The Voters’ Right to Know Act - Frequently Asked Questions

Why do we need the Voters’ Right to Know Act?

• To ensure that our democracy lives up to the promise of self-government, voters must have the information they need to evaluate candidates for public office and to keep them accountable once they’re elected. In fact, the Founders gave us the First Amendment to ensure that “we the people” have the information we need to engage in robust debate when choosing who will represent us, and in holding their feet to the fire once they’re in office.

• But when wealthy special interests outspend everyone else to elect the candidates of their choice and hide what they’re doing behind shell corporations and innocent-sounding organizations, the promise of the First Amendment is gone. Unfortunately, ever since the Supreme Court opened the door in Citizens United to unlimited corporate campaign spending, the use of secret spending or “dark money” to pay for campaign ads has increased dramatically — with less and less critical information flowing to ordinary voters.

• Under existing law, when people or corporations honestly buy campaign ads, they must put their own name on their ads. But when wealthy special interests play games and transfer their money to other entities that in turn buy the ads, they can usually avoid disclosing what they’re up to.

• This initiative would put an end to this kind of deception, restore balance to the system, and give the people the information they need to make informed choices. This is a disclosure law. It creates transparency; it doesn’t pick winners and losers or limit what people can spend.

What does The Voters’ Right to Know Act do?

• The law would reveal the true source of the big money behind election ads, for both candidate elections and ballot measures. It does this by requiring anyone who spends more than $50,000 in statewide campaigns (or $25,000 on other campaigns) on media advertising and related spending to keep track of the large donations it receives and disclose where this money came from — including information about persons who act as conduits between the original source of the money and the spender.

• The focus of The Voters’ Right to Know Act is on big money that is trying to hide where it’s coming from. If people or businesses just want to spend their own money on election ads, this initiative would neither limit their spending nor make them file any reports.

• But, if big money is passed on from one organization to another before it is spent, the law will trace these transfers back to their original source.

• The law doesn’t limit anyone’s spending, but it would protect donors who don’t want their money spent on election ads from having it spent against their wishes.

What extra information would the law provide the public?

• Major election spenders will be required to share more detailed information about how big money has been transferred to the spender and where that money originally came from. This information will be reported to the government for disclosure to the public, showing every link in the chain from the original source of the money to the spender who buys the ad.

• When an ad is run by a major election spender, often an outside group or a “super PAC,” it will state the three largest contributors of original money to the spender.

What is the basic structure of The Voters’ Right to Know Act?

• Any person or group who spends more than $50,000 in an election cycle on “campaign media spending” (CMS) in statewide campaigns, or $25,000 or more for non-statewide campaigns, is a “covered person” subject to certain recordkeeping and reporting requirements. (When covered persons accept in-kind contributions for CMS, the contributions are treated as if the covered persons spent the money themselves.)

• A covered person must create and maintain “transfer records” to keep track of the original source of the money received and how it was transferred to the covered person. A separate bank account is not required, but the transfer records must keep track of how big donations are passed along to the spender.

• The goal is to trace election spending back to its original source. So, there’s an important exception to the general rule: Individuals who spend only their own personal monies, and organizations that spend only their own business income, do not need to maintain any transfer records because they’re not acting as a conduit for other spenders.

• Campaign media spending encompasses a broad range of independent spending designed to influence Arizona voters at the ballot box. It includes ads and communications to the public that: expressly advocate for or against the nomination or election of a candidate; promote or oppose a candidate within the six months preceding an election involving that candidate; promote or oppose the qualification or approval of an initiative or referendum; and promote or oppose the election or defeat of candidates of a particular political party, as well as partisan voter registration or “get out the vote” activity.

• Once a covered person has received contributions from others and spends $50,000 on CMS in statewide campaigns, or $25,000 in other races, it must file a report for disclosure to the public and must file similar reports each time it spends another $25,000 in statewide campaigns, or $15,000 in non-statewide campaigns. The reports must reveal, among other things, donors who gave more than $5,000 for election purposes, and people who receive more than $10,000 from the covered person.

