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Report

Secret Spending in the States

Published: June 26, 2016

Dark money spend­ing — together with a new phenomenon we’ve iden­ti­fied as “gray money” — have surged in state and local elec­tions. This report, the most compre­hens­ive empir­ical look yet at the impact of secret spend­ing beyond the federal level, finds that fully trans­par­ent spend­ing has declined from 76 percent in 2006 to just 29 percent in 2014 in six states where data was avail­able.

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Intro­duc­tion

Six years after Citizens United enabled unfettered spend­ing in our elec­tions, the use of so-called dark money has become disturb­ingly common. Contrary to the Supreme Court’s assump­tion that this unlim­ited spend­ing would be trans­par­ent to voters, at the federal level power­ful groups have since 2010 poured hundreds of millions of dollars into influ­en­cing elec­tions while obscur­ing the sources of their fund­ing.

But it is at the state and local levels that secret spend­ing is argu­ably at its most damaging. For a clear under­stand­ing of the degree to which dark money is warp­ing Amer­ican demo­cracy, state ballot refer­enda and local school board contests may be a better start­ing point than the pres­id­en­tial campaign or even congres­sional races. As Chris Herstam, a former Repub­lican major­ity whip in the Arizona House of Repres­ent­at­ives and now lobby­ist, put it, “In my 33 years in Arizona polit­ics and govern­ment, dark money is the most corrupt­ing influ­ence I have seen.”

This report docu­ments how far outside spend­ing — elec­tion spend­ing that is not coordin­ated with candid­ates — at the state and local levels has veered from the vision of demo­cratic trans­par­ency the Citizens United Court imagined, draw­ing on an extens­ive data­base of news accounts, inter­views with a range of stake­hold­ers, campaign finance and tax records, court cases, and social science research. For the first time, it also meas­ures changes in dark money – and a thus far unre­cog­nized rise in what we term “gray money” – at the state level, by analyz­ing spender and contrib­utor reports in six of nine states where suffi­cient usable data were avail­able. This set of six geograph­ic­ally and demo­graph­ic­ally diverse states, compris­ing Alaska, Arizona, Cali­for­nia, Color­ado, Maine, and Massachu­setts, repres­ents approx­im­ately 20 percent of the nation’s popu­la­tion. 

Alto­gether this review revealed several strik­ing trends:

  • Our first-of-its-kind analysis showed that, on aver­age, only 29 percent of outside spend­ing was fully trans­par­ent in 2014 in the states we examined, sharply down from 76 percent in 2006. 
     
  • Dark money surged in these states by 38 times on aver­age between 2006 and 2014.
     
  • State super PACs, which are legally required to disclose their donors and thus hold them­selves out to be trans­par­ent, increas­ingly repor­ted dona­tions from nonprofit groups that are not, them­selves, required to disclose their donors. Dona­tions from dark groups to super PACs increased by 49 times in these states between 2006 and 2014, from less than $190,000 to over $9.2 million.
  • In a troub­ling new phenomenon we’ve iden­ti­fied, “gray money” has ballooned to nearly 60 percent of all outside spend­ing in 2014, on aver­age in the states we examined.
  • Meas­ur­ing dark money alone under­states the extent of the trans­par­ency prob­lem. We found a sharp rise in what we term “gray money”: spend­ing by state super PACs that repor­ted other PACs as donors, making it impossible to identify original donors without sift­ing through multiple layers of PAC disclos­ures.
     
  • “Gray money” ballooned from 15 percent of all outside spend­ing on aver­age across the six states in 2006 to 59 percent of all outside spend­ing by 2014.
     
  • Dark money at the state and local levels frequently flows from special interests with a direct and imme­di­ate economic stake in the outcome of the contest in which they are spend­ing, in contrast to what is often portrayed as the more broadly ideo­lo­gical outside spend­ing at the federal level. When uncovered, secret money at this level has traced back to such sources as a mining company target­ing a state legis­lator who held a key role oppos­ing quicker mining permits, payday lenders support­ing an attor­ney general who prom­ised to shield them from regu­la­tion, and food compan­ies battling a ballot meas­ure to add labeling require­ments.
     

  • Lower costs make it relat­ively easy for dark money to domin­ate state and local elec­tions. For many of the contests we looked at, dark money groups outspent candid­ates them­selves with amounts in the low $100,000's or even $10,000's — a modest busi­ness expense for special interests, but a major hurdle for many candid­ates and community groups. At the federal level that degree of domin­ance can easily cost in the $10 millions.
     

  • Strong disclos­ure laws and enforce­ment can make a real differ­ence. Cali­for­nia, which saw many times more outside spend­ing than any of the other states we examined, never­the­less saw a remark­ably low amount of dark money in each cycle. It seems that the state’s excep­tion­ally tough disclos­ure require­ments and active enforce­ment culture have helped to keep secret­ive spend­ing at a relat­ive minimum.

There are several reas­ons to be partic­u­larly concerned about the corros­ive effects of dark and gray money at the state and local levels. First, regu­lat­ory power at these levels is more concen­trated, and more often subject to direct elec­tion, than at the federal level. From attor­ney general to comp­troller to water district director, numer­ous state and local elec­ted offices are capable of directly impact­ing special interests’ bottom lines. Also distinct from the federal level, voters in every state and innu­mer­able counties and towns face ballot meas­ures where they directly decide policy ques­tions — educa­tion spend­ing, collect­ive bargain­ing, taxes — often with major finan­cial consequences for a relat­ively small but econom­ic­ally power­ful constitu­ency.

Second, these are often low-inform­a­tion elec­tions, where it may not take much advert­ising to sway voters. This is partic­u­larly true in nonpar­tisan contests, such as ballot meas­ure elec­tions and many local races, where voters do not have party affil­i­ations as a signal. In such cases, special interest spend­ers can hope to have a greater influ­ence on voters than in high-profile elec­tions featur­ing many voices. Finally, lower costs make it relat­ively easy for dark and gray money to flood state and local elec­tions with unac­count­able messages. Entit­ies with decept­ively community-minded names — Cali­for­ni­ans for Good Schools and Good Jobs, shield­ing a Texas oil company; Proper Role of Govern­ment Educa­tion Asso­ci­ation, shield­ing payday lenders — can invest relat­ively modest amounts but still satur­ate the airwaves and mail­boxes. How can this prob­lem be fixed? One way would be to persuade the Supreme Court to over­turn misguided decisions such as Citizens United, which empowered donors to funnel unlim­ited amounts of spend­ing through opaque entit­ies such as social welfare nonprofits and shell compan­ies. Short of that, this report offers a set of prac­tical reforms to improve elect­oral trans­par­ency while protect­ing truly vulner­able speak­ers. Though reform at the federal level has stag­nated because of inac­tion at the Federal Elec­tion Commis­sion, Internal Revenue Service, and Congress, a number of states and cities have been more eager and able to respond to recent onslaughts of dark money.