Better Government for Missouri gave $300,000 to a political committee last month that paid for attack ads aimed at Lt. Gov. Peter Kinder. Missourians for Low Energy Costs gave $275,000 to another political committee that spent the money trying to influence the outcome of three state Senate races.
Both organizations are nonprofits. And as nonprofits, they aren’t required by law to disclose who gave money to them, making it unlikely anyone — including voters — will ever know for sure where their money came from in attempting to influence elections.
While Missouri is no stranger to politically active nonprofits, this pair of tax-exempt organizations represents a new campaign strategy, critics contend, where nonprofits appear to be created for the sole purpose of funneling anonymous money into political campaigns.
“Even if it’s not illegal, what they did was clearly an abuse of tax law,” said Sean Soendker Nicholson, executive director of the liberal advocacy group Progress Missouri. “They are created, and 24 hours later they move huge sums of money into a campaign. I think that’s just bad for democracy.”
In both cases, the nonprofits were formed and within days began pumping money into political committees, records showed. Critics worry this strategy could become much more commonplace in Missouri, opening the door even wider for anonymous money to play a bigger role in state campaigns.
Representatives from both nonprofits did not respond to requests for comment.
When a donor gives a candidate or political committee a huge contribution, “at least the source is disclosed, and that shred of transparency has been the minimum tradeoff for unlimited campaign donations in Missouri,” said Scott Charton, a Missouri media consultant and former Jefferson City bureau chief for The Associated Press. “Now, this scheme of funneling gushers of campaign money through a nonprofit to a campaign fund knocks timely transparency out of the equation. The uninformed voter is the real loser.”
Over the years, the use of such social welfare nonprofits — known by the 501(c)(4) section of federal tax code that governs them — has become widespread.
Two years ago, both sides of the battle over how Missouri’s judges are selected were bankrolled by nonprofits, as was the effort to end Kansas City’s 1 percent earnings tax. More recently, a Kansas City-based nonprofit poured $2.5 million into a political committee fighting tougher regulations on payday lending.
Unlike nonprofit charities — known as 501(c)(3) organizations — contributions to social welfare nonprofits are
tax deductible. In return, they are allowed to engage in political activity, as long as it is not their “primary activity.” Instead, the IRS requires they operate “to further the common good and general welfare of the people of the community.”
But no one, including the IRS, knows what “primary activity” means, said Lloyd Hitoshi Mayer, an associate dean and law professor at Notre Dame University who specializes in tax and political law.
The nonprofits that spent heavily on the earnings tax or judicial selection were advocating for issues and ballot measures, which falls in line with federal law, Mayer said. These new nonprofits appear to exist solely to pump money into campaigns, he added.
If that’s all they are doing, they should not qualify for tax-exempt status, Mayer argued. But whether Better Government for Missouri or Missourians for Low Energy Costs are bending the law may not become clear for years.
“These groups are formed and don’t have to file an annual return with the IRS until four and a half months after their fiscal year is complete,” Mayer noted. “At that point, they can file for a six-month extension.”
So for the nonprofits formed this summer in Missouri, determining whether they are spending any money on activities beyond political campaigns would be impossible “most likely until 2014, after the election is over and well after anyone cares,” Mayer said.
The advantage for a donor giving to a nonprofit, instead of directly to a political committee, Mayer pointed out, is that the money can never be traced.
“If I give to a (political action committee), my name is out there publicly. But if I give to a nonprofit and it turns around and gives to a (political action committee), then that’s as far as the money trail goes,” he said. “My anonymity is protected.”
In many ways, Missouri’s current campaign finance technique is “the same old wine in a brand new bottle,” said George Connor, head of the political science department at Missouri State University.
Before the rise of nonprofits, donations were shifted from political committee to political committee to make it more difficult for the public to track the source.
When Missouri Republicans pushed to get rid of voter-approved campaign donation limits, they argued that it would allow for better transparency in campaign finance, Connor noted. Lawmakers in 2010 outlawed committee-to-committee transfers, although the law was tossed out earlier this year by the state Supreme Court over procedural issues.
“With nonprofits, we have no campaign contribution limits and no transparency,” Connor said. “These groups can spend big money without the voter knowing where that money is coming from. It allows for the manipulation of the electorate by anonymous sources.”
For the last two years, legislation has been proposed to prohibit a 501(c)(4) from donating to campaign committees unless it disclosed its donors. The measure, which was part of larger campaign finance reform legislation, never made it out of committee.
Earlier this year, the U.S. Senate debated the DISCLOSE Act, which among other things would have required disclosure of anyone who donates to independent groups that spent more than $10,000 on campaign ads and other election spending. Facing a Republican filibuster, the bill died.
David Keating, president of the Center for Competitive Politics, said there already are laws in place that force a group to disclose donors solely involved in electioneering. Forcing any further disclosure would “chill free-speech rights” for those organizations and the citizens who support them, he argued.
“We think privacy and free speech is a good thing,” Keating said. “There are a long line of pretty famous court cases that conclude that the government doesn’t have the right to force disclosure of membership lists of organizations.”
Donors give to an organization but don’t necessarily have control over how the money is spent, he pointed out. Taking away their anonymity opens them to public scrutiny.
“Politics has gotten a lot less civil over last 20 years, and with the Internet, information is everywhere,” Keating said. “People know this, and my guess is, as a result, a lot of donors are abandoning politics.”
Yet another problem with disclosure, Mayer added, is that it is difficult to prove intent.
“If I know the head of the nonprofit I’m giving my money to, maybe I don’t have to formally declare that I want this earmarked for a certain PAC,” he said. “But if we have a wink-wink, nudge-nudge arrangement, then the money wasn’t earmarked and I can argue I shouldn’t be disclosed.”
If electoral success is an indicator of effectiveness, nonprofits didn’t fare so well this year.
Despite scathing attack ads paid for with Better Government for Missouri’s money, Kinder still defeated his opponent in the August GOP primary. All three state Senate candidates who benefited from Missourians for Low Energy Costs’ spending — Republicans Ward Franz and Scott Largent and Democrat Jeanette Mott-Oxford — also lost.
Patrick Tuohey, a Kansas City-based political consultant who founded the nonprofit that has funded the campaign against a payday-lending ballot measure, did not respond to requests for comment.
But on his blog, he argued that recent failures at the ballot box are the best argument against government intervention. “If the tactic doesn’t work, then government action isn’t warranted,” Tuohey said.
Connor believes it’s too early to tell how big an impact nonprofits could have in Missouri.
“The sample size is just too small right now,” he said. “But even though it’s important, we’ve seen that money clearly isn’t the only thing that decides races.”