Intricacies of Campaign Finance
Millions of dollars are spent to elect a federal candidate to office, particularly during a presidential election cycle. The system of funding political campaigns -- both to help elect a candidate or work toward the defeat of another -- is complex and often perceived by the public to be riddled with irregularities and loopholes.

Recent legislation has endeavored to reform the rules of American campaign funding. But as two U.S. Supreme Court justices mused in a recent decision related to campaign finance reform law, "Money, like water, will always find an outlet."

The Bipartisan Campaign Reform Act, AKA McCain - Feingold
Signed into law by President Bush in 2002 after years of debate, the Bipartisan Campaign Reform Act is a sweeping piece of legislation that introduces new limits and adjustments to the complex rules of campaign financing.

The bill, commonly known as the McCain-Feingold law after its senatorial sponsors, John McCain, R-Ariz. and Russell Feingold, D-Wis., limits the use of nonfederal or so-called "soft money" and other campaign contributions and activities.

Soft money is loosely defined as unlimited donations to political parties from individuals, organizations, or unions intended to fund purported "party building" activities primarily at state and local levels. Such contributions were first allowed by the Federal Election Commission in the late 1970s to fund "nonfederal" party exercises and remained largely unmonitored until 1991 when the agency began to require full disclosure of the funds.

The law also limits the use of "electioneering communications," often called issue ads, which are commonly viewed as thinly disguised political attack ads run by independent groups in the weeks leading up to an election.

According to FEC records, soft money raised by the national political party committees grew consistently over the past decade, from $86 million in 1992 to some $495 million in 2000 -- making it a key fundraising venue and the source of a large part of political television advertising.

BCRA bans national political parties and federal candidates and officeholders from raising or spending soft money but allows up to $10,000 in soft money contributions to state and local parties. It also doubles the amount of so-called "hard money" contributions individuals can make, raising the limit from $1,000 to $2,000 per person to any candidate and no more than $95,000 total to political parties or candidates in any one election cycle, among other regulations.

In addition, the so-called "Millionaire's Amendment" to the bill increases the contribution limits for certain candidates facing wealthy opponents who can draw from large personal funds to support their campaigns.

The complicated legislation was debated on Capitol Hill for seven years before finally reaching the White House.

"The fact is we're shutting down a couple of scams that have grown up in American politics. One is the phony issue ads; the other is the raising of soft money that is specifically coordinated with the political parties to be used in political campaigns," Feingold told the NewsHour upon the Senate's approval of the bill in 2002.

"We're not trying to stop independent expenditures," Feingold added. "Independent expenditures that are truly independent on issues are protected by the First Amendment, and that's where we stop. We stopped short of that. We're trying to stop the scams."

Passing a Critical Legal Test
BCRA faced a myriad of legal challenges shortly after it was signed into law. The bill passed a first critical legal hurdle in December 2003 when a closely divided U.S. Supreme Court upheld key portions of the legislation that some lawmakers and advocacy groups were quick to question.

Lower courts consolidated 12 lawsuits brought by more than 80 plaintiffs challenging 13 different provisions of the law into one overall case dubbed McConnell v. FEC after one of the law's leading opponents, Republican Sen. Mitch McConnell of Kentucky. Most of the challenges rested on whether the law violates First Amendment rights of free political speech and association.

A three-judge panel in federal district court in Washington, D.C., heard the first appeal and produced a lengthy and fractured ruling that it subsequently suspended pending the Supreme Court's review.

In dual 5-4 rulings, the high court's justices upheld as constitutional the provisions of the law that banned soft money contributions to political parties and the restrictions on advertising by corporations and unions in the weeks leading up to an election.

The justices struck down only two parts of the complex legislation -- a ban on political contributions from minors and a limitation on some party spending that is independent of a particular candidate.

The court heard arguments on the slew of legal challenges to the law in a rare September session and rushed to issue a judgement -- presumably so that the candidates involved in the 2004 presidential and congressional election cycle would be clear on the law's provisions.

But some of the justices speculated in their ruling that the 2003 legal challenge would not be the end of the constitutional debate over campaign finance limits.

