In Boost for Democrats, FEC Rejects Proposed Limits on Small Donors

The Federal Election Commission cleared the way for liberal groups yesterday to continue to raise and spend millions of dollars in unrestricted contributions to defeat President Bush in the 2004 election.

By a 4 to 2 vote, the commission rejected a plan that would have reined in these independent groups before the election. It was a significant setback for Bush and the Republicans and a boost for Sen. John F. Kerry (Mass.), whose Democratic presidential campaign has benefited greatly from the spending by these groups.

Most of these new organizations have been established as "527s," shorthand for the provision of the federal tax law that covers their activities. The 527s are controversial because they accept "soft money" from corporations and unions, which critics say represents an evasion of the ban on large, unregulated contributions in the new campaign finance law known as the McCain-Feingold Act, and because they operate under less stringent disclosure regulations.

These new Democratic organizations have drawn support from some wealthy liberals determined to defeat Bush -- including financier George Soros and his wife, Susan Weber Soros, who have given $7.5 million to two of the most prominent groups, America Coming Together (ACT) and MoveOn.org.

Pro-Republican groups immediately vowed to try to match the liberal organizations. But Republicans have been under less pressure to raise nonparty money because of the success of the Bush campaign, which has already raised $200 million, while the Republican National Committee had raised $157.4 million through the end of March.

"The election of 2004 is going to be the Wild West," FEC commissioner Michael E. Toner said. "We are going to see a dramatic escalation of soft-money spending by organizations on both sides of the aisle."

FEC commissioners indicated at their meeting that they might later adopt new rules affecting the new organizations, but that they would not be effective until after Election Day.

The decision, which was backed by two of three Republican commissioners in defiance of their party, will allow liberal groups to continue running anti-Bush and pro-Kerry television campaigns and ground-level voter-mobilization programs.

The proposed regulations would have limited the size of the contributions used to finance activities influencing federal elections, and required some 527 groups to register with the FEC and report in detail their contributions and expenditures. Those groups' expenditures currently are not covered by federal campaign law.

Republican commissioners Bradley A. Smith, the chairman, and David M. Mason, both critics of strict regulation, joined with Democrats Ellen L. Weintraub, the vice chairman, and Danny L. McDonald to reject the proposed rule. Toner, a Republican, and Democrat Scott E. Thomas voted for it in an effort to close what they contended was a major loophole.

The opponents argued that the proposal would redefine major concepts in election law -- including the meaning of campaign expenditures -- and that it would be unfair to make such changes three-quarters of the way through the election cycle.

Thomas, a supporter of regulation, said: "This is a serious problem that needs to be addressed. . . . If the FEC does not approve a regulation now, there probably won't be a four-vote consensus on this topic down the road."

Smith questioned the basic premise of the advocates of regulating 527s. "If the law does not regulate this activity, we are not opening a loophole" by rejecting regulation, he said.

Within minutes of the vote, the FEC was hit with a wave of criticism from Republicans and some Democrats and campaign finance reform advocates.