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The S T R A T E G I S T
November 23, 2010 |
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This information is not intended as legal advice, which turns on specific facts. You should seek specific legal advice before acting with regard to the subjects mentioned herein.
© 2010 DB Capitol Strategies. All rights reserved. For more information, contact us at DBacker@DBCapitolStrategies.com Download this article as a PDF here.
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SuperPACs vs C-4's: Comparing the new campaign finance players
The big campaign finance story this election cycle has been the seismic shift in the law beginning with the Supreme Court's seminal ruling in Citizen's United, through the DC Circuit ruling in SpeechNow, and FEC Advisory Opinions 2010-09 and 2010-11. A large part of that narrative has been the rise of new "SuperPACs" and 501(c)(4) organizations that have played a significant role in campaign finance this cycle, and may continue to do so at least through 2012. However, media coverage and even industry understanding of these entities has not always reflected the distinction - and capabilities - of each. As advocacy leaders within their organizations, PAC managers can benefit from this overview of the contours of these entities while developing their 2011-2012 plans. |
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News & Notes: Post-election reports are due December 2. Yesterday (November 22) marked the end of the post-election reporting period that began on October 14 (next up are year-end reports due January 31). If you're worried about your post-election report - or had concerns on your pre-election report that was due on October 21 (covering October 1 - 13) - NOW is the time to seek guidance.
DB Capitol Strategies co-sponsors the PAC PALS annual Holiday Party on December 13. Hosted by DC's premiere networking organization for the PAC industry, this is a great year-end get together for PAC practitioners & managers here in DC. We hope to see you there.
Dan Backer to speak at Women in Government Relations (WGR) Annual PACs, Politics, and Grassroots Conference on December 14. The first and most important step in constructing a successful PAC fundraising strategy is to recognize (and live by) the rules. Dan Backer, Esq. will be one of two experts reviewing FEC regulations, how to structure smart compliance operations, and how recent changes may affect PAC operations. For details, CLICK HERE. |
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Independent Expenditure only "SuperPACs"
The "SuperPAC" moniker was coined to describe the new class of Independent Expenditure (IE) only PACs that may solicit and accept unlimited corporate, union, and individual contributions - a huge fundraising advantage - but are limited to IE's only and may not make direct contributions to candidates, parties, or PACs. Emerging largely as a result of AO 2010-11 (Commonsense Ten), SuperPACs are the more transparent of the new campaign finance vehicles and must disclose donors, receipts and disbursements as would any other PAC. The most prominent criticisms of the new state of campaign finance law have been the influx of large sums of money from corporations, unions, and the very rich, coupled with the secrecy of these transactions. For critics, the required disclosure by SuperPACs addresses the latter concern.
The major structural risk for SuperPACs is the potential for "coordinated communication" with the candidates who are the beneficiaries of their spending. If found, "coordination" could result in multiple, serious violations of campaign finance law. The most obvious violation would be the resulting improper contribution from the PAC to the benefitted candidate. In addition, coordination might result in excessive contribution amounts and direct corporate or union contribution to a candidate. SuperPACs face a cautionary line in the sand between lawful and improper activities. |
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501(c)(4) organizations and political advocacy
In Citizens United, the Supreme Court held that IE's do not create the appearance of, or actual, quid pro quo corruption. As a consequence, it is an unconstitutional infringement on protected political speech to limit the funds expended by corporations, unions, and individuals in making IE's - and this includes 501(c)(4) organizations. As a consequence, 501(c)(4) organizations have arisen or evolved to engage in substantial IE activity this cycle. Individual IE's must still be reported to the FEC (24 and 48 hour reports) by these entities and, coupled with the post-election reports from PACs, a fuller scope of their role in overall IE activity this cycle will soon be known.
Like SuperPACs, 501(c)(4) organizations may solicit and accept contributions from any individual, corporation, or union. However, contributors to a 501(c)(4) need not be disclosed by the entity. This creates a cloak of secrecy around their activities that raises concerns with critics. Additionally, certain corporate contributions to 501(c)(4)'s may be treated as a business expense - a significant benefit to some contributors. (NOTE: DB Capitol Strategies does NOT offer any tax or legal advice on this matter except to individual clients. Entities should consult with an accountant and/or legal counsel to determine the proper tax treatment of their 501(c)(4) contributions.)
