Explaining Jon Stewart’s Monologue on Campaign Finance

After more than 16 years at the helm of The Daily Show, Jon Stewart hosted his final episode last night. The hour-long show devoted most of its running time to Stewart saying farewell to the correspondents and staffers who have played a part in the show’s history. But Stewart found time to deliver a short monologue on how truth is often obscured in business, policy, and politics. (Because this is a family-friendly Corporate Political Activity Law Blog, we won’t mention the term Stewart repeated throughout the monologue.) One strategy, Stewart explains, is hiding the truth through complexity:

Hey, a handful of billionaires can’t buy our elections, right? Of course not. They can only pour unlimited, anonymous cash into a 501(c)(4) if 50% is devoted to issue education, otherwise they’d have to 501(c)(6) it, or funnel it openly through a non-campaign coordinated Super PAC.

Here’s a quick overview of the campaign-finance concepts that Stewart referenced, which also doubles as a handy primer on the different ways money is raised and spent on political activity.

  • For federal elections, the making of political contributions to a candidate or a political party is subject to both contribution limits and disclosure requirements. The FEC has jurisdiction over these issues.
  • Tax-exempt organizations are not subject to the FEC’s jurisdiction. Instead, the IRS ensures that 501(c) organizations do not engage in prohibited political activity. A 501(c)(3) organization, for example, may not engage in any political activity but may engage in limited lobbying expenditures. In contrast, a 501(c)(4) or a 501(c)(6) may carry on partisan political activity so long as political activity is a secondary—and not the primary—activity of the organization. The IRS has expressed an apparent tolerance of political activity by 501(c)(4)s and 501(c)(6)s, so long as the political activity is less than 50% of the organization’s total activity. A 501(c)(4) or a 501(c)(6) may also engage in unlimited lobbying expenditures. There are no limits on the money that may be donated to 501(c) organizations and the donations are not subject to disclosure.
  • As we’ve discussed here on the blog, a Super PAC is a political organization that may only make independent expenditures, which means that they are not coordinated with candidates. A Super PAC may raise unlimited funds but it is required to disclose its contributors.

Stewart is right. The world of campaign finance can be complicated. Although he will no longer be around to explain the complexities of campaign-finance law, we will!

What is a Super PAC?

The Wall Street Journal’s Washington Wire has reported that in the first half of 2015, presidential Super PACs have raised a total of $211,457,755. This money is in addition to money raised directly by presidential candidate committees and does not include money raised by 501(c)(4) entities that might be involved in the political process.

Since Citizens United was decided in 2010, Super PACs have been a hot topic. Despite all of the press and discussion, it seems that confusion still surrounds Super PACs. So, we decided to go back to the basics:

  • A Super PAC is an independent-expenditure-only committee, which means that it can only spend its money on expenditures that are not coordinated with candidates.
  • A Super PAC may not make contributions to candidate committees.
  • A Super PAC may raise unlimited funds.
  • A Super PAC is required to disclose its donors.
  • A Super PAC may be registered with the IRS, the FEC or a state election commission (depending on the nature of the Super PAC’s focus and activities).
  • A Super PAC may be required to file reports with more than one government entity (depending on the nature and timing of its activities).

 

Political Law Roundup – July 13, 2015

This is the first post in a new series on the blog, providing a quick recap of recent political-law news and developments.

  • What role will non-profits have on the 2016 presidential election? According to a report in the New York Times, 501(c)(4) political activity is expected to be an important factor in the upcoming race.
  • In Wagner v. FEC, the DC Circuit Court upheld the prohibition on political contributions by federal contractors. You can see our full analysis of this important case here.
  • Challenges in defining coordination and enforcing restrictions means that Super PACs will continue to play an important role in federal elections, including the 2016 presidential race.
  • The New York City Campaign Finance Board is holding a hearing on Monday, July 13, 2015 to solicit comments on proposed amendments to Board rules on public-funds eligibility and disclosure-statement documentation. More information is available here.
  • The Brennan Center for Justice, the New York City Campaign Finance Board, and the Committee for Economic Development will be hosting a conference titled American Elections at the Crossroads, on Wednesday, July 22. Ann Ravel, chair of the FEC, will deliver remarks.

