New Year, New Scrutiny: Act Now To Protect Company From Auditors, The Media, And Others Who Are Reading Your Disclosure Reports

In the rush of year-end deadlines and holiday preparations, it's easy to let next year's lobbying, campaign finance and pay-to-play deadlines wait until – well, next year. A little advance planning, however, can avoid unpleasant questions later in the year from government auditors, the media, watchdog groups and your competitors – all of whom may be scrutinizing your disclosure reports.

Here are some important deadlines that come early in the New Year:

• Companies that employ one or more federal lobbyists must certify, by January 30, that no one in the organization has made a "gift" on behalf of the company (or been reimbursed for a "gift") to a Member of Congress or congressional staff. This certification should be supported by a survey of office or division heads, periodic training on congressional ethics rules, and appropriate policies and procedures.
• The January 30 report must also disclose contributions to organizations with ties to Members of Congress or senior executive officials. These include payments for events that honor Members of Congress and covered executive branch officials, and payments to organizations that they finance or control. A comprehensive survey of office heads is essential due diligence for this disclosure requirement.
• Individual lobbyists must separately certify compliance with gift rules and disclose personal contributions. Do you have a system for pre-approving political contributions and other reportable disbursements by your employee-lobbyists? Bear in mind that these disbursements can reflect on the company, and can trigger questions from the media and other observers.
• Lobbyist-employers must also file a quarterly report on January 20, disclosing issues and agencies lobbied, and accounting for lobbying expenses. This accounting must include time spent by non-lobbyist employees behind-the-scenes, certain meetings between senior executives and covered government officials, and other disbursements. In addition, once a year, each lobbyist-employer is free to revisit the system it uses to calculate lobbying expenses. This reassessment can have a significant impact on the amount disclosed.
• Some states with pay-to-play laws require companies that do business with state agencies to report political contributions made by the company, its officers and covered employees. Maryland and Pennsylvania contractors must file detailed reports in February, and New Jersey contractors must file reports in March. Advance planning is critical to ensuring that you collect all required information.
• A bit of planning can also be helpful in making political contributions. Many state legislatures are in session in the early months of the year, a period when political contributions may be restricted or prohibited.
• The FEC allows federal PACs to change their reporting schedule once each year. Making a change in January can simplify your PAC’s reporting obligations for the rest of the year.
• Finally, many state lobbying registrations expire at the end of the year. It is important to review whether appropriate employees are registered and, where appropriate, renew your registration. Note that major changes in lobbying laws go into effect in Illinois and Massachusetts, both of which are discussed below.

New Ethics Rules in the Bay State for 2010

And speaking of the New Year. . . . Massachusetts' new ethics, lobbying and campaign finance reform law takes effect on January 1, 2010. The new law expands the definition of a lobbyist to include persons who are paid for "strategizing, planning, and research" related to communications with government employees. It also lowers the activity time and dollar thresholds that trigger lobbyist registration obligations, and clarifies that lobbyists are banned from giving gifts of any value to government officials or employees. In the area of political advocacy, the new law requires disclosure of expenditures and funding sources for third-party mailings and ads that support or criticize a candidate or campaign.

It's important to note that the Massachusetts law increases penalties for civil and criminal violations of the state's bribery, ethics and lobbying laws. Criminal penalties for bribery can be as high as $100,000 and 10 years in prison, with civil penalties as high as $25,000. A violation of the lobbying and ethics rules can result in a sentence of five years in prison and a penalty of up to $10,000.

Illinois: The Rubik's Cube of Political Regulation

For Illinois lobbyists, state contractors and campaigns, 2009 has been an enormous compliance challenge. The year began with the adoption of one of the country's strictest pay-to-play laws, which prohibits political contributions by certain government contractors and their principals, and requires contractors to file and update registration reports under penalty of perjury. During the year, two state agencies issued rules interpreting the pay-to-play law, an executive order was signed and later rescinded, and the law itself was amended late in the year, with changes to take effect in July 2010. Illinois also overhauled its campaign finance laws, with new limits taking effect in January 2011.

More change is on the way in January 2010, when the state's new lobbying law takes effect. The new law adds compliance burdens for individual lobbyists and the organizations that employ them. The law requires registered lobbyists to:

• Certify under oath the accuracy of their lobbying reports and pay higher filing fees
• Itemize all expenditures, no matter how small (eliminating the $100 reporting threshold)
• File weekly lobbying reports while the legislature is in session, and monthly reports at all other times (Semi-annual filing schedule is eliminated)
• Take ethics training

The new law also increases the risks to lobbyists and their employers. Lobbyists are subject to a $10,000 fine for each day that a report is late. The Secretary of State Inspector General is also empowered to investigate violations of the lobbying law, pursuant to allegations received from any member of the public.

Pay-to-Play and State Pension Funds: Scrutiny of Placement Agents Continues

California

In recent weeks, the California Public Employees Retirement System (CalPERS) tightened disclosure rules for "placement agents" – middlemen who help investment managers obtain business from state pension funds and who have been at the center of pay-to-play investigations across the country. The new policy requires the disclosure of a placement agent’s identity and role in securing business, the identities of current or former CalPERS board or staff members who suggested hiring the agent, and the immediate reimbursement of any fees paid to the agent if the policy is violated.

The new disclosure policy did not, however, go as far as CalPERS Chairman, Rob Feckner, or State Treasurer, Bill Lockyer, would have liked. They unsuccessfully backed a proposal to require placement agents to register with the state Fair Political Practices Commission as lobbyists, and be subject to state disclosure and ethics obligations. While they failed to get the support of the 13-member board, Mr. Feckner directed the CalPERS staff to pursue legislation to achieve this goal.

Meanwhile, CalPERS is looking into its dealings with California equity fund, Markstone Capital Partners, whose chairman, Elliot Broidy, pleaded guilty last week to charges that he helped his firm obtain a $250 million investment from New York State’s public pension fund by making $1 million in illegal gifts to state officials.

North Carolina

North Carolina Treasurer Janet Cowell recently issued a sweeping new "Placement Agent Policy" that requires investment managers to file a letter with her office disclosing, among other things, the identity of each placement agent used to obtain state business, the compensation paid to the agent, and whether the agent (or its employees) are registered as lobbyists with any state government. Investment managers would be wise to gain a full understanding of the policy or risk losing state business.

While the policy on its face only applies to new agreements with the Treasurer's office, Ms. Cowell has requested incumbent investment managers to "voluntarily" abide by the policy. The Treasurer's directive does not specify what consequences may await those who elect not to do so. In addition, investment managers' political activities in other states can impact their opportunities in North Carolina. The new policy prohibits an investment manager from doing business with the Treasurer if a political contribution was made in some other state that violated that state’s law, even if no law or regulation in the State of North Carolina has been violated.

Surely, many of the policy's details will have to be worked out. For example, an investment manager's disclosure letter must identify "any prior personal or professional relationship" of the agent (or any officer, partner, principal or affiliate thereof) with "any current or former" Department of Treasury employee. It is not clear, however, whether this places an affirmative obligation on the investment manager to vet the relationships of placement agents with every Treasury employee and former employee. The policy also provides that investment managers may only use placement agents who are in the "habitual, systematized business of acting as a Placement Agent" – and no guidance is provided as to what these terms might mean. We're confident that there’s more to come on this policy, and will update readers on future developments.

New Jersey Search Engine Will Spur Enforcement of Pay-to-Play Laws

New Jersey's pay-to-play laws are notoriously complex. Through state law, a series of executive orders and approximately 150 municipal ordinances, bidders and contractors are severely restricted in terms of money they can raise for candidates or contributions they can make. These restrictions can affect state and local contracts, and apply to a company's owners, officers, and senior executives, as well as their family members. New Jersey has not shied from enforcing its law, either. The State has disqualified a number of bids, costing companies tens of millions of dollars in government business.

Last month the state election commission announced that campaign donations to municipal candidates are now in searchable form on the agency's website. There is little doubt that the media and watchdog groups will scour these records to see if any covered person from a bidder or contractor has made a prohibited contribution. We also expect competitors to make increasing use of the database, as evidenced by a recent lawsuit filed by one company to disqualify a competitor for a pay-to-play violation.

Larry Norton Named “Top Lawyer” In Washingtonian Magazine, Will Speak At Conference Sponsored by Women in Government Relations

Larry Norton was named in the December 2009 issue of Washingtonian Magazine as a "top lawyer" in the field of election and ethics law.

Larry is speaking on Friday, December 11, 2009, at the Women in Government Relations "PACs, Politics & Grassroots Conference." The event will be held at the Washington Court Hotel in Washington, D.C. Larry will talk about legal issues involved in lobbying the Obama Administration.

PAC STARTER KIT
As the election year nears, many companies and associations should consider establishing a federal "political action committee," or PAC, as a vehicle for making contributions and getting their voices heard. Contact Jim and Larry for details.

Rules for Advocacy Groups May Not Be Settled Until Spring 2010

The Federal Election Commission (FEC) announced on October 21 that it will not seek further review of a ruling by a three-judge federal appeals panel that struck down restrictions on fundraising and spending by non-profit advocacy groups. (EMILY’s List v. FEC). The six-member Commission split evenly on whether to ask for review by the entire D.C. Circuit Court of Appeals, even though the ruling invalidated rules that the Commission adopted just four years ago.

For non-profits looking ahead to 2010, however, the rules governing fundraising and spending will probably not be clear until next spring. One reason is that the issue at the heart of the ruling in EMILY’s List – whether federal contribution limits apply to fundraising by advocacy groups – will reach the full D.C. Court of Appeals regardless of the FEC vote, through a separate case filed by a 527 organization called SpeechNow.org. The nine sitting judges currently on the appeals court are scheduled to hear oral argument in SpeechNow v. FEC on January 27, 2010. A ruling in the case is unlikely to come before March.

In addition, the Supreme Court is expected to rule in the next few months on the constitutionality of spending restrictions by corporations and unions. The FEC, in the meantime, promises to "issue guidance to political committees in the near future" regarding enforcement in the wake of the EMILY’s List decision.

Much remains unsettled in terms of the rules for fundraising and spending by non-profit advocacy groups. Until the picture clears, caution is well-advised.

FEC’s New Coordination Rules Could Impact Non-Profits, Political Consultants in 2010 Race

In October, the FEC released proposed rules concerning coordinated spending between outside groups and the campaigns of federal candidates and political parties. Federal law has long prevented candidates and political parties from arranging for outside groups to finance ads and other communications. Absent this prohibition, limits and source restrictions on campaign contributions would become meaningless.

The question for the FEC is when contact between outside groups and candidates/political parties is "coordinated" and when the Commission will investigate allegations that a coordinated expenditure has been made.

These new rules could have a huge impact in the 2010 election. With the Supreme Court poised to loosen restrictions on "independent" spending by third-parties, rules that define when a third-party is acting in concert with a candidate (or political party) will determine how careful advocacy groups must be to avoid ties with the candidates and parties they support. The stakes are also high for political consultants. To prevent the sharing of plans and strategy, the FEC proposes to limit the circumstances when consultants may simultaneously work for candidates and outside groups.

The Bipartisan Campaign Reform Act of 2002 (the "McCain-Feingold law") required the FEC to adopt new coordination rules, but earlier efforts have been invalidated by the courts. The current proposal seeks to cure defects cited by a federal appellate court in June 2008. (Shays v. FEC). One of the major faults cited by the court is the fact that the rules place relatively few restrictions on coordinated activity by outside groups and candidates unless it occurs within certain short periods before elections. The general approach of the proposed rules is to eliminate these time frames and instead confine the agency’s authority to certain types of communications. The FEC seeks comment on several alternatives, including communications that "promote, support, attack or oppose candidates; express advocacy communications; and communications that are the functional equivalent of express advocacy."

The proposed rules also address professional political consultants that provide services to campaigns and independent advocacy groups. As currently drafted, one way that coordination may occur between a candidate or party and an outside person or group is through a "common vendor" that conveys information between its two clients. Under the rules tossed out by the June 2008 ruling, no coordination can be found if a vendor performs services for the campaign or party at least 120 days before performing services for the outside group. The proposed rule offers three alternatives: retain the 120-day window, if the agency can develop a better record to support it; use a "two-year period" ending on the date of the general election; or use the "current election cycle" for the office sought, which could be a two, four or six-year election cycle period.

Whatever form the FEC coordination rules take, they are likely to have a major impact on the conduct of upcoming elections. Several court cases working their way through the appeals process, such as the Citizens United and Emily’s List cases, could allow outside groups to spend unlimited amounts on federal elections – so long as these groups act independently. Comments on the draft FEC rules are due on or before January 19, 2010, and hearings will be scheduled at a later date.

Illinois Expands Pay-to-Play Law: Adds Restrictions on Contributions, Requires More Lobbying Disclosure

The Illinois General Assembly has overridden Governor Quinn’s amendatory veto of a procurement reform law, with the House voting on October 29 and the Senate on November 3. The new law (SB0051), which will take effect on July 1, 2010, substantially changes restrictions on political contributions by contractors and their principals, and requires disclosure of contractors’ efforts to influence the award of state contracts.

The Illinois pay-to-play law took effect earlier this year and has been a moving target for businesses attempting to comply with it. Last year, an embattled Governor Blagojevich signed an executive order expanding the contribution ban, but Governor Quinn rescinded that order. Both the State Board of Elections and the Department of Central Management Services have published regulations to implement the law, and in September 2009 businesses were required to re-register using a new on-line registration system.

Highlights of the new law include:

• A contribution ban now extends to corporate parents of bidding and contracting entities, and each operating subsidiary of the corporate parent. The law formerly applied to members of the contracting entity’s "unitary business group," a term which the law failed to define.
• The law defines which executive employees of the contractor are subject to the contribution ban and other restrictions. The change in the law mirrors regulations adopted by the Illinois Department of Central Management Services.
• Contractors are required to amend their registration within 5 business days of any change in information or no later than 1 day before the contract is awarded, whichever date is earlier. Registered entities have a continuing duty to report changes in information to the State Board of Elections on a quarterly basis.
• State bond underwriters subject to the Municipal Securities Rulemaking Board’s Rule G-37 must certify, before entering into underwriting contracts with state agencies, that they will report political contributions, as required by the Rule, and that their failure to remain in compliance shall make the contract voidable by the State.
• Bidders for contracts with an annual value of $10,000 or more must disclose their own financial interests, as well as the financial interests of each of their subcontractors and lobbyists.
• Any person who initiates or participates in an oral communication about a procurement matter must submit a written report memorializing that communication, if the communication was made by someone required to register under the State’s Lobbying Registration Act.

We expect the State Board of Elections and Department of Central Management Services to propose new rules in the coming months to implement these changes.

Pressure Builds on Financial Sector to Curb Pay-to-Play Practices

Regulators across the country are intensifying scrutiny of the financial sector over the use of campaign contributions and other payments to get business with state retirement funds. At the federal level, the Municipal Securities Rulemaking Board approved in mid-October an amendment to Rule G-37 that requires municipal securities dealers to publicly disclose contributions to bond ballot committees made by dealers, their municipal finance professionals, and their political action committees. These reportable contributions do not, however, trigger G-37’s two-year "time-out" on government business that applies to many contributions by dealers to public officials and candidates. As reported in the October 13 Political GPS, the MSRB is still considering another proposal to extend the contribution disclosure requirements to PACs of banks that are affiliated with the dealers.

In New York State, Attorney General Cuomo and a bipartisan group of legislators are backing a bill to enshrine in law Mr. Cuomo’s Public Pension Reform Code of Conduct. Cuomo has been investigating pay-to-play practices involving the state pension fund, collecting almost $60 million in fines from several investment firms, and requiring settling firms to abide by the model Code of Conduct. The proposed legislation, entitled "Taxpayers’ Reform for Upholding Security and Transparency" ("T.R.U.S.T.") bans the use of placement agents; provides for a "time-out" on pension business if investment managers and their families make contributions to certain public officials; and replaces the state Comptroller as the sole fund trustee with a 13-member board of trustees.

As this legislation moves forward, we understand that 36 other states are investigating how financial brokers and other middlemen have used kickbacks and campaign contributions to gain access to retirement funds. In California, the Public Employees' Retirement System ("CalPERS") has launched an investigation into payments by money managers to a former CalPERS board member. The former board member allegedly received $65 million in fees while the state pension fund lost hundreds of millions on the investment. CalPERS also accepted the resignation of a prominent real estate investment advisor who was allegedly responsible for a $970 million investment in a development company that subsequently went bankrupt.

Contract Bidder Sues to Oust Competitor under New Jersey Pay-to-Play Law

A New Jersey contractor has filed suit over a $30 million contract award by Hudson County, New Jersey, claiming that the County should have voided the low bid because of a violation of the state’s pay-to-play law. The suit charges that prior to submission of the bid, the President of the low-bidder made a prohibited $1,000 contribution to a county official.

As we have discussed previously, New Jersey has one of the strictest and most complex pay-to-play laws in the country. The State has disqualified dozens of bids, while counties in the state continue to adopt new ordinances. Governor Corzine had pledged to bring a uniform approach to the state’s overlapping pay-to-play system, which includes a statewide law governing state and local contracts, well over 100 municipal ordinances and a series of executive orders. That task will now rest in the hands of Governor-elect Christie, who defeated Corzine last week.

This is the first instance of which we are aware that a pay-to-play law has served as the basis for a contract award challenge. It is likely that competitors for public contracts in pay-to-play jurisdictions across the country will scour state political contribution databases to look for grounds to oust their competitors. Please contact us if you need assistance in researching contributions in pay-to-play jurisdictions.

NC Candidates May Face Personal Liability for Campaign Penalties

The North Carolina State Board of Elections has asked the North Carolina General Assembly to consider making political candidates personally responsible for penalties their campaigns incur through violations of campaign finance laws. The requested change comes as the Board orders former Governor Mike Easley’s campaign committee to pay $100,000 for failing to report flights Easley took aboard donors’ planes throughout the years 2000 and 2004. Under current law, Easley cannot be held personally liable for the penalty. Attorneys for Easley’s campaign have said that the committee does not have sufficient funds to pay the penalty assessed by the Board.

