Judge Hears Arguments For and Against State’s Dark Money Disclosure Law

Fact that passage of donor-transparency measure was prompted by intra-party feud is cited as reason to doubt its bona fides

Dark-money rally
The battle between top Democrats in Trenton that led to the passage of New Jersey’s new law requiring donor transparency of dark-money groups was cited by a lawyer for a prominent national conservative organization Tuesday when urging a federal judge to block the measure from taking effect.

“This is really about political feuding, political revenge,” said Derek Shaffer, attorney for the national politically-active nonprofit Americans for Prosperity (AFP). “That is not a good enough reason be trampling on First Amendment rights.”

The state’s attorney countered that the law, enacted three months ago, should be considered on its merits, not the political dealings behind it. It was passed “because of a massive change in the political landscape in New Jersey to deal with the laudable goal” of allowing the public to see “who is spending money on elections and other political activities,” said Assistant Attorney General Stuart Feinblatt.

Shaffer disagreed. He said if the Legislature had been serious about shining a light on dark money, it would have passed a bill that covered all politically active nonprofits. While grassroots advocacy groups and party associations have to report under the law, unions and trade associations do not.

AFP — which received almost $57 million in contributions and grants in 2017, according to its Form 990 U.S. tax filing — does not disclose its donors but is known to be funded by multibillionaire Charles Koch of Koch Industries.

Seeking an injunction

Shaffer said the law poses an “unprecedented threat” to the free-speech protection guaranteed by the First Amendment of the U.S. Constitution. He urged U.S. District Court Judge Brian Martinotti to issue an injunction to stop it from taking effect Oct. 15.

The law requires politically active nonprofits like 501(c)(4) and 527 groups to disclose their big contributors — those giving at least $10,000 — when the groups spend at least $3,000 to influence an election, legislation, or regulations.

Shaffer said the law has other onerous provisions, including one that would require the reporting of all fundraising events to the state Election Law Enforcement Commission (ELEC) and all contributions of $300 or more made at these events. The criminal penalties that could be imposed for violating the act would make contributors think twice about giving money to these groups, he said.

“All donors and organizations that want to stay on the safe side will have to keep their mouths shut and stay out of New Jersey,” Shaffer said. “The organizations themselves would have to create a firewall around New Jersey … That’s a burden most organizations devoted to issue advocacy cannot bear.”

Assistant AG Feinblatt argued that organizations could meet the requirements by setting up a separate treasurer and account for work related to New Jersey. Shaffer, however, said that would be too difficult for national organizations like AFP that put money received from across the country into one account to be used for advocacy nationwide.

Shining a light on funders

But groups like RepresentUS, whose members held a rally in support of the law outside the federal courthouse in Trenton yesterday, say it is the large sums of money that 501(c)(4)s get from unidentified individuals, corporations and groups and then spend to try to sway voters or lawmakers that are the problem. The public has no way of knowing who is backing or opposing policies and needs that knowledge to judge how much weight to give to the arguments made by various groups.

RepresentUS, itself a 501(c)(4), was one of the strongest proponents of the bill as it worked its way through the Legislature earlier this year.

After languishing for about three years, the bill moved swiftly through the Legislature with the backing of Senate President Steve Sweeney (D-Gloucester) after a dark-money group supporting Gov. Phil Murphy reneged on a pledge to voluntarily disclose its donors.

Murphy issued a 20-page conditional veto, essentially rewriting the bill. Then, facing an embarrassing override by the Legislature, Murphy agreed to sign virtually the same bill he had vetoed, but warned that it might be deemed unconstitutional and could face legal challenges.

“I am concerned that extending the disclosure requirements to cover advocacy that is not connected to an issue before the electorate may infringe upon constitutionally protected speech and association rights,” Murphy wrote. “As detailed in my message, the United States Supreme Court has long recognized the harm that overly broad disclosure requirements can cause to an organization, its mission and its members. Additionally, I remain concerned that various apparent drafting errors in the bill may invite confusion among filers and could spawn time-consuming litigation.”

