Big Spenders in Michigan Exploit Disclosure Loopholes

May 18, 2012

According to a new study by the Michigan Campaign Finance Network, four nonprofit organizations have spent $3.4 million in the state on “a steady barrage of campaign-style ads criticizing the Obama administration” since the start of the year all without disclosing their donors. Because these organizations — Americans for Prosperity, American Future Fund, American Energy Alliance, and the 60 Plus Association — are nonprofit “501(c)(4)” organizations and were careful to run their advertisements just outside the 30 day federal reporting window, they will never have to reveal information about their underlying donors.

All of this is completely legal. That federal disclosure requirements are so easily evaded — by entities spending millions of dollars to influence elections — underscores the need to reform federal disclosure laws.

Under federal campaign finance disclosure law, organizations that run “electioneering communications” must disclose their donors to the Federal Election Commission, which in turn releases the list of donors to the public. Electioneering communications are broadcast advertisements (TV or radio) that refer to a specific candidate for federal office and air within 30 days of a primary election or 60 days of a general election. Before disclosure of electioneering communications was required, only ads that expressly said things like “vote for” or “vote against” candidates had to be reported. Groups easily evaded disclosure under that regime by running “sham issue ads,” advertisements that are often highly critical of a candidate but stop short of telling voters  to vote against the candidate. Instead they say things like “call Senator Smith and tell her not to tamper with Social Security.” Voters understood these as appeals to vote for or against candidates, but because they avoided the “magic words” they didn’t have to be reported. By requiring electioneering communications to be disclosed, Congress ensured voters would know who paid for sham issue ads run just before an election.   

The groups in Michigan avoided disclosure by running their ads outside the 30-day window before the state’s primary. They also avoided disclosure by being registered as 501(c)(4) organizations, or “social welfare” organizations under the tax code. Consequently, these organizations are prohibited from having political activity be their “primary” focus, but can still engage in significant political spending. Had these nonprofits instead registered as so-called “527 organizations” — the intended designation for political organizations under the tax code — their donors would have to be disclosed. By exploiting the dual weaknesses of the current electioneering communication definition and the tax code, the people behind these kitschy organizational names will never be known.

Activity like this is why members of Congress recently introduced the DISCLOSE Act of 2012 to address the weaknesses of federal disclosure requirements. Under the proposed legislation, the reporting window would be greatly expanded. Donors behind electioneering communications would have to be disclosed if the advertisement runs within 120 days of the first presidential primary, and continuing until the general election. Ads mentioning congressional candidates would require disclosure if they ran on or after January 1 of an election year. By expanding the disclosure period, the law would ensure voters have both greater knowledge going to the ballot box and the ability to better scrutinize the dealings between independent organizations and the candidates they support.

Because the Michigan groups didn’t report their spending, the magnitude of the campaigns would have gone unnoticed. But the Michigan Campaign Finance Network carefully combed through public files of Michigan broadcasters and cable companies, meticulously analyzing their contracts to air the groups’ political commercials. The effort should certainly be applauded, as it brought to light spending that would otherwise have remained secret. But such effort shouldn’t be necessary — the public has a right to know who is trying to influence the voters and elected officials and how much they are spending in the process. Our federal disclosure laws should reflect that by making this information easily accessible so that everybody can know who is behind the money. Expanding the electioneering communication reporting window, as the DISCLOSE Act would accomplish, is an important first step.