Lost in the widening scandal over the IRS targeting of conservative political groups: The fact that most of them were not the big political players of 2012.
As often happens, Washington’s big story of the moment--that the Internal Revenue Service targeted dark money groups that filed for nonprofit status if they had the words "tea party" or "patriot" in their monikers--misses the big point.
Of course the IRS should never be used for political purposes; it should apologize for giving an extra scrutiny to groups requesting non-profit status if they appeared to be Tea Party affiliates. Our question is: Why did they pick on the little guys when they’ve got so many larger, more legitimate targets for scrutiny?
Back in July, Senate Republicans successfully blocked the DISCLOSE Act, which would have required all organizations spending $10,000 or more to reveal their donors. Now we understand why.
Though Nov.1, $213.0 million has been spent by “dark money” groups to influence the 2012 elections. Of that, $172.4 million (81%) has been spent to help Republican candidates, as compared to $35.7 million (19%) to help Democrats. (By “dark money” we mean groups that do not disclose their donors and only are required to disclose their congressional race spending within 60 days of House and Senate elections and their presidential race spending following the national party conventions).
Outside money is flooding into U.S. House races, primarily from party committees, but also significantly from dark money groups and super PACs. And though Democrats need to win 25 seats to take back the House (which most forecasters deem unlikely), nobody is giving up on anything, judging from the recent cash infusions.
We are now at $218.8 million in House outside spending, with almost one-third of that money coming in the last 10 days, and more than half of it coming since October 1. Republicans lead in outside money $119.6 million to $96.7 million, including a two-to-one lead in dark money. Democratic super PACs, meanwhile, have outspent Republican super PACs.
What this money all adds up to, we are still waiting to see. For now, the best we can do is to give our best take on the current state of play.
Outside money continues to pour in at a record pace this election cycle, and beyond the presidential race, the biggest general election spending totals are all in Senate races: $29.7 million in Virginia; $24.6 million in Ohio; $22.2 million in Wisconsin; $18.5 million in Nevada; $16.3 million in Montana. And counting. All told, outside groups have dropped $189.4 million into Senate races as of October 23.
And no wonder: the Senate remains very much up for grabs, and the parties are very close in their levels of outside spending – unlike both the presidential and House races, where Republicans have the outside spending edge. In the Senate outside money chase, Republicans have a very narrow lead, $97.3 million to $92.1 million.
Of particular interest is that Republicans are relying much more on non-party organizations – primarily Crossroads GPS and the Chamber of Commerce – that don’t have to disclose their donors and only have to report their spending within 60 days of an election. Among these types of groups, Republicans lead Democrats $56.2 million to $24.6 million. And significantly, while party committees are limited in the amount of money they can raise from any one individual ($30,800 per cycle), groups like Crossroads GPS and the Chamber can receive unlimited contributions. By contrast, Democrats are still relying much more on the traditional party structure.
First, an overview of the outside spending, by state:
The Crossroads network has spent approximately $174,285,625.40 on the 2012 election and almost three out of every four dollars (70.5%) of this organization’s spending has come from anonymous donors.
This sum essentially ensures that Crossroads will be the most influential outside group in this election cycle. To illustrate: Crossroads has doubled the spending of the pro-Romney super PAC Restore our Future and may even outpace the incredible performance of the Republican National Committee.
Crossroads GPS, the 501(c)4 arm that does not disclose its donors, has spent $122,954,165.33 according to press releases and information reported to the FEC. GPS’s sister super PAC, American Crossroads, has shelled out another $51,331,460.070 in this election cycle. The Karl Rove and Ed Gillespie inspired powerhouse of outside spending has skewed more towards anonymous sources of funds in this election: only 44% of the $38.6 million that Crossroads doled out in the 2010 cycle came from GPS’s furtive patrons.
This indicates that either more donors or the donors who are giving the most are choosing to remain anonymous. Given the tremendous amount of attention that mega-donors like Sheldon Adelson have received for their political involvement, it is not surprising to discover that many donors are choosing secrecy.
It is important to keep in mind that there is no way to know how much Crossroads GPS is sitting on, and the balance of American Crossroads is only disclosed quarterly. Depending on its cash on hand, Crossroads may be within striking distance of the ambitious $240 million goal that was set when former Governor Haley Barbour signed on as chief fundraiser just over a year ago.
