Democrats Deeply Split Over Move to Curb ‘Soft’ Campaign Funds : Politics: A bill would close a loophole that lets presidential nominees funnel millions to state parties. Its foes say it would hurt local races.

WASHINGTON —  The Democratic Party is deeply divided over legislation sponsored by Senate Democratic leaders that would prohibit presidential candidates from continuing to use a legal loophole to raise millions of dollars that escape federal limits on campaign fund raising.

With the support of Democratic National Chairman Ron Brown, an irate group of state party chairmen is lobbying Congress strenuously to oppose legislation co-sponsored by Senate Majority Leader George J. Mitchell (D-Me.) and Sen. David L. Boren (D-Okla.).

The Boren-Mitchell bill, which is scheduled to come to the Senate floor this month, has wide support among Senate Democrats. It is a direct outgrowth of the so-called “Keating Five” scandal, in which Sen. Alan Cranston (D-Calif.) and four other senators have been criticized for soliciting large sums from Charles H. Keating Jr., owner of Lincoln Savings & Loan.

But party leaders are concerned that the Senate Democrats, in their zeal to clean up campaign financing, would cut off a large source of funds, known as “soft money,” for state party organizations

Presidential campaigns have been funded by the U.S. Treasury since 1976. But presidential candidates in recent years have been soliciting money from private contributors and funneling it through state parties for voter registration and get-out-the-vote efforts. Although this “soft money” clearly is intended to benefit presidential candidates, it escapes federal regulation because it technically is spent on behalf of state and local candidates.

In 1988, both Republican George Bush and Democrat Michael S. Dukakis openly raised “soft money” contributions of as much as $100,000 from rich individuals to supplement their public funding. It is estimated that, together, they took in about $45 million in such funds--or nearly half as much as the $92.2 million in public funds they received from the government.

The California Republican and Democratic parties were the leading recipients of “soft money” in 1988, according to a study by the Center for Responsive Politics.

Critics argue that such contributions have grown so massive that they are beginning to undermine the system of public financing that was intended to prevent presidential candidates from soliciting large contributions from rich donors.

As Common Cause President Fred Wertheimer asserted: “Eastern Airlines head Frank Lorenzo did not give $100,000 to the Bush ‘soft money’ drive in order to help get out votes for a state auditor’s race.”

As a result, the Boren-Mitchell bill seeks to prevent presidential and congressional candidates from funneling “soft money” contributions into state party organizations.

But Democratic state party chairmen strongly object on grounds that that would virtually destroy their ability to operate voter registration and get-out-the vote drives on behalf of state and local candidates.

“What they want to do is federalize our elections,” James Ruvolo, chairman of the Ohio Democratic Party, complained. “We should not be punished because someone perceived that there’s too much money going into campaigns. Every time the federal government touches an election, they make it worse.”

Ruvolo said that the Democratic state chairmen have organized a committee to bring pressure on members of Congress to reject a ban on “soft money” contributions to state parties. “What we want is a bill that reflects reality,” he said.

Republicans are almost unanimously opposed to the Boren-Mitchell bill. President Bush has proposed alternative legislation that would require public disclosure of all “soft money” contributions.

Ben Ginsberg, general counsel of the Republican National Committee, said that the “soft money” ban proposed by Boren and Mitchell fails to recognize the importance of voter registration and get-out-the-vote activities in state and local races. “If you ban ‘soft money,’ there will be no pool of money to support state and local candidates, and that is nuts,” he said.

The issue has been a particularly touchy one for Cranston, who has admitted raising large quantities of “soft money” for the California Democratic Party during his 1986 reelection campaign, including an $85,000 donation from Keating.

Cranston testified before the Senate Rules Committee Tuesday that the proposed ban on “soft money” will be ineffective because, even though federal candidates could not funnel money through state parties, they could channel it through outside groups such as organizations established to campaign for statewide ballot initiatives.

“ ‘Soft money’ would still pour into elections and into the specific activities mentioned in the bill--voter registration drives and get-out-the vote activities--but state parties would be effectively stopped from carrying out these functions,” Cranston said.