News: CJ Exclusives

Should a light shine on donors to nonprofits?

Free-market policy organizations face increasing pressure from Left-leaning groups to reveal identities of funders

CJ graphic by Greg DeDeugd
CJ graphic by Greg DeDeugd

Paul Gessing wanted to pop the top on the soda tax in Santa Fe, New Mexico. That was all. 

The president of the libertarian Rio Grande Foundation never planned to file a lawsuit against the city. But when Santa Fe elected officials accused him of violating a campaign finance ordinance and demanded to see his donor list, he thought he had no choice.  

Rio Grande’s problem is nothing new. In fact, the John Locke Foundation and dozens of other nonprofits have faced and continue to face similar scrutiny from people and organizations opposing the nonprofits’ mission.

Under federal law, organizations classified as 501(c)3 aren’t allowed to engage in political or campaign advocacy, while 501(c)4 entities may participate in lobbying and political campaigning — provided the majority of their work is focused on public policy and issue advocacy.  

Although 501(c)3 nonprofits are prohibited from endorsing or opposing any candidate running for elected office, for decades they’ve been subject to much scrutiny under federal and local campaign finance laws.  

The trouble for Rio Grande began in March, when Santa Fe Mayor Javier Gonzales proposed a two-cent-per-ounce tax on sugary beverages including soda, energy drinks, sports drinks, juice boxes, and even sweetened coffee. The revenue would fund a Pre-K program for the city, Gessing told Carolina Journal 

The tax was bad news, RGF policy analysts said. Beverage prices would explode. The cost of a soda 12-pack would nearly double. Low-income families would suffer.  

On April 6, RGF released a website and video voicing their concerns. The goal was to tell voters what would happen if they green-lighted the plan.  

The same day RGF released the video, Gessing got a letter from the city’s attorneys.  

“They said, ‘If you go ahead with this, you’re going to have to disclose your donors.’ And that’s when I kind of freaked out a little bit.” 

RGF had done nothing illegal by IRS 501(c)3 nonprofit standards, Guessing said. They weren’t campaigning on behalf of a candidate. They weren’t engaged in inappropriate advocacy.  

“It was news to me. I was running around with my hair on fire for the next few days trying to figure out what to do going forward, because it was totally unexpected.” 

RGF violated a city law, passed in 2015, that forces nonprofits to disclose donor information if they campaign around ballot initiatives, city attorneys said. 

Gessing appeared before the city ethics board, where he was forced to disclose the nonprofit that produced the website and video, as well as the name of the donor who funded the project.  

RGF decided to keep the website up but canceled plans for expensive postcard and social media campaigns.  

Shortly after, Matt Miller, an attorney from the Phoenix-based Goldwater Institute, called Guessing.  

Santa Fe’s law was unconstitutional, Miller said.  

“I told [Gessing] that we could challenge this law in federal court and have a good probability of winning.”  

A lawsuit was filed.  

The controversy surrounding nonprofit disclosure laws

Arguments over nonprofits and donor privacy date back to 1956, when Alabama tried to force the National Association for the Advancement of Colored People to turn over its bank records and donor information.  

Alabama repeatedly claimed the NAACP was breaking a state law requiring foreign corporations to qualify before doing business in the state.  

The nonprofit, based in New York, believed it was exempt from the law. Turning over its donor information would be dangerous to supporters and would deter future contributions, NAACP leaders said. 

A two-year legal battle ensued, until, in 1958, the U.S. Supreme Court ruled in favor of the NAACP, saying that Alabama’s demand violated the 14th Amendment to the U.S. Constitution.

In 2010, Citizens United, a conservative 501(c)4, challenged the Bipartisan Campaign Reform Act, a 2002 law preventing corporations or union-funded political ads from airing within 30 days of a primary or 60 days of a general election. The law also required “electioneering communications” to display the name and address of the person or group that funded the ad.  

The organization was blocked from airing a documentary about Hillary Clinton shortly before the 2008 presidential primary. Though the film was critical of Clinton, it did not explicitly tell voters to vote against her.  

The Supreme Court voted, 5-4, in favor of Citizens United, ruling that government shouldn’t restrict speech for some corporations while exempting other corporations with media affiliations. The court did, however, maintain the BCRA’s donor disclosure requirement.  

In 2014, Delaware Strong Families, a 501(c)3 religious nonprofit, planned to distribute a voter guide based on issues of interest. The practice is a common way for organizations to inform voters about where candidates stand on social and economic issues.  

Under Delaware law, DSF was required to report the names, addresses, and contribution amounts of its donors, because the voter guide qualified as an electioneering communication. Not only was the state interested in who paid for the voter guide, it also wanted to see the names of any donor who contributed more than $100 to the nonprofit during the election period.  

Broadening the ‘media exemption’ to include nonprofits  

Both 501(c)3s and 501(c)4s are treated unfairly under campaign finance laws, a recent study on nonprofit privacy shows.  

The primary jobs of public policy organizations are analyzing legislation and informing the public of potential outcomes, said Jon Riches, director of national litigation and general counsel for the Goldwater Institute.  

Such work is similar to that done by news outlets, but, unlike media organizations, 5o1(c)3s and 501(c)4s don’t receive the exemptions under campaign finance laws.  

