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Dark money in the 2012 elections (so far)

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As the Senate this week takes up the DISCLOSE Act, a bill that Sunlight and other open government groups are supporting, it’s worth enumerating the reasons why. Let’s start with $115 million.

Call it a very conservative estimate of the 2012 disclosure gap. Sunlight calculated it by totaling what we know about just two of the most prominent 501(c) groups with secret donors have spent ($127 million) and the spending that all such groups have actually reported to the Federal Election Commission ($12 million).

It likely represents just the tip of a dark money iceberg that’s on a collision course with the all-American ideal that democracies should be transparent and that everyone’s vote should count equally.

The much-discussed super PACs may be able to collect money in unlimited amounts. But they – just like politicians and political parties – have to make their contributors public in regular reports to the Federal Election Commission.

The real X-factor in this year’s elections: the nonprofit tax-exempt organizations that so far have spent hundreds of millions and are preparing to spend hundreds of millions more to influence the outcome. These groups, known as 501(c)s, do not have to disclose the monied interests behind them. And in some cases, they never file so much as a sheet of paperwork with elections officials.

How much they’ve all spent so far is unknown. Federal Election Commission rules only require them to disclose the political spending they make 30 days before a primary or 60 days before the November election. Any ads they buy, phone banks they underwrite, or door-to-door operations they finance outside of those windows are not ours to know for now.

Or anytime soon: The Internal Revenue Service gives such groups up to eleven months to file their publicly-available tax returns. That means some of these organizations won’t have to disclose how much they raised or spent in 2012 until November 2013. And it bears repeating: they will never have to disclose donors.

This is highly troubling because it means that our elections are slipping into a dark place where voters have less and less of an idea who is behind the increasingly ubiquitous, negative and deceptive messaging, and what their motives are.

 

Super PACs, 501(c)s and the new campaign landscape

The role of super PACs was a dominant theme in media coverage of the Republican presidential primaries—including the millions that casino magnate Sheldon Adelson and his family poured in to support former House Speaker Newt Gingrich and the millions that investor Foster Friess contributed to keep Rick Santorum alive in the Republican primary.

As of this writing, super PACs have disclosed $240 million in contributions and $140 million in expenditures. New numbers come in on July 20. (See our primer on super PACs here.)

We know this because super PACs have to disclose their expenditures and contributions on a semi-regular basis, giving journalists and others watchdogs plenty to look through. Still, often it’s too late. Throughout the primaries, elections took place before voters learned which millionaire donors were behind the ads they saw.

We know far less about the activities of the 501(c) nonprofit organizations that are spending to influence elections with no requirement that they disclose their donors.

Unlike political action committees, super PACs and 527 groups, 501(c) groups are not considered political committees by the FEC. Which means that what they have to disclose is quite limited, giving reporters and watchdogs less fodder for investigative stories.

Under the tax code, 501(c)(4) groups are technically “social welfare” organizations, and they enjoy a tax-exempt status as long as they devote more than half of their resources towards “social welfare” purposes. That means that 49.9% of their resources can still go to election activities, including electioneering communications (defined as issue ads that air close to an election). The remaining 50.1% of that money can’t be explicitly election-related. But it can go towards “public education” and “lobbying” – terms that have so far been defined loosely enough to cover many things that ordinary people might consider political. They even include “issue ads” that air outside the 60-day window before the general election (or 30 days before the primary) during which they would have to be disclosed.

These nonprofit organizations do file tax returns with the Internal Revenue Services. The returns, called 990s, are publicly available. But they provide only general information about revenues and expenditures, officers and directors and top contractors. Though they do report their donors to the IRS, that information is not made public.

And because organizations can claim 501(c)(4) status at any time, it’s entirely possible that the only paperwork they’ll be required to file will list just a treasurer—who could be nothing more than an accountant or an attorney with no other connection to the group—and a post office box for an address. In other words, groups with almost no footprint could spend millions late in the campaign to influence the race.

It’s also important to note that 501(c)(4) organizations have been around for almost 100 years (they were created as part of the 1913 tax law). The vast, vast majority are legitimate social welfare groups, such as volunteer fire departments, Rotary clubs, veterans’ organizations, and other community-oriented groups that don’t get involved in politics.

And 501(c)(4) groups like the National Rifle Association and the Sierra Club have long been politically active in support of particular issue for years

But a new class of what appear to be nakedly partisan 501(c)(4) groups such as Freedom’s Watch, the American Future Fund and Progressive Future began appearing in the 2008 election cycle.

