How Semi-Secret Spending Took Over Politics

State and local super PACs are increasingly reliant on “grey money”—donations that trace back to other PACs—obscuring their actual sources of support.

Gary Cameron / Reuters

As dark money in elections—spending by groups that conceal their funders from the public—has boomed in recent years, advocates of transparency have had one area of grudging relief. Super PACs, empowered by 2010’s U.S. Supreme Court ruling in Citizens United and the influential lower-court decision SpeechNow to spend unlimited sums, typically are required to disclose their donors.*

The problem? They very often don’t—at least, not in a way that shows where their money really came from. In a new report looking at secret spending in state and local elections, we found that most of the nominally transparent outside spending in state races has become exceedingly difficult to trace, a phenomenon we’re calling “gray money.”

Gray money is spending by super PACs that disclose other PACs as donors, making it impossible for the public to identify the actual funders without sifting through multiple layers of PAC disclosures. With names like Citizens Against Taxation or Revive Arizona Now, those intermediate PACs provide the public little meaningful information about the interests behind them. So, while super PACs have long been categorized as transparent because they disclose their immediate donors, in reality their spending is now often as inscrutable to the average voter, candidate, or reporter as dark money. Notably, the phenomenon has been less common at the federal level.

Though the obfuscation caused by multilayered funding was previously known, our study for the first time reveals the remarkable growth of the problem among spenders who can technically claim to be transparent because they disclose donors. On average gray money ballooned from 15 percent of all outside spending in 2006 to 59 percent of outside spending in 2014, across the six states we examined out of nine that offered sufficient data. These states—Alaska, Arizona, California, Colorado, Maine, and Massachusetts—as a set are geographically, demographically, and politically diverse, and hold one-fifth of the nation’s population.

Though dark money rose rapidly—growing on average 38 times greater across the six states by 2014, faster than at the federal level—the amounts of gray money, which also increased, were far greater and accounted for the bulk of an acute transparency problem. From 2006 to 2014, gray money climbed from an average of $6 million across the six states to $18.8 million. This jump came from a big shift in where PACs got their money. Ten years ago, just a quarter of contributions to PACs in these states came from other PACs rather than from readily identifiable people or businesses; by 2014, two thirds of money going into PACs was coming from other PACs.

The combined effect of increases in gray money and dark money by 2014 was an astonishingly steep decline in the transparency of outside spending. While in 2006 more than three quarters of outside spending on average was fully transparent, by 2014 less than a third—29 percent—of outside spending was fully transparent.

Gray money can be a deliberate tactic to obscure the original source of campaign funding. In Los Angeles, a local PAC bearing the folksy name of the Parent Teacher Alliance in Support of Rodriguez, Galatzan, and Valdovic for School Board 2015 spent $2.3 million in the 2015 school board election. Its existence served to give a “local flavor” to the advertising, according to Richard Garcia, a spokesperson for the California Charter Schools Association, which created the PAC. Those funds came mostly from prominent mega-donors including billionaire Michael Bloomberg, an arrangement first reported by the Los Angeles Times. Bloomberg and other individual donors did not appear on the public disclosures filed by the Parent Teacher Alliance. Instead, their money went through the donor that was disclosed, the California Charter Schools Association Advocates.

Though dark-money groups draw the strongest criticism, gray-money groups present similar problems, albeit wrapped in more-attractive packaging. Their innocuous names obscure vital information voters need to evaluate their messages and understand which candidates or ballot measures are backed by which interests. Washington State Senator Andy Billig, who recently sponsored a bill to combat gray money, explained that with opaque spending, “donors get the political benefit of a hit piece, while still protecting their identity.”

Secret spending in state and local elections can be even more pernicious than at the federal level. Regulatory power at these levels is more concentrated, and more often subject to direct election. From comptroller to attorney general to utilities regulator, numerous state and local elected offices are capable of directly impacting businesses’ bottom lines. Yet voters are likely to know much less about candidates for these offices than about higher-profile federal candidates, giving advertisers a better shot at shaping opinions.

Voters across the country also face state and local ballot measures in which they directly decide policy questions—education spending, collective bargaining, taxes—often with major financial consequences for a relatively small but economically powerful constituency.

Further, lower costs make it easy for dark and gray money to flood these races with relatively unaccountable messages. Businesses and secretive advocacy groups are often able to outspend candidates by investing sometimes only tens of thousands of dollars rather than the many millions required at the federal level.

Our research showed that tough disclosure laws and tough enforcement can make a real difference in deterring dark money, but that combatting gray money requires additional steps. California, with both the strictest transparency requirements in the country and a muscular watchdog agency, managed to keep dark money remarkably low during the period we reviewed. Though it saw by far the greatest total outside spending—$75 million at the lowest point, in 2006—dark money stayed below $2 million in every cycle. The state requires all groups spending on political ads, even the social-welfare nonprofits and trade associations that in most places can spend without disclosing their funders, to name relevant donors.

California did see high amounts of gray money in the years we studied, though, but recently strengthened its laws to address the problem. Now, if a group spends more than $1 million to support a ballot measure or candidate and discloses as its donor another group that itself received contributions, the spender group must also report the biggest contributors to its donor.

Connecticut similarly requires spenders to publicize their donors and the five biggest contributors to any of those donors. California, Maine, and a number of other jurisdictions also require that certain groups put a notice on their ads naming their top two or three donors. These so-called disclaimer requirements promote transparency by removing a practical obstacle. Without having to dig through a spender’s filings, the public can know immediately which significant donors are behind its campaign. California is also working to make disclosure more user-friendly, for instance planning web tools that enable people to navigate multiple layers of disclosures more easily.

Other states have ventured different approaches to curbing gray money. In Washington, Billig last year sponsored a bill to prohibit a PAC from receiving more than 70 percent of its funds from any other PAC. Delaware in 2012, followed by New York City in 2014, required organizations contributing to spenders to name a person who is responsible for the group. This measure addresses the accountability problem at the heart of gray money, in which groups with generic names give to other groups with generic names that then spend to win over voters.

Indeed, if there’s a silver lining to the massive cloud of gray and dark money we uncovered, it’s that some states and cities are taking practical steps to bring more political sponsorship into the light. With federal officials unwilling or unable to act, the best answers for now are likely to come from the states and towns where unlimited, unaccountable election spending in many ways hits hardest.

* This article originally stated that SpeechNow v. FEC was decided by the U.S. Supreme Court. It was decided by the D.C. Circuit Court of Appeals. We regret the error.