Senate President Pro Tempore Marc Basnight issued a statement saying that lawmakers would "take a long look" at the Board’s recommendation. "We need to continue working to restore the public’s trust in government," Basnight said. The General Assembly is scheduled to reconvene in May 2010.

D.C. Appeals Court Tosses Out FEC Restrictions on Non-Profits

A three-judge federal appeals panel on September 18 struck down FEC rules that limit fundraising and spending by non-profit advocacy organizations. The court in EMILY’s List v. FEC concluded that such groups have a constitutional right to raise unlimited funds in support of candidates for elected office, and to spend those funds on any independent, election-related activities, including political ads, get-out-the-vote efforts and voter registration drives.

The FEC adopted the challenged rules after the 2004 Presidential election, where 527 groups, such as Swift Boat Veterans for Truth and MoveOn.org, raised and spent millions of dollars on hard-hitting ads. One of the major rules rejected by the court treats funds received by a non-profit as a “contribution” if the organization tells prospective donors that any portion of their donations will be used to support or oppose federal candidates. Groups that receive over $1,000 in contributions and whose major purpose is influencing federal elections must abide by federal contribution limits and source restrictions, and file reports as a political committee. Other invalidated rules require non-profits to use “hard money” to fund certain types of ads and expenses.

The court’s ruling could mean a huge role for advocacy groups in the 2010 election, but it does not leave them unregulated. For instance, while the ruling removes many restrictions on fundraising and spending, it does not affect laws requiring registration and reporting with the FEC. The court noted that the FEC may also require such groups to use a “hard money” account for any direct contributions to candidates. And, the court noted, the ruling will have no effect on so-called “connected” PACs, i.e., PACs connected to corporations and unions.

There are also longstanding restrictions on how non-profits may spend funds received from for-profit corporations and unions. These restrictions, however, may be short-lived. As we wrote in the prior edition of Political GPS, the Supreme Court appears poised to use the pending case of Citizens United v. FEC to reject government limits on independent corporate or union spending.

We urge caution in relying on this ruling until the legal process plays out. The FEC may ask for review by the entire bench of the D.C. Court of Appeals, although at least four of the Commissioners on the six-member panel would have to vote in favor of such a move. This seems unlikely given the present make-up of the Commission and recent series of deadlocked votes in enforcement actions involving non-profits. If the FEC declines to pursue the case, the agency may still decide to issue new rules in response to the decision or the U.S. Solicitor General, who has exclusive authority over Supreme Court cases, may ask the Supreme Court to review the case.

MSRB Proposes Expanded Disclosure of Contributions Under Rule G-37
The Municipal Securities Rulemaking Board may expand Rule G-37, which imposes a two-year ban on doing business with a government issuer when broker-dealers and the financial professionals they employ – known as MFPs – make contributions over $250 to an official of that municipality. Broker dealers must also disclose these contributions to public officials.

On September 16, the MSRB requested comments on a draft rule which would extend the disclosure requirements to the PACs of banks and bank holding companies that are affiliated with the dealers. The MSRB is concerned with the perception that contributions by these PACs to issuer officials may be a significant factor in the awarding of municipal finance business to bank-affiliated dealers. Such contributions would not, however, trigger the two-year time out. Comments on the draft must be submitted to the MSRB by October 30.

This proposal follows on the heels of another proposed change to Rule G-37 that would require dealers to disclose contributions to bond ballot committees. (See July 1 Political GPS) The MSRB has not taken action on that earlier proposal.

More Pay-to-Play Developments in the Empire State
Four more investment firms have reached settlements with New York Attorney General Andrew Cuomo to pay back a combined $4.5 million to the New York State pension fund. The four companies – HM Capital Partners, Levine Leichtman Capital Partners, Access Capital Partners and Falconhead Capital – also agreed to adopt Mr. Cuomo’s Public Pension Fund Reform Code of Conduct. In addition to earlier settlements with The Carlyle Group ($20 million), Riverstone Holdings ($30 million), and Pacific Corporate Group Holdings ($2 million), the Attorney General has now recouped almost $60 million from investment firms allegedly involved in the pay-to-play corruption scandals involving the pension fund.

Attorney General Cuomo also announced on October 6 two more guilty pleas in the pay-to-play investigation involving the pension fund. Raymond Harding, former chair of the state Liberal Party, was set up as a sham placement agent by two former state officials in exchange for political favors he had provided. Mr. Harding received over $800,000 through placement fees. In addition, Saul Meyer, a partner in an equity fund, paid kickbacks to a former state official in exchange for business with the state pension fund.

Meanwhile, New York State Comptroller Thomas DiNapoli issued an executive order on September 23 banning the state pension fund from hiring money managers for a two-year period if they contribute to a candidate for Comptroller. This order is modeled after the SEC’s draft Rule 206(4)-5, which is aimed at curtailing pay-to-play practices by investment advisers in the public pension fund sector, and is intended as an interim measure until the SEC takes final action on its rule. (See August 6 Political GPS) Mr. DiNapoli submitted comments to the SEC on October 2 in support of the SEC proposal, which he believes should be broadened to cover contributions from family members of investment advisers. This order is modeled after the SEC’s draft Rule 206(4)-5, which is aimed at curtailing pay-to-play practices by investment advisers in the public pension fund sector, and is intended as an interim measure until the SEC takes final action on its rule.

Comment Period Closes on SEC Pay-to-Play Proposal; Connecticut Treasurer Cites Concerns
Speaking of the SEC proposal, the period for the public to submit comments closed on October 6. The SEC has yet to indicate whether there will be a public hearing on the proposal or when a final rule might be issued.

One comment that caught our attention was submitted by Connecticut State Treasurer Denise Nappier, whose state has one of the toughest pay-to-play laws. While Nappier is supportive of the SEC’s effort, she also offered some strong criticism of the proposal.

• Napier warned that the proposed ban on placement agents would harm many private investment funds that do not have in-house marketing capabilities. She urged instead that the SEC consider the approach taken in the Connecticut law, which bans “finder’s fees” and requires disclosure of fees paid to placement agents.
• Napier urged the SEC to abandon a “look-back” provision, which would prohibit an investment fund manager from providing advisory services to a public pension plan if one of its associates made a contribution to an official of the government entity within the prior two years. Napier noted that government investors frequently purchase interests in long-term pooled investment vehicles that include both public and private investors. Because such investment vehicles often have severe default provisions, Napier warned that “[g]overnmental investors cannot be placed in the position of potentially losing 50% or more of their capital account because a future hire triggers the retroactive attribution of a campaign contribution.”
• Napier characterized the ban on contributions to political parties as “extreme,” noting that “[n]othing in the SEC’s proposed rule indicates that contributions to political party committees have presented a significant problem in the past.”

We will continue to report on the SEC proposal, and spotlight other comments and issues in future editions of GPS.

North Carolina Tightens Gift Ban, Restrictions on Placement Agents
Governor Bev Perdue has signed an Executive Order requiring all employees in Cabinet agencies to follow a state law barring the acceptance of gifts from firms that do business with the state or bid on state contracts. The order comes on the heels of allegations that Division of Motor Vehicles staff received from an outside vendor meals and tickets to sporting events and the governor’s inaugural ball. While the Executive Order is only directed at Cabinet agencies, many departments run by statewide elected officers are already operating under their own gift bans, and those that are not say they are either following Governor Perdue’s lead or are considering doing so.

North Carolina’s State Government Ethics Act forbids accepting gifts from firms that do business with the government. However, that law applies only to elected officials and high-ranking appointees such as cabinet secretaries and department heads.

North Carolina State Treasurer Janet Cowell also announced several initiatives designed to increase transparency and strengthen oversight for the state’s $60 billion public pension fund. The changes come just weeks after the Treasurer ousted her chief investment officer. Among these changes, outside managers of state pension funds are required to disclose fees paid to placement agents and whether placement agents are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority.

White House Takes Aim at Lobbyists . . . Again
The White House has announced that agencies may not appoint federally-registered lobbyists to serve on agency advisory boards and commissions. The new policy applies equally to corporate, union and public interest lobbyists, but lobbyists who currently serve on such boards may continue to serve until their appointments expire.

In a September 23 blogpost, Special Counsel Norm Eisen stated that the new policy, which he characterized as “aspirational,” represents the “next step in the President’s efforts to reduce the influence of special interests in Washington.” Federal advisory boards have been around since the 1970s, and were created to facilitate private-sector input to government agencies.

The White House incurred the ire of the lobbying community earlier this year when it attempted to prohibit lobbyists from engaging in any oral (in-person or telephone) communications with agency officials regarding Recovery Act funded projects. It eventually backed off of that effort, and instead created a limited oral communication blackout period for anyone who sought to influence the funding process. (See August 6 Political GPS) One of the chief criticisms of the failed lobbyist communication ban was that it singled out lobbyists when other private sector participants also had the capability to influence awards. The same charge could be leveled at this latest policy, which bars lobbyists from advisory committees, but allows non-lobbyist CEOs and other company officials to serve on such boards.

Upcoming Deadlines

October 15, 2009

Third quarter FEC report for candidates

October 20, 2009

Quarterly report for Lobbying Disclosure Act filers (LD-2)

Monthly FEC report for PACs filing monthly

Monthly IRS Form 8872 for nonfederal PACs filing monthly*

*Qualified state or local political organizations (QSLPO) are exempt from this filing

Upcoming Events

Navigating Pay-to-Play Laws: Ensuring Compliance in a Complex Environment

An Audioconference sponsored by Columbia Books & Information Services

October 27, 2009 (2:00 – 3:30 pm EST)

Supreme Court Hears Arguments in Campaign Finance Case: Are Limits on Corporate Funding of Election Ads About to Fall?

The Supreme Court heard arguments last week in Citizens United v. FEC, which began as an unremarkable case about an obscure advocacy group and its movie about Hillary Clinton, and has mushroomed into one of the most important campaign finance cases in history. A ruling in the next few months could overturn longstanding federal and state laws that ban independent election spending by corporations and unions. The case would not, however, affect restrictions on corporate contributions to candidates.

A brief recap for readers unfamiliar with the case: During the 2008 primaries, Citizens United, a non-profit corporation, sought to air "Hillary: The Movie" through a video-on-demand cable arrangement, and advertise for the movie on broadcast and cable television. The FEC concluded that the plan violated the McCain-Feingold ban on corporate and labor funding of communications that refer to a federal candidate and that air over radio or television in the 30 days before a primary election and 60 days before a general election. That ban applies equally to for-profit and non-profit corporations, with the exception of certain non-profits that, unlike Citizens United, decline all corporate funding.

Rather than rule on narrow grounds – for instance, that because viewers must seek out video-on-demand, it is not the type of communication that led Congress to enact the McCain-Feingold ban – the Court on its own initiative raised the stakes. In late June, the Court asked for additional argument on whether two of its earlier rulings should be reversed, potentially invalidating not just the McCain-Feingold law, but also laws that bar corporations and unions from funding communications that "expressly advocate" for the election or defeat of a candidate.

We attended the Supreme Court argument last week, where the questioning by the Justices was brisk. While oral arguments are notoriously unreliable for judging outcomes, there appear to be five Justices inclined to strike down these federal and state laws. Such a ruling would:

• Open the floodgates for corporate and labor funding of election ads, with the potential that in some races such spending could overwhelm candidates and political parties that must abide by hard-money limits and source prohibitions.


• Ratchet up interest in the activities of non-profits, which will need to navigate complex FEC rules that can qualify them as "political committees," subject to hard-money limits and disclosure of donors.


• Bring greater scrutiny to IRS rules that restrict political activity by 501(c) organizations.

We'll continue to watch this case and keep Political GPS readers posted.

D.C. Circuit Rejects Challenge To Federal Lobbying Law

The United States Court of Appeals for the District of Columbia last week rejected a challenge to a 2007 law that calls for wider disclosure of participants in lobbying efforts by coalitions and trade associations.

Under the Honest Leadership and Open Government Act of 2007, a coalition or association that is registered under federal lobbying laws must disclose the name, address and principal place of business of any organization that contributes more than $5,000 toward the registrant's lobbying activities and "actively participates in the planning, supervision, or control of such lobbying activities." The law requires registrants to list such organizational supporters on their disclosure reports or identify them as members or contributors on their publicly-accessible websites. The website option is not available if the supporting organization participates "in whole or in major part" in lobbying activities.

The National Association of Manufacturers argued that the new disclosure requirement would chill NAM members from participating in public policy initiatives and that the law's requirements are impermissibly vague. In a 48-page opinion, the three-judge panel unanimously upheld the new requirements, concluding that Congress has sought to "shine increasing light on the efforts of paid lobbyists to influence the public decisionmaking process. We find nothing unconstitutional in the way Congress has gone about that task."

A copy of the ruling can be found here.

Treasury Adopts Restrictions on Lobbying for TARP Funds

The Treasury Department has finally issued rules, first promised last January, that restrict the activities of lobbyists and others in regarded to funding determinations under the Emergency Economic Stabilization Act (EESA) – the $700 billion "TARP" bailout program. The Treasury rules are modeled on, and in many aspects identical to, OMB's recently issued rules relating to communications with administration officials about stimulus-funded projects. (See August 6 Political GPS)

Like OMB's restrictions, the Treasury rules prohibit all persons, including lobbyists, from having in-person or telephone conversations with agency employees regarding TARP spending from the time a person or entity submits an application for financial assistance to the time of preliminary funding approval. In addition, oral communications between lobbyists and government officials outside the black-out period must be summarized and posted on the agency's website. The Treasury rules, however, go further than OMB in one important regard – written communications submitted by both lobbyists and EESA applicants must be posted on the Treasury website.

The Treasury rules retain some of the exceptions adopted by OMB. For example, the new rules impose no restrictions on logistical discussions, such as how to apply for assistance under EESA, and Treasury officials are free to speak about TARP issues at widely attended gatherings.

The eight-month delay in issuing the new rules has raised some eyebrows, especially since the TARP program is seen as moving toward a wind-down phase.

State Round-up

Illinois – Campaign Finance Bill Vetoed and Pay-to-Play Update: . Pat Quinn vetoed a bill that for the first time would have imposed limits on campaign contributions. The bill was vetoed at the request of its General Assembly sponsors and had been criticized by several reform groups for setting contributions limits too high and permitting too many loopholes. The bill allowed annual limits on contributions to candidates of $5000 for individuals and $10,000 for corporations. The bill also permitted generous transfers from legislative leaders to candidates, and would not have taken effect until 2011, sparing legislators from facing new rules in the next election. The Illinois Reform Commission had proposed much lower contribution limits that would have applied on an election-cycle basis.

Meanwhile, Gov. Quinn issued an "amendatory veto" of Senate Bill 51, which among other things would revise Illinois' pay-to-play law. The Governor is seeking changes that primarily impact other parts of the bill, but his new proposed effective date of July 1, 2010 would apply to the pay-to-play provisions. The General Assembly has not yet acted on the Governor's recommendations.

In addition, the Illinois State Board of Elections is requiring all bidders for and recipients of state contracts that were required to register under the state's pay-to-play law to re-register electronically by September 30, 2009. This includes an entity that is no longer required to update its registration because, for example, it bid on but was not awarded a contract valued at more than $50,000 during the first seven months of 2009. The Board of Elections stated that this new requirement is aimed at ensuring a complete record of all businesses that have registered since the law became effective earlier this year.

New Jersey – Another City Enacts Pay-to-Play: The Jersey City Council approved a "pay-to-play" ordinance that bars campaign donations from developers during the three months before they apply for a contract for a particular site, as well as during the period that they are designated as the developer. Developers who violate the ordinance will be disqualified from engaging in projects in Jersey City for four years.

New York – Crackdown on Lobbyist Gifts: The New York Public Integrity Commission charged three groups – the Trial Lawyers Association, the Uniformed Firefighters Association, and the Police Benevolent Association – with violating the state's ban on gifts from lobbyists. In a 2008 opinion, the Public Integrity Commission found that gifts to lawmakers worth more than a cup of coffee were illegal. The three groups allegedly held receptions last year for state lawmakers and their staffs that violated the gift ban. Prior to the March 2008 opinion, lawmakers were allowed to receive gifts under $75 in value.

SEC Proposes Pay-to-Play Rules for Pension Fund Industry

The SEC voted on July 22 to propose new rules restricting campaign contributions by investment advisors seeking contracts from public pension plans. The proposed rule is similar to draft Rule 206(4)-5 that the SEC considered in 1999, and is based on an existing rule – MSRB Rule G-37 – that applies to municipal securities dealers. Under the draft rules, an investment adviser would be barred from providing compensated advisory services if that adviser, or certain of its executives or employees, makes political contributions to public officials with influence over their selection, or to candidates seeking such public offices. The two-year "time out" on compensated work would also apply to any employer who subsequently hires a covered employee who has made a prohibited contribution.

The draft rule contains two anti-circumvention measures. Advisers cannot ask other persons or PACs to make contributions to covered candidates or their state or local party committees. In addition, an adviser cannot funnel contributions through third parties such as spouses, lawyers or other companies. Unlike the 1999 draft, this proposal also bans advisers from paying third parties, such as placement agents, to solicit a government client on behalf of the investment adviser.

The rule has a de minimis exception that allows a covered employee of an adviser to make a contribution of up to $250 per election per candidate, but only if the contributor is eligible to vote for the candidate.

The SEC’s proposal follows on the heels of efforts in several states to target influence peddling in the pension industry. As we have reported previously, states including California, Texas and Oklahoma have restricted campaign contributions or prohibited the use of placement agents, and New York Attorney General Cuomo recently created a "Public Pension Fund Reform Code of Conduct," which was adopted by The Carlyle Group as part of a $20 million settlement of a “pay-to-play” investigation.

The SEC's proposed rule can be reached through this link. Interested parties have 60 days to submit comments once the proposal is printed in the Federal Register.

