Secret Cash Baiting Officials Leaves No Trace in U.S. Attack Ads

Ben Nelson doesn’t face re-election to the U.S. Senate for another year and won’t know his opponent until next May. Yet advertising attacks on the second-term Democrat began months ago.

“Can Nebraskans trust Ben Nelson?” began a radio spot in January sponsored by American Future Fund, a tax-exempt group that backed Republicans in the 2010 election. Two other independent organizations aired commercials in July criticizing him over federal spending. A third sponsored rallies in August accusing him of hiding from constituents.

The last election was barely over when airwaves began humming with messages blasting lawmakers for the next one. Many of the ads don’t count as political spending under federal rules because they’re appearing so long before November 2012, and they don’t urge an explicit vote. This helps independent associations such as American Future Fund keep their tax-exempt status as groups whose primary activity can’t be political campaigning.

The early barrage means incumbents in Congress and President Barack Obama are stuck in “permanent warfare,” said Thomas Mann, a senior fellow at the Brookings Institution, a Washington research group, in an interview. The amounts of money surged since court rulings wiped out limits on corporate contributions and as government requirements for disclosing donors eroded.

“We have seen the virtual collapse of the regulatory system governing campaign finance in this country,” said Mann, who co-edited the 2000 book, “The Permanent Campaign and Its Future.” Today’s environment of unlimited, undisclosed and uncounted funding amounts to a new reality that “flows against everything we’ve been trying to do to not allow large concentrations of money to dominate our politics,” he said.

Campaigns ‘Don’t End’

In Nebraska, the state Democratic Party came to Nelson’s defense, airing spots starting in July in which the senator discussed economic and health-care issues. The state Republican Party filed a complaint with the Federal Election Commission, alleging that a transfer of funds from a national Democratic committee to help pay for the ads violated a limit on the amount a party can spend in coordination with its candidate. Nelson argued otherwise.

The attack ads started earlier this time than in his two previous runs for the Senate, said Nelson, 70, a former two-term governor, in an interview. Campaigns “don’t end anymore,” he said. Whether the ads count as election-related under federal campaign-accounting rules or not, he views them as political messages from special-interest groups using money from anonymous donors, he said.

“It’s the new system, and you have to accept that that’s what it is,” Nelson said.

Spending Climbs

The outside groups operate independently of individual candidates’ campaigns and of the Democratic and Republican parties. At the same time, they are often set up and run by people with close ties to the political organizations.

Spending reported to the FEC by independent committees rose four-fold to $305 million during the 2009-2010 election cycle from the 2005-2006 period, about half of it from secret donors. That was almost a 10th of the total of $3.7 billion spent on the election, according to the Center for Responsive Politics, a Washington nonprofit that tracks data reported to the campaign monitoring agency.

That amount may understate the organizations’ impact on the last election by 50 percent or more. Media purchases by independent groups exceeded $450 million, estimated Kenneth Goldstein, president of Arlington, Virginia-based Campaign Media Analysis Group, a unit the advertising company WPP Plc. (WPP) The total may have been as high as $560 million, according to the Campaign Finance Institute, a Washington nonprofit.

Disclosure Gaps

The figures differ because a significant portion of these groups’ ad purchases didn’t count as political under the rules of the FEC. The agency requires that independent committees report as campaign spending those ads that explicitly urge a vote for or against a particular candidate. They also have to disclose buying commercials that identify a candidate and run within 60 days of a general election or within 30 days of a primary. This means many ads about policy issues that are critical of candidates don’t have to be reported.

The flood of secret cash buying politically oriented advertising will only increase and will lead to scandal, said the Committee for Economic Development, a group of business leaders and university professors, in a report last month. Spending normally jumps in a presidential election year.

‘Most Expensive Campaign’

“This will be the most expensive campaign in American history,” said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California in Los Angeles. The independent groups “are going to be funded at greater levels than the candidates’ own campaign committees. That means the candidates’ voices, particularly in campaigns for Congress, are going to be drowned out.”

The fundraising goals of two of the biggest committees backing Republicans have surged. Crossroads GPS and its sister group, American Crossroads, doubled their initial target to $240 million, after raising $71 million last year. The organizations were founded by Karl Rove, the White House political adviser to President George W. Bush, and Ed Gillespie, a former chairman of the Republican National Committee.

