How money flows into elections
Posted March 7, 2014 8:54 a.m. EST
Updated July 28, 2015 6:24 p.m. EDT
Raleigh, N.C. — Say you have $4,000 – or $40,000 – to donate toward a candidate or political cause. Will the person you give the money to have to disclose that you gave it and how they spent the money? Is it legal to give them that much?
Political committees directly tied to candidates for state and federal office have to obey limits on the contributions they accept and must disclose their fundraising and spending. Meanwhile, certain kinds of nonprofits can spend millions of dollars on what amounts campaign advertising and never disclose where the money to pay for the ads came from, although rules could be changing.
The following is a list of the different types of entities that most frequently spend money on North Carolina elections and the rules that apply to those organizations.
A political party is actually made up of many different organizations on the federal, state, congressional district, county and other local levels. These different party groups may have to obey different rules, depending on whether they are organized under state or federal rules or what kind of activity they are carrying out. But generally, political party organizations must disclose where they get money and how they spend it.
In North Carolina, national, state, congressional district and county parties are free from limits placed on other types of committees regarding how much any one person may give them. According to the 2014 Campaign Finance Manual by the State Board of Elections:
"These political party committees are not subject to the five thousand dollar ($5,000) per election contribution limitation that other political committees and subordinate political party committees face. In fact, National, State, district and county executive committees of political parties recognized under NCGS § 163-96 have no contribution limitations. A contributor may give any amount to these political party committees and the political party committee may give any amount to any other North Carolina political committee."
This allows political parties to gather large amounts of money, which can then be deployed to help candidates in particularly tight races. But this flexibility has its limits. For example, it is illegal for political parties to accept money from corporations or labor unions.
This freedom does not apply to other party groups, such as women's auxiliaries, which have to obey fundraising limits ordinarily placed on candidates.
State candidate committees
Candidates who raise and spend money on their campaigns must report where they get their money and how they spend it. Starting in 2014, individuals can give state candidates $5,000 for each primary and general election in which the candidate is running. As with political parties, corporate contributions are prohibited. Changes to state election laws made last year will raise the contributions a small amount every two years.
Information related to how state candidates and parties raised and spent money can be found at the State Board of Elections website.
Federal candidate committees
Similar to state candidates, those running for federal office must obey certain fundraising and spending limitations and reporting requirements. The biggest difference between state and federal candidates in North Carolina is that individuals may give federal candidates only $2,600 per primary and general election. Federal law also limits how much money candidates committees can give to each other and party organizations.
State, federal political action committees
Employees of certain businesses, interest groups, unions and others can form political action committees, or PACs. If they are not organized using special rules that have emerged from court rulings in recent years, PACs must obey similar limitations as committees associated with state and federal candidates. The advantage of these sorts of PACs is they can give directly to candidates of their choice, although only within fundraising limits. In general, political committees cannot give money to a candidate if they have collected money from a source – such as a business or an individual who has already reached contribution limits – that the candidate could not accept directly.
The term "Super PAC" is sometimes used to indicate any kind of political group that is allowed to exceed campaign fundraising and spending limits placed on candidates and parties. However, it refers to a very specific kind or organization.
Super PACs file paperwork with the Federal Elections Commission, the same place federal candidates and ordinary federal PACs file. However, they are allowed to raise unlimited money from their donors and spend it directly advocating for and against particular candidates. They may not give money to an individual candidate, and they are not allowed to coordinate their actions with a particular candidate.
Technically, Super PACs must reveal who their donors are. However, donors have sometimes given donations through nonprofit organizations such as 501(c)(4) groups (see below) to shield themselves from scrutiny.
The 527 organization refers to the section of the tax code under which these kinds of groups are organized.
Before the court decisions that created Super PACs, 527 groups were the main way individuals and corporations could give unlimited money toward a political cause. In exchange for not advocating directly on behalf of a candidate, these groups could raise large amounts of money for so-called issue advertising. Issue ads often sound like and look like campaign ads but stop short of using particular words that would make them a "campaign ad" in the eyes of the law.
As Pro Publica notes, many groups that had originally organized as 527s "have decided to become Super-PACs so they can both raise unlimited amounts and advocate for candidates."
That said, 527 groups are still an active part of the North Carolina political landscape. Real Jobs, an independent spender known for being a Republican-allied group founded by retail executive Art Pope, is a 527 group, as was N.C. Citizens for Progress, a group allied with Democrats that attacked Republican gubernatorial candidate Pat McCrory during the 2012 election.
These 527 groups disclose their fundraising and spending through a special website maintained by the IRS.
An important caveat: There are political spenders, including candidate committees, that will file both with the State Board of Elections or Federal Elections Commission and with the IRS as a 527 group. These double filings are sometimes done because of the need to report certain kinds of income for tax purposes. In other cases, the dual disclosure has to do with overlapping campaign finance rules. In any case, there are groups filed under section 527 who are not independent spenders.
These are charitable nonprofit organizations and are “are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf…of any candidate for elective office. These groups are allowed engage in activities that encourage people to vote and can publish voter education guides and other supposedly nonpartisan materials. Donations to 501(c)(3) groups are tax deductible.
501(c)(4), 501(c)5 and 501(c)(6) groups
As with 501(c)(3) groups, 501(c)(4), 501(c)5 and 501(c)(6) organizations are so-named for the particular section of the tax code under which they are authorized. 501(c)(4) groups are generally known as social welfare organizations, while 501(c)(6) groups are generally trade groups, chambers of commerce and the like. Meanwhile, 501(c)(5) are typically labor unions such as SEANC. The rules for the three sets of groups are pretty much the same.
All of three types of organizations can raise unlimited sums of money from businesses and individuals, and they are not required to report who their donors are. They are not supposed to spend more than half of their time directly advocating for one candidate or another, but the rules for that are opaque. In North Carolina, the most active 501(c) organization as of early 2014 has been Americans for Prosperity, which has been airing ads attacking U.S. Sen. Kay Hagan.
Often, 501(c)(4) groups will run issue ads that avoid triggering current electioneering definitions. They are required to file spending disclosures only when they trip certain triggers in federal or state law, primarily those having to do with naming a candidate within a certain number of days before an election. Donations to 501(c)(4) groups are not tax deductible.
Independent spender is a generic term used to describe someone who is not a political candidate but is airing a political-style ad. Even groups, such as 501(c)(4) organizations, and individuals who would normally be exempt from reporting their spending on political-style ads can sometimes be compelled to report on their activities.
In North Carolina, the law draws a distinction between an "independent expenditure" – a type of communication and that clearly identifies a candidate and advocates for or against that candidate's election – and an "electioneering communication." All spending deemed an "independent expenditure" must be reported.
An electioneering communication doesn't directly advocate for or against a candidate, but does identify a candidate by name. Such communications can be print or broadcast advertising or mass mailings. In an even-numbered election year, including 2014, electioneering communications must be disclosed only after Sept. 7. However, even groups that normally don't have to report their spending must make reports to the State Board of Election if they conduct an electioneering communication.
The Federal Elections Commission have similar, although not identical, rules for electioneering communications about federal candidates. The biggest difference is that federal electioneering communications rules apply to both the primary and general elections, unlike state rules, which just impact the general election.
For more information on campaign spending, consult the Federal Elections Commission and the North Carolina State Board of Elections. The Center for Responsive Politics has a helpful glossary of campaign finance terms.