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'Stealth PACs' Report Campaign Financing

By John Mintz and Susan Schmidt, The Washington Post,
Wednesday 1 November 2000; Page A17

The Caterpillar heavy equipment company gave $100,000 to House Speaker J. Dennis Hastert (R-Ill.). The Wolfington family, owners of a Washington limousine company, wrote checks totaling $45,000 to Sen. Edward M. Kennedy (D-Mass.). Actress Jane Fonda shelled out $500,000 for the League of Conservation Voters, while three Florida sugar companies contributed $275,000 to the Republican Leadership Council, a political group backing George W. Bush.

These are a few of the nuggets buried in the first detailed filings under a new law aimed at forcing previously secret organizations to disclose their donors and spending.

The law, which went into effect July 1, targets organizations--including political committees controlled by members of Congress--that engage in political activity but argued that they were not required to report their finances to the Federal Election Commission because they avoid explicitly supporting or opposing federal candidates.

The first major change in campaign finance law in two decades, the legislation was approved by Congress after controversy grew about the explosive growth of the groups, called "527s" after the section of the tax code governing political groups. The law required these groups to register with the Internal Revenue Service and reveal their finances by mid-October. The filings have since been scanned and posted on an IRS Web site.

Some of the information in the reports has never been publicly available. Other filings were accessible only through laborious searches of state election reports, sometimes only obtainable by visiting state election agencies in person.

"Nobody thought this law would be the final solution" to the problems of unreported political spending, said Frances Hill, a University of Miami law professor specializing in fundraising. "But the 527s were so abusive that just disrupting those arrangements had some utility. It makes the point that there are some limits to the use of secret money, that it's a matter of our values."

Indeed, Steven Moore, president of the conservative Club for Growth, which reported raising $323,000, said the law "has hurt us with corporations, no doubt about it."

"Corporations and individuals who had to do business with the government could give to Club for Growth anonymously before," said Moore, whose group backs Reaganite Republicans, sometimes those challenging incumbents. "This has really hurt our ability to raise money from business."

Because of the law's wording, it prompted hundreds of state-based political groups to file with the IRS, burying the filings of big-money fundraising groups in a blizzard of paperwork about plain vanilla groups of marginal interest.

Any fundraising before the law's July 1 effective date isn't revealed. As a result, the vast majority of the money brought in for the Sierra Club's $9 million television advertising campaign against Texas Gov. George W. Bush and other Republicans won't be disclosed. For the same reason, a $7 million gift to a 527 group affiliated with the NAACP will remain anonymous.

In addition, some of the "stealth PACs" at which the new law was aimed changed their tax status to remove themselves from the legislation, so the data the IRS makes public are scanty at best.

For example, Citizens for Better Medicare, a group bankrolled by the pharmaceutical industry, abandoned its 527 status when the disclosure law was passed earlier this year. The group has spent $40 million on TV commercials attacking a Democratic prescription drug plan. In the past three months, the group's phased-out 527 arm has raised no money, though it reported $8.4 million in spending, according to the IRS data.

"It's kind of like shining a searchlight inside a cave. You get a nice bright beam from what the searchlight is pointed at, but there's all this going on outside the beam of light that you can't see," said election lawyer Kenneth Gross.

While about 10,000 groups registered with the IRS as 527s in recent months, only 2,810 have filed documents outlining their fundraising and expenditures.

Perhaps the biggest new area of disclosure provided by the law involves the political action committees operated by politicians that collect large "soft money" contributions from wealthy individuals, corporations and labor unions in addition to the smaller contributions that they report with the FEC. Before the new law, the large donations were either reported in hard-to-obtain state-level reports or not disclosed.

The Majority Leader's Fund of Rep. Richard K. Armey (R-Tex.) reported raising $581,473 in the last three months, including $25,000 each from Verizon and SBC Communications, as well as Texas energy firm Enron Corp. Two wealthy brothers from Texas, Sam and Charles Wyly, who financed ads promoting George W. Bush and attacking Sen. John McCain (R-Ariz.) during the GOP primaries, gave $12,500 each.

The Republican Majority Issues Committee of House Majority Whip Tom DeLay (R-Tex.) reported $482,240 in contributions, including $150,000 from Amway founder Rich DeVos and $75,000 from executives of Enron. RMIC is raising and spending money to identify conservative voters and get them to the voting booth, said chairman Karl Gallant.

Rep. Patrick J. Kennedy (R.I.), who heads the House Democrats' campaign committee, reported receiving $25,000 from a Nebraska company, Sense Technologies.

Hastert picked up $549,000. Besides Caterpillar Inc., his contributors include Associated Builders & Contractors, which gave $90,000, and AT&T, which contributed $50,000. Texas Democrat Martin Frost's Lone Star Fund raised $256,800. Senate Minority Leader Thomas A. Daschle (D-S.D.) raised $84,500, and like several of his colleagues he contributed some of it to New Hampshire Gov. Jeanne Shaheen's campaign.

Politicians use the leadership PACs for a variety of purposes, including polling, direct mail and contributions to state candidates or national party committees. Much of the money raised by Hastert and Armey went to fund events at the Republican convention in Philadelphia this summer. Armey, for example, spent $138,000 on the country music duo Brooks & Dunn.

For the first time under the new law, the Democratic Governors' Association is required to report its finances even though its GOP counterpart has volunteered the data to federal election officials for years. For the past three months, contributions to the Democratic group totaled $1.4 million, including $60,000 from the tobacco industry.