Who Funds Ballot Issues?

(Editor’s Note: Veteran journalist Dirk Lammers, who spent 13 years with the Associated Press in South Dakota, has been contracted by a national non-partisan, non-profit journalism organization to write six stories over the next few months from Pierre dealing with campaign finance, election law reform and money in politics.)

By Dirk Lammers

Every two years, clipboardholding solicitors greet South Dakotans outside grocery stores, shops and restaurants to gather signatures in hopes of putting potential new laws on the following year’s ballot. But those residents often have no idea who’s funding initiated ballot measures and proposed constitutional amendments until well after the petitions are filed with the Secretary of State’s office.

Petitions are due a year before Election Day, but current South Dakota law doesn’t require ballot committees to submit their first campaign finance reports until about nine months before Election Day. The two committees backing approved 2018 ballot measures and six others awaiting petition approval didn’t have to disclose funding until late last month.

That information gap created a potential fiasco during the 2016 election cycle, as residents had no idea that an outof- state payday lending company was pumping millions of dollars into a proposed constitutional amendment that on first look capped maximum interest rates at 18 percent but in essence imposed no limits.

“We weren’t sure who was paying for it,” said State Sen. Reynold Nesiba, D-Sioux Falls.

Nesiba in 2015 was a signature gather for a grass-roots effort to subject payday lenders, who often charge interest rates exceeding 500 percent, to a true 36-percent cap.

The payday loan industry took off across South Dakota in the 1990s and 2000s but legislative changes leading to its growth date back to the early 1980s, when South Dakota officials changed state law to lure the credit card industry to Sioux Falls, the state’s largest city.

After the U.S. Supreme Court ruled in 1978 that banks could export interest rates to other states, then-South Dakota Gov. Bill Janklow shepherded two bills through the 1980 state Legislature to entice Citibank to set up shop in Sioux Falls. One bill lifted the cap on interest rates that companies could charge customers, and the other allowed out-of-state bank holding companies to establish subsidiaries in the state.

Wells Fargo, First Premier and Capital One quickly followed suit, and a town whose largest employer had been the John Morrell & Co. meat plant diversified its economyin a flash. South Dakota’s legislative action also created an environment that allowed the payday loan industry to flourish during the next two decades.

The February 2015 effort to subject the industry to lower maximum interest rates emerged from an unlikely partnership between Steve Hildebrand, a former Democratic operative who owns a Sioux Falls coffee shop, and Steve Hickey, a pastor turned Republican state legislator. Hickey and Hildebrand formed South Dakotans for Responsible Lending and began gathering signatures for a measure that would subject payday lenders to a true 36- percent cap.

Four months later, two new groups registered by South Dakota residents unknown in political circles emerged to address the same issue.

Bradley Thuringer of Rapid City formed Give Us Credit South Dakota to formally oppose the Hickey-Hildebrand effort, and North Sioux City’s Lisa Furlongcreated a committee sounding strikingly similar to Hickey and Hildebrand’s group: South Dakotans for Fair Lending. Furlong’s committee proposed a constitutional amendment that would place an 18-percent cap on interest rates, but the language included one important catch: lenders could charge whatever interest rate they wanted as long as the customer agreed in writing. No payday loan is issued on a verbal contract, so lenders essentially would never be subject to the 18-percent limit.

The ballot committees’ first campaign disclosures, the 2015 year-end campaign finance reports, weren’t due until Feb. 1, 2016, so residents were being asked to sign petitions without any information on who was backing the efforts.

On Nov. 5, 2015, the Hickey-Hildebrand committee submitted more than 20,081 signatures, far surpassing the 13,871 signatures needed, to Secretary of State Shantel Krebs to secure their spot on the ballot as Initiated Measure 21.As a proposed constitutional amendment, the competing effort from Furlong’s group faced a higher minimum burden — 27,741 signatures — but Furlong submitted a pile of sheets with 63,372 signatures. Krebs ruled that only 42,195 of those were valid, but the approved total was enough to put the 18-percent cap on the ballot as Amendment U.

