By Peter Overby
Peter Overby has covered money and politics for National Public Radio for five years.

HOW THE SYSTEM WORKS

In Hollywood's version of money in politics, an industry or interest gives a lot of money to a lawmaker, who proceeds to do sweet things legislatively for it. If the system actually worked that way, reporting it would be easy.

More likely, lawmaker and industry have a long-standing relationship, with money as an essential lubricant. Maybe the industry employs a lot of the lawmaker's constituents, or the lawmaker sits on a legislative committee that sets policy for the industry. Government now pokes into virtually every economic interest, from soup (food-safety programs) to nuts (the Fastener Quality Act Amendments Act of 1999). And more than ever, politicians need money to keep their careers going. It's the reporter's task to dissect these relationships, and to try to explain money's role.

So to start, some basics: Political money is ostensibly divided between the dollars that are regulated and those that are not. In federal campaigns, the regulated dollars are called "hard money" -- that is, money raised and spent by candidates, party committees, and political action committees (PACs) under the limits and rules of federal campaign finance laws. The unregulated dollars are "soft money" -- money raised without restrictions by party committees (from corporations, unions, and wealthy individuals) but supposedly not used directly to benefit specific candidates. Though unlimited, soft-money contributions are publicly reported. (Just to muddle things, "soft money" is sometimes used to describe money even farther outside the regulated system; for example, the unreported funds that tax-exempt organizations spend to run "issue" ads or voter drives during an election campaign.)

That said, the rules have become so weak, the fund-raising so relentless, that the line between hard and soft money barely matters anymore. In the 1996 campaign, both parties undermined the system. If the laws weren't broken they were certainly stretched. Since the rules were strained but nobody was punished, this pattern seems set for 2000.

In reporting on how the system really works, think pyramid. The candidate or committee assembles networks of people who pledge to raise a set amount, from a quarter of a million dollars or so, down to perhaps $5,000. Each level of "raisers" typically gets the money from business associates -- people who can't say no. At fund-raising dinners, all of those "hosts," "chairs," "co-chairs," et al. are people who raised or gave different amounts, with access and seating commensurate with the different "tiers." The printed program is a valuable document for identifying a politician's financial patrons.

From the politician's side, the pyramid is formed this way: incumbent lawmakers usually have a steering committee to manage fund-raising; this committee probably includes lobbyists who do business with the lawmaker's legislative committee. The steering committee members, in turn, put together ad-hoc groups who find individual "raisers" to bring paying guests to events.

Parties, meanwhile, both Democratic and Republican, tend to organize big donors into affinity groups, usually around business issues. Membership fees can run to $250,000 and higher. Big donors get access to legislative leaders, sometimes at a small reception before a rubber-chicken dinner, or maybe at a golf outing or at a ritzy resort for the weekend.

Small donors count more for candidates than for parties. You might hear party operatives brag that their average contribution is less than, say, $100. It sounds like politics as it ought to be. But while small donors' hard money may be more valuable, since hard money can be spent to directly benefit a candidate, it's easier and cheaper to go after big soft-money checks. In 1996, the Republican National Committee projected almost identical amounts from Team 100 -- the several dozen mostly corporate donors in its $100,000 tier -- as it did from its entire small-donor operation.

Finally, politicians are becoming donors themselves. An increasing number of officeholders has their own "leadership PACs," funneling interest-group money to other candidates and building obligations in the process. This can put donors in a bind; some complain that they give money to one politician and then see him or her pass it along to someone else -- without giving them credit.

From the donor's side, you'll find different considerations --both financial and ideological.

- Since 1974, donations from individuals have been capped at $1,000 per candidate per election in the hard-money portion of the federal system. The amount has never been adjusted for inflation, so it's tough to cause a splash with individual contributions. Their impact can be boosted with bundling, the technique of collecting lots of small checks and giving them in a bundle to the politician. Bundling was pioneered by groups like EMILY's List (Early Money Is Like Yeast), a PAC promoting pro-abortion-rights women; but bundling is also used by law firms and lobbyists with less ideological motives.

