RALEIGH — In recent months, liberal advocacy groups have conducted a concerted attack against the American Legislative Exchange Council, the Washington, D.C.-based nonpartisan public-policy group created in 1973 that promotes federalism, free markets, and limited government.
The challenge, led by Common Cause, claims that ALEC has abused its 501(c)3 tax-exempt status under the IRS code by engaging illegally in “taxpayer-subsidized lobbying” for hundreds of bills in state legislatures across the country.
Common Cause filed a whistleblower complaint in April with the IRS. A month later, Common Cause sent a letter to North Carolina Attorney General Roy Cooper, asking the state to investigate ALEC’s tax status. Common Cause also has used social media to encourage Facebook and Twitter followers to lobby corporate sponsors of ALEC to end their support.
Common Cause and its left-wing allies have relied heavily on an analysis prepared by the Ralph Nader-founded Center for Media and Democracy accusing ALEC of relying almost entirely on corporate money and conservative foundations for its financial support — skewing its agenda to favor the interests of its donors — and being dominated by partisan Republican lawmakers. If ALEC is in actuality an organization that supports Republican candidates and Republican ideas, critics say, it should not get favorable tax treatment from the federal government.
To bolster its arguments against ALEC, Common Cause and other left-leaning organizations have drawn comparisons between ALEC and a similar organization, the National Conference of State Legislatures, a Denver-based entity established in 1975 for the purpose of allowing state legislatures to collaborate on issues and lobby Congress when federal legislation can affect state governance.
But some of the concerns cited about ALEC’s alleged lack of independence also could be lodged against NCSL, which receives the majority of its support from taxpayers, funneled through state legislative budgets, supporting an agenda that looks out for the interests of state governments. NCSL also has an allied foundation which sponsors events and legislator training, and the vast majority of its funding comes from corporations, public employee unions, and government-sponsored enterprises, including Freddie Mac and Sallie Mae.
Every state legislator automatically is enrolled in NCSL. Taxpayers from each state foot the bill for legislators’ dues. Some states pay travel expenses, often including expenses of spouses. In 2010, NCSL’s general fund was $16.8 million, with state legislatures providing nearly $10 million of the total. Private foundations, federal agencies, and NCSL publication sales provide most of the remainder of its revenue.
In 2009, ALEC’s revenues were $6.3 million, with about 1 percent coming from legislators’ dues, and the remainder from corporate donations and grants from foundations and individual supporters.
Tar Heel taxpayers paid $163,994 to NCSL in registration fees, not including travel expenses, from 2007-11, according to figures provided to Carolina Journal by Wesley Taylor, controller for the North Carolina General Assembly.
Over that period, North Carolina’s annual fees averaged $24,783, but jumped to $64,860 in 2008, the year then-House Speaker Joe Hackney, D-Orange, was inducted as NCSL’s president for a one-year term starting in July 2008. Hackney is the current House minority leader. He is not seeking re-election to the General Assembly.
An examination of NCSL and ALEC shows both are dedicated to federalism — ensuring state legislatures have as much freedom as possible to act on state interests with minimal interference from Washington. To further that mission, both organizations provide valuable research and education to state legislators on a wide range of public policy issues from taxation to health care, and both offer a mechanism for public-private dialogue.
But the two organizations represent different points of view on several key matters. NCSL often backs government expansion at the state level while ALEC consistently supports free-market, limited-government solutions.
NCSL spokesman Jon Kuhl told CJ that a primary focus of NCSL is working with Congress to ensure states are not burdened by unfunded federal mandates.
Bob Williams, a Republican Washington state legislator from 1978-88, and founder of the free-market Evergreen Freedom Foundation, agrees that NCSL offers a vast array of research for legislators, journalists, and the public. But Williams, chairman of ALEC’s Tax and Fiscal Policy Task Force, also said NCSL consistently advocates for new government programs, asking Congress for funding and guidance.
ALEC, by contrast, is committed to Jeffersonian principles of limited government, free markets, and a balance between state and federal power that protects individual freedom, he said.
Three recent policy debates underscore the philosophical divide: taxation; the federal stimulus law; and health care reform.
