The New Fight Over 'Dark Money' Campaign Donations

Voters in Tempe, Ariz., don't like undisclosed campaign funds sloshing into local politics. Last month, 91 percent of them approved an amendment to the city's charter that requires independent groups spending more than $1,000 on local elections to disclose their donors.

Story by Alan Greenblatt, Governing

It won't matter.

Last week, the Arizona Legislature passed a bill blocking local governments from imposing such transparency rules on nonprofit groups. Republican Gov. Doug Ducey, who has benefited from millions in so-called dark money expenditures, is expected to sign it.

Advocates of campaign finance regulation are not happy.

"Our legislature has done all it can to empower secret spending," says Joel Edman, executive director of Arizona Advocacy Network, which favors campaign finance regulation. "In Arizona, in particular, we've seen a huge flood of money in our elections where we don't know where it's coming from."

These groups are often funded by wealthy individuals or special interest organizations and may hide behind anodyne-sounding names like Tempeans for a Greater Tempe. It's happening all over the country. Some states, and now cities, have started to do something about it. But, as shown by Arizona's preemption legislation, there's often pushback.

Tempe is the first city to have a dark money disclosure law squelched by its state. Phoenix voters were likely to consider a companion measure, but that now appears to be moot.

"What is happening to Tempe is absolutely outrageous," says Terry Goddard, a former Arizona attorney general. "Pure legislative preemptive power has seldom been displayed as blatantly and as inappropriately as this."

Goddard is leading an effort to put a measure on Arizona's statewide ballot to more stringently regulate campaign finance limits and disclosure -- one of several such efforts around the country.

"It is long overdue," says Democratic state Rep. Kevin Mullin, who sponsored a California law enacted last year requiring campaigns to disclose their top three funders at the beginning of political ads. "The status quo allowed donors to hide between layers of misleading organization names, enabling campaigns to conceal their top funders."

Critics, however, are concerned that exposing donors will discourage their political participation. Matt Miller, a senior attorney with the Goldwater Institute, a conservative think tank in Phoenix, says there's a difference between community foundations and other established nonprofits that want to participate in the political arena and groups that are set up strictly to influence elections.

"These laws are overly broad," Miller says. "They're chilling the rights of traditional nonprofits that usually haven't had to worry about campaign finance laws. You're casting a broad net over what we would consider legitimate groups to target some bad actors."

In March, South Dakota enacted a law that requires ballot measure campaigns to disclose their donors during the signature-gathering phrase. But the legislature backed away from a more sweeping disclosure bill last year, which would have required nonprofit groups that spend $25,000 or more on ballot measures to disclose their top 50 donors. Advocacy groups complained that this would discourage them from playing an active role in such campaigns.

In recent years, Denver and Santa Fe, N.M., have adopted ordinances similar to Tempe's -- and in some cases, faced similar pushback. Two Denver-based nonprofits, the Colorado Union of Taxpayers Foundation and the TABOR Committee, along with the Goldwater Institute, have filed suit against the Denver law, which passed last fall.

Last spring, Santa Fe's Ethics and Campaign Review Board voted to reprimand the Rio Grande Foundation, a local nonprofit, for failing to file campaign finance disclosure forms after running a video on Facebook critical of a proposed soda tax.

"These cities have been passing laws that require traditional nonprofits to disclose donors whenever they talk about issues on the ballot," says Miller.

The Goldwater Institute and other conservative organizations, such as the American Legislative Exchange Council, that argue in favor of protecting donor privacy cite the U.S. Supreme Court's ruling in NAACP v. Alabama. That 1958 decision, and more recent cases, upheld rights of anonymous speech and association in ruling that NAACP members faced "economic reprisal, loss of employment, threat of physical coercion, and other manifestations of public hostility" due to their association with the civil rights group.

But the courts haven't uniformly supported the notion of protected anonymous speech.

In 2010, in Doe v. Reed, the Supreme Court ruled that interests in transparency and "protecting the integrity of the electoral process" were compelling enough to allow disclosure of petition signatories. And last month, a U.S. district court ruled that the Federal Election Commission can require disclosure of political donors. According to that ruling, the Supreme Court's decision in the landmark 2010 Citizens United case promised protection against "reasonable probability" that disclosure of contributors' names would subject them to threats -- but did not offer them blanket, preemptive protection.

Miller, the Goldwater Institute attorney, says the reason the courts allow disclosure requirements is to protect against candidates being overly influenced or possibly corrupted by big donors. But that type of danger, he says, is not present in ballot measure campaigns.

"What the courts are talking about with quid pro quo corruption is the ability of money to be given for favors," he says. "You never have that with a ballot initiative. There's nothing to corrupt."

Supporters of disclosure requirements push back hard against that logic.

Candidates can certainly be affected by the knowledge that deep-pocketed nonprofit groups are willing to spend large sums of money supporting or attacking particular positions. And anonymous donations mean that groups with a vested interest in a ballot measure -- such as a utility concerned with a potential rate hike -- would be able to shield their political spending by giving to nonprofits, absent disclosure requirements.

"If you are Apple and you want to drop $1 million into a Tempe election, you can't create a nonprofit called Citizens for a Better Tomorrow and not disclose anything," says Kolby Granville, a member of the Tempe City Council.

Actually, companies will be able to continue doing such things in Arizona, assuming Gov. Ducey signs the preemption bill.

Granville says he's received hundreds of emails in recent days from Tempe residents, angered by the legislature's move and wanting to help collect signatures to get the proposed campaign finance measure on the statewide ballot.

"People have a right to know who is paying for the ads they're seeing," says Edman, the Arizona Advocacy Network director, "especially when secret groups tend to be more negative or misleading."