May 2, 2008 -- Center for Public Integrity: Stealth Campaigns - Part Three Is Campaign Finance Reform "Completely Corrupted"?
By: Sara Fritz

So, with the 2008 presidential campaign headed for a record level of spending not only by the major party candidates but also independent groups that raise millions without disclosing their donors, how effective has the Bipartisan Campaign Finance Reform Act of 2002 been?

It's been "completely corrupted," the Republican operative Mary Matalin said in an interview with the Center for Public Integrity. And with the obvious exception of media consultants, who are making more money thanks to the new flood of political money into independent groups that promote both sides, many political professionals agree.

Although some independent organizations existed long before 2002, they did not flourish until the new reform law sent big money donors looking for a new way to influence the process. Once they settled on the independent groups, the Federal Election Commission's regulation has been so loose and so slow that the flow of large contributions never abated, and neither did the influence of the contributors. But the newly powerful groups have not only attracted corruption charges, they have eclipsed the major parties in fundraising for advertising and soured the campaigns with negativity.

As reformers see it, the independent groups are corrupt to the point of breaking the law on two fronts: first by subverting the purpose of non-profit, tax-exempt organizations, which are not supposed to be engaged directly in electoral politics, and second by broadcasting advertising messages that favored particular candidates under the guise of being so-called "issue ads." Fred Wertheimer, president of Democracy 21, a reform group, argued that any organization that accepts the unrestricted donations politicians call soft money and tries to influence the outcome of an election is violating the law, no matter how the election commission might rule. "What they were doing was illegal from day one," Wertheimer declared.

Paul S. Ryan , an attorney at the Campaign Legal Center, noted that it was becoming common for independent advocacy groups "to have what tax lawyers call complex structured organizations. And that means that there will be, affiliated or related, a 501(c)(3), a 501(c)(4), a 527," he said, using names taken from the sections of the federal tax code that govern them. "And there are different rules for each of these essentially separate bank accounts . . . the money from which can be used for different types of activities in some respects."

The work of the Foundation for a Secure and Prosperous America, a 501(c)(4), provided a good example of how these groups can support political candidates while claiming they are only asserting their First Amendment right to speak out on important issues. Before the presidential primary in South Carolina in early 2008, the foundation placed local ads on the Fox News Channel that technically advocated passage of a law improving health care benefits for veterans, but effectively backed the campaign of Senator John McCain, Republican from Arizona, by noting that he had championed the popular measure. The group was founded by Rick Reed, a former McCain campaign consultant who also had been involved in the Swift Boat Veterans' attack on Senator John Kerry, the 2004 Democratic nominee. McCain's campaign officially disowned the work of Reed, who claimed his group was not primarily trying to help the senator. McCain, of course, has long been an opponent of unlimited, anonymous political contributions and was a principal sponsor, along with Senator Russ Feingold, Democrat from Wisconsin, of the 2002 reform bill.

McCain may have benefited from the ad, despite his disclaimer. But GOP media strategist Mike Murphy, a former McCain adviser, observed that the ads produced by such groups often obscure the candidate's own message. "You lose control of your own campaign," Murphy said, speaking from the point of view of the candidate, "because you are spending $5 million, and some group you don't control, which might be run by knuckleheads, is spending $10 million. So they have a bigger megaphone. Every mistake they have made, your guy is held accountable for. And you don't control them."

Tad Devine, a Democratic consultant who worked on the 2004 Kerry campaign, is understandably bitter about the role that independent advertising played in 2004. Not only were the Swift Boat attacks on Kerry "fundamentally unfair," he said, but even the independent advertising intended to help Kerry was counterproductive because it robbed the campaign of its ability to control the message and slowly build it to a crescendo. He noted: "Some [ads] talked about Bush's record in the National Guard and the draft. Some people talked about issues like prescription drug coverage or the lack thereof or the failure of the plan on the Republican side. Other people talked about other things. And it was a cacophony. Instead, what we wanted was a solo. We needed our song to be sung to people and for people to get a sense of who Kerry was, to start to move the thing to issues, ultimately to move it to a comprehensive plan to move the country ahead. And then maybe at the end there would be some pushing back and forth. But that was the campaign we wanted."

The Kerry campaign was faulted for failing to respond effectively to the Swift Boat ads, and Devine explains why: "We were left with the most difficult choice you can make in politics, which is 'do we spend money now to deal with this paid media attack in the paid media?' Well, we had a very effective response. But if we do so, are we risking the paid media that we'll need at the end of October, early November? … There was a tradeoff there. If we were going to spend money in August, we were not going to have that money to spend in October."

Surprisingly, GOP media consultant Stuart Stevens said the Bush campaign staff was not happy about the Swift Boat ads, either, even though they undoubtedly bolstered the president's reelection effort. He noted the group had alleged that Kerry did not deserve all of the medals he won in Vietnam. "They entered the argument on the medals issue, which I always felt was the worst way to argue that," Stevens said. "Like 'should he have gotten two medals instead of three?' It's just insane. And so I felt that by entering the argument at that point they had discredited the argument."

