Why are donors to lobbying groups such a big secret?

The recent news that a gambling industry association is a high roller in a privately funded promotional campaign supporting Gov. Cuomo’s legislative agenda has thrown a spotlight on a group called the Committee to Save New York. The nonprofit organization — which does not reveal its sources of funding — spent more than $11 million on advertising and lobbying last year and has unleashed another $4 million-plus in the first four months of 2012.

But the Committee to Save New York is not the only lobbying group active in New York whose donors remains shielded from public scrutiny. The Committee is a 501(c)(4) organization, named after a section of the federal tax code covering civic improvement organizations.

These groups have special superpowers denied charitable organizations, whose contributions are tax deductible but are barred from the political fray. Both types of nonprofit organizations are primarily concerned with improving public policy, but 501(c)4s and their ilk (industry groups and unions have their own versions of the status) can also lobby politicians. While 501(c)3s are prohibited from intervening in campaigns, 501(c)4s can engage in political activity so long as that work is not the organization’s primary purpose. If they don’t conduct campaign advertising prior to an election, these advocacy organizations are not required to reveal the identities of their donors.

Let’s say you’re a well-resourced individual or company interested in supporting the election or advancement of a politician. You believe in your candidate, but you’re also cautious about publicly declaring your political views — or perhaps the candidate doesn’t want anyone knowing where his or her funding is coming from.

In this election year, these activists have found a clandestine pipeline for their funds. The Center for Public Integrity and Center for Responsive Politics calculate that in 2010, charitable organizations outspent Super PACs on congressional races, laying out nearly $95 million nationally.

The powerhouse of the partisan 501(c)(4s) is American Crossroads GPS, the lobbying arm of Karl Rove’s political action committee American Crossroads. GPS rose to prominence in the 2010 election when it used its financial muscle to fund a barrage of conservative media attacks against Democratic candidates for Congress. It was supercharged by the U.S. Supreme Court’s 2010 decision in Citizens United v. FEC, which allowed unlimited corporate (or union) spending on elections.

This time around, there’s a catch: Federal judges have ruled that the Federal Election Commission overstepped its authority in issuing a 2007 rule that allows campaign contributions to c4 groups for election to remain secret.

Recently the Campaign Legal Center and Democracy21 submitted a complaint to the IRS claiming that GPS is abusing its tax-exempt status and that the primary purpose of the organization is campaigning.

The Committee to Save New York is a little different, since it’s not directly seeking the election of a candidate. The Committee has spent the last two years promoting property tax caps, pension reform and reduced Medicaid and other state spending, all of which are topo priorities of the governor.

But as a general rule, no more than 50 percent of a 501(c)4’s funding should go towards advocacy or lobbying, according to Professor Richard Briffault, a professor at Columbia Law School.

“They could also be intensely political for parts of the year and then try and offset it with non-political spending,” said Professor Briffault. “But since they don’t have to do much reporting about what they do it would be tough to find hard proof of that.”

Lack of oversight of 501(c)4s is part of the problem. Both 501(c)3s and 501(c)4s must submit an annual IRS reporting return (form 990) to the IRS, but only 501(c)3s are required to make their returns public.

New York State is due to shine a bright beam of sunlight on 501(c)(4) lobbying — but exactly when is the question. A 2011 law requires lobbying groups in New York, including (c)(4)s, to disclose sources of funding that contribute more than $5,000.

Kelly Williams, the Corporate General Counsel for the Brennan Center for Justice, said that it was an important step for more oversight over 501(c)4s.

“I don’t think the new law will end the practice of using a c4 for lobbying or political activity at all,” said Williams. “But I think there will be a lot more needed transparency.”

JCOPE, the state’s new public ethics board, still has to spell out how disclosures will be filed and whether the legislation will be retroactive. The ethics commission has set no timetable to finish the new disclosure rules. But shy New York 501(c)4 donors beware: once the rules are in place, your generosity can’t extend beyond $4,999.


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