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.