States crack down on campaigning nonprofits

WASHINGTON — Tax-exempt advocacy groups that played an aggressive role in this year’s election are coming under increasing scrutiny from state regulators, who are cracking down on organizations seeking to engage in campaigns without revealing their financial backers.

The pressure in states with stringent campaign finance rules contrasts sharply with the federal level, where nonprofits that spent hundreds of millions of dollars to influence races this year have not been required to disclose their donors.

This month, California’s Fair Political Practices Commission forced an Arizona-based group to reveal the source of $11 million it gave for two ballot initiative campaigns. The funds were traced to a Virginia nonprofit that also does not reveal its donors. That hasn’t satisfied the commission, which has begun an investigation to uncover the original source.

Shortly before election day, judges in Idaho and Montana required the disclosure of contributors to two nonprofit organizations that had drawn the attention of state regulators with their political activity.

“Frankly, if we didn’t take a stand on this, we might as well just pack up our campaign disclosure law and send it away,” said Idaho Secretary of State Ben Ysursa. “The fact that federal campaign laws are deficient or you’ve got a deadlocked Federal Election Commission — that doesn’t mean the states are powerless.”

Ysursa sued a group called Education Voters of Idaho, which gave more than $200,000 for ads backing three state ballot measures, accusing it of failing to comply with the state’s sunshine law. After the court order, the organization revealed it had received money from New York Mayor Michael R. Bloomberg and Albertsons supermarket scion Joseph P. Scott, among others.

The clashes between state elections officials and advocacy groups are a byproduct of the U.S. Supreme Court’s 2010 ruling in Citizens United vs. Federal Election Commission, which lifted the ban on direct political expenditures by corporations. That triggered a surge of election activity by groups incorporated under the tax code’s section 501(c)4 as social welfare organizations, which are allowed to engage in issue advocacy.

At the federal level, political action committees are required to report their contributors, but so far the nonprofits are not.

The Federal Election Commission, which has six members split evenly between the major parties, is frozen in partisan gridlock on questions regarding nonprofit activity. The Internal Revenue Service said this summer that it had begun examining some of the groups, but had yet to take any public action. And efforts to pass new disclosure laws have so far foundered in Congress.

But the picture is different in many states, where lawmakers have toughened disclosure rules to require any organization making a political expenditure to report its financial backers.

Disclosure opponents have systematically challenged the state measures in court, arguing that the Supreme Court has said a group must have politics as its “major purpose” in order to be considered a political committee.

Advocates for more campaign finance reporting have countered — largely successfully — that the high court has repeatedly endorsed disclosure and has not limited it to political committees.

“If you look at the federal issue, you would be inclined to throw up your hands,” said Derek Cressman, vice president for state operations at Common Cause, which advocates for more transparency. “The progress that some states are making proves that these disclosure issues are problems we can solve.”

Take the case of Americans for Job Security, a Virginia-based nonprofit that has been a serious political player for at least a dozen years, spending millions on ads without disclosing its backers.

In 2008, the FEC’s general counsel concluded the trade group met the definition of a political committee that is required to report its donors, and requested approval to pursue a formal investigation. But the commission deadlocked, and no action was taken.

Early this month, Americans for Job Security played a role in one of California’s most closely watched election-year dramas — unmasked as the source of an $11-million donation to oppose Gov. Jerry Brown’s tax increase measure and support another measure intended to curb the ability of unions to raise money for political activity.

The money had first been routed to an Arizona group called the Center to Protect Patient Rights, which sent it to another nonprofit also based in Arizona called Americans for Responsible Leadership, which in turn gave the money to the conservative Small Business Action Committee in California to run ads about the ballot measures.

State authorities called it “campaign money laundering.”

Ann Ravel, chairwoman of the Fair Political Practices Commission, said the contribution may have violated a rule implemented in May to prevent donors from anonymously shuttling money through nonprofits with the intention of spending it on California campaigns. If found in violation, the nonprofits involved could face millions of dollars in fines.

The Small Business Action Committee could also be forced to pay $11 million to the state’s general fund if authorities prove it knowingly failed to report the original source of its funds, Ravel said.

The committee and Americans for Responsible Leadership have denied breaking any rules.

State Sen. Leland Yee (D-San Francisco) said he planned to introduce legislation that would require more complete disclosure.

“How can anyone allow organizations of whatever kind to come into this state and not disclose the true source of money?” he said.

A similar fight is playing out in Montana, where a group called American Tradition Partnership has been locked in a battle with the agency that enforces the state’s campaign finance rule.

In October 2010, Montana’s commissioner of political practices concluded that the group’s activities, which included sending mailers attacking Democratic and moderate Republican lawmakers, meant it had to file reports as a political committee. ATP sued, challenging the disclosure laws as unconstitutional and arguing that it is an educational group.

ATP has remained active in state politics, sending out a mock newspaper this fall that featured gubernatorial candidate Steve Bullock, the state’s attorney general, in a photo array of sex offenders as part of an article that slammed his handling of the state’s sex offender database.

The legal wrangling between state officials and ATP is ongoing, but has already pulled back the curtain on the group’s contributors. Shortly before election day, the state judge hearing the case released a cache of the group’s financial documents that state prosecutors had subpoenaed from Wells Fargo. The documents, which the PBS show “Frontline” and the investigative website ProPublica had requested, showed that ATP donors have included nonprofits linked to Republican activists in Colorado, as well as some major GOP donors.

In Maine, state ethics officials are investigating the National Organization for Marriage, which has refused to release the names of donors that financed its efforts to defeat a 2009 measure to legalize same-sex marriage.

The nonprofit groups under scrutiny say they are caught between conflicting state and federal regulations.

John Foster, the Boise-based lobbyist and political consultant behind Education Voters of Idaho, said he set it up as a 501(c)4 because its activities fall squarely within the IRS definition of a social welfare organization. Donors gave money for education reform, not earmarked for political campaigns, he said, so the group should not have to reveal names.

“We are very proud of our donors, and the prospect of releasing them publicly was never an issue for us,” Foster said. “It was always about whether we get to decide who we are, or whether a state regulator gets to decide who we are.”

“The rules are not entirely clear,” he added. “This just highlights the continuing need for a realistic, constitutional approach to campaign finance reform in this country.”

matea.gold@latimes.com

chris.megerian@latimes.com