by James C. Sherlock

The author just read a news article by the prolific Markus Schmidt in the Virginian-Pilot. It was a reprint of an article Mr. Schmidt wrote for his employer, the Virginia Mercury. His full-throated support of Virginia Democrats is his right. Examples abound:

Virginia AG Jones joins 21 attorneys general condemning DOJ pressure on Minnesota.
Jan 29, 2026, 11:31 AM
Coalition warns Trump administration demands for resident data and policy changes threaten state sovereignty.

’Not the right location:’ Hanover supervisors, residents oppose DHS ICE facility
January 29, 2026, 5:28 AM
Hundreds pack meeting room as board cites land-use conflicts and lack of consultation over detention proposal.

Democrats push restrictions on federal immigration enforcement in Virginia
January 28, 2026, 12:52 pm
Package of bills would limit cooperation, protect sensitive locations and new Democratic control of state government.

Mr. Schmidt would consider it his obligation to write such articles. It is the Virginia Mercury’s and the Virginian-Pilot’s right to publish them.

But readers should know the sources of the news that arrives on their stoops. We’ll look.

States Newsroom

Virginia Mercury articles now appear in newspapers that Virginians consider local. It is owned by States Newsroom.

The nation’s largest state-focused nonprofit news organization, with reporting from every capital.

States Newsroom, headquartered in Washington, D.C., was established in 2018 with funding from the Hopewell Foundation, which was then managed by the private consulting firm Arabella Advisors.

Influence Watch 

Arabella Advisors, commonly called “Arabella,” or the “Arabella network,” is a left-leaning philanthropic consulting company that provides strategy, advocacy, impact investing, and management services to high-dollar foundations, nonprofits, corporations, and individuals. The company was founded in 2005 by Eric Kessler, a Clinton administration alumnus and long-time staffer at the League of Conservation Voters and the National Democratic Institute. It has been described as the “mothership” of a “massive progressive dark-money group” by the Atlantic and as “a Washington consulting firm […] that has funneled hundreds of millions of dollars through a daisy chain of groups supporting Democrats and progressive causes” and “a leading vehicle for [dark money] on the left” by the New York Times.

Arabella pop-up groups have targeted a wide range of political issues, including, abortion, net neutrality, health care policy, Supreme Court confirmations, the 2020 Census, environmental regulations, election law, tax policy, electoral redistricting, and more. Many Arabella pop-up groups have “spun off” to become independent organizations.

In perhaps its most politically successful venture, Arabella created and spun off States Newsroom. It has come to dominate local newspapers across the country amid the precipitous decline of independent local and regional journalism.

A 501(c)(3)

In the spin-off, States Newsroom reorganized as a 501(c)(3). That was Arabella’s choice, and it may prove problematic.  There are ample indications that States Newsroom is designed and funded to influence elections.  

As evidence, States Newsroom’s 2024 IRS Form 990 reveals that it received just over $27 million in contributions.  In 2023, not a federal election year, it received $17 million.  In 2022, $23,316,863.

Federal and state laws assert that no one “owns” a 501(c)(3).  It is, after all, by definition a public charity. But a couple of individuals surely control this one. They fine-tune their contributions to spike in election years.

The 2024 Schedule B (Form 990), Schedule of Contributors, showed that a single person contributed $12,549,118 in cash of the total $27 million received. Another contributed $9,700,000. No names were included. While their website prominently lists the names of those who gave more than $1,000, it does not indicate which two individuals contributed more than 80% of the total.

The 2023 Schedule B showed that two individuals contributed $9,990,000 and $3,449,181, respectively. So, roughly $13.5 million out of $17 million raised, the same 80% as in 2024.

Lots of 501(c)(3) organizations have primary donors. That is not an issue.

However, 501(c)(3) organizations face strict restrictions on political activities to maintain their tax-exempt status. States Newsroom may have overstepped.  

From the IRS: Prohibition on Political Campaign Intervention:

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances.  For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.

On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, will constitute prohibited participation or intervention.

Bottom line

States Newsroom could eliminate the potential 501(c)(3) issue by reconstituting itself into a legal corporation. But that is between them, their lawyers, and the IRS.

The point here is that the public should be aware of who owns the sources of their news. Whoever the two people are who carry States Newsroom on their financial shoulders and target election years should speak up so we all would know.  

Virginia Mercury could get a scoop by reporting it.