The two groups have combined for just $1.2 million in expenditures supporting a candidate, meaning that 99.3% of their spending is on negative ads. For comparison’s sake, 72% of the spending from all 822 super PACs in this election has been negative.
As Election Day approaches, two major dark money organizations have been maintaining their aggressive pace of anonymously funded election spending.
Crossroads GPS has now spent at least $108.8 million on political ads this cycle, including over $12 million dollars worth of ads so far in September. The Koch brothers-founded Americans for Prosperity has increased the pace of its spending, hitting a total of at least $65 million, with $32 million coming in the last six weeks. All of Americans for Prosperity’s expenditures have been directed at President Obama, whereas Crossroads GPS has aimed over two thirds of its spending at the President and most of what remains at Democratic Senate candidates.
The combined total spending for just these two dark money groups ($174 million) approaches the total of all Super PAC spending, which comes in just shy of $242 million.
Despite the impressive volume, the altered nature of the ad spending by these 501(c)4 tax-exempt organizations is even more intriguing. Recent developments put to rest the speculation about how a shifting legal environment might have affected their ability to continue spending while keeping the identities of their donors a secret.
It is now clear that through a concerted shift to change the legal classification of their advertisements, Crossroads GPS and other similar groups have taken steps to continue to avoid disclosure.
As the graph above shows, Crossroads GPS switched entirely from issue ad spending to independent expenditure spending over the past few months.
This came as a result of a March decision from the US District Court for the District of Columbia (Van Hollen v. FEC). The court ruled that organizations airing issue advertisements close to the elections would have to disclose their donors. When the Federal Election Commission agreed to enforce this ruling, it became clear that dark money organizations, like Americans for Prosperity (AFP) and Crossroads GPS, would have to adapt.
As we have reported in the past, Crossroads GPS and Americans for Prosperity are responsible for over $100 million of so-called issue ads in this election cycle. Under the new legal framework resulting from Van Hollen v. FEC, issue ads that mention a Presidential candidate would begin to require donor disclosure on July 28th. Ads that mention other federal candidates would begin to require such disclosure on August 7th.
Some in the campaign finance community predicted that instead of running issue ads after these dates, dark money groups would switch to funding independent expenditures – more explicitly political ads that include express advocacy (such as saying ‘support candidate x’ or ‘vote against candidate y’). Despite the fact that they are more blatantly intended to influence elections, independent expenditures only trigger required disclosure of the total spending, but no donor disclosure.
Given that donor anonymity is the defining advantage of these organizations and a critical piece of their fundraising strategy, it was certainly reasonable speculation.
So what happened when July 28th came around? It is safe to say that the predictions of a strategic shift were accurate.
| Americans for Prosperity - $30,800,720.32 | Crossroads GPS – $14,590,411.46 |
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| Chamber of Commerce – $12,687,156.00 | American Future Fund – $3,367,989.37 |
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As you can see from the graphs above, these organizations have gone from literally no independent expenditures since January of 2011 to dropping millions of dollars on them in July, August and September. This is not to say that these organizations have not been spending to influence the elections before July – they certainly have been – but the legal characterization of the spending has changed.
Spending on independent expenditures instead of issue ads allows these nonprofits to keep up the aggressive pace of their ad buys (now with ads that include express advocacy - a small but noteworthy advantage), while only disclosing the total amount of expenditures to the FEC. As for the production of the ads, as long as the ads include express advocacy for or against a candidate (e.g. this ad attacking Shelley Berkley), they are guaranteed to qualify as independent expenditures.
Last week, the decision in Van Hollen v. FEC was reversed and sent back to the D.C. court for reconsideration. However, during the fifty-three days where the decision was in effect, the American Future Fund spent $2.8 million, while the Chamber of Commerce, a 501(c)6 trade association, put in a pretty $12.7 million. Crossroads GPS spent almost $15 million in this period, but Americans for Prosperity took the cake with a whopping $30.8 million in independent expenditures.
