Is Your Organization Ready For The 2012 Campaign Season?

Friday, May 18, 2012 - 11:17

The Editor interviews Jan Witold Baran and Michael E. Toner, Co-heads of the Election Law and Government Ethics Practice at Wiley Rein LLP.

Editor: Mr. Toner, please tell our readers about your background as chairman of the Federal Election Commission (FEC) and the work you do in counseling corporations, trade associations, campaign and political party committees and individuals on complying with federal and state election laws.

Toner: I served as a commissioner on the Federal Election Commission from 2002 until 2007. The FEC is a unique agency where the chairmanship rotates among the six commissioners. I served as chairman in the 2006 calendar year, which was an interesting time at the agency. The McCain-Feingold campaign finance law was enacted in the spring of 2002, and the FEC was responsible for implementing the legislation. There were many rulemaking proceedings that the agency needed to complete in the 2002-2003 time period, and I enjoyed the chance to work on the thorny policy issues in implementing that new statute. I left the FEC in the spring of 2007, and I’ve been in private practice for the last five years. It’s terrific to be back at Wiley Rein, the law firm where I started my legal career eons ago. I work with Jan and our entire practice group in providing election law campaign finance advice to corporations, trade associations, political party committees, and campaign committees.

Editor: Mr. Baran, please tell us about your practice in advising on all aspects of campaign finance, government ethics, and lobbying laws.

Baran: I worked at the FEC from 1977 until 1979. I also was a member of the President’s Commission on Federal Ethics Law Reform for President George H. W. Bush, for whom I served as campaign general counsel in 1988. I’ve been in continuous private practice since 1979, and my specialty is the laws that regulate politics and lobbying. As a result, my practice is predominantly counseling clients, the overwhelming majority of which are corporations and trade associations, although I also represent incumbent congressmen and senators as well as political committees and high-net-worth individuals who are active political contributors. I have litigated numerous cases before courts and agencies including the Supreme Court of the United States.

Editor: Could you each provide your opinions on the impact of the Citizens United decision with regard to campaign finance? How should candidates distinguish between super PAC donations and those donations limited in size that go directly to the campaigns?

Baran: It’s a little early to tell what the effect is of the Citizens United decision. There is a misconception that certain activity that we are observing in the 2012 election is unique to this election, primarily independent spending for public advertising. That type of activity has been around well before the Citizens United decision. One of the questions is whether or not Citizens United is actually going to encourage more corporate and union spending. One of the vehicles by which groups are raising and spending money are so-called super PACs, which are registered with the Federal Election Commission and must file disclosure reports revealing where they get their money and how they spend it. Thus far, an analysis of funding for super PACs indicates that approximately 58 percent of all that money comes from high-net-worth individuals, about 15 percent from corporations and 10 percent from unions. Other contributors make up the difference – mostly tax-exempt organizations. However, what is interesting is that of the 15 percent that seems to be coming from corporations, all is coming from privately held businesses and none from public corporations. So based on this initial evidence, there doesn’t seem to be a flood of new corporate money entering into the process, but, of course, we have to see what happens in the rest of this election cycle.  Both unions and corporations have been active in past elections. In the 2008 election $300 million was spent on reportable advertising, of which some $42 million was by the Service Employees Union, $20 million by AFSCME, (the municipal employee union), $18 million by the National Rifle Association, and $16 million by the Chamber. So we can fully expect unions and business groups to reappear in this election.

Toner: Jan makes a very important point. Independent spending in connection with presidential elections is not a new phenomenon. You can go back to the very famous Willie Horton ad in the 1988 presidential election or to 2004 with the Swift Boat Veterans for Truth ads attacking John Kerry.  In many ways, the Citizens United ruling is an outgrowth of Supreme Court precedent that has recognized the ability of different types of entities to make unlimited independent expenditures in connection with federal elections that began with the Buckley vValeo landmark ruling in 1976, recognizing that individuals could make unlimited independent expenditures. The court then broadened this concept in the National Conservative Political Action Committee case making clear that PACs can make unlimited independent expenditures. In the Colorado Republican Federal Campaign Committee case Jan won an important victory when the Supreme Court ruled that political parties can make unlimited independent expenditures, and now we have the Citizens United holding that for-profit corporations can make independent expenditures as well.  

Citizens United also struck down that portion of the McCain-Feingold campaign finance law that barred corporations and unions from using their general treasury funds, their non-PAC funds, to air electioneering communications: these are television and radio advertisements that feature a federal candidate and are aired in the last 30 days before a primary and the last 60 days before a general election. We’ll probably see more of this type of advertising in September and October.

Editor: What records must be kept in order to comply with campaign laws restricting donations?

