Not everyone in the campaign finance reform community has declared all-out war on the so-called “shadow” groups operating under Section 527 of the Internal Revenue Code.

A group called Campaign Money Watch has developed an alliance with the leading Democratic 527 group, America Coming Together, and recently received a $100,000 contribution from the organization.

“We have an ongoing, cooperative relationship,” confirmed David Donnelly, the Massachusetts-based director of Campaign Money Watch, a 527 group affiliated with Public Campaign that promotes public financing of elections through “direct voter education in the context of campaigns.”

Donnelly said Campaign Money Watch and ACT first began working together last year, collaborating on educating voters about the “role of special interest money” in elections, and will continue to do so throughout the election cycle.

Funded largely by money from organized labor and wealthy individuals, ACT raised nearly $13 million last year to conduct a massive voter outreach program, which, according to the group’s Web site, is aimed at “mobilizing voters to defeat George W. Bush and elect progressive candidates all across America.”

The watchdog groups Democracy 21, the Center for Responsive Politics and the Campaign Legal Center recently filed a complaint against ACT and two other 527 groups with the Federal Election Commission arguing that the groups are operating “illegal schemes” intended to get around restrictions and inject soft money into 2004 federal elections.

“At least one of these groups, America Coming Together, is operating, or intending to operate, as a conduit for indirect spending by unions of their treasury funds on partisan voter mobilization activities aimed at the general public to influence the 2004 president election,” their complaint alleged.

Campaign Money Watch bills itself as “nonpartisan” in nature, and Donnelly said he isn’t sure the relationship “will extend to fundraising at all in the future.” But for the time being, they intend to work together to communicate the message to voters that the Bush administration is the “most connected to special interest money and has done the bidding of their contributors more than any other administration since the days of the robber barons and railroad trusts.”

“Of all the candidates in the race, both [Massachusetts Sen. John] Kerry and Howard Dean have the best record in terms of supporting comprehensive reform,” said Donnelly, who decried the recent depiction of Kerry in a Washington Post story that showed the Senator has received more special interest money, in the form of contributions from lobbyists, than any other Member in the Senate.

“The missing pieces of those stories are what he’s willing to do to clean up the system,” Donnelly said, explaining that Kerry and the late Sen. Paul Wellstone (D-Minn.) together introduced the single most comprehensive piece of campaign finance reform legislation aimed at creating a public finance system.

ACT spokesman Jim Jordan, who served as Kerry’s campaign manager until a staff shakeup occurred last November, praised Campaign Money Watch and said his organization was looking forward to working with them.

“They do fantastic, interesting work that we believe will help decide the elections. They’re a very talented team of researchers who are digging up information, connections, transactions that we think will be interesting to the public,” Jordan said. “We honestly believe this is a real political vulnerability of the Republican Party as a whole, and we intend to use it to our advantage.

“We’ll use evidence of Republicans’ ties and sell-outs in all of our communications,” Jordan continued. “It’s a compelling political argument and one of the real political weaknesses of President Bush and the Republican Party as a whole.”

Using the name “Reform Voter Project” in the 2002 campaign cycle, Donnelly’s group ran ads criticizing then-Sen. Tim Hutchinson (R-Ark.) and now-Sen. John Sununu (R-N.H.), both of whom opposed campaign finance reform legislation. The Reform Voter Project spent $1.4 million total in the 2002 election cycle.

As for the hotly debated 527 issue, Donnelly defended the rights of such groups and criticized efforts by some members of the FEC and others to crack down on 527s.

“I think they’re, certainly, currently legal,” Donnelly said, adding that his group may issue a statement addressing a pending FEC advisory opinion on the issue sometime this week.

“Right now, I don’t think we can necessarily call the activity here an abuse, because the [McCain-Feingold] legislation that was passed didn’t necessarily crack down on 527s in how they raised money … it simply cracked down on how they were going to spend that money and when they spend that money,” he said.

But in a floor speech last week, Sen. John McCain (R-Ariz.) railed against the “recent creation” of new Section 527 groups, calling it “the first broad-scale attempt to undermine BCRA.”

While McCain said he has no beef with “legitimate 527 organizations” that are nonpartisan and “work to do the things we want to further the goals of democracy,” he is upset about “groups that have recently been set up for the sole purpose of raising or spending tens of millions of dollars in soft money to influence the 2004 presidential and congressional elections.”

“These new groups, however, which have made clear that their purpose is to influence federal elections — they have not made any bones about it — have purportedly set up ‘non-federal’ accounts to accept corporate and labor union funds and large contributions from individuals,” McCain said. “They plan to use these monies, we are told, to finance partisan voter drives and run sham issue ads aimed at influencing the 2004 federal elections. This blatant end run around the campaign finance laws should not be tolerated.”

The FEC, meanwhile plans to take up a key advisory opinion on the issue on Feb. 18, when it addresses questions posed by the Republican group Americans for a Better Country. The FEC delayed plans to consider a draft proposal on the subject last week at the request of Democratic commissioners, who asked for more time to consider all the ramifications of the issue.

Michael Toner, a Republican who sits on the FEC and has been a strong proponent of regulating 527s, praised McCain’s leadership on the issue and said he “thought it was critical the agency know where the sponsors of the legislation are in terms of where we go on this matter.”

Like other organizations that are still feeling their way through the brave new world post-BCRA, Donnelly said his group is thinking about giving up its 527 status to qualify for the so-called MCFL exemption — so named for the court case involving the group Massachusetts Citizens for Life.

To receive an MCFL exemption, a group must meet a three-part test: It must have been created for ideological purposes; it may not accept any funds from for-profit corporations or unions; and it is prohibited from making for-profit business transactions. Groups that qualify are not subject to certain electioneering communications restrictions and may continue to conduct advertising during the 30-day window preceding a primary and the 60-window prior to a general election.

Donnelly conceded that this would make contributions such as the one his group recently received from America Coming Together illegal, but he believes the flexibility it would allow is a better tradeoff.

“We’d have to rely on individual contributions, or we’d have to know that an organization giving to us is not receiving money from union or corporate resources,” Donnelly explained. “Is it a hardship? Perhaps, but we think [campaign finance] is an important issue for us to talk about. We think it’s the best approach to take.”