Tuesday, September 15, 2009, 12:12 PM

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.

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