The Maryland legislature overhauled the state’s campaign finance law almost two years ago, but many of the key provisions did not take effect until January 1, 2015. These changes significantly affect state government contractors by introducing a new electronic registration system overseen by the State Board of Elections, and requiring electronic reporting of contributions made by the contractor, as well as by its PAC and subsidiaries, and its officers, directors, and partners.

The new law also increases the limits on contributions by individuals and business entities, and compels politically active nonprofits to register and disclose their donors. Stiff penalties may be imposed on nonprofits that knowingly and willfully fail to file registration notices or reports. Also, the State Board of Elections now has the power to issue civil citations for strict liability offenses, such as failing to keep accurate books and records.

To read the full article, please continue reading on our website.

FlagsIn every election, campaigns and their political fundraisers must navigate a complex and ever-changing array of laws, which increasingly are being rewritten by the courts. The rules changed again last month, when the Supreme Court in McCutcheon v. FEC struck down the limit on the amount an individual may give during an election cycle to all federal candidate and PACs, and to the national political parties. While the ruling did not directly involve any state laws, the Court’s reasoning – that the First Amendment forbids restrictions on how many candidates or committees a donor may support – cast doubt on the constitutionality of laws in about a dozen states that also impose aggregate limits.

Yet with elections just weeks or months away, only a few of the states potentially affected by McCutcheon have indicated how they will interpret and apply it. Most have been silent, perhaps waiting for a lawsuit to force the issue, or a contributor who flouts the aggregate limit and dares the state to enforce it. Continue Reading Come and Get Us: Some States in No Hurry to Respond to Supreme Court Ruling on Aggregate Limits

Louisiana imposes an aggregate limit of $100,000 on a person’s contributions to a political committee in Louisiana during a four-year election cycle. An independent expenditure-only committee (i.e., a Super PAC) supporting gubernatorial candidate David Vitter sued, arguing that the cap is unconstitutional as applied to super PACs. A federal judge has now agreed.

“[I]ndependent expenditure committees are sacrosanct under the First Amendment.”

The Louisiana judge sided with the unanimous rulings of seven federal courts of appeals that have struck down limits on contributions to Super PACs. Based on these rulings, and the Supreme Court’s landmark Citizens United case, the judge observed that as a matter of law “independent expenditures present not even a marginal risk of corruption,” a principle that holds even if the Super PAC is formed to support a single candidate.

Continue Reading Another One Bites the Dust

Ron Jacobs and Larry Norton presented “Election-Year Advocacy: Maintaining Your Nonprofit’s Clear Message in Cloudy Legal Seas,” a webinar covering topics for nonprofits engaged in political activity. It included topics such as:

  • The rules that apply to 501(c)(4) and 501(c)(6) organizations and how those rules are changing;
  • How to operate a political action committee (PAC), including guidelines for fundraising and advocacy communications;
  • Specific activities that 501(c)(3) organizations can and cannot engage in, and how the proposed IRS rules for 501(c)(4)’s may impact 501(c)(3)’s;
  • Rules on coordinating activities with campaigns and political parties;
  • How successful enterprises can combine a 501(c)(3), 501(c)(4) and/or 501(c)(6) organization, a PAC, and even a Super PAC;
  • The Supreme Court’s recent decision striking down aggregate contribution limits, and how it could influence 2014 elections at the state and federal level;
  • IRS proposals to change the 501(c)(4) rules; and
  • Changes to state disclosure laws.

You can view the handout for the presentation or watch it below:

As we described in a January 16 post, moments after being sworn in as Virginia’s 72nd governor on January 11, Governor McAuliffe signed an executive order imposing new gift restrictions on Executive Branch employees and officers and their immediate family members. The Executive Order applies only to individuals that work in Virginia’s Executive Branch. As expected, Virginia’s legislators have followed suit and have enacted their own ethics reform rules for members of the legislature and certain state and local officials.

