Nonprofits Wield Some Serious Campaign Cash

March 8, 2009, Congressional Quarterly — Fueled by anonymous, unlimited contributions, nonprofit organizations have emerged as the latest weapon of choice in political advertising, rivaling congressional campaign committees in the last election cycle.

Nonprofits from the conservative Freedom’s Watch to the liberal Planned Parenthood Action Fund spent a total of nearly $200 million in the 2008 campaign cycle, according to a study by the Campaign Finance Institute, an academic research group affiliated with George Washington University.

Spending by these nonprofits, known as 501(c)4s and 501(c)6s for the sections of the IRS code under which they organize, topped the $176 million spent by the Democratic Congressional Campaign Committee in the last election cycle. The total tripled the amount those types of groups spent in the 2004 presidential campaign cycle, according to the institute study.

The groups’ influence in federal elections is only expected to grow in the 2010 election cycle. The emergence of these new entities follows the decline of another breed of politically active groups: those organized under Section 527 of the IRS code, which were popular during the 2004 presidential campaign.

The Federal Election Commission cracked down with six-figure fines on a dozen prominent 527 groups for spending their money too much like political action committees that, unlike 527s, have to conform with contribution and spending limits. Among them were Swift Boat Vets, POWs for Truth and the League of Conservation Voters.

Repeating a long-established pattern in campaign finance overhauls, the decline of one group gives birth to another: The new groups quickly filled the void and even carved out an advantage that had eluded 527s and PACs: keeping their contributors confidential. Federal law only requires the new nonprofit groups to spend half of their revenue on a “major purpose,” such as advocacy of social welfare for 501(c)4 groups or business interests for 501(c)6 groups.

Within these restrictions, though, the nonprofits can raise and spend money in unlimited amounts, in contrast to the strict limits faced by individuals and political action committees.

The groups’ political messages can pack a powerful punch. One stinging ad last year provoked calls for IRS, FEC and Justice Department probes. The open question is how aggressively the groups will be scrutinized.

The groups’ ads “made a big impression — particularly in close Senate and House races,” the institute’s study said.

The new groups’ spending grew from $60 million in the 2004 presidential campaign cycle to at least $196 million in the 2008 cycle, the Campaign Finance Institute found. In the same period, campaign spending by 527 groups dropped from $427 million to $200 million.

Still, while 527 groups spent twice as much on Democrats as on Republicans in the 2004 election cycle, the new groups helped Republicans by the same margins in the last election, according to the institute.

“They’ve had a major impact on a number of Senate races in recent cycles,” said Michael E. Toner, a lawyer at Bryan Cave LLP and a former FEC chairman. “I do think there is a general question in the election-law bar about how aggressive the IRS has been and is going to be in overseeing 501(c) organizations that are involved in partisan politics.”

Paul S. Ryan, a lawyer at the watchdog group Campaign Legal Center, said there is no need for new laws as long as groups observe restrictions to maintain their tax status.

“Our posture will be to wait and see when we get digested data on the 2008 election and determine at that point whether or not we have any problems with the way the law is today,” Ryan said.

One of the new group’s most contentious ads last year targeted President Obama, then the Democratic nominee, for associating with a former leader of the radical group Weather Underground. The ad from the American Issues Project noted that the radical group bombed the U.S. Capitol decades before the Sept. 11 hijackers failed to hit the building.

“Why would Barack Obama be friends with someone who bombed the Capitol and is proud of it?” the ad asked. “Do you know enough to elect Barack Obama ?”

The Obama campaign responded by calling on the Justice Department in an Aug. 21 letter to investigate the group, alleging that it acted like a PAC but had neither registered with the FEC nor complied with campaign donation limits or reported its donors.

Robert F. Bauer, general counsel for Obama’s campaign, called it at the time “a knowing and willful violation” of campaign disclosure laws and called on the Justice Department to take “prompt, vigorous action.”

A campaign watchdog group, Democracy 21, filed a complaint Oct. 10 asking the FEC and the IRS to investigate the conservative American Issues Project and the left-leaning American Leadership Project for possible campaign violations. Neither the FEC, IRS nor Justice Department has announced results.

The complaint, which said the ad ran 7,300 times in the presidential battleground states of Michigan, Ohio, Pennsylvania and Virginia, was meant to keep the pressure on the regulatory agencies “to take enforcement action against any illegal activities by outside spending groups that may occur in the 2008 election,” said Fred Wertheimer, president of Democracy 21.

While party committees often focus on nationwide election priorities, third-party groups target close races.

Freedom’s Watch, a 501(c)4 group backed by supporters of President George W. Bush , ran $30 million in such targeted ads nationwide. Some that ran in Oregon accused Democratic candidate and now Sen. Jeff Merkley of backing higher taxes in the state.

“Call Jeff Merkley ,” the ad’s narrator said. “Tell him to stop raising taxes that kill our jobs.”

In an interview March 3, Merkley said debate about how campaigns are funded and regulated is needed.

“Exposure of donors is important for people who are involved in the campaign process,” Merkley said. “It’s a problem we have to wrestle with.”