FEC Busts Law Firm for Reimbursing Employee Campaign Contributions

A Pennsylvania law firm paid $155,000 to settle charges with the Federal Election Commission, after the Commission found probable cause that the firm reimbursed campaign contributions made by employees and their family members. According to an investigation report released by the FEC, certain reimbursement checks contained notations indicating that the reimbursements were actually bonus payments to the employees. FEC staff, however, found these notations unpersuasive because, among other things, the firm's payroll records did not reflect that these checks were bonuses and the amount of the checks coincided with contributions contemporaneously made by the employees. Also, some employees allegedly involved in the scheme invoked their Fifth Amendment privilege against self-incrimination and declined to cooperate.

With a new campaign season upon us, this FEC settlement serves as a timely reminder that employees may not be reimbursed for contributions to federal candidates, either by the company that employs them or by anyone else who works for the company. These are known as "contributions in the name of another." As the FEC investigative report noted, in these cases "the true source of funds is withheld from the recipient committee, the FEC, and the public," and therefore "is inherently self-concealing." Beware: these schemes are not just fodder for the FEC. The Justice Department has brought criminal charges in these types of cases, and is not foreclosed from taking action merely because action is taken by the FEC. And most states also prohibit these types of conduit schemes.

OMB Issues New Guidance on Lobbyist Restrictions

As we reported previously (see June 2 GPS), the White House in late May eased its earlier restrictions on lobbyist communications with government officials regarding stimulus-funded projects. In an unusual move, that change of policy was announced through a blog entry by Norm Eisen, special counsel to the President for ethics and government reform. More detailed guidance, which was promised at the time, was issued on July 22, 2009, in a memorandum from OMB Director Peter Orszag.

The thrust of the new guidelines is as promised on the blog. The restriction on oral (in- person or telephone) communications regarding Recovery Act projects now applies not just to lobbyists, but to all outside parties that seek to influence the funding process. However, the speech prohibition now applies only from the time a person or entity submits a formal application for a competitive grant or other request for financial assistance under the Recovery Act to the time funds are rewarded. In this way, the prohibition mirrors restrictions on procurement lobbying in many states.

Registered lobbyists are, nonetheless, still singled out for special treatment. Communications between lobbyists and government officials outside the above-described black-out period must be summarized and posted on the agency's website. Each agency is also required to post any written communications submitted by lobbyists. But there's an important loophole here: no disclosure is required concerning communications between a currently-registered federal lobbyist and government officials, if the lobbyist is not communicating on behalf of a client for whom he or she is registered. For instance, a federal lobbyist may confer with officials in his or her personal capacity, and the exchange need not be disclosed by the agency. This also means that disclosure is not required if a lobbyist confers on behalf of a client but was retained to make only one contact and, therefore, does not trigger registration obligations. The disclosure provisions also do not apply to communications by state-registered lobbyists, lobbyists who have previously terminated their federal registration, or non-lobbyist employees of an organization registered under the federal Lobbying Disclosure Act.

More LDA Referrals to Department of Justice

The Secretary of the Senate's office recently reported that it has referred to the Justice Department a total of 5,596 instances of non-compliance since the inception of the Lobbying Disclosure Act. According to BNA's Money & Politics Report, over 1700 of these matters were referred last month. While the U.S. Attorney's office has yet to exercise the authority granted in 2008 to treat these violations as federal crimes, no registrant wants to be on the receiving end of a "compliance letter" from the Justice Department. In addition, the U.S. Attorney has reported progress in identifying habitual LDA violators and in tracking LDA referrals.

Womble Carlyle Files Supreme Court Brief Challenging Election Ad Ban

Womble Carlyle filed a brief last week in the U.S. Supreme Court on behalf of ten state broadcaster associations. The case is Citizens United v. FEC, where the Court is considering whether to strike down the federal ban on independent corporate and union expenditures for election-related communications.

The brief argues that the McCain-Feingold law unconstitutionally singles out broadcast media (as well as cable and satellite) by barring corporate and union political ads during the weeks prior to an election. A copy of the brief is linked here.

Norton and Kahl Submit Comments to FEC on Improving Commission's Website

Larry Norton and Jim Kahl filed comments with the FEC regarding the accessibility of information on the Commission’s website. The comments note difficulties in accessing campaign records and searching the files of closed enforcement matters, and include suggestions for making the website more user-friendly. The FEC solicited public comment on these matters through a notice published in the Federal Register.

Supreme Court Poised to Allow Corporate Funding of Campaign Ads

In a stunning move, the Supreme Court announced on Friday that it is reconsidering the constitutionality of laws that prohibit corporations and unions from funding ads that influence elections. A ruling that such laws are unconstitutional would invalidate a decades-old spending restriction that applies in federal elections and in many states, and would unleash a flood of spending in the 2010 cycle and beyond.

The issue is presented to the Court in Citizens United v. FEC, a challenge to the “electioneering communications” provision of the McCain-Feingold law. That law, which passed in 2002, bars corporate and union financing of ads that identify a federal candidate, and that are aired in the run-up to the election on broadcast, cable or satellite. Citizens United, a non-profit group, wanted to air an anti-Hillary Clinton documentary through a cable television video on-demand service, and advertise for it on broadcast and cable television. A lower court said that because the group accepted corporate funding, it could do neither.

Rather than rule on the narrow question of whether this ban could be constitutionally applied in this instance, the Court announced that it wants to reconsider prior rulings allowing government to ban corporations and unions from spending their money in connection with elections. At stake is not just the McCain-Feingold law, but also a federal law that prohibits corporations and unions from paying for communications that “expressly advocate” for the election or defeat of a candidate - and many similar state laws.

This turn of events is remarkable not only because the Court seems poised to make a transformative change in campaign finance rules, but because five-and-a-half years ago the Court rejected a facial challenge to the electioneering communications provision in McConnell v. FEC. The Court had yet another opportunity to remake the law just two years ago in FEC v. Wisconsin Right to Life, but Chief Justice Roberts and Justice Alito – neither a fan of the electioneering communications provision - decided to proceed more incrementally. Now it appears that the two are ready to join three other Justices (Kennedy, Scalia, and Thomas) to chart a new path.

Re-argument is scheduled for September 9, 2009, just weeks before the Court formally begins its next session. A ruling in the case could come early in 2010, opening the door to a wide range of organizations – corporations, unions, business and trade associations, and ideological groups – to fund campaign ads and other communications.

RULE G-37 MAY EXPAND TO BALLOT COMMITTEE CONTRIBUTIONS

Last week, the Municipal Securities Rulemaking Board (MSRB) announced that it is considering expanding the reach of its Rule G-37 to cover ballot committee contributions. The rule, which was adopted in 1994, prohibits any securities underwriter from engaging in business with a municipal issuer within two years after it, or one of its professionals, makes certain political contributions. It also requires the disclosure of certain political contributions to issuer officials.

The MSRB’s latest actions are driven by concerns that municipal securities dealers can curry the favor of politicians by contributing to bond ballot campaign committees that they support. The MSRB’s latest proposal would apply G-37’s disclosure requirements to contributions to bond ballot campaigns, but would not invoke the two-year time-out on doing business with the municipality.

The draft amendment to G-37 is available on the MSRB website. The MSRB is seeking comments on, among other things, the prevalence of contributions to bond ballot committees, whether there is a connection between making such contributions and securing bond underwriting business, and how dealers are solicited to make such contributions. Comments are due by August 7, 2009.

OTHER PAY-TO-PLAY DEVELOPMENTS

State and local governments continue to pass new pay-to-play laws and make changes to existing law. The rapid change in this area is well-illustrated by these developments that occurred in just the last week or so.

Colorado
On Tuesday, June 23, a state district judge temporarily enjoined enforcement of Amendment 54, a Colorado ballot initiative that established state and local pay-to-play rules. Approved by voters in December 2008, the law prohibits campaign contributions and fundraising by companies that have sole-source contracts with state or local agencies, and by the company’s officers, directors, and individuals with a 10% or greater ownership interest. The law also bars companies from receiving a sole source contract related to a ballot initiative if the company or any of its principals contribute to the initiative.

Ruling from the bench, Judge Catherine A. Lemon sharply criticized several provisions in the law, commenting that her ruling was not a close call. The state Attorney General acknowledges constitutional problems with Amendment 54, but expects to appeal. Until a written decision is issued and the Attorney General decides whether to seek a stay pending appeal, caution is advised.

San Antonio
The San Antonio City Council has expanded its pay-to-play law. Previously, the law prohibited legal signers on proposals submitted for city contracts from making a campaign contribution to any council member or candidate. The contribution ban has been extended to cover:

• Any individual seeking a “high-profile” discretionary contract, as designated by the city
• Any owner or officer of an entity seeking such a contract
• The spouse of any of these individuals
• Any attorney, lobbyist, or consultant retained to assist in seeking the contract

The blackout period runs from the 10th business day after the solicitation has been released until the 30th calendar day after the contract is awarded. Additionally, city officials and employees are no longer able to accept gifts of entertainment, transportation, or lodging from those seeking or doing business with the city.

Oklahoma
In Oklahoma, the state’s Pension Oversight Commission and the Tobacco Settlement Board have voted to require disclosures by all firms seeking to manage the investment of public funds. Prospective investment advisers must reveal the existence of third-party marketing agents and any fees paid to these third-parties to assist in securing state business.

Detroit
In the wake of recent corruption scandals, a pay-to-play proposal, modeled on New Jersey’s law, was introduced in the Detroit City Council. The ordinance would prohibit political contributions from companies that have or seek no-bid city contracts valued at more than $25,000. The contribution ban would extend to employees, family members, and political action committees; and it would apply for the year preceding a contract award.

FOLLOW UP ON PAY-TO-PLAY WEBINAR

We appreciate that many of you were able to join us for our webinar last week on recent developments regarding “pay-to-play” laws and a view toward the future. For those of you who were unable to join us, the presentation with audio and PowerPoint slides can be accessed here. Please contact us if we can assist you with tailoring a training program for your company or developing a multi-state compliance plan in this increasingly risky area.

States Launch Review of Disqualification Standards for Elected Judges

Last week, the Supreme Court ruled that elected judges should not hear cases when the support they received from campaign backers creates an appearance of bias. In the wake of this ruling, a number of states have announced plans to review their rules on judicial disqualification. Michigan, for instance, has requested public comment by August 1 on a series of proposals. Ohio and Wisconsin are preparing to conduct similar reviews. West Virginia has announced the formation of a Commission on judicial reform to be headed by former Justice Sandra Day O’Connor.

The Supreme Court ruling allows states to adopt stricter rules than may be constitutionally required. The ruling also opens the door for states to consider the impact of money spent in judicial races other than through direct contributions to a candidate. In fact, the case before the Supreme Court involved little in the way of campaign contributions, with the bulk of the challenged spending coming through large independent expenditures and donations to a 527 group that favored one of the judicial candidates. A dissenting opinion in the case also raises the possibility that disqualification may be required if large expenditures are made by an industry association, trade union, physicians’ group, or the plaintiffs’ bar.

Another issue to watch is whether states leave disqualification decisions in the sole discretion of the deciding judge. Michigan Supreme Court Justice Stephen J. Markman asks a series of questions for public comment, including whether decisions to disqualify a judge should be made by the judge who is the object of the disqualification request or by another judge. And if it should be heard by another judge, what if that judge campaigned against the judge whose disqualification is sought? Or what if the judge hearing the disqualification request received political support from groups that might be advantaged by another judge’s nonparticipation in a case?

The possible questions are endless. The Supreme Court ruling ensures that for many states, there will soon be answers.

SIXTH-LARGEST PUBLIC PENSION FUND ADOPTS PAY-TO-PLAY RULES

The $80 billion retirement system for Texas teachers, the sixth-largest public pension fund in the country, adopted pay-to-play rules for firms seeking to manage the fund’s investments. As of July 1, 2009, money managers seeking contracts with the fund will have to disclose whether in the preceding three years they have lobbied or communicated with pension board members or elected officials, and whether they have made political contributions to any Texas official. No pension fund investment will be made if an authorized officer of the board determines that a disclosed contact or political contribution "has created an unacceptable risk to the integrity and reputation" of the pension fund.

The announcement by the Texas retirement fund comes as the Securities and Exchange Commission is considering releasing proposed rules to restrict campaign contributions by firms that manage investments for state pension funds. The New York Attorney General has also proposed model rules for limiting contributions to candidates involved in pension fund oversight.

FEC ACRIMONY OVER RELEASE OF RECORDS; HEARINGS, NEW APPOINTMENT MAY BE NEAR

We have chronicled recently a rising number of 3-3 splits on the six-member Federal Election Commission, all along partisan lines. The deadlocks, as we have noted, span a wide range of issues, including political activity by 501(c) and 527 organizations, rules for candidates’ testing the waters, coercion of campaign contributions, and liability for false reports stemming from embezzlement. This week, two of the three Democratic Commissioners admonished their Republican colleagues, who released documents that were being sought through a Freedom of Information Act request. In a written statement, Commissioners, Ellen L. Weintraub and Cynthia L. Bauerly said,

"At a time when we have so many legitimate disagreements over the precise contours of the law, we had hoped this matter could have been resolved by the full Commission according to established procedures, rather than by a group of three Commissioners choosing to preempt those procedures."

Amid rumblings that the Senate Rules and Administration Committee may hold hearings on the reason for so many 3-3 splits, Congress appears poised to confirm labor attorney, John Sullivan, to replace Commissioner Weintraub. The terms of two other Commissioners - Chairman Steven T. Walther and Commissioner Donald F. McGahn II - expired at the end of April, but the law permits them to remain on the panel until a replacement is confirmed.

"NEVER MIND" - HILL REVERSES ITSELF ON TERMINATING LOBBYISTS

One of the surprises in last week's new Lobbying Disclosure Act guidance (Political GPS, 6/12/09) issued by the Secretary of the Senate and the Clerk of the House concerns the circumstances when a lobbyist can be removed from a registrant’s list of lobbyists. The guidance said this was permissible when either: (1) the individual’s lobbying activities do not constitute 20% of his time for the client in the current quarter and are not expected to meet this level in the upcoming quarter; or (2) the individual did not in the current quarter and does not reasonably expect in the upcoming quarter to make more than one lobbying contact per quarter.

While the first requirement presented few surprises, the second seemed to contradict the LDA which does not put any time constraint on lobbying contacts. In fact, another section of the same guidance memorandum states that registration obligations arise if the 20% rule is satisfied and the individual makes more than one lobbying contact "even if the second contact occurs in a later quarterly period." The new guidance raised the real possibility that lobbyists could go in and out of registered status, or avoid future registration altogether, by timing lobbying contacts.

Alarm bells sounded! Political lawyers scrambled! What did it all mean? What was the justification for this new interpretation? On June 16, the Secretary and the Clerk addressed the uproar. Now a lobbyist can be removed from the registrant's list when that individual does not "reasonably expect to make further lobbying contacts." Gone is the "per quarter" qualification.

Backtracking no doubt, but the latest revision is not a complete about-face. The prevailing interpretation has been that once a lobbyist has made two lobbying contacts, he may only be "delisted" by falling below the 20% rule in the current or succeeding quarter. Now a lobbyist's reasonable expectation that he will make no further "lobbying contacts," even though he may engage in further "lobbying activities," will allow him to come off the lobbying rolls. For sure, this is a much smaller exception than last week’s guidance would have allowed, but it would appear to be consistent with the wording and structure of the LDA.

On another point, the latest guidance instructs that retroactively terminating a lobbyist by amending a prior quarterly report (LD-2) does not relieve the lobbyist of the obligation to file a personal contribution report (LD-203) for the period in which he remained (albeit temporarily) in active status. This contradicts oral advice that the Secretary's and Clerk's offices have given and which many lobbyists have relied on in determining whether they have LD-203 filing obligations.

These evolving interpretations underscore the difficulty of LDA compliance for the lobbying community and the need for vigilance in reviewing Congressional guidance. Even the Secretary and the Clerk acknowledge on the very first page of the guidance that they do not have authority under the LDA to issue "definitive opinions" on the interpretation of the law. Our advice – tread carefully.

NEXT WEEK: PAY-TO-PLAY WEBINAR – JUNE 25

We will be presenting a webinar on pay-to-play laws on Thursday, June 25 from 12 Noon to 1 PM. You can find more information about the webinar and register at this link. Our next edition of Political GPS will be published the week of June 29.

New Role For Election Lawyers in Litigation: Supreme Court Disqualifies Judge Based On Campaign Support

The Supreme Court ruled on June 8 that an elected judge was constitutionally barred from taking part in a case where one of the parties spent a large sum to get the judge elected. (Caperton v. A.T. Massey Coal Co.). The ruling will bring new scrutiny to cases heard by elected judges and may spawn a wave of efforts to keep elected judges from hearing cases tied to their supporters.

An interesting aspect of the case is that it involved only a small amount in direct campaign contributions. Don Blankenship, president of a coal company, contributed $1,000, the statutory limit, to Brent Benjamin, a candidate for a West Virginia appeals court. That court would soon hear the appeal of a $50 million jury verdict against Blankenship’s company. Blankenship also donated almost $2.5 million to a 527 organization that supported Benjamin and spent another $500,000 on independent expenditures – direct mail, television, and newspaper ads. Benjamin was elected, and later cast the decisive vote in a 3-2 ruling that reversed the verdict against Blankenship's company.

While the five-member majority called the facts of this case "extreme by any measure," Justice Scalia, in dissent, warned, "Many billable hours will be spent in poring through volumes of campaign finance reports, and many more in contesting nonrecusal decisions through every available means." Scalia predicts that the Court's opinion will add "to the vast arsenal of lawyerly gambits what will become known as the Caperton claim."

