Changing the Way the Message Gets Out: House Passes Campaign Finance Reform and Senate Looks Likely

In the early morning hours of February 14, 2002, the House of Representatives passed the Bipartisan Campaign Reform Act (H.R. 2356); the Shays-Meehan (named after sponsors Reps. Christopher Shays (R-CT) and Martin Meehan (D-MA)) version of campaign finance reform. The Senate passed a similar (but not identical) version last summer. The Senate is expected to vote on the House version of the bill by early March, and passage looks likely. The President has not yet decided whether he will sign it, but has indicated tentative support. The House and Senate versions both radically alter the current system of financing elections. Individual contribution limits are raised, so-called "soft money" is restricted, and the ability of outside groups to run "issue ads" is limited. Although not decided for certain, it appears that the legislation will not take effect until after the November 2002 elections.

To help understand what these changes mean for you, this article summarizes the major changes in the law and notes where the House and Senate versions differ. There are several broad areas that are covered by the legislation. First, there are changes in the contribution limits applicable to individuals. Second, there are major limits and prohibitions on organizations' use of "issue ads." Third, there are restrictions on fundraising by parties and party officials for tax-exempt organizations. Fourth, there are restrictions on soft money by political parties. Finally, there are a number of miscellaneous changes to existing campaign finance law. It is important to note that this summary is not exhaustive, that the language may change in the Senate or conference committee, and that both supporters and opponents of the legislation have significant differences over the meaning of various provisions.

Contribution Limits

Below is a chart summarizing the individual limits currently in place and the changes proposed in both the House and Senate version of the bill.

Limits from an Individual

Additionally, the Senatorial Campaign Committees (DSCC and NRSC), which previously could contribute no more than $17,500 to Senate candidates, would have a maximum contribution limit of $35,000 under both the House- and Senate-passed bills.

Restrictions on Outside Spending

Many nonprofit organizations, trade and professional associations, business coalitions, corporations, labor unions, social welfare organizations, and even individuals currently promote their views on issues to the general public through TV, radio, phone calls, mailings, and the internet. Sometimes, these communications refer to Members of Congress (for example, "Call Congressman X and tell him to support the Y bill" or simply "Congresswoman Z supports this legislation" or "Your Congressman opposes our position"). These communications are often made close to the time of a primary or general election. Furthermore, organizations or individuals making the communications may contact the candidates to discuss the effect of making the communication or the best way to make the communications. While many of these communications are truly designed to advance the communicator's position on specific issues, some of these communications very much resemble campaign advertisements except that they lack the key words (e.g., "Vote for candidate X" or "Vote against candidate Y") that would cause the communications to be viewed as the type that are strictly regulated by election law. Both the House and Senate versions of the bill limit when groups may make such communications and prohibit discussing them with the candidate. Finally, there are new disclosure requirements for such communications.

First, the bill prohibits most of what it terms "electioneering communications." These Electioneering communications are communications made 60 days before a general election and 30 days before a primary election that are "broadcast, cable, or satellite communications which refer to a clearly identified candidate for Federal office." Such communications need not promote, support, attack, nor oppose a candidate to be covered. These messages are prohibited during the time periods if they are paid for, in part or in whole, by a corporation or labor organization. The only corporations excluded are Internal Revenue Code ("IRC") Section 501(c)(4) organizations and IRC Section 527 political committees (which are, for the most part, known as political action committees ("PACs")). These groups, however, may not use any funds provided by other corporations or unions to pay for the "electioneering" communications. Furthermore, 501(c)(4) organizations and the PACs may not make electioneering communications if they can be received by 50,000 or more people in the congressional district of the Member identified, or in the state of the Senator identified. If a (c)(4) accepts any contributions from corporations and labor unions, then any electioneering communications are considered to be paid for with corporate money unless the (c)(4) maintains a separate account for individual contributions and pays for the communications from that account.

Second, any electioneering communications that are "coordinated" with a candidate or party are considered to be contributions to the candidate or that candidate's party. Because an individual may only contribute $2,000 per election to a candidate, and most such communications would cost more than $2,000 to make, they would be excessive contributions and therefore prohibited. Coordination is defined as "a payment made in concert or cooperation with, at the request or suggestion of, or pursuant to any general or particular understanding with" a candidate. Furthermore, the both versions of the bill provide that when the FEC issues regulations to help define coordination it may not require "collaboration or agreement to establish coordination." Thus, virtually any contact between the candidate and a group could be considered to be coordination -- or at the very least could subject such a group to investigation to establish whether there was coordination.

Third, every person who makes electioneering communications that, in the aggregate, exceed $10,000 during any calendar year must file disclosure statements with the FEC within 24 hours of the disclosure date. This disclosure must include the name of the person making the expenditure, the principal place of business (if not an individual), the election to which it pertains, the amount of each disbursement greater than $200 and the person to whom it was made, and a list of people contributing $1,000 or more to either the fund or the organization making the communication. Furthermore, the bill creates new reporting requirements for those who make independent expenditures. Finally, communications that are either independent expenditures or electioneering communications made over radio or TV must include a statement that "_____ is responsible for the content of this advertising." The blank is the person or political committee and any connected organization of the payor.

