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Report

Elected Officials, Secret Cash

Summary: How politicians use nonprofits to cloak spending after election day.

Published: March 15, 2018

At least two pres­id­ents, seven governors and several prom­in­ent mayors – from both major parties – have estab­lished nonprofits that allow them to raise unlim­ited, anonym­ous funds for polit­ical spend­ing after elec­tion day. In recent years, the risk of dark money in our elec­tions has become appar­ent, but we pay less atten­tion to the politick­ing that happens after elec­tion day. This report is the first compre­hens­ive analysis of a yawn­ing gap in rules that govern money in polit­ics and govern­ment ethics, and poses a seri­ous risk of corrup­tion. It finds that spend­ing by nonprofits that coordin­ate with elec­ted offi­cials after they take office goes almost entirely unchecked, and calls for new laws to limit polit­ical fund­ing by office­holder-controlled nonprofits.

INTRO­DUC­TION


The White House has a secret weapon. It’s an army of donors, able to pour unlim­ited dollars into ad campaigns promot­ing the pres­id­ent and his agenda without having to publicly disclose who they are or how much they gave. For elec­ted offi­cials, whose polit­ical success is closely tied to policy success, donors who fund these ads can be espe­cially valu­able.

Last fall, donors fueled a blitz of TV and radio spots by Amer­ica First Policies — a 501(c)(4) social welfare nonprofit helmed by former Trump campaign and admin­is­tra­tion offi­cials — to get the sweep­ing tax bill passed in Decem­ber. “Amer­ic­ans need to get behind Pres­id­ent Trump’s plan to get our economy moving again,” former campaign manager Corey Lewan­dowski urged in one ad, between shots of Pres­id­ent Donald J. Trump work­ing in the Oval Office and waving to the crowd at a rally. “Call your congress­men. Go to our website. Stand with Pres­id­ent Trump to cut taxes, now,” he said. As The New York Times repor­ted, on the day Congress passed the tax bill, Lewan­dowski and others work­ing for Amer­ica First Policies met with top staffers at the White House to strategize about upcom­ing issues. The nonprofit also took over the expens­ive polling that informs messaging strategies — tradi­tion­ally a task of campaigns and parties that have to disclose their donors — a CNBC invest­ig­a­tion revealed.

But it was the Trump admin­is­tra­tion’s prede­cessor that wrote the play­book for turn­ing tens of millions of outside dollars into a publi­city jugger­naut. The Obama White House worked closely with Organ­iz­ing for Action (OFA), a 501(c)(4) nonprofit that Pres­id­ent Obama’s closest former campaign and govern­ment advisors created and led. The nonprofit raised nearly $50 million to promote what OFA’s own ads embraced as “Obama­care” and other signa­ture policies of the then-pres­id­ent. Offi­cials at OFA decided early on to volun­tar­ily disclose its donors, because, former Obama Campaign Manager and OFA Chair Jim Mess­ina said, they wanted to be “open and trans­par­ent.” But there was no legal require­ment that they do so.

It is well docu­mented that in the years since the Citizens United decision in 2010, elec­tion spend­ing by groups backed by high-spend­ing donors has skyrock­eted. The risks that wealthy spon­sors will corrupt or co-opt the candid­ates they support and under­mine the demo­cratic process has drawn extens­ive atten­tion. But during this same period, a less noticed yet poten­tially more perni­cious trend, not directly tied to Citizens United, has emerged.

Similar groups have cropped up across the coun­try to boost politi­cians and their agen­das after Elec­tion Day — once a candid­ate has attained govern­ment power. Yet these post-elec­tion vehicles oper­ate with far less over­sight than groups do during elec­tions, without the require­ments of trans­par­ency and inde­pend­ence from politi­cians that help deter corrup­tion in the campaign context.

Typic­ally, a key advisor to an elec­ted offi­cial will create such a group in the form of a char­it­able or social welfare nonprofit. With the advant­age of nonprofit status, these groups can collect dona­tions of unlim­ited size without having to disclose their donors.

Though a few elec­ted offi­cials in the past have used nonprofits to raise money for causes — notably Pres­id­ent Frank­lin D. Roosevelt and the March of Dimes found­a­tion to fund creation of the polio vaccine — the office­holder-controlled nonprofits of today more often focus on promo­tional activ­ity that would qual­ify as campaign advert­ising during an elec­tion cycle. And there are many more of these nonprofits doing it. Even the limited records of these groups’ activ­ity show they have raised at least $150 million since 2010.

The lack of over­sight of office­holder-controlled nonprofits may have to do with the fact that they have only recently flour­ished to directly promote their affil­i­ated office­hold­ers. By contrast, in the context of elec­tion spend­ing, many states and cities have increased trans­par­ency require­ments and strengthened limits for outside groups that coordin­ate with candid­ates, even after the dereg­u­lat­ory Citizens United decision.

Another reason for the inat­ten­tion to office­holder-controlled nonprofits may be that it’s tougher to address spend­ing that could span many years rather than one elec­tion cycle. But with every indic­a­tion that post-elec­tion spend­ing to bene­fit elec­ted offi­cials will only grow, the need for a legis­lat­ive response is clear. This paper offers a roadmap for creat­ing a law to limit the corrupt­ive poten­tial of office­holder-controlled nonprofits.

