Looking Back at Five Years of Citizens United

This month marked the fifth anniversary of the Supreme Court handing down its decision in Citizens United v. FEC. More than perhaps most other recent Supreme Court decisions, Citizens United has remained in the public consciousness, with defenses and criticisms arising anew during every election season. And, as demonstrated by last week’s protests at the Supreme Court in which eight protesters were arrested, tensions remain high.

In the wake of the decision, there have been efforts, both traditional and creative, to change how the country approaches campaign finance. Sixteen states have called for a constitutional convention to propose an amendment to overturn Citizens United and just last week Senator Bernie Sanders introduced a constitutional amendment to achieve the same result. There was even a super PAC, MaydayPAC, that raised more than $10 million dollars during the 2014 election to support candidates who are sympathetic to the idea of reforming campaign-finance law.

Perhaps the biggest boost to the visibility of the Citizens United decision and the changing state of campaign-finance law came from a television show airing on Comedy Central. Stephen Colbert formed a super PAC and documented the entire process on his now-defunct show The Colbert Report, including seeking an advisory opinion from the FEC. In the last five years, campaign finance became a part of popular culture.

One predictable consequence of the decision is the renewed efforts of political parties to expand their fundraising abilities to keep pace with the new power of independent groups. The congressional spending bill that was passed in December of 2014 included provisions that would allow national political party committees to effectively triple their fundraising limits, up to a potential $3.1 million per couple in each election cycle. There have been calls in New Jersey to impose disclosure requirements on independent groups and to increase the limits governing contributions to candidates and parties, all in an effort to help strengthen the party structure in the State.

You can find our complete coverage of Citizens United and its aftermath here.

Citizens United and the Surge of Political Non-Profits

It has been five years since the U.S. Supreme Court decided Citizens United v. FEC.

When the Supreme Court first decided the case, which allows individuals, corporations and special interest groups to spend unlimited amounts on independent expenditures, many thought that corporations would become more engaged in the political process. Although some corporations have done just that, for-profit corporations do not appear to be jumping on the independent-expenditure bandwagon. Perhaps they are afraid of offending their shareholders, customers and clients with their political message – an unknown risk that Target took within months of the Citizens United decision.

Despite the fact that for-profit corporations seem to be reluctant about engaging in the political process, in the five years since Citizens United was decided, certain non-profit corporations have become more engaged. Although the Internal Revenue Code prohibits 501(c)(3) organizations from participating in any political activity, the law does not prohibit other non-profit corporations from voicing their partisan political views. In fact, the law permits 501(c)(4) social-welfare groups, 501(c)(5) labor unions and 501(c)(6) trade groups to participate in the political process provided it is not their “primary activity.”

The IRS has yet to define “primary activity,” but has demonstrated an apparent tolerance for a 49% threshold, which means that certain non-profits may be spending as much as 49% of their time on political activity without being subject to the same disclosure requirements as true political organizations. This discrepancy has led to these groups being labeled as “shadow organizations” and calls upon the IRS to take action. The IRS issued its first report on 501(c)(4) political activity over a year ago, but little has been done in the way of reform. In fact, the IRS itself has revealed that “it has only begun auditing 26 organizations specifically for political activity since 2010 [which] represents a tiny fraction of the more than 1 million nonprofits regulated by the agency.”

While the IRS takes its time auditing “political” non-profits, many groups who want to become involved in the political process find that forming a 501(c)(4) is the best way to achieve their goals. Although the organization will be subject to tax on its political activity, the organization is not required to reveal its donors to the public and also can engage in issue advocacy, lobbying and other activity to benefit the “social welfare” of the community without that activity counting toward its “political activity” threshold.

ELEC Lobbying Deadlines Approach

On Monday, February 16, 2015, businesses, non-profits and special interest groups that paid more than $2,500 in 2014 to make lobbying communications to New Jersey State government officials, directly or indirectly (i.e. “grassroots”), will be required to file Annual Reports with the Election Law Enforcement Commission (“ELEC”). Lobbying activities in New Jersey have been becoming more extensive with over 2,000 entities reporting more than $62 million in lobbying communication expenditures in 2013.

An understandably sensitive disclosure area is the category of salaries of “in-house” government affairs agents. Employers therefore should be aware that only the portion of an agent’s salary attributable to making lobbying communications to New Jersey State (not local) government officials is reportable. Thus, the figures reported as salaries typically reflect only a portion of an entire salary and, because the fraction or percent used to arrive at that portion is not disclosed, the report does not result in public disclosure of an agent’s full salary but only the portion specifically attributed to lobbying in New Jersey. However, it is important to maintain good records of the agent’s time spent undertaking lobbying activity so that in the event of an ELEC inquiry the reported salary figure can be defended.

