Campaign finance evolution in 2010

On September 18, 2009, the United States Court of Appeals for the District of Columbia ruled in Emily's List v FEC.^[1] The case’s main impact was to invalidate certain rules of the Federal Election Commission (FEC) as to what constituted a “solicitation” by a federally registered PAC, the proceeds of which were subject to reporting under federal regulation. However, Emily's List forms a critical book-end to a year (short a day) of critical change to the financing of American political campaigns. At the other book end, 364 days later, lies Advisory Opinion Request (AOR) 2010-20 (NDPAC) on which the Commissioners deadlocked, and in which Emily’s List once again plays a role.

Between these book ends lies a seminal ruling of the Supreme Court of the United States, Citizens United v FEC^[2] and a second ruling from the US Court of Appeals for the District of Columbia, SpeechNOW.org v. FEC^[3] (“SpeechNow”) that applied the Supreme Court’s ruling in Citizens United. Following these cases came two contentious FEC Advisory Opinions (AOs) applying these rulings to campaign finance regulations, AO 2010-09 (Club for Growth) and AO 2010-11 (Commonsense Ten).

At issue is who can spend money, in what manner, and up to what limits. Some 5000 regular Political Action Committees (PACs), about 2/3 of which are “connected” to a corporation, union, or trade/membership association, are registered with the FEC and make direct contributions to candidates. There are more thousands of trade and member associations, unions and corporate interests, and an ever-growing stream of individual contributors and players in this marketplace of political ideas that may make direct or independent expenditures that support or oppose candidates. Changes to the campaign finance landscape affect each of these political participants, and continually alter the balance of influence amongst them.

Emily’s List v Federal Election Commission

In Emily's List v. FEC, the US Court of Appeals considered a trio of FEC regulations that governed how non-connected PACs (those not sponsored by a corporation, union, trade or membership association, etc.) should allocate their political spending between federal and non-federal elections. Because many states allow higher contributions than are allowed under the federal limits, this becomes important where a PAC is engaged in spending in both federal and non-federal races. The greater percentage of its overhead and mixed expenditures (expenditures relating to both federal and non-federal candidates) the PAC can attribute to non-federal activity, the more it can fund its operations with money raised under state rules from states with fewer restrictions than exist at the federal level. In Emily's List, the court struck down several regulations that set a floor on the percentage of revenue that a PAC could attribute to non-federal activities. The Court held that the regulations were unconstitutional and outside the Commission’s authority to impose, and they were vacated by order to the lower District Court.

The FEC rules at issue defined "contributions" as (a) All funds received in response to a communication that indicates that any portion of the funds received will be used to support or oppose the election of a clearly identified federal candidate; and (b) At least 50 percent of the funds received from such a communication if it refers to both federal and nonfederal candidates.

These regulations established a new rule for when funds received in response to certain solicitations by a PAC must be treated as "contributions" under the Act and subject to federal limits. In practice, this would reduce the fundraising capabilities of organizations (generally larger ones). The rules regarding allocating spending between a PAC’s federal and nonfederal accounts were of equal concern to PACs.

Emily’s List, a non-connected PAC, maintained both federal and nonfederal accounts. It alleged that the FEC exceeded its authority because under the Federal Election Campaign Act (FECA) it may only regulate money spent "for the purpose of influencing any election for Federal office.".^[4] Emily’s list also argued that the allocation rules were similarly out of the FECs scope of authority because it could in practice require federal funds to be used to pay for nonfederal activities.

Arguing that these regulations were unconstitutionally vague and overbroad, Emily’s list cited Buckley v. Valeo^[5] and McConnell v. FEC^[6] in which the Supreme Court prohibited the FEC from restricting the types and amounts of funds used to influence federal elections unless the restrictions are narrowly tailored to prevent corruption or the appearance thereof.