This strategy, though certainly the most appealing option in the short term, does pose some dangers to these secretive nonprofits. Independent expenditures, by definition, include express advocacy for or against candidates for federal office. By spending on such explicitly political TV spots, these organizations give more credence to the argument that they are abusing their tax-exempt status as 501(c) organizations.
If the IRS, which has already begun an investigation into Crossroads GPS, decides that these organizations have crossed the line, they could not only be subject to the revoking of their tax status, but also fees on expenditures as high as 35%. These fees, if charged retroactively, could cost the organizations millions of dollars.
As if in an effort to maintain the constant flux in which our modern campaign finance system exists, on last Tuesday, the U.S. Court of Appeals in Washington made void the lower court’s decision, and sent the case back for reconsideration. Given that the DC District Court’s decision was overturned, further developments can be expected. Presumably, if the leadership at these organizations agrees that independent expenditures could threaten the benefits of their tax status, they may shift back to issue ads. Regardless of their decision, since in such proximity to the election issue ads qualify as electioneering communications, the next round of ad buys will be on the public record and might provide a little more insight into these secretive organizations.
A war is being waged against the DISCLOSE Act. Its Commander in Chief is Senator Mitch McConnell, his secret weapon is misinformation and his goal is to protect unlimited dark money contributions to the political process.
It’s time for a counter-attack. 
Last week, McConnell outlined his plan of attack in a speech to the American Enterprise Institute. Wrapping himself in a narrow and self-serving interpretation of the First Amendment, McConnell casts liberals as the enemies of free speech and he and his foot soldiers (the Chamber of Commerce) as the true protectors of our constitutional rights. But take apart his arguments and it is easy to spot his true intentions—not to protect the free speech rights of all citizens, but to protect the ability of wealthy donors to anonymously influence our democratic process.
The Sunlight Foundation refutes the worst inaccuracies being lobbed against reasonable efforts to disclose the dark money that is infiltrating our elections. This Orwellian tactic is timed to defang public support for the DISCLOSE Act, which the Senate is likely to consider in July.
Last Friday, the House passed a measure that aims to block any executive order regarding disclosure of political donations.
Eighteen House Democrats joined almost every Republican to support the amendment, while another eight Democrats did not vote at all. All other Democrats opposed it. The measure was attached to an energy and water appropriations bill and would prohibit the use of any funding to implement an Obama administration effort to require more information on campaign spending.
On average, the 18 Democrats House members received about 63 percent of their campaign contributions from corporate sources for the 2010 election, according to an analysis of Center for Responsive Politics data. This was calculated by totaling each members’ donations from 14 13 sectors (such as defense and finance) identified by CRP but excluding donations from the following sectors: lawyers and lobbyists, Labor, ideological or single-issue groups and groups labeled ‘other.’
Of the 18 congressmen, Reps. Mike Ross, Jim Matheson, and Colin Peterson relied most on corporate PACs and employees during the last election, taking in nearly 85 percent from those sources. Reps. Henry Cuellar and Dan Boren received nearly 80 percent of their campaign cash from corporate sources.
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The amendment they voted for sought to preempt an Obama administration effort, first disclosed in April, to issue an executive order that would require all government contractors to disclose their political contributions, including those to organizations that don't disclose their donors. It was meant as a response to Citizens United v. FEC, where the Supreme Court ruled to remove restrictions on corporations’ expenditures in elections.
That ruling opened the floodgates for some undisclosed election spending. Nonprofit organizations can now receive corporate donations and make independent expenditures on elections without reporting their donors to the Federal Election Commission. Crossroads GPS spent $15 million opposing Democratic candidates last election; because it's organized as a section 501(c)4 committee, it's not required to disclose its donors. Similarly, because the U.S. Chamber of Commerce is a 501(c)6 organization, it doesn't have to disclose its donors, despite spending more than $32 million in the 2010 cycle to influence elections.
Democrats have gotten into the act as well, recently launching Priorities USA Action, a 501(c)4 organization that was co-founded by former White House spokesman Bill Burton.
Obama's executive order would bring some unknown corporate donations to nonprofits into the public realm. It would also make the donations of the nation’s largest union, AFL-CIO, known, because it has small contracts with the Department of Labor.
