While the popular understanding of the U.S. Supreme Court's Citizens United decision is that it opened the door to unlimited corporate spending, last week's FEC filings showed that many of the millions that Super PACs received in 2011 came not from corporations, but from deep-pocketed individuals and corporate CEOs. What remains unknown is just how much corporate money is secretly flowing through another vehicle being used to influence political outcomes, the 501(c)(4) nonprofit.
Notably, the Tea Party-affiliated FreedomWorks Super PAC received more than $1.3 million in contributions from its associated 501(c)(4). Under current law, the FreedomWorks (c)(4) is not required to disclose its donors to the public -- unlike a Super PAC -- suggesting one way that corporate donors can disguise their political spending.
Citizens United, Super PACs, and Untold Stories
The 2010 Citizens United v. F.E.C. decision struck down bipartisan clean election laws and declared that Congress could not limit so-called "independent" spending by corporations or others, on the dubious grounds that there is no risk of corruption from spending not "coordinated" with a candidate (even if the candidate benefits from the expenditures).
Following the decision, it was originally believed that the airwaves would be filled with political ads sponsored by corporations. But the 2010 midterm elections saw few corporations directly sponsoring political advertisements, perhaps intimidated by the backlash Target received in mid-2010 for funding independent expenditures in support of an anti-gay GOP candidate.
The development of so-called "Super PACs" have given corporations one vehicle by which they can filter their political spending. Following the Citizens United precedent, the D.C. district court in SpeechNow.org v. F.E.C. gave Political Action Committees (PACs) the go-ahead to become "Super" by accepting unlimited contributions and spending unlimited sums. If there is no risk of corruption from "independent" spending, the court claimed, there is no additional risk of corruption from allowing contributions to groups making independent expenditures.
This has given rise to candidate-specific Super PACs like Mitt Romney's "Restore Our Future" and President Obama's "Priorities USA Action," both of which don't "officially" coordinate with the candidate's campaigns, but were started by former campaign staff. The Super PACs can raise unlimited sums whereas the official campaigns still must comply with campaign finance rules that limit the size of contributions. There has also been an explosion in Super PACs like Karl Rove's American Crossroads that support (or oppose) a broader slate of candidates.
The media has been focused on Super PACs as indicative of the post-Citizens United landscape, and last week's end-of-year Super PAC filings with the Federal Elections Commission (FEC) generated a flurry of stories. But a review of the filings showed Super PACs were funded less by corporate money and more by super-rich individuals -- seventeen people gave $1 million or more. NYU law professor Richard Pildes looked at the candidate-specific Super PACs and calculated that only 23% of contributions came directly from corporations. While Super PACs have given individuals a new way to do political spending, the wealthy few were allowed to spend unlimited sums on independent expenditures even before Citizens United.
So does this mean that corporations are not spending on political campaigns? Not necessarily. Despite the focus on Super PACs, it is possible that corporate spending is being filtered through non-profit groups, particularly those organized under Section 501(c)(4) of the IRS code. Among its many impacts, Citizens United opened the door for corporate-funded nonprofits to spend on "issue" or other ads, and contribute to PACs. Unlike Super PACs, 501(c)s are not required to disclose their donors, and are not required to report their spending and fundraising to the FEC.
Several Super PACs are also directly affiliated with a 501(c)(4) organization, and in some cases more funds are flowing to the latter.
Crossroads GPS is the 501(c)(4) half of the Karl Rove-affiliated Super PAC American Crossroads, and reportedly raked in $31.6 million in anonymous funds last year, outpacing the Super PAC, which raised $18.4 million.
501(c)(4) non-profits are limited in how much they can participate in electoral or partisan politics. According to the IRS, "political intervention" cannot be their "primary activity," which has been construed to mean that no more than half of their staff time or financial resources can be directed towards political endeavors (depending on how they report to the IRS).
The IRS rules on what constitutes "political intervention" are murky and rarely enforced, and groups like GPS have been involved in a significant amount of activities that would reasonably be considered "political." The nonprofit spent $20 million last summer on ads attacking President Obama, and millions more on ads criticizing Congresspersons for supporting the president's programs. Election law guru Rick Hasen has expressed concern about 501(c)s "becoming shadow Super PACs" as a result of this direct election activity.
