The rules on corporate contributions to Super PACs were made clearer today when the Federal Election Commission (FEC) released its finding that Chevron Corporation’s $2.5 million contribution in 2012 to the Congressional Leadership Fund (a Super PAC) had not violated the bar on government contractors making contributions in federal elections.
Public Citizen and several environmental groups had alleged that Chevron Corporation and Chevron U.S.A. Inc. had numerous federal contracts, and consequently could not contribute to a Super PAC. On a bipartisan 5-1 vote, the FEC dismissed the charges, finding that Chevron Corporation—which made the contribution—was not a federal contractor at the time, and that federal contractor status could not be imputed to the company merely because it had a wholly-owned subsidiary that owned a subsidiary that in turn owned a subsidiary that owned a federal contractor. In so doing, the FEC followed the agency’s longstanding practice of permitting a parent company with a federal contractor subsidiary to make a contribution as long as it has sufficient funds from sources other than the contractor subsidiary. Nor is the federal contractor ban particularly stringent, permitting officers, shareholders, a corporate PAC, and subcontractors to contribute, even when the contractor cannot.
Having resolved the case by applying the facts to existing law, the FEC did not address an even more fundamental issue raised by Chevron: Applying the federal contractor ban to contributions to a Super PAC is inconsistent with the Supreme Court’s limiting of campaign finance restrictions to the prevention of quid pro quo corruption or its appearance. Last Wednesday’s decision in McCutcheon v. FEC highlights the doctrinal fragility of the federal contractor ban in cases like this.
Full disclosure: Covington represented Chevron before the FEC in this matter.
The Alabama Senate unanimously passed a bill to close Alabama’s revolving door last week. The legislation bars a legislator from lobbying either chamber of the Alabama legislature for two years. This bill closes a loophole in Alabama’s current statute, which only prohibits a former legislator from lobbying the chamber he served in.
The bill now goes to Alabama Governor Robert Bentley for review.
While McCutcheon concluded the government’s anti-circumvention rationale was too speculative and attenuated to justify the biennial aggregate limits, the Court did discuss “multiple alternatives available” to the government that would serve this interest while still satisfying the First Amendment. One such suggestion involved “earmarking” rules—which bar donors from trying to circumvent the base limits by designating their contribution to a political committee for use or transfer to a candidate or candidate committee.
One earmarking rule currently forbids donors from contributing to both a candidate and a political committee when the donor knows that “a substantial portion” of the funds given to the committee will be used to support the candidate. It was this particular prohibition that formed the basis for the controversial Triad Management Services FEC enforcement matter—pursued by none other than Lois Lerner—in which the Commission found reason to believe a violation occurred where the donor was “in a position to know the PACs’ plans with regard to making future contributions to support” the candidate.
But while the Commission has addressed, to a small degree, whether a donor “knows” that a “substantial amount” of a payment will go to a certain candidate, it has never quantified or otherwise addressed the meaning of “substantial.” If 80 percent of a donor’s contribution will ultimately make it to a candidate, is that substantial? What about 10 percent? The Commission has never answered this question. Accordingly, the McCutcheon Court’s suggestion that the FEC define “how many candidates a PAC must support in order to ensure that ‘a substantial portion’ of a donor’s contribution is not rerouted to a certain candidate” could clarify a relatively unexplored area of federal earmarking regulation. Given the current dynamic at the FEC, however, we are unlikely to see any clarification of earmarking rules anytime soon.
The Supreme Court’s latest major campaign finance decision, McCutcheon v. FEC, “does not involve” a challenge to current limits on contributions to political party committees and PACs, which the Court “previously upheld as serving the permissible objective of combatting corruption.” But it nonetheless provides fodder for those who would challenge party and PAC limits.
The Court emphasized that there is only one permissible basis for “[a]ny regulation” of contribution limits (as opposed to disclosure): Preventing quid pro quo corruption or the appearance thereof, a concept which “captures the notion of a direct exchange of an official act for money.” As the Court seems to recognize, this concept, at its core, involves two actors: a donor seeking a benefit, and a public official seeking a donation who is in a position to provide the benefit.
Unlike victorious candidates, however, neither parties nor PACs have the authority to engage in official acts. As the Court states, “there is not the same risk of quid pro quo corruption or its appearance when money flows through independent actors to a candidate, as when a donor contributes to a candidate directly.” Indeed, that risk “is generally applicable only to ‘the narrow category of money gifts that are directed, in some manner, to a candidate or officeholder.’”
