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).