Justice Roberts, also writing in dissent, listed 40 questions that he said the majority left unanswered. For instance:

• "How much money is too much money? What level of contribution or expenditure gives rise to a 'probability of bias'?"
• "Are independent, non-coordinated expenditures treated the same as direct contributions to a candidate's campaign?"
• "What if the "disproportionately" large expenditure is made by an industry association, trade union, physicians' group, or the plaintiffs' bar? Must the judge recuse in all cases that affect the association's interests? Must the judge recuse in all cases in which a party or lawyer is a member of that group? Does it matter how much the litigant contributed to the association?"
• "What if the case involves a social or ideological issue rather than a financial one? Must a judge recuse from cases involving, say, abortion rights if he has received "disproportionate" support from individuals who feel strongly about either side of that issue? If the supporter wants to help elect judges who are "tough on crime," must the judge recuse in all criminal cases?"

This case may affect a broader and intensifying debate over the wisdom of electing judges. Nearly 40 states elect at least some of their judges. As for predictions that this case will trigger a wave of recusal motions, that may depend on how lower court judges respond to the first round of such claims.

NEW LOBBYING DISCLOSURE ACT GUIDANCE ISSUED

On June 9, the Secretary of the Senate and the Clerk of the House issued important new Lobbying Disclosure Act guidance.

Some changes affect the semi-annual report (LD-203), which must be filed separately by individual federal lobbyists and their employers (LDA registrants) each January and July. The new guidance clarifies when a filer must report campaign contributions and other disbursements relating to events and organizations associated with covered officials:

• Registrants and lobbyists need not report contributions to state and local candidates and political committees that are not registered with the FEC, nor do they need to report payments for "non-preferential" sponsorship of multi-candidate debates.
• The costs of a reportable event include only direct costs, such as hotel and food expenses, but not indirect costs, such as host staff salaries.
• Payments to vendors for reportable events can be aggregated and a lump sum amount reported as "various vendors."

The Secretary and the Clerk have also provided much-needed guidance on the reporting of payments to entities "established, financed, maintained or controlled" by a covered official. Under the new guidance, a covered official who is a non-voting board member does not "control" that organization. Also, a charitable organization established by a person before he or she becomes a covered official is not considered to be "established" by the official, if he or she has no relationship to the organization after becoming a covered official. And a covered official's de minimis contribution to a charity is not, standing alone, indicative of that person's financing, maintaining, or controlling the organization. Additional facts may, however, require reporting of such charitable contributions.

While these benchmarks are welcome, they may raise as many questions as they answer. For instance, if a non-voting board member does not control the organization, why does the guidance view a non-voting PAC board member as controlling that entity? What does it mean to have "no relationship" with an organization? What other facts in addition to a de minimis contribution would be indicative of financing, maintenance or control? We'll have to wait for those answers.

Finally, the Congressional guidance clarifies that lobbyists can only be terminated by the registrant by completing Line 23 of LD-2. Amending the LD-1 or LD-2 to delete a lobbyist listed on lines 10 or 18 is not a proper method of termination.

OBAMA ADMINISTRATION MAY WITHHOLD HIGHWAY MONEY IF STATES ATTEMPT TO APPLY PAY-TO-PLAY LAWS

The Obama Administration says that federal law prohibits state or local restrictions on competition for federally-funded contracts, including pay-to-play laws that restrict campaign contributions by contractors and their principals. According to story in The Hill, Jeffrey Paniati, acting deputy administrator of the Federal Highway Administration, wrote: "However laudable the goals of such State laws, they have the effect of limiting competition in the awarding of Federal-aid highway contracts."

The Administration's position sets up a conflict with up to 20 states that have pay-to-play laws at either the state or local level. For instance, Ohio's Legislative Inspector General recently issued a statement, reminding prospective contractors that once the state receives federal funds under the American Recovery and Reinvestment Act of 2009, the distribution of those funds through state channels means that Ohio's lobbying laws apply. Under Ohio law, lobbying includes efforts to influence executive agency decisions regarding the expenditure of funds, award of contracts, and regulatory decisions. New Jersey officials are also seeking legislation that would expressly apply the state's strict pay-to-play laws to the state’s distribution of federal stimulus funds.

NEW FEC NOMINATION APPEARS TO BE ON FAST-TRACK; DEADLOCKS CONTINUE ON ENFORCEMENT MATTERS

John J. Sullivan, President Obama's nominee for the Federal Election Commission, encountered light questioning during a confirmation hearing this week before the Senate Rules and Administration Committee and was approved by the Committee by voice vote on Thursday night. Sullivan is an attorney with the Service Employees International Union (SEIU), and has been involved in election administration issues. The nomination now goes to the full Senate, and Rules Committee Chairman Charles Schumer says that he expects a quick confirmation. Sullivan would replace Commissioner Ellen L. Weintraub. Both are Democrats.

In the meantime, the FEC has deadlocked yet again, this time on a matter involving a committee's failure to provide names and employer information for nearly 90% of individual contributors. A written statement issued by Commissioners Weintraub and Cynthia L. Bauerly says that the errors consisted largely of reporting "self" as both employer and occupation.

It is unclear why the FEC dropped the case, even after the respondents agreed to pay a civil penalty. The three Republican Commissioners, who voted against approving the settlement, have yet to issue their own statement. Commissioners Weintraub and Bauerly say of the dismissal, "This may be the most inexplicable resolution of [an enforcement matter] that we have seen during our combined tenures on the Commission." Weintraub joined the FEC in December 2002. Bauerly joined the FEC in June 2008.

Webinar on Pay-to-Play Updates: Campaign Contributions and Other Political Activities Pose Risks for State and Local Contractors

In the last few years, there has been a proliferation of state and local laws barring or severely limiting campaign contributions by companies doing business with government agencies. Just one prohibited campaign contribution by a contractor, its officers or executives, or other related individuals can lead to the immediate severing of existing contracts, disqualification of bids, fines, and even criminal penalties.

Now, more than ever, it is critical to understand the risks posed by pay-to-play laws - especially as billions of federal stimulus dollars are distributed through states and localities. Many organizations - some for the first time - are seeking government contracts to take advantage of this massive spending program.

Whether your organization is a novice or an experienced contractor, this timely webinar on June 25th, from 12:00-1:00 p.m. (Eastern Time), will demystify the pay-to-play laws and arm you with practical tips and best practices. You will also learn about other potential pitfalls facing government contractors, including the growing trend of regulating government contract sales professionals as lobbyists, special gift restrictions on contractors and bidders, and new limits on lobbying for federal stimulus projects.

There is no charge to attend this webinar, but space is limited. To register for this event, please click here.

About the Presenters
Larry Norton and Jim Kahl head Womble Carlyle's Political Law Practice. They represent corporations, trade associations, non-profit organizations, and others in connection with campaign finance, lobbying, and gift laws. Prior to joining Womble Carlyle, Larry and Jim served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission from 2001-2007. Larry and Jim are authors of Womble Carlyle's Political GPS Blog.

White House Expands Restrictions On Stimulus Lobbying

Late last Friday, through the unusual vehicle of a blog entry, the White House ethics counsel announced that restrictions on oral communications about Recovery Act projects now apply not just to federally-registered lobbyists, but also to unregistered lobbyists, "as well as anyone else exerting influence on the process." In March, the White House barred federal lobbyists from communicating with agency officials, in person or by phone, regarding particular Recovery Act projects.

Friday's announcement also establishes a window during which oral discussions about Recovery Act projects are prohibited. That window begins when grant applications are submitted and ends when awards are made.

The latest announcement indicates that agencies will still be required to post on their websites certain communications received from registered lobbyists. Under the White House's March directive, officials were required to publish (or summarize in writing) on agency websites two kinds of permissible communications from registered lobbyists: (1) written comments about specific Recovery Act projects and (2) oral communications about Recovery Act "policy issues" that do not "touch upon" particular projects. Under Friday’s guidance, it’s not clear whether oral communications with lobbyists about particular projects must be made public, even if they occur prior to the receipt of grant applications, or whether the publication requirement now pertains only to communications about Recovery Act policy.

Other matters are also left unresolved by White House counsel's blog post. For example, the new guidance is silent as to what kinds of oral communications with agency officials would not involve "exerting influence" on agency officials, meaning that such communications could occur even after competitive grant applications are received. Likewise, Friday's guidance does not indicate whether the restrictions on oral communications apply only when persons are acting on behalf of an applicant for Recovery Act funds. It is also not clear whether the ban on oral communications is triggered by a party's own application or by the submission of an application by any grant competitor. Finally, the blog post does not say whether the revised guidance is immediately in force or will take effect only after the publication of more "detailed guidance," which the White House counsel says is coming.

Political GPS will continue to follow these developments and update readers as additional information is available.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (email, (202) 857-4429) or Jim (email, (202) 857-4417).

Executive Branch Lobbying Restrictions: A Chance For Common Ground?

The next chapter in the dispute over the President's March 20 memorandum restricting lobbyists' communications with executive branch officials is likely to begin soon when OMB Director Orszag reports to the President after a 60-day study period. The memorandum has received much criticism, and threats of legal action, from both the private sector and public-interest lobbying communities. (See Political GPS, March 27 and April 16, 2009). But, as we discuss below, a frontal assault on the memorandum should not be the lobbyists' only strategy.

It's difficult to argue with the directive's stated goals of making Recovery Act spending more transparent and reducing improper influence. It's just that the directive doesn't accomplish either. Rather than requiring disclosure of all communications with executive branch officials, the memorandum requires only that agencies post on their websites written communications received from registered lobbyists about particular Recovery Act projects and summaries of oral communications with registered lobbyists that relate to Recovery Act policy. The result, so far, has been little agency disclosure at all.

Oral communications between agency officials and registered lobbyists, if they concern particular Recovery Act projects, are simply banned. Curiously, OMB's April 7 interim guidance acknowledges that lobbyists "bring to bear helpful information" that facilitates agencies' evaluation of projects on the merits. That's hardly the best case for a gag order.

As we've noted before, the memorandum is also replete with loopholes that permit non-lobbyists (e.g., a company CEO who has bundled thousands in campaign contributions) and even state-registered lobbyists to have conversations with agency officials about Recovery Act projects. And because only certain communications must be posted on agency websites, many conversations will never see the light of day.

So what should lobbyists do next? The President’s ethics advisor Norm Eisen has already called the memo "right" as a legal and a policy matter. So don't expect a reversal from the White House. Also, a protracted legal battle may not be of much help to lobbyists since the restriction is aimed at short-term stimulus funding.

An alternative approach might be found in the President’s recent suggestion to a college graduation class, where he said that antagonists in another controversy should use "fair-minded words" and "join hands in common effort." In fact, the roadmap for lobbyists might just be found in the Honest Leadership and Open Government Act of 2007, a law that President Obama championed in the Senate. In section 214 of HLOGA, Congress urged lobbying organizations to develop professional standards, provide training, create third-party certification programs, and promote professionalism and disclosure. Other professions under intense scrutiny have found a rigorous self-regulatory system, developed by those who best understand the industry, to be preferable to overly restrictive and often poorly crafted government regulation.

Proceeding down the path of expanded self-regulation would surely be a recognition by the lobbying community, unavoidable we think, that the rules of the road have changed. But such a step forward by the lobbying community might just permit the White House to step back from the restrictive approach of the executive memorandum or at least exercise a gentler touch going forward.

FLORIDA COURT STRIKES DOWN DISCLOSURE REQUIREMENTS FOR ISSUE GROUPS

A federal judge last week struck down a Florida law that requires 501(c) groups to register and file reports in the same manner as political committees if they fund communications that refer to or depict a clearly identified candidate for office, or clearly refer to an issue to be voted on at an election. The suit was filed by the National Taxpayers Union and the National Taxpayers Union Foundation, the Broward Coalition, and the University of Florida College Libertarians.

U.S. District Judge Stephan P. Mickle concluded that the Florida law regulates "issue advocacy speech, pure political speech," and as such, failed the Supreme Court's test for regulating political speech in FEC v. Wisc. Right to Life (WRTL II). Judge Mickle held that the electioneering communications provision of the McCain-Feingold law is "the outer bounds of permissible regulation." That law bars corporate funding, and compels disclosure, for broadcast, cable, or satellite communications that refer to a clearly identified federal candidate in the 30 days before a primary and 60 days before a general election. In contrast, the Florida law regulates communications in all media, including the Internet, and, applies to speech that, according to the Florida court, may reasonably be viewed as communicating something other than an appeal to vote or against a candidate.

The Florida ruling is one of a string of recent cases, going back to Wisconsin Right to Life, in which courts have rejected restrictions on issue advocacy groups, even if a group's advertising refers to candidates for public office. We recently wrote in Political GPS about a Wisconsin ruling that struck down a state law that required registration and disclosure by groups attempting to influence ballot initiatives. As we have also discussed, recent FEC rulings have loosened the rules that the Commission applied just a few years ago in obtaining large fines from 527s and other non-profit groups.

A LATE-SESSION PUSH FOR ETHICS REFORM IN NEW YORK STATE

New York Governor David A. Paterson announced a sweeping ethics proposal that would replace the 13-person Public Integrity Commission with a five-member Government Ethics Commission. Appointments to the Commission would be made by a new 10-member Government Ethics Designating Commission, whose members would be appointed by the Governor, the four Legislative Leaders, the Attorney General, and the Comptroller.

The new Ethics Commission would take over enforcement of the state's campaign finance laws, currently the province of the State Board of Elections, and would oversee the Legislative branch, in addition to the Executive Branch and lobbyists. Since the Governor's proposal requires pension fund "placement agents" to register as lobbyists, they too would be subject to regulation by the new Commission.

The current Public Integrity Commission has been stung by charges from the State IG that the panel had improperly disclosed confidential information about investigations into the Spitzer administration. Nonetheless, the Governor's proposal is likely to meet resistance in the state legislature.

FEDS NAB VIRGINIA MAN IN CONDUIT SCHEME

A Virginia man pled guilty this week to federal charges that he made $17,000 in "conduit" contributions in 2003 to a candidate seeking federal office. Jerry Pierce-Santos, a former Bush (41) official and a major Republican fundraiser, engaged in a scheme in which he reimbursed political contributions made by ten individuals to the federal candidate. Seven persons were reimbursed for $2000 contributions and three others were reimbursed for $1000 contributions. At sentencing, Mr. Pierce-Santos faces up to two years in prison, three years supervised release, and a statutorily mandated $50,000 fine.

3-3 Votes On The FEC: Why So Frequent? What Do They Mean?

The Federal Election Commission has become the place where complaints go to die. In 2006 and 2007, FEC fines were skyrocketing, with several prominent 527 groups paying six-figure penalties and Freddie Mac paying a whopping $3.8 million for deploying corporate resources in support of fundraising activity. In the last year or so, most of the high-profile announcements have been dismissals. Even the investigations are few and far between, with the six-member panel repeatedly voting 3 to 3 on whether to authorize the staff to look into complaints.

What is going on and what does it mean?

Historically, the media and watchdog groups have cited 3-3 votes as evidence of Commission dysfunction. FEC statistics are a bit misleading on this point, but until recently such splits were quite uncommon. And while one could not discount partisanship as an influence in some of these cases, often the votes reflected genuine differences in ideology or disputes about whether the Commission was handling comparable cases in a consistent fashion. It should also be noted that while 3-3 votes have been justly criticized as creating uncertainty for the political community, such votes actually do resolve the immediate question before the Commission. Any time there are fewer than four votes to investigate, settle, or file suit, an enforcement action is terminated and the matter is dismissed.

On the other hand, Commissioners have sometimes made too much about the infrequency of 3-3 votes. Sure, most cases enjoy majority, if not unanimous support. But in a number of high-profile cases, the only way to lure a fourth vote to support going forward has been to allow the swing voter to establish the price tag on the case. In other words, the Commission will find a violation, but the penalty is so dramatically reduced that the pain is hardly felt.

So is anything different now? Yes and no. The current crop of 3-3 votes, while split along party lines, certainly cannot be characterized as protecting party members and loyalists. The three Democrats are repeatedly voting to proceed in these cases, while the three Republicans are voting to shut each matter down. In the current Commission, votes are cast regardless of whose ox is being gored.

But certain things are quite different now. Many of the stalemates depart from recent precedent in a wide range of important issues, such as regulation of political activity by 501(c) and 527 organizations, rules for candidates' testing the waters, coercion of campaign contributions, and liability for false reports stemming from embezzlement. In fact, statements issued recently by the Republican Commissioners give little deference to the FEC's determinations in prior enforcement matters and in many instances reflect a profound unease with using the Commission's investigative powers. There's also been a much sharper tone in statements released by both the Democratic and Republican sides that reveal a growing sense of frustration.

After a while, this kind of dynamic becomes self-sustaining. But roles can change, especially on a six-member body that can only function if there is compromise, or at least common ground. With three Commissioners currently "holding over" on expired terms, the President will probably make new appointments this year, and a new dynamic is likely to emerge. It would not surprise us to see a "new" Commission find agreement on a range of issues that are vexing the current body.

INVESTMENT FIRM PAYS $20 MILLION TO SETTLE CHARGES, AGREES TO RESTRICTIONS ON CAMPAIGN CONTRIBUTIONS

The Carlyle Group, a major private equity firm, agreed last week to pay $20 million and broadly reform its practices, ending an investigation of alleged "pay-to-play" practices and undisclosed conflicts of interest regarding New York’s public pension fund.

As part of the settlement, the Carlyle Group agreed to adopt a "Public Pension Fund Reform Code of Conduct," which is a model proposed by the New York Attorney General for interactions between investment firms and public pension funds. The Code limits campaign contributions to $300 from the investment firm, its principals and employees, and their families to candidates involved in pension fund oversight. Gifts to such officials are also prohibited, unless they are of only nominal value. The Code also prohibits the use of placement agents, lobbyists, or other intermediaries to interact with public pension funds to obtain investments.

The settlement may increase pressure on the Securities and Exchange Commission, which recently announced that it is considering rules to restrict campaign contributions by investment firms. The SEC proposal could come as soon as July.

