Our top story on Midday edition. The election is just a few days away. Our mailboxes are filled with campaign flyers and the airwaves jammed with campaign commercials all of it takes money but sometimes following the money can be tricky. News Source reporter Jill Castellano sat down with CBS's Jade Heineman to talk about the races and how dark money and gray money are being used. Jill Kest Alano thank you so much for joining us. Thank you for having me. OK so why is it important to know the sources of the money behind a political campaign. Well I'll give you an analogy. So if you were to see a new report of climate change research your opinion might be different if you realized that an oil company paid for it rather than a university in the same vein. We need to know who is funding all the ads we're seeing all this messaging that we're getting as voters the television ads the flyers we need to know who's behind it to understand what their motivations might be which helps us become more informed when we go to the polls. All right. And there is a lot we know about the sources of campaign spending because campaigns are legally required to disclose their donors. But that's not always the case is it. It's not always the case and that's when we get into this category of campaign funding called Dark Money and grey money. And talk to me a little bit about the difference between the two. So dark money is money when we can not figure out who's actually given that money to a campaign that can happen by two different means usually either a nonprofit or limited liability company LLC. Then what Gray money is is kind of a mix. So we might be able to figure out something about where that money comes from but we can't figure out everything. So this might be an organization that gets some money from nonprofits analyses so we we know some of where it comes from but some of it's like a black box or it could be a case that's more complicated like when you have an organization a political action committee that's getting funding from another PAC that's getting funding from a third PAC and a fourth PAC. And you can't really trace it back because it's a whole network of PACs. So you've lost track of where the donations originally come from. In both cases gray and dark money there is this concern that we don't know the original source of the funding so we can't figure out who's trying to convince us of what. So then what's the deal. Why don't nonprofits in LCS have to disclose their donors. Well the law really just hasn't caught up with them. So in terms of the nonprofits the IRS says that certain kinds of nonprofits can get involved in our elections. Churches can't. For the most part but some organizations like labor unions and chambers of commerce can and they do. But as long as that organization does not spend most of its money on political activities they're not considered a political organization. So they don't need to report about their campaign finances. They can take money from whoever they want to and give it to a campaign. And that should be OK for L.L sees. We just have not created a lot of transparency. So in some places that these are registered like in Delaware we can't even figure out who registered that L.L.C. and who's behind that L.L.C.. So what have you been able to learn about how much dark money or gray money is being spent in local races. California is pretty good compared to other states to try and in trying to limit the gray money and dark money. They're pretty good about nonprofits especially so here in San Diego are labor unions and our local Chamber of Commerce do spend a lot of money in our elections. But we can see where that money is coming from California has not been as good about regulating L.L.C. use and learning as much information about who's giving money to those LLC. So in San Diego alone in city and county races since the start of 2017 we've seen 2.5 million dollars coming from L.L.C. into our elections. That's something that we should think about and it's growing and we should be aware of it. Now one of the most closely watched congressional races are the 49000 fiftieth district races. What sort of money trends are you tracking in those races those two races as we get closer to Election Day. What we're seeing is that the Democrats in each race are outside spending and outraising the Republicans in each race in the 40 ninth district. Democrat Mike Levin has about four times as much money as Dianne Harkey does in the fiftieth Democrat Mark Kampen ajar has about three times as much money as the indicted incumbent Duncan Hunter has. That gives them an advantage but it doesn't mean they're going to win. Also Levin and Kevin jar have not accepted corporate donations which is a way for them to communicate to voters that they're trying to be more grassroots oriented. So as voters prepare to cast their ballots for Tuesday's election what should they be looking out for well when you get something in the mail that is a political ad or you see something on TV or you look at a poster or a law sight what you should think about is who is responsible for giving me this message and what might their motivations be. So every ad has a little bit of text somewhere on it that says paid for by. Look at that name. Do you recognize that name. Is it the candidate themselves. Is it a political party. Those are pretty reliable ads because it tells us that someone's group that you can hold accountable. But if it's a name you don't understand if it's funded by purple LLC then maybe you should not trust that ad or do a little bit more research. All right Jill Castellano thank you so much for joining us. Thank you for having me. I knew sources an independently funded news partner of PBS.
This election year, millions of dollars have been spent on candidates and ballot measures in races across San Diego County.
If you’re registered to vote, that’s probably no surprise. Campaign fliers are filling mailboxes, TV commercials blare on the airwaves and lawn signs are just about everywhere you go. That cash is being spent on you, to get you to cast your ballot one way or another. And before you take those advertisements seriously, you should think about who’s trying to persuade you and why.
In most cases, the public can track down the sources of campaign spending because the state and federal governments require political groups to disclose their donors. That’s why inewsource was able to build searchable databases to help you follow the money behind city and county elections.
But sometimes, the donors behind political campaigns can be partially or completely hidden from the public. We call this “dark money” and “gray money.” This makes it a lot harder to figure out who’s trying to influence your vote.