Comments due for JCOPE Proposed Guidance on Consultants and Grassroots Lobbying

In May, the Joint Commission on Public Ethics (JCOPE) issued proposed guidance on consultants and grassroots lobbying and is currently seeking informal comments on the proposal by July 10, 2015.

The proposed guidance would broaden the definition of lobbyist to include individuals who have “direct interaction” with public officials in connection with lobbying or lobbying activities.  Direct interaction would include verbal or written communications, including communications made for the purpose of facilitating access to a public official, and attendance at a meeting or presence on a phone call with a public official.  In other words, if a consultant facilitates a meeting with a public official or attends a meeting with a public official (and meets the threshold requirements) the consultant would be subject to registration and reporting with JCOPE.

The proposed guidance would also broaden the definition of “grassroots” lobbying, which is commonly understood as using media, including newspaper and television ads, to encourage the public to engage in lobbying.  Not all states require registration or reporting for grassroots lobbying – New York does. The proposed guidance would clarify that individuals or entities that “control” the content and delivery of a message that encourages grassroots lobbying is engaged in lobbying.  As per the proposed guidance the definition of “control” includes participation in the formation of the communication or some influence over reviewing or editing the communication.

DC Circuit Upholds Federal Contractor Pay-to-Play Ban

Today, the DC Circuit issued its decision in Wagner v. FEC and upheld the 75 year-old pay-to-play prohibition applicable to federal contractors.

The Federal Election Campaign Act prohibits federal contractors from making contributions to party committees and candidates for federal office.  As we previously described here, three federal contractors had challenged the provision.

In addressing the correct scrutiny to apply, the court found that the “closely drawn” standard remained the appropriate standard for review of a ban on campaign contributions, notwithstanding Citizens United as that case involved independent expenditures rather than contributions.  Because this was a restriction on government contractors, the court noted that Congress had greater latitude to restrict the expression of both employees and government contractors than it did with the general public.

As such, the government’s stated interests in: 1) protecting against quid pro quo corruption and; 2) protecting merit-based administration of government contracts were compelling.  Delving into the 75 year-old history of the provision, the court found that “more recent evidence confirms that human nature has not changed since corrupt quid pro quos and other attacks on merit-based administration first spurred the development of the present legislative scheme,” citing to corruption scandals in Congress as well as the passage of pay-to-play laws in at least seventeen states, including New Jersey, Illinois, Connecticut and New York City, due to corruption scandals.

The court also found that the ban as applicable to political parties was narrowly tailored because there “is no meaningful separation between the national party committees and the public officials who control them.”

The court made specific reference to independent expenditure-only committees, finding that the challenge at issue did not involve the “law as the [FEC] might seek to apply it to donations to PACs that themselves make only independent expenditures, commonly knowns as ‘Super PACs.’”  Instead, the only issue before the court was the application of the ban by an individual contractor to a federal candidate or political party.

As acknowledged in today’s decisions:

  • Corporate federal contractors remain able to form political actions committees (i.e. separate segregated funds)
  • Officers, employees and shareholders of such contractors remain free to make contributions from personal assets.

Pay-to-Play Implications of Governor Chris Christie’s Presidential Run

After today’s announcement, New Jersey Governor Chris Christie joins a long list of 2016 presidential candidates, from both parties. But Christie’s position as a sitting governor means that he is subject to different campaign-finance rules than some of his opponents.

In particular, under the Securities and Exchange Commission’s pay-to-play rules, investment advisors are subject to reduced contribution limits when making political contributions to a covered candidate or official—including any official who has authority to appoint members to government funds that select investment advisors. Governor Christie, who appoints members to the New Jersey State Investment Council, is covered by the SEC pay-to-play restrictions, even in a campaign for federal office. Similarly, the Municipal Securities Rulemaking Board has its own pay-to-play restriction that covers municipal-securities dealers. Under guidance issued by the MSRB, this rule applies to presidential campaigns of covered State officeholders. Covered municipal-securities professionals may therefore be subject to reduced contribution limits for Governor Christie’s presidential run. These pay-to-play restrictions apply not just to Governor Christie but may also apply to such other 2016 presidential candidates as Bobby Jindal, Scott Walker, and John Kasich—all sitting governors.