STATE ROUNDUP

Kentucky: Violating campaign finance laws can be a risky proposition for individuals and their employers. The Kentucky Attorney General's office recently released investigative records to the Courier-Journal of Louisville regarding a Kentucky man who pled guilty in early 2008 to engaging in a straw donor scheme. Philip Dufour, an employee of road-building company, Elmo Greer & Sons, gave cash reimbursements to his daughter, her friend, and six other individuals for contributions he requested they make to Democratic and Republican candidates for Governor. In addition to Mr. Dufour's felony plea, his employer had to pay the $250,000 cost of the AG's investigation.

Illinois: The recent proposals from the Illinois Reform Commission (see May 8 Political GPS) are making their way through the General Assembly. While some of the commission's proposals – such as limits on the time legislators can serve in leadership roles – are likely to fall by the wayside, consensus seems to be building to enact ethics and campaign finance reform this session. High on the list for reformers are proposed campaign contribution limits similar to those in federal races. In addition, a Joint Committee on Reform established by Senate President John Cullerton and House Speaker Mike Madigan is expected to propose reforms to augment the Reform Commission proposals. But time is running short, with this session scheduled to adjourn at the end of the month.

Tennessee: The Tennessee Ethics Commission has voted against penalizing lobbyists found to have violated the state's registration and reporting laws during random audits conducted in 2008. In conjunction with the vote, the commission released an internal memorandum from its General Counsel that argued against an "aggressive approach to regulation." The violations at issue included failure to register in a timely fashion and failure to accurately report lobbying compensation. While there was an adequate legal basis to seek a civil penalty, the GC felt that such actions would make "influential people mad" and ultimately lead to a weaker law.

By the Womble Carlyle Political Law Team

First Lobbyist Bundling Reports DueMay 20

The rubber is about to hit the road for the new FEC lobbyist bundling rules. Leadership PACs, presidential campaigns, and political party committees, which report monthly, have until May 20 to file the new Form 3L. (Congressional committees will not have to report bundled contributions until quarterly reports are due in July.) The May 20 submissions will be the first bundling reports to be filed since the new rules were finalized earlier this year.

Under the rules, the recipient committees must consult the Congressional lobbying disclosure websites and the FEC's database to determine whether contributions were bundled by lobbyists, registrants, or the PACs they control. Reporting committees are well-advised to print out computer screenshots from these databases and maintain them in their records. Committees may rely on the disclosure databases, unless they have knowledge that a fundraiser should be registered as a lobbyist or that a PAC is controlled or established by a lobbyist.

It is also wise for lobbyists who may have bundled contributions during the period to confirm the reporting obligation with the recipient committees. A written confirmation will help ensure that the committee gives fundraising credit to the appropriate person and that the amount attributed is correct. As we have previously written in Political GPS, it is far better for bundled contributions to be attributed to an individual lobbyist or PAC, rather than a corporation. In the event the recipient committee fails to disclose reportable contributions, a confirmatory letter also helps establish that the bundler did not participate or acquiesce in the committee’s failure to file a form 3L.

These new reports are sure to generate attention, so lobbyists should do all they can to ensure that their efforts are portrayed accurately in the FEC filings.

FEC DISMISSES WAL-MART COERCION COMPLAINT, CITING PROMPT REMEDIAL ACTION

In keeping with the recent series of 3-3 splits in FEC enforcement matters (see May 8 Political GPS), this week we have another pair of dueling statements from FEC Commissioners concerning yet another tie vote. Apart from the notable fact of a Commission deadlock, the dismissal serves as a reminder that taking prompt remedial steps after discovering apparent violations can mitigate enforcement action or, as in this case, get the entire case dismissed.

This matter centered on allegations that in the run-up to the 2008 election, Wal-Mart and some of its management employees advocated the election of certain federal candidates. At issue were oral presentations and written materials provided to hourly-wage supervisors about the potential impact on Wal-Mart of the Employee Free Choice Act, and the increased likelihood of the bill's passage if Democrats won the White House and obtained a large majority in the Senate. A series of Wall Street Journal articles, which formed the basis for the complaints to the FEC, quoted employees who said that at the meetings with supervisors they were told how to vote.

The three Republican Commissioners voted to adopt the staff’s recommendation and close the case. The staff noted that the written materials provided to employees did not expressly advocate the election or defeat of a candidate, and therefore could be shared outside of the company’s restricted class. The staff recommendation was also influenced by the company’s efforts to clarify any misimpression about alleged meetings with employees. In the initial Wall Street Journal story, a company spokesperson said that any direction to employees as to how to vote was unauthorized, and the company immediately followed with an e-mail to managers reminding them that such statements are contrary to company policy. The three Democrats, however, thought the allegations concerning the oral statements merited investigation. Following the tie vote, the Commission voted to close the matter.

This case marks the second time in just the past few months that the Democratic Commissioners have been on the losing end of a vote to investigate allegations of coercion. More importantly, the case underscores the value of prompt corrective measures in mitigating FEC action.

SEC CONSIDERING POLITICAL CONTRIBUTION RESTRICTIONS FOR INVESTMENT ADVISORS AND HEDGE FUNDS

The SEC is expected to propose new rules that would bar investment advisors from managing state pension funds if the advisors or certain of their employees make campaign contributions to officials or candidates for public office. The new pay-to-play rule, which was previously considered but not adopted in 1999, could be proposed as soon as July.

The SEC rules, if adopted, would extend to investment advisors the principles of MSRB Rule G-37, which restricts campaign contributions by broker-dealers engaged in the municipal securities business. Key features of the 1999 proposal were:

• Two-Year Time Out - This core provision prohibits investment advisors from providing or seeking work for two years if the advisor makes a campaign contribution to officials responsible for, or having influence over, the selection of an investment advisor, or to candidates for such offices. It would also be a violation to solicit such contributions from a third-party.
  
• Two-Year "Look-Back" – An investor can be disqualified based on contributions made in a two-year period before a contract is awarded. The SEC suggested that this anti-circumvention measure would prompt advisors to inquire about prior contributions by potential partners and executive officers.
  
• Covered Employees - The contribution prohibition would apply to the advisor's partners, executive officers, solicitors, or a PAC controlled by any of the above.
  
• Registered and Unregistered Advisors – The proposed rule would apply both to SEC-registered advisors and those exempt from registration. Accordingly, the proposal would cover hedge funds, venture capital funds, and other private investment companies.
  
• Recordkeeping, but no reporting – The lack of reporting obligations would distinguish the proposal from G-37. However, the required records could be reviewed by the SEC staff in the course of an investigation or examination.

FEC Stalemate Continues; New Commissioner Nominated

The Federal Election Commission remains deeply divided – a situation that is unlikely to change until new Commissioners are appointed and confirmed. That may happen soon, as President Obama announced last week an "intent to nominate" John J. Sullivan as FEC Commissioner. Sullivan is a lawyer with the Service Employees International Union (SEIU), and has worked on election administration issues.

The split on the six-member panel has been most visible in enforcement matters. In a string of cases, the three Democratic Commissioners have voted to authorize the staff to look into allegations of wrongdoing, while the three Republican Commissioners have voted to dismiss, concluding that no investigation is warranted. To open an investigation, four or more Commissioners must vote to find "reason to believe" that a violation has occurred.

One recent case involved charges of coercion based on communications between an organization's CEO and employees who had stopped making payroll deductions to an associated PAC. According to the complaint, the CEO expressed disappointment with employees and questioned their commitment to the organization. The complaint also alleged that managers held one-on-one meetings with subordinate employees to press them to resume making contributions. In a published statement, the two Democratic Commissioners stressed that the right to decline to contribute to a political cause deserves as much protection as the right to contribute to a political cause of one's choice. The two Commissioners decry the decision to drop the matter and strongly imply (correctly, we think) that in prior years the complaint would have been investigated.

The FEC also continues to deadlock over whether to investigate activity by 501(c) organizations. In two recent cases involving 501(c)(4) groups, American Future Fund and Protect Colorado Jobs, Commissioners split along party lines over whether to investigate allegations of corporate spending in congressional races.

A third matter involved allegations that a 501(c)(6) organization, Americans for Job Security, Inc., spent over $17 million dollars on a political ad campaign. Complaints filed with the Commission charged that this group failed to register and report as a political committee, and accepted contributions in excess of federal limits and from prohibited sources. In a written statement that may reflect some of the ire felt over these issues, Republican Commissioners questioned the truthfulness of the public interest group that complained about this matter and chided their own lawyers for failing to acknowledge the "checkered history" of the Commission’s regulation concerning express advocacy. These recent dismissals appear to expand the opportunities for non-profits to operate outside of the FEC's jurisdiction, and they depart significantly from principles applied by the Commission in aggressively pursuing 527 groups after the 2004 campaign.

It is by no means certain that new FEC Commissioners will be confirmed anytime soon, even if the President announces additional appointments. When new Commissioners do come on board, however, it will be interesting to see what weight they give to some of these recent rulings and whether the regulated community is safe in relying on them.

ETHICS IN ILLINOIS: COMMISSION OFFERS UP A DEEPDISH OF REFORM

In the immediate aftermath of the arrest of former Illinois Governor Rod Blagojevich, then Lt. Governor (and now current Governor) Pat Quinn established a Reform Commission that was given 100 days to propose changes to the state's ethics and election laws. At the end of April, the Commission issued its report, which called for comprehensive changes in the areas of campaign finance and procurement law, as well as more transparency and tougher enforcement mechanisms.

The report was highly critical of the state's "disclosure-only" campaign finance system, which now requires only semiannual reporting of campaign contributions and imposes no limits on individual or corporate contributions. If enacted, the recommendations would represent a significant departure from Illinois' freewheeling political ways. Among the recommended campaign finance reforms are:

• Limit political contributions from individuals to $2400 per candidate, and from corporations, unions or PACs to $5000 per candidate.
• Ban political contributions from lobbyists, and extend the state's pay-to-play law to cover contributions to legislators.
• Mandatory "real time" reporting of political contributions exceeding $1000 to statewide candidates within five days of receipt.
• Mandatory reporting of bundled contributions exceeding $16,000 and disclosure of the identity of the bundler.
• Mandatory disclosure of independent expenditures exceeding $5000 that are made in support of a candidate
• Establish a pilot program for public financing of judicial elections in 2010, as a possible precursor to expanding the program to statewide and legislative elections.

Consideration of these measures now moves to the General Assembly. It remains to be seen whether the state legislature will enact these or similar recommendations, or try to dodge the bullet altogether. But given that one former Illinois governor is currently in prison and his successor was impeached and is under federal indictment, the time for change may have come to the Land of Lincoln.

PENNSYLVANIA COURT STRIKES DOWN CONTRIBUTION BAN AIMED AT GAMING INDUSTRY

The Pennsylvania Supreme Court on April 30 invalidated a ban on campaign contributions by persons associated with the licensed gaming industry. The court found that the state's ban on all contributions whatsoever by gaming industry licensees, applicants, and their owners, officers, and directors was not narrowly tailored to achieve the legislature's stated objective of eliminating corruption (and its appearance) as a result of large campaign contributions. The court strongly implied that lower limits on gaming interests would have survived a constitutional challenge.

The case is significant for a couple of reasons. One, the Court acknowledged the authority of the state legislature to limit contributions based on concerns about corruption and the appearance of corruption. Pennsylvania is one of just a few states that imposes no limits on individual contributions. Two, the ruling suggests that laws in other states that ban or restrict contributions by public contractors (so-called "pay-to-play" laws) may be constitutionally vulnerable if the restriction on campaign contributions goes beyond the asserted governmental interest.

CONSUMER SPENDING DOWN, PAC SPENDING UP

In the midst of the gloomy economic news, it seems that spending is not trending down in all areas. The FEC has reported that in the 2007-08 election cycle, PACs raised $1.2 billion, an increase of more than 10% over the prior election cycle, and contributed $412.8 million to federal candidates, an increase of 11%. But those increases were dwarfed by the spike in independent expenditures by PACs in support of federal candidates. In 2007-08, PACs made $135.2 million in such expenditures, a 250% increase over 2005-06 and a 100% increase over the last Presidential cycle (2003-04).

With PAC coffers on the rise, it is no coincidence that the FEC also recently reminded PACs of the importance of adopting internal controls to insulate themselves from liability in the event of a misappropriation of funds. PACs that operate within the "safe harbor" created by the FEC - which include practical safeguards such as mandating in PAC bylaws that two signatures are required on all PAC checks over $1000 - will not be subject to civil penalties for filing incorrect reports due to the embezzlement of committee funds. PACs would be wise to take stock of their financial controls now and ensure that they satisfy the FEC's safe harbor provisions.

Political GPS: FEC DROPS CASE AGAINST 527 GROUP – WHAT ARE THE LESSONS?

The FEC this week quietly dismissed an October 2006 complaint charging that the Lantern Project, a 527 organization, had failed to register as a political committee and raised funds outside of the limits and prohibitions of federal law.

An organization must register with the FEC and comply with federal source restrictions and contribution limits if it raises or spends over $1,000 to influence a federal election. That may seem like a low bar, especially given that to qualify as a 527 under IRS rules, an organization's primary purpose must be to influence elections. So how did the Lantern Project avoid an expensive investigation and hefty fines, a fate suffered by a number of high-profile groups from the 2004 campaign?

FEC records indicate that the Lantern Project spent over $1.6 million in the months immediately prior to the 2006 election, with every ad apparently critical of Rick Santorum. The ads attacked Santorum's positions on minimum wage, Social Security, tax breaks for oil companies, and other issues. If this was an "issue" group, the issue was Rick Santorum. But the FEC chose not to interview donors or look at written fundraising appeals to see if the activities of the organization qualified the group as a political committee under Commission rules.

Here's why. Before the FEC will look beyond the public record or any information the party charged with the violations elects to share with them, the agency must find "reason to believe" that a violation has occurred. In this case, neither the available fundraising appeals nor the ads satisfied FEC tests for political committee status. While in some cases allegations of wrongdoing can be enough to go forward, the FEC typically declines to credit allegations if they are specifically disputed by the respondent organization, as occurred here. On a vote of 4-1, with one Commissioner recused, the FEC found insufficient grounds to look into the matter and decided to shut it down.

This outcome is best explained by the Lantern Group's method of operating and awareness of FEC tripwires. For one thing, the group was more circumspect about its objectives than some of the 527s in the 2004 campaign. In 2004, organizational leaders touted their electoral ambitions in news stories - statements that helped support an argument that the Commission should delve further into the groups’ fundraising and spending. In contrast, the Lantern project described itself this way: "our mission here is simple: [t]o shine a light on the facts about Rick Santorum’s extreme positions, failed policies and hypocritical statements – and let the facts speak for themselves."

The Lantern Project's ads were also crafted to avoid "expressly advocating" for Santorum's defeat, which would be "expenditures" triggering political committee status if they cost over $1,000. One example: "From privatizing Social Security to cutting student loans for the middle class, when Rick Santorum has to choose between siding with George Bush or middle class Pennsylvanians, Santorum supports Bush. What is he thinking?" There was no language such as "vote against" or "defeat," which would satisfy one FEC test for express advocacy, and no words referring to Santorum’s candidacy or election, which may have helped satisfy another.

There were also no statements on the group's website indicating that the funds would be used to target Santorum's defeat, which under FEC rules would mean that the funds received were "contributions." More than $1000 raised that way and you have a political committee. The Lantern Group told FEC staff that in communications with donors, fundraisers expressly disclaimed intentions to elect or defeat Santorum, and that the organization had placed a statement on its website saying the same thing. The FEC says the website disclaimer alone would not insulate a group from liability if there was evidence to the contrary. Of course, it's difficult to find contrary evidence if you don’t look for it.

What are the lessons for 527 organizations and other non-profits engaged in political activity? One lesson is that there is less risk of an FEC investigation if most fundraising is done through personal appeals, rather than through websites or other public communications. If a group does use a website, it will help fend off legal action if there is a statement on the site that funds raised will not be used to elect or defeat a candidate.

As for the ads, a group should be careful to avoid crossing into territory that the FEC considers to be express advocacy - although the records released in the Lantern Project case hint that the Commission may in future cases apply an even stricter test, first articulated by the Supreme Court in the Wisconsin Right to Life case, that forbids consideration of context, such as the fact that an ad was run in proximity to an election. And finally, it may help if public statements and organizational filings stress the positions of the officeholders, rather than their suitability as candidates.

While 527 groups appeared to play a reduced role in the 2008 elections, this recent FEC decision reminds us that there is still plenty of opportunity for them - as well as other non-profit organizations - to influence federal elections.

CHARITABLE-MATCH IS NO MATCH FOR FEC

FEC deadlocks along party lines are fast becoming a common occurrence. Somewhat surprising is the matter that split Commissioners earlier this week. Intercontinental Exchange, Inc. (ICE), which operates global futures exchanges and over-the-counter markets, asked the FEC for permission to increase the charitable match on employee PAC contributions from $1-to-$1 to as much as $2 for each $1 contributed to the PAC.

The Commission has issued many advisory opinions (AOs) approving charitable matching programs, provided that the contributor does not receive any financial, tax, or other tangible benefit from the corporation, the PAC or the charity. Since the proposed incentive program met that condition, FEC lawyers recommended granting ICE’s request. The three Republican Commissioners concurred with the draft opinion, but none of the Democratic Commissioners were willing to sign on. As a result, no AO was issued.

The FEC's non-decision is surprising in a number of respects. Advisory opinion requests regarding PAC promotional programs do not traditionally engender partisan splits. In fact, the FEC has approved a wide variety of charitable-match, raffles, and other promotional programs that encourage PAC participation.

The legal underpinnings for opposing the request are also unclear. One explanation reportedly offered by Democratic Commissioners was that the generous match would provide such a substantial incentive that it would cast doubt on the voluntariness of PAC contributions. That's puzzling because the amount of the match in comparison to the PAC contribution has never been a focus of past FEC opinions. And in the context of promotional raffles, the value of the prize can be much greater than the winner’s PAC contribution.

It may well be that after some turnover on the Commission, a requestor, either ICE or some other organization, may decide it's worth asking this question again.

