The House of Representatives is moving closer to voting on the Democracy is Strengthened by Casting Light on Spending in Elections Act (“DISCLOSE Act”) H.R. 5175, with a vote expected on Thursday. Senate Democratic leaders have indicated they will work to bring the bill to the Senate floor and the White House has expressed its support for the bill as well.
The DISCLOSE Act is designed to be a response to the Supreme Court’s decision striking down prohibitions on corporate expenditures in Citizens United v. FEC. Styled as a bill to increase disclosure and transparency by organizations that make independent expenditures—including associations and other nonprofits—its likely impact will be to chill speech and limit the efforts of outside groups to be involved in the electoral process. A proposed amendment to the bill compounds these chilling effects.
The Compromise: Picking Favored Speakers
In order to secure the support of moderate Democrats, the bill’s sponsors have added a provision aimed at minimizing the impact on one association in particular: the National Rifle Association. After an outcry by campaign finance “reform” groups and others regarding the targeted application of this exemption, this provision has been modified to include a few more organizations.
This provision would limit a number of the DISCLOSE Act’s more burdensome provisions from applying to “qualified 501(c)(4) organizations.” Although the specific text of the amendment has not been published, it has been reported that such organizations would have to meet five criteria:
- Be exempt from taxation pursuant to section 501(c)(4) of the Internal Revenue Code—which makes the provision inapplicable to most trade and professional associations;
- Have more than 500,000 members (this has been reduced from 1 million members in the initial compromise);
- Have a presence in all 50 states (what a “presence” means is not clear);
- Receive less than 15 percent of its revenues from corporations (again, unlikely for a trade association); and
- Be in existence for 10 years.
The Scope of the Exemption
What does this exemption get the groups that qualify for it? Quite a bit, actually.
Independent Expenditure Reports:
- An organization not covered by this exemption would be forced to disclose the name of any person who donated $600 or more (unless the donor specifies that its contributions not be used for campaign-related activities) if it makes independent expenditures worth $10,000 or more during a calendar year, unless it makes such expenditures from a special account.
- Even if an organization funds its expenditures from such an account, it will be required to disclose the name of any contributor who gives more than $6,000, unless the donor specifies that the funds not be used for campaign-related activity.
- Under existing law, donors who made contributions for the purpose of funding independent expenditures must be disclosed, but general contributors to the organization are not disclosed.
Electioneering Communication Reports:
- An organization not covered by this exemption would be forced to disclose the name of any person who donated $1,000 or more (unless the donor specifies that its contributions not be used for campaign-related activities) if it makes electioneering communications worth $10,000 or more during a calendar year, unless it makes such expenditures from a special account.
- Even if an organization funds its electioneering communications from such an account, it will be required to disclose the name of any contributor who gives more than $10,000, unless the donor specifies that the funds not be used for campaign-related activity.
- Under existing law, donors who made contributions for the purpose of funding electioneering communications must be disclosed, but general contributors to the organization are not disclosed.
Certifications:
- Nonexempt organizations must submit certifications by their CEO that their independent expenditures and electioneering communications are not coordinated with a candidate or political party.
- There is no comparable requirement for exempt organizations.
- Nonexempt organizations must submit certifications by their CEO that they complied with donor requests that funds not be used for campaign-related activity.
- There is no comparable requirement for exempt organizations.
Limits on Funds:
- Organizations may create special accounts to fund campaign-related activity. They may transfer general funds into these accounts. However, nonexempt organizations would not be allowed to transfer funds into the account if the donor specifies that they not be used for campaign-related activity.
- There is no comparable requirement for exempt organizations. Moreover, because the onerous disclosure requirements described above do not apply, there is less reason for a donor to an exempt organization to restrict his or her contribution.
Stand-by-Your-Ad Requirements:
- The DISCLOSE Act would require independent expenditures and electioneering communications to include statements by organization officials saying that they “approve the ad” (much like candidates are required to do). These disclosures would also require certain funders of the communications to be disclosed during the communication. One organization has determined that the additional disclosures could take nine to 16 seconds (or from one-third to one-half of a 30-second commercial).
- There is no comparable requirement for exempt organizations. They would simply have to include a “__ is responsible for the content of this advertising” statement and some additional text disclosures in the communications.
Additional Information:
- If an organization provides an annual report to its members, it would be required to include information about its independent expenditures in its report under the DISCLOSE Act.
- There is no comparable requirement for exempt organizations.
- The DISCLOSE Act would require organizations to include a link on the homepage of their websites to their FEC reports.
- There is no comparable requirement for exempt organizations.
Implications for Associations & Legal Concerns
Clearly, the compromise would impose significantly fewer obligations on organizations that meet the exemption. The DISCLOSE Act is designed, in part, to prevent organizations from being formed, accepting undisclosed contributions, and then being involved in the political process. The exemption is designed to allow existing large groups to operate with fewer obligations because people already know who they are.
Yet it is hard to see why a large 501(c)(4) should be treated differently than a trade or professional association, since the association is often clearly linked to its members by name (e.g., Widget Manufactures of America). Moreover, if a group tried to use the name of an industry or industry segment for the purpose of creating a “stealth” group, it is likely that they would be called out by those actually in the industry or profession. Thus, this distinction does not advance any meaningful purpose, when it excludes 501(c)(6) organizations.
By creating distinctions among speakers—particularly distinctions that do not advance any meaningful purpose—the authors of the legislation have set it up to fail: the First Amendment does not allow the government to pick and choose speakers.
Mr. Jacobs, a partner in Regulatory Group in the Washington office of Venable LLP heads Venable’s political law practice. He can be reached at 202-344-8215 or rmjacobs@Venable.com.