In Defense of ‘Dark Money’

(AP Photo/Bill Clark/CQ Roll Call)

Democracy Spring protesters calling for the end of big money in politics march to the Capitol steps on April 13, 2016.

On May 10, 2013, Lois Lerner, then a senior IRS official, took a planted question from the audience at a meeting of the American Bar Association. Lerner, who managed the office of tax-exempt organizations, revealed that an audit of IRS practices showed that since 2010, some nonprofit organizations applying for tax-exempt status had been singled out for deeper scrutiny simply based on the name of the organization and what that indicated about its political orientation.

The revelation set off a firestorm of controversy in the media, Congress, and conservative organizations, especially since news reports indicated that Tea Party–linked groups were the main targets of the probes. Lerner’s bombshell subjected the IRS to intense criticism, but her revelations also spotlighted the broader issue of the legitimacy and behavior of nonprofit groups known as “social welfare” organizations, or 501(c)(4)s, shorthand for the section of the tax code that defines these groups.

For progressives, the media frenzy around Lerner’s disclosure also confirmed fears of an enormous “dark money” threat from the right, and opposition to “dark money” groups became a rallying cry on the left. The number of social-welfare organizations exploded after the Supreme Court’s 2010 Citizens United decision paving the way for those groups to spend more on political activity. Conservative organizations eagerly jumped on the (c)(4) bandwagon, recognizing the 501(c)(4) structure and the benefits that framework confers. Since these groups are not legally required to disclose their donors to the public, their names became synonymous with the concept of political “dark money” and all the nefarious activities that the term implies.

Fast-forward to 2017, and opinions about 501(c)(4)s have shifted as groups on the left look to use every weapon in their arsenal to combat Donald Trump’s policies. They are embracing social-welfare organizations as a platform for resistance to the administration’s most damaging initiatives. It’s a head-spinning development for some—and comes with no shortage of angst for committed progressives who are strongly allergic to the “dark money” notion and all that it implies. A recent piece by The American Prospect’s Eliza Newlin Carney covered this dilemma well and noted that the optics for progressive groups such as the Indivisible Project, which has been forced to defend its decision to form a 501(c)(4), are not always good. 

That’s worrisome, because there is a very real risk that if donors on the left become squeamish about supporting new 501(c)(4)s, the progressive community will lose the huge advantages of social-welfare organizations in the era of Trump, the worst possible time to sacrifice any tool in the toolbox.

The 501(c)(4) model offers advocates more opportunities to champion certain causes than its more well-known cousin—the 501(c)(3)—does. 501(c)(4)s do all the advocacy that (c)(3)s do—and more. They are allowed to do an unlimited amount of lobbying (including supporting or opposing ballot measures) and can support or oppose candidates as a secondary activity (although the primary purpose of a (c)(4) cannot be to support or oppose individual candidates). For decades, social-welfare nonprofits have been used responsibly by the AARP, the National Organization for Women, the American Civil Liberties Union, the Sierra Club, the Human Rights Campaign, and thousands of others.

The 501(c)(4)’s value lies in its almost unlimited ability to use a variety of advocacy strategies, mixing public education with lobbying and, sometimes, partisan electoral work. While many 501(c)(4)s never get involved in politics at all, it is the combination of two components—lobbying and the ability to hold politicians accountable at the ballot box—that bolsters these organizations’ influence, particularly in policymaking.

A variety of strategies by both types of nonprofits advanced marriage equality. The Civil Marriage Collaborative, a national consortium of grant-making foundations, has noted that it “recognized that moving forward on marriage would require multiple strategies, including litigation, public education, research and grassroots organizing, lobbying and electoral work.” 

On the local level, the “Yes on Proposition 47” campaign in California relied on both a 501(c)(3) and 501(c)(4) to promote sentencing reform. Vote Safe, a 501(c)(4), formed the group Californians for Safe Neighborhoods and Schools to push the initiative forward, unconstrained by the lobbying limits that apply to (c)(3)s. Californians for Safety and Justice, a 501(c)(3), provided research, training, and education pieces. This type of combined effort helped advocates get one of the most extensive sentencing reforms in California’s history to “yes” at the ballot box.

But the nagging question for many progressives is whether keeping the identities of 501(c)(4)s’ donors private is still appropriate in the current political climate. Many of the demands for increased disclosure of 501(c)(4) contributions have stemmed from the behavior of very wealthy, conservative donors who can disproportionately affect the political process. The ultraconservative 501(c)(4) Judicial Crisis Network (JCN) has been a major player for years, spending millions to encourage the selection of right-wing judges at both the state and federal levels. In state supreme court elections, the group uses its preferred tactic, parachuting in with hundreds of thousands of dollars to buy local television advertising.

During the 2016 Arkansas election campaign for state supreme court chief justice, JCN vastly outspent the individual candidates themselves and produced attack ads that helped defeat one candidate, Courtney Goodson, who was pitted against another judge for the top supreme court seat. The group surfaced again at the national level in the public relations campaign to get Supreme Court Justice Neil Gorsuch confirmed, spending about $10 million, according to news reports. It is currently bankrolling a six-figure ad campaign urging the confirmation of Joan Larsen, a Trump nominee to the Sixth Circuit Court of Appeals.   

JCN takes advantage of a type of financial shell game: It is apparently heavily dependent on financial support from the Wellspring Committee, another 501(c)(4) entity that does not disclose its donors. According to the Center for Responsive Politics’ OpenSecrets , there is a cozy relationship between the two organizations: JCN Treasurer Neil Corkery is the spouse of Wellspring President Ann Corkery. The Daily Beast reported that Wellspring began life with help from the Koch brothers’ network and a few other very rich individuals.

The JCN-Wellspring axis amplifies the power of a small segment of society over composition of the nation’s courts, and pro-democracy activists have repeatedly called for more transparency. But most social-welfare organization donors don’t fit the Wellspring-JCN mold. Publicly supported organizations can have thousands or even millions of individual members and supporters. Disclosing the identities of these everyday people would do little for the cause of transparency, but it would have a chilling effect on citizen participation.

There are ways to satisfy the public’s interest in knowing who is spending to influence politics and policy, while protecting the privacy of smaller donors and continuing to encourage the formation and support of 501(c)(4)s. Minnesota requires 501(c)(4) organizations to disclose only contributions in an amount equal to the funds spent on political activity. The North Star State also requires organizations to disclose donors who make contributions specifically for political purposes.

Alliance for Justice supports an approach that would distinguish between organizations that are funded by a small group of big donors and those that receive broad support from many people. Under this scenario, Congress could require that groups disclose the identity of 501(c)(4) donors whose total annual contributions equal or exceed a certain percentage of the group’s budget. This approach permits groups to identify only donors who control or influence organizational decisions, rather than publishing names of its grassroots supporters. Large donors on the left and right would be subject to this type of disclosure.

Well-run and transparent 501(c)(4) organizations can serve the American democratic process well. They provide a forum for individuals to come together and speak out collectively on the issues that matter to them most. While sometimes that may mean taking a political stance on the issues of the day, 501(c)(4)s focus on social welfare, not political activities. These organizations got a bad rap after the IRS scandal, but many of these groups have also come together to further social welfare and to take steps to prevent future abuses. A vibrant 501(c)(4) nonprofit sector is indispensable, and anyone concerned with bolstering the progressive movement should consider devoting more resources to these organizations.

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