While it’s too soon to project the impact on voting in 2012, research shows negative commercials have staying power, said John Petrocik, a political science professor at the University of Missouri in Columbia. Attack ads now, he said, are “creating a backdrop, a drumbeat that is simply going to get louder.”

‘Long-Range Artillery’

“That’s your long-range artillery, the preparatory barrage that’s raising the salience of something you are going to come back to,” Petrocik said. “People are going to remember it because it’s been around so long.”

The independent groups say the broadcast messages are part of their mission to inform voters about public issues or hold elected officials accountable. For example, Crossroads GPS, organized as a tax-free “social welfare” group under the U.S. tax code, said its mission is educating Americans on “critical economic and legislative issues,” according to its website.

Many of the ads this year have been by nonprofits that back Republicans, including the Crossroads groups, the Iowa-based American Future Fund and 60 Plus Association, an advocate for the elderly that favors privatizing Social Security, ending traditional Medicare and repealing the estate tax.

Some tax-exempt groups that favor Democrats have broadcast ads attacking Republican House members this year. Washington- based Americans United for Change aired a television spot in April criticizing Republican Representative Chip Cravaack of Minnesota for voting “to end Medicare.”

‘Way Ahead’

In July during the debt ceiling debate, Moveon.org Civic Action ran radio ads in three Republican districts. With a siren in the background, the spot depicted the members “holed up” inside, “holding the economy hostage.”

“By expenditures, we can see conservative groups are ahead,” said Sheila Krumholz, executive director of the Center for Responsive Politics. “By news reports, we hear that conservative groups are in fact way ahead.

“But in the end we don’t really know,” Krumholz said. “We just know that there’s spending happening now, aimed at elections, and a lot of it will never be reported.”

Crossroads GPS, American Future Fund, Americans United and Moveon.org Civic Action are all set up as tax-exempt “social welfare organizations” under Section 501(c)(4) of the Internal Revenue Code. The U.S. Chamber of Commerce, which also supports conservative candidates, is a tax-free nonprofit trade association under Section 501(c)(6). Groups in both categories can raise unlimited amounts from companies, unions and individuals without identifying donors.

Super PACs

American Crossroads is covered by a different provision of the tax code, Section 527, applying to tax-exempt political organizations. It is now known as a super PAC, for political action committee, and can accept unlimited donations from any source. Super PACs have to disclose the names of donors to the FEC. Supporters of Obama and several Republican presidential candidates also started super PACs.

While Crossroads GPS founder Rove declined to be interviewed for this story, he appeared on Fox television in June to discuss the start of a $20 million ad campaign on Obama’s economic record. The messages blamed the president for increases in unemployment, national debt and gasoline prices.

Interviewer Juan Williams asked Rove whether the group’s supporters could ‘live with” a Republican nominee like Representative Michelle Bachmann of Minnesota.

‘Primary Activity’ Rule

“Look, we’re focused on doing what we can to hold the Republican House, to create a Republican Senate and to replace President Obama,” Rove said. Primary voters will pick the nominee, he said. “It’s our job to lay the foundation for a Republican victory in the fall of 2012.”

Jonathan Collegio, a spokesman for Crossroads GPS, said Rove’s comment doesn’t conflict with the group’s tax-exempt status. Rove “informally advises” American Crossroads and Crossroads GPS and was responding to a political question, Collegio said.

Nonprofits under Sections 501(c)(4) and 501(c)(6) can’t have political campaigning as their “primary activity,” according to the tax code.

To keep its tax-exempt status and avoid penalties, Crossroads GPS needs to spend more than half its resources on “issue and policy advocacy” that isn’t “political intervention” under IRS rules, according to an Oct. 10, 2010, legal memo prepared for the organization by Tom Josefiak, a former FEC chairman. Crossroads GPS intends to allocate “much more” than that to “a sustained advocacy effort in furtherance of its ‘social welfare’ purpose,” according to the memo, which Crossroads GPS provided to Bloomberg.

IRS Enforcement

The IRS declines to say what it does to enforce the rule. In September, the campaign watchdog groups Democracy 21 and Campaign Legal Center asked the IRS to investigate the tax- exempt status of four groups that can accept unlimited donations without naming the givers. They include Crossroads GPS and Priorities USA, run by former Obama aides to back his re- election.

“These groups have little if anything to do with promoting social welfare and everything to do with electing and defeating candidates,” said Fred Wertheimer, president of Democracy 21. Spokesmen for the groups dismissed the complaint as frivolous.

