Money and Democracy

Published — June 18, 2012 Updated — May 19, 2014 at 12:19 pm ET

Nonprofits outspent super PACs in 2010, trend may continue

Secret donors underwrite attack ads


While super PACs were cast as the big, bad wolves during the last election, the groups were outspent by “social welfare” organizations by a 3-2 margin, a trend that may continue amid reports that major donors are giving tens of millions of dollars to the secretive nonprofit groups.

A joint investigation by the Center for Public Integrity and the Center for Responsive Politics has found that more than 100 nonprofits organized under section 501(c)(4) of the U.S. tax code spent roughly $95 million on political expenditures in the 2010 election compared with $65 million by super PACs.

Nearly 90 percent of the spending by these nonprofits — more than $84 million — came from groups that never publicly disclosed their funders, the joint analysis of Federal Election Commission data found. Another $8 million came from groups that only partially revealed their donors.

Unlike the nonprofits, super PACs are required to release the names of their contributors.

In terms of party allegiance, conservative “social welfare” groups outspent liberal groups $78 million to $16 million, nearly 5-to-1, according to the analysis.

So far in the 2012 election cycle, super PACs have far outspent nonprofits, thanks mainly to candidate-specific committees that were active during the GOP primaries. Super PACs have spent more than $120 million compared to about $9 million by 501(c)(4)s. But with clearly defined candidates for both the White House and in most congressional races, nonprofits are expected to become more active.

Billionaire casino owner Sheldon Adelson, for example, known for backing a super PAC that supported former House Speaker Newt Gingrich’s failed presidential bid, has indicated he would give $35 million more to three conservative nonprofit groups, according to the Huffington Post.

Political warfare or ‘social welfare’?

The 2010 midterm election was the first time outside groups were permitted to accept unlimited contributions from corporations, unions and wealthy individuals to spend on ads supporting or opposing candidates. The change occurred thanks to the U.S. Supreme Court’s bombshell Citizens United decision, which came down in January 2010.

The high court’s decision and a lower court ruling called SpeechNow made possible super PACs — political groups that played a huge role in the GOP presidential primary by collecting multimillion-dollar contributions from billionaires and using the funds to blast opposing candidates.

The Internal Revenue Service says that groups organized under section 501(c)(4) of the tax code “must be operated exclusively to promote social welfare.” But they are also legally allowed to spend significant sums of money on electioneering and lobbying — so long as electoral politics isn’t a group’s primary purpose.

Meanwhile, the FEC requires nonprofits to report their expenses if they fall into one of three categories.

The first category is advertisements that expressly advocate for or against federal candidates, which are known as “independent expenditures.”

The second is for broadcast ads that mention a federal candidate within 30 days of a primary or 60 days of a general election, but don’t overtly urge viewers to elect or defeat that candidate. These are known as “electioneering communications.”

And the last type are so-called “communication costs,” which are internal political communications targeting a group’s own members.

Three conservative groups accounted for more than half of all such spending: the American Action Network, Crossroads Grassroots Policy Strategies and the American Future Fund.

The American Action Network alone — with its $21 million in reported ad spending — accounted for more than $1 out of every $5 in political spending by 501(c)(4) nonprofits that was reported to the FEC in the 2010 election.

The group was created by Norm Coleman, former Republican senator from Minnesota, and describes itself as “center-right.” It has spent most of its money attacking Democrats running for Congress. Its donors are secret, but the board includes longtime GOP operative and former Nixon administration official Fred Malek and billionaire Home Depot co-founder Kenneth Langone, according to its most recent tax return.

In 2010, Crossroads GPS reported spending more than $17 million, while the American Future Fund spent about $9.6 million. Crossroads GPS is the sister organization of super PAC American Crossroads, and both were co-founded by Republican strategist Karl Rove, the former adviser to ex-president George W. Bush. The Iowa-based American Future Fund was founded by Nick Ryan, who also founded the super PAC that promoted former Pennsylvania Sen. Rick Santorum during the GOP presidential primaries.

These groups aim to be major players in the 2012 election. But because of the way election spending is reported, the exact size of their investment is unknown.

Spending untraceable

Nonprofit groups are not only able to hide their contributors; they are also able to avoid reporting their expenditures. Take, for instance, Crossroads GPS.

According to a source who tracks political advertising buys, since the start of 2011, Crossroads GPS has spent more than $44 million on ads critical of President Barack Obama and congressional Democrats such as Sens. Sherrod Brown of Ohio, Jon Tester of Montana, Claire McCaskill of Missouri and Bill Nelson of Florida, who all face contentious re-election fights.

But because the bulk of the ads did not air within 30 days of a primary or 60 days of a general election, the group hasn’t been required to report the spending to the FEC. Reports Crossroads GPS has filed with the FEC this election cycle say it has spent just over $200,000.

