A Victoy for Speech: FEC Concedes, all PACs are "Super PACs"

The S T R A T E G I S T

August 2011

A victory for speech: FEC concedes, All PACs are now "Super PACs"

The FEC has conceded defeat and settled the landmark case, Carey v FEC (CLICK HERE for the Court's Order of Stipulated Judgment). This ruling has significant ramifications for all PACs, with non-connected PACs most directly affected as they are all now, essentially, "Super PACs". Non-connected PACs may rely upon this ruling to solicit and accept unlimited contributions from any individual, corporation, union, or association (into one bank account) to conduct independent Expenditures while continuing to solicit and accept amount and source restricted contributions (into a separate bank account) for use in making direct candidate contributions.

DB Capitol Strategies was lead counsel in Carey v FEC, joined by exceptional co-counsels Steve Hoersting, Ben Barr, and the Center for Competitive Politics (CCP), including former FEC Chairman Brad Smith, Alison Hayward, and Allen Dickerson. Read CCP's press release HERE.

DB Capitol Strategies

and Dan Backer, Esq.

DB Capitol Strategies PLLC provides legal, strategic & operational guidance to political organizations with a focus on PAC treasury and FEC reporting and compliance through its principal attorney, Dan Backer. Mr. Backer holds a BA in Political Science from the University of Massachusetts Amherst, a JD from George Mason University School of Law, and the Professional Lobbying Certification (PLC) from the American League of Lobbyists.

Mr. Backer is admitted to practice law in Virginia and Washington DC, and before the U.S. District Courts for the Eastern & Western Districts of Virginia and Washington, DC. Most recently, Mr. Backer is lead counsel in Carey v FEC, which seeks to allow all non-connected PACs to engage in both candidate contributions from amount & source limited funds; and Independent Expenditures from unlimited individual, corporate, or union contributions.

Mr. Backer has previously served as a legal policy analyst & subject matter expert in military and overseas voting for the Department of Defenses' Federal Voting Assistance Program (FVAP). Mr. Backer has extensive experience with public policy & advocacy programs, grassroots organizations, and Political Action Committees, and is Treasurer, Asst. Treasurer, or Counsel to numerous PACs.

Caveats &

Final Thoughts

First, "Coordination" never quite became the boogieman of the post-Citizens United campaign finance world - little activity has happened in that arena. That specter looms all the more large in this new environment, and PACs should very carefully structure their operations to guard against being the almost inevitable test case.

Lastly, the none-too-subtle theme throughout has been "Consult with Counsel." Ironically, Carey v FEC is underlain by the apparently silly notion that hiring a campaign finance attorney should not be a prerequisite for the average American to exercise his constitutionally protected right to speak about politics when, how, and with whom he wants. Yet, the settlement language insisted upon by FEC counsel - frustratingly narrow and maddeningly vague - insures this continues to be the case at least for the time being. Hopefully this is a case of 2 steps forward, 1 step back (and not the reverse).

Until we know, however, consult with counsel. Having brought this case from FEC Advisory Opinion Request, through litigation & finally to settlement, DB Capitol Strategies has a unique perspective on these issues, and we'd be happy to speak with you about them.

Thank you for reading

The Strategist

This information is not intended as legal advice, which turns on specific facts. Seek specific legal advice before acting with regard to the subjects mentioned herein. For more information, visit our website at www.DBCapitolStrategies.com

A (newer) Brave New World

The crux of Carey v FEC is that the government may not create unnecessary burdens on citizens seeking to engage in two separate, constitutionally protected activities - making Independent Expenditures (IE's) and making direct campaign contributions. Because both activities are constitutionally protected speech, the government may only impose the least restrictive burdens upon them, and only to prevent actual or apparent quid pro quo corruption.

As the FEC has finally conceded, and as the District Court stated in its Preliminary Injunction (HERE), separate bank accounts prevents actual or apparent quid pro quo corruption and is a far less restrictive burden than that remedy sought by the FEC - seperate legal entities. The government may not require citizens to start multiple entities and jump through rigorous legal & logistic hoops simply to enjoy the constitutional right to freely engage in politic speech.

