Pushing the Limits – A Case Study of Political Action and Expenditures in Texas

pushing limits

In the wake of the United States Supreme Court’s ruling in Citizens United v. Federal Election Commission that declared limits on independent political expenditures by nonprofit corporations to be in conflict with the First Amendment, there has been much attention paid to so-called ‘super PACs’ and their role in presidential elections. What has received less attention has been the impact of the Supreme Court’s ruling on political activity at the local level. In particular, in recent years we have seen a noticeable increase in the number of non-profit organizations formed to promote the social welfare, but which are allowed to engage in limited political activity. An organization formed in early 2015 in the Dallas-Fort Worth metroplex provides an interesting case study in how the law Citizens United ruling can play out in municipal elections.

The Irving Opportunity Council

The Irving Opportunity Council (IOC) is a domestic, non-profit corporation formed in April 2015, for the purpose of engaging in tax-exempt activities as defined under section 501(c)(4) of the federal Internal Revenue Code. The Austin-based law firm Gober Hilgers PLLC is the organization’s registered agent, with Marvin Randle, W. Joe Mapes, and Scott Yeldell listed as the corporation’s director. Randle and Mapes are Irving residents and local business owners; Yeldell has no apparent ties to Irving other than being listed as a Director of the IOC.

According to Article V of the IOC’s articles of incorporation:

“The Corporation is organized and shall operate exclusively for the purposes of promoting social welfare within the meaning of section 501(c)(4) of the Internal Revenue Code, including efforts to improve life for the citizens, businesses and communities in Irving, Texas by: (i) identifying and analyzing issues that affect Irving and the surrounding areas; (ii) championing issues and causes by educating and mobilizing citizens; (iii) collaborating with businesses, communities, and government; and (iv) providing funding and non-monetary resources to foster positive impacts in the Irving area. The Corporation may also use its membership and financial resources as a means to provide both direct and grassroots advocacy efforts as the Corporation deems appropriate and consistent with its exempt purpose. The assets and property of the Corporation are hereby pledged for use in performing its exempt functions.”

An IRS publication explains that, according to IRS rules, “Reg. 1. 501(c)(4)-1(a)(2)(i) provides that: [A]n organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the community.” The same publication notes that:

“…the language…comprehends a very broad category of organizations. As stated in the 1981 CPE text, Chapter G, “Social Welfare: What Does It Mean? How Much Private Benefit Is Permissible?”, ‘Although the Service has been making an effort to refine and clarify this area, IRC 501(c)(4) remains in some degree a catch-all for presumptively beneficial non-profit organizations that resist classification under the other provisions of the Code.’” (emphasis added)

Organizations formed under section 501(c)(4) of federal law represent a hybrid of traditional nonprofits aimed at making positive contributions to the community, and political action committees (PACs) aimed at influencing the electoral and legislative processes. While PACs are required to disclose their donors and expenditures, nonprofits are not. As a result, 501(c)(4) organizations are only required to report the organization’s political expenditures; contributions to the organization and expenditures for non-political activities remain confidential and hidden from the public.

The IOC’s Activities

In the week prior to municipal elections in May 2015, a series of mailers was distributed to households throughout the city, bringing attention to the voting records of the Mayor and City Council members on a number of issues. In this initial round of mailers, there was no clear indication that the IOC was endorsing any particular office holder. But the language and graphics of the mailers were such that the IOC seemed, at least tacitly, to be in support of some officeholders and in opposition to others. Of those who were cast in a negative light by the mailer, only Councilman Joe Putnam was up for re-election. Councilmen Tom Spink and Brad Lamorgese, who appeared to have the support of the IOC, were also up for re-election. Ultimately, Spink suffered defeat at the hands of a challenger, while Lamorgese won re-election.

However, in the race for Irving City Council District 4, none of the four candidates vying for office secured a majority of votes, and so a runoff was scheduled for the following month. In the days leading up to the June runoff, voters in District 4 received another round of mailers encouraging residents to vote against the incumbent, Councilman Joe Putnam, stating that it was “time for Joe to go!!!” Putnam was the only officeholder on the ballot during the runoff, and the intent of the mailers sent by the IOC were clear – they were opposed to Putnam, and implicitly advocating for his opponent, retired Irving firefighter Phil Riddle, who ultimately prevailed in the runoff.

