Republican bill would shield donors to ‘dark money’ groups in Michigan

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The 2018 midterm elections were the most expensive in Michigan history, with more than $291 million poured into myriad campaigns.

Less than 48 hours after polls closed on election day, a bill was introduced in the state senate that would make some of that money — the millions that came from nonprofit political advocacy groups — harder to trace. The bill, sponsored by the incoming Republican senate majority leader, would prevent public agencies in Michigan from requiring nonprofits to disclose their donors and supporters.

Nonprofits in Michigan are not currently required to publicly disclose donors. But incoming Secretary of State Jocelyn Benson has pledged to increase campaign finance transparency and the Attorney General’s office, which approves nonprofits to receive donations, will soon be led by Dana Nessel, who was backed by the End Citizens United PAC.

“I want to make sure that nonprofit organizations ‒ broadly, not just political ‒ are protected from having to disclose their donors,” said sponsor Sen. Mike Shirkey, R-Clarklake. He said donors may be discouraged from giving to nonprofits if they believe they would be identified without their permission.

Shirkey’s bill would prevent state agencies ‒ including the Secretary of State or Attorney General ‒ from learning donors’ names.

“Even the threat of it has a chilling effect,” Shirkey said of donor disclosure. “So putting it into statute will put a punctuation point on it and make it clear.”

Experts on campaign finance said the bill would make campaign finance reform, as one expert put it, “a herculean task.” Calls for Michigan to ensure more disclosure, not less, of who contributes to political candidates gained urgency after Michigan was ranked last in the nation in transparency.

“It appears to be a preemptive move to ensure that nonprofits will not have to disclose where their money is coming from for many years at minimum,” said Craig Mauger, executive director of the nonpartisan Michigan Campaign Finance Network, which tracks money in state politics.

“Because once you put this into law, the pro-transparency forces would have to control both chambers of the legislature and the governor’s branch in order to overturn this law.” (While Democrats swept the races for governor and other statewide offices earlier this month, Republicans kept control of the Michigan House and Senate.)

How nonprofits influence elections

Shirkey’s bill would protect organizations that fall under section 501(c) of the IRS tax code. There are 29 different types of nonprofits under this section, but the ones involved in political advocacy tend to be 501(c)(4)s and 501(c)(6)s — “social welfare” organizations and business advocacy organizations.

They can receive unlimited donations from individuals, corporations and unions, and while their political activity is supposed to be limited, the IRS rarely enforces those limits.

IRS oversight of these groups became even less restricted this year when the agency announced it would no longer require 501(c)(4)s and 501(c)(6)s to report large donors in annual tax returns, allowing these groups to redact donors’ names when their returns are made public.

While nonprofits don’t have to publicly disclose the sources of their funding, some voluntarily do so. States, however, have the right to demand more transparency of nonprofits.  

Political nonprofits can give to SuperPACs and participate in express advocacy without disclosing their donors, said Mauger, and they often purchase issue ads that nominally address an issue rather than a particular candidate, even as the ads generally make clear which candidate the group favors.

For example, a March ad from the 501(c)(4) Fund for Michigan’s Tomorrows urged Michigan voters to “tell your legislators to stand with (Republican candidate for governor) Bill Schuette.” On the other side of the ideological divide, a liberal 501(c)(4), the Sixteen Thirty Fund, gave more than $5 million to the ballot committee Voters Not Politicians, whose proposal to change the state’s redistricting system passed in November.

Michigan nonprofit groups also often work closely with campaigns; at times, the same consultants manage a campaign and run the political nonprofit supporting it, said Mauger. In the 2018 governor’s race alone, nonprofits spent more than $7 million, according to data tracked by Mauger’s group.  

Making Michigan ‘darker’

The senate bill preemptively protects nonprofits against any state administrative rules that would require them to disclose their donors to the public, or to public agencies.  

“We think that that’s really dangerous,” said Anna Massoglia, a researcher at the Center for Responsive Politics, a national nonpartisan group that tracks money in politics. She said preventing government agencies from tracking donations makes it difficult for them to tell whether a group is accepting money from straw donors (people who pass on someone else’s money to a candidate or cause).  