Referencing Buckley v. Valeo, the Court found that campaign contributions and expenditures constitute "speech" and, therefore, fall under the protection of the First Amendment. The court – importantly - noted that limiting contributions and expenditures in an effort to equalize the political field is not a “legitimate government interest” sufficient to justify these regulations. The court went on to state that the only legitimate government interest that allows for the restriction of campaign finances is preventing corruption or the appearance of corruption.

The Court's holding invalidated the new regulations and affirmed that only the anti-corruption rationale was sufficient basis to impose restrictions on political speech (spending).

Citizens United v FEC

On January 21, 2010, the Supreme Court ruled in Citizens United v. Federal Election Commission, a case that received widespread attention and is often seen as the genesis for an explosion in political spending. Citizens United overruled an earlier decision, Austin v. Michigan Chamber of Commerce and (in part) McConnell v. Federal Election Commission. These early cases had upheld prohibitions on “independent expenditures” and electioneering communications by corporations (respectively).

FECA had prohibited corporations and unions from using general treasury funds to make electioneering communications or independent expenditures for speech that expressly advocates the election or defeat of a federal candidate.^[7] The Supreme Court found that the regulations, as narrowly applied to the case at hand (distribution of a documentary it had produced with the electioneering window) would nonetheless have a chilling effect on political speech. The Court, therefore, took a broader review of the regulations and whether they were facially valid restrictions on protected First Amendment Speech.

The Court returned to the first amendment principle that "political speech must prevail against laws that would suppress it, whether by design or inadvertence." They held that §441b’s prohibition on corporate independent expenditures and electioneering communications was a ban on speech and subject to "strict scrutiny;" requiring the government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest. In its review, the Court made several critical holdings:

1. The "anti-distortion" rationale in Austin argued for a compelling governmental interest in limiting political speech by corporations to prevent "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.”

2. That this rationale in fact "interferes with the 'open marketplace of ideas' protected by the First Amendment." According to the Court, "[a]ll speakers, including individuals and the media, use money amassed from the economic marketplace to fund their speech, and the First Amendment protects the resulting speech.”

3. And that "the rule that political speech cannot be limited based on a speaker’s wealth is a necessary consequence of the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker’s identity."

In short, the court overturned its earlier ruling in Austin and the anti-distortion rationale as a justification for restrictions on speech, as embodied in political spending.

The Court also expanded on the distinction from Buckley v. Valeo between contributions (to candidates/parties/PACs) and expenditures (paid for by oneself) by finding that the anti-corruption rationale was a permissible basis for restricting corporate contributions, but not independent corporate expenditures. The Court held that the appearance of, or actual, corruption was the only constitutionally valid basis to restrict expenditures, and that "independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”

The Supreme Court had lifted the prohibition on corporations, unions, trade/membership associations, and other entities from engaging in independent expenditures and electioneering communications, and from doing so with unlimited dollars – a significant shift in the campaign finance landscape.

SpeechNOW.org v FEC

In March 2010, the Court of Appeals expressly applied the precedent set by Citizens United v. FEC in its ruling in SpeechNOW, a case involving a non-profit organization that sought to (a) accept contributions in excess of $5000 from individual contributors (not corporations) for the exclusive purpose of running independent expenditures (IEs), and (b) not register as a political committee or be subject to PAC reporting requirements. SpeechNOW.org argued that, because it would not make any candidate contributions and would only make independent expenditures, it was a violation of both its and its donors’ free speech rights to require SpeechNOW to register, report, and be subject to contribution limits.

In upholding the registration requirements, the Court held that “Disclosure requirements also burden First Amendment interests because ‘compelled disclosure, in itself, can seriously infringe on privacy of association and belief.’ Buckley.^[8] However, in contrast with limiting a person’s ability to spend money on political speech, disclosure requirements ‘impose no ceiling on campaign-related activities’ id., and ‘do not prevent anyone from speaking.’ McConnell v FEC, 540 US at 201.”.^[9]

