`BACKDOOR DOLLARS' FUEL PRESIDENTIAL RUN : LOOPHOLE ALLOWS FIRMS AND INDIVIDUALS TO GIVE VAST SUMS TO PARTIES.

Byline: Leslie Wayne The New York Times

Even though Republicans and Democrats strongly argued for campaign finance reform this year, both parties are taking advantage of a variety of loopholes to get around federal campaign spending limitations, making the 1996 presidential race the most expensive in history.

These loopholes are allowing corporations to pour money into the presidential race at record levels - at far more than the $5,000 legal limit. This year each party expects to raise $120 million to $150 million in private donations - in addition to the $172 million in federal money given to both parties.

By November, some experts say, campaign spending may well surpass $600 million - money spent by the parties, by the candidates' campaigns and by outside organizations, like labor unions or advocacy groups, on the candidates' behalf.

The biggest force behind the surge in fund-raising is the growth of what are known as soft-money donations, money from rich individuals and corporations that goes to the parties, not to the candidates.

Critics say that soft dollars have become a backdoor source of money in the presidential race that is easy to raise, hard to trace and makes a mockery of laws designed to prevent corporate influence peddling in Washington.

``The parties find it is a lot easier to raise $100,000 in soft money with one phone call to a corporation than to try to collect $1,000 donations from individuals,'' said Ellen Miller, executive director at the Center for Responsive Politics, a nonprofit research group.

``Soft dollars are like cyberspace accounting - it's hard to follow where it goes,'' Miller added. ``This is classic `wink and a nod' behavior. Soft money barely makes the letter of the law. And within the spirit of the law, it's a joke.''

The power of soft dollars came into play at the recent Democratic National Convention. At a luncheon paid for by the Public Securities Association, a Wall Street trade group, and several Wall Street firms, the Democratic Party honored members of its ``Business Council,'' those who gave $10,000 or more, with a chance to meet with Treasury Secretary Robert Rubin. Many executives having lunch with Rubin were from businesses directly affected by Treasury decisions.

In addition, the executives were approached for even more money. Rubin gave a brief speech extolling the Clinton economic plan and criticizing Bob Dole. He was followed by Terry McAuliffe, a Democratic Party official, who praised Rubin as ``the greatest fund-raiser in the history of the planet.'' Then, after explaining that ``by law, Bob can't raise $1,'' McAuliffe exhorted the crowd to donate even more.

Under laws enacted in 1974, individuals can give only $1,000 to a presidential candidate, and corporate political-action committees are limited to $5,000 donations. To offset the loss of that private financing, money from the federal government was made available to candidates starting in 1974. This year, each candidate will receive $74 million for the general-election campaign and $12 million for the convention.

But a glaring loophole remained - corporations and individuals were allowed to give unlimited amounts to the national parties for activities like voter registration, television advertising and get-out-the-vote campaigns. This soft money is supposed to promote the party, and not specific candidates, but many see this as a distinction with little difference.

The $10,000-a-ticket 50th-birthday dinner for President Clinton last month raised money for the Democratic Party. But, said one prominent Democratic fund-raiser, who spoke on the condition of anonymity: ``You can spend $10,000 to wish happy birthday to Clinton, and it doesn't violate federal rules.''

Soft money was slow to catch on in the mid-1980s, and only became a force in the 1990s. Now, ``the soft money numbers are off the charts,'' said Charles Lewis, executive director of the Center for Public Integrity, a nonprofit research group.

``This money is disbursed silently and mysteriously,'' Lewis added. ``It is hard to track where it goes, but it supports the candidates. That's why it's called soft money, because it is so squishy. It can grease the skids in Washington for some powerful companies, while the average citizen doesn't have access.''

Between Jan. 1, 1995, and June 30, 1996, both parties already exceeded previous soft-dollar records, and fund-raising is still in full swing.

The Democratic Party has raised $70.3 million in soft dollars so far - more than twice the $34.5 million it raised in the entire 1992 presidential race, according to the Center for Responsive Politics. By the end of June, the Republican Party raised $83.9 million in soft dollars, almost double the $49 million raised in 1992.

Party fund-raisers, while decrying the amounts spent this year, say both parties are caught in a financial version of an arms race - each wants a financial war chest as big as their opponent's. Bipartistan legislation that would have barred political parties from handling soft money was killed in Congress this year.

``I have no reason to feel uncomfortable with soft dollars,'' said Howard Leach, finance chairman of the Republican National Committee. ``All the parties do them and, unless the rules are changed, they will continue. I personally would like to see campaigns cost less money and run for a shorter period. But since our opponents are running an expensive campaign, we have no alternative but to buy high-priced media like they do.''

David Eichenbaum, communications director for the Democratic National Committee, said: ``There is no question there need to be changes in how campaigns are financed. But until the overall system is changed, we are not in a position to say we won't raise money. We want a level playing field.''

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Chart: Top Contributors Of `Soft Money'