Crossroads GPS in the Crosshairs: Schneiderman Takes on Dark Money Groups

Last week, New York Attorney General Eric Schneiderman announced new disclosure requirements for “dark money” nonprofits. The proposed rules would require 501(c)(4) organizations that spend money on politics in New York State to reveal the donors behind their spending.

The Los Angeles Times summarized the proposed rule as follows:

The regulations would require nonprofits that spend at least $10,000 a year on New York state and local elections to report all their political expenditures, as well as all contributors who give at least $100. The rules would apply to any group engaged in election-related activity within six months of a New York election, whether on television or the Internet, through the mail, or even by a grant to another organization.

This is a good thing. Secret spending is a serious threat to accountability and good government. It makes it impossible for Americans to know who their elected officials are indebted to and who is really calling the shots. Earlier Demos research on federal spending revealed that “dark money’ groups actually outspent Super PACs in the 2010 cycle by a substantial margin.” In the 2012 cycle, the findings were just as stark. Demos’ Post-Election Analysis of Federal Election Commission Data found that, as of Election Day, “[o]f the $1.28 billion in outside spending reported to the FEC, nearly one-quarter, or $298.9 million, was 'dark money' that cannot be traced back to an original source.”

Some of the proposed requirements will apply not only to groups that spend in New York State, but also to national 501(c)(4) nonprofits that raise at least $25,000 from New York donors. Organizations with substantial fundraising operations in the state are already regulated by the Attorney General, but they will now have to disclose what portion of their budgets goes toward political activity at the federal, state, and local levels. Those who fall below the $10,000 state and local spending threshold, however, will not be required to release their donor lists under the new rule.

It is significant that organizations will have to disclose what percentage of their operating budget is made up of political contributions. This has the potential to impact the way 501(c)(4) organizations operate. While the IRS does permit 501(c)(4) organizations to engage in political campaign activities, those activities may “not constitute the organization's primary activity.” (For more on the rules for lobbying and political spending by 501(c)(4) organizations, see here.)

As part of this transparency effort, Schneiderman has also opened investigations into a number of large 501(c)(4) organizations to determine whether their activities in New York would require them to register with the AG’s office. According to the Albany Times Union, the nonprofits currently under investigation include the American Action Network, the pro-democrat American Bridge 21st Century Foundation, and Karl Rove's organization, Crossroads GPS.

Schneiderman’s proposed regulation, like this recent ruling at the California Supreme Court requiring disclosure from out-of-state dark money groups, is an important step toward restoring political equality and accountability. Let’s hope the SEC is watching as it considers disclosure rules for public corporations. Inequality in political spending is distorting legislators’ priorities badly enough as it is. America’s donor class shouldn’t be hiding behind complex legal structures as it pushes to rewrite the rules we all have to live with.