Judge has questions related to bill’s history

Martinotti opened the two-hour hearing by asking Feinblatt about the impact of Murphy initially conditionally vetoing the bill and then signing it while noting its possible unconstitutionality.

Feinblatt said the actions should just be considered background and that the judge should instead consider the law itself as written. He said there may be some flaws that need to be fixed — and legislation has been introduced, though not moved, to narrow the focus of the law. But he maintained it is in the state’s interest to require transparency by groups that now operate in the dark, and said that the federal Constitution allows the state to put such requirements into place.

“There is an interest in letting people know about this massive area of spending in the political arena that is way beyond what the political parties are doing,” Feinblatt said, noting ELEC, the state’s election watchdog, estimated nearly $50 million was spent on last year’s congressional elections by dark-money groups that did not have to disclose the sources of that money. Without reporting requirements, groups like AFP operate in the dark, so people don’t know “where are these contributions coming from, what are their interests, why are they motivated to advocate.”

Martinotti also asked Feinblatt to explain why ELEC has yet to promulgate rules for carrying out the law.

Feinblatt said the AFP suit, and two subsequent ones, have put a “major cloud over that legislation.” Still, it is the state’s position that “the law provides sufficient clarity” about the obligations of dark-money groups so it can take effect next month, with the first disclosure reports due next January.

Only the section of the law that seeks to mandate disclosure by groups providing “political information” is vague enough to need regulations, Feinblatt said, promising the state would not enforce that section until the rules are finalized.

An ELEC spokesman said that, with the lawsuits pending, the agency would not comment on why the rule-making had not begun.

‘It depends’

Despite defending the law as clear, Feinblatt had a hard time answering Martinotti’s questions about whether specific activities by a grassroots advocacy group would trigger disclosure, usually answering, “it depends.”

Martinotti asked whether AFP’s scorecard — which ranks members of Congress based on their votes “for economic freedom” — would be considered electioneering or providing election information and thus make the law applicable. Feinblatt said he was not familiar enough with the scorecard to answer, but noted that AFP could ask ELEC for an advisory opinion.

Shaffer said that since the scorecard contains “political facts,” he thinks it would definitely fall under the purview of the new law.

“The First Amendment says expression is meant to be free,” Shaffer said. “This law is posing deadly peril to any organization that trips the wrong wire and to the donors who support it.”

First of three lawsuits

AFP’s challenge is one of three lodged against the law. The national ACLU and its New Jersey chapter filed a suit in federal court in Newark last month. And last week, the Illinois Opportunity Project, a 501(c)(4) that advocates for “liberty and free enterprise,” filed a challenge in federal court in Camden. All of the suits seek to overturn the law on constitutional grounds.

Following the two-hour hearing, Martinotti spoke to the lawyers for both sides in his chambers; afterwards, the attorneys declined to disclose what was discussed.

The judge reserved decision on AFP’s request for an injunction and it is unclear when he might issue a decision.

Assemblyman Andrew Zwicker (D-Middlesex)
Just before adjourning the hearing, Martinotti twice asked the lawyers what the impact would be if he issued an injunction, including how that would affect ELEC’s ability to promulgate rules.

Assemblyman Andrew Zwicker (D-Middlesex), a prime sponsor of the law, attended the pre-trial rally in Trenton and said it is ironic that the hearing was scheduled for Constitution Day, commemorating the signing of the U.S. Constitution in 1787 because AFP was “using the words of the Constitution to argue against disclosure.” He said the legislation was drafted carefully so as to not run afoul of constitutional protections and is necessary today because so much untraceable money is involved in politics.

“If you cannot follow the money, you don’t know what is influencing the political process,” he said. “This is not a burden in any way, shape or form on organizations. This is about hiding where the money is coming from.”

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