The new law limits the value of gifts covered officials may solicit or accept from lobbyists, lobbyist principals, and government contractors to $250 annually from a single source (the law does not prohibit giving the gift, just receiving the gift). Although touted by the legislature as sweeping ethics reform, the new law has garnered significant attention not on what it covers, but what it does not cover.

First, the rules do not limit gifts from most individuals or groups. Only gifts from registered lobbyists, entities that retain or employ lobbyists, and government contractors are restricted. Personal gifts from corporate executives whose companies lobby state legislators or have government contracts are not affected. Notably, Governor McAuliffe’s Executive Order sweeps more broadly by barring gifts from lobbyists and the organizations that retain them, and limiting gifts from others.

TitleSecond, the $250 limit does not apply to “intangible gifts,” such as entertainment, hospitality, a ticket, admission, transportation, lodgings, and meals. Although many state ethics rules include exemptions allowing officials to participate in meetings, conferences, and other events at the expense of private parties, Virginia’s categorical exclusion of intangible gifts is unusually broad. As Robert McCartney of The Washington Post noted in his column, the advocacy group ProgressVA studied the issue and found that only 18 gifts out of 756 given during 2012 were tangible. In other words, the bill likely will have only a modest impact on gift-giving practices in Richmond. The law requires covered officials to disclose gifts from lobbyists, lobbyist principals, and government contractors (both tangible and intangible) given to officials and their family members.

Finally, keep in mind that contractors are also subject to a 2010 pay-to-play law that prohibits them from making campaign contributions or providing gifts valued more than $50 to the governor, the governor’s PAC, or certain executive branch officers if the value of a non-bid contract is $5 million or more.

Like 15 other states, Ohio has a law that prohibits false statements made during a campaign. The law allows virtually anyone to file a complaint alleging that an ad is false and allows the Ohio Elections Commission to make the initial determination as to whether it is truthful or not. The problem is that once the Commission issues a finding that an ad is false, the next step is a referral to a prosecutor who may or may not do anything about it. Unfortunately for the speaker, media outlets may refuse to carry the message.

That’s exactly what happened to the Susan B. Anthony List (“SBA List”) during the 2010 Congressional elections: after the Ohio election board found the SBA List’s statement about the effect of a Congressman’s votes on the Affordable Care Act and abortion funding to be false, a billboard vendor refused to put up the message (because the candidate sent a letter threatening to sue the vendor if it put up the ad).  A federal judge refused to hear the case because of the pending (though ultimately dismissed) state enforcement proceeding. Another group that claimed it wanted to run an ad with the same message was also rebuffed by the federal courts because, according to the court, there was no proof that the group would face enforcement.

Last week, the Supreme Court heard oral argument in the case. The narrow legal issue was whether the federal court could hear the challenge at all. The justices seemed very skeptical that SBA List shouldn’t get its day in court. They also seemed skeptical of the Ohio law and whether an administrative agency should be allowed to determine whether a campaign communication is true or false. Justice Scalia characterized any agency charged with making such determinations as “the ministry of truth.”

Although most people probably think that it is good for candidate speech to be truthful, the SBA List case shows that whether something is truthful or not is often a very nuanced question. This is the billboard at issue:

Driehaus

Although the Ohio Elections Commission found probable cause to believe the ad was false, as the SBA List’s attorneys and others have explained, the SBA List based its claim on a study from the U.S. Conference of Catholic Bishops and stands behind the message.

Thus, whether the ad was false or not is at least debatable, making it the kind of electoral issue that perhaps should be left to the voters to evaluate, rather than the bureaucracy. That might explain why commenters on all sides of the debate have said that a “ministry of truth” is such a dangerous proposition in elections.

Based on the oral argument, it seems likely that the Supreme Court will agree, give the SBA List its day in court, and that ultimately the Ohio law will fall.

