The Supreme Court heard oral arguments Monday in a case that will determine whether states like California can require nonprofits to disclose the identities of their major donors, which supporters of the law say is vital to prevent fraud by nonprofits.
This case — which could have a cascading impact on the proliferation of "dark money" in American politics — may come down to something decidedly unsexy: the standard of review the court uses when judging California's regulation. After oral arguments, it appears likely that California's regulation will be struck down. But if the court uses a strict standard of review, it could call into question whether the campaign disclosure laws the public relies on are even constitutional.
Those three words, "standards of review," might not sound super spicy, but laws often live and die by the standard the court uses. In this case, the continued validity of our disclosure laws could hinge on which standard the court uses and how broadly or narrowly its decision focuses on elections.
Under the California rule, nonprofits that operate in the state — about 100,000 different groups — must submit copies of their federal tax returns to the state attorney general's office, which oversees these groups. These tax returns includes information about the major donors to those nonprofits, whether the donors reside in California or not.
The Thomas More Law Center, a conservative public interest law firm based in Michigan, and Americans for Prosperity, a conservative nonprofit corporation with ties to conservative megadonor Charles Koch, are challenging the regulation, claiming that California's rule chills donors' First Amendment rights of free speech and association. In their logic, would-be donors will be reluctant to donate if they know their identities might be disclosed to the public because of a security breach.
The challengers won in a federal trial court, lost in the court of appeals and have now appealed to the Supreme Court.
That brings us to the "standard of review," which refers to how heavily the court scrutinizes the law or regulation in question. On one side of the spectrum, we have something called rational basis review. This is used for laws or restrictions about which the court basically trusts and/or will defer to the government. Under the rational basis standard, the government must show only that a law or a rule serves a legitimate governmental purpose and that there is a rational connection between the law and the way it furthers the state's purpose.
Donors to a nonprofit that spends money to influence elections can essentially cloak their identities.
On the other side, we have strict scrutiny. This is typically used when restrictions implicate fundamental rights and when the court is more suspicious of the government's actions. Under the strict scrutiny standard, the government must show that the law or regulation furthers a "compelling governmental interest" and that it is "narrowly tailored" to further that interest (meaning there really isn't another way to achieve the government's goal). Once a court decides to employ strict scrutiny, it is often the death knell for a restriction. Simply put, a true application of strict scrutiny will typically lead to an invalidation of the law or restriction.
The Thomas More Law Center argues that the court must use strict scrutiny. California argues that the court should use a lower standard of review called exacting scrutiny, basically one rung down from strict scrutiny. Under the exacting scrutiny standard, the government must show that it has a sufficiently important governmental interest and that there is a substantial relationship between the law or the regulation and the government's interest.
What does all of this have to do with money in politics? In 2010's landmark Citizens United case, the Supreme Court concluded that corporations have a First Amendment right to spend unlimited sums to support or oppose candidates. But in a less well-known part of the case, the court employed exacting scrutiny — the lower standard of review — to uphold the disclosure requirements.
Challengers here argue that outside of the election context, the court should require that disclosure laws or regulations satisfy strict scrutiny. One big problem with this approach is that it is not always clear what spending is actually about elections.
For example: Imagine an advertisement during an election campaign that says, "Call Congresswoman Penelope and tell her to stop allowing people in her district to destroy the environment." Is this best described as an advertisement that advocates Congresswoman Penelope's defeat? Or is it an advertisement about the environment? If the advertisement is the equivalent of electioneering, then the disclosure requirements would be subject to a relatively relaxed standard of review. But if the advertisement is seen as an issue advertisement outside the election context, it could be subject to strict scrutiny.
The issues related to campaign disclosure are not theoretical. About $1 billion of dark money has been spent in the last decade, according to the Center for Responsive Politics. While political committees must disclose their donors, many nonprofit groups, including charities, do not have to. Donors to a nonprofit that spends money to influence elections can essentially cloak their identities.
Say Jane Doe does not want the world to know that she supports conservative causes. Instead of giving directly to a political committee that spends money in elections, Jane gives money first to a nonprofit in California; let's call it Darkness. Darkness then gives to a political committee that we will call Rainbows. When Rainbows discloses its donor list, all the public sees is the donation from Darkness. Jane Gray remains anonymous — but not on Darkness' tax forms, hence the fight at the Supreme Court.
Campaign disclosure gives the public more information about who is trying to influence their votes and helps to deter corruption or the appearance of corruption. We are already awash in dark money; this is hardly the time to place campaign transparency laws in question and risk increasing dark money.
The court has two options that would properly safeguard voters' rights to information: It should ensure that its decision is confined to situations outside the election context, or it should employ the exacting scrutiny level of review it uses in campaign finance cases to protect those laws against future challenges.