During the 2010 midterm election David and Charles Koch, owners of the massive energy conglomerate Koch Industries, became the face of secret donors to a new set of political groups spawned by the controversial Citizens United Supreme Court ruling. Koch Industries is also a longtime government contractor receiving $85 million in contracts over the past eleven years. These two facts may not seem to overlap, but if President Obama signs a draft executive order leaked this week Koch Industries and a large number of the nation’s companies would face the prospect of having to disclose their now-secret contributions to political efforts when they seek new federal contracts.
The centerpiece of the draft order, which requires disclosure of a variety of contributions that are already disclosed to the Federal Election Commission, is its requirement that any organization bidding on a federal contract disclose contributions made by the organization, its subsidiaries, and its directors to any third party group intending on using that money for independent expenditures or electioneering communications.
The order specifically targets a disclosure loophole created by the Citizens United ruling. The ruling opened the door for a whole host of organizations, including 501(c)(4) nonprofit organizations, to run electoral advertisements without disclosing their donors to the public. The most notable of these groups is Crossroads GPS, a conservative nonprofit that spent more than $15 million on advertisements opposing Democratic candidates for office in the 2010 midterm election.
Under the order donations to Crossroads GPS and other groups including the U.S. Chamber of Commerce, and Americans for Prosperity would have to be disclosed by companies seeking federal contracts.
The order is an attempt by the White House to do what Congress could not do when it failed to pass a legislative response to Citizens United, known as the DISCLOSE Act, at the end of last year.
By applying to all organizations submitting a bid for contract the order would cover a huge swath of the country's companies. JPMorgan Chase, Exxon Mobil, General Electric, and the aforementioned Koch Industries all hold government contracts. Thirty-three of the forty-one companies listed in the top 100 campaign contributors over the past two decades are recipients of federal contracts. According to USASpending.gov, there are 129,083 recipients of federal contracts, although many of these may be duplicates.
Even News Corporation, the owner of Fox News, the Wall Street Journal, and the New York Post, is a government contractor. The executive order would require both the company and its owner Rupert Murdoch to disclose contributions to political groups. Last year News Corporation contributed $1 million to the Republican Governors Association, which already discloses its donors, and, according to a New York Times investigation, another $1 million to the U.S. Chamber of Commerce, which does not disclose its donors.
That Times investigation uncovered a number of contributors to the Chamber’s political efforts, most of whom also hold government contracts and would face new disclosure rules under the potential executive order. In addition to News Corporation, Dow Chemical, Aegon, Chevron Texaco, Prudential Financial, and Alpha Technologies all contributed to the Chamber of Commerce in recent years while holding government contracts.
While the order would certainly not apply retroactively these companies would have to disclose their political giving for the two previous years if they sought a new contract from the government.
House Oversight and Government Reform Chairman Darrell Issa, R-Calif., criticized the draft Executive Order for stifling speech and failing to cover unions that support the President and his party, “This order is a purely political act offered under the benign label of disclosure. The order would not impose the same requirements on the labor unions or other organizations who support the President.” While many unions receive federal grants there are few receiving federal contracts.
One notable exception is the nation’s largest federation of labor unions, the AFL-CIO, which received small contracts from the Department of Labor as recently as last year. USASpending.gov lists two purchase orders from 2010 for contracts with the AFL-CIO Working for America Institute. The contracts were with the Department of Labor and Department of Transportation. The draft order does not distinguish between types of contracts, thus any future contract with the AFL-CIO would trigger the same disclosure requirements applied to corporations with contracts.
Some companies already voluntarily disclose contributions to political groups on their corporate websites, although most of the time the information is dated, poorly defined, or not explained.
General Dynamics lists contributions to political nonprofits, but does not provide names. Instead, the defense contractor lists $125,000 in contributions to three 501(c)(4) nonprofits.
The top recipient of contract dollars from the federal government, Lockheed Martin, lists contributions it made to trade associations in 2010 including a $50,000 contribution to the U.S. Chamber of Commerce. Lockheed states, “We believe that the non-deductible portion of our dues is for trade association lobbying.”
Northrop Grumman and Raytheon Corporation detail their contributions to candidates and 527s, but do not explain a policy for contributions to other politically active organizations. Meanwhile, Pfizer releases an annual report on its political action committee contributions, which does not list contributions to nonprofits or trade associations.
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