Disclosure

Subscribe to Disclosure

The LD-203 requires registrants and lobbyists to disclose a variety of payments made for the purpose of honoring and recognizing covered officials. Guidance issued by the House and Senate includes some very helpful examples.

Payments that need to be disclosed fall in four different categories.

  1. The cost of an event to honor or recognize a covered legislative branch official or covered executive branch official;
  2. Payments to an entity that is named for a covered legislative branch official, or to a person or entity in recognition of such official;
  3. Payments to an entity established, financed, maintained, or controlled by a covered legislative branch official or covered executive branch official, or an entity designated by such official; or
  4. The costs of a meeting, retreat, conference, or other similar event held by, or in the name of, one or more covered legislative branch officials or covered executive branch officials. Continue Reading Honoring and Recognizing

The end of the second quarter is a good time to terminate individuals who will no longer serve as lobbyists because they can end their LD-203 obligations with this mid-year report. If the individuals do not have a reasonable expectation of being a lobbyist in the current or next quarter, then the Guidance says that the individual may be terminated. A lobbyist is someone who has made more than one lobbying contact (ever) and spends more than 20 percent of his or her time on lobbying activity in a three-month period. Thus, if an individual is changing roles, or the organization has determined that the person does not (and will not in the next quarter) spend 20 percent of his or her time on lobbying activity, then termination is appropriate. Remember, an organization can always re-list the person if things change. Continue Reading To be a Lobbyist or not to be a Lobbyist

PanelOn Wednesday, April 9, at 6:00 Ron Jacobs will moderate a panel at the George Washington University Law School on the IRS’s proposed rules for political activity of 501(c)(4) organizations. Panelist include Cleta Mitchell of Foley & Lardner LLP, John Pomeranz of Harmon, Curran, Spielberg & Eisenberg, LLP, and Paul Ryan of the Campaign Legal Center. Each brings a different perspective to what the IRS has proposed and how it will affect political activities on the right and left. The event is free and open to the public.

Tasher Great Room, Burns Law Library, GW Law 716 20th St NW, Washington, DC 20052

moneyAs we reported in November, the California Fair Political Practices Commission reached a settlement agreement with two entities (Center to Protect Patient Rights and Americans for Responsible Leadership) involved in a 2012 ballot measure. Those entities agreed to pay a $1 million fine. The FPPC said that it would require the entities that received the contributions, California Future Fund for Free Markets (“CFF”) and the Small Business Action Committee (“SBA-PAC”) (the bottom-most entities on this chart) to disgorge the contributions they received from AFF and ARL (a total of about $15 million), even though they did nothing wrong.

The FPPC made good on its threat and recently announced that it had entered into stipulated judgments with CFF and SBA-PAC that requires those entities to disgorge the $15 million they received. CFF made an initial (and likely final) payment of $300,000 to the state, which was the amount it had left in its bank account.

Any future money those two entities raise will have to go to California. Of course, since one committee has been closed and the other said it will close, it seems like this will be the end of the matter (and would they really be able to raise any money just to pay a penalty anyway?). What is amazing is that the FPPC said the two groups that received the money did not do anything wrong, and yet they have been forced to pay the state the amount they received, even after having already spent it.

The FPPC said that it will continue to aggressively enforce the disclosure laws in California, so any groups that plan to be active in California elections will have to be very careful to comply with the necessary registration and reporting laws. And, as the disgorgement from the recipients shows, complying with disclosure laws means doing plenty of diligence on the donor groups to make certain that they have disclosed properly.

Last week Michigan followed several states by increasing both contribution limits and frequency of disclosure from candidates. The bill, which took effect immediately, also includes new identification requirements for persons or groups paying for robocalls while exempting so-called “issue-ads” and their donors from being disclosed in campaign finance reports.  

Contribution Limits and Disclosure

The new law doubles contribution limits from individuals and PACs to candidates and political party caucus committees during an election cycle:

  • From $3,400 to $6,800 to a candidate for statewide office;
  • From $1,000 to $2,000 to a candidate for state Senate;
  • From $500 to $1,000 to a candidate for state House;
  • From $20,000 to $40,000 to political party caucus committees.

The Secretary of State will adjust the limits every four years based on the consumer price index.

Candidates must now file disclosure reports at two different times (instead of just one) in non-election years. The law does not change election-year reporting.

Identifying Information and Robocalls

In an announcement upon signing the bill, the Michigan Governor emphasized a provision regulating automated phone calls, commonly known as robocalls. Under the law, if a robocall expressly advocates for the election or defeat of a candidate or ballot question, the call must Robocallidentify the name, address, and telephone number of the person or organization paying for it. This applies to both candidates and third-party groups.   