- PACs can be created by corporations, unions, trade associations, and other organizations. A PAC raises money from its members or corporate management, and doles out the contributions to candidates and parties. PACs are limited to $10,000 per candidate for an election cycle (primary and general elections) -- still small change nowadays. Since candidates can take PAC money but not soft money, some entities -- notably unions -- use both. Disclosure rules mean the PAC donations are more easily identified than soft money, though they're often only part of the story.

- Soft money is where the big contributions are found. It can come from a corporate or union treasury or a rich person's checking account. Parties must report their soft money but the sky is the limit, and there's a money race under way. The biggest contributions usually have run in the $250,000 range, but both parties are pushing even that. The smaller soft-money checks tend to be given for business reasons; the larger amounts are sometimes more ideological. But if your local industry is contributing a large amount, you can be sure there's a powerful reason.

- Independent spending campaigns -- that is, a campaign by an entity ostensibly independent of a candidate or party -- are a fast-growing sector of political spending. This can buy a group influence not just with individual lawmakers but also with party leadership. Candidates tend to like independent spending, except when they feel they're losing control of their own race. A current independent-spending trend is pumping money and effort into voter-identification and get-out-the-vote campaigns. They're not as sexy as a TV blitz, but in 1998, organized labor won several tight races this way.

- Another trend to watch: spending by tax-exempt committees. These lie deep in the gray shadows of campaign finance law. Some organizations create them to run media campaigns, including so-called issue ads. Legally, these ads can't call for voters to cast ballots for or against a candidate. What they can do is attack a candidate with a viciousness another politician wouldn't risk. In 1996, a conservative group from Northern Virginia ran ads in Montana accusing a Democratic House candidate of wife-beating.Tax-exempt committees don't register with the Federal Election Commission, so their finances -- even their identities -- often go largely unreported. Identifying them can involve dissecting IRS 990 forms -- the tax returns of tax-exempt organizations, which are public documents -- plus corporate filings and other records outside the usual orbit of political reporters.

Some political scientists argue that the impact of political money can't be quantified, that contributions don't correlate with recorded votes on legislation. But journalists can go hunting for all of the whispered motives, the wish lists, the favors and backroom decisions that don't lend themselves to statistical analysis.

CAMPAIGN-TRAIL MONEY

Democrat Jane Doe is challenging your hometown congressman, Republican Joe Doaks. Here are some questions to ask about the money trail:

FUND-RAISING - Who's on the Doaks and Doe steering committees -- that is, who's at the top of their fund-raising pyramids? What interest groups, local and national, are Doaks or Doe appealing to? How are the fund-raising strategies reflected in their stands on issues? Are any groups giving to both sides?

Look for Doe to get money from trial lawyers and money, manpower, and maybe an independent ad campaign or get-out-the-vote drive from organized labor. Republican Doaks should be getting money, and possibly independent ads, from business and interest groups that deal with his legislative committees. If there are any major reversals to such patterns, find out why; they could be symptoms of a big story.

Also, ask where the candidates raise big dollars outside their districts or out of state. Who are their out-of-state donors; is their interest in the campaign ideological or economic? Who arranges these events and who attends? Finally, check to see who scrambles to climb onto the bandwagon by sending last-minute or post-election money.

PARTY ACTIVITY - Are the Republican and Democratic national committees contributing more or less than the national average to local candidates -- and if so, why? Hard-dollar contributions in House races are called "coordinated expenditures," and they're capped by law. In 1998, the limit for a house race was $32,550.

Soft money, of course, is unrestricted.

MONEY AS A PREDICTOR - Interest groups want to invest wisely, so they constantly reassess candidates' prospects. As challenger, Doe has to convince the Democratic money early on that she has a shot. An early consensus can snowball. The Democratic and Republican national committees keep lists of key or targeted races. It's to the party operatives' tactical advantage to tell you the Doaks/Doe race is on its list. More honest appraisals surface in the operatives' fund-raising memos to lobbyists and PAC managers. Ask sources to leak them.

