Just before President Obama’s second inauguration, his campaign committee, Obama for America, transformed virtually overnight into Organizing for Action (OFA), a nonprofit "social welfare organization" that, under Section 501(c)(4) of the tax code, is exempt from federal income tax. Launched inaugural weekend to "support the president in creating jobs and growing the economy from the middle out, and in fighting for issues like immigration reform, climate change, balanced deficit reduction and reducing gun violence," the stated mission of OFA was to translate the president’s re-election victory into policy victories in his second term.
OFA was instantly a powerful force to advance the president’s agenda, with assets of 2 million campaign volunteers, 17 million email addresses and approximately 27 million Twitter followers at its disposal. OFA also has the political expertise and fundraising muscle of some of the president’s leading political advisers and campaign operatives, including, as its chairman, Jim Messina, the campaign manager of Obama’s 2012 re-election campaign.
It also retained the Obama campaign’s Web address, barackobama.com, and runs Barack Obama’s Twitter account. And, of course, there are OFA’s biggest assets, Barack and Michelle Obama themselves, who both have personally endorsed the organization and encouraged people to join it. Commensurate with this kind of mojo, OFA set an ambitious $50 million fundraising goal.
OFA does not have the look, therefore, of an ordinary social welfare group. Instead, it closely resembles the campaign organization from which it was born, only without the fundraising limits and requirement that its donors be disclosed. Accordingly, almost no one but the Obama organization itself has seemed comfortable with OFA since the time it was announced. Even the Democratic party, seeing a rival for volunteer manpower and fundraising, quickly recoiled at OFA’s founding. Campaign finance watchdog organizations decry the president sanctioning a "dark money" group. Other, similar organizations are concerned that OFA’s high profile will invite increased regulatory scrutiny that 501(c)(4) groups have heretofore avoided. Finally, serious-minded experts on government ethics have questioned the legality of a social welfare organization with partisan politics so deeply ingrained in its DNA.
A 501(c)(4) organization is, by definition, a nonprofit "operated exclusively for the promotion of social welfare." The corresponding IRS regulation provides that an organization is operated exclusively for the promotion of social welfare if it is "primarily engaged in promoting in some way the common good and general welfare of the … community." Thus, "exclusively" does not retain its ordinary meaning in this context, and the IRS considers whether a 501(c)(4) organization is "primarily engaged" in advancing the social welfare through a vague "facts and circumstances" test.
In the absence of clear guidance, many organizations interpret this to mean that they only need to spend greater than 50 percent of their time on "social welfare" or "educational" activities and thus can direct the rest of their efforts toward other things, including political activities. Because of the apparent discrepancy between the term "exclusively" in the statute and the term "primarily" in the regulations, which permits 501(c)(4) groups to engage in conduct that does not promote social welfare, and the related vagueness as to where the line is drawn, the watchdog organization Citizens for Responsibility and Ethics in Washington recently joined a defeated congressional candidate to sue the IRS on the basis that the regulation is arbitrary, capricious and contrary to law.
Unlike 501(c)(3) charitable organizations, 501(c)(4) organizations may engage in political activity, although they are supposed to conduct political educational activities in a nonpartisan manner. While they may advocate a certain position on an issue, they are supposed to provide a full and fair explanation of the pertinent facts to permit their audience to form an independent opinion. Moreover, a 501(c)(4), to retain its tax-exempt status, must operate independently of any major political party. It is acceptable for a 501(c)(4) to have interests aligned with those of a political party while acting in a nonpartisan manner, but such an organization cannot have its leadership or the issues on which it will advocate dictated by a political party.
Which brings us to the obvious concern about OFA: Can an organization led by people whose sole job it had been to ensure the election and re-election of the president — and the defeat of his Republican opponents — turn on a dime and advocate for issues like gun control, federal tax and spending, and immigration reform in a nonpartisan manner? It’s possible, I suppose, but the early returns are troubling.
It is "game on" already for the 2014 midterm elections. The Washington Post has reported that Obama set his sights on regaining control of the House of Representatives immediately after he won re-election in November and already has committed to eight Democratic Congressional Campaign Committee fundraisers this year, compared to just two in 2009. OFA is so closely aligned with Obama that it is tweeting in his name, obviously coordinating its message with the White House’s and supporting the president’s highly partisan rhetoric on things like the sequester and gun control, even if not explicitly mentioning parties or candidates in particular. It would be enough to jeopardize OFA’s tax-exempt status if it is simply amplifying the president’s (or the Democratic party’s) message as part of a coordinated political strategy. Moreover, one has to wonder whether it is appropriate for taxpayers to pay the costs associated with administration officials’ participation in OFA events, which are not ordinary "official" activities.
