Sara Tindall Ghazal, Regulating Nonconnected 527s: Unnecessary, Unwise, and Inconsistent With the First Amendment

• Publication year: 2006

REGULATING NONCONNECTED 527s: UNNECESSARY, UNWISE, AND INCONSISTENT WITH THE FIRST AMENDMENT¹

One of the biggest stories emerging from the 2003-2004 election cycle was the rise of the 527 organization²as a formidable force in campaign politics.³

Politicians and pundits alike reviled these organizations as "an abuse of fair elections"⁴and "unscrupulous."⁵Some of the most vocal critics of these groups were from within the two main political parties themselves.⁶The popular consensus seemed to be that 527s were "not healthy for democracy."⁷

The root of the problem was simple: these groups operated outside the scope of regulation by the Federal Election Commission (FEC) and thus were able to accept huge, sometimes multimillion dollar contributions from wealthy individuals.⁸

Largely in response to this critical view of 527s, both the FEC and members of Congress launched efforts to curb the 527 juggernauts.⁹In August

2004, the FEC passed new regulations that would affect a number of activities by nonconnected 527s.¹⁰Asserting that these regulations were insufficient and poorly enforced,¹¹Senator John McCain (R-Ariz.) and others introduced the

527 Reform Act of 2005, featuring restrictive contribution limits that apply to a broad range of groups.¹²Other bills, including the 527 Fairness Act of 2005¹³and the 527 Transparency Act,¹⁴would provide alternative means to level the playing field between 527 organizations and political parties, such as increasing contribution limits for political organizations¹⁵and enhancing disclosure requirements for 527s.¹⁶

This Comment argues that the push to regulate nonconnected 527 organizations is misguided. Far from threatening democracy, nonconnected

527s play an important and positive role in the context of two-party politics.

These groups can provide an outlet for voters who are increasingly alienated from the major parties and offer an antidote to the decline in voting and civic participation that has resulted from this alienation.¹⁷Otherwise, voters are stuck with the options of toeing the party line or throwing their vote away on a third party.¹⁸This latter option is particularly unsatisfactory because legislatures and courts have conspired to ensure that the major parties have a lock on power, virtually fencing third parties out of the game.¹⁹

Viewed through the lens of the "voice/exit" paradigm,²⁰the activities of nonconnected 527s provide increased opportunity for voters and partisan activists to exercise their voices within the two-party structure.²¹These new avenues for voice have increased active political participation by citizens.²²

Furthermore, nonconnected 527 groups have brought to voters' attention information on candidates that otherwise might not have been made public.²³

The FEC's new regulations may have a dramatic effect on some groups, but likely can be avoided by others.²⁴The need for these regulations is far from clear. Recently proposed legislation, particularly the 527 Reform Act of

2005, goes much further to choke nonconnected 527s.²⁵Supreme Court precedent raises serious issues of the Act's constitutionality.²⁶In sum, these regulations may have a detrimental effect on America's democracy.

Part I of this Comment will provide a brief background of 527 organizations and outline the popular perception of the role that 527 organizations played in 2003-2004. Part II will evaluate specific activities undertaken by some of the best known and most controversial 527s through the lens of the voice/exit paradigm, and in the context of the judicially-enforced two-party system. Part III will review the various regulatory schemes that might apply to nonconnected 527 organizations in the 2005-2006 election cycle and beyond, including the proposed 527 Reform Act of 2005.²⁷The

Comment will conclude by arguing that the increasingly restrictive regulation of nonconnected 527s is both wrong and unnecessary.

I. THE 527 ORGANIZATION

This Part will provide a brief overview of the legal foundation of the 527 organization. It then will review the role these groups played in the 2003-

2004 election cycle. This information provides context for the following Part, which examines a number of nonconnected 527 organizations in the context of voice/exit theory and political parties.

A. Defining I.R.C. Sec. 527 Organizations

One of the most confusing issues to observers not intimately familiar with campaign finance regulations (and indeed, to some who are) is the difference between a 527 organization and a political committee under the Federal Election Campaign Act (FECA).²⁸Both the Internal Revenue Code (IRC)²⁹and the FECA refer to "political committee[s]."³⁰However, the term is used in a different manner in each statute. Differentiating between the two definitions is central to a critical examination of the controversy surrounding the use of unrestricted contributions by nonconnected 527 organizations.