Issue Ads and Disclosure

The new law also thwarts an effort by the Secretary of State to increase disclosure of those financing “issue ads” (i.e., ads that do not include words such as “vote for” or “vote against,” but that are related to candidates). In November, the Secretary of State had proposed changes to the definition of what constitutes an “expenditure” to reach not only advertisements that include words of express advocacy (such as “vote for,” “support,” or “oppose”), but also those that are the “functional equivalent” of express advocacy. Notably, the proposed rule would have used a very broad definition of what constitutes the functional equivalent of express advocacy to reach ads that (within certain periods before an election):

  • Refer to the personal qualities, character, and fitness of a candidate;
  • Endorse or condemn a candidate’s position or stance on an issue; or
  • Endorse or condemn a candidate’s public record.

By defining expenditure in such a broad way, those sponsoring such messages would have to report not only what they spent on the ads, but also who made contributions to fund the ads.

The new law undoes this proposed rule by stating that a communication is not an expenditure “if the communication does not in express terms advocate the election or defeat of a clearly identified candidate.” To avoid any doubt about the legislature’s intent, the new law then says that it “restrict[s] the application of this act to communications containing express words of advocacy of election or defeat, such as ‘vote for’, ‘elect’, ‘support’, ‘cast your ballot for’, ‘Smith for governor’, ‘vote against’, ‘defeat’, or ‘reject’.” By limiting the scope of the law to these words of express advocacy, issue ads are not considered expenditures, and therefore no information must be disclosed about the amount spent on the ads or who financed them.

Although campaign finance reports will not reveal information about issue ads and their donors, the law does require issue ads themselves to identify the name, address, and telephone number of the person or organization that paid for the communication when: (1) the communication refers to a clearly identified candidate or ballot question within 60 days before a general election, or 30 days before a primary election in which the candidate or ballot question appear on the ballot, and (2) the communication is targeted to the relevant electorate by television, radio, mass mailing, or robocall.

Looking Ahead in the States

Michigan followed the trend in several other states by increasing contribution limits and disclosure frequency, but it also departed from the recent changes in states like Maryland, Utah, and California that mandate disclosure of donors to 501(c) groups and other organizations that are involved in elections. We expect that in 2014, states will continue to look for ways to adapt to heavy spending by outside groups, including mandatory disclosure of donors and increasing limits on contributions to candidates.

Last week, New York’s City Council passed an ordinance amending its lobbying laws. While these reforms largely have gone unnoticed, a close look at the changes, some of which go into effect on January 1, reveals some potentially far-reaching implications.

First, the definition of “lobbying” has been expanded to include attempts to influence “any determination made by an elected city official or an officer of employee of the city to support or oppose any state or federal legislation, rule or regulation.” It is unusual, if not unprecedented, for a city lobbying ordinance to cover attempts to get a city official to weigh in on state or federal policy. 

Second, while the enforcement of lobbying laws in most jurisdictions is aimed at registered lobbyists and their employers, Section 6 of the new law requires the City Clerk to develop a system for proactively identifying individuals who are required to register as lobbyists in NYC but have not done so. The New York City ordinance directs the City Clerk to search for noncompliance by scouring public records, including:

  • State lobbying filings,
  • Notices of appearances compiled by city agencies, and
  • The city’s “doing business database,” which lists individuals and entities doing business with the NYC under the city’s pay-to-play campaign finance rules.

As a related matter, the new law creates an amnesty program for lobbyists or those that employ lobbyists (called “clients”) who were required to register as NYC lobbyists/clients, but never have. Under this program, participating individuals and entities will not be fined or penalized for the failure to register for the period December 10, 2006 to the date the individual/entity files a notice with the City Clerk of his intention to participate.

Finally, the law makes some procedural changes. For example, the reporting periods covered by the periodic reports filed by lobbyists will change. Instead of filing four periodic reports each year, lobbyists will be required to file six periodic reports each year. Also, as of January 1, 2014, the dollar threshold for determining whether registration with the city is required has been increased from $2,000 to $5,000 per calendar year. Therefore, starting in the new year, if a lobbyist earns or incurs $5,000 or more in a calendar year for purposes of lobbying, he will be required to register and report. Keep in mind that starting on May 8, 2014, the definition of lobbying will include attempts to influence NYC officials with respect to state or federal policy (including grassroots lobbying).

The majority of the law’s provisions take effect May 8, 2014. There are, however, some exceptions. Notably, the requirement that the City Clerk develop a system to identify unregistered NYC lobbyists will go into effect when the City Clerk and Department of Information Technology and Telecommunications determine they are capable of implementing the program (or two years after enactment, whichever is earlier). Also, as described above, the new dollar thresholds for registration go into effect on January 1, 2014.

