Senate Bill 1516: All the Democracy Money Can Buy

By: Alex Lindvall

“Dark money”—it’s a term that gets thrown around a lot during campaign season. But the average voter is probably unaware of what it is or its effect on elections. “Dark money” refers to the contributions donated to non-profit organizations (usually 501(c)(4) or 501(c)(6) organizations) by undisclosed donors. These donations often come from corporations, labor unions, and unnamed wealthy individuals who want to influence the outcome of political elections.

1. Background.

In 2010, the United States Supreme Court issued its 5-4 ruling in the case of Citizens United v. Federal Election Commission. In this decision, the Supreme Court—in overturning two previous decisions—held that the First Amendment prohibits the government from limiting how much corporations and labor unions can spend on influencing elections. How corporations spend money on campaigns basically boils down to this: corporations are prevented from directly giving money to political candidates; what they can do, however, is give money to third parties who can then spend that money on candidates.

For example, suppose Exxon Mobile wants to give $1 million to Senator X from the State of Nebraska because they think she may be sympathetic to the proposed additions to the Keystone Pipeline (an oil pipeline that would run from Canada to the Gulf of Mexico). Exxon cannot give $1 million dollars directly to Senator X in exchange for her vote on an issue; that would be quid pro quo bribery, which is illegal. So, to get that $1 million dollars to Senator X, Exxon can basically do one of three things: (1) donate to an already-existing Political Action Committee (PAC), who will in turn spend that money to get Senator X elected; (2) set up their own Political Action Committee, who will in turn spend that money to get Senator X elected; or (3) donate to a 501(c) organization, who will in turn spend that money to get Senator X elected.

If Exxon chose to go with option (1) or (2) it would be forced to disclose this donation so the voters would realize—in theory—that Senator X was receiving large sums of money from a PAC that was funded by Exxon. If, however, Exxon chose to go with option (3), it would not have to disclose this donation. In other words, if you are a wealthy donor who is looking to influence the outcome of elections without revealing your identity the public, donating to a 501(c)(4) is the best route to go. This is “dark money.” It is the money donated by anonymous donors, funneled through these tax-exempt organizations, to be used in influencing the outcomes of elections.

Just how much money are we talking about here? The Center for Responsive Politics estimated that these non-profits spent approximately $300 million during the 2012 campaign cycle. If you are wondering who pays for all the awful ads playing constantly during election season, PACs and 501(c) non-profits are largely to blame.

This problem is not novel. Combating corporations’ and labor unions’ influence on elections was a major part of Teddy Roosevelt’s platform when he won the Presidential Election of 1900. Following President Roosevelt’s lead, Arizona amended its Constitution in 1910 to include the following passage: “The legislature, at its first session, shall enact a law providing for a general publicity, before and after election, of all campaign contributions to, and expenditures of campaign committees and candidates for public office.” (See Ariz. Const. Art. VII, Sec. 16.) This clause requires the Legislature to pass laws that disclose the source of all campaign contributions. Despite this language in the Arizona Constitution, the Arizona Legislature recently passed a law with the exact opposite effect.

2. S.B. 1516—Arizona’s new pro-dark- money statute.

On March 31, 2016, Arizona Governor Doug Ducey (who received over $8 million in dark money in 2014) signed Senate Bill 1516 into law. This Bill amended dozens of laws under Title 16 of Arizona’s Revised Statutes (Title 16 covers “Elections and Electors”). Governor Ducey says this law “is the first step in simplifying our laws and regulations to provide more opportunity [sic] for participation in the political process and increased freedom of speech.” While opponents of the bill, such as Democratic State Senator Steve Farley, believe “[i]t quashes [political] participation for anyone who…doesn’t have the ‘price of admission.’”

a. The 501(c)(4) exempt status provision:

Prior to the signing of this bill, organizations whose “primary purpose” was to influence Arizona elections had to report and register with Arizona’s Secretary of State. S.B. 1516, however, changed the definition of “primary purpose” to exclude 501(c) organizations from this requirement. This means that any federally tax-exempt organizations—e.g., Crossroads GPS (Karl Rove’s conservative group), Organizing for Action (President Obama’s post-2012 group), churches, hospitals, etc.—will be able to take in and spend unlimited amounts of money on elections without having to disclose the names of their donors. (See S.B. 1516 amend. A.R.S. § 16-901(42).)