“That undermines our ability to understand who our elected officials are really listening to and maybe who is really telling them what to do,” said Casey Dominguez, a University of San Diego political science professor.
Here’s what we can tell you about these hidden sources of funding before you go to the polls on Election Day.
So what is this ‘dark money’ stuff and where does it come from?
Dark money is money spent on an election that cannot be traced to its original source. This usually happens through nonprofits or limited liability companies.
Because the money is “dark,” we don’t know where it comes from or what the motives of the funders are.
Wait, why don’t nonprofits and LLCs have to disclose their donors?
Certain kinds of nonprofits registered with the Internal Revenue Service can spend money in our elections. These groups typically only have to disclose their donors if political activity is their “primary purpose.” The IRS has not defined what “primary purpose” means, so the generally accepted rule is that if nonprofits spend less than 50 percent of their money on political activity, they don’t have to reveal their donors.
This applies to “social welfare organizations” registered as 501(c)4 groups such as the National Rifle Association and Planned Parenthood. It also applies to labor and agricultural organizations registered as 501(c)5 groups, as well as chambers of commerce and real estate boards registered as 501(c)6 groups.
Religious organizations, charities and educational institutions registered as 501(c)3 groups generally cannot get involved in politics.
Do you have any questions about gray and dark money I didn’t answer? Email me at jillcastellano@inewsource.org.
LLCs that donate to campaigns or spend money supporting candidates also don’t have to disclose their donors because they are usually not considered political committees. Most states require LLCs to provide a registered agent or founding member and an address, but states such as Delaware don’t need to provide that level of detail.
“Increasingly, money is going through LLCs, which (like nonprofits) need not disclose their donors but don't have the advantage of being tax exempt,” said Sheila Krumholz, director of the Center for Responsive Politics, which tracks money in politics.
“But if an organization or a donor wants to get away with political activities without being exposed as the funder or being associated with those activities, they can just assume taxation as a cost of doing business,” she said.
The Center for Responsive Politics has a great guide on how nonprofits and LLCs get around disclosure rules.
Do nonprofits and LLCs get involved in San Diego’s elections?
Yes! Nonprofits are a big part of local politics. Labor unions are big donors to Democratic campaigns in San Diego, and the San Diego Regional Chamber of Commerce is a big donor to Republican campaigns.
Here’s a specific example: The Sheet Metal and Air Conditioning Contractors Association of San Diego, a 501(c)6 group, gave $5,000 in September to the ballot measure PAC supporting Measure YY, a San Diego Unified School District bond measure that would pay for $3.5 billion of upgrades in the district.
Fortunately, California has some of the strictest disclosure requirements in the country, so our labor unions and nonprofits do file full reports listing their donors. Plus, groups giving at least $10,000 per year across all California political campaigns usually need to file major donor reports. That includes nonprofits and LLCs.
Just because we can’t see a nonprofit or LLC’s source of funding doesn’t mean the funding was intentionally hidden. Some LLCs are legitimate business entities that donate money to PACs to support certain causes, and they follow all the proper legal requirements. But LLCs are a growing source of money in our elections, and we don’t have details on where that money comes from.
“It's basically a cat and mouse game,” Loyola Law School professor Jessica Levinson said. “Once you close one loophole, then another loophole opens.”
Click here to search six years of Advanced Placement test scores in California by school.
LLCs donate to Republican-leaning and Democratic-leaning political action committees in San Diego. That includes The Lincoln Club of San Diego County, the Building Industry Association of San Diego County PAC, the Infrastructure PAC of the Associated General Contractors and the San Diego Gun Owners Political Action Committee.
From Jan. 1, 2017, through Sept. 22 this year, LLCs have spent more than $2.5 million in elections run by the city and county of San Diego, including races for the county Board of Supervisors and district attorney, school board positions and seats on the San Diego City Council.
Of all the LLC money in San Diego city campaigns, 79 percent has supported the SoccerCity ballot measure. The measure would turn the city’s former Qualcomm Stadium site into a retail center, river park and soccer stadium. One group, Bridgewest Ventures LLC, has given more than $593,000.
Here’s another example: LHR Investment Company LLC gave $3.8 million to San Diegans for Housing Opportunities Yes On B in 2016. The group supported Measure B, which would have changed county zoning rules to allow Lilac Hills Ranch, a 608-acre housing development north of Escondido. (It failed.)
State law does not require LLCs to file campaign reports listing donors and sources of income, like PACs are required to do, so we can’t see where the investment company’s money is coming from. LHR Investment Co. does file another kind of campaign report called a Form 461, which is required by donors who spend at least $10,000 in an election, but those forms don’t break down where the LLC’s money is coming from.
And because the LLC’s parent company is registered in Delaware, we can’t get the full details of who operates the organization.
That doesn’t sound good. What’s ‘gray money,’ then?
Gray money is money in our elections where the source of the funding is partly obscured or difficult to obtain.
