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A utility-backed nonprofit advocacy group playing an outsized role in Michigan’s primary election is violating federal tax and campaign finance laws, according to a complaint filed with the Internal Revenue Service.
Patrick Anderson, a tax policy expert and CEO of the Anderson Economic Group, filed the July 31 complaint against the tax-exempt “social welfare” group Citizens for Energizing Michigan’s Economy (CEME). The group has spent heavily in advertisements for and against statewide candidates, according to campaign finance groups.
Consumers Energy contributed $20 million to CEME in 2017, filings with the Michigan Public Service Commission show. The Energy and Policy Institute says Consumers has contributed $43.5 million to CEME over the past four years.
Anderson claims CEME is not involved in social welfare issues as required under CEME’s 501(c)(4) tax-exempt status, but rather does “express advocacy” for or against certain candidates. CEME is one of several “dark money” groups involved in statewide races this year that don’t have to disclose donors or expenditures.
“The campaign activity of CEME is so flagrant and egregious that it made a mockery of not only tax laws but also campaign finance laws,” Anderson said. “This is much more than one nonprofit that got a little bit out of hand. This is a multi-million dollar coordinated campaign.”
Anderson Economic Group is a national tax and public policy consulting firm based near Lansing. Tax-exempt 501(c)(4) groups proliferated after the U.S. Supreme Court’s landmark 2010 Citizens United decision.
While the IRS has largely avoided investigating these types of complaints, Anderson hopes the amount of money involved, who’s spending it and how, will shed light on the issue.
Anderson’s complaint also highlights a $1.5 million “proxy tax” payment in 2016 that is listed in CEME’s IRS filings. He says the payment shows CEME acknowledging it spent money on prohibited activities. If CEME is found to be in violation of its tax-exempt status, contributors to the group could be at risk if the payments are claimed as tax deductions or ordinary business expenses, Anderson said.
“Even as a tax policy expert that was obscure to me,” he said. The proxy payment “underscores the degree to which corporations that donate to these front groups are placing themselves at risk.”
Consumers spokesperson Katelyn Carey directed questions to CEME.
“Like all of our nonprofit supported organizations, they are independent and not part of Consumers Energy,” Carey said.
The complaint lists four other groups possibly related to CEME: Alliance for Michigan Power, Michigan Energy First, Conservative Leadership and Values Coalition and Faithful Conservatives for Michigan.
Leading up to a 2016 vote on sweeping energy laws, Consumers and DTE Energy also contributed millions of dollars to Citizens for Michigan’s Energy Future, which has the same resident agent and Lansing-area address as CEME. The group advertised utility-backed policies as the Legislature debated issues around renewable energy and electric choice.
And prior to an agreement between advocates and utilities to keep a 30 percent renewable energy by 2030 initiative off this year’s ballot, DTE and Consumers had a history of spending millions of dollars through front groups to fight various initiatives.
Campaign finance experts say CEME — which formed in 2013 — is the most active TV advertiser in statewide races ahead of the August 7 primary election.
Anderson — whose wife Madhu Anderson is running for a state House seat where her Republican primary opponent has received positive literature on behalf of CEME — said candidates typically raise $10,000 to $40,000 for state House races.
CEME spent more than $1 million in three months in just three statewide races “expressly favoring or opposing” candidates, the complaint says, including $100,000 over two weeks in one House race.
“It’s hugely in excess of what happens by legal campaign groups,” Anderson said.
The Michigan Campaign Finance Network identifies six state House and Senate primary races where CEME has launched radio or TV ads on a variety of issues.
“Usually, broadcast TV ads touting candidates for the Legislature are rare in the run-up to the primary election,” writes Craig Mauger, Michigan Campaign Finance Network’s executive director Craig Mauger.
One state Senate race involving Rep. Gary Glenn, the Republican chairman of the House Energy Policy Committee and well-known utility foe, is particularly contentious. Glenn has said publicly his Republican primary opponent, former state Rep. Kevin Daley, is being funded by “utility bosses.” Daley has said he is not aware of utility involvement.
Glenn is one of the most outspoken utility critics in the Legislature, backing policies to deregulate the state’s energy market and support customer-owned generation.
Lack of enforcement
Despite similar claims reported nationwide, the IRS has taken a lax position on complaints against 501(c)(4) groups, dating back to a 2013 controversy surrounding the agency’s scrutiny of political groups’ tax-exempt status applications. Investigating 501(c)(4) groups is politically sensitive for the agency.
“Regarding (c)(4) status, a group can engage in as much as 50 percent political activity as a rule of thumb,” said Paul Streckfus, the editor of EO Tax Journal and a former specialist at the IRS. “But even where a group appears to be all political, there is little if any enforcement by the IRS. A number of good government groups periodically complain about these type of groups to the IRS but as far as anyone can tell the IRS does not initiate audits.”
Matthew Kasper, research director with the utility watchdog Energy and Policy Institute, agrees that the IRS has been reluctant on the topic, but added CEME is “clearly not a social welfare organization since it is spending money advocating for or against candidates ahead of the election.”
“The IRS should revoke Citizens for Energizing Michigan’s Economy’s 501(c)(4) status,” Kasper said. “If the IRS doesn’t act in this case, then a complaint should also be filed with the Michigan Licensing and Regulatory Affairs office.”
Anderson said the amount of money involved and how it’s spent should attract attention.
“This is flagrant, dramatic, organized, and it’s being used directly in politics in a way I think the IRS can’t ignore,” he said, contrasting it with “much smaller amounts of money by much smaller players.”
Anderson believes the high spending of CEME and related groups could influence energy discussions for years to come.
“The next time we have a debate in Michigan over utility policy, there will be lots of people who will know and remember what happened in the campaigns in 2018,” he said. “It’s going to make it very hard to have a fair debate in the future.”