While the support for Putnam’s challenger may have been implicit in the mailers, that support was stated explicitly in the IOC’s election expenditures report filed with the Texas Ethics Commission in July 2015:

IOC Riddle

In this filing, the IOC reported six individual political expenditures totaling $8,931.50, all made payable to a single entity, all dated June 12th, for the sole purpose of ‘Direct Advocacy”:

IOC Marathon

As the mailers made their way to mailboxes, and residents began to question who was behind the campaign, Riddle took to Facebook to distance himself from the IOC and deflect accusations that he was working in concert with the organization that had burst so suddenly onto the Irving political scene with its flashy mailers.

Riddle FB 01 Riddle FB 02

It is interesting to note a minor difference in the language printed on the two rounds of mailers sent to voters. Prior to the general election in May, mailers were “Furnished by the Irving Opportunity Council”, while in the lead-up to the runoff election in June, the mailers were a “Paid Political Ad by the Irving Opportunity Council”. A subtle, but important distinction, as will be seen. [Update: As of May 20, 2016, the IOC has reported no political expenditures to the Texas Ethics Commission, and has not appeared to engage in any other public activity.]

The IOC and Texas State Law

Texas law, as a whole, is not necessarily known for being overly zealous, unless the issue involves God, guns, or abortion. Texas campaign finance law in particular is much more permissive than federal law; for example, an individual contributor faces no limits on how much can be donated to one campaign in particular, or to all campaigns in general. But still, there are a great many rules that must be followed, although the degree to which they must be followed may be subject to interpretation.

The IOC is a corporation, as stated in its incorporating documents, and as such, is subject to Title 15, Chapter 253, Subchapter D of the Texas Elections Code. One of the common limitations throughout this subchapter is that a corporation (or labor organization) may only make expenditures during an election “for the purpose of communicating directly with its stockholders or members….” The IOC, as a nonprofit corporation, has no stockholders, and as the IOC states in its incorporating documents, it has no members. The first round of mailers, that did not explicitly advocate for or against any particular candidate, could certainly be seen as an attempt to promote the social welfare, by informing voters city-wide of their elected officials’ voting records on issues of public interest. However, in its second round of mailers, the IOC explicitly called for a “No” vote against incumbent Councilman Joe Putnam. Again – the IOC has no members, and no apparent stockholders, yet this political ad was disseminated to residents/voters living in Council District 4. This begs the question – did the IOC’s second round of mailers violate this prohibition on a corporation’s communications during an election?

Even if the IOC were only communicating with stockholders or members, it might find itself to be in violation of other statutes. For example, Sec. 153.100 of the Texas Election Code prohibits corporations from spending money on “…direct mail supporting or opposing a candidate…” and “voter identification efforts, voter lists, or voter databases….” The mailers prior to the June runoff election were in clear opposition to Councilman Putnam, and were only sent to voters within his district, which means some form of voter or resident identification must have taken place. Did the IOC spend money on identifying voters within District 4 so that they could be targeted with anti-Putnam ads? We don’t know: the IOC’s reported expenditures do not indicate any payments made for the purpose of voter identification, and those reported expenditures only represent some unknown portion of the IOC’s total expenditures, since the IOC is not required to report expenditures on non-political activities.

Assuming the IOC did not spend its own money on voter records, in accordance with state law, how did it come up with a list of voters in District 4 and their addresses? One possibility is that a list was acquired from one of the individuals running for office, who, as political candidates, are required to report every expenditure in detail, and who are permitted to acquire voter lists. Another possibility is that the IOC utilized or relied on data already in the possession of a third party. In addition to the expenditures made directly to city/county agencies and political parties, many Irving city council candidates and a local PAC report payments to a firm in Dallas, typically for the production/mailing of campaign ads. It’s possible that vendors have ready-to-go lists, and tailor their mailings to suit each candidate’s list of targeted voters.

Can anything concrete be inferred from these reported candidate expenditures? No. It makes perfect sense for persons seeking office to have the ability to communicate directly with the voters in their designated constituencies, and to engage third parties in the production and dissemination of campaign literature. What does not necessarily make sense is how a social welfare organization, formed as a Texas state corporation, gains access to such data when it appears to be prohibited from doing so by state law.

To their credit, the IOC did manage to make clear its compliance with one legal requirement, as already noted. Under Texas campaign finance law, no organization or individual can distribute political advertising that does not indicate: that it is political ad;  the name of the person/organization paying for or authorizing the ad; and, the candidate being supported or opposed by the ad. This does not seem to be an issue in the case of the two rounds of mailers sent by the IOC, as the IOC was very careful to distinguish between information “furnished” by the IOC in its initial round of mailers prior to the general election, and the “paid political ads” during the District 4 run-off election.

