Campaign Finance Loophole Targeted

This is one in a series of occasional stories about ethics and transparency in the part-time Texas Legislature.

Politically active nonprofits, which are playing an increasingly important role in state elections, would no longer be able to hide the identity of their major donors under a bill making its way through the Texas Legislature.

Rep. Charlie Geren, R-Fort Worth, says he plans to push Senate Bill 346 through a House committee this week without any changes. Since it has already passed the Senate, the bill would go straight to Gov. Rick Perry if the full House subsequently approves the legislation without amendment.

“My intention is to get the bill out of committee exactly like it came over and take it to the floor, and fight off all amendments and then send it to the governor,” Geren said. A public hearing is set for Wednesday.

Geren and the Senate sponsor, Sen. Kel Seliger, R-Amarillo, say they are targeting nonprofits organized under 501(c)(4) of the tax code, which the IRS says are supposed to be "social welfare" organizations but are allowed to engage in political activity as long as that's not not their primary activity. The bill would trigger disclosure of donors who give more than $1,000 to a group that engages in more than $25,000 of political activity intended to influence an election. The disclosure only applies to political donations.

On the federal level, politically active groups that don’t disclose their donors, most of which are 501(c)(4) nonprofits, have had an outsized impact in recent elections, giving a whopping $300 million in the 2012 elections, according to the Center for Responsive Politics.

The most famous of these groups, arguably, is the Crossroads GPS nonprofit, the brainchild of Texas Republican strategist Karl Rove.

On the state level, such “dark money” campaign spending is in its infancy, but substantial sums have made their way into the body politic already.

According to state figures compiled by Texans for Public Justice (TPJ), a liberal campaign finance watchdog group based in Austin, one politically active nonprofit, the conservative Texans for Fiscal Responsibility, spent about $350,000 in the 2012 elections, most of it in the Republican primaries. (Spending is reported, but contributions are not.)

On the left, the Texas Organizing Project, a 501(c)(4) that advocates for moderate- and low-income Texans, spent about $240,000 over the same period, TPJ figures indicate. A column in the San Antonio Express News last year also identified a 501(c)(4), South Texas Alliance For Progress, behind an effort to torpedo an initiative to fund pre-K education with a small sales tax increase. 

Proponents of SB 346 say if the Legislature doesn’t require donor transparency for 501(c)(4)'s this year, elections in 2014 and beyond will be awash with secret money.

“This bill will close down a loophole that is about to become the size of the Grand Canyon,” said Fred Lewis, a lawyer and campaign finance activist who recently registered his approval of the bill during a Senate hearing.

Capitol whisperers say the bill was primarily designed to smoke out the donors behind Texans for Fiscal Responsibility, which is run by conservative activist Michael Quinn Sullivan.

Seliger said fellow GOP senators cited Sullivan’s opposition to the bill when they voted to undo their vote last week approving the bill. 

And there certainly is no love lost between House Speaker Joe Straus and Sullivan, who has made the San Antonio Republican a frequent target of his Tea Party infused ire. The group's largest expenditure in the last election cycle, $82,169, went to support Straus’ primary opponent Matt Beebe, according to TPJ figures.

Sullivan calls the Seliger-Geren bill an attack on the First Amendment and notes that labor unions are not covered by the legislation.

“I find it difficult to see where the state of Texas has a compelling interest in regulating the First Amendment right of non-union corporate political speakers differently than others who engage in political speech,” Sullivan said. A call to the Texas Organizing Project was not immediately returned.

Sullivan's opposition isn’t the only hurdle for the legislation. Democrats are also expressing concerns about it and could band together in an unlikely union with their Republican counterparts to kill it.

Several Senate Democrats already joined Republicans in an attempt to “recall” the legislation back from the House after they initially voted to approve it. But the recall effort failed because the bill had already arrived in the House, which treated it like a fumbled football. Senators said they didn't fully understand what the bill did when they approved it the first time.

One of the vote-switchers, Sen. Kirk Watson, D-Austin, said he was afraid there could be “unintended consequences” from the bill and wanted a chance to more fully vet it. He held open the possibility that he could support the legislation once he got a better look at it.

After the Democrats flipped their votes, word spread that Democratic mega-donor Steve Mostyn was behind the move. Mostyn spokesman Jeff Rotkoff acknowledged that the wealthy trial lawyer had concerns about the bill but said he is not working against it.

Rotkoff said the legislation does not specifically mention 501(c)(4)'s and might require the reporting of donations from groups the sponsors weren’t intending to cover.

“Steve agrees with the goal of the bill,” Rotkoff said. “But campaign finance counsel we have spoken with believes the bill could have significant unintended consequences. This is not something Steve is actively working on, but our opinion is that this bill may attempt to do the right thing in the wrong way.”