Nonprofits funnel millions of dark-money dollars into Colorado politics

Of the 2018 election cycle’s top 10 political donors, at least three are legally capable of bringing dark money into Colorado elections.

Because they are nonprofits, The Sixteen Thirty Fund, Education Reform Now Advocacy and Workforce Fairness Institute are privy to a loophole in campaign finance regulations that allows donors to make political contributions anonymously. This loophole places nonprofits in a unique position to act as the middlemen between large, shadow donors and political campaigns. A recent federal district court ruling attempted to close this loophole at the federal level, but that change won’t affect Colorado elections this November.

“Dark money is untraceable,” said Caroline Fry, campaign finance educator at Common Cause Colorado. A lot of people associate the term with super PACs, but in Colorado, super PACs have to disclose every dollar they receive and spend. “That’s not the case with every type of organization that is influencing our elections, and nonprofit organizations are a great example of that.”

Political spending is only “dark” when it is meant to influence the decision of a voter, the donor is not disclosed and the source of the money is unknown, according to Open Secrets, a political money-tracking resource operated by the nonprofit Center for Responsive Politics.

In Colorado, nonprofits currently only have to disclose donor information if the donor gives more than $250 in a year and says, very specifically, what they want their donation used for. So, a donation earmarked “for X person’s campaign” or “for Y advertisement” is legally required to be disclosed while a donation with a vague designation, such as “for outreach,” is not.

This earmarking loophole leaves the door wide open for unlimited, anonymous donations to influence Colorado politics through nonprofits.

As of Oct. 17, The Sixteen Thirty Fund, Education Reform Now Advocacy and the Workforce Fairness Institute had contributed $8.6 million to candidates in state races, a Colorado Independent analysis found. 

The Sixteen Thirty Fund and Education Reform Now Advocacy gave a total of $6.3 million to committees that support Democratic candidates, while Workforce Fairness Institute donated $2.3 million to Republican candidates. None of these organizations disclose their donors to the public.

According to Fry, donors and political nonprofits intentionally make it impossible for citizens to track donations, thus dodging campaign contribution disclosure rules.

Nonprofits do have the option to disclose their donors, but that’s not how it typically works, Fry said. Instead, donors use nonprofits that are set up to influence elections because they do not disclose contributor information.

“I think of it kind of as money laundering,” Fry said. In addition to avoiding disclosure, donors can give unlimited donations. They cannot give $1 million directly to a candidate, but that donor can set up a political committee, like a nonprofit or a PAC, that buys $1 million in advertisements endorsing the candidate. ”And if a nonprofit is among that committee’s major donors, there is no following the money beyond that, Fry said. “That’s where the rabbit hole ends essentially.”

You can, however, try to contact the nonprofit and ask who the donors are, Fry said, adding, “Good luck with that.”  

The political rabbit hole

Tracking dark money as it flows from donors to nonprofits and then to political committees quickly becomes complicated.

The Independent’s analysis focused primarily on two types of political committees: independent expenditure committees and 527 committees. IECs are regulated by the state and can make political advertisements that use the so-called magic words “vote for” or “vote against” a candidate or issue. The IRS regulates 527 committees, which cannot explicitly advocate for or against a candidate or issue.

Neither type of committee can legally coordinate with a candidate’s campaign and both may accept unlimited political donations. Both are also a good place to find some of the largest infusions of money into Colorado politics.

Tracking dark money starts with a contribution filing on the Secretary of State’s campaign finance database, which lists donors’ business names and addresses. With that information begins a sometimes maze-like search of organization websites, Federal Election Commission and IRS filings, and other campaign trackers such as ProPublica Nonprofit Explorer and Open Secrets to determine whether the business is a nonprofit and whether it discloses its donors.

The complexity of the process and the time demanded to weave through are, in themselves, barriers to transparency around political spending.

Part of the problem is that political committees do not classify any of their donors as nonprofits on the state’s campaign finance website — because the secretary of state’s office does not require them to. Instead, when 527s and IECs file their campaign finance reports, they categorize nonprofits as businesses, corporations or “other.”