Nebraska’s Nelson was one of five Democratic senators whom Crossroads GPS targeted with TV ads in July. The messages criticized the lawmakers for “reckless spending.”

‘Spenditol’ Spots

The state’s airwaves also carried ads in July on the same issue, sponsored by the Concerned Women for America Legislative Action Committee. A social welfare group under the tax code, the committee opposes abortion and same-sex marriage and didn’t report any campaign spending in 2010. The TV spots pitched “Spenditol” in a parody of drug advertising.

“Call Senator Ben Nelson,” the announcer said at the end. “Tell him to stop spending it all.”

The goal was to influence the budget debate, said Penny Nance, the president of the group, based in Washington. She said she could see why Nelson might view the $250,000 ad buy as political. The senator is vulnerable, she said, and his vote Oct. 12 against Obama’s jobs bill may have been a sign “he paid attention.”

The rallies targeting Nelson in August took place in Lincoln, Omaha and North Platte under the sponsorship of the state chapter of Americans for Prosperity, another social welfare group under the tax code. Americans for Prosperity, whose sister foundation’s chairman is billionaire David Koch, reported spending $1.2 million to support Republican congressional candidates last year.

‘Where’s Ben Nelson?’

“Where’s Ben Nelson?” was the rallies’ theme. The senator was making appearances throughout the state, often before members of civic groups, according to his office. Americans for Prosperity wanted a chance to confront Nelson in a public forum, said spokesman Mike Friend.

In Missouri and Massachusetts, the League of Women Voters aired messages in April criticizing votes on clean-air legislation by Democratic Senator Claire McCaskill and Republican Senator Scott Brown. The League, another social welfare group under the tax code, describes itself as nonpartisan and has been active since 1920.

“Shouldn’t Claire McCaskill protect the people and not the polluters?” asked the narrator in an April television spot. A little girl wearing an oxygen mask scribbled black all over a drawing.

Rebuke on Environment

It was a rebuke for a vote by the 58-year-old first-term senator to bar the Environmental Protection Agency from regulating carbon dioxide or methane for two years. Brown, 42, voted for a different amendment to block the EPA on climate change. Both senators declined to be interviewed, and both face re-election next year.

The Massachusetts Republican party filed a complaint with the FEC saying the ad should have been reported as political because it was an “attempt to distort” Brown’s record “to encourage voters to defeat his re-election.”

The messages were “accountability” ads, not political, said Elisabeth MacNamara, president of the League, in an interview. “We are interested in protecting the Clean Air Act, and that is our only goal,” she said.

In North Dakota, former Democratic Representative Earl Pomeroy attributes his defeat in 2010 to advertising attacks a year before the election. In November 2009, the U.S. Chamber of Commerce and 60 Plus Association, which reported spending $7.1 million last year backing Republicans, aired commercials criticizing his vote for the national health-care overhaul.

Attack-Ad ‘Blizzard’

“Running into a saturation blizzard of attack ads one year before the election was something I had not encountered before,” Pomeroy, who served nine terms, said in an interview. “It played a material role in damaging my poll numbers, which aided in the recruitment of a top-tier challenger.”

The Chamber of Commerce TV spot accused Pomeroy of voting “yes” to new taxes, spending and regulations that could cost the state jobs. It urged viewers to call the congressman and tell him “he should have said no to Washington and yes to North Dakota.”

The Chamber aired similar ads targeting other vulnerable Democrats in 2009. The campaign helped turn constituents against them, Bruce Josten, the Chamber’s top lobbyist, said in an interview shortly after the 2010 vote. “They stayed with us” on the health-care bill, he said, referring to voters. “And that carried through to the midterm elections.”

The 60 Plus ad showed citizens telling Pomeroy, “you have betrayed us” and added that “North Dakota seniors won’t forget.”

North Dakota Vote

The Chamber and 60 Plus each paid more than $350,000 for ads in North Dakota in the month after the House vote, according to Wayne Kranzler, Pomeroy’s media buyer in Bismarck. Neither group reported the spending to the government election agency, and neither would comment.

Last November, Republican Rick Berg beat Pomeroy by 55 percent to 45 percent. Though he spent more than Berg, Pomeroy couldn’t counter the flood of early negative ads, he said.

“By the time the campaign started,” Pomeroy said, “I was thoroughly damaged goods.”

To contact the reporter on this story: Charles R. Babcock in Washington at cbabcock1@bloomberg.net.

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net

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