November 11, 2015
Last Tuesday, investment manager and Tea Party favorite Matt Bevin was elected governor of Kentucky by a wide margin, defeating the state’s attorney general, Jack Conway. Bevin, who largely self-funded his campaign, raised significantly less money than Conway. He was helped, however, by the $6 million that the Republican Governors Association (RGA) pumped into the race, including $2.5 million in the final two weeks of the campaign.
Thanks to a quirk in the tax code, Kentucky voters were kept in the dark about who paid for the RGA’s pro-Bevin blitz before they cast their votes. In fact, the group doesn’t need to disclose its contributors until January 31, 2016, well after the new governor is sworn in. It wasn’t just the GOP who blanketed the airwaves using mystery money. The Democratic Governors Association also funneled millions to a pro-Conway super PAC.
As political groups organized under section 527 of the tax code that do not spend money on federal elections, the RGA and the DGA must report certain contributions and expenditures to the Internal Revenue Service (IRS). The frequency and number of these filings varies depending on the year. In even-numbered years, they have to file on at least a quarterly basis with additional filings before and after elections. In odd-numbered years, 527 groups only need to file reports semi-annually.
The difference in the filing schedules is organized around the idea that even-numbered years are election years and thus more disclosure is required. But as the Kentucky gubernatorial election demonstrates, elections take place in odd-numbered years as well, even if there are fewer of them. The tax code, however, specifically defines an “election” for reporting purposes as relating to only federal offices, creating a loophole for spending related to certain state races. This is particularly egregious considering that overall, section 527 regulates organizations that attempt to influence elections for “any Federal, State, or local public office.”
The consequence of the reporting loophole is that several important state-level elections can be influenced by outside groups that can raise money directly from corporations that may have interests in the state, without the timely disclosure required in other elections. Voters in states like Kentucky, Louisiana, Mississippi, New Jersey, and Virginia, who elect their chief executives in odd years lose out.
One solution is for Congress to close this discrepancy in the tax code. If an organization spends a substantial amount of money to influence an election, regardless of whether it is an odd-numbered year or an even-numbered year, it should be required to file both pre-election and post-election reports. Until Congress makes a change, groups like the RGA and the DGA can do their part to keep voters more informed. The tax code allows 527 organizations to voluntarily file on a monthly basis. National groups that regularly spend money in odd-year state elections should commit to filing monthly until the loophole is closed.