“Especially with the threat of foreign influence being such a big issue right now, it would be extremely difficult to tell whether someone was a legitimate donor in the U.S. or someone outside of the U.S,” Massoglia said.  

Advocates for government transparency say it’s important to be able to see who is funding the nonprofit groups that support candidates because it can indicate what issues or interest groups that candidate will likely support once in office.

Disclosing donors helps “identify conflicts of interest and make connections between why certain groups are supporting certain individuals,” said Mauger of the Michigan Campaign Finance Network. “If someone wants to influence a state lawmaker in Michigan right now, they can do that completely in secret by writing a large check to that lawmaker’s nonprofit organization.”

Eric Lupher, president of the nonpartisan Citizens Research Council of Michigan, said “we should have the ability to know who’s trying to get us to vote one way or another on these things… I think that’s good government.”

Massoglia said most states are actually going in the opposite direction, shining more light on campaign finance, not less. And other states’ tougher disclosure policies are being upheld by federal courts. In one case, a U.S. Appeals Court upheld the California Attorney General’s right to require nonprofits to report contributors. In another, the U.S. Supreme Court allowed a Federal Elections Commission rule to stand that requires nonprofits that do express advocacy at the federal level to disclose their funding.

Mauger said the bill may be preemptive protection against the possibility that Secretary of State-elect Benson could implement an administrative rule to require disclosure.

A Benson rep criticized Shirkey’s bill in a statement.  

"Transparency was among Jocelyn Benson's campaign priorities for good reason,” said spokeswoman Liz Boyd, citing Michigan’s last-in-the-nation transparency rating. “Unfortunately this bill goes in the wrong direction by exempting dark money contributions that (shield) independent expenditures from disclosure.”

In 2013, current Secretary of State Ruth Johnson, a Republican, proposed a rule that would require groups running issue advertisements to report campaign finance details. The Republican-led senate responded by rushing to approve a bill that ensured groups behind the ads would not have to disclose donors, which Republican Gov. Rick Snyder signed two days after Christmas.

Johnson’s spokesman Fred Woodhams said she has not yet taken a position on the current bill.

Concern for privacy and free speech

If it becomes law, the Shirkey bill would be called the “personal privacy protection act.” Shirkey said “there have been efforts made” to expose the identities of nonprofit donors.

“This is intended to put belts and suspenders on it so that it's no longer challengeable,” Shirkey said. “And of course you can't stop somebody from filing suit, even if it is against the law. But this is just primarily to put further protections in to avoid the situation” of challenges to nonprofits’ privacy.

Those who favor keeping donors’ identities private say that disclosure is a threat to individuals donors’ free speech rights and can lead to threats that can reduce donors’ willingness to give.

“In this environment, it is more important than ever for individuals to have the option to speak collectively without the fear of reprisals and threats that too frequently result from having their names, addresses, and employer information posted on the Internet as a result of compulsory donor disclosure laws,” according to a report by the Cato Institute, a D.C.-based libertarian think tank.

David Keating, president of the Institute for Free Speech, a nonprofit that favors less regulation of campaign money, said the bill is a good idea because it protects the anonymity of group members who might be politically targeted by state leaders.  

“I think this is something that protects all sorts of views no matter what perspective they might be,” Keating said. “There’s some pretty scary stuff going on around the country where officials seem to be targeting organizations they don’t like and requiring this invasion of privacy.”

He cited a lawsuit in New York in which the National Rifle Association alleged the state is targeting insurers who participate in an NRA-branded insurance program, and a Maryland case in which newspapers challenged a law that required them to publish information about political ad buyers.

Instead, Keating said, campaign finance disclosure requirements should be made legislatively with public input.

Shirkey said he is confident the bill will get the support it needs to pass in the Republican-held house and senate, and pushed back against criticism that the bill would make it harder to determine who is influencing elections.

“There's pros and cons to virtually every type of statute and law that's put in place,” Shirkey said, “and I believe the value of protecting that confidentiality is of higher value than the opposite.”