Blog — Supreme Court

June 25, 2015

Michigan Group Spends Like a Political Party but Discloses Nothing

By Adam Rappaport

MichiganTrying to exploit loopholes in state and federal law, a secretive Michigan organization called the Michigan Advocacy Trust (MAT) spent millions of dollars in the 2010 and 2014 elections touting Michigan Attorney General William Schuette and bashing his opponents, but did not disclose any of its donors or even what it spent in the races.  Although massive “dark money” spending has become the norm in federal and state elections, MAT’s expenditures are unusual and concerning because the group claims to be a political party committee that is allowed to spend all its money on activities related to politics, yet is exempt from the reporting requirements that usually accompany that kind of political spending.

MAT first appeared in the 2010 attorney general race, spending $1 million on television ads mostly criticizing Schuette’s opponent, David Leyton.  That spending far outstripped Leyton’s total campaign budget of $714,000.  The group played an even bigger role in the 2014 race that resulted in Schuette’s reelection.  MAT spent more than $2.6 million on television ads in that race, while the two candidates combined spent a little more than $2.1 million on ads.

Many of the 2014 ads seemingly were made with Schuette’s cooperation and involvement, and were designed to influence the election.  In September and October, for example, MAT ran a barrage of ads that featured Schuette being interviewed while sitting in what appears to be his living room, telling voters about his accomplishments fighting human trafficking, imposing tough penalties on repeat violent offenders, and using rape kits to investigate sexual assaults.  Another ad, broadcast days before the election, pummeled Schuette’s opponent Mark Totten, saying he lied in claiming he was a federal prosecutor.  Even though the ads stopped just short of advocating voting for Schuette or against Totten, their intent was unmistakable.  They were, in essence, sham issue ads – ads that claimed to be about the issues, but really intended to tell voters who to support.

None of this spending, however, was disclosed by MAT in any state or federal filing.  In fact, there aren’t any entries at all for MAT in the Michigan Secretary of State’s campaign finance disclosure database, and the only document the group filed with federal officials is a 2010 form notifying the Internal Revenue Service of its existence.  The only reason we know about any of MAT’s spending is because television stations are required to report buys for political advertising to the Federal Communications Commission.  The Michigan Campaign Finance Network reviewed these filings and used them to compile data on MAT’s television ad spending.

Not surprisingly, MAT also has not disclosed any of its donors.  This combination of heavy political spending and total lack of disclosure may be an attempt to hide from the public the corporations and other interests that played a critical role in helping Schuette win elections.

Despite MAT’s efforts to keep its activities secret, CREW uncovered records revealing some of the group’s donors.  Dow, the Midland, Michigan-based chemical giant, gave MAT $400,000 in 2010 and another $200,000 in 2014.  Schuette has deep personal and professional links to the company – his father and stepfather were top Dow executives, and he helped oversee the family foundations.  Nevertheless, as a major industrial presence and employer in Michigan, Dow inevitably has matters relevant to the attorney general’s jurisdiction over environmental and consumer protection, corporate oversight, labor, and other issues.

MAT also received $1.15 million in 2014 from the Republican Attorneys General Association (RAGA).  RAGA has been a vehicle for business interests to try to influence state attorneys general and has numerous dark money funders.  It is likely no coincidence that Schuette will become RAGA’s chair later this year.  Other MAT funders include the Michigan Insurance Coalition, an insurance trade group that gave MAT $65,000 in 2010 and currently is lobbying to cut back Michigan’s no-fault auto insurance, and the Workforce Fairness Institute, a Virginia-based anti-union trade association, that gave it $30,000 in 2010.

MAT is trying to accomplish its disappearing act by navigating a series of loopholes in state and federal law.  Federal law and many state laws generally use two approaches to mandate disclosure of campaign spending.  First, under the Federal Election Campaign Act and similar state laws, independent spending by any group close to the time of the election must be disclosed.  Michigan, however, only requires reporting spending that expressly advocate voting for or against a candidate.  MAT’s ads carefully avoided language that would trigger disclosure.  Other Michigan groups, including both the Republican and Democratic parties, exploit this loophole to spend millions on elections without disclosing their spending.

Second, federal and state laws also normally require political parties and political organizations that spend most of their money and time on campaign activities to register and disclose their spending and donors.  When a group’s main purpose and primary activity is influencing elections, the law usually requires disclosure to inform voters and deter corruption.  Michigan law and federal tax law, however, offer loopholes that MAT and its founder, Lansing attorney Richard McLellan, are trying to use to avoid any disclosure of MAT’s finances or backers.

Under Michigan law, political party committees must register with the secretary of state and must file periodic reports disclosing contributors and expenditures.  The law, however, excludes from the definition of “expenditure” any communication that does not expressly advocate the election or defeat of a candidate.  As a result, ads like MAT’s are not expenditures that need to be disclosed.  In addition, Michigan also allows political parties to establish an “administrative account” that can accept otherwise banned corporate and labor contributions to be used only for administrative expenses “totally unrelated to the party’s political activity.”  These funds are not reported by the party, but cannot be used to support or oppose candidates.