ALEC has produced an annual report over the past five years, Rich States, Poor States, ranking states on economic competitiveness in 15 equally weighted policy variables directly affected by state lawmakers. Among the variables are top marginal personal and corporate income tax rates, sales tax burden, and property tax burden.
In a two-page overview outlining its principles of taxation, ALEC says, “the goal of American tax policy should be to raise revenue for functions of government in a way that minimizes distortions, so as to grow the overall economy and facilitate commerce.”
NCSL’s “Tax Policy Handbook for State Legislators” provides information for new legislators and others with limited experience in tax policy to help them evaluate various state taxes. The report examines current state tax systems and evaluates each major state tax using seven criteria.
Internet taxes have been highlighted in the search for new revenue sources for cash-strapped states. For more than a decade, NCSL has pushed states to adopt the Streamlined Sales and Use Tax Interstate Agreement, which NCSL developed along with the National Governors Association.
Under this agreement, states make tax collection simpler to encourage remote retailers who sell over the Internet and by mail order in multiple states, and who do not have a physical presence in the state to collect sales taxes voluntarily.
Such collections must be voluntary because a 1992 U.S. Supreme Court decision, Quill Corp. v. North Dakota, ruled that “a business had to be physically present in a state before that state could require the business to collect use tax on its behalf.” This upheld a 1967 Supreme Court ruling, National Bellas Hess v. Illinois, in which the Illinois Department of Revenue tried to force a mail-order company in Missouri to collect sales and use taxes from customers purchasing its products in Illinois.
NCSL estimates states will lose $23.3 billion in 2012 by being prohibited from collecting e-commerce taxes, so a growing number of states have tried to find ways to circumvent the law.
On its website, NCSL says the Agreement “provides the states with a blueprint to create a simplified sales and use tax collection system that … when implemented, allows justification for Congress to overturn the Bellas Hess and Quill decisions.”
To date, North Carolina is one of 24 states to have passed complying legislation.
In 2009, North Carolina, along with New York, Rhode Island, and several other states, passed an Internet tax redefining “nexus” to mean out-of-state merchants are liable for collecting sales and use taxes when they have in-state affiliates whose websites generate sales for a merchant, and both the merchant and affiliate share the revenues — among the main “offenders” were bloggers and other noncommercial website operators who posted links to Amazon.com on their sites and got a small commission if visitors used the site as a portal to make purchases from Amazon. Amazon responded by dropping its affiliate marketing program in North Carolina.
Now, NCSL is urging Congress to pass the Main Street Fairness Act, S. 1832, a bipartisan bill introduced in 2011 by Sens. Mike Enzi, R-Wyo., Lamar Alexander, R-Tenn., and Dick Durbin, D-Ill. This would overrule the Quill decision by authorizing states to require out-of-state businesses with no physical presence in that state to collect sales and use taxes on its behalf.
Williams told CJ that ALEC opposes the bill. For more than a decade, ALEC members have opposed state and federal attempts to force online sellers to collect sales taxes in states where they lack a physical presence.
David Addington, senior vice president of the Heritage Foundation, wrote in April 2012 that “overriding Quill would give states an incentive to increase revenues instead of cutting the scope, size, and cost of state governments.”
Enactment of S. 1832 would be anti-competitive, Addington said, because it would allow states to “pick winners and losers based on legislative policy preferences” by favoring in-state over out-of state businesses.
NCSL strongly supported passage of the American Recovery and Reinvestment Act of 2009, the massive $787 billion stimulus bill. In a YouTube video from April 2009, then-NCSL President Hackney praised President Obama’s leadership on the stimulus bill during a White House visit by some members of NCSL.
Noting that Obama was the first U.S. president who also was an alumnus of NCSL, Hackney pointed out that eight of the nine recommendations NCSL offered made it into the stimulus bill. Among the items singled out was the federal money given to states to close their budget gaps. The bill “is saving and creating jobs right now in North Carolina,” Hackney said, and “I think it’s what the people of America want.”
