Campaign trail: 'Transparency' put to test as lawmakers target politically active nonprofits
This article first appeared in the St. Louis Beacon, Nov. 23, 2012 - When the Missouri General Assembly removed limits to campaign contribution in 2008, proponents often threw around the word “transparency” to justify their decision.
After all, they argued, what good were contribution limits when they could be easily circumvented through political party committees and third-party political action committees? Then state Sen. Charlie Shields, R-St. Joseph, reasoned back in 2008 that the state “can create every kind of rule that you want … and someone can figure out how to get around that rule.”
Shields’ words may have been prophetic but not in the way he intended.
Even though Republicans and a handful of Democrats contended that removing contribution limits would stop big political donations from being concealed, some nonprofit "social welfare" organizations have put a crimp in that argument. The groups – known as 501(c)(4)s – spent huge amounts of money in the last election cycle without having to disclose donors.
Because a few of those groups made a splash in several Missouri races, state Rep. Todd Richardson plans to introduce legislation requiring nonprofit organizations engaged in political activity to disclose their contributors. And the Poplar Bluff Republican is using a familiar term to make his pitch.
“What is clear after the summer is the current state of the law in Missouri … People are allowed to make significant contributions in races through the tool of the 501(c)(4)s without the disclosure of the source,” Richardson said. “And I think in the system that’s predicated on transparency, we’ve got to address that.”
A 501(c)(4) is a nonprofit organization that can engage in direct political activity. But while they do need to disclose their large donors to the Internal Revenue Service, that disclosure is not public information. In effect, these nonprofits have become conduits for big donors to try to make an impact while staying anonymous.
One 501(c)(4) that made national waves was Crossroads GPS, a part of a group set up by longtime GOP adviser Karl Rove that spent tens of millions of dollars this past election season. But several 501(c)(4)s got involved in Missouri-based contests:
- During the contentious primary between Lt. Gov. Peter Kinder and state Sen. Brad Lager, R-Savannah, the Missourians for Conservative Values PAC received $300,000 from a nonprofit called Better Government For Missouri. That money was used to run negative ads against Kinder.
- A group called Missourians Against Higher Utility Rates received about $345,200 from a nonprofit known as Missourians for Low Energy Costs. MAHUR ended up spending thousands of dollars in state Senate contests, including the Democratic primary for 5th senatorial district seat.
- And Missourians for Equal Credit Opportunity – which fought efforts to restrict payday lending – received about $1.83 million in 2012 from a nonprofit known as Missourians for Responsible Government.
"Clearly the situations we had in the primary brought the problem to light," Richardson said. "But I’m not at all focused what happened over the summer. My focus is creating a situation to deal with the problem going forward. ... People are allowed to make significant contributions in races through the tool of the 501c4 without the disclosure of the source. And I think in the system that’s predicated on transparency, we’ve got to address that."
State Rep. Jay Barnes – a Jefferson City Republican who recently wrote an op-ed in the Post-Dispatch on the issue – said that the measure can make headway in the GOP-led General Assembly because Republicans want “transparency” in campaign finance.
“Regardless of where one stands on contribution limits, nobody wants to go to the days of smoky backrooms or as I said in my op-ed in the Post-Dispatch, of Lyndon Johnson’s political hacks had $50,000 in brown bags that were delivering around the state of Texas,” Barnes said. “That’s the absolute worst kind of system. And I don’t think there’s any kind of ideological disagreement with anyone on the fact that donors ought be disclosed.”
Nuts and bolts
Richardson said he intends to confer with experts in election law and nonprofits when crafting his bill. He said he wants to make sure that any bill passes constitutional muster.
“Those are some of the specifics of what we’re going to be wrestling with in terms of crafting language that could pass constitutional muster and doesn’t directly conflict with what the IRS has set up with 501(c)(4)s,” Richardson said. “The reason this loophole exists right now is because of the loophole in how the IRS interprets their rules. They’re the entity that sets the rules regarding 501(c)(4)s and they say a 501(c)(4)s nonprofit doesn’t have to disclose its donors.”
Lloyd Mayer, a law professor at the University of Notre Dame with an expertise in nonprofit law, said Richardson’s proposal might just work.
“He’s saying if a group, which may be a 501(c)(4), engages in actions related to Missouri election law, it has to file reports showing who’s funding its activity and what money it’s spending. That’s not an uncommon kind of law,” Mayer said. “For example, California has very extensive disclosure requirements on groups that are engaged in California-related election activity.
“If you’re saying groups that are involved in state elections – and you define what 'involved' means – have to disclose who is funding them, that should be doable assuming there’s nothing in the Missouri state constitution that would prohibit it,” he added.
But Mayer said lawmakers need to be careful.
For instance, he said, requiring political active 501(c)(4)s to disclose donors could prompt people to use other ways of hiding big donations. The principle of the law, he said, should be “it doesn’t matter what entity you are, it matters what you’re doing.”
“And if you’re doing election-related stuff – however you define that – then you’re subject to these disclosure rules. Period – full-stop,” Mayer said. “And it doesn’t matter whether you’re an individual, some sort of unincorporated association, nonprofit or a for-profit. That doesn’t matter. What matters is what you do. Then you target the activity, not the entity.”
Campaign Trail, a weekly column, weaves together some of the intriguing threads from the world of Missouri politics.