invited by Senate Democrats to address them at a retreat. 7
[Footnote] He described MoveOn's role in working with elected leaders: `We're acting as kind of an external whip, making sure there are rewards for people who are helping move the message and penalties when people go off message.' 8
[Footnote] MoveOn's interaction with Democratic party officials also continues. The Democratic National Committee has praised MoveOn for its efforts, stating that `[o]bviously they [MoveOn] are relaying the Democratic Party message.' 9
[Footnote]
[Footnote 4: For example, Zach Exley transitioned from being the Director of Special Projects for MoveOn.org to become the Director of Online Communications and Organization for John Kerry's presidential campaign. Exley also helped Howard Dean set up his web-based organization during the Democratic presidential primary. Campaigns, National Journal, Apr. 8, 2004. The entire article will be included in the appendix to this report. Tom Matzzie helped run Kerry's Internet campaign and now works as MoveOn.org's Washington Director. Ronald Brownstein, The Internet and Democrats, The National Journal, Vol. 37, No. 27, July 2, 2005. The entire article will be included in the appendix to this report.]
[Footnote 5: According to Rep. Nancy Pelosi's spokeswoman Jennifer Crider. Chris Cillizza, MoveOn Goes Mainstream, Roll Call, Apr. 13, 2005. The entire article will be included in the appendix to this report.]
[Footnote 6: Id.]
[Footnote 7: Ronald Brownstein, The Internet and Democrats, The National Journal, Vol. 37, No. 27, July 2, 2005. Brownstein, supra note 4.]
[Footnote 8: Adam Smith, Unshaven, Unbowed and in Our Face, St. Petersburg Times, Feb. 18, 2005. The entire article will be included in the appendix to this report.]
[Footnote 9: Cillizza, supra note 5.]
Interaction with lawmakers and party officials is only one aspect of MoveOn's influence on federal election activity. MoveOn.org has also participated in massive fundraising and campaign efforts to support or oppose elected officials. The group has organized several fundraising campaigns to benefit federal officeholders, 10
[Footnote] as well as become involved in the Vermont Senate race nominee selection. 11
[Footnote] MoveOn admits it plans on `rewarding' politicians who `say and do the right thing' with fundraising efforts. 12
[Footnote] To that end, MoveOn's website is accepting donations for several `hot' 2006 Congressional races against high-profile members of Congress. 13
[Footnote] MoveOn's fundraising efforts are obviously appreciated by lawmakers. The Senate Assistant Minority Leader has said that MoveOn is `one of our most important' fundraising avenues. 14
[Footnote]
[Footnote 10: For example, through MoveOn.org, a U.S. Senator was able to raise $823,000 in 72 hours for a colleague. MoveOn Goes Mainstream, Roll Call, Apr. 13, 2005. The entire article will be included in the appendix to this report.]
[Footnote 11: In April 2005, MoveOn asked Vermont voters if they would support Rep. Bernie Sanders, an independent, if he ran for the Senate. Rep. Sanders' candidacy is strongly supported by Democratic leaders. MoveOn Wants Sanders to Move Up to Senate, Roll Call, Apr. 27, 2005. The entire article will be included in the appendix to this report.]
[Footnote 12: Brownstein, supra note 7.]
[Footnote 13: MoveOn.org's website is currently soliciting contributions for Bill Nelson, Bob Casey, and Nick Lampson, who are all candidates for federal office. At https://www.moveonpac.org/give/05.html.]
[Footnote 14: Quoting Sen. Richard Durbin. Chris Cillizza and Paul Kane, GOP Sees MoveOn as Wedge, Roll Call, July 11, 2005. The entire article will be included in the appendix to this report.]
Further evidence of MoveOn's influence on federal election activity is the statements of its own members. Officials in the organization have claimed to control the Democratic Party. An e-mail sent out earlier this year to MoveOn supporters announced that the Democratic Party is now `[O]ur party: We bought it, we own it and we're going to take it back.' 15
[Footnote] MoveOn's potential influence on the 2006 Florida governor's race has been touted by MoveOn representatives, `MoveOn will be able to ask our members to contribute to the Florida governor's race faster than any organization in the United States; literally millions of dollars can come into the Florida governor's race overnight.' 16
[Footnote]
[Footnote 15: Smith, supra note 8.]
[Footnote 16: According to Tom Matzzie, MoveOn.org's Washington Director. Id.]
Unfortunately, the connection between 527 organizations and federal candidates does not end with MoveOn. During the mark-up of this legislation, the majority members of this committee presented evidence showing that other individuals have played dual roles, that is, participating in 527 organizations unconstrained by BCRA's contribution limitations while also working in federal campaigns or for a national party committee. 17
[Footnote] Reference to these individuals and organizations is not meant to suggest that they have been engaged in illegal coordination in violation of BCRA. Indeed, if BCRA had prohibited these activities, no change to the law would be necessary. It is precisely because the existing law allows for and cannot prevent this sort of shell game that the majority believes changes are necessary. The current law allows for ostensibly `independent' groups that only employ individuals and support candidates of one political party, and exist to support the agenda and candidates of that same political party, to evade the limits BCRA imposes on other organizations that are similarly engaged in federal election activities.
