Bring On The Cash!

By Matthew Cooper; Karen Tumulty

This is the time the Democrats have long dreaded, the scenario they knew they could not avoid. It is that moment in every Hollywood cliff-hanger when the star gets within sight of a happy ending, only to find another twist in the plot. Yes, they have produced a presumptive nominee for President, and he has risen dramatically in the polls against George W. Bush. But just as John Kerry is getting ready to enter the winner's circle, his bank account is depleted and he's just beginning to refill his coffers. Meanwhile, his opponent, who has spent only a quarter of what he has raked in, is sitting on $100 million and is getting ready to unleash a barrage of ads that will define Kerry before he has a chance to introduce himself to voters who do not know much about him at all.

The irony is that in anticipation of these circumstances, Democrats have spent the past year searching for exemptions in the McCain-Feingold campaign-finance-reform law that they themselves had long championed. One method they are banking on: a network of new organizations known as 527s (after the section of the IRS code that gives them tax-exempt status), which can raise unlimited money for advertising and voter-registration efforts, as long as they don't coordinate with the candidate. But that strategy faces a crucial test this week at the Federal Election Commission (FEC).

The FEC is about to define what kinds of political activities these 527s will be allowed to perform. If the commission's decision goes the Democrats' way, Kerry will be able to count on tens of millions of dollars of indirect assistance from Democratic-leaning groups. If not, the Massachusetts Senator could find himself having to continue raising money the hard way--in the small increments the law allows--along with getting limited help from the Democratic National Committee (D.N.C.), which is under the same legal strictures. Either way Kerry is going to be outspent. In a world where soft money is technically banned, the Republicans have the advantage: they have always had more donors who can contribute the maximum in hard money--$2,000 per person--that the law allows.

That is why, as Howard Dean's campaign sputters to what looks like its end, the Kerry campaign and the Democratic Party are devising a way to capture the Internet-driven fund-raising potential that Dean unearthed. After years of concentrating on donors rich enough to dash off five-and six-figure soft-money donations to compete with the legions of Republicans able to write hard-money checks for $2,000, the party of the little guy will have to lure little checks from the Democratic base. "One of the keys to victory for us," says Florida Democratic fund raiser Mitchell Berger, "will be to take those $100 middle-class donors and convince them that their $100 really means something." But even though it has vastly expanded its donor list, the D.N.C. still managed to raise less than half of what its Republican counterpart did.

The Democrats have been counting on these 527s to raise an extra $190 million. These organizations, which have bland names like America Votes and America Coming Together, have drawn big guns, including international financier George Soros, who has pledged $10 million to several groups. Because the 527 organizations are created outside of the political parties, it is harder to figure out who is behind them and exactly what it is they do. One innocuous-sounding group calling itself Americans for Jobs, Health Care and Progressive Values ran scathing ads against Dean in South Carolina and New Hampshire that featured a picture of Osama bin Laden. The group initially refused to name its donors; not until last week--well after those primaries--did it make known that its funders included former New Jersey Senator Robert Torricelli, a Kerry fund raiser, and Daniel Abraham, who made a fortune with Slim-Fast Foods. The idea of a group financed with large donations setting up shop, besmirching a candidate and getting out of town before anyone can figure out who they are is precisely what campaign-finance reform was meant to prevent.

But 527s--even if they get a complete go-ahead from the FEC--are not a magic bullet for Democrats. It's hard to get big donors as excited about opening their checkbooks when you can't offer face time with the candidate. With a 527, money does not necessarily buy you access--and access is precisely what the 2002 McCain-Feingold law sought to end. In that sense, the legislation has been a success, and the proliferation of 527s is evidence of that. But despite their new ubiquity--especially on the Democratic side--the most partisan of the new organizations have been falling far short of their $190 million goal. America Coming Together--a voter-mobilization effort led by former AFL-CIO official Steve Rosenthal and Ellen Malcolm, head of the women's political-action committee EMILY's List--had raised only $12.5 million by the end of 2003. And the Media Fund, which plans to run ads and is led by ex--Clinton consigliere Harold Ickes, has raised only $3 million.

Republicans are eager to either get in the 527 game or shut it down. Late last year, a group of Republican operatives forced the issue by forming--what else?--a 527, and demanding the FEC declare an opinion on it. They gave it a parody-of-a Beltway-group name, Americans for a Better Country. The group's counsel, former Reagan Administration official Frank Donatelli, is candid that their "goal is to help President Bush and the Bush-Cheney ticket," and he maintains he's in a win-win situation. If the FEC puts 527s out of the campaign business, that's dandy, but if it allows them, then Republicans will start producing more of their own 527s. "We have to play ... We have no choice in the matter," says Donatelli.

Although the landscape gives the President a big advantage so far, Kerry is not in the weak position that Bob Dole inhabited in the 1996 race--a putative nominee without resources or the wherewithal to get any. Like Bush, Kerry has opted out of the federal financing system, and as a result he will be the first Democratic nominee in recent history to emerge from the primaries with the ability to raise and spend money without restriction before the convention. Had he abided by the federal finance rules, Kerry would have already hit his limits and would not have been able to spend any more money until he formally got the nomination. In addition, as other candidates have dropped out of the race, his campaign has scooped up their fund raisers. Whereas his Internet operation raised $50,000 on its best day in 2003, it is now bringing in about $200,000 every day. And the candidate himself, who has attended only one fund raiser so far this year, is scheduling at least 20 of them across the country in March.

