PHOENIX — The state Court of Appeals has reinstated a 2017 law that opens the door to "dark money'' contributions to political races.
In a unanimous decision Tuesday the judges said the Republican-controlled legislature was within its rights to decide that any group the Internal Revenue Service has classified as non-profit does not have to disclose its donors, even if it uses the money to finance independent expenditures to elect or defeat candidates.
That change overturned the ability of the voter-created Citizens Clean Elections Commission to determine whether the group was really a charity or only a thinly disguised political action committee. PACs have to disclose donors.
Tuesday's ruling also allows political parties to spend unlimited dollars on behalf of their candidates without disclosure. And it also means that individuals and special interests can pay the legal fees of candidates without it counting against the legal limit of how much financial help they can provide.
There was a key victory in the ruling for the Arizona Advocacy Network, which had challenged the law.
The appellate judges said lawmakers had no right to limit Clean Elections Commission to policing only independent expenditures made on behalf of candidates who are accepting public financing. This preserves the right of the five-member commission to require disclosure of all money spent on all candidates — publicly financed or not — even if they can no longer force reporting of the original source of those dollars.
Appellate Judge David Gass, writing for the unanimous appellate court, said voters were well within their authority in giving that broad right to the commission to police independent expenditures. And having been approved by voters, lawmakers were powerless to change it.
Tuesday's ruling is a reversal of fate for the challengers who had succeeded in convincing a trial judge to void the entire 2017 law. Attorney Jim Barton who represents them said no decision has been made on whether to appeal.
The commission was created by voters in 1998 as part of what proponents said was a bid to limit the influence of money on politics.
It allows — but does not require — candidates for statewide and legislative office to qualify for public financing if they agree not to take outside cash. The amount is determined by the office sought.
It also empowers the commission to enforce campaign finance laws.
When business groups that have traditionally funded many candidates could not kill it at the ballot box they sued to have it voided. Most of the provisions were upheld in a case that went all the way to the U.S. Supreme Court.
The latest fight stems from efforts in 2017 by then-Rep. J.D. Mesnard, R-Chandler, to curb the both the commission's powers and campaign finance restrictions.
He argued that existing laws requiring disclosure of donors interfered with the rights of free speech and people to participate in the political process with their dollars without giving up their right or privacy. And his measure paid special attention to the ability of people to contribute anonymously for independent expenditures, money spent directly by organizations in commercials, direct mailers or other campaign materials urging voters to support or defeat specific candidates
Mesnard's measure was approved on a largely party-line vote and signed into law by Gov. Doug Ducey.
Key is the carve-out from disclosure requirements for nonprofits.
There always has been an exception from for nonprofits to avoid disclosing donors. But the commission has taken the position that designation by the IRS, by itself, is insufficient to prove an organization is a true charity. Instead, it adopted rules to allow it to demand records from a group to determine whether it actually is organized for the primary purpose of influencing an election.
The 2017 law — and now, the appellate court ruling — overturns all that. Now, once the IRS grants nonprofit status, the commission is powerless to investigate the validity of the charity and the names of donors are kept secret.
What now also is legal is the ability of political parties to spend unlimited amounts of money on behalf of their candidates without disclosure.
In the 2018 election, for example, the Arizona Republican Party ran TV commercials on behalf of the re-election efforts of Ducey and Attorney General Mark Brnovich. But the actual amount they spent on behalf of each was never reported because of the exemption created in the 2017 law.
This became particularly significant because Ducey raised money not only directly for his own campaign but also took corporate and large-dollar contributions — money he could not legally accept personally — and funneled it into a separate Ducey Victory Fund committee. Any dollars Ducey could not keep himself then were given to the Arizona Republican Party which, in turn, was free to use it to help the governor's re-election, all without detailing how much was spent on his behalf.
This has not just been a practice of one party.
The Arizona Democratic Party put $3.3 million into the successful effort to elect Katie Hobbs as secretary of state.
But that figure became public not through campaign finance laws. It was only because iVote, which promotes the election of Democrat secretaries of state, put out a press release detailing the expenditure.