Section 527 of the IRC provides tax-exempt status to organizations whose primary purpose is to conduct election-related activity.³¹The statute does not differentiate between state and federal election activity.³²Furthermore, it defines election activity broadly, as "influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office . . . ."³³

In contrast, political committees are defined under FECA as organizations that accept contributions or undertake expenditures in excess of $1000 a year "for the purpose of influencing any election for Federal office."³⁴The Supreme Court in Buckley v. Valeo applied a limiting construction to both contributions and expenditures, holding those terms to include only contributions and expenditures intended for express advocacy.³⁵Express advocacy was defined to be broadcast political advertising specifically calling for the election or defeat of a clearly identified candidate for federal office, using such words as "vote for" or "defeat."³⁶The Supreme Court further limited the definition of "political committee" to include only "organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate."³⁷

The content and application of the "major purpose test" are hugely controversial.³⁸The FEC nonetheless recently reiterated that the major purpose test relates directly to contributions and expenditures under FECA, apparently limiting its scope.³⁹

In short, organizations whose activities fell short of express advocacy, and which did not state that their purpose was to influence federal elections, were not regulated by the FEC in the past election cycle.⁴⁰Therein lies the heart of the controversy surrounding the activities of those 527 organizations that did not qualify as political committees under FECA. Unlike groups with closer links to the political parties and candidates, nonconnected 527s could (and did) accept unlimited contributions from any source.⁴¹

B. 527 Organizations in the 2003-2004 Election Cycle

In the most recent election cycle, unprecedented amounts of money entered into the process through 527 organizations. According to the Center for Responsive Politics, an independent group that tracks political campaigns and contributions, well over $400 million was poured into these organizations in the 2003-2004 election cycle.⁴²While a great deal of this money went to political advertising,⁴³other groups conducted more grassroots oriented voter registration and "get-out-the-vote" (GOTV) drives.⁴⁴

Most reports have attributed the unprecedented strength and popularity of

527 organizations in the most recent election cycle to the Bipartisan Campaign Reform Act of 2002 (BCRA).⁴⁵Under BCRA, which reformed FECA, contribution limits for the first time were applied to political parties⁴⁶and political committees that either were directly linked to candidates for federal office or that engaged in electioneering activity, such as bundling contributions for candidates for federal office.⁴⁷A "soft money"⁴⁸ban meant that national political parties could no longer receive huge, unregulated contributions from any source, but instead were limited to contributions of no more than $25,000 solely from individuals.⁴⁹In addition, BCRA increased the limit that any individual could contribute directly to a candidate from $1000 to $2000.⁵⁰

Political party observers believed that these new restrictions would dramatically impair the Democratic Party's ability to match Republican fundraising efforts. The Democratic Party historically had relied on soft- money contributions more than the Republican Party.⁵¹Further, it was widely believed that more Republican donors would be able to take advantage of the higher hard-money limits, while a smaller number of Democrats would be able to donate up to the new $2000 cap.⁵²Thus, even as BCRA was being debated on the floors of the House and Senate, Democratic Party officials were planning their strategy to use independent, nonconnected organizations to continue to take advantage of large dollar donations.⁵³Indeed, elected officials were well aware that soft money could still find its way into the political process. Politicians opposed to BCRA predicted that more dollars would flow to these organizations, and no less money would be involved in future campaigns.⁵⁴

Media accounts of the role of 527 organizations have been largely negative. A Newsweek article accused these groups of "hijacking the race for the White House,"⁵⁵while Senator John McCain called their activities "abusive" and "illegal."⁵⁶Following the controversial attack ads against Senator John Kerry sponsored by 527 group Swift Vets and POWs for Truth, President Bush called on all 527 groups to cease broadcast advertising.⁵⁷Even after the election, Presidential political advisor Karl Rove accused Democratic groups of trying to "derail democracy," adding that 527 groups weaken political parties.⁵⁸

Despite the criticism, however, some...