However, the Court, following the Citizens United holding that independent expenditures do not create actual or apparent quid pro quo corruption, found that applying limits to contributions for independent expenditures would violate the First Amendment rights of SpeechNOW.org and its donors. The Court held that SpeechNOW.org was entitled to accept unlimited contributions from individuals for IEs, but also stated “we only decide these questions as applied to contributions to SpeechNOW, an independent expenditure-only group. Our holding does not affect ... limits on direct contributions to candidates.”^[10]

The result laid down two core rules. First, an organization formed to accept contributions and make independent expenditures must register as a political committee under the same regime as any other PAC. Second, such an IE-only committee is entitled to accept unlimited contributions from individuals. When coupled with Citizens United, however, the case by implication also suggested that corporations and unions may contribute unlimited amounts to Independent Expenditure only PACs.

FEC Advisory Opinion 2010-09 (Club for Growth)

In Advisory Opinion Request (AOR) 2010-09, the 501(c)(4) organization Club for Growth (the Club), which had an existing Separate Segregated Fund (SSF) PAC, sought to create a new IE-only PAC and pay all or some of the administrative expenses of that PAC. The Club argued that the new IE-only PAC need not be treated as an SSF despite providing it with direct financial support of its operations (a privilege restricted to corporate sponsored SSFs). The benefit sought by the Club was that its IE-only PAC could solicit and accept contributions from any individual, not just the “restricted class” of the Club that could be solicited by its SSF. Interestingly, the Club, a Conservative organization, did not seek to accept corporate, union, or its own funds for its IE-only PAC.

As a result of SpeechNOW, corporations could now freely spend unlimited treasury funds on IE’s. This would naturally include any administrative costs related to making the IE. The Club argued that there was little reason why a corporation, like the Club, could not do with others what it could do itself; and in fact it was constitutionally entitled to do so under the First Amendment. Since the Club could make IE’s on its own, it argued it should be free to contribute funds to an IE-only PAC, and that those funds could pay for the administrative expenses of that IE-only PAC, it was illogical to prohibit the Club from paying such costs directly and reporting them as a contribution. The Club sought be free to establish an IE-only PAC, fund its administrative costs without it becoming an SSF, and be able to solicit and accept unlimited contributions from any individual for its IE activities.

The FEC issued Advisory Opinion 2010-09 on July 22, 2010, ruling that the Clubs proposed course of action was acceptable. The FEC specifically relied on the rulings in Citizens United and SpeechNOW in finding that the Club could (a) pay for the establishment, administrative, and solicitation expenses of the IE-only PAC and (b) solicit donations from any individuals including those outside of what would be the Club’s restricted class. The FEC recognized that the absence of the appearance of or actual quid pro quo corruption from IE’s (the holding in Citizens United), and the right of corporations to make unlimited contributions for IE’s (the holding in SpeechNOW) – including related administrative costs – allow it to do so in concert with others.

FEC Advisory Opinion 2010-11 (Commonsense Ten)

In AOR 2010-11, Commonsense Ten, a Liberal organization, sought to register as an IE-only PAC and accept unlimited contributions from individuals, corporations, and unions. Commonsense Ten relied on the same core analysis argued by the Club for Growth, relying on the holding in SpeechNOW that individuals, corporations, and unions could now make unlimited expenditures for IE’s. As such, there was no justification to restrict these contributors’ Constitutional rights of free speech such that they could not make the same expenditures in concert.

Commonsense Ten’s request, approved on July 22, 2010, was more expansive than that of the Club for Growth, and the results more far reaching – giving birth to Super-PACs. An IE-only PAC could now accept unlimited contributions from corporations, unions, and other entities (for the first time outside their SSF’s), as well as individuals. Super-PACs have proliferated since, registering with the FEC at a pace of one each day, and raising and expending vast amounts of money into the campaign finance landscape to directly advocate in support of, or opposition to, individual candidates.

