This article originally provided by The State Journal

February 3, 2006

527 Groups to Play By New Rules

Some disclosure issues may remain from 2004 election for consumers group.

Story by Juliet A. Terry Email | Bio

CHARLESTON -- The candidate filing period has ended and political watchers all over West Virginia are sifting through the lists to see who is running for what office.

And if the 2006 election season is going to be anything like the 2004 elections, the "527" independent political groups may play a role in political advertising. The groups are named after the section of Internal Revenue Service code that governs them.

In 2004, organizations such as And For the Sake of the Kids and West Virginia Consumers for Justice spent millions on commercials, battling on the airwaves over which candidate should win a seat on the state Supreme Court of Appeals.

This year, however, new campaign finance rules are in place that could affect how those groups operate, at least in terms of state races. At the very least, the rules will let the public know who is financing these "shadow" campaign organizations, according to Sen. Jeffrey Kessler, D-Marshall, chairman of the Senate Judiciary Committee and the legislator who pushed for more financial disclosure requirements last year.

"I think it will be interesting to see what impact it has on the upcoming elections," said Kessler, an attorney. "I hope we'll see a lot less negative campaigning. I don't think these groups should be able to hide behind some moniker. This will be the first test of full disclosure in campaign ads."

New Standards

According to the Secretary of State's Office, the new laws are as follows:

• Any 527 organization soliciting or receiving contributions in West Virginia can accept only $1,000 for the primary election and $1,000 for the general election in a two-year election cycle from each contributor.
• Any 527 organization soliciting or receiving contributions in West Virginia must file with the Secretary of State's Office before undertaking such activity.
• Any person engaging in "electioneering communication," as defined by state code, must report expenditures after every $5,000 is spent. A "person" is defined as an individual, partnership, committee, association and any other organization or group of individuals.

In addition, the bill requires all candidates and/or treasurers to maintain their financial records as it relates to campaign finance activity for six months after filing.

The new laws do not affect activities related to federal races, nor do they limit independent expenditures. If a person is willing to put his or her name on political ads and acts "independent" of any other effort for a candidate, he or she can spend any amount of his or her personal money as he or she wishes on political ads.

Kessler said he may need to pass a bill this session to clarify that the new laws do not affect federal races.

Nick Casey, chairman of the West Virginia Democratic Party, said he supports the new disclosure requirements.

"The 527s, by and large, were instruments of ... Republicans, not instruments of Democrats," Casey said. "The disclosures are important. You really need to know who is behind them."

Full Disclosure?

According to one former campaign manager, full disclosure was not the case during the 2004 primary election.

Gray Marion managed Greenbrier County Circuit Judge Jim Rowe's 2004 bid for the Democratic nomination for the Supreme Court, challenging incumbent Justice Warren McGraw. Rowe ultimately lost to McGraw, who lost the general election to Republican Brent Benjamin.

In the weeks leading up to the May primary, Marion and the Rowe campaign team became aware of a group called West Virginia Consumers for Justice that was running political advertisements opposing Rowe.

"If memory serves, they ran the first TV spots in opposition to Judge Rowe's candidacy," Marion said. "We attempted to look into the background of the group, but we couldn't find much information. In the middle of April, we found out it was a front group for a number of other organizations. ... By the time we found out for certain, the campaign was over."

According to IRS documents, Consumers for Justice was created April 1, 2004, and began collecting and spending funds as early as April 13, with its largest donations coming from Consumer Attorneys of West Virginia Inc.

And For the Sake of the Kids first received donations Aug. 20, 2004, and filed its 527 status with the IRS the same day. The bulk of its donations came from Massey Energy CEO Don Blankenship.

Consumer Attorneys is listed as a non profit group, according to the Secretary of State's Office, but the Internal Revenue Service does not have the group registered as a non profit. Attempts to contact Stuart Calwell, president of the lawyers' group, were unsuccessful at press time.

According to the Consumers for Justice application with the Secretary of State's Office for a voluntary association, the group did not file with the state until April 16. In addition, Consumers for Justice did not file its paperwork notifying the IRS of its tax-exempt 527 status and list its contributions until June 30, 2004, long after the primary election.

IRS rules require 527 groups to file their paperwork within 24 hours of the political organization's establishment unless the group does not seek tax-exempt status or it falls under a few other exemptions listed in the code.

Kenny Perdue, president of Consumers for Justice and president of the West Virginia AFL-CIO, said he was looking into why the IRS forms were not submitted within 24 hours. Perdue did say, however, that he does not anticipate the group being active in the 2006 election season.

Marion said the new campaign finance laws could have helped them realize who or what Rowe was up against in 2004. Before moving to West Virginia and becoming executive vice president of the Professional Independent Insurance Agents of West Virginia, Marion traveled the country as a freelance campaign manager, always for Democratic candidates.

"I think it would have helped us clarify exactly who was running erroneous and misleading ads. In politics, it is always helpful to know who is working against you," Marion said. "If it is found that any group violated any state or federal tax or campaign laws, they should be investigated and prosecuted."