[Footnote 17: Jim Drinkard, Outside' Political Groups Full Of Party Insiders, USA Today, June, 28, 2004; Lisa Getter, Kerry Aided By `Illegal' Soft Money, GOP Claims, Los Angeles Times, Apr. 1, 2004. Articles will be included in the appendix to this report.]
Had the campaigns these organizations were supporting been successful, individuals directly linked to soft money organizations would have been rewarded with official positions. This clearly would frustrate the purpose of BCRA, which deemed such links between soft money and federal election activities inherently corrupt and meant to sever them. By treating 527 organizations like other political committees, H.R. 513 will force these organizations to comply with the source limits, prohibitions and disclosure requirements of BCRA.
Clearly, BCRA has failed to get soft money out of politics, and has succeeded only in diverting it to other groups. Recognizing this failure, the majority of the committee believes the law needs to be changed. It previously reported H.R. 1316, not to expand the scope of BCRA, but instead to relieve the party committees of some of the regulatory constraints that hinder their ability to compete with groups operating outside the law.
It reports H.R. 513 so that the full House may have the opportunity to consider alternative solutions to the obvious problems in our current system.
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Section 1.-Short Title: The `527 Reform Act of 2005'
Section 2.-Treatment of Section 527 Organizations
Requires an organization described in Section 527 of the Internal Revenue Code of 1986 (`IRC') to register and report with the Federal Election Commission (`FEC') as a political committee, unless the organization:
Has annual gross receipts of less than $25,000;
Is a political committee of a state and/or local party or candidate;
Exists solely to pay certain administrative expenses of a qualified newsletter;
Is composed exclusively of state and/or local elected officials and does not reference federal candidates in its voter drive activities; or
Is exclusively devoted to elections where no federal candidate is on the ballot, to ballot initiatives and referenda, or to the appointment, nomination, or confirmation of individuals to non-elected offices.
The exceptions (listed above) will not apply if such organization:
Transmits a public communication that promotes, supports, attacks, or opposes a federal candidate in the year prior to a federal election;
Conducts voter drive activities in more than one state;
Refers to a federal candidate in its voter drive activities,
Is controlled by a federal candidate or a national political party; or
Makes contributions to federal candidates.
Makes the amendments made by this section effective 60 days after their enactment.
Section 3- Rules for Allocation of Expenses Between Federal and Non-Federal Activities
Establishes the following allocation rules:
100 percent of expenses for public communications or voter drive activities that refer to a federal candidate but do not refer to a non-federal candidate must be paid for with hard money;
At least 50 percent, or a greater percentage if the FEC so determines by regulation, of expenses for public communications or voter drive activities that refer to a federal candidate and to a state candidate must be paid for with hard money;
At least 50 percent, or a greater percentage if the FEC so determines by regulation, of expenses for public communications or voter drive activities that refer to a political party but not to a federal candidate must be paid for with hard money;
At least 50 percent, or a greater percentage if the FEC so determines by regulation, of expenses for public communications or voter drive activities that refer to a political party and to a non-federal candidate but not to a federal candidate must be paid for with hard money;
At least 50 percent, or a greater percentage if the FEC so determines by regulation, of administrative overhead expenses must be paid for with hard money; and
At least 50 percent, or a greater percentage if the FEC so determines by regulation, of direct costs of fundraising program that collects both federal and non-federal funds must be paid for with hard money.
Permits `qualified' non-federal accounts to allocate spending with federal accounts, provided the following requirements are observed:
Such qualified non-federal accounts may not accept more than $25,000 from any one individual during a calendar year; and
National political parties and federal candidates are prohibited from soliciting funds for non-federal accounts.
Exempts funds raised for a qualified non-federal account from the limitations, prohibitions, and reporting requirements of the Federal Election Campaign Act (`FECA').
Requires the reporting of all receipts and disbursements from a qualified non-federal account.
Requires the FEC to promulgate implementing regulations.
Section 4- Construction
States that the bill shall not be construed as (i) approving, ratifying, or endorsing a regulation promulgated by the FEC, (ii) affecting the definition of political organizations in the IRC, or (iii) affecting whether a 501(c) organization under the IRC is a political committee under the FECA.
Section 5- Judicial Review
Establishes a special procedure governing any constitutional challenges to H.R. 513, which is as follows:
The action shall be filed in the United States District Court for the District of Columbia and shall be heard by a 3-judge panel; and
Any appeal shall be reviewed only by the United States Supreme Court.
Allows Members of Congress to intervene in any action brought against H.R. 513.
Allows Members of Congress to bring an action challenging the constitutionality of H.R. 513.
Limits the special procedure governing constitutional challenges to action filed on or before December 31, 2008.
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