COURT DEALS BLOW TO OHIO PAY-TO-PLAY LAW

An Ohio appeals court on April 14 struck down certain provisions of the state's pay-to-play law that were adopted in 2006. This is the second time a court has invalidated these provisions on technical grounds involving the manner in which the law was passed. The Ohio Attorney General obtained a stay of the first ruling pending appeal. There is no word yet on whether further appeals or requests for a stay are in the offing.

We will have more to say on the Ohio pay-to-play situation in coming weeks. Until the legal uncertainty clears, however, we urge that state bidders and contractors, their owners (20% or more) and family members, and contractors' affiliated PACs – all of which may be subject to contribution restrictions - exercise great caution in making contributions in Ohio. Also, Ohio’s Legislative Inspector General recently issued a statement, reminding prospective contractors that once the state receives federal funds under the American Recovery and Reinvestment Act of 2009, the distribution of those funds through state channels means that Ohio's lobbying laws apply. Under Ohio law, lobbying includes efforts to influence executive agency decisions regarding the expenditure of funds, award of contracts, and regulatory decisions.

NEW CAMPAIGN CONTRIBUTION LIMITS PROPOSED FOR EARMARK BENEFICIARIES

Rep. Paul Hodes (D-NH) and Gabrielle Giffords (D-AZ) have introduced legislation that would ban federal lawmakers from taking campaign contributions from companies for whom they have secured earmarks. The ban would also extend to contributions from the president, CEO, COO, and CFO, as well as the lobbyists for such companies.

H.R. 2038, The Clean Law for Earmark Accountability Reform (CLEAR) Act, would amend the Federal Election Campaign Act. Until the text of the bill is available, we do not know whether the prohibited contributions would result in violations by the contributors and the recipient campaigns or what the penalties would be for violators. It is also not clear if the bill would apply to both in-house and retained lobbyists. Political GPS will follow this bill and report on it in future posts.

Posting will resume the week of May 4th.

OMB Clarifies Presidential Gag Order on Discussions with Lobbyists

The Director of OMB last week issued a memo to heads of executive departments, clarifying President Obama’s instruction that agencies restrict oral communications with registered lobbyists. The President’s memo only permits in-person or phone conversations between lobbyists and executive branch officials about Recovery Act spending that are limited to "policy issues" that do not "touch upon" particular projects.

OMB Director Peter Orszag’s new memo provides some needed clarification, but the core restriction – the gag order on lobbyists’ discussions about projects – is unaffected. The key points are:

• There are no restrictions on oral communications between lobbyists and agency officials about logistics or implementation, such as how to apply for funding under the Recovery Act, how to conform to deadlines, and requests for information about program requirements under the Recovery Act.

• Communications between federal officials and registered lobbyists are permitted at widely-attended gatherings, as defined in executive branch ethics rules.

• The oral communication bar applies "only to communications with individuals who are Federally registered lobbyists," not more broadly to organizations that lobby or to their non-registered employees.

One matter is sure to require further explanation. OMB says that the President's directive "applies to communications prior to the award of a grant or other Recovery Act funding; it does not restrict grant recipients' representatives' ability to communicate with officials regarding the administration of a grant that has already been awarded." It is not clear, however, whether this would allow a lobbyist to speak with a government official about possible modifications to a grant that would help in the administration of the project.

The bottom line is that Mr. Orszag’s memo does little to make the President’s gag order more palatable for federal lobbyists. In a “Frequently Asked Questions” attachment, the OMB Director instructs that while the gag order applies to federal lobbyists, it does not apply to individuals who used to be federal lobbyists, but are no longer, or to currently registered state lobbyists. It is small comfort that the FAQ admonishes agencies that they should not avoid all contact with federally registered lobbyists because they bring to bear helpful information that facilitates agencies’ evaluation of “policies and projects on the merits.” Just don’t talk to them.

ILLINOIS GOVERNOR RESCINDS BLAGOJEVICH ORDER, EASES PAY-TO-PLAY RESTRICTIONS

The new Illinois pay-to-play law just became a bit less complicated, as Governor Pat Quinn rescinded his predecessor’s executive order regarding campaign contributions by state contractors.

Governor Quinn explained his action by saying there was confusion over the interplay between the Blagojevich order and the state’s pay-to-play statute, and that he wanted to clear the decks as legislators consider proposals recently unveiled by a state reform commission.

The Illinois “pay-to-play” law, like similar laws in states and municipalities around the country, seeks to break the link between campaign contributions and the award of government contracts. Contractors and bidders must file registration statements that list affiliates and key employees, along with their spouses and children, all of whom are barred from contributing to certain officeholders and candidates. Failure to comply with registration obligations can lead to fines, and false statements can give rise to perjury charges. A single violation of the contribution ban allows procurement officers to void contracts and disqualify bids.

The Blagojevich executive order substantially built on the restrictions contained in the Illinois law. While the statute bans contractors from contributing to the executive official responsible for overseeing their state contracts (and to candidates for the same offices), the Blagojevich order banned contributions to all top executive branch officials and candidates, regardless of whether they had responsibility for a particular contract. The former Governor’s order also barred contractors from contributing to state legislators, a group unaffected by the Illinois pay-to-play law. And, the Blagojevich order extended the law's contribution restrictions to a greater number of contractor affiliates, officers and employees.

In the wake of the political scandals that have rocked Illinois, further efforts to reform campaign finance and procurement laws seem likely. In the meantime, however, the rescission of the executive order will somewhat ease the compliance burden on Illinois contractors.

ARKANSAS TO LOBBYISTS: YOU PAY, YOU STAY

A new Arkansas law, which will take effect mid-summer, prohibits lobbyists from paying for food and beverages at any location or event where the lobbyist is not physically present. The bill’s sponsor says the law is aimed at preventing lawmakers from going out for a meal and calling a lobbyist for a credit card number in order to pay for it. Was this really going on? The state Attorney General, perhaps revealing that there was not much, if any, evidence of this practice, said in a statement: “I am pleased to see that ‘absentee lobbying’ will now be a thing of the past, no matter how rarely it happens.”

The new law also bans contingency fees for lobbyists – fees that depend on whether a lobbyist achieves a favorable outcome for the client. Most states ban this practice. Also, lobbyists who deliberately fail to register within five days of beginning lobbying activities are now subject to fines.

UPCOMING FILING DEADLINES

A number of reports are due on April 20, 2009:

• Quarterly activity report for Lobbying Disclosure Act filers

• IRS Form 8872 (for 527 organizations that are monthly filers and do not register and report with the FEC)*

• FEC report (for PACs filing on a monthly schedule)**

*In a non-election year, 527 organizations may elect to file their 8872 report on a semi-annual basis, in which case the next report is due on July 31, 2009. Form 8872 must disclose the organization’s contributions and expenditures.

**In a non-election year, federal PACs may elect to file semi-annually, in which case the next report is due on July 31, 2009.

Political GPS: OVER 1000 COMMITTEES MISS FEC BUNDLING RULES DEADLINE - DOES REPORTING REALLY MATTER?

Over 1,080 federal political committees known to be controlled by lobbyists failed to file an amended statement of organization by March 29, according to CQ Today Online (subscription required). New FEC rules require these filings to help candidates and others track “bundled” contributions received from lobbyist-controlled PACs. These non-filers reportedly took in over $100 million in receipts during the 2008 cycle, and made $75 million in contributions.

In a companion story, CQ reported that many leadership PACs, which were required by March 29 to disclose the Members with which they are associated, also failed to file amended reports. One FEC Commissioner has suggested that the poor compliance record by leadership PACs is because the filing deadline “may have fallen off people’s radar screen.”

It certainly doesn’t sound like Members of Congress have much to worry about, and perhaps the late-filing PACs don’t either.

Indeed, there are times when missing a filing deadline draws only a stern warning or a small fine. But last week also offered fresh reminders that in other circumstances a casual approach to disclosure of political activity can land an organization and its executives in hot water. For instance:

• Maryland prosecutors last week filed criminal charges against 77 state political committee chairmen and treasurers for failing to file timely campaign finance reports. Each count of failing to file campaign finance reports carries a maximum penalty of one year in jail and/or a $25,000 fine.
• The Government Accountability Office (GAO) just released its second report analyzing compliance with 2007 amendments to the Lobbying Disclosure Act that impose stricter reporting obligations on federal lobbyists. The GAO noted that the U.S. Attorney’s Office for the District of Columbia is finalizing a new system to track and report on its enforcement of lobbying violations, and is devoting an additional staff member to lobbying compliance. The GAO also referred two committees to Congress for failing to cooperate fully with its statutorily-mandated audit. GAO’s frustration with these two committees is evident in the report’s detailed description of their recalcitrance.
• A new “pay-to-play” law in Illinois requires state contractors and bidders to file registration statements that list affiliates and certain high-level employees, along with their spouses and children. Under the Illinois law, all are barred from contributing to certain state officeholders and candidates. A false report can expose a company and its executives to perjury charges.
• Politico reported recently that a growing number of companies are increasing scrutiny of their political operations and more carefully vetting the beneficiaries of their political spending. The on-line publication notes, for instance, that a number of companies have been caught up in a federal investigation involving alleged ties between their contributions and millions of dollars in Congressional earmarks. Also, many companies are yielding to shareholder pressure to disclose political spending that the company is not required to report in public filings, such as corporate donations in state elections and ballot contests, and donations to trade associations.

So, do disclosure obligations matter? Apparently not, if you’re a Congressional leadership PAC and missed the initial filing deadline under the new FEC bundling rules. But for less fortunate organizations, inattention to disclosure can lead to battles with prosecutors and shareholders, or news stories linking contributions to troublesome allegations surrounding a recipient officeholder.

It’s been years since many organizations have reexamined their oversight of political spending or their procedures for preparing publicly-available reports. Active political committees should conduct a legal compliance audit after each election cycle to avoid the kinds of problems and unwelcome attention discussed above. At the very least, the events of the past week show that reporting obligations and their consequences are well worth putting on your “radar screen.”

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429), or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: LOBBYIST TRANSPARENCY OR GAG ORDER: OUR THOUGHTS

Late last week, President Obama took another step that attempts to marginalize the role of lobbyists in government decision-making. In a memorandum to agency heads, the President banned lobbyists from participating in meetings and telephone calls with executive branch officials about projects funded under the American Recovery and Reinvestment Act (Recovery Act). Any comments by lobbyists on such matters must be submitted to agency officials in writing.

The most striking aspect of the directive is that it prohibits an entire segment of the policy-making community from speaking with government officials about the disbursement of federal funds, while allowing numerous others who are unregistered –including most lawyers and company officials – to participate freely in those discussions.

The only instance where a lobbyist can talk to an executive branch official about Recovery Act spending is when the conversation is limited to “policy issues” that do not “touch upon” particular projects. But as soon as the discussion turns to specific funding applications, oral communications are supposed to come to an end.

And that’s not the only way that lobbyists are singled out. Meetings with lobbyists about “policy issues” must be summarized by the officials and posted on the agency’s “Recovery website.” Lobbyists’ written comments must also be posted. But communications between executive officials and anyone who is not a lobbyist are not required to be part of the public record. That’s an odd result for a directive that’s intended to promote transparency.

Meanwhile, the directive raises other, more practical issues.

One question is whether non-lobbyist employees of organizations registered under the Lobbying Disclosure Act (LDA) may participate in meetings with government officials about Recovery Act projects. The President has directed agency officials to inquire, upon scheduling and again at the outset of any oral communication, whether “any of the individuals or parties appearing or communicating” about particular recovery projects are “registered under the Lobbying Disclosure Act of 1995.” If so, the lobbyist may not attend or participate.

What, then, is the rule for non-lobbyist employees of companies or associations that are LDA registrants? These employees would be meeting with officials on behalf of a “party” registered under the LDA. Because the directive says that such parties may not communicate orally with agency officials about particular Recovery Act projects, does this mean that such non-lobbyist employees should be treated the same way as their lobbyist colleagues? It’s doubtful that this result is intended. But the language of the President’s directive can certainly be read that way.

If our assumption is right that non-lobbyist employees of LDA registrants may meet with executive branch officials, then what exactly is gained? An in-house lobbyist could analyze the issues and discuss them with her employer. The company can then handpick a non-lobbyist to participate in a meeting with executive branch officials. And the non-lobbyist may even hand-deliver the lobbyist’s written comments during the meeting. The lobbyist’s participation will be obvious and her influence felt - whether she is in the room or not.

At the same time, there is little doubt that the law will empower those who operate outside the LDA scheme at the expense of those who register and report. This would seem to reward those who decline to register because they decide that the burdens of entering the LDA reporting scheme outweigh the risk of getting caught. The rule will also benefit those who spend less than 20% of their time in a three-month period engaged in lobbying-related work, and therefore do not trigger one of the registration thresholds.

Finally, it must be noted that the President’s directive stands in contrast to other efforts to address perceived lobbying abuses. HLOGA’s restrictions on gifts from lobbyists to public officials were tied to documented abuses - even if they involved only a relative few. This new directive, however, limits speech with government officials – speech that is at the core of the First Amendment right to petition the government for the redress of grievances.

The Director of OMB is required to issue guidance on the memorandum to agency heads and within 60 days make recommendations to the President for modifications and revisions. We expect that some of these issues will be raised with OMB and addressed through this procedure.

ROUNDUP OF STATE DEVELOPMENTS

Florida High Court Upholds Gift Ban, Disclosure Rules for Lobbyists

The Florida Supreme Court last week upheld a 2005 law that bans lobbyists from giving gifts to legislators and requires that lobbyists file quarterly reports disclosing their compensation. The court rejected arguments that the legislature gave itself powers reserved to the other branches of government, such as issuing advisory opinions, investigating violations, and recommending punishment. The court also brushed aside arguments that lobbying is part of the general practice of law and therefore discipline can only be handed out by the Florida Supreme Court.

Like many other states, Florida has tightened its gift rules and expanded disclosure for lobbyists. The state’s gift law, referred to as a “no cup of coffee rule,” bars registered lobbyists from buying legislators meals or tickets, paying for their travel, or providing a host of other amenities.

Then There Were Five: New Mexico May Quit the “No Contribution Limits” Club

A bill has passed the New Mexico legislature that for the first time sets limits on campaign contributions to state elected officials and lawmakers. Governor Richardson is expected to sign the bill, with the new limits taking effect for the 2010 election cycle. The new law does not prohibit donations from corporations, as many states do.

The measure would limit individual contributions to $5,000 per election for statewide candidates, and $2300 for candidates running for non-statewide offices. Political committees would be subject to a $5,000 limit per election for all candidates.

Only five other states presently have no limits on campaign contributions: Illinois, Missouri, Oregon, Utah, and Virginia.

New York City Touts Results From Pay-to-Play Reform

The New York City Campaign Finance Board boasted recently that its pay-to-play law has given City voters “greater confidence that their candidates are free from the influence of ‘big money’ interests.” City officials examined campaign reports covering a six-month period and found that out of 14,782 contributions, only 60 violated the reduced contribution limits that apply to City vendors. The reduced limits also apply to a vendor’s owners, principal officers, and senior managers.

Wisconsin Court Rejects Broad Regulation of Ballot Measure Groups

A Wisconsin federal judge held that a state law unconstitutionally burdened the First Amendment rights of a citizen who planned to spend $500 on postcards and yard signs to influence a state ballot initiative. The Wisconsin law requires every group or individual that spends $26 or more on influencing a referendum to register with the state, open a dedicated bank account, keep records for three years, and file reports that disclose donors.

The court rejected a request to strike down the law altogether or increase the threshold for triggering disclosure from $25 to $1,000. U.S. District Judge J.P. Stadtmueller wrote: “Because of the relatively unsettled and evolving nature of First Amendment jurisprudence in the area of campaign finance laws, and because it appears that the Wisconsin Supreme Court has not addressed the scope of these statutory provisions, the court declines to reach the issue of whether [the law is] unconstitutional on [its] face.” The Wisconsin legislature has yet to indicate whether it will try to amend the law to raise the thresholds for disclosure.

FEC BUNDLING REPORT FORM: IT’S TWO, TWO, TWO REPORTS IN ONE!

Candidate committees, leadership PACs, and party committees that receive bundled contributions exceeding $16,000 in a semiannual period must now report those contributions to the FEC. The Commission’s recently-adopted rules require these committees to disclose reportable bundled contributions according to their normal reporting schedules – i.e., monthly, quarterly or semiannually. But, the new rules say that monthly and quarterly filers must also file a semiannual report of bundled contributions.

This rule has caused some confusion as to whether a committee reporting bundled contributions might have to file two separate reports containing potentially identical information in July and again in January. Fortunately, the FEC’s just-released Form 3L, allows monthly or quarterly filers to consolidate those reports and the semiannual report on one form. The form also requires the filers to report separate totals of bundled contributions when, for example, bundled contributions in a quarter differ from the total amount of bundled contributions for the semiannual period.

And yes, . . . we are old enough to remember the Doublemint twins.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429), or

Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: INITIAL FILING DATE APPROACHES UNDER NEW FEC BUNDLING RULES

Any federal PAC that is established or controlled by a company or other organization registered under the Lobbying Disclosure Act (LDA), or by an individual lobbyist, must identify itself as such in an amended registration, filed with the FEC by March 29. The filing is intended to ease the job for candidate and other reporting committees that under new FEC bundling rules must report contributions attributable to these so-called "lobbyist/registrant" PACs.

How do you tell if a PAC is a “lobbyist/registrant PAC” that must file an amended registration? Here are a few pointers, along with some questions that remain unanswered:

• The new FEC report calls for the same information required by the LD-203, just in another form. PACs will disclose to the FEC if they are controlled by LDA registrants or lobbyists; LDA registrants and individual lobbyists will disclose on the LD-203 whether they established or control a federal PAC. You should ensure that the filing with the FEC is consistent with whatever is being reported (or will be reported) to the Hill.