"We are under no illusion that (the law) will be the last congressional statement on the matter. Money, like water, will always find an outlet. What problems will arise, and how Congress will respond, are concerns for another day," Justices John Paul Stevens and Sandra Day O'Connor wrote for the majority.

Key Types of Advocacy Groups
A critical part of the campaign finance network involves the businesses, unions, ideological movements and other groups that take an interest in political candidates who may be a help or hindrance to their particular cause or constituency.

Much of recent campaign finance reform has revolved around the roles of these groups in election cycles and how many limits should be imposed on them. Despite the newly implemented BCRA regulations, the drive of politically minded groups to spread their message is strong and the debate over how to regulate advocacy groups continues.

Political Action Committees: Political action committees or PACs have been a mainstay of American politics since the mid-1940s. These committees are organized for the purpose of raising or spending money in the hopes of electing or defeating certain candidates.

PACs generally represent the interests of a corporation, labor union, trade group, or other organization. PACs seek and collect political campaign contributions from individuals -- often the employees of corporations or members of professional unions, groups or associations -- and distributes them to particular candidates.

Some politicians also form "leadership" PACs that are not directly associated with a candidate but function as a fundraising venue for other candidate's campaigns.

A PAC can give $5,000 to any candidate or candidate committee per primary, general, or special election. They can give up to $15,000 to any national party and $5,000 to any other PAC per calendar year.

PACs must register with the FEC within ten days of their formation and provide contact information for the group including its treasurer and affiliated organizations.

Section 527 Organizations: Tax-exempt 527 groups, sometimes called "stealth" or "soft" PACs, get their name from a part of the Internal Revenue Code that applies only to groups that influence elections. 527s, many of which sprang up in the wake of the 2002 campaign finance reform law, can raise and accept funds for activities related to federal elections such as voter outreach and issue advocacy.

As part of their election activities, these groups often utilize controversial issue ads -- broadcast advertising that promotes general views on an election while not expressly supporting the election or defeat of a particular candidate. Under these restrictions, many 527s run by special interest groups can raise and spend unlimited soft money.

Depending on the type of campaign activity a 527 group engages in, it must file disclosure reports either with the FEC, the state government where it is located or with the IRS.

Groups on both sides of the ideological spectrum have been accused of using tax and legal loopholes to spend money outside of the letter of campaign finance laws.

"In a sense, they are shadow groups, shadowing political campaigns, and they're doing what in the past, political parties used to do, which is take out ads supporting their candidates, opposing the other candidates," Larry Noble of the Center for Responsive Politics told Fox News.

The FEC is lately considering new rules regarding how 527s operate and whether more limits should be imposed on the groups as with other federal political committees.

The commission decided in February 2004 that advocacy groups will now be restricted to using "hard money" donations for campaign communications, including for TV ads, that "promote, attack, support, or oppose" a federal candidate. In other words, 527 committees can no longer spend larger soft money donations to advocate for or against specific national candidates running for president or Congress.

At the same time, the FEC said the 527s are permitted to use a mixture of hard and soft money for political communications that mention national as well as state and local candidates or for ads about issues, such as health care and trade policies.

In May 2004 the FEC voted to delay imposing the new regulations for 90-days. The commission said it could revisit whether to impose the regulations after that period. The commission's decision means that 527 groups will be mostly unfettered by federal regulation for the 2004 election cycle.

527s have played an important funding role in past elections. For example, during the Florida presidential recount in 2000, former Vice President Al Gore and then-Gov. George W. Bush collectively raised and spent $14.8 million in legal costs through their respective 527 recount committees, according to a report by the Center for Public Integrity.

501(c) Groups: 501(c) organizations are non-profit, tax exempt groups that also take their name from the part of the Internal Revenue Code that regulates them. Some of these groups may participate in varying levels of political activity, depending on their type. Some 501(c)(3) groups function strictly for educational or charitable purposes but may engage in voter registration activities.

501(c)(4) groups are often called "social welfare" organizations that may participate in political activities as long as that is not their main purpose. These types of restrictions also apply to other types of 501(c) groups that center around labor, agricultural, real estate or other types of business and trade.

-- By Maureen Hoch, Online NewsHour
Sources: Center for Responsive Politics, Federal Election Commission, Project Vote Smart