POST-ELECTION DEBT - Doe, the non-incumbent, is much more likely to go into debt. Typically, congressional candidates lend their own personal funds -- maybe through a second mortgage -- rather than stiff their business neighbors. If Doe beats Doaks, she can schedule a Washington "debt-burning" event as soon as she lines up her committee assignments. The most eager contributors will be her new committee constituents.

THE LOBBYING SCENE

As politicians raise money they have election day on their minds. But most contributors are thinking about what happens after that. Lobbying is the other side of the political money equation; big donors usually have big lobbying efforts.

Political contributions can be a relatively small part of a modern lobbying campaign. For example, Philip Morris (one of the biggest lobbying operations in Washington) reported $23 million in lobbying costs in 1998, but just $3.5 million in individual, PAC, and soft-money contributions in '97-'98. The lobbyists are key decision-makers in determining where campaign contributions will go. As campaign seasons grow longer, lobbying and political money are melding into a seamless web of activity.

There are other ways that lobbying and campaigning blend. For example, the American Association of Health Plans (the trade group of the managed care industry) this year launched a campaign to block "Patients' Bill of Rights" legislation. The strategy was to defuse the issue by convincing Republicans in Congress that the bill wasn't an issue in GOP presidential primaries. So starting last winter, the AAHP (1) polled Republican activists in New Hampshire and Iowa about the issue, (2) reported that the activists opposed more regulation of HMOs, (3) gave the poll results to political reporters in Iowa and New Hampshire, and (4) faxed those reporters' stories to Capitol Hill, the presidential campaigns, and the national media.

Like campaign finance, lobbying is a regulated industry in which the disclosure requirements haven't kept up with mushrooming practices. Congress, for example, requires disclosure of direct lobbying expenditures. But lobbyists don't have to reveal exactly which lawmakers are being contacted or how much is being spent on grassroots (see below) lobbying -- the fastest-growing segment of the business.

Suppose your local company, Gizmoids Inc., has suddenly surfaced as a political player. Here is what to look for:

- Why has the company raised its political profile? It may be afraid of new federal regulations or federal deregulation of a competitor. Check with the agencies that regulate Gizmoid's industry and the legislative committees that oversee the industry. If Gizmoid is a public company, check annual reports and filings at the Securities and Exchange Commission.

- Concerning Gizmoid's direct lobbying in Washington, whom has it hired? What are their political connections? Is a trade association doing the lobbying? What kind of political ties has it knit?

- Which lawmakers are getting campaign money from Gizmoid? Your local member of Congress is probably already on Gizmoid's side. The lawmakers it needs in its corner are the committee and subcommittee chairs, and the House and Senate leadership.

Is Gizmoid involved in a grassroots campaign? That is, are Gizmoid lobbyists organizing voters in key states or congressional districts to write letters or make phone calls to Capitol Hill on Gizmoid's behalf? Does the grassroots campaign include TV and radio? Direct mail? Letters to the editor? Who are the local leaders? Check the public statements of the grassroots organization; sometimes an industry will use a boilerplate press release attributing identical quotes to local officials all over the country.

- Is there a grasstops campaign? This is the newest mutation of lobbying -- an effort to recruit local opinion leaders (politicians, civic leaders, media,clergy, et al.) to take up the corporate cause.

- Is anyone running ads attacking Gizmoid's competition? Who's funding them? In transportation lobbying, for instance, it's not uncommon for one sector of the industry to put together a front group challenging the safety record of a competing sector.

- Who's not being heard from? Disparities in money, access, and organization mean that not all interest groups get a seat at the negotiating table. For instance, in the 1998-99 battle for tighter bankruptcy laws, the credit and retail industries were prominent. But those who would be affected by tighter laws -- i.e., people who will plunge into bankruptcy in the future -- are an unidentified and therefore unorganized group.