Washington’s DISCLOSE Act of 2018 will have a significant impact on nonprofit organizations involved in campaign-related activity. Effective January 1, 2019, nonprofits that are “incidental committees” will be required to disclose their largest sources of financial support in public reports.
The DISCLOSE Act classifies a nonprofit organization as an “incidental committee” if the organization expects to make contributions or expenditures totaling $25,000 or more in a given year to support campaigns for or against either 1) candidates for state or local elected office or 2) ballot measures. Emergency rules adopted in late November by the Washington State Public Disclosure Commission (“PDC”) provide that all of the following types of organizations may qualify as incidental committees:
- Section 501(c)(4) social welfare organizations or 501(c)(6) trade associations that provide funding to PACs or support or oppose ballot measures;
- Section 501(c)(3) charitable organizations that support or oppose ballot measures;
- Other types of nonprofit corporations and associations, whether or not they are tax-exempt; and
- LLCs or limited partnerships controlled by any of the above.
Incidental committees initially must register with the PDC on new Form C-1-IC, and then report certain information periodically on new Form C-8. Form C-1-IC is due within two weeks of when the organization first expects to make the contributions or expenditures that cause it to qualify as an incidental committee—unless that happens in the three weeks before an election, in which case Form C-1-IC is due within three days. Form C-8 is due at intervals that vary depending on the proximity of an election and whether the organization has updated information to report. It is likely that the PDC will require electronic filing of both forms. As with traditional political-committee reports, completed forms will be easily available to the public on the PDC website.
Most importantly for many organizations, Form C-8 requires an incidental committee to identify its top ten sources of financial support exceeding $10,000 during the current calendar year. The PDC’s emergency rules provide that “financial support” includes all monetary transfers to the organization, regardless of donative intent—presumably including contributions from individual donors, grants from organization or government funders, and payments to the organization in exchange for goods and services. Organizations must keep the information up-to-date during any calendar year when they qualify as incidental committees. The requirement for incidental committees to report top financial supporters applies regardless of whether:
- a donor’s contributions are specifically designated to support non-campaign activity;
- the donor has requested anonymity for other purposes; or
- The organization is required to report the information to the IRS or any other agency.
The only exception to the DISCLOSE Act’s reporting requirement covers grants from private foundations that are designated by contract for non-campaign purposes and represent less than 25 percent of the organization’s total budget.
The PDC has not yet issued final rules or other DISCLOSE Act guidance beyond the very limited emergency rules it adopted in late November. As a result, there remain a number of unanswered questions around the DISCLOSE Act, including the circumstances under which organizations may request exceptions to DISCLOSE Act reporting on the basis that the reporting would give rise to “manifestly unreasonable hardship”; whether out-of-state organizations qualifying as incidental committees will be subject to reporting requirements, as out-of-state political committees are; and and how the limited exception to reporting for private foundation grants will interact with lobbying provisions commonly found in private foundation grant agreements.
The DISCLOSE Act’s reporting requirements may pose a significant donor-relations challenge for organizations, because supporters (either individuals or other organizations) may not wish to see their names in PDC reports detailing campaign expenditures. Organizations wishing to make campaign expenditures exceeding $25,000 in a calendar year may want to explore the possibility of forming a separate political action committee, or issue-specific Section 501(c)(4) organization. If structured correctly, such a separate committee or organization can receive and spend contributions from those supporters who are most engaged with campaign-related activities, so that the larger organization’s other supporters do not appear in DISCLOSE Act reporting.