Campaign Money Freed by Supreme Court Plays $300 Million Role in Battle for Senate

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By Kenneth P. Doyle

Oct. 20 — Campaign spending by outside groups not formally linked to candidates was unleashed by the Supreme Court's 2010 decision in Citizens United v. Federal Election Commission and is reaching new heights in dollars and impact in the 2014 midterm congressional elections, according to campaign finance data analyzed by Bloomberg BNA.

Independent campaign spending by outside groups and political party committees topped $550 million by Oct. 20, two weeks before the Nov. 4 midterm elections, according to FEC reports compiled by the nonprofit Center for Responsive Politics.

Spending by non-party groups—including super PACs and politically active nonprofits—made up nearly $400 million. The money was contributed by some of the country's wealthiest individuals, corporations and unions. Several of the biggest-spending groups in this year's elections do not disclose their donors, making it impossible to know who is paying for their messages.

And most of this year's independent spending—almost $300 million—is pouring into a top tier of fewer than a dozen key U.S. Senate races whose outcome will determine control of the Senate.

Independent campaign spending has skyrocketed since the Citizens United decision, which struck down decades-old restrictions on corporate and union money in federal campaigns. The decision opened the door to unlimited contributions to super PACs and other outside groups seeking to influence campaigns.

Nearly $60 Million in N.C.

Nearly $60 million already has been spent on a single Senate race in North Carolina, according to FEC records compiled by the nonprofit Center for Responsive Politics. The race pitting incumbent Democratic Sen. Kay Hagan against Republican Thom Tillis is on track to shatter the record for independent spending in congressional races with a total of over $90 million possible by election day, CRP estimates.

The race has already broken the previous record for outside spending—$52.4 million in the 2012 Virginia race between now-Sen. Tim Kaine (D) and former Sen. George Allen (R).

Over $1 billion in campaign money was spent by outside groups in the 2012 election, but most of the money was concentrated on the hard-fought presidential race. The race saw some of the first single-candidate super PACs, which were dedicated to supporting President Barack Obama or Republican nominee Mitt Romney.

This year, all of the money is focused on congressional races and most of it on the Senate. Republican-leaning groups are seeking to rebound from the Romney loss and failure to take control of the Senate in 2012. Democrats are once again clinging to a narrow majority in the Senate.

The North Carolina race is already the most expensive Senate race ever in terms of outside groups' spending, according to CRP, with $59.1 million spent as of Oct. 20 by groups other than the Hagan and Tillis campaign committees, according to figures on the watchdog group's website.

The money has gone mainly for a months-long barrage of television ads, most of which attack one candidate or the other. As in most other top Senate races, the total was split fairly evenly between spending favoring the incumbent Hagan and the challenger Tillis, according to CRP figures.

The Hagan-Tillis race is one of 10 Senate campaigns that already have seen over $10 million each in outside spending, the CRP figures indicated. After North Carolina, the top races in terms of outside campaign money spent through Oct. 20 were:

• Colorado: $46.8 million;

• Iowa: $41.5 million;

• Arkansas: $31.9 million;

• Alaska: $30.5 million;

• Kentucky: $27.2 million;

• Michigan: $25.2 million;

• New Hampshire: $20.6 million;

• Georgia: $18.8 million; and

• Louisiana: $13.3 million.

The list matches up almost exactly with the 10 “tossup” Senate races listed Oct. 17 on the Real Clear Politics website, which monitors poll results in election campaigns nationwide.

That correlation means the hundreds of millions of dollars in campaign money from outside groups will have the greatest—perhaps decisive—impact in the races destined to determine whether the Senate stays under Democratic control or shifts to a Republican majority.

Outside Spending More Accessible

In a number of the Senate races, the amount of outside spending influencing the race is substantially more than the amounts raised and spent by the candidates themselves, who are still governed by campaign contribution limits. That appears to be true, for example, in North Carolina, where Hagan and Tillis reported raising a combined total of less than $30 million through the end of September, according to CRP.

Details of candidate funding in updated campaign finance reports covering the third quarter of 2014 were due on Oct. 15. However, nearly all of the latest Senate candidate reports remained unavailable on the FEC website Oct. 20 because of slow processing.

Because of archaic Senate rules that shun electronic filing, the Senate campaign reports are printed on paper and mailed into the Senate Office of Public Records by the candidates' campaign committees. The Senate has not adopted the same electronic filing requirements that apply to House and presidential campaigns and nearly all other political organizations involved in federal campaigns.