For example, committees categorized The Sixteen Thirty Fund, Education Reform Now Advocacy and Workforce Fairness Institute as businesses, corporations or “other,” depending on the filing. Although each of these organizations is a nonprofit, the average voter would not know that without digging further.

And with 2,200 business, corporate or “other” donors to go through, time, itself, can become a challenge.

For example, a donor that identifies as a business can, in turn, house nonprofit branches, 527s, IECs, foreign corporations, and more — all possibly listed under slightly different names, lumped at the same address, or spread over a variety of addresses. And, if a nonprofit turns up, it could be one of 29 nonprofit categories in the IRS tax code, each with different regulations that dictate how it can engage politically.

Complex business structures, complicated government regulations, varying addresses and inconsistent business names make it difficult to track donations — effectively pushing them further into the shadows.

Of the 10 largest donors to 527 and IE committees in Colorado, The Sixteen Thirty Fund is the largest nonprofit donor at $3.9 million. It’s a 501(c)(4) social welfare organization that helps its clients create 501(c)(4) organizations.

In fact, the fund helps “donors to direct capital toward social welfare projects that include advocacy, lobbying, and some political and electoral activities,” according to its website. 

Eric Kessler, a former staffer for the Clinton administration, is president of the fund, according to the fund’s 2016 990 tax filing. Kessler was also a national field director for the League of Conservation Voters, the third-largest donor to Colorado 527s and IECs at $4.1 million dollars. The Sixteen Thirty Fund is reportedly one of the biggest dark money players in the 2018 national elections, according to Politico.

The Sixteen Thirty Fund does not list any donor information, according to its website, FEC filings, IRS filings, Open Secrets and ProPublica — the primary websites that might include that information. The Washington, D.C.-based nonprofit did not respond to interview requests by phone or email.

The Sixteen Thirty Fund, donated to three committees: $500,000 to Our Colorado Values, $920,000 to Good Jobs Colorado and $2.5 million to Coloradans for Fairness, according to the secretary of state database.

Our Colorado Values, an IEC, supports Democratic candidates for the legislature. The IEC spent over half of its money, about $916,000, mailing information to voters. Since Sept. 27 alone, it spent about $689,000 on digital, TV, radio and mail outreach supporting Democratic House candidates, including Kyle Mullica and Barbara McLachlan, and opposing Republican House candidates, including Susan Kochevar and Toren Mushovic.

The nonprofit fund gave $920,000 to Good Jobs Colorado, an IEC that supports Democratic candidates for governor and that has spent $3.6 million on advertising, according to campaign finance data. In the last three weeks, it spent about $1.3 million of that $3.6 million in advertising against Walker Stapleton, the Republican nominee for governor.

The fund gave the most money to Coloradans for Fairness, an IEC that supports Democrats for state Senate and that spent $1.9 million in advertising. Since late September, the IEC spent almost $1.2 million in advertising that opposed Republican Senate candidates Beth Martinez Humenik, Christine Jensen, Tim Neville, Romualdo Sanchez, and others. The IEC also spent money on advertising in support of Rebecca Cranston, Brittany Pettersen, and other Democratic Senate candidates.

The other two nonprofits’ donations tell similar stories.

Education Reform Now (ERN) Advocacy is a New York City-based 501(c)(4), according to its website. This nonprofit class includes social welfare organizations and civic leagues. It donated about $2.4 million to four committees: Good Jobs Colorado, Our Colorado Values, Coloradans Creating Opportunities, and Raising Colorado.

ERN Advocacy’s website says that it focuses on education issues and that it is a nonpartisan, nonprofit advocacy organization; however, the majority of its contributions ended up in committees that support Democratic candidates. It gave $975,000 to one nonpartisan committee, Raising Colorado, which is an education-advocacy independent expenditure committee. In the last three weeks, this committee spent about $61,000 supporting Democratic House candidates Kyle Mullica, Matt Gray and Barbara McLachlan and opposing Republican House candidates like Beth Martinez Humenik and Romualdo Sanchez.

The Workforce Fairness Institute is a 501(c)(6) according to ProPublica, a nonprofit class that includes business leagues and chambers of commerce. It donated about $1.3 million to Colorado Campaign for Jobs and Opportunity — almost its entire budget. The IEC did not spend money in the last few weeks, but it did spend about $570,000 on advertisements supporting Walker Stapleton in mid- to late September.

