As the presidential hopefuls of 2008 were working state fairs and stumping cross-country last month, the Federal Election Commission was revisiting the presidential election of 2004. Specifically, it was levying one of its biggest fines ever against a "527" political organization for spending more than $100 million in unregulated contributions.
But even at $775,000—the third-largest penalty in the fec's 33-year history—critics say the fine was not nearly big or swift enough. And they are using it to push for strict rules and higher penalties to ensure that 527 groups comply with the law during the next presidential campaign. "The stakes involved are enormous," says Fred Wertheimer, president of the watchdog group Democracy 21, noting that the fine against America Coming Together was a mere fraction of the millions the organization spent. "Illegal expenditures of $100 million can decide a presidential election and delegitimize the integrity of the result."
Named after a section of the tax code, 527 groups played a major role in the 2004 election, spending more than $600 million on campaign activities. Unlike political action committees, which come under the $5,000 per-donor limit, the tax-exempt 527 groups can—and do—receive millions from single donors or organizations. But unlike political action committees, 527s are banned from spending money to tell people to vote for or against specific candidates. Instead, they can finance generic activities like voter registration drives.
Reformers have long warned that some of these organizations are breaking the rules against direct advocacy. The fec agreed when it reached the $775,000 settlement with act, a Democratic-leaning organization active in the last presidential election. The agency found that most of the group's expenditures should have been regulated as "hard money," since they went for telemarketing, political advertisements, and door-to-door canvassing in 17 battleground states that clearly targeted President George Bush. One Ohio ad, for example, said that Bush had cut education and healthcare spending in that state while spending billions to rebuild Iraq.
Confusing. The 527 groups see things differently. Act, financed in part by billionaire George Soros and labor unions, says that its activities were legal and that it did its best to comply with confusing rulings. The group, since disbanded, said that it was "vindicated" by the fec because the agency "found no deliberate violations" of federal election campaign law and dismissed allegations that it had unlawfully coordinated activities with the John Kerry campaign.
The settlement with act follows other penalties against 527 groups, including the Republican-leaning Swift Boat Veterans for Truth and the Democratic-leaning MoveOn.org. The Swift Boat group, which ran a 2004 ad saying that Kerry "cannot be trusted," was fined $299,500 by the fec, which said the group should have registered as a political committee.
The 527 groups argue that their messages are "issue ads" that aim to educate voters and that putting restrictions on such ads violates free-speech rights. So far, the courts have tended to agree.
Rep. Christopher Shays, a Connecticut Republican, and former Rep. Martin Meehan, a Massachusetts Democrat, sued the fec in 2004 to force it to develop a strict and clear policy on 527 groups. They said the organizations should be required to register not just with the Internal Revenue Service but also with the fec. But in August, a federal court ruled that the agency can continue to monitor the groups on a case-by-case basis. On a related track, Shays is trying to rein in these groups with a bill that would require certain 527 organizations to register as political committees. "We need legislation to force 527s to play by the same campaign finance rules that apply to all other organizations seeking to influence federal elections," he said.
It is unclear whether the bill has enough momentum to pass in time to affect the 2008 primaries and general election. And if the fec doesn't tighten its own rules, it's likely the money side of this election will unfold much like the last.