ATTACK OF THE SOFT-MONEY LOOPHOLES!

Byline: MARIEL GARZA

THIS summer's real blockbuster won't ever come out on DVD, and it won't be nominated for an Academy Award.

However, it's very likely that ``New Soft Money: The Rise of the 527s'' will have a much more lasting effect on the nation's collective memory than, say, ``Shrek 2.''

Here's the story line:

In a galaxy far, far away called Washington, D.C., in the year 2002, campaign financing reformers managed to put strict limits on campaign donations. The idea was to get money out of politics. (Oh, it took quite a suspension of disbelief to get past that plot point).

This new law made it virtually impossible for people with tons of extra cash and strong partisan leanings to support their candidates with so- called ``soft money'' and thus influence the leadership of the free world.

What's a multimillionaire to do during what could be one of the most important presidential elections in modern history? Find a loophole, of course. After all, what's the point in having more money in liquid assets than most Third World countries if you can't sway an election or two?

Thus the 527 committees were born.

The name, 527, refers to the section of the federal tax code that regulates income reporting of nonprofits engaged in political activities. These committees are not allowed to contribute to individual candidates, at least in the monetary sense, because that would violate campaign laws. But don't be fooled. The 527s support candidates with something much, much better than money: TV ads.

Unless you've lived on the top of the mountain for the past year, you've probably seen or heard of or read about at least one of these 527s. One of the most successful is MoveOn.org, a grass-roots Internet-based group that raises money through events such as nationwide bake sales. MoveOn got a lot of publicity in January for producing an ad attacking President George W. Bush intended for the Superbowl that the network refused to air.

Most recently, the Swift Boat Veterans for Truth, a conservative 527, used its privately gathered funds to air an ad attacking Sen. John Kerry's service in Vietnam.

In a sense, the 527 model is beautiful. Since neither the GOP or the DNC are able to collect the kind of cash needed to spread lavishly across the airwaves - prime-time advertising spots are not cheap - these so-called ``citizen'' or ``grass-roots'' groups can do it for them. The groups associated with the Democrats and organized labor were the first to take advantage of the 572 loophole, gathering money for their Dump Bush campaign. But the Republicans and conservative groups are quickly catching up and tapping their wealthy members for contributions.

And when the political 527s attack the foe candidate directly, and attack they do, the political fallout doesn't touch the pro candidate. It's not like it's Bush himself calling Kerry a wuss, or Kerry rolling his eyes and saying Bush is a big dumbhead - yet that's the net effect.

You gotta admire American ingenuity.

Critics are divided whether this trend is good or bad. Some argue that 527s are just vehicles for free speech, at least for those who can afford it. I think it's more possible that in our misguided attempt at Pollyannaism we've created a monster more horrible than Frankenstein's. ``It's alive!'' And spreading.

According to the Center for Public Integrity, itself a nonprofit organization, as much as $120 million had been raised by these organizations by midyear, and that number has likely skyrocketed by now into figures so large it doesn't even register in the typical human brain.

But we won't know for sure for a while, maybe not ever.

The exponential growth of the 527 committees organized expressly for the presidential election caught the government with its pants down. The CPI found that there were huge discrepancies in what the committees were reporting to the government, which is only requiring disclosure of income periodically and, evidently, not auditing it.

In response, last week, the IRS announced new ``steps to improve reporting and disclosure by tax-exempt 'section 527' political groups.'' Though their new steps sounded suspiciously like old steps. And on Thursday, in response to complaints about the amount of money being spent and unregulated, the Federal Elections Commission said it will start regulating the 527s and imposing new restrictions and limits on contributions beginning in 2006.

All that's too late for this election. And you can be sure there will be a sequel to our current blockbuster once the next election cycle kicks in: ``Loophole II: The Soft Money That Wouldn't Die.''