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Tax-exempt groups that spent hundreds of millions on the 2012 elections without disclosing their donors have stirred no response from federal regulators but have drawn the ire of state officials who are moving aggressively to restrict them.
From California to Idaho, Montana to Maine and New York, state attorneys general and election officials are fighting in court to force big-spending tax-exempt organizations to comply with their disclosure laws.
State officials and lawmakers have also proposed new disclosure rules, in the form of regulations or legislation, along the lines of the DISCLOSE Act, the campaign finance transparency bill that stalled last year in Congress.
By contrast, the IRS and the Federal Election Commission have largely ignored a long string of complaints by watchdog groups that big-spending nonprofits violated tax and campaign finance laws in the recent election.
In the first presidential election since the Supreme Court’s 2010 Citizens United v. FEC ruling, outside groups spent record sums, many without disclosing their donors.
“It’s clear that because of the failure of the federal government to act in this arena, it’s necessary for the states to become more active,” said Ann Ravel, chairwoman of the California Fair Political Practices Commission.
While states have no jurisdiction over whether groups violated federal tax or campaign finance laws, they have the right to enforce their own disclosure rules, said Paul S. Ryan, senior counsel at the Campaign Legal Center.
“They can’t undo this unlimited money” following Citizens United, Ryan said. “But the Supreme Court has strongly supported disclosure. And the states have broad latitude to require groups that are spending money to influence their state’s election to disclose where they’re getting that money.”
The Fair Political Practices Commission won a court battle last year to force an Arizona-based nonprofit dubbed Americans for Responsible Leadership to disclose its donors. The group had given $11 million to a California committee that engaged in two ballot initiative fights involving tax hikes and labor union fundraising. But the money had originated and passed through two other non-disclosing tax-exempt groups.
“While that information was better than nothing, it was nevertheless not satisfactory to us,” Ravel said. Her office is drafting legislation that would give the commission the authority to better distinguish political organizations from legitimate social welfare groups. Some half-dozen California legislators have also proposed campaign finance disclosure bills.
In July, Rhode Island enacted a DISCLOSE-style transparency bill. Similarly, New York Attorney General Eric Schneiderman has proposed regulations that would require 501(c)(4) social welfare groups to report what percentage of their expenditures go to elections, and who finances them.
“In an election, voters have the right to know what special interests are trying to influence elections before they cast their ballots,” Schneiderman said in an email. “By shining a light on this dark corner of the political process, New York can serve as a model for other states, and for the federal government, to protect the integrity of our election system.”
Schneiderman is encouraging other attorneys general to follow his lead. In July he sent letters to 22 politically active nonprofits asking about their activities in New York state. The letters could be “a prelude to formal investigation and enforcement actions,” according to a source familiar with the inquiry.