• Monies to be spent on campaign media spending are known as “traceable monies.” Donations can be so designated if they were received in response to a solicitation that provided certain notice to potential donors — i.e., notice that their money might be spent on election ads in Arizona. Covered persons can also notify donors after the donation was received but must either receive a response allowing the donation to be used for CMS or wait twenty-one days after the notice is sent, whichever is sooner, before the donation may be used for CMS. Donors can opt out of having their donations spent on CMS.

• The focus of the initiative is on bringing transparency to money that is transferred from one group or person to another before it is spent on election ads. So, whenever someone donates $5,000 or more to a covered person, that major donor must disclose to the recipient the sources of original monies for each person who gave more than $2,500 of the money being donated. And if that money was passed on through intermediaries, the major donor must identify those persons too.

What kind of notice does a spender need to give its donors if it wants to use the money it receives for campaign ads?

• When a spender raises money to be spent on campaign media spending, it needs to notify its potential donors of three things:

  • that the donations it receives may be used for campaign media spending in Arizona;

  • that information about donors may have to be reported to the Secretary of State for disclosure to the public; and

  • that donors have the right to opt out of having their money used for campaign media spending in Arizona.

What if a spender raises money without having included the required notice to its donors, but then later decides it wants to run election ads with that money?

• If the notice described above (see question 5) was not provided when the spender initially raised the money, the spender can still use that money for campaign media spending by doing the following:

  • Provide the relevant donors the notice they had not previously received in writing, and also inform the donors that they can opt out of having their used for campaign media spending.

  • The donors then have twenty-one days to inform the spender in writing that they do not want their donations used for campaign spending. If the donors do not opt out, then the spender is free to designate the donations it had previously received as traceable monies and use them for campaign media spending. Donors can provide permission in writing at any time, regardless of the twenty-one day timeline.

What does a business have to do if it wants to use its profits to give to a group that makes some campaign expenditures?

• If a business wants to donate its own profits to a covered person (often a super PAC or an organization, such as a corporation organized under section 501(c)(4) of the Internal Revenue Code) to help pay for election ads, it does not need to create or maintain transfer records, or to file any reports with the government. The covered person’s reports to the government, however, may include information about the business’s contribution, and such spenders may also include the business as a top three donor on their disclaimers, depending upon the size of the contribution it has made.

If an individual wants to give $100,000 of his or her own money to a covered person, will that individual have to create transfer records and file reports?

• If an individual uses his or her own personal monies (e.g., income from salary or invest­ments) when making the contribution, then that person will be treated the same way as a corporation that uses only its own business income to make contributions. (See previous Q & A.) In other words, that person need not file any reports or create transfer records.

How do The Voters’ Right to Know Act’s tracing requirements actually work?

• Here’s an example: Americans for Security, a section 501(c)(4) organization, receives $1 million in traceable monies, and $50,000 in non-traceable monies.  When it solicits this money, it notifies potential donors that their donations may be used for campaign media spending unless they opt out. The monies come from the following sources:

• Acme is donating its own business income, so it does not need to maintain transfer records or file any reports with the government. It merely has to tell Americans for Security that the source of its donation is its own business income.

• Similarly, the individual donors (whose collective giving totaled $100,000) each gave less than $5,000, so they don’t need to provide Americans for Security with any information about the source of their donations.

• The money from Moms for America, Draylock, Dads for America, and Our Best Days Ahead all came from other original sources, and these entities are all major donors, i.e., have given over $5,000 each. These entities don’t need to file any reports with the government, but they all need to tell Americans for Security the original sources of their contributions, and any intermediaries who transferred the money before it got to them.

• The contribution from Maeve Murphy cannot be designated as traceable monies because she is a foreign national and is therefore prohibited under federal law from making a donation in connection with a federal, state, or local election.

• The contribution from Louis Garland cannot be designated as traceable monies because he opted out of having his money used for campaign media spending. As a result, Louis Garland’s donation will not be used for campaign media spending in Arizona, and he accordingly will not be identified in Americans for Security’s reports required by The Voters’ Right to Know Act.

Besides the tracing requirements, what kind of general reporting is required?

• After Americans for Security first spends $50,000 on campaign media spending about a statewide campaign (or $25,000 about another campaign) in Arizona during this election cycle, it must file a disclosure report within five days that states the following:

  • General information about who controls Americans for Security’s traceable monies and transfer records, and the total amount of its traceable monies.