For political prognosticators, it is worth considering how a presidential candidate from the northeast, who may expect extensive support from Wall Street, will fare when political contributions from the financial community are potentially governed by SEC, MSRB, and local pay-to-play rules. But it is equally important for the investment advisors and financial professionals themselves to keep these restrictions in mind, to ensure that their political contributions do not jeopardize their firms’ government contracts. Although there may be understandable excitement over a local presidential candidate, it is crucially important for investment advisors in New Jersey, Wall Street, and beyond to understand these pay-to-play restrictions and to abide by their limits.

What Do The Jersey Shore, The 2015 General Election & Understanding Applicable Contribution Limits Have in Common?

No – this is not a bad joke (although it could have the makings of one) – rather, because this past weekend marked the “official” start to summer and also marked the start of New Jersey’s 2015 general election cycle, we thought we would use this opportunity to discuss one of the most common mistakes in political-contribution compliance.

Although the 2015 primary election was held on June 2nd, the cut-off for receiving primary-election contributions was June 19th. So, contributors that maxed out with respect to the 2015 primary are now starting with a clean slate with respect to the 2015 general. Or are they?

We know that most contributors would rather be spending their summer days at the Jersey Shore than worrying about political-contribution compliance, but contributors can do both if before writing a check in connection with what the contributor believes is the 2015 general election, the contributor checks to make sure:

  • Any contributions made prior to the June 19th primary election deadline were in fact received and reported in connection with the 2015 primary.
    • Compliance tip – contributors often use the date on the check as the date of the contribution and committees often use the date of deposit.
  • No local ordinance is in place with “election cycle” limits that impose a combined limit on the 2015 primary and general election cycles.
    • Compliance tip – the Bergen County Ordinance is one example of this type of ordinance.
  • The candidate was successful in the 2015 primary and will be seeking election in the 2015 general.
    • Compliance tip – this is especially important with joint candidate committees.

Although election cycles seem straightforward, understanding when a new election cycle begins is often a source of confusion for contributors. This confusion can lead to mistakes, which may result in excessive contributions and violations of applicable pay-to-play limits.

So, if you want to maximize your time in the summer sun without the headaches associated with making contributions in violation of applicable limits, consider communicating your intent to the recipient committee by using cover letters and by writing “2015 General” on the memo line of your check. While we cannot guarantee that these simple steps will eliminate all confusion, they may very well help if you learn that the contribution you thought was made in connection with one election was in fact deposited and reported in connection with another!

Ninth Circuit Upholds Ban on Contributions by Government Contractors and Other Disclosure Requirements in Hawaii

The United States Court of Appeals for the Ninth Circuit recently upheld a number of Hawaii’s contribution and disclosure requirements, thus cementing the legacy of Citizens United’s defense of transparency in campaign contributions and further strengthening the legality of outright bans on campaign contributions by government contractors.

The decision, citing to Citizens United, determined that Hawaii’s reporting and disclosure requirements, which require that “noncandidate committees” seeking to influence elections must file certain reports and identifying information related to their electioneering communications, survived exacting scrutiny and served the important governmental interest of informing the public about who is speaking in favor or opposition to a particular candidate.

Further, the decision upheld Hawaii’s outright ban on political contributions by entities that have contracts or perform services for the government. Relying on the Second Circuit’s decision in Green Party of Connecticut vs. Garfield, which upheld such a ban in Connecticut, the court reasoned that the history of pay-to-play scandals in a state can serve as a justification for actions which prohibit quid pro quo corruption, or even the appearance thereof.

The Ninth Circuit’s decision serves as a timely reminder that although Citizens United paved the way for big spending in elections, certain restrictions and disclosure requirements have persisted. Government contractors especially should consider the decision a clarion call that pay-to-play restrictions are here to stay.

Top Ten New Jersey Pay-to-Play Myths

Now that David Letterman has hosted his last show, the universe is experiencing a distinct lack of top-ten lists. We are happy to take on this awe-inspiring responsibility in the best way we know how: with a list of the top ten New Jersey pay-to-play myths.