ALEC opposed the stimulus bill in favor of reducing taxes and limiting government regulations. The group said those policies would do a better job stimulating economic growth and prosperity.
With the economy still struggling, there is growing demand for new stimulus. Jonathan Williams, director of ALEC’s Tax and Fiscal Policy Task Force, told CJ that “any new stimulus will only prop up high-spending, high-tax states like California and Illinois at the expense of fiscally responsible states” that have cut spending and lowered the tax burden for their citizens.
NCSL supported many provisions of the Patient Protection and Affordable Care Act of 2010. Its website offers multiple resources on health reform policies at the federal and state level, including a legislative tracking database of all 50 states, as well as reports on state laws, bills, and lawsuits challenging provisions and the constitutionality of the federal law.
NCSL favored a public option at the state level and giving states a strong role in regulating health care through state-based exchanges.
In contrast, ALEC filed a friend-of-the-court brief with the U.S. Supreme Court in February 2012 to challenge the constitutionality of the federal individual mandate, and ALEC has played a key role in educating lawmakers through its “State Legislature Guide to Repealing ObamaCare.”
The guide suggests alternatives to “government-driven” health reforms, including ideas for “patient- and market-driven” legislation.
ALEC’s Freedom of Choice in Health Act, a model bill based on the language in Arizona’s Health Care Freedom Amendment, is a state-level constitutional amendment that may help state lawmakers defend against the federal individual mandate and prohibit a government-run single-payer system like Canada’s.
While North Carolina was the first state in 2011 to send legislation modeled after ALEC’s health care initiative to its governor, Bev Perdue vetoed House Bill 2. Attorney General Cooper also refused to join a multistate lawsuit challenging the constitutionality of ObamaCare.
In 2009, NCSL pushed for reauthorization of the State Children’s Health Insurance Program, a joint federal-state program that provides health care coverage to low-income children. The reauthorization proposal expanded eligibility to include uninsured families with incomes at a higher percentage of the federal poverty level than was included in the earlier SCHIP law.
Opponents said states would end up covering at least twice as many children as under the prior rules and at roughly twice the cost in part because of crowding-out effects.
Studies have shown that as more privately insured children become eligible for public programs, families drop private coverage and enroll in the public program. Even with more federal dollars, states have to spend more tax money to match the federal dollars.
Funding and structure
Every state legislator automatically becomes a member of NCSL. As noted earlier, more than half of its $16.3-million, 2010 budget was underwritten by state taxpayers. Along with nearly 2,000 state legislators, ALEC’s private sector membership and funding base includes individuals from almost 300 corporations, private foundations, and state think tanks.
One repeated complaint of left-wing critics of ALEC is the organization’s reliance on funding from corporate sponsors and foundations. But NCSL has its own business-funded subsidiary. In 1982, NCSL created the NCSL Foundation for State Legislatures, a nonprofit, tax-exempt 501(c)3 corporation to help sponsor events and training for legislators and legislative staffs.
According to NCSL’s website, the foundation “is sponsored by a distinguished group of leaders who represent the nation’s most prestigious and influential corporations, unions, and organizations.” Its 2011 Annual Report (PDF) listed $1.965 million in revenues that fiscal year from 174 corporate and nonprofit donors, including AT&T, Astra Zeneca, Comcast Cable, the National Education Association, WalMart, Visa, Time Warner Cable, AARP, ExxonMobil, GM, Service Employees International Union, Freddie Mac, Sallie Mae, SAS Institute, and others.
NCSL provides a wealth of resources that ALEC does not, which are valuable to legislators, journalists, and the general public who seek information on what individual state governments are doing. Among them are extensive databases on state legislation and research comparing state approaches to public policy issues.
For example, NCSL has a bill-information service that allows individuals to search for bills in all 50 states, the District of Columbia, Congress, and Puerto Rico, and contains analyses and comparisons of bills and statutes in hundreds of areas by issue, title, or date. NCSL also has an e-Learning Center on its website with videos, podcasts, webinars, and other resources ALEC does not have.
Karen McMahan is a contributor to Carolina Journal.
Editor’s note: CJ made several minor clarifications to this story after being contacted by NCSL.