  • The total amount of traceable monies owned or controlled by Americans for Security on the date the report is made.

  • Each donor of original monies who contributed, directly or indirectly, more than $5,000 in traceable monies, along with the date and amount of their contributions during the election cycle.

  • The identity of each person who acted as an intermediary by passing on original monies of more than $5,000 and the dates and amounts transferred.

  • Each person who received $10,000 or more from Americans for Security during the election cycle and the purpose of the disbursement, including each candidate or ballot proposition that was supported, opposed, or referenced.

  • The identity of any person whose total contribution of traceable monies made up more than half of the traceable monies possessed by Americans for Security at the start of the election cycle.

• Once Americans for Security has filed its initial report, it must file subsequent reports with similar information within three days after each time it disburses another $25,000 or more on campaign media spending in statewide campaigns, or $15,000 or more in non-statewide campaigns.

How are PACs and political parties treated under The Voters’ Right to Know Act?

• If a PAC or political party does not receive more than $20,000 from any one person during an election cycle, then it is not considered a “covered person” and will have no additional reporting requirements under The Voters’ Right to Know Act. If these entities do not abide by this limit, then they will be covered persons who must create transfer records and report the original sources of their large contributions.

• However, because PACs and political parties are already subject to regular reporting requirements under Arizona law, The Voters’ Right to Know Act allows them to include the additional disclosure information in the regular reports they already routinely file. But if a PAC or political party spends monies or accepts in-kind contributions within 20 days of an election that would otherwise require a report under The Voters’ Right to Know Act, it must file that report within three days.

What if people try to find ways around these new disclosure rules?

• The Voters’ Right to Know Act includes a catch-all provision prohibiting “structured transactions” — similar to what currently exists in some of our banking laws. The initiative will make it unlawful to try to evade the initiative’s reporting requirements by structuring, or attempting to structure, any solicitation, contribution, expenditure, disbursement, or other transaction to avoid the initiative’s requirements.

Can a big donor hide its role by spreading its money around through numerous intermediaries?

• No. Any deliberate attempt to structure transactions to avoid the disclosure rules would
  itself be a violation under the catch-all provision described above.

• In any event, the disclosure rules are designed to prevent that kind of evasion. Here is an example:

  • Suppose that Sprite Industries creates ten limited liability corporations and gives them each $100,000 from its corporate profits. In turn, these LLCs pass on the money to three different 501(c)(4) organizations, who then pass on the money to Freedom Bounty, another 501(c)(4) organization. Freedom Bounty then buys election ads with the $1,000,000 that came indirectly from Sprite Industries. Under the disclosure rules, the three intermediary 501(c)(4) organizations will be major donors to Freedom Bounty, and they will therefore have to reveal that the monies they are passing on came from Sprite Industries via the ten LLCs. In turn, Freedom Bounty will have to report Sprite Industries as the original source of the $1,000,000 as well as the intermediaries who passed along the monies. Assuming that $1,000,000 makes Sprite Industries one of Freedom Bounty’s top three donors, it will be included on Freedom Bounty’s disclaimers when it runs election ads.

Where did the “promotes, supports, attacks, or opposes” standard come from? Is it constitutionally defensible?

• Congress included this standard in the Bipartisan Campaign Reform Act of 2002 (BCRA, also known as the “McCain-Feingold” amendments to the Federal Election Campaign Act) as one type of “Federal election activity” subject to the ban on “soft money” applicable to the electioneering activities of political parties at all levels of government. The Supreme Court upheld this standard as having a plain meaning that can be reasonably applied and understood, and similar standards in state laws have been upheld by federal courts across the country, including the 9th Circuit in Yamada v. Snipes in 2015.[1] The adoption of this standard will ensure that political spenders cannot avoid disclosure simply by refraining from using particular “magic words” or their equivalent in their political advertisements.

Why are membership and union dues capped at $5,000 annually in order to be treated as a type of business income rather than either (a) excluded entirely from that definition or (b) included within it regardless of their size?

