Dancing Around Campaign Finance Laws

June 2005
The Independence Institute, Colorado's conservative think tank, is coming under fire for using its tax-exempt status to raise money that may fund advertisements opposing Referendums C and D, the ballot measure voters will face in November that deals with adjusting Colorado's finances. What the institute is doing is dancing through one of the many campaign finance loopholes that exists in Colorado. At issue are radio ads being run that oppose Referendums C and D -- ads which should theoretically be paid for by a campaign committee for which donations are not tax-exempt.
Jon Caldara, president of the institute, said the institute put the ads on the air to educate the public - part of the institute's stated mission - and is not advocating a specific position. "This is why the Independence Institute exists," Caldara said. "We are happy to accept donations from proponents of this tax increase. Be assured, those donations will be used to educate the public about the dangers of Referendum C and D."
Caldara is certainly stretching the truth, but what he is doing is a clever, and not unknown, way around campaign finance laws. There are two routes that can be taken here. The first is to set up a so-called "education committee" which many groups did prior to the 2004 election. "Education committees" can advocate on issues and candidates without specifically suggesting a vote for either. For example, an education committee could pay for mailings that talk about how great John Hickenlooper is as mayor, but they cannot actually say "vote for John Hickenlooper for re-election." It's a silly exemption, and it doesn't make campaign finance laws any clearer because it's next to impossible to figure out who has donated to an "education committee" (journalists hate this new campaign rule, because at least with the old laws campaign contributions were easier to track). "Education committees" remain political committees, however, in that they cannot accept tax exempt donations. The other route to take, which the Independence Institute has apparently done in this case, is to call yourself a non-profit organization that advocates for a cause. They can take tax-exempt donations by being a public advocate, akin to a group that might produce public service ads about eating your vegetables. You could donate money, tax-exempt, to a "pro vegetable" group, and that money would be used in part to pay for public service ads on radio and television about eating more broccoli. The latter example is more along the lines of how this was intended to work, and the Independence Institute is basically toeing the line on this by doing the same thing.
Nonprofits like the institute face limits on how much they can spend on political campaigns. Federal rules prohibit donations to candidates. But on issue campaigns, charities can spend a portion of their income as long as it is not "substantial," a term that is not defined, said Denver lawyer Peter Nagel. Most tax lawyers define substantial as 15 percent or more. Caldara said the institute is spending $30,000 on the radio ads. The institute has not calculated other costs related to what it calls educating the public on Referendum C.
Is it legal to do what the Independence Institute is doing? It looks that way. Is it ethical? That depends on your perspective. But to a cynical voting public, it's another example of how campaign finance laws often don't do much more than create new loopholes.