They appeared in wake of the 2007 Supreme Court FEC v. Wisconsin Right to Life decision, which said it was okay for 501(c) groups to run issue ads without disclosing their donors, as long as they were “independent” of the campaigns.

Since Citizens United cleared the way for 501(c) non-profit corporations (along with for-profit corporations and unions) to also spend on independent expenditures, new 501(c)(4) groups like Crossroads GPS are now spending not in the millions, but the tens, and maybe even the hundreds, of millions.

Additionally, the Chamber of Commerce, a 501(c)(6) organization (a tax-exempt trade-association) and several labor unions (classified as 501(c)(5) organizations) are also actively spending, as they have in previous cycles. Like 501(c)(4)s, these groups do not have to report their donors to the FEC, and can now run issue ads and independent expenditures.

 

Two campaign finance dogs that didn’t bark - yet

Interestingly, two of the greatest super PAC-related fears among campaign finance observers have not yet come true. But the reasons why point to developments we should fear even more.The first fear was that big corporations, now free to spend unlimited amounts on politics in the wake of Citizens United, would indeed pour these unlimited sums into super PACs.

This hasn’t happened. As far as we can tell, the biggest corporate contribution to a super PAC came in 2010, when MGM Resorts International gave $300,000 to Patriot Majority PAC, which received the majority of its funding from labor unions.

Nothing close to that has happened this cycle. Looking through the files, we see, for example, that the Pacific Gas and Electric Company (PG&E) gave $10,000 to the now apparently defunct Rebuilding America super PAC and AT&T’s federal PAC gave $5,000 to American Crossroads, among a few other smallish donations. But nothing like the predicted tsunami.

The most likely reason is that corporations with public brands don’t particularly want to be seen as political. The case of Target – in which the company’s CEO wound up publicly apologizing for a $150,000 donation in 2010 to an outside group supporting an anti-gay gubernatorial candidate in Minnesota – has been seen as a cautionary tale.

Corporations want to keep their donations secret because they don’t want to risk alienating consumers with different politics. What this means is that their money is probably going directly to 501(c) organizations, which don’t disclose their donors.

The second fear was that most of the money contributed to super PACs would come from 501(c)(4) organizations that would effectively serve as money-laundering vehicles. Big corporations would give directly to an organization like Crossroads GPS, a 501(c)(4), which does not have to disclose its donors. Then Crossroads GPS would give directly to an affiliated super PAC like American Crossroads, which does disclose its donors. However, this transfer would show up only as “Crossroads GPS” – effectively anonymizing the corporate contributions.

But this hasn’t really happened either. Crossroads GPS doesn’t show up once in the list of donations to American Crossroads. Democratic Priorities USA (a 501(c)(4)) has only made two transfers adding up to $215,000 to the Priorities USA Action super PAC. The only major super PAC that’s funded primarily by a 501(c) is the NEA Action Fund, which has received almost $3.5 million from the 501(c)(5) National Education Association, one of the major teachers’ unions.

Instead, it appears that the 501(c)s are just going ahead and spending the money themselves. So far, Crossroads GPS has boasted $83 million of political advertising on its own website (which we’ve compiled here through July 5), as compared to just $3 million that American Crossroads has made in independent expenditures. NPR recently reported that through March 2012, 80% of Crossroads-related donations went to Crossroads GPS, not American Crossroads.

This is likely a sign that the 501(c) groups have realized they don’t need to give to the super PACs to run political ads. They can just do it themselves, and with fewer reporting hassles. It looks like they are simply cutting out the middle man. The problem is, we could at least sort of follow what the middle man was doing. Now we know even less.

 

New push for disclosure

There has been an ongoing battle as to whether the 501(c) groups that run political ads can continue to get away with not disclosing their donors, given that they appear to be acting as political committees. In May, a three-judge panel of the D.C. Circuit Court upheld a lower court ruling to require more comprehensive disclosure of “electioneering communications” (ads that mention federal candidates without explicitly urging viewers to vote for or against a specific candidate) and their donors.

The case, Van Hollen v. FEC, argued that the FEC improperly narrowed its own disclosure rules by saying that organizations like 501(c)s would have to disclose only those donations that were specifically earmarked for electioneering communications (which pretty much never happens).

Our best guess, however, is that even if the courts insist on it, the perpetually deadlocked FEC will be unlikely to ever get around to complying, which means that we won’t learn the donors of 501(c) groups running electioneering ads anytime soon. However, as a precaution, the Chamber of Commerce is reportedly switching its electioneering communications to independent expenditure ads to keep its donors secret, should the FEC for some reason miraculously adopt new electioneering communications disclosure rules. Other groups may be doing this as well.