The IOC and Federal Law

With regard to federal law governing the political activities of tax-exempt or non-profit organizations, the IOC may in fact be crossing the line with its activities to date. An IRS document discussing the tax-exempt status of 501(c)(4) organizations notes that such entities “may engage in germane lobbying activities” and “substantial non-exempt activities”. But, as the IRS notes elsewhere:

“Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, if an organization is organized exclusively to promote social welfare, it may still obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Political activities may not be the organization’s primary activities, however.” (emphasis added)

To date, the IOC’s only apparent activity has been its distribution of mailers prior to the general and runoff elections. Even allowing for the fact that the IOC’s initial round of mailers were “furnished” by the IOC, and did not explicitly endorse or express opposition to any particular candidate, at best, roughly half of the IOC’s activities would likely qualify as promoting the social welfare (although this could be debated, given the political nature of the city-wide mailers). The rest is acknowledged by the IOC to be political activity. Technically speaking, the IOC’s activities, as measured by dollars spent, would appear to be primarily focused on promoting the social welfare. But…dollars spent is hardly the only measure of political and non-political activity, and is not necessarily even the best measure. So far, it is impossible to determine whether the organization’s primary focus is on actually promoting the social welfare, or in engaging in political activity.  If the IOC is engaged in other, non-political activities that make up the majority of the organization’s total activities, it is doing so in secret.

The IOC has been quiet since the June runoff election, so it remains to be seen what form its future activities will take – promoting the social welfare, or attempting to influence the local political process. But if Irving voters are concerned in the meantime that the IOC is engaging in more political activity than is allowed under federal law, their only recourse would be to file a referral to the IRS, and wait.

The IOC’s Directors

What do the IOC’s directors have to say about their organization’s activities? After all, they are legally responsible for representing and overseeing the IOC. When questioned by reporter Avi Selk of the Dallas Morning News about the IOC’s mailers sent out prior to the June runoff election, Randle and Mapes refused to provide information, and claimed ignorance about how to contact co-director Yeldell:

“It’s interested people in Irving politics,” director Joe Mapes said slowly. “I can’t tell you any more about it.”

“You can ask questions; I’m not going to answer any of them,” said former Mayor Marvin Randle, another director.

Randle said the group’s spokesman was its third director, Yeldell. But he said he didn’t know how to reach his spokesman, or who Yeldell worked for.

While this may be their official position on the matter, their names do not appear on the list of the IOC’s directors by chance – the role of director of a corporation is one that an individual must agree to take on: it enlists them as the corporation’s legal representatives. To feign ignorance, or engage in such obvious obfuscation, strains credulity, and invites suspicions of the organization’s actions and motivations.

Mapes and Randle have been no strangers to Irving politics in recent years. Indeed, Randle has deep political roots in Irving, having served on the City Council from 1970 to 1977, and then as Mayor from 1977 to 1981. Both men have made contributions to a local PAC, Irving Voices, that has run ads in an Irving newspaper in support of (or in opposition to) various candidates for local office across several election cycles, in addition to participating in local events such as the annual 4th of July parade. Irving Voices supported Irving Mayor Beth van Duyne during her re-election campaign in 2014, and, interestingly, supported Councilman Putnam during his previous re-election campaign in 2012. To make clear – a PAC that was funded largely by Randle supported Putnam in 2012. Three years later, an organization that listed Randle and Mapes as directors issued mailers in opposition to Putnam, while the PAC neither supported nor opposed Putnam.

Yeldell is also no stranger to the realm of campaign politics, although his involvement with the IOC represents his first identifiable foray into the DFW metroplex. Information on Yeldell is scant, but his employer has been identified as Marathon Strategic Communications of Dallas as recently as 2013 (more on this later). He previously served as Chief-of-Staff to former Congressman Francisco “Quico” Canseco, and gained attention during Rep. Canseco’s re-election campaign for what some viewed as a particularly “digesting, despicable attack” campaign. After Canseco’s defeat in the 2012 election cycle, Yeldell seems to have turned to a full-time career in political campaign consulting, playing no small role in the push to remove barriers to campaign finance in Texas.

In October 2013, the group Texans for Free Enterprise (for which Yeldell serves as director) won a lawsuit filed against the TEC, aimed at making state law consistent with the Supreme Court’s ruling in the Citizens United case. When the TEC later attempted to enforce new disclosure rules in 2014, another group for which Yeldell serves as director, the Lake Travis Citizens Council, filed suit, although the suit was dismissed by a federal judge in March 2016. (A separate lawsuit filed by the Texas Homeschool Coalition is still pending.)