In his official explanation for Amendment U, South Dakota Attorney General Marty Jackley led with the loophole: “Under this constitutional amendment, there is no limit on the amount of interest a lender may charge for a loan of money if the interest rate is agreed to in writing by the borrower. If there is no written agreement, however, a lender may not charge more than 18 percent interest per year.”

But Jackley’s sentence noting that Amendment U “eliminates the ability to set statutory interest rates that are inconsistent with this amendment” seemed to raise the stakes. If both Initiated Measure 21 and Amendment U passed, the 18- percent loophole cap would prohibit a true 36-percent cap from ever taking effect.

When South Dakotans for Fair Lending filed its first required disclosure form on Feb. 1, the report showed just a single contribution: a $1.7 million donation from Alpharetta, Georgia-based Select Management Resources LLC, a Rod Aycox-led company that owns hundreds of North America Title Loans and Loan Max stores across more than 20 states. More than $1.55 million of that contribution went to Walnut, California-based Silver Bullet Group Inc. for petition signature gathering, meaning the payday loan company spent $24.51 for each signature gathered or $36.81 for each valid signature.

Give Us Credit South Dakota’s 2015 year-end disclosure itemized just one contribution, a $455,000 deposit also from Select Management Resources, nearly all of it spent on consulting. Select Management Resources pumped another $500,000 into the committee in 2016, with more than $300,000 going to consulting and more than $300,000 going to advertising.

The Hickey-Hildebrand committee raised just over $20,000 in in-state contributions, another $3,400 from Hickey’s church and $400 from Hickey’s House campaign committee. In 2016, the group received about $2,000 more in contributions with additional funds coming from out of state: $5,500 cash and more than $9,000 in in-kind donations from the Durham, North Carolina-based Center for Responsible Lending, $9,800 from the Washington, D.C.-based social welfare organization Sixteen Thirty and $6,000 from No on U.

South Dakota voters asked to sign petitions in 2015 were oblivious to any contribution sources.

In the end, voters passed the true 36-percent cap with 76-percent support and shot down the industry-backed 18- percent loophole cap with 63- percent opposition. Payday lenders quickly closed up shop across the state.

Although he’s too late for the 2018 election cycle, Sen. Nesiba wants to make sure there’s no repeat in 2020. He’s advancing a bill that would give voters an earlier look at the money by requiring committees sponsoring initiated ballot measures or proposed constitutional amendments to file an additional mid-year campaign finance report during signature gathering.

“It increases transparency,” Nesiba said. “It gives us one more disclosure, gives us more information about who’s putting these issues on the ballot.”

The Senate State Affairs committee advanced Nesiba’s bill to the floor on an 8-1 vote with opposition only from Sen. Stace Nelson, R-Fulton. The full Senate approved the measure 33-2 and it now heads to the House.

Nelson said although Nesiba’s bill may be well intentioned, he wonders if it steps on residents’ constitutional rights to be involved in their government. He said the U.S. Supreme Court recognizes that people have the absolute First Amendment right to anonymous political speech and anonymous political activity, and the continued burden of campaign disclosure requirements goes against that principal.

When the nation’s founding fathers started protesting the tyranny of England, they had to do so under pen names for protection, Nelson said.

“Are we turning into the tyranny, the strong-arm of government that our forefathers rebelled against?” he asked. “Do we need to control everything? Do we need to control the outcome of everything?”

Nesiba said asking for one more disclosure report doesn’t amount to tyranny, and he said his proposal is far less burdensome that House Speaker Mark Mickelson’s 2018 initiated measure seeking to ban all out-of-state money from ballot items. South Dakota voters will weigh in on that idea in November.

Nesiba served on a bipartisan Initiative and Referendum Task Force this past summer that is pitching several campaign finance law changes during the 2018 legislative session, but his bill didn’t emerge from that group. Nesiba solicited his fellow study group members, many of them Republican, to sign on to the measure as cosponsors, he said.

If Nesiba’s bill passes and is signed by Gov. Dennis Daugaard, it would go into effect in July, too late for the 2018 election cycle. But Nesiba said he wants to make sure there’s no confusion in the summer and fall of 2019 when workers begin soliciting signatures for 2020 ballot measures. “I think people have a right to know,” he said.

Marshall County Journal

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