The (very) Practical Impact

First, every non-connected PAC should at least consider opening a second bank account to receive unlimited contributions for IE's. Why? Because the unlimited funds contributed towards the IE accounts may be used for administrative purposes (see below).

Second, every connected organization that has a PAC should at least consider the economic, operational, messaging, and political benefit of "disconnecting" their PAC. Why? Because, while it may not make sense for some "currently-connected" PACs, disconnecting could offer significant benefits to others (see below).

Third, IE-only PACs should amend their Statements of Registration to eliminate the "IE only" language on their Form 1? Why? So they can increase their capabilities and potentially convert some IE funds into candidate contribution funds (see below).

Fourth, the FEC is unprepared to accommodate the electronic filing all this will entail (having amply demonstrated this already, below). This will create challenges to PACs as they must develop new recording & reporting procedures to ensure compliance.

Allocating expenses between accounts

Contributions for IE-only activities may pay a significant share of the administrative costs of the PAC. This would allow for larger & more effective organizations while shifting the administrative burden away from more valuable "candidate contributable" dollars (like a Connected PAC). However, the FEC's settlement language states that "each account pays a percentage of its administrative expenses that closely corresponds to the percentage of activity for that account."

It is unclear whether "activity" refers to money going into or out of each account - a critical distinction. Also left unanswered was how to allocate costs amongst the vast array of activities that benefit one activity more or less than another. PACs that wisely seek to shift their administrative costs towards their IE account should consult with counsel to develop plans on how to do so.

Disconnection

The principle advantage of a Connected PAC is the subsidization of candidate-contributable dollars by the treasury funds of the corporation, union, or association whose PAC it is. Administrative costs are almost entirely born by the connected organization. These costs are not reported, making it impossible to determine how much is actually spent to raise the money that is in turn contributed. However, it is (anecdotally) common for SSF's to spend more raising money than they actual raise because of the outsized value of candidate contributable dollars. The down side is that these PACs may only solicit their "restricted class." But, if a connected PAC can achieve a similar "subsidization" effect, without the restriction on solicitations, does it still make sense to have a Connected PAC, or is it time to disconnect?

Disconnection will likely take into account many considerations, including tax treatment, the desirability & accounting questions in disclosing administrative costs, the potential fundraising & grassroots activism from an unlimited pool of supporters (not just all employees, including union employees, but vendors, customers, and the public at large), the added cost of doing so, and the offsetting economic considerations. The legal, economic, marketing, and political advocacy analysis will yield mixed results, but expect some PACs - including significant PACs - to disconnect.

No more Super-PACs

The best outcome of this ruling will hopefully be the end of the "Super-PAC" terminology since all non-connected PACs are now "Super-PACs", or "Super-Duper PACs" as some pundits called them. "Super-PAC" implies that being free to engage in these constitutionally protected activities - to speak about politics when you want, how you want, and with whom you want - is something unique and special. To call it "Super" perpetuates the idea that government may regulate speech, and anything that gets by the censors is unique and special and perhaps a little abnormal. Thankfully, that distinction ought to vanish as PACs that had registered as IE-only PACs will likely amend their registration to eliminate the potentially restricting language in their organizing documents.

More interesting will be the efforts of former IE-only PACs to re-characterize prior, large dollar contributions from individuals as partly IE-only and partly candidate-contributable (up to the applicable limit). This could instantly give these PACs a significant amount of candidate contributable dollars to be taken out of their IE-only funds. This will almost certainly be a closely scrutinized process - but extremely valuable to these soon to be un-Super PACs, and should be managed in consultation with counsel.

Recording & Reporting

PACs & practitioners certainly understand the enormous value offered by Carey v FEC. Smart PACs will wisely seek to take advantage of this new opportunity. In doing so, proper internal recording of split-account transactions - both receipts and expenses - will create a host of new challenges for PACs. Fully understanding the new lay of the land, and consulting with counsel to develop the procedures necessary to record these transactions - and fit these square pegs into the round hole of FEC reporting - will be critical, and will give smart PACs a significant leg up in this new Campaign Finance arena