It is worth noting a certain irony here. Independent expenditure ads are more explicitly political than issue ads, since they urge a vote for or against a specific candidate, rather than merely mentioning the candidate. So, in order to avoid disclosure, the Chamber is shifting to an even more direct form of political advertising.

Still, despite all the opacity surrounding 501(c) campaign activity, there are a few things we’re reasonably sure of.

 

A few things we think we know

1. Current cycle dark money reported to the FEC through Q1 2012: $12.4 million

As we noted last in June on the reporting blog, “So far this year, groups that do not disclose their donors, and legally are not required to do so, have reported almost $12.4 million in political spending to the Federal Election Commission.” This includes $1.7 million from the Planned Parenthood Action Fund, and $1.5 million from The American Federation of State, County & Municipal Employees (AFSCME).

It also includes $3.3 million from the Chamber of Commerce and $256,000 from Crossroads GPS.

However, as we noted, that number, “does not include contributions made by dark money groups to super PACs, which register with the FEC and disclose their donors…Nor does it include spending on electioneering communications outside the window in which such political advertising is reported to the FEC.”

In other words, all we were able to report were the issue ads run within 30 days of a primary election. Which is almost certainly a sliver of the total activity.

2. What a few groups themselves have reported (at least $115 million) and promised to raise (close to $1 billion)

By our count, Crossroads GPS has announced ad buys totaling $83 million so far. If their promises are to be believed, they’re only getting started. Karl Rove’s team has claimed to have already raised at least $100 million and has a goal of $240 million in mind.

Meanwhile, the U.S. Chamber of Commerce president Tom Donohue has publicly stated that his group will spend more than $50 million. The Chamber began spending in March in 19 races, earlier than it ever had before. Politico is reporting that the “U.S. Chamber has a goal of $100 million.”

Americans for Prosperity, founded by the Koch Brothers, has reportedly spent $32 million and counting, including a $9 million ad buy targeting Obama in response to the Supreme Court healthcare ruling. Politico is reporting that Americans for Prosperity is aiming to raise about $400 million. Politico also has estimated some totals for a few smaller groups, bringing its total of promised spending up to about $1 billion.

The Washington Post, using political ad spending data from Kantar Media, has tallied $222.6 million on presidential ad spending through July 10, including $29.2 million for American Crossroads and Crossroads GPS combined, and $14.9 million for Americans for Prosperity. Unfortunately, the Post only looks at presidential spending, and does not always distinguish between groups that disclose donors and those who don’t.

It’s also possible to search Time Warner Cable’s “Political File” for political advertising schedules, which will cover ad buys for 501(c) organizations along with political committees. But again, this only gives us at best a partial picture, since Time Warner is not the only cable provider. It is also not a particularly easy way to track the spending.

3. Dark money reported to the FEC in the 2010 cycle: at least $126 million

Based on FEC disclosures, Sunlight counted at least $126 million from outside groups that don’t disclose their donors in the 2010 election cycle, most prominently the U.S. Chamber of Commerce, the American Future Fund, and Crossroads GPS.

This is a big number, but since the disclosures are limited to electioneering communications within 60 days of the general and 30 days of the primary elections, these numbers are almost certainly on the low-end. Still, they serve as a bottom threshold of what we might expect in the 2012 election.

4. The few donors who have come to light

Though these 501(c) groups have largely kept their donors secret, a few big donations have been reported.

Sheldon Adelson has reportedly given $10 million to Crossroads GPS and may be giving another $10 million. He has also reportedly promised to give another $10 million to Americans for Prosperity, and has said he may give $100 million total before the cycle is over. This information is only available because Adelson has not been particularly coy about his contribution. He seems to like the attention. Unfortunately, we can’t build a disclosure system around attention-seeking billionaires.

Additionally, the Center for Responsive Politics identified more then $100 million in donations to nonprofit organizations going back to the 2010—mostly coming from other nonprofits that don’t have to disclose their donors

We also know that the insurance giant Aetna contributed $4.05 million to the Chamber of Commerce and $3 million to the American Action Network last year. The company, however, appears to have disclosed this information by accident. They were certainly not required to do so.

A recent New York Times analysis of the role of 501(c) groups reported on donations from Prudential Financial, Dow Chemical, and Merck to the U.S. Chamber of Commerce. As the article noted, “There is growing evidence that large corporations are trying to influence campaigns by donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs.”

