Getting the Money Out of Politics?

From the Campaign Finance Institute, a nonpartisan (genuinely, so far as we can tell) policy-wonkish think tank, a rundown on political money in this election year.

Federal 527s raise $131 million, 32% more than in 2002 election

501(c) Nonprofits and Private Firm Also IncreasingVoter Mobilization Efforts
Despite legal and political challenges, federal 527 political organizations have raised $131 million in unlimited contributions (before deductions for inter-group transfers) during the current election cycle, according to the latest available IRS disclosure reports through October 18. This amount is 32% more than the $99 million they had raised by this time during the mid-term congressional election of 2002. According to a new CFI analysis, Democratic-oriented 527s received about three times what Republican-oriented ones did, similar to the ratios in 2002 and 2004. (See Figure 1) Although the level of 527 activity focusing primarily on federal elections is less than half of what it was in the 2004 election (when the additional office of the President was at stake), the mid-term election increase suggests that 527 financing could rebound in the presidential year of 2008.

In the 2004 election, most 527 organization spending was by groups that were formally independent of, but closely associated with, the national and state political parties and their efforts to advance candidates. In 2006 however the pattern has reverted to that of 2002: the preponderance of activity was by genuinely independent groups that have enduring, multifaceted interests in politics and policy. These broad interests are reflected by the 527s’ parent groups’ simultaneous utilization of such organizational vehicles as “hard money” Political Action Committees or PACs (see Table 1) and 501(c) nonprofit entities.

Still, a number of party-associated groups have also been important in 2006 including The September Fund, Grassroots Democrats, Majority Action and The Lantern Project on the Democratic side, and Progress for America Voter Fund on the Republican one. America Votes, a hybrid associated with both independent groups and party-related figures, has become increasingly important as a coordinating mechanism for Democratic-oriented 527s, and has benefited from $2.65 million in contributions from financier George Soros. Furthermore, a number of prominent national and state party donors have emerged as the sole or principal financiers of relatively new 527s focused on particular races, for example Republican Bob Perry, a Texas homebuilder, has thus far put $8 million behind three different 527s bolstering at least 15 Republican candidates with media ads, and Democrats Pat and Jon Stryker, heirs to a medical supply fortune, and software developer Tim Gill have put more than $1 million into two 527s running ads assisting Democratic congressional candidates in Colorado.

The main funding source for federal 527s is large individual donations, followed by labor union contributions. The 50 largest individual donors to federal 527s alone -- those who gave at least $175,000 -- provided $42 million of the $119 million net 2006 total. (See Table 2) More than two months before the conclusion of this funding cycle, twice as many people have given at the $175,000+level as in the full 2002 cycle when 31 gave that much. Already there are seven $1+ million donors compared to two in the full 2002 cycle. Indeed the highest individual contribution to federal 527s in 2002 was $1.088 million, well below the $8.15 million and $6 million provided thus far respectively by pro-Republican Perry and media mogul Jerry Perenchio and the $3.89 million and $2.43 million provided by pro-Democratic Soros and hotel heiress/investor Linda Pritzker. Beyond individual donors, labor unions have contributed more than $40 million to pro-Democratic 527s. Business contributions to federal 527s are relatively small, featuring partnerships and limited liability corporations.

Also playing a major role in the election, although the exact dimension of the activity cannot be defined as precisely as that of 527 because their contributions and expenditures are not required to be disclosed, are numerous 501(c)(4) social welfare, (c)(5) trade union and (c)(6) business leagues. These groups may legally do the same things that 527 political groups do as long as they are not their “primary” activities. (Some of these groups also have related 527s). Among the illustrative, non-comprehensive examples we are able to cite -- based on self-disclosure, limited required reporting, and credible press reports -- are: AFL-CIO, Americans for Job Security, Americans United for Change, the Chamber of Commerce of the USA (a major alternative to 527s for corporate funds), Communities United for Strengthening America, Focus on the Family Action, FreedomWorks, League of Conservation Voters Inc., National Rifle Association, Planned Parenthood Action Fund, and Progress for America. While some of these groups have bought TV and radio ads promoting or attacking candidates or repeating party election themes, most have operated “under the radar” through ground mailing, phone, canvassing web and other communications to specially targeted voters. (See Table 3)

One campaign finance innovation in this election has been the use of a private firm to augment group 527, 501(c) and PAC efforts. Catalist (formerly Data Warehouse), a Limited Liability Corporation, is the latest campaign finance project of Democratic National Committee Executive Committee member and strategist Harold Ickes. It has a 2006 budget of $9-10 million provided by a few wealthy Democratic-oriented investors, of whom the principal one (amount not disclosed) is George Soros. It is selling an improved voter list for targeting to Democratic-oriented groups only, and is supposed to operate at a loss until at least 2010. Until then, the donors are picking up the infrastructure costs of this service to the Democratic-inclined groups. The firm leases facilities to and is co-located with America Votes, the main coordinating mechanism for independent Democratic-oriented 527 voter mobilization groups, who are some of the major customers of Catalist. The question about this firm and others that may follow is whether they are truly intended to operate as profit-making firms or whether they function to absorb losses that in effect subsidize their election clients. If this becomes a precedent for the use of private firms to help finance federal elections, it could offer an undisclosed and largely unregulated vehicle for major donors.

This data supports the Hydraulic Theory of Political Money.

That theory holds that money, like water under pressure, will find a way past whatever barriers that politicians try to put in its way.

The McCain-Feingold Bill was supposed to end the use of nefarious “soft money” in politics.

And indeed, the traditional kind of soft money has been ended. But it has simply been replaced with other forms of money which are no better (and quite likely worse).