So, to go back to the Exxon example from above, suppose Exxon really wanted to discourage all the solar-energy- based investments in Arizona. Perhaps they would want Arizonans to elect politicians who were sympathetic to the oil industry’s needs in the southwest. Exxon’s best course of action would be to funnel money into a 501(c)(4), like Crossroads GPS, who will in turn spend that money to get conservative candidates elected in Arizona. And during this process, no one gets to know where that money is coming from. (If you happen to like Exxon, and this scenario doesn’t quite infuriate you, replace “Exxon” with whatever interest group you dislike the most—common examples include: PETA, the NRA, pre-2016 Donald Trump, the Clinton Foundation, etc.)

(As an aside, this law was passed on partisan lines, with only Republicans voting in favor of its passing. Republicans, in turn, gave the power to regulate these non-profit, political organizations back to the federal government. In other words, Arizona Republicans, working in the State government, just gave a large amount of the State’s regulatory powers to the federal government—not only to the federal government, but to the IRS: the organization that was recently entangled in a scandal for directly targeting conservative 501(c) groups. Arizona Republicans—generally—have an overwhelming distrust for the federal government. Yet Arizona Senate Republicans have chosen to give the federal government ultimate oversight over transparency in our election process? Is this real life?)

b. Changing the definition of “contribution”:

Beyond eliminating oversight over 501(c) political organizations, S.B. 1516 also provides other interesting loopholes. If a corporation, labor union, or private individual makes a “contribution” to a candidate, the candidate must disclose the source of that contribution. However, SB 1516 does not consider the following to be contributions: travel expenses; the use of real or personal property; the cost of invitations, food, or beverages; the payment of a committee’s legal or accounting fees; and nonpartisan communications that are intended to encourage voter registration or turnout (ads, flyers, mailers, etc.). Under a plain reading of this statute, a corporation could fly a politician to a private fundraiser on a private jet and it would never have to be reported. Something is wrong with this picture.

c. Candidate-to- candidate contributions:

Perhaps the most interesting loophole S.B. 1516 creates is that it allows politicians to contribute money to other politicians’ campaigns, often called the “kingmaker” provision. This allows for politicians to spend their excess campaign funds to influence their colleagues. “I see you’re running low on donations; I’ll tell you what, you vote to tighten restrictions on gun rights and I’ll give you $6,000 toward your campaign—deal?” If it sounds shady, that’s because it is.

3. Conclusion.

SB 1516 has constructed massive loopholes in Arizona campaign finance law. It allows for 501(c) organizations—which are largely funded by corporations, labor unions, or private, wealthy individuals—to spend unlimited amounts of money on politicians without any disclosure requirements. In fact, the only agency with any oversight into the transparency of Arizona’s elections is the IRS. SB 1516 also redefines what it means to “contribute” to a political campaign. Under the new definition, paying for a politician’s travel expenses, paying for his food and drinks, and paying for his legal fees would not constitute a “contribution,” and therefore would never have to be disclosed. Finally, SB 1516 allows for candidates to give their campaign funds to other politicians pursuant to the so-called “kingmaker” provision.

This law should upset both “liberals” and “conservatives.” If you are a conservative, imagine the Clinton Foundation, Obama’s Organizing for Action, or the Brady Campaign pumping millions of dollars into Arizona politics every year. If you are a liberal, imagine the Koch Brothers, Karl Rove, or the NRA doing the same. SB 1516 further clouds who controls our election process, and we as Arizonans ought to demand transparency.