MAT appears to claim it is an administrative account of a political party committee that spent most of its money on “issue” ads that are not political under Michigan law, and thus does not have to disclose its spending or donors to the state.  On the form it filed with the IRS in 2010, MAT asserted it is “an administrative account of the 23rd Michigan State Senate Republican District Political Party Committee of Ingham County Michigan,” and that it is a “separate account maintained for paying administrative expenses of the sponsoring political party committee and other exempt functions permitted but not reportable under the Michigan Campaign Finance Act.”

The “23rd Michigan State Senate Republican District Political Party Committee of Ingham County Michigan,” however, does not appear to be a valid party committee under Michigan law.  Michigan law defines a political party committee as a “state central, district, or county committee of a political party.”  The law’s reference to a “district” committee means a congressional district, not a state senate district.  In addition, the statute permits only one officially designated committee per county, and the Ingham County Republican Committee has existed since 1978.  The only filing for the “23rd Michigan State Senate Republican District Political Party Committee of Ingham County Michigan” CREW was able to locate is a registration McLellan filed with the Ingham County Clerk in October 2010.

McLellan’s claim that the 23rd State Senate District Republican Committee is a genuine party committee is further undermined by the organization’s lack of activity.  It does not appear to have been active in any of the races for the 23rd State Senate District since 2010, or even have a website.  In fact, McLellan asserted on the committee’s Ingham County registration it did not expect to raise or spend more than $1,000 in any year, and thus was exempt from any further disclosure.  Despite all this, MAT – the party committee’s supposed “administrative account” – managed to pump more than $3.6 million into Schuette’s two statewide races.

MAT also seems to claim it does not need to disclose any spending or financial backers under federal law.  In general, only political organizations involved in federal elections need to register and report with the Federal Election Commission.  Political parties and organizations, however, are tax-exempt entities under section 527 of the tax code, and in many cases groups – including those that are primarily involved in state or local elections – must register with the IRS and regularly disclose their spending and donors.  Unlike Michigan law, federal tax law usually treats ads like MAT’s that run close to an election, but do not expressly advocate voting for or against a candidate, as political.  As a result, on the surface it appears MAT, which seemingly spent most or all of its money on state elections, should report its spending and donors to the IRS.

The law contains several exceptions that were inserted specifically to save groups from having to make duplicative disclosures.  Political groups that file with the FEC, for instance, do not need to file similar disclosures with the IRS.  The exception MAT apparently is trying to exploit applies to “any State or local committee of a political party.”  This exception, former Sen. Joe Lieberman (D-CT) explained when he brought the provision to the Senate floor, is justified because party committees are different from other political organizations subject to stronger disclosure requirements.  There is, he said, “never any doubt as to who is running these committees or whose agenda they aim to promote.”  Just as important, he continued, “state laws regulate and require disclosure from all of these committees.”

MAT’s one and only filing with IRS isn’t perfectly clear, but it asserts the group is an administrative account of the 23rd State Senate District Republican Committee.  Presumably, MAT considers itself exempt from disclosure as a state or local committee of a political party.  IRS law provides little guidance for what type of organization should be considered a political party.  If, however, the 23rd State Senate District Republican Committee is not a valid political party committee under Michigan law, it is unlikely the IRS would recognize it as exempt from disclosure.

MAT’s registration with the IRS also includes information suggesting it might be asserting it does not need to file disclosures based on another exception – this one for a “qualified state or local political organization.”  While it is unlikely this is MAT’s claim, even if it were, MAT would not qualify because this exception only applies to groups that actually make publicly-available disclosures to state authorities.

Even if MAT isn’t violating the letter of the law, its complete lack of disclosure violates the law’s intent.  MAT does not consider itself subject to Michigan’s reporting requirements for most political party committees, and thus has not filed any disclosures.  The purpose of the exception is to avoid duplicative reporting, but MAT is using it to evade any reporting at all.  And contrary to the rationale Sen. Lieberman cited for the exception, there also is much doubt as to whose agenda MAT aims to promote.  It is almost impossible for a voter to find any information about MAT’s activities and financial supporters, and not even its name reveals who is running the politically active “administrative account.”

MAT’s maneuverings to avoid disclosure are deeply concerning.  One of the most basic standards of campaign finance regulation is that groups that spend most of their time and money on politics must disclose their activities and donors to inform voters about who is trying to influence them and to deter corruption.  Some have argued that groups that spend less than half their money on politics should not have to disclose their donors, but even if that contention were correct, it is not relevant for MAT, which has spent virtually all of its money on politics.  MAT should be seen for what it is – a secretive vehicle for political spending that is trying to evade an essential principle of campaign law.

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