New York State Announces Broad Set of Ethics and Campaign-Finance Reforms

Late last week, New York Governor Andrew Cuomo and State legislative leaders announced agreement on a broad set of ethics and campaign-finance reforms focused on increased disclosure, transparency, and public trust.

Pursuant to this reform package:

  1. Super PACs (also known as Independent Expenditure Committees) may make and receive unlimited contributions so long as they do not coordinate with a political candidate. New York’s agreement expands the definition of coordination in this context to include the retention of a common vendor, the employment of a candidate’s former staffers, and the sharing or rental of common space. This agreement also increases disclosure requirements for Super PACs.
  2. Any public officer convicted of corruption is precluded from collecting a public pension.
  3. New disclosure requirements will be put in place for political consultants who represent both political officeholders or candidates and also private-sector clients with government business.
  4. Various reporting thresholds have been lowered under the State’s lobbying laws, including a reduction from $50,000 to $15,000 of the reporting threshold for organizations that lobby on their own behalf.
  5. 501(c)(4) social-welfare organizations are permitted to engage in political activities so long as political activity does not become the primary purpose of the organization. In contrast, 501(c)(3) charitable organizations are strictly prohibited from engaging in any political activity. Under New York’s agreement, 501(c)(4)s will be required to disclose funding and support received from 501(c)(3)s.  Additionally, a 501(c)(4) will be required to disclose its funding sources if they engage in political activities.

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.

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.

IRS Changes the Game?

On Wednesday November 26, 2013, the US Department of Treasury and Internal Revenue Service issued proposed guidance, subject to a comment period, that would limit the scope of permissible political activities of 501(c)(4) social welfare groups. Under the new guidance, the IRS will move away from the “facts and circumstances” test long-employed in evaluating 501(c)(4) political activity and instead use bright-line rules.

The Treasury and the IRS plan to issue additional guidance that will address other issues relating to the standards for tax exemption under section 501(c)(4).

As there is a comment period, any new rules will not likely be in place until after the 2014 elections.

IRS Issues Initial Report on 501(c)(4) Controversy

This week the Internal Revenue Service issued a report to assess the scandal that has been plaguing the agency ever since a Treasury Inspector General Report came out that, as the report cites, found that:

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.

The report is meant to provide “an initial set of conclusions and action steps, along with an explanation of the additional review and investigatory activities underway.”

Interestingly, the report establishes a new voluntary process for organizations that have been subject to a backlog for more than 120 days to gain expedited approval to operate as a 501(c)(4) through self-certifying to certain thresholds and limits to political and social welfare activities.  Specifically, organizations can self-certify if:

  1. The organization has spent and anticipates that it will spend less than 40% of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate for public office (within the meaning of the regulations under Section 501(c)(4)); and
  2. The organization has spent and anticipates that it will spend 60% or more of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on activities that promote the social welfare (within the meaning of Section 501(c)(4) and the regulations thereunder).

The IRS notes that the “thresholds reflected in the representations are criteria for eligibility for expedited processing rather than new legal requirements.”

The report also spells out additional criteria as to what constitutes “direct or indirect participation or intervention in any political campaign”:

  1. Any public communication within 60 days prior to a general election or 30 days prior to a primary election that identifies a candidate in the election.
  2. Conducting an event at which only one candidate is, or candidates of only one party are, invited to speak; and
  3. Any grant to an organization described in Section 501(c) if the recipient of the grant engages in political campaign intervention.