Super PAC Sleight of Hand
Besides direct political activity, recent FEC filings indicate that several 501(c)(4)'s are transferring resources to their affiliated Super PAC, suggesting a way that corporations can disguise their political spending but still fund Super PACs.
For example, in its year-end filing with the FEC, the FreedomWorks for America Super PAC noted that it received a total of $1,336,778 from the anonymously-funded 501(c)(4) FreedomWorks Inc. While the Super PAC must list its donors in filings with the FEC, that disclosure means little when a major donor is in turn funded by secret, undisclosed sources.
"That's the laundering of secret money into a super PAC," said Fred Wertheimer, president of clean elections group Democracy 21. "The bottom line is: No one should be doing it."
Freedomworks is the Tea Party-affiliated organization closely tied to corporate lobbyist and former GOP Congressman Dick Armey. It grew out of the Koch-founded and -funded Citizens for a Strong Economy, which split in 2004 into Freedomworks and Americans for Prosperity.
The Freedomworks 501(c)(4) contributions to the PAC consisted of $900,000 in financial contributions, and $436,778 of "in-kind" contributions, listed on the FEC form as "staff/overhead," "legal/compliance services," "travel," and the like.
All of the "in-kind" contributions from the 501(c)(4)) listed on the PAC's "Itemized Receipts" are also listed on the "Itemized Disbursements" pages, which appears to suggest that the in-kind contributions were reimbursed.
It is unknown whether contributions to a PAC that are "reimbursed" would still be counted as "political activity" for purposes of the IRS' rule that a 501(c)(4) cannot spend more than 50% of its funds on political intervention.
Additionally, on the final day of 2011, December 31, the PAC made one "negative" disbursement to the 501(c)(4), listed as "-$134,212" whose purpose is listed as "adjustment for in kinds for ind exps." It is unclear whether this was in effect a payment from the 501(c)(4) to the Super PAC, or whether it was related to something else. The disclosure detail is insufficient to keep the public well-informed.
Much of the FreedomWorks PAC's campaign activity in 2011 involved backing Tea Party primary challengers to incumbent Republicans. Targets included Republican Senators Orrin Hatch (UT) and Dick Lugar (IN), both of whom have been in office for over 35 years. The 501(c)(4) FreedomWorks Inc., as well as the 501(c)(3) FreedomWorks Foundation, have taken positions to the right of these GOP politicians, focusing on issues like cutting taxes and social programs, and promoting climate change denial and school privatization.
Other 501(c)(4) to PAC Transfers
FreedomWorks was not the only organization transferring funds between its 501(c)(4) and Super PAC wings.
Priorities USA Action, the pro-Obama Super PAC started by two former White House aides, received over $215,000 from its affiliated nonprofit "sister" organization, the 501(c)(4) Priorities USA. The contributions are described in the FEC filing as "Operating Expenses Reimbursed from Priorities USA."
The American Bridge 21st Century Action Fund, a Super PAC designed to help Democrats, received $245,667.09 from the 501(c)(4) American Bridge 21st Century Foundation, described as "overhead and staff expenses" or "overhead expenses."
Several Super PACs were funded almost entirely by their 501(c)(4) sister organizations.
The Citizens United Super PAC LLC received all of its 2011 funding from the affiliated 501(c)(4) Citizens United, the group whose lawsuit led to the U.S. Supreme Court decision that now bears the Citizens United name. The Super PAC's receipts for the second half of 2011 amounted to $2,802.50, and all were in in-kind donations from the 501(c)(4) for "administrative support." All of these in-kind donations were listed as reimbursed in the "Itemized Disbursements" section.
The New Power PAC received $13,800 in cash and $4,487 in in-kind contributions from Kentuckians for the Commonwealth, the 501(c)(4) that founded it. The PAC reimbursed the 501(c)(4) for all of the in-kind contributions in the Itemized Deductions section.
The Citizens for Strength and Security PAC received $66,944.75 in financial contributions from the affiliated 501(c)(4) Citizens for Strength and Security, which amounted to all but $5000 of the contributions it received.
These examples are illuminating primarily because they demonstrate just how little we know. There is far more to the post-Citizens United election landscape than Super PACs and wealthy individual donors. But much of it is hidden from public view.