• What if you haven’t filed an LD-203 yet, or are uncertain whether a PAC is lobbyist-controlled? The first place to look is to the Clerk of the House and Secretary of the Senate. In jointly-issued guidance, these two congressional offices say that if a PAC treasurer or board member is a lobbyist, then the PAC is “controlled” by a lobbyist. Another clear case is the connected PAC, where the connected organization is an LDA registrant.


• Unfortunately, there is a lot of gray area. What qualifies as “establishing” a federal PAC? Setting up a bank account? Participating in planning discussions? Something else? And what qualifies as “control?” Do you control a PAC if you’re not on a PAC Board, but are involved in governing or administering the PAC in other, perhaps less formal ways?


• If the published guidance from the Hill isn’t clear, the FEC says you should seek “definitive guidance” by communicating with the Secretary of the Senate and Clerk of the House. But how do you obtain “definitive guidance” from these offices when they have no procedure for requesting or obtaining it? Can you rely on an opinion offered over the phone from a line-level staffer? Must you listen carefully for a hint of equivocation in their response? What if a member of the Senate office is certain of the answer, but the House office is less sure?


• Finally, if you can’t obtain “definitive guidance” from the Hill, the FEC offers a fallback rule. The FEC says that a PAC is established or controlled by an LDA registrant or lobbyist if the PAC is a separate segregated fund of a registrant or if the lobbyist/registrant had a “primary role” in establishing the PAC (excluding legal or compliance advice) or “directs [PAC] governance or operations.”

In sum, it’s a very unusual regulatory scheme. Charged with adopting bundling rules to implement the 2007 lobbying law, the FEC has deferred on a question uniquely within its own expertise: what does it mean to establish or control a federal PAC? The FEC provides a back-up rule, but you can only rely on it if you can’t get a “definitive answer” from the Hill – whatever that might mean. Which raises a further question as to how the FEC will enforce new rules requiring PACs to identify themselves as “lobbyist/registrant PACs,” given that a PAC may determine its legal obligation based on informal conversations with House and Senate staff. Stay tuned: it may be awhile before these new rules shake out.

HAVEN’T WE ALWAYS HAD LEADERSHIP PACS?

Beginning March 19, the FEC will officially recognize a new type of political committee called a “Leadership PAC.” Of course, leadership PACs have been around for years. But the FEC hasn't defined what a leadership PAC is - even in rules adopted in 2002 that address the relationship between leadership PACs and principal campaign committees.

That all changes with the FEC’s new lobbyist bundling rules. A “Leadership PAC” is defined as a political committee that is established, financed, maintained or controlled by a candidate for Federal office or a current officeholder, but which is not an authorized committee of the candidate or officeholder, and not affiliated with an authorized committee. Each Leadership PAC must file an amended FEC Form 1 identifying itself as such, and it must disclose its receipt of bundled contributions from LDA registrants and individual lobbyists.

Leadership PACs can still engage in their traditional activities, such as making contributions to other officeholders and candidates, and subsidizing the officeholder’s travel when campaigning on their behalf. But caution is advised. It’s fairly easy to make an excessive in-kind contribution to the candidate’s authorized committee, and as with all political committees, some types of disbursements are prohibited altogether. And now leadership PACs have a new obligation: reporting bundled contributions.

NO RECESSION FOR THE GOVERNMENT RELATIONS INDUSTRY

In the midst of a downturn for almost every sector of the economy, one industry is in growth mode – the government relations business. Total spending on lobbying Congress and federal agencies increased more than 14% in 2008 from $2.84 billion at the end of 2007 to $3.24 billion at the end of 2008.

These statistics confirm what we have been hearing anecdotally from our professional lobbyist colleagues: that after a slower 2007, business picked up in 2008 and remains at a high level. Given the number of significant issues that the new Administration is addressing – from restructuring the financial industry to taking on health care and energy independence – it’s not surprising that many industries are opening their wallets to make their case in Washington.

Further evidence of the growth in government relations activity is reflected in PAC statistics released last week by the FEC. The number of PACs increased by 9% during 2008. So-called “non-connected” PACs increased by 23%. A non-connected PAC can solicit funds from a wide range of potential contributors because it is not sponsored by a corporation or labor union. These PACs are frequently used to complement the lobbying efforts of issue-oriented groups.

It might seem surprising then that there were 1.6% fewer federal lobbyists at the end of 2008. Two factors likely influenced this change. One is that many lobbyists vying for positions in the Obama Administration saw it as advantageous to shed their lobbyist label in 2008. Second, more rigorous disclosure requirements and stiffer sanctions in the 2007 lobbying law prompted some organizations to remove employees from their lobbying reports if they didn’t clearly meet the definition of a lobbyist.

In the midst of this busy time, lobbyists should keep in mind that they are subject to more extensive regulation than ever before. With increased disclosure, there’s a lot more information available to regulators, watchdog groups, and competitors. Public reports are also subject to random audits, and lobbyists are now liable for violating congressional ethics rules. All indications from the Obama Administration are that this regulatory trend will continue.

SPENDING BY 501(C) GROUPS TRIPLED IN 2008 ELECTION, POISED TO GROW IN 2010

The 2008 election marked a major shift in the role of non-profit groups, with 527 groups spending half of what they did in 2004, while 501(c) organizations tripled their political spending. According to a report issued by the nonpartisan Campaign Finance Institute, 501(c)(4) social welfare groups, (c)(5) labor unions, and (c)(6) business leagues spent in excess of $200 million in the 2008 campaign. These groups can raise funds from donors in unlimited amounts, and no public reporting is required.

A number of factors, both regulatory and political, contributed to the shift. The upshot is that the IRS and FEC currently allow for considerable soft money spending by 501(c) groups. For instance, 501(c) groups can air television, radio, and satellite ads that name candidates 60 days before a general election and 30 days before a primary, so long as the ads are not “the functional equivalent of express advocacy.” TV, radio ads, and satellite ads aired outside of these windows, as well as ads distributed at any time through other media, are subject to even less stringent regulation. 501(c) groups may also fund polling, market research, and other forms of campaign support. The IRS requires that such activity not be a 501(c)(4)’s primary purpose, but a combination of vague rules and weak enforcement provides non-profit groups with plenty of space to operate.

If you have any questions, comments or would like to schedule a consultation,
please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429), or
Jim (JKahl@wcsr.com, (202) 857-4417).

Illinois Elections Chair Admits Problems In Rolling Out Pay-to-Play Law

In public testimony last week, the Chairman of the Illinois State Board of Elections acknowledged that his agency was ill-equipped to implement the state’s new "pay-to-play" law. "We had problems," Chairman Albert Porter admitted, saying the agency had "insufficient time" before the initial February 2 registration deadline to address extensive legal, practical and technical challenges. Porter also noted that the election board had requested $465,000 to implement the law, but the bill was passed without providing any funding.

Porter was testifying before an independent commission, established by the new Illinois Governor to recommend reforms in the wake of the Blagojevich and other scandals.

The Illinois "pay-to-play" law requires state contractors and bidders to file a registration statement that lists affiliates and key employees, along with their spouses and children - all of whom are barred from contributing to certain officeholders and candidates. Failure to comply with registration obligations can lead to fines and even perjury charges. A single violation of the contribution ban allows procurement officers to void contracts and disqualify bids.

The state board was unable to get electronic registration up-and-running for the initial filings, and they have yet to establish a website where registration information can be searched. Both are mandated by the new law. The Illinois legislature recently amended the pay-to-play law to give the elections board until August 1, 2009, to fulfill these obligations. The bill awaits the Governor’s signature.

CONNECTICUT ETHICS BOARD ADOPTS BROAD INTERPRETATION OF LOBBYING

The Connecticut Citizen's Ethics Advisory Board issued an opinion last week that broadly interprets the state’s lobbying law. In Connecticut, lobbying is defined as "communicating directly or soliciting others to communicate" with a public official or staff employee in the executive branch for the purpose of influencing administrative action. The Ethics Board concluded that drug companies are "lobbying" when they recommend to a state advisory panel which drugs should be placed on the state’s approved Medicaid drug formulary - even though the advisory panel members are not "public officials."

Why? Because the panel passes along recommendations to the State Social Services Department, which is comprised of public officials. The Ethics Board concluded that the drug companies’ communications are "soliciting others" (the advisory panel members) to influence the decision of the Social Services Department.

The state's lobbying law clearly encompasses grassroots lobbying efforts, such as urging citizens to contact their representatives on policy issues. It is far less certain that the lobbying law was intended to cover contacts with quasi-governmental officials such as the advisory panel members. But the Connecticut ruling reflects a national trend to regulate interactions well beyond traditional notions of lobbying.

PENNSYLVANIA INCHES ITS WAY TOWARD LOBBYIST REPORTING

Last week, Pennsylvania's Independent Regulatory Review Commission approved rules implementing the state’s 2007 law that requires lobbyists and their principals to disclose how much they spend to influence state policymakers. Debate over the proposed rules focused on the issue of when lobbyist registration and reporting is required - at the time the lobbyist is engaged to lobby or when a contact with an official is made. The compromise approved by the panel requires registration and reporting whenever a person is contractually engaged – in writing or verbally - to provide lobbying services.

The new rules will take effect within 14 days of adoption by the Commission, unless the Pennsylvania House or Senate disapproves them. In an interesting footnote, prior to the 2007 law’s passage, Pennsylvania was the only state without a law requiring lobbyists to disclose how much they spend on lobbying activities.

NORTON & KAHL TO LEAD AMERICAN LEAGUE OF LOBBYISTS BREAKFAST FORUM ON NEW FEC BUNDLING RULES

The Federal Election Commission recently adopted complicated rules which, for the first time, require the disclosure of political contributions "bundled" by lobbyists. Professional lobbyists need a firm understanding of what these new FEC rules mean for them.

• What's a "bundled" contribution?
• How are bundled contributions reported to the FEC?
• How do these new rules affect PACs that lobbyists help administer?
• How should lobbyists ensure that credit for bundled contributions is attributed to the right source?
• How will the FEC treat events co-hosted by lobbyists?
• What kinds of contribution records do lobbyists need to keep?

The American League of Lobbyists has invited Political GPS authors Larry Norton and Jim Kahl to explain these new FEC bundling rules at a breakfast forum where they will give a nuts-and-bolts understanding of what these new rules mean for you and your business.

Date: Thursday, March 12, 2009
Time: 8:15 a.m. - Registration & Breakfast,
8:30 a.m. - 10:00 a.m. - Speakers
Place: National Press Club (Lisagor Room), 529 14th Street, NW
Washington, DC 20045
Cost: $45/ALL Member; $70/Nonmember
Deadline for Registration: 5:00 p.m., Tuesday, March 10
Click here to register.

Special Note: Mention that you became aware of this event from Womble Carlyle's Political GPS and receive the ALL Members rate. For questions or comments, please contact Patti Jo Baber by phone at 703-960-3011.

Political GPS: What Are The FEC’s Priorities?

If you’re wondering about the FEC’s rulemaking priorities, a proposal containing a full year's worth of projects is posted on the Commission’s website. The document indicates that a public vote by the full Commission is scheduled in February.

The date of this document? February 16, 2007. Four seats on the Commission have turned over since then.

This proposal lingers on the FEC's website, a reminder that what used to be an annual announcement hasn’t occurred in two years. Of course, the lack of a priority document doesn't preclude work from proceeding on important rulemaking projects. But it is unfortunate, because a public vote on rulemaking priorities promotes transparency and accountability. It can also be a valuable exercise by making members of the six-member panel accountable to one another and helping agency staff remain on track amid a sea of competing demands.

The Commission has previously set priorities in other areas, too. For instance, the FEC has stressed the importance of reducing the length of time for processing complaints. In a statement issued near the end of 2006, the Commission announced that case-processing time had declined from earlier years by nearly one-third, and that 85% of complaints were being resolved within two years. It’s unclear where this concern fits among current priorities. In fact, as the Commission actively considers adding procedural steps to the enforcement process, it is important to hear the agency’s views about the trade-offs between fairness and efficiency.

Civil penalties have been another vehicle for setting priorities. Over the past few years, the Commission has targeted certain violations for higher penalties and underscored its concern through strongly-worded, public statements. For instance, the Commission called its nearly $4 million settlement with Freddie Mac a “clear signal” that the use of corporate or union resources to facilitate fundraising will have "real consequences." Lately, the Commission hasn’t said much about its enforcement priorities, and recent descriptions of closed matters can be a challenge to decipher.

We applaud the Chairman's recent announcement that he wants to make vast improvements in the FEC’s website. It's a matter that deserves attention. A good start might be taking down from the website the priorities for 2007, and telling committees and other organizations regulated by the Commission what they can expect this year.

PRESIDENT’S NEW ETHICS RESTRICTIONS EASED . . . JUST A BIT

The Office of Government Ethics recently issued guidance loosening, if only a bit, the President’s January 21 Executive Order, which prohibits Administration appointees from receiving many kinds of gifts from lobbyists and their employers. Under the order, Administration appointees must live by tighter gift restrictions than other executive branch employees.

OGE Director Robert Cusick recently clarified the new Executive Order in "interim guidance" developed in "consultation with" with the White House Counsel’s Office. This new guidance ostensibly ensures that officials are permitted to accept gifts that do not "implicate the purposes of the ban." Now, the more lenient government-wide gift rules, rather than the President's order, will apply to Administration appointees with respect to gifts from 501(c)(3) organizations and media organizations. As a result, Administration appointees can, for example, accept nominal gifts valued under $20 and invitations to widely-attended events from these two types of organizations, but only if the gift is not offered personally by a registered lobbyist.

Just this week, Mr. Cusik issued additional guidance that permits a lobbyist whose pre-appointment lobbying activities are "de minimis" to accept a position at the agency he lobbied and to handle issues on which he lobbied. Director Cusik cautioned, however, that such waivers of the Executive Order will be issued sparingly and will be limited in scope.

These relatively modest reinterpretations of the Executive Order represent a tacit acknowledgment that the realities of running a government frequently collide with the aspirations for it.

JUDICIAL PAY-TO-PLAY? SUPREME COURT TO CONSIDER IMPACT OF CAMPAIGN CONTRIBUTIONS ON ELECTED JUDGES

Imagine that your business successfully won a $50 million jury verdict. Then you learn that the defendant’s CEO spent more than $3 million of his own money to help elect one of the five judges who will hear your case on appeal. What if that one judge refuses to recuse himself, and then casts the deciding vote in a 3-2 ruling to toss out the verdict?

The Supreme Court will hear arguments next Tuesday in Caperton v. A.T. Massey Coal Co., which concerns a West Virginia Supreme Court of Appeals judge who refused to recuse himself under just these circumstances. The Court is being urged to lay down a constitutional rule dictating when an elected judge has received so much support from a litigant that he or she no longer appears impartial.

The case highlights growing concerns about the explosion in spending on judicial races, fueled largely by special interest groups. According to a report issued by the non-partisan Justice at Stake Campaign, candidates for America’s highest courts raised over $165 million between 1999 and 2007, a jump from $62 million raised between 1993 and 1998. The Supreme Court will have to decide whether there’s a federal due process right that trumps the discretion normally reserved to the states in this area, and if so, how to articulate a workable standard. We expect a ruling by June.

FEC BUNDLING RULES: UPDATE

The FEC announced this past week that its revised FEC Form 1 (Statement of Organization) will be released in early March. PACs controlled by lobbyists ("lobbyist/registrant PACs") and leadership PACs will have to designate themselves as such on the new form. The FEC also clarified that these PACs must file the new form by March 29. The Federal Register notice publishing the new rules erroneously indicated that the filing date is March 30. Since March 29 is a Sunday, committees obligated to file a new FEC Form 1 will likely want to make the filing by Friday, March 27.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: ARE ADMINISTRATIVE LAW JUDGES THE ANSWER FOR THE FEDERAL ELECTION COMMISSION?

Seven advocacy groups, including some longtime FEC critics, have renewed their call for Congress to replace the FEC with a new three-member agency that would resolve enforcement matters through administrative law judges, or ALJs. For years, these critics say, FEC enforcement has been a story of too little (low penalties), too late (cases resolved long after elections are over). Concern with FEC functioning has been exacerbated in recent months as case processing has slowed, few civil penalties of note have been announced, and legal principles that seemed settled by earlier enforcement matters have failed to command a majority of the current Commission.

For the sake of discussion, let’s assume that this criticism is well-founded. How would the ALJ proposal help?

One thing ALJs won’t do is speed things up. In contrast to the current system, where the General Counsel investigates complaints and settles most cases pursuant to Commission findings, the new structure would turn all but the most frivolous matters into full-blown adversary proceedings – depositions, motions, and trials. Added to that, if an ALJ imposes a fine, that decision can be appealed to the new three-member agency, and if upheld, that decision can be appealed to a federal judge.

The record at other agencies is hardly encouraging. In late December 2008, The Oregonian described a “national crisis” in processing Social Security disability claims, noting that delay by ALJs has been “dragging out appeals of disability claims as people faced financial ruin, got sicker and even died waiting.” Social Security’s Inspector General recently cited as factors contributing to the backlog a lack of accountability and inadequate staff support.

Understaffing of ALJ offices isn’t limited to the Social Security Administration. It is a chronic problem at other agencies, too, where staffing levels often remain static even as the number of cases are skyrocketing.

Also, it can take years for the Commission (or other agency heads) to resolve appeals of ALJ decisions. A November 2008 letter to the Federal Trade Commission from the U.S. Chamber of Commerce criticized the timeliness of FTC administrative cases, stating that “the failure of the FTC to impose any definitive deadlines or timeframes on its own issuance of a final opinion makes such proclamations [‘justice delayed is justice denied’] ring hollow.” A recent SEC report on its administrative docket indicates that after initial decisions are issued by ALJs, it takes more than a year for the Commission to rule on appeals. And that’s down from 2001, when it took about two years.

If the idea isn’t to improve efficiency, then what could it be? It’s more likely that what supporters of the ALJ proposal want is someone ostensibly less partisan to decide enforcement matters. While ALJs are potentially more insulated from partisan influence, someone has to appoint them, too. It’s also not unheard of for ALJs to have strong ideological perspectives, just as some Commissioners do. And while Commissioners come and go as appointments expire, wayward ALJs are not easily removed or reassigned from one agency to another. Even if ALJs provide a more “neutral” decision-maker, the solution only goes so far. Under the new structure, there will still be political appointees who review all appeals of ALJ decisions.