FEC Advisory Opinion Request 2010-20 (National Defense PAC)

Ruled on one day before the first anniversary of Emily’s List, AOR 2010-20 sought a further paradigm shift in campaign finance law by seeking to merge the capabilities of IE-only PACs and non-connected PACs. A non-connected PAC may solicit and accept contributions from any individual up to $5000 per year to pay for IE’s, operating expenses, and direct contributions to candidates up to $5000 per election. By contrast, an SSF may solicit only its restricted class, up to $5000 per year, but may have 100% of its administrative expenses paid for by its sponsoring organization. As a practical matter, SSFs account for nearly 2/3 of all PACs and a significantly higher proportion of all PAC receipts and contributions. Moreover, SSFs routinely spend more in administration than they actually raise, an investment in enhancing the government relations program of the sponsoring organization. Non-connected committees, by contrast, must pay all of their administrative and operating costs from their fundraising. This has the effect of reducing the relative value of a dollar contributed to a non-connected Committee against a dollar contributed to an SSF. As a result of the evolution of campaign finance law, IE-only PACs enjoyed the benefit of unlimited contributions from any source, but without the ability to make direct candidate contributions.

AOR 2010-20 sought to allow a non-connected PAC to operate as a hybrid – soliciting and accepting amount and source restricted contributions to one bank account for use in direct candidate contributions, and soliciting and accepting unlimited contributions to a second bank account from which to conduct IEs and pay potentially all administrative expenses, while maintaining careful separation of receipts and expenditures to prevent funds from intermingling. If approved, this would have made Super-PACs into Mega-PACs that enjoyed full subsidization of candidate contribution dollars like an SSF but from any/many corporate source, with unlimited contributions for IE’s and direct contributions.

The FEC was unable to rule on this request – deadlocking on each of two drafts proffered; one in favor of the request (which drew heavily on Emily’s List in its rationale), and one in opposition. On the one hand, this leaves in place the status quo since no PAC would willingly risk enforcement action from proceeding on a course of action that the FEC could not state was lawful. On the other, that the FEC could not definitively rule this course of action as unlawful leaves open the possibility that it is lawful.

Carey et al v. FEC

On January 31, 2011, Retired Rear Admiral James Carey, Kelly Eustis and the National Defense Political Action Committee, brought suit after the FEC deadlocked on the 2010-20 Advisory Opinion Request,^[11] in which the PAC sought permission to operate a "Super-Duper" PAC,^[12] combining an independent expenditure-only PAC and PAC that makes direct contributions to candidates as a single entity for FEC purposes.^[13] In the complaint, the plaintiff seeks a declaratory judgment that enforcing the limits on contributions at 2 U.S.C. §§ 441a (a)(1)(C) and 441a(a)(3)^[14] would violate First Amendment rights by prohibiting the raising of funds for independent expenditure purposes and direct contributions to candidates by the same PAC in two segregated bank accounts.^[15] Additionally, plaintiff sought preliminary injunctive relief against the enforcement of such limitations on its contributions by the FEC.^[16] The FEC argued that the only viable option in this case would be to create a different PAC to keep the finances separate.^[17]

The United States District Court for the District of Columbia, in granting preliminary injunction for the Plaintiff, considered the FEC’s standard too burdensome.^[18] The Court argued that political contributions are protected under the First Amendment right to free speech.^[19] As a result, the FEC must show 1) a compelling interest of anti-corruption, and 2) find a narrowly tailored means of limiting that right.^[20] The Court considered separating direct contributions for candidates from independent expenditures into two bank accounts as a sufficient and narrowly tailored means of ensuring no crossover of funds.^[21]

Overview

The sum of the rulings has been a trend towards greater first amendment protections for political speech outside traditional “candidate contribution” activity, particularly to permitting significantly freer corporate and union spending. Each ruling sequentially broadened the capabilities of money to find new avenues in politics, which has a corresponding impact on increasing the conversation about the issues that those with the money care about. This has led to an explosion of campaign finance activity and contributed to a midterm election that will likely outpace net spending in the last presidential election, particularly in independent spending.

See also

• Political action committee

References

External links

• Federal Election Commission
• Speechnow.org v. Federal Election Commission