Closing Loopholes Means Ending Worthy Programs

Ronald Brownstein covers politics for the National Journal

The campaign finance reforms approved after Watergate were intended to prevent wealthy interests from buying the ear of elected officials with huge donations. That's how the law reads on paper.

Now, for a look at the real world, consider the case of Charles H. Keating Jr., whose quest for access spotlights the gaping holes perforating those reforms.

Keating is chairman of the company that owns Lincoln Savings & Loan in Irvine, a firm seized by federal regulators in April. In the last few years, according to one recent compilation, Keating funnelled at least $1.35 million into causes favored by five senators who met twice with top Federal Home Loan Bank Board officials to discuss the agency's investigations of the thrift. Former Bank Board Chairman Edwin J. Gray has accused the senators--including Alan Cranston (D-Calif.)--of pressuring the regulators to loosen supervision of Lincoln; its collapse has left the government holding losses that may exceed $2.5 billion. The senators deny Gray's charge.

However those accusations are resolved, the Keating case has already made a larger point: The $1,000 contribution limit to federal candidates has become meaningless.

Increasingly, candidates and the two national parties find ways to advance their goals through institutions not subject to that limit. Over the past decade, politicians in both parties have identified crucial political functions, separated them from formal campaigns and "subcontracted" them to new organizations that can accept the large contributions prohibited by the campaign finance reforms. For example, Cranston solicited $850,000 from Keating in 1987 and 1988, not for his next reelection, but for a series of ostensibly "nonpartisan" voter registration organizations he is affiliated with.

"This really demonstrates the ability of both legislators and special interests to be creative about how money can be used in politics," said Ellen S. Miller, executive director of the Center for Responsive Politics in Washington. "It really flies in the face of the Watergate reforms, which at the bottom line, set limits on who can contribute and how much they can contribute."

One way politicians avoid the rules is through nonprofit educational or charitable organizations that can accept unlimited, usually tax-deductible, gifts. In a survey two years ago, the Center for Responsive Politics found that more than two dozen politicians--from Sen. Edward M. Kennedy (D-Mass.) to Sen. Jesse Helms (R-N.C.)--had established such institutions, most advocating the sponsors' policy agenda. In the early stages of the 1988 presidential race, six candidates--roughly half the field--opened nonprofit think tanks. The tanks paid for travel, conferences and research that found its way into campaign speeches. TV evangelist Marion G. (Pat) Robertson even used his nonprofit Freedom Council to recruit supporters during the first GOP presidential contest in Michigan.

More damaging to the finance law than these maneuvers, however, has been the growing subcontracting of voter registration and turnout programs. Both activities--intrinsic to any campaign's success--are now largely funded with donations that would be illegal if given directly to candidates.

The voter registration battles between the parties through the 1980s catch the arms-race mentality that has allowed big donors back to the table. In the early 1980s, as Democratic strategists talked of unseating President Reagan by mobilizing millions of low-income voters, liberal foundations increased contributions to grass-roots organizations that register minorities and the poor. During the 1984 campaign, the GOP responded in part by raising millions of dollars for voter registration aimed at military personnel and evangelical Christians through a nonprofit foundation.

Enter Cranston, long interested in measures that improve turnout. He is now sponsoring legislation requiring registration reforms in those states the U.S. attorney general determined have "barriers" to participation. After the 1984 campaign, Cranston joined with Robert J. Stein, a leading liberal voter-registration strategist, to form USA Votes. The group pushed the cause of registration reform and, more important, helped direct funds from national donors to local registration efforts. After Cranston's narrow 1986 reelection victory--one he credited in large part to programs that mobilized low-income voters--the senator established a grass-roots group of his own: the Center for Participation in Democracy, which registers "underrepresented groups" in California, such as blacks and Latinos.

As the price of their tax exemption, these voter-registration groups are technically nonpartisan--meaning they can't run out of forms if someone wants to register with the other party. But both sides target their efforts to achieve a direct political result. "You can't tell people to register or vote Democrat," said Cranston. "But you can do the work in a community where it would get the results you would prefer to have." About 70% of the voters signed up by CPD registered as Democrats.

Both parties also invested heavily in programs to get these new voters to the polls on election day--again, by delegating the activities to institutions not constrained by federal contribution limits. Here the vehicle for avoiding the ceiling is not tax-exempt foundations, but the state parties--able to spend unlimited sums for "party-building" activities, such as identifying supporters and turning them out.

Last fall, both presidential campaigns built unprecedented shadow campaigns on the "party-building" exemption. Though donors cannot contribute directly to the general election presidential campaign, George Bush and Michael S. Dukakis solicited $100,000 contributions to fund immense get-out-the vote operations through state parties. Figures compiled by USC campaign-finance expert Herbert E. Alexander show Democrats raised $23 million in such "soft money" during the race, the GOP $20 million. So much for public financing.

Even campaign finance reformers find it difficult to flatly condemn these programs that register and turn out voters. With turnout already so anemic--slightly more than half of eligible voters bothered to choose between Bush and Dukakis--"It would be a real tragedy (to) chill the legitimate functioning of grass-roots organizations" reaching out to disaffected voters, Stein argued.

But there is no question that the proliferating use of tax-exempt foundations and soft money to fund voter contact--and policy development--offers new opportunities for people seeking influence to do favors for politicians. Keating's attorneys have piously denied any ulterior motive in his contributions, but it's fair to wonder whether he gave such huge sums to voter registration at Cranston's request because he grieves over declining turnout.

What can be done? The brazenness of 1988 fund-raising has rekindled talk of regulating soft money. Bush's recent campaign-finance reform package calls for full disclosure. Others want such contributions banned. The use of nonprofits to channel political contributions may be more difficult to caulk--though it might make sense to set requirements for organizations directly affiliated with elected officials. Seared by his experience, Cranston now says Congress may want to reexamine political nonprofits to determine "whether there should be limits (to contributions), whether all types of money should be usable under varying circumstances . . . and whether there should be full disclosure."

New rules may help. But current problems only prove that creative minds always find a way to marry money with politicians. The problem is not so much rules, but the way politicians fear no backlash in bending them. If voters turned out of office those senators who worried more about wealthy S&L; executives than the taxpayers now left with the bill, that might reform congressional behavior more than a rewrite of the ethics laws. Money talks in politics, and nothing can change that--but it speaks loudest when voters are silent.

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