A separate requirement is the reporting of “benefit passing” activity, which is typically gifts or reimbursements made to State officials by lobbying entities. If a lobbying entity provided more than $200 during 2014 to a State government official, or more than $25 in a day, written notice that the recipient will be reported on the lobbying entity’s Annual Report must be provided to that recipient by Monday, February 2, 2015. “Benefit passing” activity has sharply declined from a peak totaling over $163,000 in 1992 to only $4,168 reported in 2013.

Will 2015 be The Year for Pay-to-Play Reform in New Jersey?

New Jersey’s pay-to-play laws have been described as a “dizzyingly complex array of statutes, ordinances and executive orders.” New Jersey currently has different laws in effect that apply to State government contracts, State redevelopment agreements, county, municipal and legislative contracts, Board of Education contracts (where Boards of Education are receiving state aid) and a statewide disclosure law that applies on both a pre-contract and annual basis. This list of laws also does not include the hundreds of local ordinances that are currently in effect at the municipal and county levels of government in New Jersey, nor does it include municipal redevelopment ordinances, (which may regulate political activity by redevelopers and their consultants) and land use ordinances (which may cover those seeking land use approvals in connection with development projects).

Although ELEC has been pushing for reform for years, with the recent Atlantic County pay-to-play decision, 2015 may just be the year that existing laws are streamlined to eliminate the multifarious patchwork of ordinances, which currently vary from locality to locality. Until that time, however, government contractors need to stay on top of the varying (and sometimes conflicting) labyrinth of laws, including compliance with ELEC’s upcoming Pay-to-Play Annual Disclosure filing requirement.

Christie, Cowboys, and Conflicts: An Overview of New Jersey’s Ethics Rules

There’s a controversy brewing over Governor Chris Christie’s attendance at Sunday’s Dallas Cowboys game, which, according to published reports, was paid for by the Cowboys owner, Jerry Jones. Public officials are generally prohibited from accepting “gifts,” though the laws vary by state. And this isn’t a new issue – you may recall that back in 2010 then-Governor David Paterson was fined $62,000 by the New York Joint Commission on Public Ethics for accepting tickets from the New York Yankees to Game One of the 2009 World Series. So let’s take a look at New Jersey’s ethics rules.

The New Jersey Conflicts of Interest Law prohibits any State official, including any State officer, employee, special State officer and member of the Legislature, from soliciting or accepting anything of value, including a gift, “which he knows or has reason to believe is offered to him with intent to influence him in the performance of his public duties and responsibilities.” There are exceptions to this rule; for example, it permits State officers to receive compensation for published books and reimbursement of reasonable expenditures for travel or subsistence and allowable entertainment expenses associated with attending an event in New Jersey. The State Ethics Commission, which enforces the gift and conflicts-of-interest laws, enforces a zero-tolerance policy against a government official’s acceptance of gifts related in any way to the officer’s official duties.

But a different law applies to the New Jersey Governor. Under the State’s Code of Conduct for the Governor, adopted by Executive Order 77 (McGreevey), the Governor is prohibited from soliciting or receiving any gift intended to influence him in the conduct of his public duties. The Governor may, however, “accept gifts, favors, services, gratuities, meals, lodging or travel expenses from relatives or personal friends that are paid for with personal funds.” In other words, Governor Christie acted within the bounds of the Code of Conduct for the Governor if Jerry Jones is a personal friend and Jones personally paid for the expenses. The Governor may also attend “any function and accept food and beverages and related privileges if his attendance at the event furthers a public purpose.” Thus, because gift rules may vary (even within the same branch of government), whether a particular government official or employee complied with respective gift rules may not only depend upon applicable law, but may also depend upon all relevant facts and circumstances.

Pay-to-Play Ruling on Atlantic County Ordinance Turns on the Use of the Word “Any”

Atlantic County is one of three counties in the State of New Jersey with a stringent county pay-to-play ordinance in effect. Like many local pay-to-play ordinances, the Atlantic County ordinance covers contributions to candidates for or holders of county office. The goal is to limit political contributions made by “those seeking or currently performing business with the County,” so as to allay the “reasonable concerns on the part of taxpayers and residents as to their trust in government contracts.”

By its express terms, the Ordinance covers contributions made “to any campaign committee of any candidate for elective County office or to the current holders of any elective County office.” The use of the phrase “any campaign committee” raises the question of whether a contribution to a candidate committee for non-county office is covered by the ordinance when the candidate is also a holder of an Atlantic County office. Last week, a Superior Court judge ruled that the answer is “yes.” In his opinion, Judge Julio Mendez held that the use of the word “any” means that a contribution to the State Senate campaign committee for a sitting Atlantic County Sheriff is covered under the Ordinance even though the sitting County Sheriff plays no role in the award of county contracts and even though the office of State Senator is not an Atlantic County office.

