ReCoding Good

From the Field Series: An ongoing report of the Philanthropy, Policy, and Technology Project, which explores the use of private resources for public good.

On March 20, two-dozen scholars, practitioners, and policymakers met for a discussion around the theme “Are Nonprofits People, Too? Citizens United and the Future of the Social Sector.” Responding to the expanded roles that certain nonprofit organizations—501(c)(4) social welfare organizations, in particular—are now playing in electoral politics, the group discussed the potential effects of Citizens United on the philanthropic and nonprofit sector as a whole, beyond the particular actions now allowed by law.

We opened a presentation by Professor Rick Hasen of UC Irvine, who studies election law and created the Election Law Blog. He explained how the legal and political landscape has shifted for 501(c)(4) and (c)(6) nonprofit organizations since January 2010, emphasizing the role they can now play in making electioneering expenditures. From the perspective of campaign finance, 501(c)(4) and (c)(6) nonprofits offer donors a distinctive loophole (or, perhaps, advantage) over other organizations such as political action committees, political parties, and Super PACs: These nonprofits do not need to publicly disclose donors’ identities. Data comparing campaign finance expenditure reports from 2012 to previous presidential election years show a clear shift in dollars from PACs and other 527 groups that do require donor disclosure to (c)(4) and (c)(6) nonprofits. Using data from the Center for Responsive Politics, Hasen found that outside spending in the 2012 presidential election through February was 264 percent greater than the same time in 2008 and more than 600 percent greater than in 2004.

Adam Bonica of the Stanford Political Science Department questioned the degree to which electioneering spending equals influence. His research looks at the many ways commercial corporations seek to influence political decision making—including lobbying, federal election spending, involvement on state ballot measures, and the “revolving door” of relationships between private sector and elected officials and their staff. One notable finding: Nonprofit and commercial corporations spend significantly less on elections than they do on lobbying.

These opening remarks led the group to reach a general consensus that policing one organization structure—say, by imposing disclosure requirements on 501(c)(4) social welfare organizations—would have limited impact on campaign finance per se. Changing the rules for certain nonprofits would be like playing “whack-a-mole” with the money; it would simply pop up somewhere else.

The discussion then branched out in several directions:

1. Would modifications to the 501(c) code, creating new distinctions between and among nonprofit organizations, be a good strategy to deal with the emergence of much more politically active nonprofits? Some suggested ever-finer differentiation among the classes of nonprofits so that those involved in elections are clearly separate from those that are not. In this view, the general-purpose use of the term “nonprofits” is part of the problem; though no one seemed convinced that changing the vernacular was likely. Or should we simply create regulations to police certain kinds of behavior (for example, regulating secret money in politics) apart from any concern about tax status or organization?

2. Would distrust of 501(c)(4) secretive behavior translate into a generalized distrust for nonprofit and charitable organizations? Some worried that this was already happening, and would have bad effects for charities and charitable giving in general. Others disagreed. Still others thought that the Citizens United decision might point the way to more political activity by 501(c)(3)s (charitable organizations).

Toward greater political voice, but at what cost?

A close reading of the Citizens United decision might suggest new permissions for all kinds of corporate entities to engage in electioneering and political speech.

Here’s a line of dicta from the decision:

Due consideration leads to this conclusion: Austin should be and now is overruled. We return to the principle established in Buckley and Bellotti that the Government may not suppress political speech on the basis of the speaker's corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.

Perhaps all organizations, commercial and nonprofit, should be eligible to make political contributions in elections? If this were the case, the secondary questions—whether organizations can spend “other people’s money,” participate in campaign finance while also benefiting from tax subsidies, and retain the traditional degree of donor anonymity—become the thornier problems.

But even if limits on political activity of some nonprofits, such as 501(c)(3) public charities, were important, the current widespread deployment of 501(c)(4) social welfare organizations as political actors reveals an important tension around disclosure. Campaign finance litigation and legislation, even in Citizens United, tends to insist upon transparency and disclosure of donors. But within the nonprofit world, donor anonymity is a long-standing permission. Will trends in the direction of disclosure come to apply to all 501(c)(4)s or even to all nonprofits, including public charities? Or will the tradition of donor anonymity override the impulse to disclosure from the campaign finance case law? What would be the effect of disclosure requirements on philanthropy? Would people stop giving if the privilege of anonymity were removed?

This tension, in which the long-held tradition of anonymous philanthropy is at odds with calls for greater donor disclosure of political supporters, stirred strong feelings. None could account for the size of anonymous giving and what would be at stake from a financial perspective. The general impression of the group was that anonymous giving was codified out of regard for long-standing faith traditions about charity and with some regard to the risks believed to be inherent in charitable donations to contentious causes. (The Supreme Court protected the right to anonymous donations in a 1958 case in which the State of Alabama had tried to make public the donor list to the NAACP.) But because the organizations providing so much of the new political funding are incorporated within the 501(c) code, increased transparency and donor disclosure for these organizations could portend new rules about charitable anonymity.

We spent the second half of the meeting on the possibilities and limits of greater transparency and donor disclosure.

