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But, there are a lot of ways to improve PAC fundraising.

A Florida-based trade association voluntarily came forward to the FEC to disclose that it had reimbursed travel expenses for PAC contributors and was fined $9,000. The FEC found that the group developed a schedule for reimbursing travel expenses based on the amount given or pledged to the PAC. Under that system, the association reimbursed approximately $55,000 in travel expenses over the course of four years. Because of those travel reimbursements, the FEC concluded that the association had, in effect, reimbursed the PAC contributions. As such, it made impermissible corporate contributions and contributions in the name of another.

The reimbursement formula depended on the amount given or pledged to the PAC. Those who gave $1,000 per year, would get $750 in travel for each of two meetings, or a total of $1,500 per year. $100 contributors got $150 per meeting, or $300 total. If the association had reimbursed all directors for travel regardless of PAC contributions, that would have been fine. The problem was that the reimbursements were tied to the PAC contributions.

The FEC has said that the method for reimbursement does not matter. Bonuses, expense reimbursement, etc. are all impermissible. There are, however, permissible ways to incentivize PAC giving:

  1. The organization may do a charitable match program where it contributes dollar-for-dollar to a charity of it or the donor’s choosing. As long as no one takes a tax deduction and no one receives a tangible benefit from the charity, this is permissible.
  2. The organization may hold a drawing to award prizes. The value of the prizes given may not exceed one-third the value of the funds raised. For example, if 20 people contribute $500, then the organization could give away $3,333.33 in prizes ($10,000/3). The prizes may be paid for by the connected corporation; in the case of a trade association, corporate members may donate the prizes.
  3. The organization may give gifts to each donor as long as the value of the gift does not exceed one-third of the value of the contribution. In the case of the Florida association, it could have given prizes to all contributors, but only up to the one-third limit. A $1,000 contributor could receive a two nights in a hotel valued at $333, for example (not the $1,500 the organization gave). Typically, such prizes are much lower in value than one-third (pens, mugs, etc.).
  4. The organization may host a reception or dinner for all PAC donors. The one-third rule does not apply to food and beverage. It does apply to entertainment, so the cost of a band or a sporting ticket would have to fit within the one-third rule. Companies often reward PAC contributors with receptions with senior management.
  5. There are many ways to encourage PAC giving, but they must comply with the FEC’s rules and not cause the organization to reimburse the contributions. Unless an incentive fits into the one-third rule or other exemption, any financial or tangible benefit given by an organization to its members, employees, or others in exchange for making a PAC contribution will likely be viewed as an unlawful reimbursement of that contribution.

Given how carefully these rules are followed, this enforcement case is a good example of why periodic compliance audits are a good idea. The “off year” before an election is often a good time to do that.