On November 26, the Department of Treasury released proposed regulations billed as “more definitive rules” for when the IRS will treat certain activities by section 501(c)(4) organization as political activity. It is hard to argue that the proposal provides some clarity, but only by classifying a wide variety of activities as candidate-related and therefore not qualifying 501(c)(4) “social welfare” activity. The proposal is thus likely to present tax-exempt status concerns for many organizations. Moreover, nothing is offered to guide 501(c)(4) managers and advisors on what types of activities that relate to candidates or officeholders would qualify as promoting the social welfare.

Background

Organizations that are exempt under section 501(c)(4) of the Internal Revenue Code are required to engage primarily in activities that promote social welfare. This requirement has often been interpreted to allow an organization to engage in political activities as long as those activities are not the primary activities of a 501(c)(4). In recent years, many 501(c)(4) organizations have engaged in a substantial amount of political advocacy, while taking care not to appear to be engaging primarily in such activity. 

The IRS scandal that broke earlier this year centered on the agency’s handling of (for the most part) 501(c)(4) tax-exemption applications that suggested the possibility of extensive political activities. Many commentators have noted that the growth in 501(c)(4) political activity has presented a difficult problem for the IRS because it has such few rules in place to enforce the “primary” standard. 

Proposed Regulations

It is amid this backdrop that Treasury released its proposed regulations (which would amend portions of Treas. Regs. § 1.501(c)(4)-1). In substance, the proposal would create an “unsafe harbor”—a category of activity, specifically focused on 501(c)(4) organizations, that is termed “candidate-related political activity.” This category of activity would be included among other types of activities that are not consistent with the promotion of social welfare and, as such, that are not permitted to be a primary activity of a 501(c)(4) organization. The definition of candidate-related activity is quite broad and goes beyond what is commonly understood to be campaign activity. Among the more types of activities that are alarmingly included among the list of candidate-related political activity:

  • Conduct of a voter registration or “get-out-the-vote” drive, even if nonpartisan;
  • Hosting an event within 30 days of a primary election or 60 days of a general election where one or more candidates appear as part of the program; and
  • The payment of money to any organization described in section 501(c) that itself engages in campaign-related activity (and the presumption here appears to be that such recipient organization does engage in campaign-related activity unless a written representation is obtained from the recipient and a written restriction on the contribution is given by the 501(c)(4)).

There are many more aspects of this proposed rule and many more categories of activities that would fit into the “campaign-related” category. Interestingly, the proposal borrows from existing federal election law concepts like electioneering communications and express advocacy. Also, it should be noted that the Treasury Department has identified a number of specific areas where it is requesting comments—including whether any rules on this topic should also apply to 501(c)(5) and 501(c)(6) organizations, whether to adopt a similar approach to define impermissible campaign intervention under section 501(c)(3), and whether the rules should address how one determines whether an activity is at such a level that it becomes a “primary” activity of the organization.

Comments will be due in late February. Judging from the initial response, there are sure to be plenty of submissions.

The maximum contribution to Florida candidates has jumped from $500 to $3000 per election for candidates in statewide elections and from $500 to $1000 per election for state legislative candidates. The new limits took effect on November 1, part of a sweeping overhaul of the state’s campaign finance and ethics laws signed into law in May.

The new law also eliminates the $500 limit on contributions to “political committees,” which are groups formed to make contributions in state elections or finance expenditures that expressly advocate the election or defeat of a candidate, or the passage or defeat of a ballot measure. Such groups may now accept unlimited donations. Political committees are likely to emerge as a potent force in statewide elections and closely fought legislative races.   

While more money is expected to flow into Florida elections, reporting requirements under the new law are much more stringent. As of November 1, candidates and political committees must file monthly reports, rather than the quarterly reports required under the old law. Weekly reports are required beginning on the 60th day before a primary election up until the 10thday before the general election. Daily reports are then required up until five days before the general election.

In theory, increased reporting means increased transparency. But in practice it is also likely to mean more errors as committees struggle to capture information and report it accurately in such short reporting windows. It bears watching to see whether and how fines are assessed when committees are compelled to file amendments correcting the inevitable mistakes.

The new law presents many traps for the unwary. Indeed, Florida election officials acknowledged in a suit decided over the summer that the state’s campaign finance laws are complex, “and that state officials newly working with the laws need months of study to become comfortable with them.” Because violators face hefty fines and criminal penalties, it is essential that anyone involved in Florida election spending – whether political committee, candidate, or contributor – be careful to comply with the law’s many requirements.

