OLR Research Report


October 2, 2003 98-R-0271

TO:

FROM: Mary M. Janicki, Principal Analyst

RE: Soft Money

You asked for information on the so-called “soft money” used in election campaigns. You want to know the definitions for soft and hard money; where soft money comes from; how it is spent; and how it can be used in Connecticut.

SUMMARY

The Federal Election Campaign Act (FECA) limits contributions that individuals and political action committees (PACs) can make to support candidates for federal office. It bans contributions from the treasuries of corporations, labor organizations, national banks, federal government contractors, and foreign nationals. Soft money (sometimes called non-federal money) means contributions made outside the limits and prohibitions of federal law. This means that it is direct corporate and union contributions and large individual and PAC contributions. On the other hand, hard money means the contributions that are subject to FECA; that is, limited individual and PAC contributions only.

The concept of soft money grew out of the post-Watergate reforms established in the FECA. The original purpose of leaving these donations unregulated was to keep party organizations relevant and strong. To support political parties and their activities, amendments to the law, Federal Election Commission (FEC) rulings, and the courts allowed parties to raise funds outside the restrictions on contributions to candidates. The unregulated soft money contributions can be used for overhead expenses of party organizations and shared expenses that benefit both federal and non-federal elections. It is spent on party building and issue advocacy, unrelated to individual candidates.

As an unlimited resource for parties, soft money contributions and expenditures have grown dramatically. In the years since parties have been required to report such receipts, the system has grown from $86 million in 1992 to $262 million in 1996. In the Presidential election cycle of 1995-96, both parties raised a total of $262.1 million in soft money. And parties raised over $67.4 million in 1997, the most ever in an off-election year. Contributors include wealthy individuals, corporations, labor unions, and professional associations.

In the last Presidential election cycle, party committees spent $271.5 million of their soft money (actually more than they raised, resulting in some debt). The money went to (1) state party committees, (2) state and local candidates, (3) joint federal and non-federal activities, and (4) other expenses.

Current state law permits national party committees to contribute money to state or local party committees without distinguishing whether the contribution is from a federal or non-federal account (that is, whether it is hard or soft money). FEC statistics on national party transfers to state and local party committees for the 1995-96 election cycle show that the Democratic National Committee gave $986,035 to Connecticut party committees; while the Republican National Committee made no such transfers to its party committees in the state.

DEFINITIONS

Soft Money

Campaign contributions that are referred to as soft money are those raised by national and state parties that are not regulated by the federal campaign finance law because they are not contributed directly to a candidate but rather to a party committee for its use in generic “party building” activities like “get-out-the-vote” or voter registration programs. Contributors are not subject to the contribution limits and prohibitions of federal law. The money comes from large individual and PAC contributions and direct corporate and union contributions. It must be deposited in separate, non-federal accounts. In practice, use of the funds sometimes benefits specific candidates, making it a vehicle for skirting contribution limits and restrictions.

Hard Money

By contrast, hard money is federally regulated campaign contributions and other moneys spent to influence the outcome of a federal election. Individuals are subject to an annual limit of $25,000 on contributions they can make to federal candidates, party committees, and PACs (2 U.S.C. 441a(a)(3)). They can give no more than $2,000 per election cycle to a single candidate. Corporate PACs are limited to $10,000 per candidate for primary and general elections. The limits set in the FECA have been the same since they were set in 1974.

SOFT MONEY ORIGINS

The use of soft money resulted from the tough post-Watergate reforms established in the 1974 FECA. The new law was so strict that candidates and political parties complained after the 1976 election cycle that it stifled volunteer and grass roots party activity. In response to those complaints, the Federal Election Commission ruled in 1978 that unlimited state contributions could pay for party activities. Congress codified the concept in 1979, amending the FECA (PL 96-187) to permit state and local parties to purchase unlimited campaign materials for volunteer activities promoting federal candidates and party building. Since 1991, FEC rules have required parties to report most soft money. In 1996, the U.S. Supreme Court ruled that soft money could be spent on such things as television advertising, thereby increasing the demand for such funds.