That’s a double standard, Riches told CJ 

Media organizations write opinions, endorse candidates, and accept money to print campaign ads. All of these activities could be classified as campaign and “electioneering communications.” Yet, to protect First Amendment rights, newspapers and networks aren’t held to account in the same way as nonprofits.  

For example, the Gannett-owned Delaware News Journal exercises tremendous influence over public policy and political races. In the 2016 election, the paper endorsed candidates for governor, Congress, New Castle County executive, and Wilmington mayor.  

But unlike DSF, which was scrutinized for its “electioneering communication,” the Journal was exempt from Delaware’s campaign finance laws.  

Media exemptions protect First Amendment rights, but the criteria for those privileges are outdated, Riches said. Many modern news sources are owned by privately funded nonprofits. Additionally, the public turns to think tanks and public policy nonprofits to gather information, just as they would turn to a news network.  

A paradox results. 

“A small nonprofit organization is subject to often onerous regulations whenever it speaks about policymakers or supports candidates and issues in the run-up to an election — while giant companies like Comcast, CNN, or Fox [News] can make movies, publish reports, and write editorials supporting or opposing those very same issues and candidates without facing any such restrictions whatsoever,” Riches writes in An Informed Citizenry: Broadening the “Media Exemption” to Include Nonprofit Communications 

No principled reason exists to treat public policy nonprofits differently than news organizations, especially since the purpose of the press exemption is preserving the collection and dissemination of information, he said.  

That value doesn’t depend on the identity or corporate structure of the outlet.  

“Some have argued that the institutional press should receive special constitutional protection not afforded to other corporations or associations because the institutional press is somehow unique,” Riches said. “These arguments are dangerously elitist.” 

Campaign finance laws enforce transparency and sometimes do, indeed, apply to news networks, countered Bob Phillips, executive director of Common Cause North Carolina.  

Filing as a 501(c)3 or 501(c)4 doesn’t qualify an organization for a press exemption, Phillips said. Donor disclosures and other privacy regulations are determined by a nonprofit’s activities. For example, if a 501(c)4 campaigns on behalf of a candidate, it should disclose its donors.  

Such laws exist to protect the public from corruption, Phillips said.  

“The U.S. Supreme Court and lower courts throughout the nation have made clear that disclosure laws are a minimal burden on First Amendment activity and that they serve the very important public interest in maintaining a well-informed electorate,” he told CJ.  

Courts should continue to apply a balancing test to Constitutional challenges, as in the Citizens United case, Phillips added.  

But any law not “strictly tailored to campaign finance needs” is concerning, said Susanna Birdsong, policy counsel for the North Carolina chapter of the American Civil Liberties Union.  

“As ever we will oppose and challenge campaign finance reform laws that we believe are unconstitutionally overbroad,” Birdsong said. 

What’s next for the Rio Grande Foundation 

There’s a good chance RGF will win the lawsuit against Santa Fe, Miller said. On Aug. 24, the city filed an answer to the case, denying the foundation’s conclusion that requiring donor disclosure burdens a person’s right to free speech.   

“The Rio Grande Foundation has alleged no facts that indicate that disclosure of its contributors’ names will subject them to threats, harassment, or reprisals from either government officials or private parties,” wrote Santa Fe attorney Kelly Brennan.  

The case is on hold for several months while lawyers on both sides build their defense. No major developments are likely before the beginning of 2018, Miller said.  

For now, Gessing and his staff are stuck waiting. 

“The idea of donor privacy is being totally undermined here,” Gessing told CJ. 

If foundation contributors sense a threat to their privacy, they will be far less likely to support RGF — or any other nonprofit. That’s a threat to free speech.  

It’s one thing to have campaign or candidate oriented finance laws. It’s another to have ballot measure regulations, Gessing said. 

“You can always argue that there’s a quid pro quo with the candidate, whereas the ballot measure, pass or no pass, isn’t going to give us anything on the backside of the issue. We are purely involved in the ballot measure … because of principle.”  

Perception is half the battle for conservative think tanks such as RGF, which are often branded as mouthpieces for the Koch brothers. 

This can sometimes evoke hostility from Left-leaning politicians.  

Mayor Javier Gonzales, a Democrat, doesn’t necessarily have a vendetta against RGF, but the organization’s libertarian label hasn’t helped the situation, Gessing said.  

“I think [city officials] were probably more gleeful in their enforcement than they would have been otherwise.”  

The Constitution is clear on the issue, Miller said. Governments can’t silence nonprofits by threatening the privacy of their donors.  

It is up to individuals to decide whether an organization is honest, he said.  

“Groups may choose to make themselves very transparent to gain legitimacy. And it’s totally legitimate for listeners and voters to prefer messages from people who are totally transparent.” 

And, apparently, Santa Fe residents listened to RGF’s video and website. In May, the proposed soda tax fell flat among voters 

Gessing only hopes his organization can continue to work as it should.  

“We’ve been active and involved and taken positions on soda taxes before. It’s not like we just rolled out of bed one day and saw this tax and got … a big check from the soda industry and said, ‘OK, now we’ve got to do this.’”  

“This is the core of what we do.”