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Follow the money

Forget Howard Dean's mouth. The real issue facing the Democrats is dollars.


(Illustration / Thomas Fuchs)

AS HOWARD DEAN stormed through Boston last week, the media focus was on the controversy stirred by his recent series of brash remarks. (To paraphrase, he has said that Republicans are a bunch of white Christians who don't make honest livings.) But the real problem facing Dean right now isn't his mouth. In the past several weeks, major Democratic donors have begun to grumble that the onetime presidential candidate turned party chairman isn't paying them enough attention and that the Democratic National Committee isn't raising enough money to compete with its Republican counterpart.

The numbers seem to support the donors' complaints: The two parties turned in their latest reports to the Federal Election Commission last week, and through the first five months of the year the Republican National Committee took in $52.9 million, with $32.6 million in cash on hand. While Dean is raising money at a faster pace than the Democrats did in 2001, the last post-presidential election year, his take at the Democratic National Committee so far looks puny compared to the RNC's: $22.6 million, with $8.2 million on hand.

But next month's numbers may be more interesting still. The theory behind the Democrats' choice of Dean to lead the DNC, instead of a more traditional backslapper like Terry McAuliffe, was that in the small-donor Internet age, the Democrats need a chairman who uses rhetoric and media to excite the base of the party to donate, rather than someone who knows how to squeeze money from a finite number of six- and seven-figure donors. When the June fund-raising totals are turned into the Federal Election Commission, Democrats may learn that the media circus created by Dean's big mouth was actually good for DNC fund-raising.

But will it be enough? The intimidating RNC haul, along with the donors' displeasure, has brought back a question that dogged the Democratic Party after the passage of the Bipartisan Campaign Finance Reform bill, popularly known as McCain-Feingold: Without the huge, unlimited soft-money donations that the party relied on in the 1990s, can the Democrats raise enough money to compete with the Republicans?

That question was temporarily put to rest in 2003 and 2004, when People-Powered Howard showed the party how an antiwar, anti-Bush message could bring in millions over the Internet and offset the traditional Republican advantage in fund-raising among small donors. But now it's back, in the form of a post-2004 corollary: Rather than providing a blueprint for how to match the Republicans' financial muscle, was the 2004 election a special case, a windfall that Democrats should not expect to be repeated?

Whatever the answer, a closer look at the numbers suggests that the political money game has changed dramatically. What Dean and the Democrats are discovering is that, despite all the New New Thing talk about online grass-roots fund-raising, big donors still matter to the future of progressive politics in the 21st century - just not in the way they once did.

In some sense, the Democrats already know this. Conservative journalist Byron York points out in his recent book ''The Vast Left Wing Conspiracy" (the title refers to a tongue-in-cheek label liberal political groups have applied to themselves), that, according to the nonpartisan tracking organization Political Money Line, during the 2004 campaign cycle five people - financier George Soros, insurance magnate Peter Lewis, Hollywood mogul Stephen Bing, and California savings-and-loan CEOs Herbert and Marion Sandler - collectively gave $78 million to left-leaning outside groups known as 527s. As York writes, that's ''more than the $75 million in federal funds that John Kerry and George W. Bush each received to run their entire post-convention campaigns."

(Other nonpartisan tracking groups come up with slightly different numbers. The Center for Responsive Politics and the Campaign Finance Institute conclude that the big five donors gave about $73 million. )

But those donations went to new groups, such as America Coming Together, MoveOn.org, and the Media Fund, which operated outside the formal structure of the Democratic Party and formed a kind of shadow party. To comply with the new campaign finance laws, the Democrats essentially split in two: The new 527 party took multimillion-dollar donations from the Soroses of the world, while the plain vanilla Democratic Party raked in the point-and-click donations streaming in from small donors over the Internet.

Or so it seemed. The fund-raising totals from 2004 tell a somewhat more complicated tale, showing that wealthy donors played a more important role within the party than most people realize. The focus on small vs. big donors, however, is too simple. Instead, there are at least three groups to account for: small, big, and super-size. McCain-Feingold banished the super-size donors to the 527s, but a secondary effect was to increase the relative power of not-quite-as-huge donors.

In exchange for banning soft money contributions from the super-rich, as well as from corporations and unions, McCain-Feingold also increased the amount of money that individuals can give to the national committees of political parties. Before the 2004 election, individuals could give only $20,000 a year in hard money. After McCain-Feingold, that went up to $25,000 (indexed for inflation). That's $50,000 for a two-year campaign cycle and $100,000 for a married couple.