SOURCES OF SOFT MONEY

The soft money system has grown from $86 million in 1992 to $262 million in 1996. Figures on soft money contributions include those made to the national party committees (the Democratic National Committee and Republican National Committee) as well as to the congressional committees that parties form to support their candidates running for the federal Senate and House of Representatives. This report focuses on those contributions to the national committees only, where they can be isolated from the others.

1997

The parties' national committees raised $67,443,987 in soft money during 1997, according to Common Cause. The amount is the most soft money ever raised in an off-election year. Of that, the DNC raised $17,237,849; the RNC raised $19,999,527; and the parties' congressional PACs raised the rest. Table 1 shows the contributors of the largest soft money donations to national committees from the six-month period July through December 1997.

Table 1: Largest Soft Money Contributors

July 1997 through December 1997

Contributor

Recipient

Amount

Philip Morris

RNC

$350,000

Mr. M.G. “Pat” Robertson

RNC

200,000

Diamond Enterprises of Fl, Inc.

DNC

150,000

Gwendolyn Williams Estate

DNC

133,829

1995-1996 Election Cycle

In the most recent Presidential election cycle, the parties raised and spent dramatically more in soft money contributions than in any other election since non-federal receipts were reported. The Democratic national party committees raised $123.9 million in non-federal funds, up 242% from 1992, the last Presidential cycle; while the Republican national party committees raised $138.2 million, up 178%, according to FEC figures.

The largest contributors to the Democrats included: Seagram & Sons, Inc./MCA Inc. ($1,180,700); Communications Workers of America ($1,128,425); and AFSCME ($1,091,050). The Republicans received soft money contributions from: Philip Morris Co., Inc. ($2,517,518); RJR Nabisco, Inc. ($1,188,175); and American Financial Group ($794,000).

SOFT MONEY EXPENDITURES

Soft money is used to pay for a party organization's overhead expenses, as well as shared expenses that benefit both federal and non-federal elections, even if they indirectly benefit federal candidates. The 1976 FECA amendment permitted state and local parties to spend unlimited amounts on campaign materials like buttons and yard signs for volunteer activities. Party organizations could also conduct certain kinds of voter registration and get-out-the-vote drives.

It is also used for issue advocacy, as well as generic party advertising. Parties transfer some of it to state and local party committees, while some is contributed directly to candidates in non-federal races.

Not surprisingly, soft money expenditures went up as dramatically as contributions in the 1996-97 election cycle. The Democratic national party committees spent $121.8 million and the Republican committees spent $149.7 million. These non-federal funds were spent as follows in Table 2.

Table 2: 1996-97 Soft Money Expenditures

Expenditure

Democrats

(in millions)

Republicans

(in millions)

Transfers to state party committees

$64.6

$50.2

Contributions to state or local candidates

4.4

5.2

Joint federal/non-federal activity

33.3

57.2

Other expenses

19.5

37.1

SOFT MONEY DISBURSEMENTS IN CONNECTICUT

The Legal Basis

Connecticut's campaign finance law permits a political party's national committee to make contributions to (1) a state central or town party committee (CGS 9-333s(b)) and (2) an ongoing (or ideological) PAC including the political committees established by the four General Assembly caucuses (CGS 9-333t(b)). But the law bans contributions from national committees to (1) Connecticut candidate committees (CGS 9-333r(b)) and (2) PACs created for a single primary or election (CGS 9-333u(b)).

The law currently makes no distinction for the source of these contributions between a national committee's hard or soft money (that is, from its federal or non-federal account). So the soft money contributed to national party committees can currently be legally passed on to state central and town committees. And a state or local party committee can make unlimited contributions to (1) another party committee, (2) a candidate committee, (3) back to a national party committee, (4) a committee for a candidate for federal or out-of-state office, or (5) a PAC (CGS 9-333s(a)).

Disbursements in Connecticut

The FEC shows that between January 1, 1995 and December 31, 1996, the Democratic National Party transferred $986,035 of non-federal money to state and local party committees in Connecticut. The Republican National Committee made no such transfers at all.

MMJ:tjo