The Lawyers

The law firm of Gober Hilgers has made quite a name for itself in recent years in the effort to reduce restrictions on independent political expenditures, and the firm, through its partners and employees, has spread its tentacles far and wide throughout the American political landscape. [Update: The Gober Hilgers firm has since split into two separate firms, with the Gober Group continuing the political activity work.]

Gober_Hilgers_web

In Texas, the Gober Hilgers firm serves as the registered agent for quite the litany of social welfare organizations and PACs focused on a wide range of issues, from liquor sales to firefighter pensions. Attorney Chris Gober, personally, is listed as a director for Freedom Path Inc., another 501(c)4 organization that found itself embroiled in the controversy surrounding IRS scrutiny of conservative organizations seeking tax-exempt status. Though registered in Texas, Freedom Path engaged in political activity in Utah.

Gober and his firm also have ties to the Beat Reid PAC (a “grassroots” effort to defeat Sen. Harry Reid), as well as a collection of five other super PACs set up during the 2014 election cycle, and whose current treasurer is listed as Adam Schaeffer. [Schaeffer is the founder of a firm called Evolving Strategies, and it appears, to some extent, that this firm utilizes PAC activity as a tool of social science experimentation. The firm’s website indicates it uses “experiments and artificial intelligence to modify (not just predict) human behavior – we get more people to do what you need them to do.]”

Perhaps the attorneys at Gober Hilgers are simply facilitators of the various organizations registered at their office address. Perhaps they simply provide assistance in the filing of legal paperwork and compliance with state and federal law. However, the firm’s relationships and endeavors suggest an active use of the social welfare organization framework to achieve specific political goals, almost as a form of rent-seeking, and in some cases for the benefit of apparent social science experimentation. In the absence of clear public statements by the law firm or its representatives, we can’t necessarily assume anything about the actual beliefs or motivations of these operatives. But, at the very least, we can begin to form an idea of how they view, in the end, voters and citizens, and how they employ the tools of law, public policy, and business to further whatever ends they have in mind.

The Consultant

So what’s the connection between a nationally-recognized law firm, a former Congressional staffer and campaign manager, and political players in a Dallas suburb? It appears to be a Dallas-based political consulting firm, Marathon Strategic Communications (MSC), and its owner, Christopher Homan. Homan himself has ties to Gober Hilger, serving as a director with Chris Gober for the Guardian Fund, and to Scott Yeldell, identified as one of the firm’s employees (who has his own personal ties to Gober Hilgers as noted above). There is not much evidence of what services MSC provides beyond “consulting” and “direct advocacy”, which are the vague activities listed on campaign finance reports, but which come at a steep price.

The Money Trail

As is often said, if you want to know who’s pushing the buttons and pulling the levers behind the scenes, follow the money. Which, in the case of 501(c)(4)s and super PACs, is no easy endeavor, given the ability of these organizations to withhold all information concerning their receipts, and significant portions of their expenditures. Based on publicly available records, a rough sketch of the flow of money starts to take shape:

Irving_money_flow

Randle, in particular, has spent a significant sum funding the activities of the Irving Voices PAC: between April 2011 and May 2015, Randle and his wife contributed over $40,000, accounting for over 90% of the PAC’s total receipts during that period. The Randles’ have also made direct contributions of over $7,500 to the campaign of individual candidates for local office. And while Mapes’ own individual contributions to the PAC (just over $2,000) and local candidates (roughly $1,350) pale in comparison to those of the Randles, the two demonstrate remarkable synchrony in the target and timing of their individual contributions.

It is interesting to note that Marathon Strategic Communications, between June 2011 and June 2015, received payments totaling $40,092.55 from Irving Mayor Beth Van Duyne. While this does not prove conclusively that Mayor Van Duyne has coordinated with the IOC or played a role in directing its activities, it is nonetheless a connection that should be taken into consideration by Irving voters in an environment in which political influence is increasingly exercised beyond the bounds of transparency.

Looking at the money, however, one starts to appreciate the role that Marathon Strategic Communications has played in races for city office in Irving. An  article published on November 7, 2015, in the San Antonio Express-News reports on the use of pass-through expenditures that give the impression of a  “campaign in a box”, in which individual campaigns and political organizations pay large sums to political consultants for a variety of un-itemized services. As the Express-News reports:

Those expenses can be payments for actual consulting services.

However, regulators say they believe that campaigns and PACs are increasingly writing big checks to operatives for a wide range of activities to influence elections — hiring boots on the ground, purchasing mailing lists, paying production costs for ads — and that the details are never reported. That allows a campaign or a PAC to essentially mask who and what it’s paying for by outsourcing expenditures through a consultant, they argue.

