Monday, March 16, 2009, 5:04 PM

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).
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