• The tracing back of monies to businesses or individuals who paid legitimate membership dues does not provide voters the most useful information in identifying the source of the message being funded. In those instances, identifying the membership organization or union as the true source of the monies will provide the most useful information to voters. But allowing organizations to count very high amounts of money received as membership dues without any cap invites evasion of the trace-back disclosure system: Without a cap, dark money groups or membership organizations catering to wealthy special interests could try to relabel the large contributions they receive from wealthy special interests as “membership dues” and continue their political operations without disclosing the true source of their funding. The $5,000 cap is therefore necessary to prevent evasion of disclosure requirements.

Why does The Voters’ Right to Know Act specifically cover in-kind contributions that enable campaign media spending?

• The goal of this initiative is to ensure the original sources of big money spent to influence elections are disclosed, regardless of the schemes used to try to evade disclosure. Requiring the disclosure of the original sources of monies used to provide in-kind contributions that enable campaign media spending addresses one potential evasion tactic.

  • Let’s say an environmentalist billionaire pays $1 million to a consulting firm to support environment-friendly laws and candidates. While some of that money will be paid to the consulting firm as fees for its services, the remainder will be used by the consulting firm to support the billionaire’s goals. So if the consulting firm spends $100,000 of that money on a clean air ballot measure of interest to the billionaire, that original source should be disclosed. But the firm might try to evade the transparency requirement by contributing the money to the political committee supporting the measure rather than independently purchasing ads supporting the ballot measure. As part of this scheme, the consulting firm would coordinate with the political committee to create the ads in favor of the ballot measure and would then directly pay the bills for $100,000 of the production and broadcasting costs incurred by the political committee for the ads.

  • In this scenario, the political committee running the ads is the “covered person” that will need to file reports identifying the original sources and intermediaries of monies received. But because the consulting firm did not transfer any money to the political committee, the political committee may contend that the in-kind contributions from the consulting firm are not “monies” given to the political committee and, therefore, not “traceable monies” for which the original sources must be identified.By specifying that “in-kind contributions that enable campaign media spending” are “traceable monies” and that the monies used to pay for such in-kind contributions are subject to the same original source reporting requirements as money transferred to a covered person, the initiative ensures the political committee in this example will be required to report the billionaire as the original source of the $100,000 spent on the ballot measure. To enable this reporting, the consulting firm will be required to inform the political committee that the billionaire is the donor of the original monies.

• Note that, for the purposes of the notice and opt-out provisions, the initiative treats these in-kind contributions somewhat differently from monetary contributions. Because anyone who makes an in‑kind contribution to enable campaign media spending knows exactly how the money will be used, the covered person who accepts the in-kind contribution does not have to put the donor on notice of how the money will be spent, and the donor can’t opt out of having the contribution traced back and reported. Also, the donor making the in-kind contribution must inform the covered person of the original sources of monies used to make the contribution at the time the in-kind contribution is made.

How does The Voters’ Right to Know Act interact with the Citizens Clean Elections Commission and local governments?

• While campaign media spending reports are submitted to the Arizona Secretary of State, the non-partisan Citizens Clean Elections Commission will be responsible for implementing and enforcing The Voters’ Right to Know Act. This includes the authority to adopt administrative rules, conduct fact-finding hearings and investigations, initiate enforcement actions, and impose civil penalties or seek relief in court, among other powers.

• The Voters’ Right to Know Act also directs the Commission to develop and adopt rules for on-ad disclaimers for political ads run by covered persons. These disclaimers must identify the top three sources of original monies in the covered person’s traceable monies, so that Arizona voters can understand who is funding efforts to influence their ballots.

• The Voters’ Right to Know Act creates a complaint process where any Arizona voter can file a verified complaint with the Commission against a person who fails to comply with the Voters’ Right to Know Act or related regulations. If the Commission fails to take substantive enforcement action within ninety days or dismisses the complaint, the complaining voter has the ability to bring a civil action against the Commission in Arizona courts.

• The Voters’ Right to Know Act would govern campaign media spending in both statewide and non-statewide campaigns, so campaign media spenders in local government races must also comply with its requirements. It does not, however, prevent cities and counties from enacting their own campaign finance disclosure rules about local elections.