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Are initiative campaigns bankrolled by secret donors good for democracy?

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While they’re supposed to be an exercise in citizen-driven democracy, ballot initiatives — like the “regulatory takings” measures that voters will decide today in four Western states — have instead become vehicles for big-spending special interests to steer around the regular legislative process.

Voters still get the last word. Increasingly, however, they must make their decisions with little information about the motivations or financial backing of the individuals and organizations pushing the measures.
 
Organizations behind many ballot initiatives have avoided disclosing their donors or detailed activities by operating through a dizzying array of interconnected, tax-exempt entities that two prominent political scientists describe as “resembling Russian matryoshka dolls, where each layer is removed only to find another layer obscuring the real source of money.” 
In Tuesday’s elections, the effort to push new land-use regulations through ballot initiatives in Arizona, California, Idaho, and Washington offers a case in point.
 
Of the $7.2 million raised to push the measures, $5.7 million – 79 percent of the total – has come from tax-exempt organizations and other entitites connected to Howard Rich, a New York real estate investor and political activist, according to state campaign finance reports available through November 2.
 
The most prominent of the tax-exempt benefactors is Americans for Limited Government, a Chicago-based organization that Rich chairs. The group reported total revenue of just $120,577 on its federal tax return for 2004.
 
But this year the organization rocketed onto the political-spending stratosphere. An analysis by the Center for Public Integrity shows that Americans for Limited Government has contributed more than $8 million across the country to organizations backing property-rights measures and state-spending limits that are billed as “Taxpayer Bill of Rights,” or TABOR, initiatives.
 
In some cases Americans for Limited Government has contributed directly to those causes; in others it has given millions of dollars to related tax-exempt organizations that subsequently made contributions to the same efforts.
 
The group America At Its Best, for instance, has received at least $3.6 million in contributions from Americans for Limited Government, according to campaign finance reports filed in Nebraska. In turn, state records show, it has contributed $575,000 (as of November 2) to the organization backing a takings initiatives in Idaho.
 
Voters can’t find out, though, who’s really bankrolling Americans for Limited Government. Because it’s registered with the Internal Revenue Service as a 501(c)(4) nonprofit advocacy organization, it is not required to public disclose the identities of its donors, as political candidates and committees are.
 
Americans for Limited Government could voluntarily disclose its donor list. But the group has consistently refused to do so, arguing that publicity could lead to retaliation against its donors from the powerful government interests it has challenged on issues ranging from land use to term limits.
 
Explaining its nondisclosure policy on its Web site, the organization says that because “legislatures routinely find ways to jab at those who stand for more limited, accountable government, it is common – even traditional – for individuals to contribute privately to such causes.”
 
The group also invokes the U.S. Supreme Court’s 1958 decision in NAACP v. Alabama, in which the court held that forced disclosure of the organization’s membership list, particularly given the documented history of reprisals against known members, would be an unconstitutional violation of its members’ free-association rights.
 
“There certainly are cases where that’s true, but this is not one of them,” Daniel A. Smith, a political science professor at the University of Florida, said in an interview with the Center. “This is using the tax code to skirt disclosure. I certainly have real problems with that when you have absolutely nothing else to regulate the process.”
 
In a 2005 article for the Election Law Journal that likened such “veiled political actors” to Russian nesting dolls, Smith and Elizabeth Garrett, a political science professor at the University of Southern California, argued that greater disclosure is needed for politically active nonprofit organizations to make it clear to voters who is behind the often folksy, grass-roots-sounding groups that organize petition drives and run well-heeled campaigns.
 
Such efforts to bankroll ballot initiatives have accelerated in recent years as Congress moved to curb unlimited soft-money contributions to national and state political parties and to enforce stricter disclosure requirements on so-called 527 political advocacy groups.
 
Some states, in trying to regulate political advocacy by nonprofit advocacy organizations, have bumped up against First Amendment issues. In 2000, the nonprofit California Pro-Life Council sued the state of California, arguing that the state could not force disclosure about any contribution or expenditure in support of ballot-measure advocacy.
 
In a May 2003 decision, a three-judge panel of the 9th U.S. Circuit Court of Appeals rejected the organization’s argument. The appellate judges noted that state ballot measures in recent years have decided major issues and operated with major budgets – nearly $200 million was spent on campaigns for 12 California ballot measures in the 1998 general election alone.
 
“All this money produces a cacophony of political communications through which California voters must pick out meaningful and accurate messages,” the 9th Circuit panel said in its decision. “Given the complexity of the issues and the unwillingness of much of the electorate to independently study the propriety of individual ballot measures, we think being able to evaluate who is doing the talking is of great importance.”
 
After further proceedings in the trial court, another appeal in the same case is now pending before the 9th Circuit.
 
John G. Matsusaka, the president of the University of Southern California’s Initiative and Referendum Institute, told the Center that he has mixed feelings about the consequences of greater disclosure for nonprofit advocacy.
 
“On the one side, the text of the measure stands on its own,” he said. “So, in some sense, the law is what the law is regardless of who funded it – and that’s what the voters need to know.
 
“The other side is, we know from quite a bit of research that the way voters make decisions on these things is they pay some attention to who’s endorsing it, because they don’t have the time to read the measure. So, I think the inability to figure out who’s actually funding it makes it difficult for voters to make informed decisions.”