The California Fair Political Practices Commission (“FPPC”) issued its largest fines ever on October 24, 2013, against two groups that allegedly served as conduits for millions of dollars spent on California ballot measures in 2012. Together, the groups have been tagged with a combined $1 million fine, and the PACs that received some of the funds have been ordered to disgorge a total of $15 million (although one organization has been terminated and the other has just shy of $1 million in the bank, so it is not clear how they will disgorge $15 million).

The FPPC chair, who is now a Commissioner at the FEC, said the “case highlights the nationwide scourge of dark money nonprofit networks hiding the identities of their contributors.”

The FPPC went to court right before the 2012 election to force Americans for Responsible Leadership (“ARL”) and the Center to Protect Patients’ Rights (“CPPR”) to disclose its donors under a regulation the FPPC adopted in May 2012. This regulation requires disclosure of donors in a number of situations where the donations will be used for independent expenditures that support or oppose a candidate or a ballot measure.

As set forth in the settlement document, there were two sets of contributions at issue in the case. Both originated with a 501(c)(6) entity known as Americans for Job Security (“AJS”). AJS raised approximately $29 million from 150 donors to engage in a variety of issue advocacy efforts. As the settlement makes clear, AJS was not required to register or disclose anything with the FPPC because it raised its funds for issue ads that did not expressly advocate the support or defeat of a referendum. AJS then gave a total of just under $25 million to CPPR, which is a 501(c)(4) organization, during September and October.

First Contribution: On September 11, CPPR gave $7 million to Americas Future Fund (“AFF”). AFF then gave the California Future Fund for Free Markets (“CFF”) just over $4 million. CFF was a registered political committee in California, and disclosed receiving the contribution from AFF. AFF also disclosed making the contribution to CFF. Neither AFF nor CFF disclosed that the money had come from CPPR.

Second Contribution: In mid-October, CPPR gave ARL $18 million. On October 15, ARL gave $11 million to the Small Business Action Committee (“SBAC-PAC”), which is an independent expenditure committee that opposed Proposition 30 and supported Proposition 32 (Prop 30 passed and Prop 32 failed). Both SPAC-PAC and ARL disclosed the contribution, but did not disclose CPPR as the ultimate source of the contributions.


Chart of Money

 

The Key Regulation: The FPPC’s regulations provide that if a 501(c)(4) makes a contribution from its general treasury funds to support or oppose a ballot measure, it must disclose those donors who request or know that their payments will be used to make a contribution to support or oppose a ballot measure. A donor knows its donation will be used to make a contribution if the payment is made in response to a message or solicitation indicating the organization’s intent to make a contribution.

The Violations: The FPPC alleged that under the regulations AFF and ARL should have disclosed CPPR as the source of the funds they used to donate to CFF and SBAC-PAC, respectively. In the settlement, the FPPC makes clear that these were inadvertent or “at worst negligent” and were not knowing and willful violations. The FPPC also determined that neither AFF nor ARL needed to register themselves as political committees.

Not Subject to Disclosure: The FPPC explained in the press release that some of the transactions involved did not have to be disclosed.

  • First, the FPPC said that AJS (the entity at the top of the chart) raised its money for the purpose of funding issue ads that did not expressly advocate for or against a ballot measure. As such, the sources of the funds it raised were not disclosable.
  • The FPPC also said that the money AJS gave to CPPR was not earmarked for specific ballot measure, so it too was not disclosable.

Indeed, the FPPC made the remarkable statement that, “ARL’s disclosure of AJS as the source of the contribution prior to the election [as the result of the FPPC’s lawsuit] was erroneous.” In other words, during litigation brought by the FPPC on the eve of the election to determine the source of ARL’s funds, neither ARL nor CPPR was required to disclose AJS as the source of their funds!

Takeaways: This case demonstrates that the FPPC is going to be tenacious with respect to contributions that pass through nonprofits. It seems to be willing to engage in extensive litigation in order to force disclosure even when disclosure is not ultimately required. Moreover, it is willing to disparage defendants in its press releases even when the settlement documents make clear that the reporting violations were at worst negligent. Bottom lines:

  • If you donate to entities that may contribute to California campaigns, be aware that your contribution may be disclosed.
  • If you are an entity giving to a California campaign, be prepared for litigation with the FPPC.
  • If giving to a California campaign, if possible, set up procedures and keep records to demonstrate that sources of funds do not have to be disclosed so that you can response to the FPPC.
  • Consider whether over-disclosure at one level might make litigation less likely and result in less disclosure from initial sources.