The institute also donated $1 million to Better Colorado Now, another IEC that supports Stapleton for governor.

Two more nonprofits wait just outside the list of Colorado’s top ten political donors this cycle: Colorado Taxpayers’ Advocacy Fund, a 501(c)(4) in 11th place at $900,000, and the Sierra Club, a 501(c)(4) in 13th place at $800,000. Colorado Taxpayers’ Advocacy fund gave to Better Colorado Now and Coloradans for Fiscal Responsibility, both IECs that support Republican candidates. The Sierra Club gave to its own IEC and to Good Jobs Colorado.

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“People have a right to privacy with their donation”

Suzanne Staiert, Colorado’s deputy secretary of state, said two factors are pushing money through darker sources: restrictions on who can give money to campaigns and how much money they can spend.

Some businesses, like foreign corporations, are not allowed to make campaign donations, and these donor restrictions vary by the type of committee receiving the donation. According to Staiert, these restrictions push donors toward unconventional organizations, like nonprofits, and away from candidate committees, which require disclosure.

Under current Secretary of State Wayne Williams, a Republican who is up for re-election this November, the office supports increasing contribution limits. Currently, Coloradans can contribute $1,150 to the governor’s race and $400 to general assembly races for the entire election cycle — among the lowest limits in the nation.

“(Low contribution limits) are pushing money into other sources that are harder to trace and are harder to control by the candidate,” Staiert said.

Even though these sources are hidden, Staiert doesn’t necessarily think disclosure regulations for nonprofits should be expanded. Requiring politically active nonprofits to disclose more donors would create a chilling effect on contributors who do not want to be publicly tied to an organization, she argued. If a donor gives an earmarked donation for political expenditures, then his or her intent is to be involved in advocacy. Without that earmark, their donation should remain shielded.

“People have a right to privacy with (their donation),” Staiert said.

Jena Griswold, the Democratic candidate for secretary of state, disagreed.

“If you want to donate (for a political purpose), you have to have your political spending be transparent because the people of Colorado deserve to know,” she said.

Griswold proposes a slight change to the earmarking system. Right now, it is the donor’s responsibility to mark the donation for a certain purpose. Under Griswold’s proposal, the responsibility would shift to the nonprofits, which would ask donors more specific earmarking questions to determine when donations need to be disclosed.

Federal courts and the Federal Elections Commission are debating these disclosure requirements as well.

Previously, a federal regulation allowed politically active nonprofits to keep their donors secret unless the donation was earmarked for a specific political expenditure. Chief Judge Beryl Howell of the Federal District Court in Washington attempted to close this loophole in August, stating that donors should be disclosed to the public.

On Sept. 15, after briefly blocking Howell’s decision, the U.S. Supreme Court decided that her decision would stand. Then in early October, the FEC responded with a different proposal. Under an adapted earmarking system, nonprofits would have to disclose donor information only when the donor directs the contribution toward political advocacy or advertisements in general.

This broader earmarking rule is up for public comment and would apply to donations made after Aug. 6.

Overall, Staiert said, if Colorado does want a change, then it is up to the legislature.

During the 2018 session, lawmakers proposed five bills that addressed campaign finance issues. House and Senate Democrats proposed identical bills that called on the Colorado Legislature to appeal to the U.S. Congress to reverse Citizens United v. Federal Election Commission, a U.S. Supreme Court decision that critics say gave special interest groups disproportionate power in American elections. Democrats also proposed new campaign contribution limits for board of education directors in Colorado school districts and a bill called the “Stand By Your Ad Act,” which attempted to expand disclosure rules for political advertisements.

Four of the five bills failed, and none addressed nonprofit disclosure directly. The only bill that became law, and the only bill that had bipartisan support, made technical changes to the current Fair Campaign Practices Act.

For the moment, Fry said Colorado’s campaign finance system is one of the most accessible in the country, but “it’s really important for you to see and not just take it at face value that these groups are who they say they are,” she added, referring to political committees and advertisement sponsors.

“You really need to do your own research and follow the money to be able to see who’s trying to influence your vote.”

Good luck with that.

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