  1. MYTH: Contributions of $300 or less are always permissible.
    • FACT: Some stringent local pay-to-play ordinances do not allow contributions in any amount once a business entity has entered a contract (or even started negotiations for a contract) with the government entity.
  2. MYTH: Reduced contribution limits are the same before and during a contract.
    • FACT: As mentioned above, some local ordinances do not allow contributions, in any amount, to be made once a business entity starts negotiations for a contract even though they allow for reduced contributions prior to the negotiation period.
  3. MYTH: Contributions to New Jersey PACs are not subject to pay-to-play restrictions.
    • FACT: There are some local pay-to-play ordinances that cover contributions to PACs that were either “formed for the primary purpose of” or “that regularly engage in the support of” the jurisdiction’s candidates or elections. This is different than the treatment of PACs under statewide Executive Branch pay-to-play restrictions.
  4. MYTH: It is always permissible to contribute $300 to a candidate for the primary election and an additional $300 for the general election.
    • FACT: Some municipalities hold municipal elections once every four years and do not hold separate primary and general elections. So, in these jurisdictions, a contributor may only be permitted to contribute $300 over the course of four years. Also, some local ordinances impose a per-election-cycle limit, treating the primary and general elections as one unit.
  5. MYTH: Pay-to-play limits are the same for candidates, political party committees, and New Jersey PACs.
    • FACT: Pay-to-play limits are often based on reportable periods. A reporting period generally runs on a per-election basis for a candidate committee and a per-calendar-year basis for party committees and PACs.
  6. MYTH: Contributions to legislative candidate committees are not subject to pay-to-play.
    • FACT: Contributions to legislative candidate committees may have pay-to-play implications if the legislator serves as the presiding officer of either house or represents a legislative district that includes part of a State redevelopment area.
  7. MYTH: If a county or municipality has its own local ordinance in effect, there is no reason to worry about the State laws.
    • FACT: Local ordinances and the State laws can sometimes offer divergent limits. For example, some local ordinances impose a per-calendar-year contribution limit for a candidate, while the State laws work on a per-election basis for candidates. The best approach is for a business entity to comply with both the State laws and any local ordinance in effect.
  8. MYTH: Only shareholders and officers of a business entity are covered by pay-to-play.
    • FACT: Some local ordinances extend the definition of a business entity to include any employee who earns more than $100,000 in a calendar year. Spouses and children of a covered individual may also be subject to pay-to-play limits.
  9. MYTH: Contributions to federal PACs and candidates are subject to New Jersey pay-to-play restrictions.
    • FACT: Federal elections are outside of ELEC’s jurisdiction and thus contributions to federal committees are not subject to New Jersey pay-to-play laws.
  10. MYTH: Only procurement contracts are subject to pay-to-play restrictions.
    • FACT: Some municipalities have redevelopment or land-use ordinances, which set reduced contribution limits for a business entity that enters redevelopment agreements or seeks certain land-use approvals.

New Jersey’s Investment Pay-to-Play Law Remains Unchanged in the Wake of Governor Christie’s Conditional Veto

On Monday, Governor Chris Christie conditionally vetoed Senate Bill No. 2430, which sought to expand New Jersey’s pay-to-play laws governing State investments. The current law requires external investment managers of State funds to disclose political contributions made to New Jersey candidates and committees. The now-vetoed bill would have required disclosure of political contributions to federal and non-New Jersey candidates and committees.

As the law currently stands, external investment advisors may contribute to federal groups such as the Republican Governors Associations, the Democratic Governors Association, and federal political action committees without having to disclose those contributions in connection with an investment by the State of New Jersey. If the bill had become law, managers of New Jersey investments would not only have been required to disclose contributions to these federal recipients if they wanted to remain eligible for State-investment opportunities, but their contributions to those federal recipients could have impacted the State’s inability to invest in their funds.

To illustrate the potential for a conflict of interests in the current state of the law, the press has pointed to the example of the State’s decision to invest $100 million with a firm whose managing director contributed $2.5 million to the Republican Governors Association, which was chaired by Governor Christie in 2014. But even if the bill had been signed into law, questions of its legality may have persisted. Under principles of federal preemption, the states may not impose limits on contributions to federal candidates and committees, as federal law was intended to occupy the field of federal elections. With the Governor’s conditional veto, the federal-preemption question will likely have to wait for another day.

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