Finally, supporters of the ALJ proposal suggest that an added benefit of adversary proceedings is that respondents will be entitled to the full panoply of due process rights – opportunity to examine witnesses and other evidence, a hearing, etc. But that benefit can be accomplished within the current system. In fact, FEC Commissioners are actively considering granting respondents more opportunities to challenge evidence and appear before the full Commission. If more procedural rights are appropriate, they can be afforded without adding one more (very long) step until a matter reaches the heads of the agency.

It may be that ALJs would improve functioning at the FEC. The ALJ proposal, however, has been on the table for nearly five years, and there is little indication that its merits have been carefully examined.

EARLY SPRING CLEANING: STATE ETHICS ISSUES ON THE HORIZON

In the wake of recent ethical scandals that have erupted across the country, many states are trying to clean house. These efforts are part of a reform wave that has dramatically altered the campaign finance, lobbying and ethics laws in many states. Here’s just a sampling of some of the changes under consideration.

In Massachusetts, Governor Deval Patrick has proposed legislation that would expand the definition of lobbying to include strategizing and preparing for communications with public officials, and extend waiting periods for former executive officials who wish to lobby after leaving office. The proposal would also require quarterly lobbying reports, bar state agencies from employing outside lobbyists, and increase penalties for violations of the state’s ethics and lobbying laws.

Meanwhile in the aftermath of former Governor Blagojevich’s ouster, Illinois legislators are considering additional campaign finance reforms, tightening restrictions for former legislators who wish to lobby, and strengthening state procurement ethics laws. These proposals come on the heels of Illinois’ adoption of one of the strictest pay-to-play regimes in the country. And in an effort to distance himself from his predecessor, new Governor Quinn has established a Reform Commission to study the problem of corruption in state government and propose additional reforms.

Finally, after pay-to-play concerns derailed New Mexico Governor Bill Richardson’s appointment as Secretary of Commerce, the state legislature is looking at a range of ethics revisions. In the mix are more rigorous disclosure of lobbyists’ expenditures, and a requirement that lobbyists wear prominent badges while working in the Capitol so they are readily recognizable by legislators. Nathaniel Hawthorne might be proud of this new take on the Scarlet Letter, but it would seem that most legislators are already well aware of which lobbyists wield a lot of clout in the chamber.

One thing is certain. All of this signals more compliance concerns for companies and associations that regularly interact with states and municipalities.

FEC BUNDLING RULES PUBLISHED

The FEC published its new rules for reporting contributions bundled by lobbyists in the February 17 Federal Register. Beginning on March 19, 2009, recipient committees must begin tracking these “bundled” contributions for future FEC reports, the first of which is due on May 20. Federal PACs that are “controlled” by lobbyists have until March 29 to file an amended statement of organization (FEC Form 1), which the FEC expects to upload on its website sometime in March.

As a result, the new reporting schedule for recipients of lobbyist bundled contributions is as follows:

• Monthly filers must file their first report by May 20, 2009, covering bundled contributions received in April.
• Quarterly filers must file their first report by July 15, 2009, covering bundled contributions received in April, May, and June.
• All reporting committees must file a semi-annual report on July 31, 2009, covering bundled contributions received from March 19, 2009 through June 30, 2009. Note that this is the first report that will cover bundled contributions received in March.

For more information, see our February 5 edition of Political GPS, which summarized the FEC’s new bundling rules.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429), or
Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: New York City Pay-to-Play Law Gains Court Approval

A federal judge last Friday upheld New York City’s “pay-to-play” law that sets lower contribution limits for government contractors and lobbyists. This follows recent court decisions in New Jersey and Connecticut, rejecting challenges to similar laws.

New York City imposes a lower contribution limit on companies doing business with the City, as well as their owners (10% and above), officers, and senior managers. These reduced limits also apply to lobbyists. Relatives and associates of lobbyists may contribute in city elections at the usual levels, but their contributions are ineligible for public matching funds. This matching-fund prohibition applies to contributions by the spouse or domestic partner of a lobbyist, and if the lobbyist is an organization, all officers and employees in any division that engages in lobbying activity.

With these three recent court decisions, the pay-to-play movement is gaining steam. At least 13 states and numerous municipalities currently impose restrictions on campaign contributions by contractors, their owners and senior employees, and in some cases, their spouses and dependent children. More states, including Pennsylvania and Alabama, are considering similar laws.

It’s Not Just Campaign Contributions: Delaware Bans Contractor Gifts

In his first executive order, Delaware Governor Jack A. Markell banned cabinet officials, division heads, and the Governor’s professional staff from accepting gifts from registered lobbyists, contractors with state agencies, and bidders on state contracts. The gift ban excludes drinks, snacks, or meals with a value of $39 or less consumed on the premises, complimentary attendance at public events hosted by non-profit groups, and items of nominal value, such as cards and framed certificates.

The Delaware order follows a trend in states and local governments of cracking down not just on campaign contributions by lobbyists and public contractors, but also on meals, entertainment, and other benefits paid for by lobbyists and contractors.

Colorado Gift Ban Applies Only to Lobbyists

In late January, the Colorado Independent Ethics Commission ruled that the ban on gifts by lobbyists to public officials does not apply to organizations or groups “represented” by a professional lobbyist.

Colorado’s sweeping 2007 ethics law bars state and local government officials and their family members from accepting gifts or other things of value from any one source worth more than $50 in a calendar year, including favors, services, travel and entertainment. The law allows for limited exceptions – for example, items of trivial value, awards of appreciation, and food or beverages consumed at certain receptions or meetings. A “professional lobbyist,” however, may not give a public official a gift of any value, or pay for any meals or beverages to be consumed by a public official.

The IEC’s ruling means that organizations and groups represented by a lobbyist can take advantage of the $50 rule. The IEC acknowledged that attempts by a lobbyist to evade the gift ban, such as by funneling a gift through a client, would have to be handled through complaints or advisory opinions.

CRS Report Reveals Fuzzy Rules, Spotty Enforcement for 501(c)(4)’s

The non-partisan Congressional Research Service published a report on January 29 that assesses the murky rules applying to 501(c)(4) groups engaged in political activity. Media reports during the last couple of elections suggest that 501(c)(4) organizations have raised and spent millions of dollars to influence elections, all done outside the contribution limits and reporting requirements of federal campaign finance law.

Among CRS’s findings:

• While the primary activity of a 501(c)(4) must be to promote social welfare, and not campaign activity, “the tax code and regulations do not provide much insight into what constitutes campaign activity.”
• IRS rules also do not address how to determine what activity is a group’s “primary activity.” Is campaign activity measured by expenditures, statements about purpose, the number of volunteers doing campaign activity?
• The IRS takes the position that the gift tax applies to 501(c)(4) donations. However, an ABA task force found that for at least a decade the IRS has failed to pursue gift taxes from donors to 501(c)(4) organizations, and has even overlooked very large, publicly-disclosed donations to 501(c)(4) ballot committees.
• The new Form 990 requires for the first time that filing organizations report information regarding their political activities (new Schedule C). But the identity of donors over $5,000, while disclosed to the IRS, remains unavailable to the public.

Watchdog groups have complained in recent years that the FEC is not pursuing politically-active 501(c)(4) groups that arguably make electoral politics their primary purpose. Such groups, the argument goes, should be reporting to the FEC as political committees and abiding by contribution limits and source prohibitions. Others criticize the FEC for pursuing non-profits too aggressively, noting that FEC standards fail to provide the bright lines required to regulate First Amendment activity. In the meantime, as the FEC is buffeted by its critics, there is comparatively little complaint with the vague IRS rules and lax enforcement described in the CRS study.

PAC Reporting Tip: Mind the Details

PAC treasurers should know that they need to “itemize” contributions that exceed $200. This means that the PAC must report the amount of the contribution, the date the contribution was received, the donor’s name and address, and the donor’s occupation and employer. What if you don’t have all of that identifying information. Is that really a big deal?

Yes it is, and the Americans Against Illegal Immigration PAC learned that lesson the hard way. An FEC audit report issued this week reflects that the PAC failed to obtain sufficient information about the occupations and employers of 665 contributors. Even when the committee subsequently obtained the information, the treasurer failed to amend the committee’s reports.

PAC treasurers are required by federal law to follow-up with contributors to obtain information about their occupation and employer. Failure to use “best efforts,” as described in FEC rules, can lead to intrusive audits, damaging publicity, and fines.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429), or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: FEC’S LOBBYIST CONTRIBUTION RULES -- THEY’RE A BUNDLE!

The FEC on Tuesday released a 70-page explanation for its new bundling rules, which implement a key provision of the 2007 lobbying law. The FEC document attempts to simplify compliance with the reporting requirements of the law and in some areas limit the reach of the law. It’s not easy, however, to square the deregulatory sentiment with the inherent complexity in 82 pages of combined rules and explanation.

The rules will be published shortly in the Federal Register and take effect thirty days thereafter. Here are some of the key points:

• Campaigns, party committees, and leadership PACs must report “bundled” contributions received from lobbyists or PACs that they control, if the contributions exceed $16,000 over a six-month period.
• Contributions are considered “bundled” when they are physically or electronically forwarded by a lobbyist. If, however, contributions are sent directly to a committee from individual contributors and no “credit” is given to the lobbyist – in the form of “written” evidence, a perk offered in exchange for the lobbyist’s efforts, or other means – then no reporting is required. In other words, a campaign will not be obligated to file a report merely because campaign officials know that contributions have poured in through the efforts of a lobbyist.
• For lobbyists and registrants who want the public record to reflect their efforts, it is important to confirm in writing with the committee that “credit” has been given to the right source.
• Bundled contributions are disclosed on the same reporting schedule that the committee uses for its other FEC filings, but for all filers, an additional semiannual report is also required.
• For companies that employ federal lobbyists and have a “connected” federal PAC, and for other “nonconnected” PACs that are “controlled” by federal lobbyists, there is now a requirement to file a new FEC Form 1 and designate the PAC as a “lobbyist/registrant PAC.” In certain instances, determining whether a lobbyist “controls” a PAC will require filers to seek guidance from the Secretary of the Senate and Clerk of the House.

The FEC rejected calls from watchdog groups to require each fundraiser in a co-hosted event to report the full amount raised. This topic generated debate when the law was under consideration in Congress and again during the FEC’s deliberations. The FEC concluded that reporting should correspond with the way the committee actually credits each lobbyist. Depending on the circumstances, each lobbyist might be credited with a part of the total contributions raised, all of the contributions raised, or none at all.

While reporting committees and lobbyists can take comfort that some activity is exempt from regulation, the bundling rules are complicated, and future guidance in this area will come from three different sources – the FEC, the House, and the Senate – whose perspectives do not always coincide. In the meantime, watchdog groups are criticizing the “credit” requirement and rules for co-hosted events as further examples of an agency captive to the Members it regulates. But in a year in which half the Commission can be replaced within just a few months, the most important judge may be the new occupant of the White House. President Obama was a strong Congressional supporter of the lobbying reform law and a proponent of a strict construction of its bundling provisions.

More interpretive guidance is sure to follow. For now, the bundling rules, long delayed by an impasse over Commissioner appointments, and then by an impasse among the agency’s newly-assembled members, have been finalized. Beginning in early March, committees will have to track lobbyist contributions, with the first reports due in May. Ten days after the rules take effect – around mid-March - a new FEC Form 1 must be filed by each “lobbyist/registrant PAC.”

ILLINOIS PAY-TO-PLAY LAW: LAST-MINUTE GUIDANCE, BUT GOOD LUCK FINDING IT

Just days before the February 1 deadline for Illinois contractors to register under the State’s new “pay-to-play” law, the state procurement office issued rules to help explain some of the confusing aspects of the law. Among other things, the rules clarified which of a contractor’s employees must be listed on the registration form along with the names of their spouses and children. This was welcome news: a false registration form can lead to prosecution for perjury, and late filers are subject to fines.

And how did the State announce that these time-sensitive rules were in effect? Surprise answer: it didn’t.

The Illinois “pay-to-play” law, like similar laws in states and cities around the country, attempts to break the link between campaign contributions and the award of government contracts. Contractors and bidders must file registration statements that list affiliates and key employees, along with their spouses and children, all of whom are barred from contributing to certain officeholders and candidates. Any violation of the contribution ban can lead the state to void agreements with a contractor and disqualify bidders. (An executive order issued by the former Illinois Governor – yes, that Governor - expands the contribution ban for contracts entered into, and bids submitted, after January 1.)

Several days before the filing deadline, we talked to state officials, who signaled that the State was considering issuing rules to clarify some uncertain areas of the law. In fact, the State did just that on Wednesday, January 28, but we were only able to obtain the new rules through informal channels. There was no contemporaneous announcement on the agency website or posting of the rules – indeed, there was no posting the entire week. On top of that, the Illinois procurement office significantly revised and re-posted a pay-to-play Q&A guide on its website, though the website gave no indication that the prior version had ever been updated.

The rules are now available on the Illinois procurement office’s website. We hope the new Governor will find more effective ways to inform the public about these significant new obligations and restrictions. He should also reassess Mr. Blogojevich’s “pay-to-play” executive order, which is breathtaking in scope and out-of-sync with the Illinois statute on the same subject.

If you have any questions, comments or would like to schedule a consultation, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).

A New Era Of Cooperation in Washington? Federal Election Commission Didn’t Get The Memo

A deepening paralysis at the Federal Election Commission may prompt President Obama to replace half the members of the election panel soon after their terms expire late this Spring, or join forces with his former rival, Senator John McCain, to scrap the agency and start over.

Partisan acrimony on the six-member panel is hardly new, but current divisions run much deeper. When the Commission deadlocked over a proposed settlement with a 527 group, two of the Democratic Commissioners charged their Republican colleagues with failing to enforce the law. "Enough is enough," the Republicans shot back in a statement issued Friday, charging the Commission with using its enforcement powers to intimidate and expand restrictions on political speech. With these battle lines drawn, the resolution of cases has slowed and recent monetary penalties are hardly eye-catching.


The rulemaking process has been affected, too. When the Commission approved new bundling rules at the end of 2008, it promised to produce a written explanation in a couple of weeks – a necessary step for the rules to take effect. But then a vote planned for January 15 was abruptly postponed. While a document will probably emerge soon, the last-minute delay suggests that when the Commission voted to approve the bundling rules, there was no common understanding about what the rules actually mean.

Other projects appear stalled. Last June a federal appeals court struck down most of the FEC's rules on coordination, but there has been no move to replace them – even though these rules were called for by the 2002 McCain-Feingold law.

As terms for three Commissioners expire this Spring, the agency itself may be in some peril. Senator McCain hardly needs prodding. He has long supported legislation to replace the FEC with a more vigorous three-member body. The President’s position on the FEC is less known, though campaign finance reform appears to fit with his good-government agenda. Recent events at the FEC may well forge an alliance between former rivals.

The Department of Justice Stepping Into the Breach?

Court documents reveal that a former official of the U.S. Department of Housing and Urban Development has pleaded guilty to illegally reimbursing campaign donors, according to a report last week in the D.C. Examiner. The official faces up to a year in prison and $50,000 in fines, according to sentencing guidelines.

The lesson in this matter? The FEC may be at war with itself, but the Department of Justice isn't hesitating to assert its overlapping jurisdiction. Indeed, the Department recently took the unprecedented step of publicly urging the FEC to refer more election cases for criminal investigation. Also, it's essential that companies have clear policies against reimbursing employees for campaign contributions. Companies should never use bonuses, salary increases, or other artifice to cover campaign contributions made by their employees.

New Executive Order On Ethics: Who Wins?

President Obama came to office promising to minimize the influence of lobbyists on the federal government. On his first full day, the new President took steps to deliver on that promise.

On January 21, President Obama signed an Executive Order concerning ethical standards for new non-career government appointees. What did it do? New government appointees must sign a "pledge" that commits them to abide by certain standards. First, they cannot accept gifts from registered lobbyists. While there are some exceptions to the gift ban, a number of customary exceptions for government employees (such as the ability to accept gifts under $20 and go to widely-attended events) are now off limits. In addition, registered lobbyists cannot seek or accept employment with an agency that the individual has lobbied within the prior two years. Finally, appointees who decide to leave government are prohibited from lobbying any executive branch agency for the duration of the Administration. If that's not enough, appointees who violate the "pledge" can have their lobbying freeze-out extended for up to an additional five years.

The day after its issuance, the Administration had to waive the new Executive Order so a defense industry lobbyist could fill the number two job at the Defense Department. We're told such waivers will be "limited." But waivers and exceptions aside, the Executive Order contains significant new restrictions on federal lobbyists. For many of them the inability to serve the government and return to lobbying in the private sector is simply too big of a price to pay. Undoubtedly, the President is no fan of the "revolving door." But with significant challenges facing the country, who really benefits from expertise that is never brought to the table?

Federal Contribution Limits Raised for 2009-2010 Election Cycle

The Federal Election Commission has increased the contributions that individual donors can give to federal candidates to $2400 per election, or $4800 for a primary and general. This is up from the $2300 limit during the last election cycle. Individuals may also give $30,400 to national parties, up from the $28,500 they could give last cycle.

Bear in mind that individuals are also subject to a biennial limit on total contributions to federal candidates, party committees, and PACs. The current two-year period began on January 1, 2009. Under this limit, a single donor may contribute a total of $115,500, of which $46,500 may be donated to federal candidates and $69,900 to federal PACs and political parties.

2008 Election Postscript

On January 22, the FEC released the official 2008 Presidential general election results. (NOTE: you have to use the general search engine on the FEC website to find this.) For those who like numbers, here's the final tally:

Obama: 69,456,897 (52.92%) and 365 electoral votes

McCain: 59,934,814 (45.66%) and 173 electoral votes