The Swift Boat Veterans for Truth, a 527 organization, had a core membership of men who had served with Kerry in Vietnam. The group announced it would spend $500,000 on its first ad attacking Kerry in early August 2004, around the same time one of its members, John O'Neill, published a companion bestseller, Unfit for Command . The group eventually aired seven television commercials, raising more than $22 million, including $4.5 million from Bob Perry, a conservative Republican housing developer in Texas.

As controversial as the Swiftboat ads were, however, they may not have been — as some have said — the most effective independent ads made on Bush's behalf in 2004. The Progress for America Voter Fund, a 527 that reported receipts of nearly $45 million in 2004, claims it had the most impact on the election with "Ashley's Story," a 30-second TV spot about a Ohio girl whose mother died in the 9/11 attacks. The ad showed President Bush hugging the girl, who said: "He's the most powerful man in the world and all he wants to do is make sure I'm safe — that I'm okay"

Republican-oriented independent groups got a late start in 2004 election cycle. At first, Republicans argued that the law did not allow such activity. But when the election commission refused to overrule the work of these committees in May 2004, the GOP quickly jumped into the game. Both Swift Boat Veterans and Progress for America appeared on the scene shortly after the FEC announcement. Swift Boat Veterans spent more than $22 million in 2004; Progress for America spent more than $35 million. In 2007, these two groups agreed to settle charges of failing to register with the FEC and violating contribution limits. PFA paid $750,000 in fines and Swift Boat Veterans paid $299,500.

On the Democratic side, Harold Ickes, a former Clinton White House official, was the guru for a cluster of independent campaign organizations in 2004. Two of those he helped to start were the Media Fund and America Coming Together, both organized as 527s. America Coming Together mounted a high-tech, get-out-the-vote drive on behalf of Kerry, spending $78 million. Later, ACT agreed to pay a $775,000 FEC fine imposed because most of the money it spent in the presidential race had been raised outside of federal election law restrictions. The Media Fund spent almost $60 million in the 2004 contest, almost all on advertising. In late 2007, the Media Fund was fined $580,000 on FEC findings that it accepted unlimited donations, expressly advocated the election of Kerry and defeat of George Bush, and failed to file as a political committee with the FEC. Critics noted that even though these fines were large by FEC standards, they represented only a tiny percentage of the groups' total funding and the FEC's action did not come until three years after the election, making it meaningless in terms of the election results.

Although ACT and the Media Fund had disbanded by that time, Ickes indicated he was prepared to mount another shadow campaign effort in 2008 with a variety of nonprofits such as America Votes, a get-out-the-vote coalition funded by an array of liberal groups and unions, and a for-profit entity, Catalist, which was trying to compile voter lists in every state. The two entities shared an office in downtown Washington, D.C. The lists were expected to allow Democrats to micro-target their messages for specific constituencies — much as the Republicans did in 2004. Catalist appeared to compete with a similar effort under way at the Democratic National Committee headquarters. Insiders said it was created as part of an ongoing feud between DNC Chairman Howard Dean and Ickes, who lost his bid for the party chairmanship to Dean. The result: duplication of another traditional party function by an independent organization.

Wertheimer of Democracy 21 noted that these four groups combined — ACT, Media Fund, Swiftboat Vets and Progress for America — spent a combined sum of almost $200 million in the 2004 election, more than the $150 million spent by the two presidential candidates. He vowed to do whatever necessary to oppose limitless spending by independent groups in 2008. "We're going to have to fight the political calculation of political operatives thinking that we'll go out and break the law, spend millions of dollars, and get a small fine down the road after the election is over," Wertheimer said. "Just think about it. Think about if you have a presidential election decided on [more than] $100 million in illegal expenditures. I mean it calls into question the legitimacy of the election in the same way that massive voter fraud would."

Although the groups cited for violations in 2004 agreed to pay their fines, none of them admitted to violating the law. "The Media Fund is confident that all of the issue advocacy it conducted in 2004 followed both the letter and spirit of the law," its president, Erik Smith, declared in a statement released to the media. "In the end we determined it [was] in the best interests of The Media Fund to avoid litigation cost, settle for a fine, and agree not to contest the FEC's conclusions."

Ellen Malcolm, president and founder of EMILY's List, a PAC that assists pro-choice Democratic women candidates, said the FEC made it difficult for independent groups to comply with the law. "Don't get me started on that," said Malcolm, who also headed up ACT in 2004. "The Republicans spent a lot of time trying to keep people from supporting ACT. So they were running round saying it's illegal and all this sort of nonsense, filing suits. … The FEC came out with an advisory opinion that had one set of standards. … You couldn't make sense out of reading the advisory opinion about what you were supposed to do, really. Then they went to rulemaking and abandoned the [advisory opinion]. And they came up with nothing for a long, long, long, long time. Meanwhile we are all sitting around saying, 'Well, where are we supposed to do? How are we supposed to do this?'"