Toner:  There are detailed FEC regulations concerning records that must be kept by every political committee that is registered with the FEC. FEC political committees include House, Senate and presidential campaign committees, national political parties like the Republican National Committee and the Democratic National Committee, leadership PACs, which are PACs associated with members of Congress, corporate PACs, and trade association PACs. Political committees must keep records for three years documenting all the contributions they receive and expenditures they make.  Political committees also must disclose their donors.  Candidate committees must itemize donors who give more than $200 per election cycle, and political party committees and PACs must itemize donors who give more than $200 per calendar year. That obviously places FEC political committees in a very different position than entities that are not political committees registered with the FEC, such as social welfare organizations that operate under section 501(c) (4) or trade associations that operate under section 501(c) (6) of the Internal Revenue Code, which do not need to itemize and disclose their donors as a general rule.  Super PACs, these new phenomena, must disclose their donors above that $200 itemization threshold because they are registered with the FEC as a political committee.

Editor: Can you explain the range of compliance issues that high-net-worth individuals face when they make political contributions at the federal and state levels?

Baran:  There are two areas that high-net-worth individuals and executives confront when they start contributing to political candidates and causes. The first area is contribution limits. Under federal law, not only is the size of a contribution to a campaign limited, but the total amount of money that an individual may contribute to all candidates and all political parties and committees is limited. It’s called a biennial limit, which applies over a two-year period, in this case 2011 to 2012, and it’s approximately $117,000.  We have observed that increasingly, individuals are bumping up against those limits and getting closer to that biennial limit in record time. Individuals may simply be unaware that there are such limits and might be exceeding them inadvertently. 

The other area that is popping up increasingly is pay-to-play laws. Any company, including its executives or directors, that does business with state or local jurisdictions will potentially confront a pay-to-play law, which will either require certain disclosures when they compete for government contracts or in many cases could disqualify the company from being a contractor within that jurisdiction if either the contracting company or certain of its executives or directors made contributions to local or state officials with decision-making authority over these types of contracts.  This approach is now expanding under federal law through the SEC to registered investment advisors. These pay-to-play rules are growing in number and in application.

Editor: What differences are we seeing in the Romney and Obama fundraising approaches? Describe why Obama’s super PAC Priorities USA Action is so far behind super PACs supporting Republicans.

Toner: This raises interesting issues, because President Obama broke all fundraising records in 2008 when he raised $750 million for his presidential campaign. To put that amount into perspective, in 2000 George W. Bush set a record when he raised $100 million for his campaign, so there was more than a sevenfold fundraising increase in just eight years. Virtually every sitting president who has run for reelection has raised more money the second time around, so President Obama was expected to raise in excess of $750 million for this campaign. We have six more months to go before the election, but it’s fair to say that thus far the President has not kept up with his fundraising pace from four years ago, which has been a surprise.

In terms of the super PAC that is supporting president Obama, Priorities USA Action, it has struggled to raise money thus far. There are two factors in play here: first, there was a sense among many Democrats that the President would have all the money he would need through his presidential campaign and second, the President and his advisors have been extremely critical of super PACs over the last couple of years, which has likely made it more difficult for Priorities USA Action to raise funds.

Editor: What are the consequences for future campaigns as a result of Citizens United?

Baran: At some point there will have to be a reevaluation of how we want to regulate our campaign finance system. On the one hand, we now know that it is unconstitutional under the First Amendment to prohibit people from spending their money to speak their views whether as individuals, parties, committees, corporations or unions. The alternative to highly regulating the campaign finance system is seeking ways in which to increase public disclosure, and perhaps re-diverting that independent money. The logical alternative would be to allow political parties, as before McCain-Feingold, to accept contributions in larger amounts from sources that would include corporations and unions. In the 2000 election, the Republican and Democratic parties each raised $250 million in that way. It’s not coincidental that we are now seeing hundreds of millions of dollars being spent through independent super PACs and other organizations. If the law were changed to allow individuals and groups to financially support the political parties with more money, that money would go to the parties, and the parties would be more accountable, and most importantly, the money would be disclosed.

Toner: Jan makes a key point. A perverse and predictable consequence of the McCain-Feingold law was a migration of  the old soft money contributions –  the large individual contributions and the corporate contributions that used to go to the national political parties – to these outside groups, whether we’re talking about super PACs or  social welfare organizations or trade associations, with a lot less accountability in terms of who’s raising and spending that money, which was a foreseeable consequence of the McCain-Feingold statute. I do think in the next Congress there may be a serious study of the contribution limits that political parties are operating under, because virtually every entity in America can use unlimited funds for independent advertising campaigns other than the national political parties, so in many ways, this part of the campaign finance system is out of synch, and with negative consequences.

 

Please email the interviewees at jbaran@wileyrein.com or mtoner@wileyrein.com with questions about this interview.