Campaign watchdogs have issued dire warnings that unless the Federal Election Commission revises its arcane allocation formulas that apply to 527 groups that conduct partisan voter drives, the agency runs the risk of opening up a massive loophole that could allow a new flood of soft money to wash into federal campaigns.

“We have this anachronistic, leftover allocation formula which must be fundamentally changed or else the old fiction that destroyed the past campaign finance laws, the old FEC fiction, is going to come back into play in the 2004 federal election,” warned Democracy 21 President Fred Wertheimer.

Last week, the FEC issued advice to the GOP-leaning group Americans for a Better Country that laid out some specific rules for how the organization — which operates a federal PAC as well as soft-money accounts — must pay for various election-related activities.

The compromise cobbled together by Republicans and Democrats on the commission stated that organizations operating under Section 527 of the Internal Revenue Code that have both federal and nonfederal accounts and are therefore registered with the FEC will have to use hard money when paying for communications that “promote, support, attack or oppose” federal candidates.

That pronouncement pleased supporters of the McCain-Feingold approach to campaign finance.

But the FEC also said independent groups like ABC can still use a mix of soft and hard money to pay for voter registration and get-out-the-vote activities. That decision has some reformers calling for changes to the FEC’s current allocation ratios when the agency takes up a broader rulemaking on the 527 issue this spring.

Wertheimer charged that if the FEC chooses to leave its current “ludicrous allocation formulas” on the books, so-called 527s with both federal and nonfederal accounts could take advantage of the existing formula to “push soft money into the presidential and Congressional races.”

To illustrate his point, Wertheimer points to the Democratic-leaning group America Coming Together, which was formed last year with the explicit purpose of “mobilizing voters to defeat George W. Bush and elect progressive candidates all across America.”

“To understand how absurd the current allocation formula is, if you look at a group like ACT, whose overriding explicit purpose is to defeat President Bush, ACT has assigned 98 percent of their expenditures in 2003 to state and local activities,” Wertheimer said.

Advocates of the 527 groups like ACT discount Wertheimer’s arguments as hyped-up nonsense.

“It is absurd to start clamping restrictions down on groups in the name of completely hypothesized evils,” said one attorney close to ACT and other organizations affected by the FEC’s recent action.

“What the reform community is offering us is complete chaos in the middle of the election year … if they would have their way to dramatically change the current rules on these allocations,” charged the lawyer. “There is no body of evidence out there that says [ACT President] Ellen Malcolm is about to corrupt American democracy.”

Malcolm founded EMILY’s List, a group created to elect pro-choice Democratic female candidates that subsequently became the largest political action committee in the country. She is now leading ACT’s effort to build its membership and raise $75 million to support its voter contact program this year.

ACT spokesman Jim Jordan said the group is “proceeding with our business exactly as planned” despite the FEC input.

“We do not believe it’s likely that the commission will radically alter long-standing political rules so close to an election and we’re confident that our organizations will successfully fulfill their mission,” Jordan said.

Roughly speaking, the law at present allows nonconnected groups conducting partisan voter mobilization activities to fund their exercises with a mix of hard and soft money.

The determination for just how much soft money they can utilize, however, is essentially determined by dividing the total amount of hard money the group spends supporting federal candidates by the total amount of hard and soft money a group raises — and therein, according to Wertheimer, lies the problem.

“If they haven’t given any money to a [federal] candidate, you get a 100 percent [soft money] formula,” Wertheimer said, noting that he would prefer an allocation system whereby there is a minimum requirement for federal funds to be used.

For instance, the old allocation formula applied to national party committees, when they were still allowed to collect soft money, required that a minimum of 65 percent of their spending had to be from hard funds in a presidential election year.

But supporters of these 527 groups argue that they do not deserve to be treated like party committees.

Officials argue that they are not coordinating their activities with federal candidates so age-old corruption arguments just don’t hold up — and activities such as delivering legitimate issue-advocacy messages and mobilizing voters shouldn’t be subject to strict regulation by the FEC.

The reform crowd, however, isn’t buying it.

“Their only purpose is to influence the presidential election,” Wertheimer said in reference to ACT, which is the subject of a complaint that he and several other groups — including the Campaign Legal Center and the Center For Responsive Politics — filed recently with the FEC.

Most 527s, meanwhile, reacted positively to last week’s FEC decision.

Wes Boyd, president of the MoveOn.org Voter Fund, said in a statement that he was “gratified” by the FEC’s ruling, which “makes clear that the MoveOn.org Voter Fund is operating within the intended meaning of the McCain-Feingold campaign finance law, and that we can continue our activities and ads that focus on the policies and performance of George W. Bush.”

Still up in the air, however, is how the FEC plans to deal with groups like The Media Fund, a effort spearheaded by former Clinton aide Harold Ickes to raise $80 million from unlimited donations in order to finance an independent television and radio ad campaign intended to benefit the eventual Democratic nominee for president.

The Media Fund, a 527 that had raised $3 million as of Dec. 31, 2003, has not registered with the FEC as a political committee, thereby avoiding disclosure requirements.

In its highly anticipated 527 rulemaking, the agency has indicated it will address the critical, pivotal question of when a group is required to register as a political committee— and one that has stumped the FEC in the past.

An agency rulemaking effort along those lines was frozen mid-course in 2001 when commissioners couldn’t reach agreement on the definition of the term “political committee.”

While Ickes has defended his activities with the distinction that his group is not a party committee, others have taken issue with what they depict as merely a “shadow” Democratic Party created to circumvent the Bipartisan Campaign Reform Act’s soft-money ban.

The complaint filed by Democracy 21, the Campaign Legal Center and the Center for Responsive Politics argues that the overriding purpose of the Media Fund is to influence the 2004 presidential election.

The watchdogs insist that under existing campaign finance laws, the group is required to register as a federal political committee.

“The FEC can’t ignore reality here and buy into some fictional view that the $10 million that George Soros pledged to this group was to influence state and local elections,” Wertheimer said. “That just is not real.

“That’s why we argue that for a group like ACT, the whole entity, needs to be treated as a federal committee.”