5. Outside spending is becoming the new norm

Over the last three elections, the amount of outside spending has grown dramatically. Over at the Center for Responsive Politics, Bob Biersack documented the growth, showing that total FEC-reported outside spending had risen from $20 million in 2004 to $120 million in 2012 through April of those cycles, with most of the money coming in the form of independent expenditures.

Presumably, candidates would prefer to let others do the dirty work of attacking their opponents and remain above the fray themselves. That’s why these independent expenditures are becoming more popular. Biersack’s figures, however, do not include 501(c) groups.

Summing up what we know

So if we total up what we think we know on the spending side, that’s $83 from Crossroads GPS, $32 million from Americans for Prosperity, and $12 million in what groups have reported to the FEC. That’s $127 million. Already that’s more than what we counted in 2010 for dark money.

On the contributions side, we’ve also got $240 promised by Crossroads, maybe $300 million, and more than $50 million, maybe $100 million by the U.S. Chamber.  Plus another $400 million from Americans for Prosperity. That’s as much as $900 million for just three groups.

But we know there are more groups out there. And these figures may or may not represent anything close to a complete picture.

 

What we don’t know

1. The spending 501(c)s have NOT reported to the FEC

As described above, our reporting group found only $12.4 million in FEC-reported spending from groups that do not disclose their donors through the first quarter of this year. As we’ve said, we have good reason to suspect there is significantly more activity not being reported.

We know what these groups have said, what they’ve told reporters, what they’ve announced on their websites, and what Kantar Media has tracked for their ad buys.

While we have somewhat of sense of what Crossroads GPS, the Chamber of Commerce, and Americans for Prosperity are doing, we know much less about other major players from 2010. For example, while both the American Action Network ($21 million in reported spending in 2010 and the American Future Fund ($9.6 million in reported 2010 spending) appear to have spent some money in 2012, they haven’t announced how much they plan to raise or spend.

Without a central reporting system in place, there is now way to keep accurate tabs on the spending. Our best guess can only be a guess.

2. What other companies (besides Aetna) and other rich donors (besides Adelson) are giving

We know that Aetna – a politically active company – donated $7.05 million to 501(c) groups. Could other companies be doing the same?

If we assume 50 companies gave at the same level, that’s $350 million going to 501(c) groups. No major company has shown up in a super PAC filing, though some have given to the U.S. Chamber of Commerce. Are they putting their money into other 501(c) groups?

We can also infer something from Mitch McConnell’s recent rhetorical gymnastics to protect continued secret donations in the face of all logic. We can guess that there are some important big donors who very much would like to keep their donations secret, and McConnell will go to any length to do it.

 

What to do: Pass the DISCLOSE Act

The best thing we can do right now is pass the DISCLOSE Act. The bill will create robust reporting requirements for super PACs, corporations, unions and nonprofit organizations that decide to make campaign expenditures. It will also require reporting of transfers by those groups to others making such expenditures, to prevent the money laundering that makes it easy to hide huge campaign contributions.

The DISCLOSE Act peels away the layers hiding the true sources of money behind electioneering communications. It would require Super PACs and 501(c)s, and any other outside group spending $10,000 or more on election-related activities, to disclose within 24 hours any donor who has given more than $10,000 to the organization. To eliminate the possibility of contributions being laundered through shell organizations, transfers between organizations are also subject to disclosure, if the transfers are made to fund campaign-related spending.

The DISCLOSE Act will also require ads to contain disclaimers by the top officials of such groups, similar to the stand by your ad mandates required of candidates. In addition, shareholders and members of outside groups will be informed of campaign spending, and lobbyists will be required to report their spending on independent expenditures and electioneering communications.

 

Conclusions

All signs point to 2012 being the most expensive election ever. But it will be also be the hardest election in which to track spending since the creation of the modern campaign finance reporting system forty years ago.

We increasingly have a campaign finance system in which large corporations and wealth donors can influence elections anonymously, working through nonprofits.

This is not good for the intellectual vibrancy of our democracy. In order for a democracy to function well, citizens need to be able to adequately evaluate political information. A key part of evaluating information is knowing where the information comes from, who is behind it, and what their intentions are.

As James Madison once warned, “a popular government without popular information or the means of acquiring it, is but a Prologue to a Farce or a Tragedy or perhaps both.”

Perhaps our concern is best expressed by Justice Antonin Scalia, who wrote in a concurring opinion in Doe v. Reed (a 2010 case upholding a Washington state disclosure law) that, “requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.”

Democracy itself is an act of civic courage. The Declaration of Independence wasn't signed by Anonymous. Those who sign the big checks should have the very same courage in their convictions.

Special thanks to Alex Engler for his help researching this post