This article originally provided by The Charleston Gazette

March 26, 2006

W.Va. sets standard for 527s

Mountain State a test bed for election-funding rules to cover nonprofit groups

By Tom Searls
Staff writer

West Virginia lawmakers might have been watching out for their own political survival when they enacted new laws regulating how nonprofit 527 groups can spend election funds, but their actions have drawn praise from national watchdog groups for being the first in the nation to attempt to regulate the 527s.

“No other state has been successful in passing comprehensive 527 reform,” said Cecilia Martinez, executive director of The Reform Institute in Alexandria, Va.

“Your state is rightly characterized as being on the cutting edge of this,” said Paul Ryan, associate legal counsel for The Campaign Legal Center.

Called 527 groups after the section of the federal Internal Revenue Service code that empowers them, they have been legal for years. But when Congress changed federal election finance laws prior to 2004 limiting the amount of “soft money” individuals could contribute to political parties, suddenly 527s were the way those with money could spend all they wanted.

“These reforms will be fundamental in leveling the playing field in West Virginia elections,” Martinez said. “527 groups have flooded the airwaves with negative attack ads that are funded by a handful of contributors.”

Ryan speculated that other states have been slower to regulate the groups because they don’t yet operate in state elections.

West Virginians got first-hand knowledge of such groups during the 2004 election when a group called “And For the Sake of the Kids” ran millions of dollars of negative advertisements in a state Supreme Court race.

That did not happen in most states. “The 527 groups became known to most of the country through the presidential election,” Ryan said.

The 527s allow individuals wanting to spend unlimited amounts to influence elections in a way that circumvents federal laws, Ryan said. As 527 groups, they file as tax-exempt organizations and do not register with the Federal Election Commission as an election group, he explained.

Ryan expects more states to begin regulating 527 groups in the future as they begin to flourish on the local level. “I imagine you’ll see a lot more of it on the state level, mostly the judiciary races,” he said.

He noted that the U.S. Chamber of Commerce has become more involved in funding state judicial races, trying to erase judges considered “judicial activists” from the benches.

For months in 2004, no one knew for sure who was paying for the negative ads disparaging Democratic state Supreme Court Justice Warren McGraw. When the group had to file its financial report just weeks before the election, state residents belatedly learned that $2.4 million of the organization’s $3.5 million was bankrolled by one person, Massey Energy chief executive Don Blankenship.

McGraw was defeated by Republican Brent Benjamin, a political unknown just months before.

With Blankenship making rumblings about attempting to defeat another Supreme Court justice and naming several lawmakers as political targets, legislators moved quickly last year to change state laws dealing with such groups. If they operate in legislative or other statewide office races in 2006, they will have operating rules.

“It would appear that any 527 — soliciting or contributing in the state — [is] going to have to file in our office,” said Dan Kimble, counsel for Secretary of State Betty Ireland.

The new law also limits the amount of money individuals can contribute to such groups. Contribution limits will be $1,000 for the primary election and $1,000 for the general election.

“There is a disclosure process,” Kimble said.

West Virginia’s disclosure process is tripped by a number of things, but mainly by ads including “electioneering conversation” that are run within 30 days prior to the primary election and 60 days before the general election.

During that time, if a 527 group spends $5,000 or more and uses the name of a candidate, or makes the implication that allows people to know the candidate at which it is aimed, they will have to report contributors to the secretary of state.

“It’s basically getting a clear handle on who is contributing,” Kimble said.

Moreover, each $5,000 such a group spends after that must be reported immediately.

There are some questions about whether a state can legally regulate a federal tax-exempt group, but Ryan, a lawyer, believes that, as long as it deals with state elections, there should be no problem.

“I suspect your state campaign finance laws can regulate any organization that is spending money to influence your state election,” he said.

Other questions raised include: If such a group is located in another state, can West Virginia law regulate them? Ryan believes it doesn’t matter where it is located.

“There are many laws where you don’t live in a state but operate there and you fall under their laws,” he said. “It doesn’t really matter where your residency is.”

But Ryan sends red flags up when asked about the latest portion of the law to be enacted that would prohibit state residents from giving more than $1,000 to 527 groups trying to influence a federal election in West Virginia, such as U.S. Sen. Robert Byrd’s ongoing re-election race. That part of the law does not take affect until July 1.

“If they’re working to influence a federal race, they come under federal laws,” Ryan said.

Federal law allows people to contribute an unlimited amount of cash to such a group. “Generally speaking, state laws do not apply to [federal] candidates,” he said.

It would count on how the law is written, he said, but the legal dilemma could be the “problem of pre-emption by a state law over a federal law,” Ryan noted.

“There’s some interesting questions of law that I think time will answer,” Kimble said.

His office follows the philosophy that, if the Legislature enacts a law, it is “constitutional until the court tells us otherwise.”

“Our assumption is [lawmakers] knew what they meant,” he said.

Ryan said Congress is looking at reforming laws dealing with the groups and could act in the near future.

The FEC has had numerous complaints about 527 groups from Democrats and Republicans, most stemming from the 2004 election. It hasn’t acted on them yet, Ryan said.

“I would expect, in the coming months, we’re going to start hearing more from the Federal Election Commission,” he said.

While he anxiously awaits word from the agency that regulates federal elections, he’s not certain what it will do. “It’s not uncommon for the FEC to dismiss a complaint and no one gets in trouble,” he said.

Kimble points out that no law can stop individuals from spending as much of their own wealth as they desire to advocate for or against a candidate for office. They just have to say they paid for the advertisements.

“People think this will keep John Doe from being able to put huge amounts of money into a race,” Kimble said. “No, as long as John Doe wants to individually spend that.”

But unlike the unknown financiers of 527 groups, individuals will have to place their names in front of the public immediately.

Kimble noted that the U.S. Supreme Court has long upheld the right of individuals — whether they are candidates or not — to spend their own money as long as they disclose the funding source is themselves. “There’s nothing we can do to restrict them,” he said.

To contact staff writer Tom Searls, use e-mail or call 348-5192.