The U.S. Chamber of Commerce, which is classified as a 501(c)(6), is also known for this type of spending.

By November, Crossroads GPS, along with American Crossroads intends to spend between $240 million and $300 million, according to the groups. If past trends hold, the bulk of that spending is likely to come from Crossroads GPS.

It wasn’t lawmakers’ intention that 501(c) organizations such as Crossroads GPS would be able to keep their donors secret.

Under the McCain-Feingold campaign finance law passed in 2002, anyone who donated at least $1,000 for “electioneering communications” was required to be identified. Yet in a 2007 rulemaking, the FEC decided that it would only require groups to disclose their donors if the person gave “specifically for the purpose of furthering electioneering communications.”

Unsurprisingly, few people give with explicit instructions and few groups opt for the voluntary disclosure.

Last summer, after the FEC asked Crossroads GPS for information about the donors who were bankrolling its spending during the midterm election, Thomas J. Josefiak, a lawyer for the group, said in a letter that the commission was misinterpreting its own reporting requirements.

“No contributions accepted by Crossroads Grassroots Policy Strategies were solicited or received ‘for the purpose of furthering the reported independent expenditure,’” Josefiak wrote, citing the official regulatory language for what triggers disclosure.

“Accordingly, no contributions were required to be reported,” he continued. “The omission of contributor information on future reports should not be assumed to be an oversight.”

Right to know or right to privacy?

Campaign finance watchdogs don’t think that Crossroads GPS and other politically active nonprofits should be off the hook when it comes to disclosure.

“The two most dangerous forms of money are unlimited contributions and secret money,” said Fred Wertheimer, the president of the advocacy group Democracy 21. “History tells us that secret money and unlimited money are vehicles for corrupting government decisions and officeholders.”

Wertheimer’s group, along with the nonpartisan Campaign Legal Center, has called for the IRS to investigate several 501(c)(4) groups that he says are masquerading as nonprofits to avoid publicly revealing their funders.

The targeted groups include Crossroads GPS, American Action Network and Priorities USA, a pro-Obama nonprofit launched last year by former White House aides Sean Sweeney and Bill Burton.

In Congress, Rep. Chris Van Hollen (D-Md.) has also been attempting to change disclosure requirements — through both lawsuits and legislation.

Van Hollen’s DISCLOSE Act, which, in 2010, passed the U.S. House of Representatives but failed to overcome a Republican filibuster in the U.S. Senate, was re-introduced in a slimmed down version earlier this year. Sen. Sheldon Whitehouse (D-R.I.) introduced companion legislation this spring as well.

Opposition to the bill has been led by the U.S. Chamber of Commerce, with other groups, such as the Center for Competitive Politics.

Allen Dickerson, the legal director of the Center for Competitive Politics, says that the DISCLOSE Act would impose “burdensome” requirements on political nonprofits and violate the civil rights of donors.

“This [bill] is an enormous expansion of the government’s intervention in the internal workings of nonprofit groups,” he said.

Nonprofits are super PAC donors too

While super PACs have been roundly criticized for their outsized — and largely negative — role in politics, they at least get credit for revealing their donors. But when the donor is a nonprofit, that’s not the case.

For instance, three “social welfare” nonprofits — the National Association for Gun Rights, Campaign for Liberty and Independent Women’s Voice — have paid a combined $22,500 to ChristinePAC for use of mailing lists, according to FEC records. The super PAC was created by tea party darling Christine O’Donnell, who bested Rep. Mike Castle in a Republican U.S. Senate primary in Delaware in 2010 but faltered during the general election.

Similarly, the GOP-aligned Congressional Leadership Fund has reported receiving more than $28,000 in in-kind contributions from the American Action Network.

Other super PACs to report in-kind contributions from nonprofits include the pro-Obama Priorities USA Action, the main super PAC supporting President Barack Obama, and FreedomWorks for America, a group tied to former Republican House Majority Leader Dick Armey.

In fact, since their creation in 2010, the Center for Public Integrity and Center for Responsive Politics found that about 15 percent of super PAC spending has been done by groups that have reported receiving contributions from a 501(c)(4) or a 501(c)(6).

Rick Hasen, a law professor at the University of California-Irvine, says the attack ads produced and funded by nonprofits are likely to have a “major impact” this year, “especially in congressional races.”

“There’s a lot of money flowing here beneath the radar,” he said.

For up-to-date news on outside money in the election, follow our Source2012 Tumblr and the hashtag #Source2012 on Twitter.

Read more in Money and Democracy

Share this article

Join the conversation

Show Comments

Notify of
Inline Feedbacks
View all comments