What purpose do limits on contributions to parties and PACs serve, then? One concern expressed is that these recipients might serve as mere conduits for cash to a candidate. In other words, limits might be justified as an anti-circumvention measure, a means of preventing evasion of limits on candidate contributions. And indeed, these limits “create an additional hurdle for a donor who seeks both to channel a large amount of money to a particular candidate and to ensure that he gets the credit for doing so.”
But the same rationale that undercut the constitutionality of aggregate limits as an anti-circumvention measure also undermines limits on party and PAC contributions: Other restrictions that prevent circumvention already exist, such as those regulating earmarking and the control of multiple committees, and these restrictions do not impose as significant a burden as a direct contribution limit. Disclosure also helps deter corruption, and disclosure has become more effective with the advent of searchable online databases and increasing use of “big data” tools. These other anti-circumvention measures would remain even if the party committee and PAC limits were eliminated, as would the corruption-deterring benefits of disclosure.
For the moment, the party and PAC contribution limits remain the law. But it is inevitable that McCutcheon will be used to challenge the party and PAC limits. We will be watching closely for that case.
Less than twenty-four hours after the McCutcheon decision was issued, the Massachusetts Office of Campaign & Political Finance (OCPF) announced that it will no longer enforce the state’s $12,500 aggregate limit on the amount that an individual may contribute to all candidates. But, no decision has been made about the $5,000 aggregate party limit. In a brief statement, OCPF said it is “reviewing the ruling in more detail” before making a decision about its $5,000 aggregate party limit.
At least one state will not be ignoring the McCutcheon decision.
In his controlling opinion yesterday in McCutcheon v. FEC, Chief Justice John Roberts struck down the federal aggregate campaign contribution limits. These limits capped the total amount one individual could give to candidates, party committees, and PACs in a two-year election cycle. The purpose of the limits was to prevent donors from circumventing the per-candidate and per-committee limits by giving to one candidate or committee, only to have the recipient pass the funds along to one to which the donor had already contributed the maximum. However, in striking the limits, the Court said that the existing regulatory framework already made circumvention either illegal or implausible and that Congress could attempt to achieve the same “anti-circumvention” result through other means. It suggested additional limits on transfers among political parties and candidates, and stronger laws concerning contributions earmarked for use for a particular purpose.
For a variety of reasons, we think it is unlikely that the Court’s legislative proposals will be adopted in the near-term. First, it is not clear that the legislative proposals themselves are Constitutional. Indeed, the Court, in its opinion, includes the caveat that “[w]e do not mean to opine on the validity of any particular proposal,” i.e. there is no guarantee that these suggestions are constitutional. Second, it is highly unlikely that these limits would make it through today’s Congress. Recent attempts at campaign finance reform, like the DISCLOSE Act, have had little success. Finally, the FEC is currently so deadlocked that, unless Congress forces it into action, it is unlikely it will make any attempt to impose regulations to this effect on its own.
Despite the heated rhetoric surrounding today’s McCutcheon decision, it should be remembered that the aggregate contribution limits the Court struck down today have played only a minor role in recent controversies surrounding campaign finance regulation. In recent years, debates surrounding the disclosure of political spending have instead taken center stage. Groups like the Center for Political Accountability have pressed corporations to voluntarily disclose virtually all of their political spending on their websites. Activist groups, via shareholder proposals and litigation, have further pressed corporations to reveal their political spending. And, much of the controversy related to the IRS proposed rules regulating 501(c)(4) social welfare organizations involves whether those rules would force certain kinds of political spending into other groups that must disclose their donors.
Today’s McCutcheon decision steps a toe into these waters. “[D]isclosure of contributions minimizes the potential for abuse of the campaign finance system,” wrote Chief Justice Roberts in his controlling decision.
The Chief continued:
With modern technology, disclosure now offers a particularly effective means of arming the voting public with information. … Today, given the Internet, disclosure offers much more robust protections against corruption. Reports and databases are available on the FEC’s Web site almost immediately after they are filed, supplemented by private entities such as OpenSecrets.org and FollowTheMoney.org. Because massive quantities of information can be accessed at the click of a mouse, disclosure is effective to a degree not possible at the time Buckley, or even McConnell, was decided.
The existing aggregate limits may in fact encourage the movement of money away from entities subject to disclosure. Because individuals’ direct contributions are limited, would-be donors may turn to other avenues for political speech.
