Two of the six Federal Election Commission’s (FEC) six Commissioners have proposed a scaled-down version of the controversial proposed rule extending federal campaign finance rules to independent organizations. The proposal, drafted by Commissioners Michael Toner (R) and Scott Thomas (D), excludes organizations exempt under Section 501(c) of the Internal Revenue Code and some Section 527 groups from regulation. However, it incorporates thresholds that are vague and leave exempted organizations open to similar regulatory restrictions in the future. There is no proposed effective date, but Toner has been an advocate of quick action. The FEC will consider the proposed rule at its May 13 meeting. Related Developments The Supreme Court, in Leake v. North Carolina Right to Life, Inc. (U.S. No. 03-910, 4/26/04), has ordered reconsideration of a case involving regulation of independent political committees. Last September, the U.S. Court of Appeals for the Fourth Circuit struck down a North Carolina law subjecting “issue advocacy” groups to the state’s $4,000 contribution limit, holding the state did not have sufficient evidence that independent political committees pose a threat of corruption. The North Carolina Attorney General petitioned the Supreme Court after its decision upholding the Bipartisan Campaign Reform Act of 2002, asking that the Leake case be reconsidered. The Toner-Thomas proposal would impose hard money limits on 527 organizations that receive contributions or spend more than $1,000 in a calendar year and whose major purpose is “the nomination or election of one or more Federal or non-Federal candidates”. The only 527s exempted are:

• Candidate campaigns,
• Groups working solely on ballot initiatives,
• Committees formed solely to work on non-federal elections,
• Elections where no federal candidate appears on the ballot, or
• Groups whose only purpose is to influence non-elective offices or leadership positions in political parties.

When an organization meets FEC criteria for “political committee” status it must adhere to contribution limits, including a ban on funding from corporations (including private foundations) and a $5,000 limit on individual donations. The expenses of any 527’s communication that “promotes, supports, attacks or opposes a clearly identified candidate for federal office” or promotes or opposes any political party would count as an “expenditure” toward the $1,000 threshold. Expenses of partisan voter mobilization activities would also count. Nonpartisan voter mobilization expenses would not count if there is no effort to determine how someone would vote and the messages do not include language that “promotes, supports, attacks or opposes a clearly identified candidate for federal office.” Like the original proposed rule, this narrower draft fails to define what is meant by “promotes, supports, attacks or opposes,” and whether it applies when referring to a public official and actions in their official capacity, without reference to an election. As a result, the Toner-Thomas proposal could have a negative impact on issue advocacy and grassroots lobbying when carried out by a 527 organization. Toner told the Bureau of National Affairs, a trade publication, he sees this as a “valid concern,” but that these groups can operate through a 501(c) organization. This position fails to consider the negative tax consequences that could result. More importantly, it invites future regulation of 501(c) groups under these same vague standards. The Toner-Thomas proposal includes new rules on how regulated independent political committees must allocate their hard (regulated) and soft (unregulated) funds. Costs of administration, voter drives and communications that promote parties but do not mention federal candidates would have to be paid for with 50 percent hard money. All communications that “promotes, supports, attacks or oppose” a federal candidate would have to be paid for with 100 percent hard dollars. This is much stricter than the proposed rule, which would require between 15-36 percent of costs be paid with hard money. Current allocation rules do not have minimum thresholds, and there have been complaints that some independent 527organizations have only allocated token portion of their budgets to be paid for with hard dollars, while publicly stating a major purpose of influencing the federal election. Election law attorney Bob Bauer has posted an example of how use of the “promote, support, oppose or attack” approach would favor incumbents on his “More Soft Money Hard Law” website. The example illustrates how $12.6 million in federal funding was spent on ads and other publications that promote the new Medicare drug program, and credit the president and Congress with “some of the most significant improvements to the program since its inception in 1965.” If a group opposed to the drug bill wanted to counter this information and criticize the ad or policy, they would have to refer to the president, who is a clearly identified federal candidate. This is turn could trigger “political committee” status at the FEC, limiting their ability to raise funds for their issue campaign. For more information see www.nonprofitadvocacy.org.