Money lessons from a year on the campaign

A year ago, insiders were calling new, independent 527 groups the end of political parties - and through much of the 2004 campaign, it looked as if they might be right.

New groups with names like Swift Boat Veterans for Truth, American Coming Together, the Media Fund and MoveOn.org, were raising vast sums of money and using them for ads that voters noticed, right up until the Nov. 2 vote. The 527s, named after a clause in the tax code, could raise funds in unlimited amounts, and did.

At the same time, national parties could raise funds only in limited amounts from individual donors, and the Federal Election Commission refused to close the "527 loophole" in the 2002 campaign-finance law. It meant that a handful of wealthy donors, through 527s, could hijack the election, party advocates said.

But early analysis of the money trail in the 2004 campaign signals that parties held their own by bringing more small contributors into the process mainly through the Internet. At the same time, the voter-mobilization drives launched by 527s, especially on the left, contributed to the highest turnout in an American election since 1968.

"It looks as if early fears that [campaign finance reform] would mean death for the parties were highly exaggerated," says Michael Malbin, director of the Campaign Finance Institute, a nonpartisan group affiliated with George Washington University in Washington, D.C.

In the 2004 cycle, 527 groups raised at least $463.9 million to influence federal elections, according to the Center for Responsive Politics. The top three individual contributors alone gave more than $64 million to defeat President Bush through 527s. At the same time, pro-Bush 527s spent nearly $30 million on broadcast ads in the final three weeks of the election - triple the amount spent by their pro-Democrat counterparts.

When Congress passed a sweeping campaign-finance reform in 2001, experts predicted it would be just a matter of time before big money contributors found a way to evade it. By late 2003, the so-called 527 loophole emerged as the vehicle of choice for moving $1 million-plus contributions into federal elections, avoiding the contribution limits and disclosure requirements of the McCain-Feingold law.

According to the most recent IRS filings, financier George Soros, the top 527 contributor, gave more than $27 million to defeat President Bush. Another Democrat, Peter Lewis, gave $23.1 million to newly formed groups such as the Joint Victory Campaign 2004, America Coming Together, and Young Democrats of America. In reports to date, 46 individuals gave more than $1 million to influence federal campaigns - a practice supposedly banned by the McCain-Feingold law.

Had the FEC enforced the rule requiring groups whose "major purpose" was to influence federal elections to register as a federal political committee, individuals would have been limited to contributions of no more than $5,000 per year to any one group and $25,000 in any election cycle.

Moreover, there's evidence that these groups made a difference at key points. In March, the Bush campaign spent $40 million on ads to define the Democratic nominee as a flip-flopper at a time when the Kerry campaign did not have resources to respond. The Media Fund, a liberal advocacy group, responded with a $50 million anti-Bush ad campaign in 21 states.

In the run-up to the Democratic Convention, Swift Boat Veterans for Truth, another 527, launched a devastating series of ads attacking Kerry's war record. The group spent at least $13.7 million from a donor list that includes major GOP contributors.

But the political parties also more than matched the 527s: Democratic national party groups raised more than $451.7 million, while Republicans raised $557.8 million, according to latest filings.

At the same time, some pro-Democratic 527s launched a broad voter mobilization drive in battleground states, often bypassing the local party organizations. It forced Republicans to pick up the pace of their own voter-mobilization efforts.

"The irony is towering: Soros & Co., spent money to make votes count. The Bush-McCain deal to go after the 527s after the election will, in effect, go back to making mostly money count. The liberal Democratic 527s could vanish as fast as they came on the landscape," says Thomas Ferguson, a political scientist at the University of Massachusetts, Boston.

In the 109th Congress, Sen. John McCain (R) of Arizona and Russ Feingold (D) of Wisconsin promise a new run at revising their signature campaign-finance law to close the 527 loophole - a move endorsed by President Bush.

Meanwhile, some of the 527s are already gearing up for the next presidential race. "We don't wish to see Senator [Hillary] Clinton become the next president without a real contest, and our long-term objective is to be in place to get our message to women and to be around for that race," says Lisa Schiffren, a cofounder of Softer Voices, a conservative issue advocacy group.