Archive for the ‘Campaign Finance’ Category

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Tax watchers and nonprofits have been waiting to hear four little words from IRS Commissioner John Koskinen … and they may have just heard them.

Those words? “[A]nd other (c) organizations,” spoken last Friday in an interview with Tax Analysts Magazine. In that interview,Commissioner Koskinen said for the first time that a new definition of political activity will apply beyond just 501(c)(4) social welfare organizations.

Why are those words so critical? Nonprofits organized under section 501(c) of the tax code are allowed to do some political activity without disclosing the source of their funding. Those groups have poured more than $100 million into our elections just this cycle, all without having to tell voters who is buying the ads they’re seeing. The IRS is currently working on new rules that could clarify the definition of political activity and drive political spending to groups that do disclose their donors.

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Hey shareholders, want some alarmist conspiracy theories from a newspaper editorial that conveniently ignores facts in order to make a tortured argument sound plausible? That’s the Wall Street Journal’s latest take on a new index designed to encourage transparent, open elections.

At issue is the CPA-Zicklin Index, which ranks companies’ political spending disclosure policies based on factors like whether a company discloses contributions to candidates, parties, dark money groups, etc.

If the Journal wasn’t so busy packing red meat into their editorial on the index (Unions! Soros!) it would have likely noted that corporate political spending disclosure lags woefully behind union political spending disclosure. It probably also would have noted that support for shareholder resolutions calling on companies to disclose political spending has been steadily increasing over the years since the Supreme Court’s disastrous Citizens United ruling.

While many companies have commendably decided to be more transparent about how they work to influence elections, inaction by the Securities and Exchange Commission (SEC) has left plenty of wide open avenues for dark money.

In other words, even for companies that rank well on the index, there is room for improvement.

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Co-authored with Craig Holman

In addition to blowing up the world economy occasionally, Wall Street sometimes sets local fires as well. Consider Jefferson County, Alabama. Here, JP Morgan arranged finance deals to fix its sewer system that proved so expensive to the county that it declared bankruptcy. Bribery of public officials played a role, resulting in the conviction of 21 individuals. Another example is Detroit, where onorous deals with Wall Street are part of its bankruptcy story. The Detroit mayor was convicted of a major scheme of bribery and kickbacks leading up to these dire straits. The common factor in these tales is corruption and subsequent financial hardship. Private firms hoping to profit from municipal deals pay public officials — through bribes or campaign contributions — to choose their firm even when the firm’s profits come at unnecessary and even crippling taxpayer expense.

In good news, the Municipal Securities Rulemaking Board (MSRB) is writing a rule that strengthens its anti-corruption policies. Already, under Rule G-37, Wall Street firms that sell municipal securities generally can’t make contributions to elected officials who have the power to select specific municipal securities dealers. These are the bonds that fund sewers, schools and streets, and must be repaid by taxpayers. The new rule will apply these same contribution restrictions to muncipal securities advisors. These are the consultants who advise a municipal government on which dealers to use, or how to structure finance.

The new rule isn’t perfect. One loophole is that if a firm has two divisions, one providing municipal securities sales, and one providing municipal funding advice, each can make political contributions to the portion of the government that doesn’t oversee its work. The advisors could contribute to a public official who only has control over the selection of the municipal securities dealing. And the advisor department could only make contributions to an official with power over selecting the municipal dealer. This is a problem.

Another issue is that the small municipal securities business might be part of a larger company. And that larger company can make political contributions to any of the officials. This is also a problem. Case in point, a filing by JP Morgan Securities on the MSRB website shows that the firm peformed underwriting services for the Delaware River Authority in 2013. In answer to the question about whether it made political contributions to any municipal finance official related to this service, JP Morgan Services reports “none.” At the same time, the JP Morgan PAC filing at the Federal Election Commission (FEC) shows a contribution to State Treasurer Chipman Flowers in 2013. Further research shows that JP Morgan officials helped Flowers with his campaign.

Why do the rules permit this? Because the MSRB provides that if contributions aren’t “controlled” by the municipal securities division of JP Morgan, that doesn’t pose a quid pro quo danger. Presumably, the JP Morgan PAC feels justified in making the contributions because the firm determines that the PAC contributions are not “controlled” by its securities affiliate, JP Morgan Securities. But that’s a problem for two reasons. First, its not obvious who makes the decisions at the JP Morgan PAC. The Federal Elections Commission, which regulates PACs, doesn’t require any information about who makes decisions. Second, even if the folks at JP Morgan Securities don’t communicate with the parent company PAC, they wouldn’t need to. The PAC folks know their firm provides prodigeous municipal finance services, and making contributions could help win business.

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A strange article appeared in the Motley Fool — a financial services publication and investment advisor — which apparently embraces the idea of corporations keeping shareholders in the dark about their political spending.

“There are some practical reasons that corporations might decide not to volunteer information about their political activities,” writes Casey Kelly-Barton, the article’s author, “the most obvious of which is that, since the 2010 Supreme Court decision on Citizens United v. FEC, they don’t really have to.”

What the author conveniently omits about Citizens United is that Justice Anthony Kennedy’s opinion in the ruling was in no small part premised on corporations disclosing their political spending and shareholders holding those corporations accountable.

Here’s a direct quote from the opinion (emphasis added):

 With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “ ‘in the pocket’ of so-called moneyed interests.”

Though the decision in the ruling itself was split 5-4 along partisan lines, eight of the nine justices concurred on the constitutionality of disclosure.

Of course, we now know that Justice Kennedy assumption that disclosure would occur could not have been more wrong. Congress has so far failed to pass disclosure legislation, and federal agencies such as the Securities and Exchange Commission and the Federal Election Commission — which have clear authority to intervene — have failed to step forward and use their authority to require transparency.

Thanks to the Center for Political Accountability — whose CPA-Zicklin index scores corporations on voluntary political spending transparency — there is some light being shed on this issue. But much remains unknown.

Let me be clear: As Supreme Court rulings go, Citizens United was an abomination. By allowing corporations to spend as much as they want to tilt elections toward candidates, Democrat or Republican, who will do what corporations want, it struck a severe blow against our democracy.

But the ruling’s pro-disclosure outcome is a good thing. By omitting this fact in an article supporting secret corporate political spending, the Motley Fool does its readers — readers who have a clear interest in knowing whether corporations are spending their investment dollars to play in politics — a disservice.

Rick Claypool is the online director for Public Citizen’s Congress Watch division.

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The Permanent Subcommittee on Investigations has weighed in on the progress the Internal Revenue Service (IRS) has made after last years’ “scandal,” and the majority is advocating bright line rules for political activity for nonprofits.

Committee members criticized the current facts and circumstances test and called for its replacement, lending their voice to the many nonprofits and citizens that have been calling for a bright-line definition of political activity applicable to all nonprofits. Such a rule would make it easier for nonprofits to engage in our democracy without fear of jeopardizing their nonprofit status.

“The facts and circumstances test used by the IRS was criticized as difficult to administer by every IRS official interviewed,” says the report.  It goes on to say that the test “produced subjective and inconsistent decisions on applications.”

The minority staff filed a separate report, and did not discuss the facts and circumstances test or provide recommendations for the future. The full report is available here.

The IRS is currently engaged in a rulemaking that could provide the sort of easily administered definition the report – and Public Citizen’s Bright Lines Project – calls for. A new draft of the rules is expected early next year.

Emily Peterson-Cassin is the Bright Lines Project Coordinator for Public Citizen’s Congress Watch division

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