We expect both sides of the political spending disclosure divide to seize onto this part of the Court’s decision. As they did (incorrectly) with the Citizens United decision, those favoring increased disclosure will likely argue that McCutcheon was based on the assumption that political spending is publicly disclosed. These advocates will also argue that the above language suggests that the Court sees disclosure as a good thing.
On the other side, opponents of increased disclosure will likely argue that the Court was referring to disclosure of direct “contributions” to candidates, political parties, and PACs, not contributions to tax-exempt groups that engage in political or issue advocacy–the holy grail for political disclosure advocates. Moreover, opponents of campaign finance reform will likely argue that the Court’s reasoning here undermines not only the aggregate limits at issue in McCutcheon, but also the individual “base limits” on contributions to candidates and parties. In other words, if the online disclosure advances of the last decade have helped provide “protections against corruption” that are “robust” enough to undermine the rationale for aggregate contribution limits, opponents of regulation will likely argue that they are also “robust” enough to undermine the rationale for limiting individual contributions in the first place.
Today, in McCutcheon v. FEC, the Supreme Court struck down the complex array of overall limits on federal political contributions that have been in force since 1974. Covington issued a detailed advisory analyzing the opinion and its consequences. We refer our blog readers to that advisory for the details.
Celebrities often use their star power to shine a light on otherwise overlooked issues. Soccer star David Beckham has inadvertently used his celebrity status to highlight a trap for the famous and non-famous alike — local lobbying regulations. Last Wednesday, The Miami-Dade County Commission on Ethics and Public Trust cleared “Becks” of violating the county’s lobbying law when he toured potential sites for a new soccer stadium with county officials and had a private dinner with the Mayor. According to the Miami Herald, the Commission found that Beckham’s tour of potential stadium sites with county officials was a “meet and greet,” exempt from the lobbyist registration rules. The Commission’s Executive Director, Joseph Centorino, told the Herald that Commission staff found no lobbying occurred at the dinner. The Commission’s report determined, however, that Beckham would have to register if he continued meeting with officials about a stadium deal.
Beckham’s plight illustrates how easy it is to run afoul of city and county lobbying laws. “Lobbying” brings to mind activity in state capitals and Washington, D.C., but many local jurisdictions have their own laws about lobbying local officials — besides Miami-Dade, New York City, Chicago, Los Angeles, and Dallas all regulate local lobbying, to name just a few. The District of Columbia has its own lobbying laws regulating contact with District officials. Anyone involved in contacting local government officials in jurisdictions big or small should be aware that they may face local regulation, in addition to any state oversight.
The Supreme Court is expected to rule soon, in McCutcheon v. FEC, on whether the Federal Election Campaign Act’s biennial aggregate limits on individual political contributions are constitutionality permissible. Many have argued that, if the Supreme Court strikes down the federal limits, aggregate limits imposed by state law will likewise be tossed aside. That may well be true, but don’t expect it to happen overnight.
According to the National Institute on Money in State Politics, eight states currently limit the total contributions individuals may make to state or local candidates, parties, and/or state political committees: Connecticut, Maine, Maryland, Massachusetts, New York, Rhode Island, Wisconsin, and Wyoming. Some of these limits are quite low. Maryland, for example, caps total contributions to all candidates per four-year election cycle at $10,000. While the logic of the Court’s McCutcheon decision might make those state aggregate limits hard to defend, that will probably not stop some states from threatening to enforce these laws. After the Supreme Court issued its Citizens United decision in January 2010, some states continued to take the position that state laws prohibiting corporate independent expenditures, or limiting contributions to state Super PACs, were enforceable. Montana even defended its ban on corporate independent expenditures all the way to the U.S. Supreme Court which, in June 2012, issued a short per curiam decision striking down the law. Indeed, four years after Citizens United, some state rules limiting contributions to state Super PACs remain in effect. In New York, for example, the New York Attorney General has continued to mount a tenuous defense to the state’s cap on contributions to independent expenditure-only committees, even after the Second Circuit concluded that enforcement of those rules, as applied to one mayoral Super PAC, was likely unconstitutional.
In the post-Citizens United context, the biggest obstacle to overturning these state restrictions on independent expenditures is not the substantive legal theory. Rather, these laws tend to remain on the books because few individuals with standing are willing to incur the expense and public scrutiny associated with challenging them. We expect a similar dynamic will play out with respect to challenges to state aggregate contribution limits. Given that history, it may be years before all state aggregate contributions fall away, if they ever do.