arrowSection 3.1 - Campaign Finance

arrowSection 3.1.1 - Federal Law

This topic is monitored by Moritz Law Professor Edward B. Foley

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Opinion & Analysis: Sound Advice of Counsel

The Federal Election Commission has received a very strong recommendation from its General Counsel on how to regulate groups seeking to influence federal elections. Although the proposed rules would not apply to this year's election, the Commission should adopt its GC's recommendation at this Thursday's meeting.

The thought and care that went into this recommendation is evident from the explanation that accompanies it. The proposal explicitly aims to be precise, balanced, comprehensible, and based on well-established principles and precedents in the area of campaign finance law. The proposal succeeds in meeting these objectives.

The key feature of the proposal is that it distinguishes between two different types of tax-exempt organizations for the purpose of determining whether any of them are operating as political action committees, or PACs, subject to special campaign finance regulations. Under the federal Tax Code, "527" organizations are ones whose primary purpose is to influence the election or appointment of federal or state officials, whereas "(c)(4)" groups are devoted to other worthy objectives and only secondarily involve themselves in election campaigns. (Both categories of groups are named for the relevant section of the Tax Code.)

The proposal subjects both types of tax-exempt groups to PAC status if their activities show that their "major purpose" is to influence federal elections, but the proposal makes it easier to establish that a 527 group has this "major purpose" than a (c)(4) does. A 527 is deemed to have this "major purpose" if over 50 percent of its spending in any given year is for public messages that refer to a federal candidate. By contrast, such messages won't count toward this 50 percent threshold for a (c)(4) unless they qualify as "express advocacy" (explicit statements supporting or opposing a candidate's election) or "electioneering communications" (broadcasts targeted to the electorate within 60 days of the election). Moreover, under the proposal, a (c)(4) cannot be subject to the "major purpose" designation based on "electioneering communications" alone: at least some portion of its spending that counts towards crossing the 50 percent line must be "express advocacy," or direct contributions to candidates, or fundraising solicitations that clearly exhibit an electoral objective.

This differential treatment of 527s and (c)(4)s is sensible, given the basic distinction between the two categories under the Tax Code. Because 527s by definition have influencing the election or nomination of candidates as their primary purpose, it makes sense to consider a 527's public messages that mention a federal candidate as motivated by the goal of influencing the election in which that candidate is running. Consequently, spending on such messages by a 527 should count towards the 50 percent threshold for determining whether the 527 has influencing federal elections as its major purpose.

Conversely, because (c)(4)s are not supposed to have influencing elections as their primary objective, or else they risk losing their distinctive tax status, their messages that mention a candidate should not automatically be deemed to have this motivation. Instead, these (c)(4) messages genuinely may be devoted to discussing the candidate's position on an issue, with the view to influencing the policy debate rather than the election. Only when a (c)(4)'s discussions of a candidate are more specifically electoral in nature—as when they expressly endorse a candidate's election or defeat, or when they occur shortly before the election in broadcasts targeted to the electorate—should they count towards the 50 percent threshold for assessing whether the group's major purpose is in fact to influence an election.

It could be argued that the GC's proposal is a little too lenient on (c)(4) groups. For one thing, electioneering communications should suffice to cross the 50 percent line. If a group spends more than half of its funds on TV broadcasts that target the electorate within 60 days of the election, this group is undeniably election-focused and not a public welfare organization that only incidentally involves itself in election campaigns as a way to further its main, non-electoral objective.

Likewise, it is debatable whether the category of electioneering communications is too narrow for assessing whether a (c)(4) has influencing federal elections as its major purpose. In this election year, we have seen the rise of campaign ads broadcast well in advance of the 60-day window for electioneering communications. If a group proclaims itself to be a (c)(4) under the Tax Code and then proceeds to spend more than 50 percent of its funds on campaign ads of this sort, there is a strong case for saying that it should not escape the designation that its major purpose is to influence the election.

In any event, while it is possible to quibble with the GC's proposed treatment of (c)(4)s, the recommendation is a reasonable first step in a particular area of campaign finance regulation that is in much need of clarifying rules. The FEC should adopt the proposal in its current form and then see, down the road, whether any adjustment in the rules applicable to (c)(4)s proves necessary. One reason to be optimistic in the meantime is that the proposal relies not just on a group's spending to determine its major purpose. If a group or its senior officials publicly describe the group's primary objective as the election or defeat of a federal candidate, including through its fund-raising materials, then that self-designation will suffice. Thus, the proposal will capture any (c)(4) that acknowledges its primary electoral objective to its potential donors.

The proposal also adopts a sensible new definition of "expenditure" for the purpose of the statutory requirement that any group make $1000 of "expenditures" in order to be classified as a PAC. Once it has been determined that a group's major purpose is to influence a federal election, then any spending for public communications that "promotes, attacks, supports, or opposes" a federal candidate—"PASO," for short—counts towards this requirement. As the proposal recognizes, although there is some uncertainty in the administration of this PASO standard, it provides adequate notice to any group that already has been categorized as primarily electoral in motivation.

Finally, the proposal adopts new "allocation rules" that apply when a PAC engages in an activity that simultaneously promotes federal and state candidates. Jettisoning a much-maligned formula, the proposal replaces it with another simple 50 percent rule: at least half the money to pay for such mixed-purpose activities must comply with federal campaign finance rules. Even better, the proposal provides that 100 percent of an ad's funding must comply with these federal rules when the ad mentions a federal candidate and the candidate's party, but does not mention a non-federal candidate. Previously, the argument was made that the reference to the candidate's party in the advertisement encompassed the party's state as well as federal candidates, but the proposal adopts the common sense view that when only federal candidates are mentioned, the ad should be deemed as seeking to influence only federal elections, and therefore the total cost of the ad should be paid for with money that complies with federal law.

Because the proposal is a balanced one, it is likely to be criticized by some that it regulates too much and by others that it regulates too little. Such combined criticism might cause the Commission to reject it on Thursday. This result would be a great shame. Campaign finance is a notoriously difficult area, and partisanship complicates the ability to regulate in the public interest. However, the Commission has been presented with a set of rules that that are faithful to the statutory mandates set by Congress. Appropriately cautious, the GC's proposal will help to protect the integrity of the electoral process while making sure that (c)(4)s that are not election-focused do not mistakenly get classified as PACs.

The GC's office has done its job and done it well. Now it is time for the Commissioners to do theirs, which in this case is simply to follow the advice of counsel.

See Addendum