Crain’s New York Business
June 5, 2013
New York state nonprofits will be required to reveal their political spending as a result of regulations announced Wednesday by state Attorney General Eric Schneiderman. The rules are a response to the Supreme Court’s Citizens United ruling, which led to a surge in campaign advertising by tax-exempt organizations.
“The loophole for donations, the vehicle of choice for dark money is 501(c)(4) charities,” said Mr. Schneiderman, referring to nonprofits that are permitted to engage in political activities.
The regulations, which the attorney general unveiled at a breakfast event in Manhattan, allow for closer scrutiny of such nonprofits, but will not force them to reveal individual donors. Nonprofits registered with the state will be required to report annually the percentage of their expenditures that go to election campaigns, and any group that spends over $10,000 annually must file an itemized account of expenses and contributions. All disclosures will be made public online.
In the wake of the recent revelation that the Internal Revenue Service subjected applications from conservative organizations seeking tax-exempt status to extra questioning, the new rules will prevent any one group from arbitrarily coming under investigation, said Mr. Schneiderman, a Democrat. However, the supportive quotes in his press release announcing the moves did not include any from conservatives.
The rules will take effect for some political spending for the 2013 elections and for all of it next year, the attorney general said.
The Supreme Court’s 2010 Citizens United decision exempted 501(c)(4) nonprofit groups from federal and state taxes if they are for the “promotion of social welfare.” However, many groups have become vehicles for political involvement because their donors can remain anonymous.
“As a result, big dollar donors love these not-for-profit groups,” said David Calone, CEO of Jove Equity Partners, who supports the new disclosure requirements.
The new regulations do not appear to be targeted at lobbying groups like the Committee To Save New York, which has taken in millions in private donations to help advance Gov. Andrew Cuomo’s legislative initiatives, but rather shadowy super PACs that engage in politicking like those financed by the conservative Koch brothers and liberal billionaire George Soros.
Mr. Schneiderman cast his regulations, which are implemented through his Charities Bureau, as a way to protect the reputations of charitable organizations. A press release from his office said he “is concerned that without improved disclosure, misleading solicitations and abuse of charitable assets for electoral purposes will undermine public confidence in the nonprofit sector.”
The first-term attorney general said the new regulations are a first step toward campaign finance reform and advocated for immediate action before Albany’s legislative session ends later this month, citing recent scandals as an impetus for action. In the last seven years, 32 state elected officials have been convicted or charged with corruption or otherwise accused of wrongdoing, according to the Brennan Center for Justice, an advocacy organization.
“Scandal breeds reform, and that’s where we have an opportunity in Albany today,” said Frederick Schwarz, chief counsel of the Brennan Center.
Mr. Schneiderman called for a small-donor matching program similar to the one implemented in New York City during the Koch administration. For campaign donations by city residents up to $175 to candidates for city office, the city matches the funds 6-to-1. The system has resulted in greater participation by small donors, according to a study by the Brennan Center.
“I think transparency is critical,” said Mr. Schneiderman. “And more and more Americans are getting the problem.”