New Federal Contribution Limits for 2011-2012 (And a Few Traps for the Unwary)

Last week, the Federal Election Commission announced changes in contribution limits for 2010-2011, including a change in the combined amount an individual may give over the next two years to all federal candidates, political parties and PACs. (Click here for a one-page PDF chart with the new contribution limits)

The changes suggest that a little planning may be in order. For instance, the combined limit on individual contributions over a two-year period (referred to as the “biennial limit”) can affect many active contributors, not just high net worth individuals. If during 2011, an individual contributes the maximum amount to just five federal candidates ($2500 to the primary and $2500 for the general), that individual will be more than halfway to the two-year limit of $46,200 by the end of 2010. For those who want to retain flexibility in the Presidential election year, it is important to keep these limits in mind right now.

Likewise, contributions to “joint fundraising committees” can cause contributors to unexpectedly “max out” on their biennial limit or inadvertently make an excessive contribution to a specific candidate. How can this happen? Joint fundraising committees can raise tens of thousands of dollars from a single contributor – money that is distributed among multiple candidates, or among candidates and party committees. A contributor who overlooks the small print may believe that he or she has made a contribution to a single committee, when in fact the contributor has made multiple contributions, each of which is reflected in FEC records as a contribution to the ultimate recipient.

MAY CORPORATIONS RAISE MONEY FOR FEDERAL CANDIDATES? THREE FEC COMMISSIONERS THINK SO

In the landmark Supreme Court ruling of Citizens United v. FEC, the Court struck down prohibitions on independent political advertising by corporations and incorporated non-profits. But the federal ban on corporate fundraising remains in place. Or does it?

Last week, the three Republican FEC Commissioners issued a statement concluding that corporate fundraising, when done independently of federal candidates and political parties, is more like independent political speech, which corporations are constitutionally entitled to make, than to corporate contributions, which are barred. The statement was issued in regard to a complaint filed against an incorporated non-profit group that sent an email blast urging members to contribute to a federal candidate.

While the Republicans' statement does not appear to represent the majority view on the six-member FEC, the three Commissioners can be expected to block any enforcement action based on corporate use of staff time, funds, or other resources devoted to independent fundraising. The statement leaves open how other types of corporate fundraising, known as “corporate facilitation,” might be treated, such as collecting and forwarding contribution checks or hosting fundraisers for candidates. However, in the view of the Republican Commissioners, "the continuing viability of the Commission's [corporate] facilitation regulation is at best suspect."

So how should corporations and incorporated non-profits proceed? We advise caution. Under current FEC rules, a corporation may direct subordinates to plan fundraising activities with corporate resources, but only if the corporation receives advance payment from a permissible source (e.g., a campaign committee, an individual) for the employees' time and company overhead. Advance payment must also be received for the use of corporate mailing lists and the provision of catering services. In other words, the FEC’s corporate facilitation rule is still "on the books." Moreover, a change in the make-up of the Commission – as of April 30, five of the six will be holding over beyond the single term to which they can be appointed – could shift the agency’s position. And it is important to remember that the Justice Department can criminally prosecute knowing and willful violations of FEC rules, which it has done before in cases of corporate facilitation. Finally, the Republican Commissioners explicitly distinguished their analysis from situations where corporate fundraising is coordinated with candidates and parties – the use of corporate staff or resources for coordinated fundraising is a prohibited in-kind contribution.

It is doubtful that the FEC will resolve these issues anytime soon. In a public meeting last month, the Commission considered issuing a Notice of Proposed Rulemaking on the impact of Citizens United – a first step in the rulemaking process that would merely offer proposals for public comment. The vote to issue proposed rules failed on a 3-3 vote.

PAY-TO-PLAY UPDATE

Important Pay-to-Play Deadlines

New Jersey: Companies that receive state or local contracts in New Jersey valued at $50,000 or more in the aggregate, must file an annual disclosure statement by March 30, 2011 listing state and local contributions made in calendar year 2010 by the business entity, and by its officers, directors, their spouses, and controlled PACs. A report must be filed even if no reportable contributions have been made.

SEC: We have had several prior posts discussing new SEC rule 206(4)-5 that restricts political contributions by investment advisers that seek business from public pension funds and similar government investment accounts. Investment advisers subject to the new SEC pay-to-play rule must be in compliance by March 14, 2011.

Pay-to-Play in Trenton. . . Ooh, Ooh Damage Done

Our clients regularly tell us they never want to see their company’s name and the words “pay-to-play” together in a news story. At that point, as the Neil Young song reminds us, the damage is done.

A prominent New Jersey law firm, which was awarded a contract from the city of Trenton, is learning this the hard way. The firm was accused of violating Trenton’s pay-to-play ordinance when it made a $7,200 pre-bid contribution to a PAC, and a contribution in the same amount was made a few days later by the PAC to the Mayor’s campaign. The firm claimed that it did not violate the law, and that it obtained a refund of the contribution. The city attorney was not persuaded and determined that the firm’s contract should be voided under the city’s pay-to-play law. The Mayor saw things differently and reinstated the contract, but the final decision will be made by the city council. To complicate things, the council had voted three times previously not to award the contract to the firm, before approving the contract on a 4-3 vote with the Mayor's backing.

To no one’s surprise, these events have received plenty of coverage by local media outlets, and both the Mayor and the firm have received their share of unwanted attention. So, even if the firm is exonerated and retains its city contract, this saga serves as a cautionary tale of the risks posed by pay-to-play laws.

Texas Mulls Pay-to-Play

Texas is considering a pay-to-play law that would prohibit an owner, officer, board member or the PAC of a prospective bidder on state contracts from contributing to a candidate for statewide office or a committee established to support or oppose a candidate. If enacted, the law would go into effect next September.