Limits on Fundraising for Tax-Exempt Organizations

Any organization described in IRC Section 501(c) -- such as social welfare organizations, trade and professional associations, unions, and a variety of other membership and fraternal organizations -- that "makes expenditures or disbursements in connection with an election for Federal office (including expenditures for Federal election activity)" or Section 527 organizations, may not accept donations from political parties. Furthermore, officers and agents of national, state, or local party committees, or any entity that is directly or indirectly established, financed, maintained, or controlled by a party, cannot solicit funds for tax-exempt organizations. Thus, for example, it appears that a trade association that supports a PAC could not have an agent of a political party do any type of fundraising for the association or the association's PAC. Finally, the House version contains a provision limiting federal candidates and office holders (and their agents) from raising any money in excess of $10,000 a year from individuals for tax-exempt organizations that engage primarily in voter registration, voter identification, get-out-the-vote activity, or generic campaign activity.

"Soft Money" and Political Parties

Much of the campaign finance reform debate centers around eliminating "soft money" -- as opposed to "hard money" -- from the election system. The term "hard money" (or federal funds) generally refers to money expended and received subject to the limitations and prohibitions of the Federal Election Campaign Act of 1971 (the "Act"). For the most part, "hard money" is money from individuals, PACs, and parties, in permitted amounts. So-called "soft money" (or non-federal funds) refers primarily to money raised by the political parties, that is fully disclosed, but not subject to limitations on amount or prohibitions on the source (thus corporations and labor unions are permitted to contribute soft money). Non-federal funds can only be used for activities that do not expressly advocate the election or defeat of a clearly identified candidate for federal office.

Why non-federal funds exist at all in the world of federal elections warrants a brief explanation. Shortly after the Act was passed, the Supreme Court held that restrictions on contributions and expenditures that are made "relative" to a candidate, but that do not expressly advocate the election or defeat of a clearly identified candidate, cannot be regulated. The Court found that there simply was not a compelling enough justification to infringe on First Amendment rights if the money was not used for express advocacy. If it were used for express advocacy, then the Court believed the need to prevent corruption or the appearance of corruption was sufficient to justify placing limits on contributions. No such corrupting influence could be found on money not spent to expressly advocate the election or defeat of a candidate. Thus, the new legislation would prohibit contributions made for purposes that the Court said were not subject to regulation. In order to limit restrictions on First Amendment rights, the Supreme Court views "express advocacy" very narrowly. According to the Court, "express advocacy" will be limited to the type of communication where there is no question that the purpose of the communication is to advocate the election or defeat of a clearly identified candidate. Thus, "express advocacy" refers only to communications that use terms such as "vote for" or "vote against"; communications that lack such clear terms will generally not be viewed as "express advocacy" by the Court.

The "soft money" provisions of the legislation cover three major areas. First, there is a prohibition on the national parties from raising and spending money that is not subject to the limits and prohibitions of the Act. Second, there are restrictions placed on state and local parties. Third, there is a prohibition on federal candidates from soliciting contributions for state candidates.

Both the House and Senate versions prohibit the national political party committees from soliciting, receiving, or directing to another person a contribution, donation, or transfer of funds or any other thing of value, or spend any funds, that are not subject to the limitations, prohibitions, and reporting requirements of the Act. This provision applies to "any such national committee, any officer or agent acting on behalf of such a national committee, and any entity that is directly or indirectly established, financed, maintained, or controlled by such a national committee." The Senate version is broader in that it does not include the "acting on behalf of" language that the House version does.

State parties may not use non-federal funds for Federal election activities. Federal election activities include voter registration activity within 120 days before a federal election; voter identification, get-out-the-vote activity, or generic campaign activity (promoting a party without promoting a specific candidate) conducted in connection with an election in which a candidate for federal office appears on the ballot (even if state and local officials are also on the ballot); and communications that refer to a clearly identified candidate for federal office and that support, promote, attacks, or opposes the candidate (even if it does not expressly advocate). Also included in Federal election activities are the salaries of any employees of parties who spend more than 25% of their time on such activity in a month.

Finally, a "candidate, individual holding Federal office, agent of a candidate or individual holding Federal office, or an entity directly or indirectly established, financed, maintained or controlled by or acting on behalf of one or more candidates or individuals holding federal office" is prohibited from soliciting, receiving, directing, transferring, or spending funds, in excess of the limits or from prohibited sources "in connection with an election for Federal office," for Federal election activities (those are all listed in the preceding paragraph), or for any other (i.e. state or local) election. Thus, a candidate for federal office cannot raise money for a state candidate unless the funds are subject to the limits and prohibitions of the FECA, regardless of whether the state candidate may raise money in amounts higher than the FECA allows or from sources prohibited by the FECA.

Miscellaneous Provisions

There are numerous other provisions in the House-passed legislation. It clarifies that candidates are not permitted to use campaign funds for personal use, prohibits candidates from fundraising on federal property, and prohibits foreign nationals from making contributions in federal, state or local elections. It creates a provision increasing the contribution limits for candidates whose opponents spend over a certain amount of their personal money on the election. The Senate version includes a provision requiring television stations to provide the lowest unit charge rate for candidates and political parties. The House version does not. The bill also requires presidential inaugural committees to file reports with the FEC and prohibits contributions from foreign nationals to them. Finally, it increases various criminal penalties.

Conclusion

If this legislation is enacted, it will drastically alter how independent groups communicate their political messages. The restrictions on outside spending are the most likely to be deemed to be unconstitutional when the legislation is challenged (Senator Mitch McConnell has already indicated that he will do so). The "soft money" prohibitions will limit the way parties raise money and will likely lead to outsourcing party building and get-out-the-vote activities to independent groups. These provisions also likely are vulnerable to a court challenge. Finally, the limits on fundraising for tax-exempt organizations will restrict to whom political parties may turn for fundraising assistance.

For more information, contact Mr. Jacobs at 202/216-8215 or at rmjacobs@venable.com.