Reprinted with permission, ASAE: The Center for Association Leadership (June 2012), Washington, DC.
In this election season, many associations and their members must be politically active because so much is at stake in Washington, DC, in state capitals, and in cities and counties around the country. Decisions by federal, state, and local officials on a host of issues can mean the difference between success and failure for your industry or organization.
At the same time, the rules governing political activity at the federal and state levels seem to be in a constant state of flux. While the U.S. Supreme Court has expanded corporations' rights to political speech, stricter rules govern a variety of other political activities and can pose traps for the unwary.
Indeed, some political activities once considered a part of doing business can present a high-stakes compliance challenge for any organization.
The following are the top 10 political activity tips that associations and their members need to know in this election year.
1. You Can Sponsor Political Ads, But You May Have to Disclose Donors
In its January 2010 decision in Citizens United v. Federal Election Commission, the Supreme Court ruled that corporations and other incorporated entities cannot be prohibited from sponsoring communications that expressly advocate the election or defeat of political candidates. As a result, corporations, associations, and many tax-exempt organizations are free to fund radio, television, and other communications supporting or opposing the candidates of their choice. However, the Court made clear that since these communications must be "independent," their content, timing, and placement cannot be coordinated with candidates and their campaigns.
It should come as no surprise that relatively few corporations have sponsored communications supporting or opposing candidates. Under federal and state campaign finance laws, the sponsors of such ads must file reports publicly disclosing these expenditures. And for most companies, especially large corporations that sell directly to consumers, such disclosures would not be good for business.
As a result, most corporate independent advocacy has been conducted thorough trade associations and other third-party groups. An association's spending on these communications will appear in publicly available reports. However, federal and state laws vary widely as to whether and when the people or entities funding the association's communications must be disclosed.
Associations contemplating independent political communications should familiarize themselves with relevant federal, state, or local campaign finance rules to determine if they are required to disclose their donors. In some instances, disclosure can be avoided, depending on how funds are requested from members and which association funds are used to finance the communications.
2. Get Ready for Even More Rigorous Disclosure Requirements
In Citizens United, the Supreme Court spoke forcefully about the importance of transparency in corporate political spending, and eight of the justices voted to uphold the federal law's requirements that political ads must identify their sponsors. But many of the current disclosure regimes were enacted before corporate political expenditures were permitted and, thus, often do not encompass the flow of corporate spending through associations and other third parties.
Some states have already addressed this issue, and several pending proposals at the federal level may result in more rigorous disclosure obligations on independent political spending by associations and their members.
For example, in February, Rep. Chris Van Hollen (D-MD) introduced the Disclosure of Information on Spending on Campaigns Leads to Open and Secure Elections Act of 2012—or the DISCLOSE 2012 Act. This bill is a pared-back version of legislation he and Sen. Charles Schumer (D-NY) introduced shortly after Citizens United, and it would impose new disclosure requirements on "covered organizations," a term that encompasses corporations, tax exempt organizations, and political action committees (PACs) that make disbursements for campaign-related ads. Among other things, the proposal would
- Require the organization to certify that its disbursements are not coordinated with a candidate or a political party and identify its contributors in Federal Election Commission (FEC) reports.
- Require the head of a covered organization to "stand by the ad"—that is, include a statement in the ad that he or she "approves this message." Ads by the organization would also have to disclose the top five contributors for TV ads or top two contributors for radio ads.
Similarly, the Securities and Exchange Commission is considering a rulemaking petition filed by a group of academics that asked the agency to require corporations to disclose political expenditures to shareholders.
Van Hollen also successfully challenged FEC rules dealing with the disclosure of contributors to so-called electioneering communications—radio and TV communications that depict clearly identified candidates in a certain time period before an election but do not expressly advocate for or against them. In March, the U.S. District Court for the District of Columbia agreed with Van Hollen that the FEC's rules were too narrowly drawn, with the result that certain contributors to electioneering communications were not disclosed as required by the McCain Feingold campaign finance law. While the case continues on appeal, the FEC has indicated that it intends to issue interim guidance regarding how contributors to electioneering communications should be reported.
Given the fluidity in this area, associations and their members should follow these developments closely so they are aware of the scope of their disclosure obligations.
3. Understand That Super PACs Are Not Secret PACs
Shortly after the Citizens United decision, the FEC issued two opinions allowing registered PACs to accept unlimited contributions from corporations and individuals, provided that the PACs engage only in independent advocacy. These entities have come to be known as Super PACs.
Associations or other entities contemplating giving to a Super PAC should be aware that their contributions are fully disclosed in FEC reports, despite popular commentary suggesting that these PACs are secretive entities. This likely explains the fact that the vast majority of Super PAC funding has come from wealthy individuals, who may not have the same reputational concerns that associations and corporations do.
4. You Still Need Traditional PACs
While the Supreme Court has opened up new avenues for independent corporate and association political communications, it did not overturn existing prohibitions on corporate political contributions to candidates and political parties. Therefore, under federal law and the laws of many states, associations and corporations still cannot use treasury funds to make political contributions to campaigns or political parties.
As a result, traditional PACs, which solicit contributions from eligible individuals, are as important as ever. In jurisdictions where corporate political contributions are prohibited, PACs remain the best way to support a candidate or political party in a way that is associated with your organization.
