Dark money spending — together with a new phenomenon we've identified as "gray money" — have surged in state and local elections. This report, the most comprehensive empirical look yet at the impact of secret spending beyond the federal level, finds that fully transparent spending has declined from 76 percent in 2006 to just 29 percent in 2014 in six states where data was available.

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Introduction

Six years after Citizens United enabled unfettered spending in our elections, the use of so-called dark money has become disturbingly common. Contrary to the Supreme Court’s assumption that this unlimited spending would be transparent to voters, at the federal level powerful groups have since 2010 poured hundreds of millions of dollars into influencing elections while obscuring the sources of their funding.

But it is at the state and local levels that secret spending is arguably at its most damaging. For a clear understanding of the degree to which dark money is warping American democracy, state ballot referenda and local school board contests may be a better starting point than the presidential campaign or even congressional races. As Chris Herstam, a former Republican majority whip in the Arizona House of Representatives and now lobbyist, put it, “In my 33 years in Arizona politics and government, dark money is the most corrupting influence I have seen.”

This report documents how far outside spending — election spending that is not coordinated with candidates — at the state and local levels has veered from the vision of democratic transparency the Citizens United Court imagined, drawing on an extensive database of news accounts, interviews with a range of stakeholders, campaign finance and tax records, court cases, and social science research. For the first time, it also measures changes in dark money – and a thus far unrecognized rise in what we term “gray money” – at the state level, by analyzing spender and contributor reports in six of nine states where sufficient usable data were available. This set of six geographically and demographically diverse states, comprising Alaska, Arizona, California, Colorado, Maine, and Massachusetts, represents approximately 20 percent of the nation’s population.

Altogether this review revealed several striking trends:

Our first-of-its-kind analysis showed that, on average, only 29 percent of outside spending was fully transparent in 2014 in the states we examined, sharply down from 76 percent in 2006.



Dark money surged in these states by 38 times on average between 2006 and 2014.



State super PACs, which are legally required to disclose their donors and thus hold themselves out to be transparent, increasingly reported donations from nonprofit groups that are not, themselves, required to disclose their donors. Donations from dark groups to super PACs increased by 49 times in these states between 2006 and 2014, from less than $190,000 to over $9.2 million.

In a troubling new phenomenon we’ve identified, “gray money” has ballooned to nearly 60 percent of all outside spending in 2014, on average in the states we examined.

Measuring dark money alone understates the extent of the transparency problem. We found a sharp rise in what we term “gray money”: spending by state super PACs that reported other PACs as donors, making it impossible to identify original donors without sifting through multiple layers of PAC disclosures.



“Gray money” ballooned from 15 percent of all outside spending on average across the six states in 2006 to 59 percent of all outside spending by 2014.



Dark money at the state and local levels frequently flows from special interests with a direct and immediate economic stake in the outcome of the contest in which they are spending, in contrast to what is often portrayed as the more broadly ideological outside spending at the federal level . When uncovered, secret money at this level has traced back to such sources as a mining company targeting a state legislator who held a key role opposing quicker mining permits, payday lenders supporting an attorney general who promised to shield them from regulation, and food companies battling a ballot measure to add labeling requirements.



Lower costs make it relatively easy for dark money to dominate state and local elections . For many of the contests we looked at, dark money groups outspent candidates themselves with amounts in the low $100,000's or even $10,000's — a modest business expense for special interests, but a major hurdle for many candidates and community groups. At the federal level that degree of dominance can easily cost in the $10 millions.



Strong disclosure laws and enforcement can make a real difference. California, which saw many times more outside spending than any of the other states we examined, nevertheless saw a remarkably low amount of dark money in each cycle. It seems that the state’s exceptionally tough disclosure requirements and active enforcement culture have helped to keep secretive spending at a relative minimum.

There are several reasons to be particularly concerned about the corrosive effects of dark and gray money at the state and local levels. First, regulatory power at these levels is more concentrated, and more often subject to direct election, than at the federal level. From attorney general to comptroller to water district director, numerous state and local elected offices are capable of directly impacting special interests’ bottom lines. Also distinct from the federal level, voters in every state and innumerable counties and towns face ballot measures where they directly decide policy questions — education spending, collective bargaining, taxes — often with major financial consequences for a relatively small but economically powerful constituency.

Second, these are often low-information elections, where it may not take much advertising to sway voters. This is particularly true in nonpartisan contests, such as ballot measure elections and many local races, where voters do not have party affiliations as a signal. In such cases, special interest spenders can hope to have a greater influence on voters than in high-profile elections featuring many voices. Finally, lower costs make it relatively easy for dark and gray money to flood state and local elections with unaccountable messages. Entities with deceptively community-minded names — Californians for Good Schools and Good Jobs, shielding a Texas oil company; Proper Role of Government Education Association, shielding payday lenders — can invest relatively modest amounts but still saturate the airwaves and mailboxes. How can this problem be fixed? One way would be to persuade the Supreme Court to overturn misguided decisions such as Citizens United, which empowered donors to funnel unlimited amounts of spending through opaque entities such as social welfare nonprofits and shell companies. Short of that, this report offers a set of practical reforms to improve electoral transparency while protecting truly vulnerable speakers. Though reform at the federal level has stagnated because of inaction at the Federal Election Commission, Internal Revenue Service, and Congress, a number of states and cities have been more eager and able to respond to recent onslaughts of dark money.