Officials in the Senate Public Records Office had the massive campaign reports stacked on the floor around their desks Oct. 17 but refused to allow a reporter to view any paper reports not yet entered into an office computer system. After processing by the Senate office, the reports are then transferred to the FEC where they receive further processing and are ultimately uploaded for Internet access by the public.

Democrats Get Super PAC Aid

Recent reports filed by outside groups with the FEC showed that a handful of major groups aligned with Democrats or Republicans were dominating most of the key races. These included the super PAC Senate Majority Fund on the Democratic side, which is among the top supporters of Democrats in eight of the 10 of the most expensive Senate races.

The Senate Majority PAC, which has links to Senate Majority Leader Harry Reid (D-Nev.), has provided nearly $36 million in support for Senate Democratic campaigns and has received about half that amount from just three wealthy individuals, according to reports filed with the FEC.

Contributions to the Senate Majority PAC, according to FEC reports, include $10 million from billionaire financier Thomas Steyer and the NextGen Climate Action Fund, a super PAC focused on climate change, which Steyer heads. Other big contributions came from Fred Eychaner, head of Newsweb Corp., who has given $5 million, and former New York City Mayor Michael R. Bloomberg, the founder and majority owner of Bloomberg BNA parent Bloomberg LP, who has given $2.5 million.

Steyer's own PAC, the NextGen Climate Action Fund, also has provided direct support to several Senate candidates and was a top spender in four of the 10 most expensive Senate races. Steyer, himself, has provided about $40 million to the super PAC, according to FEC reports.

Nonprofits Help GOP

On the Republican side, support has come from a wider variety of groups, led by the nonprofit group Crossroads GPS and its companion super PAC American Crossroads, and by the nonprofit trade association the U.S. Chamber of Commerce.

The Crossroads groups, which were founded by Republican strategist Karl Rove, have provided a combined total of over $35 million support to Republican congressional candidates. The Chamber, the nation's premier business lobby, has provided over $30 million. The Crossroads groups and the Chamber have been top spenders supporting GOP candidates in nearly all of the top 10 most expensive Senate races.

Unlike super PACs, Crossroads GPS and the Chamber are organized under Section 501(c) of the tax code and do not disclose the donors funding their campaign spending. While other groups supporting both Republican and Democratic candidates have claimed exemption from campaign finance disclosure rules and refused to report their donors, some other major 501(c) groups active in the last election have been mainly absent from this year's campaigns.

These the nonprofits including the American Future Fund, Americans for Job Security, Americans for Tax Reform and the American Action Fund. These groups spent tens of millions in the 2012 election, according to independent-expenditure reports filed with the FEC, but they reported little or no spending in this year's congressional races.

A Democrat-leaning 501(c) group, Patriot Majority, reported millions in spending for TV ads earlier this year but has reported no such spending since the summer.

Koch Network's PAC 

In another variation from patterns seen in previous elections, some groups linked to the so-called Koch network of conservative donors have begun disclosing some of the donors financing their campaign activity in 2014. Previously, groups linked to billionaire brothers Charles and David Koch, who head Koch Industries Inc., have been prominent in campaign spending but have jealously guarded the details of their funding sources.

In 2012, a nonprofit organization called Freedom Partners Chamber of Commerce provided over $200 million to other groups sponsoring political ads in that year's elections but provided no information about its donors. This year, Freedom Partners has set up a super PAC, Freedom Partners Action Fund, which reported its first contributions, totaling over $15 million.

The disclosed donors included trusts linked to Charles and David Koch, who each provided $2 million. Among dozens of other large contributions to the Freedom Partners PAC was Robert Mercer, head of Renaissance Technologies, who gave $2.5 million.

Freedom Partners Action Fund has been a top supporter of Republican Senate candidates in Arkansas, Iowa, North Carolina, Colorado and Kansas. The PAC reported spending mainly for television ads in these campaigns beginning in early September, when other groups linked to the Koch network were winding down TV advertising.

Previously, the 501(c) group, Freedom Partners Chamber of Commerce, had sponsored “issue ads” discussing candidates in key Senate races but reported none of this spending to the FEC.

James Davis, a spokesman for the group, told BNA in a September e-mail that Freedom Partners Chamber of Commerce ran “only … issue ads, no independent expenditures.” He said the “express advocacy ads” sponsored by Freedom Partners Action Fund were independent expenditures that were reported in accordance with FEC requirements.

“The two [Freedom Partners] organizations are separate legal entities with different reporting requirements,” Davis said. He did not respond to a question about who directs the operations of the groups.