As discussed last fall, against the fairly settled case law around the country, New York continued to fight against Super PACs. A Super PAC is a political committee that typically funds ads advocating for or against candidates, but that may not coordinate its spending with candidates and their campaigns. New York argued that its annual limit on total contributions an individual may make to all New York political committees of $150,000 applied to independent expenditure-only Super PACs. A Super PAC that wanted to support a New York City mayoral candidate in last November’s election challenged that law, but lost in the lower court.  The U.S. Court of Appeals for the Second Circuit reversed that decision saying, “[f]ew contested legal questions are answered so consistently by so many courts and judges.” Yet New York continued to fight when the case went back to the lower court.

Yesterday, the district court held that limits on contributions to the plaintiff are unconstitutional, stating: “[o]nce it is determined that [plaintiff] is an independent expenditure-only organization, there is little left for the Court to do.” It was clear from the judge’s opinion that he did not like this result, but felt bound by Supreme Court precedent (both Citizens United and the recent McCutcheon decision).

It’s not clear what New York will do next. It seems futile to appeal further, so the logical step would be for the State to announce that it will no longer enforce the limits on individual contributions to all Super PACs. If the state does not announce that it will no longer enforce the limits, other groups will likely file suit to obtain the benefits of these decisions for themselves.

There is another outstanding issue as well that is winding through the courts: does a separate aggregate cap of $5,000 on corporate contributions apply to contributions to Super PACs? That issue is currently before the U.S. District Court for the Northern District in New York. The plaintiffs in that case recently informed the court that, although not the relief they requested, McCutcheon calls into question New York’s aggregate cap on individual and corporate contributions in any application. The State replied that it is reviewing McCutcheon and will respond. If the court overturns the corporate aggregate cap, either as-applied to Super PACs or across the board, then New York would come into line with most other jurisdictions just in time for this November’s gubernatorial election.

* Admitted in Maryland; not yet admitted in D.C.

SCOTUSMuch of the post-McCutcheon discussion has focused on what might follow from the decision: are there other dominos to fall? Some predicted the ban on direct corporate contributions might be in play and noted that there was a case pending for the Supreme Court to consider. But Monday, the Court declined to hear that case.

An Iowa non-profit corporation had challenged that state’s ban on direct contributions from corporations and similar entities to candidates. But in a decision rendered last June, the Eighth Circuit upheld the ban because it served the state’s purpose “in preventing quid pro quo corruption or the appearance of such corruption” – the same interest identified by the Supreme Court in McCutcheon as the only acceptable rationale for such restrictions.   

By not taking the case, or even sending it back for reconsideration in light of McCutcheon, the Supreme Court left the Eighth Circuit’s ruling in place. In many ways this is unremarkable – after all, the Supreme Court declines to hear thousands of cases each year. But it appears to signal, especially in light of McCutcheon, that at least for now the Court is reluctant to wade back into the controversial waters of campaign finance.

* Admitted in Maryland, not yet admitted in D.C.

aftershockThe Supreme Court yesterday struck down the limit on the total amount an individual may contribute to federal candidates, PACs and political parties in a two-year election cycle. The 5-4 ruling is unlikely to have a major impact on political giving this year, but casts serious doubt on the constitutionality of similar state contribution schemes and paves the way for further challenges to federal campaign finance laws.

The case has sparked heated comment, not least by the four dissenting justices who charge that yesterday’s ruling “eviscerates our Nation’s campaign finance laws.” We do expect the ruling to prompt more donors to give the maximum contributions to the national committees of the Democratic and Republican parties (DNC, RNC, and their House and Senate committees), which the aggregate limits precluded donors from doing. Beyond that, the impact on federal elections will probably not be great. Few individuals come close to maxing out under the two-year election cycle limit, which in the current cycle allows individuals to give up to $123,200, of which $48,600 could be given to federal candidates. On top of that, the Federal Election Commission has never bothered to monitor or enforce this limit.

Also worth noting is that corporations are still barred from contributing in federal elections, and individuals interested in supporting candidates at these higher levels have better options available, such as Super PACs and 501(c) groups.

