Cash is still king, despite campaign reform

Landmark finance law takes effect Wednesday, with parties already finding ways around it.

The voting in Election 2002 is over, but a battle rages over the future of money in politics. Wednesday, the McCain-Feingold campaign law goes into effect. If implemented as intended, it would bring the most significant changes to America's campaign-finance system in 25 years. The law bans unregulated "soft money" contributions to the national parties, raises the contribution limits on regulated "hard money," and restricts issue ads.

But already, both major national parties have set up new fundraising groups that skirt the soft-money ban, following lenient rules issued last summer by the Federal Election Commission (FEC) – and igniting the fury of the reform's sponsors. The four congressional leaders on the issue have filed suit to overturn this and other FEC regulations.

The net effect could be an electorate that becomes even more dispirited over the role of money in politics. In a letter to both major parties, Sens. John McCain (R) of Arizona and Russ Feingold (D) of Wisconsin warned that the creation of "shadow entities" that continue to raise and spend soft money "will perpetuate the appearance of corruption that plagues our political parties and federal elected officials."

Trevor Potter, former chairman of the FEC, expects the senators' challenge to succeed in overturning the regulation. But until that happens – or even if it doesn't – he says these new soft-money groups still won't be able to coordinate with party committees or act as surrogates without running afoul of the new law.

Other observers of election finance see the latest developments as further proof that money is the mother's milk of politics. There's also the significant question of whether key features of McCain-Feingold are constitutional – specifically, whether they violate the First Amendment guarantee of free speech in the form of money donations and the ability to advertise. A lawsuit challenging the constitutionality of the law, McConnell v. FEC, is on the fast track to the US Supreme Court.

"There's no way to stop the flow of money in a democracy," says Larry Sabato, a campaign-finance expert at the University of Virginia in Charlottesville. "I think [the new law] is going to make things worse. It will force more money into cubbyholes that are hidden, and it's going take us years to figure out what's happening. And even then, we may not be able to figure who's given what to whom and when."

ACCORDING to a variety of published reports, both major national party committees – as well as their Senate and House campaign committees – have been busy for months setting up entities that go around McCain-Feingold's central provision: a rule that prohibits the national party committees, and candidates for federal office, from raising or spending soft money.

An FEC exemption allowed the parties to set up soft-money-raising committees before Election Day. Those will be allowed to keep operating, as long as they are run independently from the national parties. But few observers believe these committees will really be independent.

Nonprofit organizations with close but informal party ties are also expected to ratchet up their soft-money-raising.

In the last 10 years, soft money – collected in unlimited quantities from corporations, labor unions, and rich people – has emerged as an important fuel of American campaigns. Its purpose is to fund party operations, such as voter registration and get-out-the-vote efforts, but it is also used to create issue ads that, in effect, are aimed at boosting particular candidates. The new law aims to thwart these so-called "sham issue ads" by banning them 30 days before a primary and 60 days before a general election. In the 2002 election cycle, the parties were expected to raise a record $500 million in soft money – more, even, than the total for the 2000 cycle, a presidential year.

Under the new law, the parties will be able to raise "hard money" – funds raised and reported under federal guidelines – in larger increments. Beginning Jan. 1, 2003, an individual will be allowed to donate $2,000 per candidate per election, up from $1,000. Every two years, that figure will be indexed to inflation.

The ban on soft money means federal candidates and national parties will have to intensify hard-money fundraising. The shift favors Republicans, who have a more developed donor base for hard money. As a percentage of fundraising, Demo-crats have been more reliant on soft cash than Republicans.

For both parties, "there will be a new emphasis on political action committees and bundling," says Larry Noble, former general counsel of the FEC. "Bundling" refers to the practice of delivering checks from different donors to a candidate in one bunch to increase those donors' clout.

"The new stars of fundraising won't be those who can bring in the $5 million donation, but the ones who can bring in the $2,000, $3,000, $4,000 donations from a number of different people," says Mr. Noble, now executive director of the Center for Responsive Politics. Also growing in influence will be the so-called "527" political committees, which can raise unlimited money from any source, says Noble. They are tax-exempt and report to the Internal Revenue Service, though critics say their oversight is lax.