The prob­lem likely will spread. Just as buddy PACs (unlim­ited spend­ing groups that support a single candid­ate) even­tu­ally became a must-have access­ory for polit­ical candid­ates, office­holder-controlled nonprofits have prolif­er­ated in recent years at every level of govern­ment. Our review found that no fewer than two pres­id­ents, seven governors, several prom­in­ent mayors, and other elec­ted offi­cials, hail­ing from both major parties, have in the past few years partnered with promo­tional outfits that are able to take unlim­ited amounts from wealthy donors who may remain anonym­ous to the public. Often these donors hold economic interests that the office­holder they support has the power to affect.

Permit­ting elec­ted offi­cials to soli­cit support from secret donors, includ­ing those with actual busi­ness before them, creates a seri­ous risk of conflic­ted loyal­ties and corrup­tion, and under­mines the integ­rity of public service. The recent guilty plea by Rick Gates, a founder of Amer­ica First Policies and deputy manager of Pres­id­ent Trump’s 2016 campaign, in the special coun­sel’s invest­ig­a­tion of Russian inter­fer­ence in that elec­tion raised the possib­il­ity of an unusu­ally acute risk: secret foreign influ­ence over U.S. polit­ics. Gates, a long­time polit­ical consult­ant to pro-Russia busi­nesses, faces up to six years in prison for finan­cial fraud and lying to the FBI, and has agreed to cooper­ate in the invest­ig­a­tion.

The risks to ethical governance are no less urgent in more routine contexts. The public should be confid­ent that offi­cial decisions about who will build a bridge, treat drink­ing water, or be trus­ted with govern­ment data are based on who is best qual­i­fied, not who gives the most to support the offi­cial. This is why campaign contri­bu­tions are closely regu­lated. With the increas­ing reli­ance of elec­ted offi­cials on private donors, even outside of campaign season, constitu­ents need addi­tional safe­guards to protect their govern­ment from the hidden influ­ence of wealthy spon­sors.

Yet address­ing these dangers involves special chal­lenges. For one, office­holder-controlled nonprofits may oper­ate for much longer peri­ods than polit­ical action commit­tees and other groups that tradi­tion­ally spend in elec­tions. The anti-coordin­a­tion and trans­par­ency laws that apply to elec­tion spend­ers are time-limited, kick­ing in for a relat­ively short stretch before Elec­tion Day. That makes compli­ance with rules seem less burden­some. What’s more, polit­ical advocacy right­fully enjoys a robust tradi­tion of expres­sion free from govern­ment regu­la­tion unless an urgent public concern demands other­wise. Thus, any answer to the prob­lem of office­holder-controlled nonprofits needs to strike a care­ful balance between the crit­ical public interest in deter­ring govern­ment corrup­tion and the consti­tu­tional mandate not to over­bur­den private advocacy.

This paper proposes a solu­tion that strikes this balance, identi­fy­ing those entit­ies that pose the most seri­ous risk of corrup­tion and narrowly tail­or­ing a legal solu­tion to address them. Our approach begins with a straight­for­ward threshold test for identi­fy­ing the highest-risk entit­ies. The test involves two factors. First, it asks whether the elec­ted offi­cial or a close asso­ci­ate created and/or controls the group. Second, it asks whether the group spends more than a certain, signi­fic­ant sum on public commu­nic­a­tions that carry the elec­ted offi­cial’s name or image. Borrowed from long­stand­ing campaign finance law, this last factor ensures that over­sight will be content-neut­ral, not leav­ing it to regu­lat­ors to decide whether to apply anti corrup­tion rules based on their judg­ments about an office­holder-controlled nonprofit’s social value or polit­ical bene­fit to the office­holder. In real­ity, policy advocacy and self-promo­tion over­lap when it comes to elec­ted offi­cials. The best approach is to apply the same anti-corrup­tion rules to all struc­tur­ally similar groups oper­at­ing in part­ner­ship with an elec­ted offi­cial that are able to take unlim­ited money from private donors.

Under this threshold test, only those groups posing the greatest risk of corrup­tion would be subject to new regu­la­tion. For these groups, we propose two key safe­guards that are well-estab­lished compon­ents of anti-corrup­tion law: donor trans­par­ency and, for donors with a concrete busi­ness interest before the elec­ted offi­cial in ques­tion, dona­tion limits. (We discuss the elements of our solu­tion in detail in Section Two.)

These safe­guards are an import­ant start­ing point. If the risks of corrup­tion and conflicts of interest turn out to exceed the protec­tions that donor trans­par­ency and limits for donors with busi­ness before the elec­ted offi­cials in ques­tion can provide — or as the use of office­holder-controlled nonprofits contin­ues to spread — addi­tional responses may prove neces­sary. For now, imple­ment­ing the proposal in this paper would consti­tute an import­ant and straight­for­ward step to promote ethical and merit-based govern­ment in a time of unlim­ited polit­ical spend­ing.