State Laws in Jeopardy

The more immediate and potentially significant impact of the ruling will be on state laws that apply calendar year or election cycle limits on political contributions. As we have previously written, at least 12 states have such limits, almost all of which are much lower than the overturned federal limit. In fact, Massachusetts wasted no time in announcing that based on the Supreme Court’s ruling, it will no longer enforce the state’s $12,500 limit on the total contributions an individual can make in a calendar year. We expect other states will follow suit.

Likely Reaction

While these state aggregate limits will likely fall, we expect states to propose new laws to bolster disclosure and limit the impact of the ruling. In yesterday’s ruling, as in the Citizens United case, the Supreme Court touted Internet disclosure as a potent protection against corruption. This favorable view of disclosure is likely to fuel efforts to force more groups involved in election activity to publicly reveal their donors and detail their spending. In addition, the Court suggested potentially acceptable ways that Congress could address concerns about donors funneling contributions through multiple PACs and party committees to support a particular candidate. While none of these ideas is likely to get traction in Congress, some states are sure to jump at the Court’s invitation to restrict the transfer of funds among candidates and political committees, or bar contributions to PACs that have indicated they will support candidates to whom the donor has already contributed.

Future Challenges

Finally, the parade of lawsuits seeking to dismantle federal campaign finance restrictions is likely to continue. The Supreme Court held on Wednesday that any regulation of campaign finance activity must satisfy a very high bar — namely, it must target quid pro quo corruption or its appearance. This places in the crosshairs such current restrictions as the ban on state party use of funds raised under state law to support or oppose federal candidates, the soft money ban that applies to the national parties, and the ban on contributions from contractors and corporations.

soft moneyOne of the key aspects of the McCain-Feingold law was the elimination of soft money to the national party committees (that is, the DNC, RNC, and each party’s congressional and senatorial committees). Reformers (and some corporations that resented being hit up by the parties for donations) praised this aspect of the law and others bemoaned the loss of influence of the parties.

Although outside groups tried to fill the void, they could only accept unlimited sums from individuals and corporations if they refrained from expressly advocating for or against candidates. After Citizens United and the cases that followed, which allowed independent expenditure only committees, the gloves came off, and the independent groups were permitted to raise unlimited individual and corporate funds. This further tipped the scales away from the parties, which could collect only limited personal contributions.

Although some states allow for corporate contributions to their party committees, many do not, and a similar situation arose for state elections. There were signs that party leaders around the country were forming independent expenditure committees that were ostensibly separate from the party, even though they had some overlapping leadership. The Tenth Circuit blessed such an arrangement late last year. In its opinion, however, the court cautioned that it did not think a party committee itself could create its own independent expenditure account. It reasoned that because courts have upheld restrictions on contributions to party committees to prevent corruption, an independent expenditure effort by the party would still be an effort by the party and could be regulated.

A decision from the Colorado Secretary of State may portend a slight change. Colorado currently prohibits corporate contributions to both candidates and parties and places limits on the amount that individuals may give. The Colorado Republican Party filed a petition with the Secretary of State asking whether it could create an independent expenditure committee. The Secretary answered yes, it could. In the opinion, the Secretary explained how the independent expenditure committee would have to operate so as to avoid coordination with the party. It went so far as to suggest that there may have to be limits on the party’s ability to remove the independent expenditure committee’s leadership. Moreover, officers and agents of the party who are not in the independent expenditure committee may not solicit corporate and unlimited contributions for the independent effort.

This opinion (which is not controlling on the courts, where enforcement cases are ultimately decided in Colorado) is an incremental change. Although others will likely use this opinion to try to open the doors in other states, it seems that at the end of the day, it will probably still be easier for party insiders to create organizations that are separate from the party. Time will tell. At the national level, it probably will not have much of an impact. Although the national parties operate independent expenditure efforts, those efforts are still subject to contribution limits. Short of major litigation, they will remain subject to those limits.