Elected Officials, Secret Cash
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.
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.