There is evidence of direct engagement in partisan politics by OFA as well. In early January, Messina met with Representative Steve Israel, D-N.Y., the head of the DCCC, to strategize about 2014. And OFA’s first ad buy targeted only Republican lawmakers, seeking to pressure them in their home districts to support universal background checks for gun buyers. It bears watching how soon the placement of OFA’s "issue ads" might coincide with the districts of Republican incumbents identified as vulnerable in the Cook Political Report.
Aside from the dubious proposition that the president’s former campaign organization, with which the president remains intimately involved, can refrain from participating in excessive political activity in an election season accelerated by the president’s own priorities, OFA repeatedly has stumbled with its ethical image.
As a result, OFA and Obama have been sharply criticized by media organizations and watchdog groups that do not ordinarily call out this president. Some Democrats view the very formation of OFA (which, as noted, can raise and spend unlimited funds from individuals and corporations without identifying its donors’ identities) as a betrayal of the president’s oft-uttered commitment to reduce the influence of money in politics. This apparent hypocrisy of Obama upping the ante in the very game he promised to abolish was exacerbated by OFA’s offer to set up private meetings with the president for donors who contribute or raise $500,000. This blatant money-for-access scheme unleashed a torrent of criticism that both the White House and OFA are still fumbling to address.
White House press secretary Jay Carney emphatically denied that there is a "set price for a meeting with the president of the United States." After noting that OFA is a "separate organization," Carney continued, "the White House sets the president’s schedule and there is no price to meet with the president." Carney is playing the public for fools, which they are not. OFA indeed may solicit donations and the White House does in fact decide which meetings the president will take. It seems the White House schedulers will just happen to accept OFA’s invitations for the president to speak to its $500,000 donors.
So, what’s the big deal? It is no secret that money buys access. Yes, but in campaigns, it usually buys you the candidate’s hand for about a minute. Pay OFA $500,000 and it gets you the president’s ear. And, unlike the classic campaign grip-and-grin photo where the donor’s contribution is disclosed, OFA is under no obligation to disclose the identities of its donors. So for half-a-million dollars, a CEO can lobby the president directly on policies that affect his or her business without leaving any tracks.
OFA says it will voluntarily disclose its donors, and it almost surely will — for a quarter, or six months — while the spotlight is on. But will it continue to do so when the questions abate and contributions dry up because donors prefer to remain anonymous, as is their legal right when contributing to 501(c)(4) groups? The president is an honorable man, but when it comes to campaign finance issues in particular, his word has not exactly been rock solid.
For these reasons, The New York Times, The Washington Post and government watchdog and campaign finance reform groups across the political spectrum have been sharply critical of OFA. Responding to this criticism, OFA recently announced that it would not accept corporate donations and reaffirmed that it would disclose names and amounts more than $250 on a donor page on its website. Meanwhile, Obama met with a group of $50,000 donors at OFA’s "Founders Summit" in Washington on March 13.
OFA is a powerful tool for the president to exert his influence on a number of highly controversial policy issues on Washington’s current agenda. No one should begrudge him using all the resources legally and ethically at his disposal to advance the policies on which he believes he was elected and that he sees as being in the best interests of our country. Nor should one criticize the president for utilizing the asset that is his campaign apparatus merely because it is effective.
However, the "dark money," the money-for-access, and the avowed partisan electoral aims of the president combined with his campaign leadership being at the helm of OFA all raise legal and ethical questions about the unique relationship between the White House and this outside group that may prove to be OFA’s undoing.
At a minimum, it is a congressional oversight investigation waiting to happen, with the distractions, expense and media circus that come with it. At worst, the arrangement is a breeding ground for true pay-to-play corruption, with the grand jury investigations, criminal convictions and media circus that come with that. The president must ask himself whether it is worth it, even from a pure perception standpoint, or whether there is a better way to mobilize the public to advance his agenda, such as negotiating with Congress over the difficult issues that our country faces.
Scott A. Coffina is a former associate counsel to President George W. Bush and former assistant U.S. attorney. He currently is a partner at Drinker Biddle & Reath in Philadelphia and Washington, D.C.