While PACs are relatively easy and inexpensive to establish, they are governed by detailed (and sometimes confusing) rules regarding the solicitation and use of funds, the reporting of contributions and disbursements, and the proper management of PAC funds. Nonetheless, PACs are well-established vehicles for political giving, and they serve as a way for an association or corporation to channel its political activities through an entity that presents limited risks.
5. Get Member Assistance for Your PAC
Association PACs need the help of their members if they are to grow, thrive, and serve the association and its members.
How can association members help? The association's corporate members can permit the PAC to solicit the restricted-class employees of the member. The corporate member can even use its payroll-withholding system to collect and forward contributions to the PAC. However, the association must be sure to obtain annual written permission from the member corporation to solicit its employees, and the member corporation can only authorize one trade association to solicit its restricted class per year.
A corporate member also can provide other support for the association PAC. For example, while the corporate member may not generally pay the costs of PAC fundraising events, it may donate funds over and above its membership dues, which may help the association pay for PAC solicitation or fundraising activities. In addition, corporate members may donate raffle items, door prizes, and the like for PAC fundraising events.
6. Be Careful How You Use Your Federal PAC
Associations and their members frequently support both federal and state candidates. So how many PACs are needed to support both federal and state efforts? Can all of the activity be run through the federal PAC? Or do you also need one for each state?
Unfortunately, the answers to these questions vary from state to state. In many cases, federal and state political contributions can be handled by the federal PAC. In some states, the federal PAC only has to file a copy of the federal report reflecting the state contributions, file an abbreviated stale report, or in some instances file nothing at all. In a few states, the federal PAC must file the full range of reports required for state PACs, or may even have to establish an entirely separate PAC with its own bank account.
It is essential to review local campaign finance laws before making a contribution to a state candidate with federal PAC funds. Failure to do so may result in one small state or local political contribution subjecting the federal PAC to rigorous, ongoing state reporting requirements.
7. You May Be Able to Extend Your PAC's Reach
It is well established that associations can solicit contributions to their PACs only from restricted-class members—that is, eligible employees of the association and the association's corporate members and from individual association members. Soliciting contributions from the general public is prohibited: however, voluntary, unsolicited contributions from outside the restricted class can be accepted.
While that remains true, the FEC recently ruled that PACs may reach out beyond the restricted class to help favored candidates. In Utah Bankers Association, the FEC permitted an association PAC to communicate with members of the general public through the PAC's website or by email and request that these individuals directly contribute to specified federal candidates.
Of note, the FEC found that because the solicitations were made through the website and by email, they were exempted from the coordination rules. Therefore, these solicitations to the public would appear to be permissible even if undertaken with full knowledge and approval of the federal candidates who would benefit from the contributions.
8 and 9. Be Alert to Tougher Gift-Giving and Lobbying Restrictions
In Washington, DC, and in states across the country, greater restrictions are being imposed on gift-giving to public officials, and lobbying activities are being subjected to higher levels of regulation.
At the federal level, President Barack Obama signed an executive order during his first week in office that greatly restricted gift-giving by federal lobbyists to his political appointees. More recently, the Office of Government Ethics issued draft regulations that would effectively apply the restrictions more broadly to the career federal work force. Meanwhile, some states have adopted draconian gift restrictions that prohibit legislators from accepting even a cup of coffee from a private party. And it is common to see states imposing more onerous gift restrictions on lobbyists and their employers.
Fortunately, there are exceptions to virtually all gift rules, affording a degree of flexibility to those who follow the rules carefully.
On the lobbying front, many states are expanding the definition of lobbying activity and subjecting a wider range of conduct to registration and reporting requirements. For example, in some jurisdictions, "goodwill lobbying"—activity that entails getting to know a legislator even though no legislation is discussed—triggers lobbying registration obligations. Similarly, a growing number of states and municipalities treat a public contractor's sales professionals as "procurement lobbyists," requiring them to register and file periodic reports.
Associations and their members should be aware that incidental discussions with public officials, and providing them with even token gifts, may give rise to sanctions and adverse publicity. With advance planning in consultation with counsel, organizations can engage effectively with public officials and avoid the risks posed by lobbying and gift rules.
10. Develop a Strong Compliance Effort
An effective and ongoing political law compliance program is essential for politically active associations. PAC, lobbying, and gift-giving activity should be audited periodically. Appropriate policies and procedures should be adopted to guide employees, and employees must know whom to consult when questions arise. Key employees should receive training on federal and state campaign finance, gift, and lobbying rules. And strong record-keeping procedures should be in place whenever reporting is required.
Such attention to compliance can head off problems before they ripen into troublesome external audits or investigations. Indeed, the mere fact that an organization provides periodic training tends to soften a regulator's stance when considering punitive action.
This election year, opportunities will abound to support and engage with public officials to promote the public policy goals of your association. Understanding the rules of the road will ensure that violations of lobbying, gift, and campaign finance laws do not undermine your efforts.
James A. Kahl, a former deputy general counsel at the Federal Election Commission, is an attorney in the Washington, DC, office of Womble Carlyle Sandridge & Rice, LLP, where he advises clients in connection with federal and state campaign finance, lobbying, and government ethics matters. Email: email@example.com