''They depend less on the humongous donors," says Steve Weissman, associate director for policy at the nonpartisan Campaign Finance Institute, referring to the national political parties after McCain-Feingold. They do, however, ''depend significantly on people giving thousands of dollars."

As a result of these new, higher limits, small donors (defined as those giving $200 or less) became less important, and big donors became more important to the national political parties. It's true that, during the 2004 campaign, the total amount of dollars raised from small givers increased dramatically for both parties. But the percentage of money that the Democratic and Republican national committees received in small donations actually went down, compared to the previous election. In 2000, 53 percent of the Democratic National Committee's hard money came from donors who gave $200 or less. Four years later, small donors made up only 46 percent of the committee's total.

Likewise, the percentage of money that came from donors who gave the maximum in hard money went up. For the Democrats, the increase was small: 10 percent during Al Gore's run and 12 percent during John Kerry's run. But for the Republicans, the increase was substantial - from 7 percent to 17 percent. (These percentages include only hard money contributions from 2000, not the super-size soft money donations.)

The humongous donors haven't disappeared, of course. But they're playing in that new, parallel universe of 527s. And it turns out that they like it better that way, at least if you measure their satisfaction by the size of their donations.

The cliché is that political money is like water: If you try to block it, it will simply divert itself into another stream. But a study by Weissman and Ruth Hassan of the Campaign Finance Institute found that the analogy isn't quite right. They focused on 73 super-size donors, who had given $50 million in soft money to the two parties in 2000 and 2002. After soft money was banned by McCain-Feingold, these donors ended up giving $157 million to 527s in 2004 (mostly, but not exclusively, Democratic groups).

''Clearly what was happening was not only a shift in their soft money giving, from party to 527, but also a vast escalation in their total donations," Weissman and Hassan write.

What explains the phenomenon? One possibility is that 527 donors are getting more bang for their political buck. In 2004, George Soros exerted more influence over the strategy and tactics of America Coming Together than he ever could have over the Democratic Party proper.

''If you were allowed by law to give $20 million to the Democratic National Committee, of course you would get your phone calls returned," says York. ''But I think with a nonparty group like America Coming Together, you get even better service. Because they don't have to worry about keeping you at arm's length." (The same holds true, of course, for such conservative 527s as the Swift Boat Veterans for Truth and Progress for America.)

In short, it looks as though McCain-Feingold actually increased the influence that big donors have over progressive politics, even though it diverted their money from the institution of the Democratic Party.

Now, after spending hundreds of millions in a losing effort, some of the biggest Democratic 527 donors from 2004 are seeking to increase their clout still further by pooling their resources. A new group called the Democracy Alliance - headed by Rob Stein, who was an aide to former commerce secretary and Democratic National Committee chairman Ron Brown - is creating a network of donors who will make a five-year pledge to donate at least $200,000 annually to recommended progressive groups. Many of the Democracy Alliance's members (reported to include Soros and Lewis) are expected to contribute significantly more than that. The group will probably channel tens of millions of dollars to its preferred organizations.

''Frankly, if Kerry had won, there might not even have been a Democracy Alliance," says San Francisco philanthropist Anne Bartley, a Democracy Alliance board member. ''There is this deepening principle that we can't do it individually anymore. We have to be more organized."

Unlike the Democratic National Committee, the Democracy Alliance plans to focus on long-term goals beyond the next presidential election, to find or to create the groups that will be the liberal equivalents of conservative organizations like the Heritage Foundation or the Federalist Society. ''For now, we will not be focusing on the next campaign or on candidates," Stein says. ''We are about long-term capacity building."

One of the most intriguing elements of the long debate over McCain-Feingold was the extent to which both political parties embraced positions that appeared to be at odds with their electoral self-interest. By supporting a ban on six- and seven-figure soft-money donations, the Democrats looked as if they were cutting off the funding that had finally, in the age of Clinton, narrowed the financial gap between the two parties. Likewise, the Republicans were opposing a piece of legislation that many smart political observers thought would cripple the Democrats.

For once, the pundits were at least half right. The restrictions imposed by McCain-Feingold, at least in 2004, didn't leave the Democrats with empty pockets. Thanks in no small part to Howard Dean and the new Internet fund-raising, the party was able to raise more money than ever. But at the same time, liberals erected a massive, parallel structure that's beholden to its super rich funders and not to the Washington political establishment.

That structure may prove to be enormously beneficial to the Democratic Party, it may have a negligible effect on party politics, or, who knows, it may even be harmful. But no matter what happens, Howard Dean's leadership of the Democratic National Committee will have little or nothing to do with it.

Chris Suellentrop covered the 2004 presidential campaign for the online magazine Slate. He lives in Washington, D.C.

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