Neither Mayor Van Duyne’s nor the IOC’s reported expenditures detail anything more than payments for “Consulting – Strategy” or “Advertising” in the form of “Direct Mail – Direct Advocacy”.  With nothing more to go on, citizens have no idea exactly what is being done with these funds. What seems obvious is that the IOC in particular is clearly engaging in a double-layer of obfuscation – first, by being shielded from disclosing its financial contributors, and second, by making lump-sum payments to a political consultant who is then free to make specific expenditures on behalf of his clients…expenditures which are not subject to any form of required disclosure. Based on what can be observed, it certainly seems likely that Marathon is providing services to the Mayor and the IOC in a form similar to that described in the Express-News report.

[Update: In her most recent campaign finance report filed in January 2015, Mayor Van Duyne lists a payment to Gober Hilgers in the amount of $392.50 for a “Consulting Expense” – another interesting connection in the web of money and political players.]

So What?

To date, the IOC has reported spending a relatively small amount on political activity – just under $9,000, a sum that may not sound like much, especially given the million-plus dollar campaign in the last election for Irving Mayor. At the very least, we know who funded the million dollar campaign for Mayor Van Duyne’s opponent in 2014, and based on that information, we can speculate, with some degree of confidence, on the motivations (link) behind such extravagant political expenditures. But the IOC’s contributions remain a secret, and those legally responsible for its actions refuse to divulge any information not required by law. And for some involved in Texas politics, this is of little concern for voters. From the same Dallas Morning News article by Avi Selk concerning “dark money” in Irving:

“It’s extremely rare in even a statewide elections,” said Matt Rinaldi, who represents Irving in the Texas House. “Less than 1 percent of state expenditures are by these groups.”

Yet Rinaldi wasn’t concerned to see one in his hometown. Last month, he helped fight off other state Republicans’ efforts to restrict them.

“If groups of citizens are acting independent of a candidate, we want to preserve their right to free speech — even anonymous political speech,” he said.

Does it matter whether these secretive groups account for less than 1 percent of total state expenditures? (It should be noted that the IOC spent nearly 30% more than the actual campaign of the candidate they supported.) Is anything less than full disclosure acceptable in an open, democratic society? Or is there perhaps justification for withholding information about individual donors or certain political expenditures?

Again, from Selk’s report:

Two years ago, Texans for Fiscal Responsibility endorsed city council candidates, as it often does in statewide races. The group is one arm of a statewide organization that holds sway in conservative politics. And like the Irving Opportunity Council, its funding is anonymous.

Yet no one in Irving raised a fuss over those endorsements.

Nor should they, said Ross Kecseg, who directs Texans for Fiscal Responsibility’s regional office. What’s derided as “dark money,” he said, stems from a civil rights-era court ruling that let black advocacy groups protect donors from exposure and retribution.

“People may have a suspicion there’s some rich guy in control of politics, but that’s nothing more than a suspicion,” Kecseg said. “And regardless, political speech is protected … Whether it’s a city council race, the civil rights movement or gay rights.”

Is it merely a suspicion that “there’s some rich guy in control”, when one of the IOC’s directors has spent close to $50,000 of his own money to support local candidates, in a city where median household income in 2012 was $49,303 and per capita income was only $26,970?

Irving income stats

Do we really believe that the IOC and other 501(c)4 organizations have been formed to protect certain individuals from civil rights violations in the form of exposure and violent retribution? Is it fair, or even accurate, to compare the IOC’s political speech and activity to that which has advanced civil rights or gay rights, past and present, as suggested by the president of Texans for Fiscal Responsibility ?  It beggars belief…

Sullivan_NAACP

In the new political landscape that has taken shape in the wake of the Citizens United ruling, citizens everywhere should pay careful attention to the monetary machinations at work behind local elections and referenda. With the fiscal floodgates opened wide, an opportunistic legion of political operatives and legal advisors has stepped forward to suckle at the teat of seemingly limitless campaign financing. As the money flows to-and-fro, at times recirculating within a closed loop, all those who value a free and transparent democratic society must stand guard against what has been described by SMU professor Stephanie Martin as an “insidious” development in the political process. Dark money is, for now, the law of the land, and whether or not public life in Texas and the nation faces dark horizons ahead will be entirely up to the citizenry of the great Lone Star State.

[Disclaimer: The author of this article and analysis is not a lawyer, and makes no claims to possessing legal expertise on corporate or campaign finance law. Any questions raised concerning such matters in this article are a matter of speculation based on the author’s reading of the law and observation of public activities and reports.]

Advertisements

Leave a comment

Filed under politigog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s