President Proposes End to ‘Soft Money’ Donation Loophole

President Clinton, hoping to seize the initiative in a faltering effort to reform campaign finance laws, will ask the Federal Election Commission to abolish the “soft money” loophole that has figured prominently in the controversy over questionable fund-raising during the 1996 campaign, aides said Tuesday.

Clinton plans to send a formal petition to the FEC later this week asking the commission to rule that contributions to national political party organizations must fall under the same regulations as contributions to federal candidates, the officials said.

Under one version of the White House proposal, big contributors apparently would be limited to a $20,000 ceiling on donations to the national Democratic and Republican parties, instead of the virtually limitless sums that they now can provide.

The Democratic Party raised $124 million in soft money for the 1996 campaign. The Republicans raised $138 million--more than twice the amounts they raised in 1992. Increasingly, both parties have used soft money to help the causes of their presidential and congressional candidates, who face limits in the direct contributions they can receive.

Clinton’s action will not have any immediate effect on the way the two parties raise money, officials acknowledged. The FEC has never received such a presidential petition before. No one knows whether the panel will take the president’s advice, or whether such an action would hold up in court.

But White House aides portrayed the move as a bold stroke by which Clinton can help jump-start a sputtering effort in Congress to tighten campaign finance laws.

“This is a way to give a shot in the arm to the reform effort,” said Rahm Emanuel, a senior Clinton advisor. “It’s intended as a way to promote the legislation.”

During the 1996 campaign, the Democratic National Committee, working in concert with Clinton, raised large amounts in “soft money” through White House coffees and other fund-raising events.

At least $35 million of the funds paid for television advertising to support Clinton’s reelection--spending that exceeded the ceiling on “hard money” campaign funding.

But beginning late last year, questions arose about the sources of some of these contributions, particularly whether the money was foreign-linked. The Democratic National Committee has said that it will return more than $3 million because of such questions.

The Justice Department and various congressional committees have launched sweeping investigations into fund-raising practices in the 1996 campaign, focusing heavily on whether foreign sources illegally sought to direct money into the U.S. election process.

Even as he has helped raise unprecedented sums, Clinton frequently has called for limits on “soft money.” He called for campaign finance reform in 1992 and renewed the call in 1996 after the Democrats were embarrassed by the revelations about the soft money contributions.

Under current campaign law--adopted after the Watergate scandal that drove President Nixon from office in 1974--individuals can donate up to $20,000 to a national party organization each year and up to $2,000 to a presidential or congressional candidate for the primary and general election campaigns. These contributions are so-called “hard money.”

But over time, the FEC held that political expenditures that did not directly support a campaign for federal office were not subject to that ceiling. Under burgeoning “soft money” schemes, individuals, corporations and labor unions donated millions to party committees.

Until now, the central focus of campaign reform efforts was a bill authored by Sens. John McCain (R-Ariz.) and Russell D. Feingold (D-Wis.) that would abolish the “soft money” loophole for most contributions.

White House aides emphasized that Clinton was launching his petition to the FEC with the aim of supporting the faltering McCain-Feingold bill. But McCain and Feingold were decidedly less enthusiastic.

McCain “disagrees with the White House decision,” a spokeswoman for him said. “He feels that limiting the role of soft money in politics should be done legislatively.”

In a terse written statement, Feingold said that Clinton’s plan seems “complementary to our effort” and then listed several problems with it. “There is, however, no way to predict what action the FEC would take,” he said. “Moreover, any action that the current FEC might take could be reversed by a future commission. Therefore, the preferable route is to enact legislation.”

Clinton aides acknowledged that McCain and Feingold had expressed concern to the president that a White House petition to the FEC might undercut their bill’s progress by making legislation appear unnecessary.

“Unfortunately, they have not made huge progress,” a White House official said acerbically.

As he petitions the FEC for regulatory action, Clinton also plans to chide Congress for missing his July 4 deadline for passing the McCain-Feingold bill, aides said. The president plans to move the deadline back to Labor Day, a date that congressional aides said seems equally unrealistic at this point.

Clinton’s decision to ask the FEC to change the campaign finance rules through regulatory action is intended as an end run around the entrenched opposition to such reform in Congress, aides said.

But there was no guarantee that the FEC would move fast.

“It’s going to be handled like any other regulatory change,” said FEC spokesman Ian Stirton. “There’s a process that we go through for any change in the regulations and that’s how I imagine the commission will handle it.

“I have no idea how long the process would take,” Stirton said.

The six-member, bipartisan commission would first consider the proposal and, if it decided to proceed, would publish a proposed rule for public comment. On controversial issues, the commission sometimes will publish several alternative proposals.

After hearing from any interested parties, including possibly conducting a public hearing, the commission would decide whether to take action and, if so, adopt a final rule.

The process is likely to take many months. Attorneys familiar with the FEC said that it is virtually certain that nothing would be adopted for the 1998 mid-term elections. The commission is sensitive to the election cycles and avoids adopting new rules in midstream, they said.

Even if the commission imposed new rules for the 2000 election, however, the order could be challenged in the courts--further delaying implementation.

Times staff writers Edwin Chen and Alan C. Miller contributed to this story.

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