Flood of dark money? What the new campaign finance provision in NC’s mask bill does

Dawn Blagrove, executive director of Emancipate NC, speaks during a press conference against House Bill 237, the anti-mask and campaign finance bill, outside the Legislative Building in Raleigh, N.C., Tuesday, June 11, 2024.

Before Republican state lawmakers gave their approval Tuesday to a bill that restricts masks, they tacked on changes to how campaign money is regulated.

While the additions to the bill span less than two pages, the new provisions significantly modify current laws on political committees and corporate campaign contributions.

Democrats have said it’s a way to benefit the Republican candidate for governor, Lt. Gov. Mark Robinson. They’ve also said it’ll allow more dark money donations, where the source of the funding is not disclosed.

“What we’re really concerned about is out-of-state billionaires flooding money into our state, without any accountability,” Democratic Sen. Mary Wills Bode told The News & Observer Thursday after the Senate vote.

Republican leaders have said the bill would level the playing field for the two political parties when it comes to the national groups that fund state candidates for governor and attorney general.

“All this bill does is to treat the Republican groups and the Democratic groups exactly the same,” House Speaker Tim Moore said.

Under current law, “the way that Democrats fund” these groups allows them “to pump in unlimited sums of money” and “the Republican groups cannot bring in money to counteract that,” he said.

Asked if the provisions were added to help Robinson, Moore said, “the law will be settled and will be fair by this election.”

We dug into the bill and found that it cuts state oversight of federal groups. And while it does not change a prohibition in North Carolina on corporations being able to donate to state parties or candidates, it opens the door for entities that can receive unlimited corporate funds to gain further influence in elections, advocates and experts who spoke with The N&O said.

It also changes the rules for people who can afford to make big donations.

“What we’re talking about is individual mega-donors are giving to a special bank account held by some of these federal committees, which up to now have not been able to then just transfer those funds directly, to, let’s say, the state-level committee coordinated by someone running for governor, for example,” Ann Webb, policy director of Common Cause NC, told The N&O.

“And so those limits under state law about how much those individual donations can be, had been kind of a safeguard against unlimited individual mega-donors pouring money into the state,” she said. “And this changes that. It really makes a big change.”

The Senate passed the bill Thursday and the House passed it on Tuesday. The bill now moves to Democratic Gov. Roy Cooper’s desk, who could veto it. As the General Assembly has a Republican supermajority, a veto would likely be overturned.

We break down what the bill says, key definitions, and possible consequences of the legislation, according to experts.

First, some definitions

Through its board of elections, the state regulates contributions and expenditures for elections for North Carolina offices. The Federal Election Commission regulates federal election funding.

Political committees, or PACs, are a combination of two or more individuals who make contributions or expenditures.

Affiliated party committees include committees established by the party caucuses in the legislature to support candidates, and those established by Council of State members to elect candidates into executive offices.

Under state law, no individual or political committee can make a donation of more than $6,400 to a candidate or political committee, but affiliated party committees are not subject to that rule. They can accept unlimited contributions.

Federal PACs, which are subject to federal disclosure and contribution limits, can make contributions in North Carolina elections. But they’re also largely subject to the state’s contribution limit and must report to the State Board of Elections.

Most PACs, including affiliated party committees, cannot accept contributions from corporations or labor unions. But that doesn’t apply to “independent expenditure” PACs, which only spend money and don’t make contributions.

Super PACs are the federal version of these independent expenditure PACs. They can raise unlimited funds from corporations and other entities. They’re not subject to spending limits under federal law, but can’t donate to political candidates.

527 political organizations are dubbed this way as this is the federal tax code that governs them. These organizations can raise unlimited funds from individuals, corporations or labor unions.

What does the campaign finance part of the bill say?

The campaign finance part of the bill excludes federal PACs and 527s from the definition of a political committee under state law.

That’s important because the State Board of Elections said in May 2020 that the ban on state independent expenditure PACs making donations also applies to federal super PACs.

The bill sets up some new rules for donations from federal committees. It says:

  • No federal political committees or 527s may contribute to state candidates or political committees if they accept contributions from prohibited sources such as corporations, business entities, labor unions, professional associations or insurance companies.

  • Despite this prohibition, if these PACs or 527 organizations keep money not from prohibited sources in separate accounts, they can contribute to a political party or an affiliated party committee from these accounts.

  • Committees and organizations making contributions must comply with federal limits and reporting requirements. They must also file with the State Board of Elections copies of their federal filings.

Ok, so what does that mean? What are the implications?

A few things.

The bill doesn’t change the prohibition on corporations being able to give to state parties or candidates. And federal political committee contributions would still be limited to $6,400 to most political committees for an election.

However, the bill allows federal PACs and 527s to use separate accounts, funded only through unlimited contributions by individuals, to donate to a political party or an affiliated party committee.

According to a State Board of Elections analysis, the bill also eliminates the limits on federal super PACs’ contributions that were set by the board in its May 2020 opinion.

In that advisory opinion to the Democratic Governors Association, the board said that federal super PACs can’t give money to state political-party committees, because that would go around the ban on corporations giving directly in North Carolina.

But now federal super PACs will be subject to the new limits in the bill, if it becomes law.

Earmarks would remain prohibited, says the analysis. This means a contribution can not be made to a federal entity with the intent it go to a political party or its affiliate. This is a mechanism to hide funding origins.

This bill also helps federal entities shift their money around, said Bob Hall, a longtime elections watchdog.

Under the bill, “a big entity – federal entity – that has corporate money and individual money can use the individual money to make donations,” said Hall.

“And of course, it has many uses for its money. In some states, they can’t use corporate money (for donations) and so they can use corporate money to pay salaries … so if you get First Union (a corporation) to send $100,000” to a federal committee, “then that frees up individual money, that then can be sent back to North Carolina,” Hall said.

And while North Carolina political parties can already accept unlimited contributions and also give unlimited amounts of money to their candidates, this pass-through helps conceal donors’ names, Hall said.

“You will have a hard time to see their name,” under this new mechanism, he said.

“It’ll be a new arms race kind of thing” and will be a “vehicle for more money to come into state politics, and all players will use it,” he said.

Webb said that “some of what we’ve been hearing is that the federal committees coordinated by the Democrats and by the Republicans are structured slightly differently. And so in particular, this appears to benefit the structure that’s currently held by the Republican Party at the federal level.”

Still, this bill is likely “to benefit both parties.” Webb said.

“It is a laundry scheme in a way,” Hall said. “It does allow large, particularly individual donations, millionaires, billionaires to send $600,000 to the Republican Governors Association, the Democratic Governors Association.” Both groups are 527s.

The bill also cuts requirements for the federal committees to register with the State Board of Elections or comply with the board’s reporting requirements.

Instead, they’d need to comply with federal reporting requirements. These federal committees would also no longer need to appoint an assistant treasurer who is a resident of North Carolina.

“It’s going to be easier for these federal fundraising committees to not register with the state and simply sort of mail their reports from the federal report into the state,” Webb said. “So that makes it harder” for the state board — which has an electronic reporting system — and will lead to “much longer delays in terms of understanding what’s going on with those donations.”

This story is one of a series of News & Observer reports called Power & Secrecy. It explores the rise of both in the N.C. General Assembly.

Capitol Bureau Chief Dawn Baumgartner Vaughan contributed.