Although the court’s ruling was specific to the Atlantic County Ordinance, the interpretation may spread to other counties and municipalities with local ordinances in effect. Thus, before a vendor makes a contribution to a sitting elected official seeking election to another office, the vendor must determine whether a local pay-to-play ordinance is in effect that may potentially cover the contributions to a candidate committee for that “other” office.

Only in New York, New York

Conventional wisdom holds that campaign finance reform is elusive.  At both the federal level and in many states, the pace of enactment tends to be measured in decades.

New York City is an exception.  For over 25 years, reforms have been enacted, amended, refined, bolstered, enhanced, re-worked and re-formed over and over, and then some more.    Recent developments again illustrate this remarkable dynamic.

Right on schedule, the New York City Campaign Finance Board (CFB) today issued its quadrennial report, “By the People: The New York City Campaign Finance Program in the 2013 Elections.”  The report contains more than a dozen legislative proposals.  Lo and behold, three of these were signed into law last week!

  • Local Law No. 40 requires public communications produced by NYC candidate committees to identify the authorizing candidate or committee.
  • Local Law No. 41 adds numerous public disclosure requirements for independent expenditures.  The new law requires independent spenders to disclose their owners, officers, and board members, as well as contributors of $25,000 or more to contributing entities from which they have received $50,000 or more.  Also, “paid for by” disclaimers on independent public communications will now include owners, CEOs, and top three donors, in addition to identification of the independent spender.
  • Local Law No. 43 trims requirements for the CFB’s printing and mailing of voter guides to NYC voters.

The CFB report details other proposals, which include:

  • Issuing a limited amount of public funds to candidates prior to their obtaining a place on the ballot
  • Streamlining criteria for lifting the public funds payment cap in competitive elections
  • Deeming contributions bundled by persons doing business with the City as ineligible for public matching funds
  • Banning candidates from accepting contributions from labor unions and political committees.

That last proposal is a decade-old warhorse and quite ambitious constitutionally for candidates not receiving public financing.

One issue the CFB kicks down the road for further study is possibly pairing an increase in spending limits for publicly financed candidates with reduced contribution limits (presumably for all candidates).  One might consider a study oriented toward the enactment of new limits on candidates as out-of-step with the trend toward limits-free independent spending.

Finally, today’s New York Times coverage reminds us again that New York City’s campaign finance system is “often viewed as a national model.”  While NYC’s reforms perhaps serve as a model of what can be done, its impulse for perpetual reform doesn’t actually seem to be catching on elsewhere.

Indeed, when it comes to campaign finance reform, that old Sinatra refrain falls flat: the fact that you can make it in New York, New York simply does not prove you can make it anywhere else.

District Judge Permanently Enjoins PA Law that Prohibited Corporate Contributions to IE Committees

On Wednesday, U.S. District Judge William Caldwell permanently enjoined enforcement of Pennsylvania’s prohibition on campaign expenditures by banks, corporations or unincorporated associations (such as labor unions) as against contributions these entities make to independent expenditure-only committees. See General Majority Pac v. Aichele,  No.: 1:14-CV-332 (M.D. Pa. Aug. 13, 2014). Thus, Pennsylvania now joins its sister states in removing all limits on corporate contributions to Super PACs.

The DISCLOSE Act: Fantasy or Future?

Following a wave of judicial decisions that have cleared the way for more soft money in politics, federal legislators have continued to press for the passage of laws creating more stringent regulations on donor disclosures and transparency in political contributions.

The Democracy Is Strengthened by Casting Light On Spending in Elections (DISCLOSE) Act was introduced in Congress in 2010 and 2012, but the legislation was twice defeated after falling short of overcoming a Republican-led filibuster.  A third attempt at passing disclosure legislation, the DISCLOSE Act of 2014, was introduced by Senator Sheldon Whitehouse of Rhode Island and is currently being considered in the Senate Rules Committee. A hearing was held last week.

“DISCLOSE 2014” would:

  • Broaden the definition of what is a reportable “independent expenditure,” by treating the functional equivalent of express advocacy as an independent expenditure ;
  • expand the time periods during which a communication would be considered a reportable “electioneering communication,”
  • require disclosure of donors underlying large transfers to political spenders,
  • require that covered organizations (including corporations, labor unions and 501(c)(4) and 501(c)(6) nonprofit organizations) that spend more than $10,000 or more on election ads publicly identify their donors, and
  • impose new required disclaimers for political advertisements.

The bill faces the hefty obstacle of garnering bipartisan support to become federal law.  Nonetheless, DISCLOSE 2014 could serve as a model for state and local jurisdictions. While the Supreme Court (in decisions such as Citizens United and McCutcheon) has made it easier to generously fund political and issue advocacy organizations, the Court has also emphasized that disclosure requirements are both constitutional and beneficial to a healthy democracy.  Accordingly, proponents of enhanced campaign finance transparency might find that the last bastion of reform lies in disclosure requirements like those introduced in DISCLOSE 2014.

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