What is helping Kerry right now more than anything else is the fact that donors love a winner. When his campaign was careening in late December, it looked as though it would have trouble making its payroll. So Kerry tapped his fortune--a considerable one, thanks to his marriage to condiment heir Teresa Heinz--and mortgaged one of their five homes for $6.4 million to keep his campaign afloat. But once he started racking up primary victories, his fund raisers started getting their calls returned. They had expected to raise $400,000 at one event in New York City on Feb. 5, two days after Kerry won five contests across the country; the night's final bottom line reached $750,000. The campaign says a total of $6.5 million has poured in since his first win in Iowa.

That's impressive--for a Democrat. But Kerry's fund-raising operation pales in comparison to the colossus that is the Bush-Cheney re-election effort. Bush raised a record-setting $132 million in 2003. Ken Mehlman, campaign manager of the President's re-election effort, says that his team "still has its goal of raising $170 million" by this September's Republican Convention in New York City, but no one will be surprised if they clear closer to $200 million. So far they have been frugal, says Mehlman, striking good cash-up-front deals with vendors. Indeed, the cash-rich Bush-Cheney campaign got plenty of national media last week for hardly spending any money at all. They put up an Internet ad attacking Kerry as an "unprincipled" lackey of special interests. The ad was e-mailed to 6 million supporters.

So how does the Bush team raise all that money, and where does it come from? First, there are the well-heeled big donors who give $2,000 apiece. The Bush-Cheney campaign wrangles them through its Rangers--fund raisers who are required amass at least $200,000 (that is, they round up 100 people who will give $2,000 each). The system is so well-organized that each fund raiser is assigned a number, and that number is put on donors' checks. If the fund raisers make their quotas, they get benefits like a visit to Bush at his ranch.

All of this is possible because the Republican base of donors, large and small, has always been broader than the Democrats'. Until the 2000 election cycle, no presidential candidate had ever found more than 19,000 donors who could contribute the maximum allowable for an individual. In 2000, Bush found some 58,000 to pay the max. This year, it's likely to be much higher. And the small-donor base of Republicans has been larger too. The Republican National Committee has picked up a million new donors since McCain-Feingold while the Democrats have picked up 600,000.

Republicans have also turned fund raising into an exact science. In Bush World, everything moves with relentless efficiency. Georgette Mosbacher, the cosmetics executive and author of inspirational books like It Takes Money, Honey, raised money for Bush's father and the current President. Back in 1988, Mosbacher recalls, sorbet courses would be served at fund-raising dinners for wealthy donors. The goal was to give President Bush, the father, "time to visit the tables." These days, George W. Bush sweeps in and out of donor events without even eating. Like the father, the son pens handwritten thank-you notes, often adding a sentence at the end of a typed missive. "It is very, very organized," says Mosbacher.

And the Republicans are not above applying their superior resources to someone else's idea. MoveOn.org the liberal group that began as a protest movement against the Clinton impeachment and has turned into the lodestar of Bush-bashing efforts by Democratic activists, provides the Republicans with a model they are sure to emulate: a nonprofit organization that raises millions and airs what are essentially political ads without having to live by the restrictions that hamper traditional campaigns. MoveOn has spent more than $1 million on ads in Ohio alone already this year, including one called "Polygraph," in which President Bush says that Saddam Hussein had an advanced nuclear weapons program while a lie-detector machine shows the graphs spiking.

All this may sound like nothing has changed since the McCain-Feingold law. But John McCain, the Republican Senator whose name is synonymous with campaign-finance reform, insists that the effort was never about getting money out of politics--just giving it less power. "We don't see the movement of money that we saw before," McCain says, "because an elected official can't pick up the phone anymore and ask a trial lawyer or a union leader or a CEO for a check for six figures and then mention, 'By the way, your legislation will be coming before Congress next week.'"

And even with the new law in effect, Howard Dean proved a candidate could reinvent the rules of fund raising. He not only managed to nearly double Clinton's fund-raising record in a pre-election year, but he did it on an average contribution of $61, bringing tens of thousands of new contributors into the process. Kerry finance chief Lou Susman says tapping into that pool of donors will be a major part of his strategy, although it could be a challenge the longer Dean stays in the race blasting Kerry as just another Washington insider.

Supporters of the law insist it has been a success, retooling the engine of campaign finance from huge soft-money donations delivered to the parties to small hard-money donations delivered to the candidates. McCain hopes the FEC will put the 527s out of the game, but even it it doesn't, he says, "they don't give the same bang for the buck." Maybe so, but many of Washington's finest attorneys are trying to find a way to keep the almighty dollar as almighty as ever. And more often than not, the lawyers win. --With reporting by James Carney/Washington

With reporting by JAMES CARNEY/WASHINGTON