People, not corporations

Attack the root problem. For some, the kind of organization involved in political spending is itself a secondary issue. The root problem is “money in politics,” and regulatory remedies ought to focus exclusively on addressing that problem. The solutions would not rest in fixing the fine lines of the 501(c) nonprofit corporate code; rather, the goal should be to limit the amount of money in politics. One obvious route is a system of public financing. In the wake of Citizens United, several Constitutional amendments have been proposed that would limit the role that any organization could play in financing elections. Some go further, and place restrictions on how much money any individual can contribute. These proposals take up the question of whether nonprofits (or commercial enterprises) are persons with First Amendment free speech rights—and answer with a resounding no. From this perspective, the second-level questions about organizational support of campaigns become moot.

While there was no agreement on a solution, there was a general sense that the convoluted regulatory structure involving the Federal Elections Committee (FEC) and the IRS was part of the problem. The limited existing enforcement capacity of both the FEC and IRS makes it likely that rule clarification will not come from the oversight bodies; it is only likely through legal action. Proposed constitutional amendments struck many as politically unworkable. Expanded disclosure rules, with all the caveats about their impact, present themselves as the most feasible, if partial, solution.

Regulatory confusion

Citizens United has opened opportunities for nonprofit organizations in the campaign finance and political spending marketplace that didn’t exist in the past. In so doing, two distinct regulatory regimes—that of campaign politics (the FEC) and that of nonprofits (the IRS and State Attorney Generals’ Charitable Offices)—are now tripping over each other’s territory. There was little optimism about their ability or wherewithal to clear the murk quickly.

Transparency and disclosure

A discussion of data, transparency and disclosure was kicked off by remarks from Jane Mayer of The New Yorker, Dan Newman of and Lee Drutman from the Sunlight Foundation. Mayer, whose two articles, “Covert Operations” (October 2010) and “State For Sale” (October, 2011), may be the most widely read investigations of the blurred lines of nonprofit activities and campaign finance, noted how much more difficult it was to “follow the money” backward from expenditure reporting to actual source. Untangling the web of funders, organizations, pass-throughs, and donors is time-consuming and in some cases impossible. The data that Maplight, Sunlight, and the Center for Responsive Politics make available from public FEC filings are critical to piecing together her stories. These and other nonprofits that clean and map public data are now critical elements of the reporting landscape. Even so, the best reporters are often stopped at the door before identifying the actual funding source, as nonprofits simply don’t need to disclose this information.

Maplight and Sunlight both focus on collecting, curating, and revealing data that relate to money, politics, and policy decisions. While the core of their data sets come from publicly released reports, the organizations are responsible for organizing it, making the data sets comparable, and for experimenting with a variety of ways to display it and release it so that others can use it. In some cases, they also create their own data sets by compiling and coding press releases or testimony.

Both organizations are committed to greater transparency of public data, even as they recognize the availability and usability of such information is only a first step toward making meaning or solving problems. No one thinks full disclosure is itself an answer to the problems of money in politics. Even so, basic improvements in data release, such as the use of “electronic transaction-based reporting” instead of periodic reporting would allow for journalists and others to identify patterns and tell stories in a fashion more useful to the public in an election year. The group discussed several concrete policy proposals regarding the improvement of data and transparency. While most of the specifics focused on the release of campaign finance, voting, and policy-making data, the group noted the great gap between the state of data release on these subjects and the state of data on nonprofits or philanthropy. Specifically, the registration of new 501(c)(4) or (c)(6) organizations, the lag time between activities and reporting (up to 24 months for nonprofits), and the public filing of exemption requests for 501(c)(4)s would go far toward painting a more robust picture of what’s really happening. These recommendations focus on speeding up and making more visible already required information.

The two most heated topics for increased data reporting fall into the donor disclosure category. Establishing new rules that would separate some 501(c)(4)s and (c)(6)s into clear lobbying organizations that would need to report donors satisfied some. Others remained convinced that this would simply shift the money to organizations elsewhere in the 501(c) code. As long as it is possible for campaign-focused donations to move anonymously, that’s where the money will flow—the ”whack-a-mole” problem.

The purpose of nonprofit organizations?

If the root problem in campaign finance is addressing the question of what role money should play in politics, the conversation also revealed the root problem in the world of nonprofit organizations: What should be the purpose of the organizations that operate at this intersection of social welfare and political fundraising? Given the long-acknowledged fuzzy lines around political activity (and now electoral activity) by these entities, there are strong arguments for step-wise measures that would clarify the bounds of both activities. Such proposals include bright-line definitions of campaign activities and the measurement of them, or requiring a “public support test” that would ensure none of these organizations operate at the behest of a few individuals.

These measures, others argue, won’t solve the “money in politics” problem. More importantly, they overlook a bigger question brought to the forefront by Citizens United—what is the purpose of non-taxable organizations? As many people have previously observed, defining an entire sector of society on the basis of a negative (not-for-profit), by a so-called non-distribution constraint, does not answer any questions about the social function of such organizations. Do we expect nonprofit organizations to encourage associational life? To deliver goods and services not provided by the market or the state? To supplement goods and services provided by the market or the state? Or is it to foster civic participation, including political participation? Whatever improvements we make in the transparency of data reporting—rewriting lines of the 501(c) code, enforcing regulations about campaign finance, or even amending the Constitution—will not be enough to answer this question.

All materials from and information about the project can be found at ReCoding Good and through the Stanford Center on Philanthropy and Civil Society’s Digital Civil Society Lab. We invite you to subscribe to our email list, talk with us on Twitter (#ReCodeGood), and join us in person whenever you can.