This tends to happen through SuperPACs. You may have heard of them before — SuperPACs can spend unlimited cash supporting or opposing candidates for office, so long as they don’t coordinate with candidates’ campaigns. (For the wonks: They’re technically called independent expenditure committees.)
Like other political committees, SuperPACs have to disclose their donors, but if one of their donors is an LLC or nonprofit, the SuperPAC doesn’t necessarily have to disclose the people donating to that LLC or nonprofit.
Sometimes, one SuperPAC will give money to a second SuperPAC, which will give money to a third, and so on, until it eventually ends up in the bank account of a candidate. This can make it really difficult for voters to track down the original source of the money, because they have to look through layers of campaign filings and connect the dots.
“These partially disclosing groups are in some ways just as worrisome as the dark money groups,” Krumholz said.
“It has almost the facade of being transparent without actually delivering the real and important transparency we need,” she said.
A bit of good news: California has some rules in place to avoid this kind of “campaign money laundering.” If someone donates money to a PAC so it can give that money to a candidate, the candidate still has to report the donor as the original source of the funds. And PACs getting 80 percent of their money from a single organization usually have to include in their name that they are “sponsored by” the organization.
Of course, there are ways around these rules. The more PACs that money passes through, the harder it gets to figure out who’s behind it.
Can you give me a San Diego example of gray money?
Why, yes we can. Warning: Beware of long committee names.
A group called Community Voices San Diego Sponsored by The Lincoln Club of San Diego County spent $34,500 on Facebook ads in May and June opposing Democrat Nathan Fletcher for county supervisor. Fletcher is facing Republican Bonnie Dumanis, and there’s been an unprecedented level of outside spending for the open seat.
The only money flowing into the Community Voices PAC up to that point came from two donations on the same day. On March 15, a $60,000 donation came from Coastal Communities Supporting Lorie Zapf For Council 2018. Another $50,000 came from Independent Leadership Coalition Supporting Chris Cate for Council 2018.
These PACs are supporting incumbent Republicans Lorie Zapf and Chris Cate for San Diego City Council. But don’t let the names fool you — they are not grassroots funded. Both are sponsored by the local Lincoln Club and chamber of commerce, and are getting almost all of their money from them.
Click here to search the inewsource San Diego campaign finance database.
What does all of this mean? To find the real sources of funding behind the Community Voices PAC’s opposition spending on Nathan Fletcher, you have to follow a network of PACs back to The Lincoln Club and chamber of commerce, and then look at their financial reports to see who’s donating to them. So let’s just say this process isn’t as transparent as it could be.
But is this really a big deal in San Diego elections?
Dark and gray money exist in national, state and local elections around the country.
Levinson said voters should actually be more concerned about dark and gray money in local races than they are in national races. (Sorry.)
“You need more transparency when the people don't have better voting cues,” she said. “On the local level that can happen a lot, for instance, in a nonpartisan race where you have two people running against each other and the public might not know a lot about them. And so it's really important to try and figure out who's actually supporting or opposing them.”
Is all this even constitutional?
Yep. The Citizens United v. Federal Election Commission Supreme Court case in 2010 was one of the key decisions that helped establish SuperPACs, making it easier for nonprofits and LLCs to spend tons of money in our elections. Gray and dark money spending has been on the rise since then.
But the Supreme Court has also held that the government has an important interest in preventing corruption or the appearance of corruption, and it has encouraged disclosure rules that tell the public who is spending money in our elections.
For more details on the court cases that have shaped the campaign finance world, check out this article from the Center for Responsive Politics.
You’re ruining my day! Is there anything that can make me feel better?
Not all hope is lost. Now that you know a few things about dark money, you can be better prepared to interpret all those fliers and TV commercials.
When you come across a political ad, always look for the fine print where it says “paid for by” to see who funded it. You might find that the group is “sponsored by” or receives “major funding from” another organization, which tells you more about where the money is coming from.
Here’s a piece of advice from the experts interviewed for this story: If you don’t recognize the names of the funders, you probably shouldn’t trust the ad.
PACs sometimes use patriotic-sounding names like “Prosperity for Democracy” to seem trustworthy, but that doesn’t mean they are.
The most reliable ads are funded by the candidates themselves or political parties, because we recognize their names and can hold them accountable for spreading unfair attacks or false information.
And hey, playing political ad detective might not be the most fun you’ll have this year, but you can think of it as doing your civic duty.
“We're not going to get rid of political advertising. And so I think everybody just needs to take a deep breath and understand that this is part of what an election is supposed to be,” Dominguez from USD said. “An election is supposed to be a public conversation about what's going on with our elected officials, should we like them or not.”
Click here for the five-part inewsource series on key measures on the Nov. 6, 2018, ballot.
Clarification: This story was updated on Nov. 9, 2018, to clarify that LLCs file campaign finance reports known as “major donor forms” when they spend at least $10,000 in an election. These forms break down where the money is going. The LLCs, however, are not required to file any campaign reports listing their sources of income.