It is the element of secrecy that has drawn the loudest criticism - that individuals and entities may spend vast amounts of funds to influence elections through IE's without the public being made aware of, and being able to weigh, that influence. Critics raise concern that what amounts to tax-advantaged treatment of political speech for some entities is an unintended consequence that runs counter to accepted policy - and if poorly structured the regulations governing 501(c)(4)'s. From a strategic perspective, it is unclear the extent to which these concerns will deter the use of 501(c)(4) organizations or large political contributions to them. Very significant sums of money have flown through these entities in the current election cycle largely because of these advantages. While some signature large contributions were made to SuperPACs by donors embracing the principle of disclosure, they are dwarfed by the sheer volume of activity obscured through 501(c)(4)'s. |
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The continued growth of "MonsterPACs"
Coined by Dr. Steven Billet, Director of George Washington University's PAC Management program, MonsterPACs are "traditional" candidate-contribution PACs that are very big and very smart. They routinely raise in excess of $1 Million per cycle and move beyond mere contributions - and even IE's - to operate as "pseudo-parties." A narrow category that includes EMILY's List and the National Association of Realtors, MonsterPACs engage in non-traditional activity including identifying and training candidates and staff, mobilizing volunteers, providing communications, logistics, and infrastructure support, and advancing a broad legislative/policy agenda. Monster PACs are not new, and their numbers and influence have been growing and will continue to do so. Interestingly, there are no corporate MonsterPACs - though several Union ones - likely a result of the (perceived) conservative approach of large corporations to political activism. MonsterPACs are very well funded, staffed, and sophisticated organizations that have the capability to most effectively benefit from the new landscape. They are also the most likely to successfully launch new organizations and utilize a multi-organizational approach - having a PAC, a 527, and a 501(c)(4) as part of a comprehensive political advocacy strategy. As the influx of money into elections increases - as it invariably will - leaders in the emerging category of new SuperPACs and 501(c)(4)'s are likely to mimic MonsterPACs to become significant actors in the political and campaign finance arena. |
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Caveats and final thoughts
Given the significant perceived advantages of 501(c)(4) organizations, is there a strategic benefit to SuperPACs? 501(c)(4)s can engage in the same Independent Expenditure activity as SuperPACs, have significantly lower reporting burdens (the same IE reports, no FEC periodic reporting, though the added burden of IRS and state annual filings), can protect donors from potential harassment or retribution, and may even be able to offer tax advantages. Other than the moral argument that disclosure is a desired policy goal, what is the advantage of political activity through SuperPACs?
Corporations and individuals mindful of the experience of the Target Corporation this past summer may see that 501(c)(4)'s offer a safer approach. PACs whose contributor data has been mined or whose donors have been harassed - including by opposition media - may be inclined to protect their contributors. 501(c)(4)'s do have unique burdens of their own, including higher bars to establishment at both the state and federal level, annual filing requirements tied to their not-for-profit existence, and the potential risk of running afoul of IRS regulations. This last risk is the most pronounced since it is unclear at this point how the IRS will ultimately treat such politically active entities. Those weighing their options should carefully consider, with the assistance of counsel, the best approach to achieve their particular goals. |
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About DB Capitol Strategies
and Dan Backer, Esq.
DB Capitol Strategies provides legal, strategic & operational guidance to political committees with a focus on PAC treasury and FEC reporting and compliance through its lead attorney Dan Backer. Mr. Backer is a graduate of the University of Massachusetts Amherst and George Mason University School of Law. In 2009, Mr. Backer earned the Professional Lobbying Certification (PLC) from the American League of Lobbyists. He is admitted to practice law in Virginia and Washington DC, and before the U.S. District Court for both the Eastern & Western Districts of Virginia. Mr. Backer has extensive experience with public policy & advocacy programs, grassroots organizations, and Political Action Committees, and is Treasurer or Assistant Treasurer of several PACs. |
You can reach Dan Backer at DBacker@DBCapitolStrategies.com or 202-210-5431. |
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