AFP Switches Tactics

Another key group related to the Koch network is Americans for Prosperity—a 501(c)(4) organization which does not disclose its donors. The conservative nonprofit sponsored more than $16 million worth of TV issue ads in states with key congressional and state races prior to September, according to a report from the nonprofit Wesleyan Media Project, an organization housed at Wesleyan University in Connecticut, which monitors political advertising.

At the beginning of September, AFP switched its political activities to Internet ads, bus tours and other actions, the spending for most of which did not require reporting to the FEC. The change in AFP's tactics came as sponsors paying for political ads on television and radio faced greater disclosure requirements for “electioneering communications” under FEC rules during a pre-election period beginning Sept. 5.

Asked in September about AFP's plans, spokesman Levi Russell noted that the group's digital ads announced at that time did not require reporting to the FEC. He declined to discuss details of the group's other activities, saying that “all options are on the table.”

So far in 2014, AFP has reported a total of just over $2 million in independent expenditures and electioneering communications—down from nearly $37 million in such spending in 2012.

Groups Avoiding Disclosure, Noble Says

Larry Noble is a former FEC general counsel now with the nonprofit Campaign Legal Center, which supports stronger campaign fiance disclosure rules. After leaving the FEC and before coming to the Campaign Legal Center, he advised corporate clients on the ins and outs of election law.

In a phone interview with Bloomberg BNA, Noble explained that the variation in form and practice of different types of politically active groups stems largely from concerns about disclosure and often specifically from promises to donors that their identity will not be revealed.

“Many donors say they don't want to be disclosed,” he said. “A lot of them are companies and individuals who would be recognized” by the public and are concerned about negative publicity or other fallout. “They wouldn't give if people knew about it,” Noble added.

He noted, however, that groups seeking to avoid disclosure have to navigate complex tax and FEC reporting rules, including rules that require greater reporting for messages of express advocacy, directly calling for votes for or against candidates. There are also reporting requirements for electioneering communications—defined by the FEC as TV and radio ads in the pre-election period that refer to candidates but stop short of express advocacy.

“If you are really cautious” about avoiding disclosure, the best way is not to run TV ads, Noble said in analyzing the shifting tactics of some of the groups operating this year.

He said donors to 501(c) groups can get around disclosure rules by saying they give for general support of a group. Under tax laws, however, such groups must have a “primary purpose” beyond running campaign ads. That factor can become a problem for groups that start up by sponsoring campaign ads and say they will do non-campaign issue ads or other activities later. Noble said these groups often cease operating after the election is over, but there is no apparent consequence for them.

“The reality is that if you had strong coordination and disclosure rules, a lot of this would go away,” Noble said of the surge in campaign spending by outside groups. The Supreme Court has said disclosure is constitutional, so “if it forces some people to stop giving, so be it.”

Keating: Disclosure Curbs Speech

David Keating heads the nonprofit Center for Competitive Politics. The conservative group has opposed calls for greater disclosure because it says disclosure could curb spending for political speech.

In a phone interview with Bloomberg BNA, Keating agreed disclosure issues are a factor in how groups spend money but said other factors are important too. He said some groups are concerned about election-related spending being officially reported to the FEC and afterward being counted as political activity by the Internal Revenue Service, thus threatening tax-exempt status.

Because broadcasters can charge them freely, some groups are paying as much as eight to 10 times more than candidates for TV ads.

Another, more practical factor, Keating said, is the expense of TV ads for outside groups compared to candidate ads. Broadcasters are legally required to air candidate ads at their lowest rates but can increase prices in a competitive market for other political ads. He said this is becoming a major factor as Election Day nears, with some groups paying as much as eight to 10 times more than candidates for TV ads. The groups may be switching to digital ads, mailings, and other types of messages simply to conserve their money, he said.

Keating said he supports current rules requiring disclosure for contributors giving money directly to candidates and parties, as well as PACs paying specifically for messages to advocate for or against candidates. He is against broadening disclosure requirements to groups involved in “issue speech.” This is essentially where the legal line on disclosure currently is drawn, Keating added.

“It's actually a pretty good place to draw the line because you can figure out where the line is,” Keating said. He said it's more problematic to include groups doing issue advocacy in disclosure requirements. The courts have upheld disclosure for campaign contributions, Keating added, but “have never said donors funding issue speech have to be disclosed.”

Also, according to Keating, disclosure would eliminate some of this speech, and it's more important to have the message than to know who is paying for it.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com