The recent Supreme Court decision in McConnell v. FEC upholding the Bipartisan Campaign Reform Act of 2002 (BCRA) has the potential to dramatically expand the scope of regulation of federal election activity. The decision did not address the act's applicability to 501(c)(3) charity organizations. However BCRA sponsors Reps. Shays and Meehan have filed suit against the Federal Election Commission (FEC) challenging regulations that exempt 501(c)(3) groups and unpaid broadcasts from restrictions issue ads. This analysis addresses the impact of the Supreme Court’s recent decision could have onThe advocacy rights of 501(c)(3) organizations, continuation of the Shays-Meehan lawsuit and actions undertaken by the FEC or proposed by others in the wake of the decision. Background BCRA prohibits corporations (including nonprofits) and labor unions from paying for broadcasts that refer to a federal candidate (e.g., an image of the federal candidate) within 60 days of a general election or 30 days of a primary. These broadcasts, dubbed “electioneering communication," impose criminal penalties for rule violators. BCRA provides exemptions, however, for news broadcasts as well as candidate debates and forums. The act also allows the FEC to create further exemptions for broadcasts that refer to federal candidates if they are wholly unrelated to an election. In October 2002, the FEC published final rules implementing the electioneering communications portion of the law, incorporating two provisions advocated by OMB Watch and others. First, that the rules applied only to paid broadcast advertising. Second, that 501(c)(3) organizations-- already prohibited by IRS rules from engaging in electioneering-- would be exempt from the rules. In October 2002, BCRA sponsors Reps. Chris Shays and Marty Meehan filed suit in the federal district court in the District of Columbia to overturn new FEC rules on soft money, and amended their in January 2003 to specifically challenge the exemptions for unpaid broadcast ads and 501(c)(3) organizations. The judge in the Shays-Meehan suit delayed action until the Supreme Court issued its decision in McConnell v. FEC. Now that the Supreme Court has determined that BCRA is constitutional, the Shays-Meehan case is expected to proceed quickly. The amended complaint challenges the unpaid broadcast exemption, saying it has no basis in BCRA. However, the Congressional record is full of references to “ads,” and the problems created by the soft money used to pay for them. The Shays-Meehan suit argues that the exemption would allow any group to spend unlimited money to produce public service announcements or other unpaid broadcasts that could be partisan communications. The amended complaint has two claims that are based on incorrect information. They are: 1. The exemption would allow 501(c)(3) groups to spend unlimited dollars running ads that attack or promote candidates. 2. “There is a record of abuse where section 501(c)(3) corporations have run the same kinds of “sham issue ads” that Title IIA of BCRA was intended to regulate. As Rep. Shays explained during the floor debate on Title IIA, “Some [section 501(c)(3) charities have run ads in the guise of so-called ‘issue advocacy’ that clearly have had the effect of promoting or opposing federal candidates.” 148 Cong. Rec. H411 (daily ed. Feb. 13, 2002). The first claim is highly questionable, since tax law prohibits electioneering, and also places limits on how much charities can spend on grassroots lobbying. With respect to the second claim, OMB Watch has compiled and reviewed a host of studies on “sham issue ads” for over two years. Not one study cited examples of abuse by 501(c)(3) organizations, raising doubts about the grounds for the Shays-Meehan suit. While OMB Watch was lobbying on this issue during Congressional debate of BCRA, a legislative aid explained that one Congressman was against an exemption for unpaid broadcasts because a charity in his home state had criticized him in a public service announcement. This goes straight to the crux of the matter: what is the difference between partisan statements about a member of Congress in their capacity as a candidate (i.e. character and fitness for office) and nonpartisan criticisms of an elected official’s position on an issue? The Supreme Court Decision: Major Changes In upholding the ban on soft money contributions to political parties and the restrictions on electioneering communications, the Supreme Court swept away years of regulations based on the "express advocacy/magic words" standard. This standard, rooted in the Supreme Court’s decision in Buckley v. Valeo upholding the Federal Election Campaign Act against a charge of unconstitutional vagueness, limited regulation of federal electoral activity to communications that specifically called for either the election or defeat of an identified federal candidate. In McConnell, the Court found the "express advocacy/magic words standard" to be merely a statutory interpretation that could indeed be superseded by a new statute (BCRA), and not a constitutional requirement. Because BCRA has bright line standards that are both clearly understood and enforceable, the problem of vagueness does not exist. Electioneering Communications Restrictions Under BCRA, corporations, including nonprofits, can form “separate segregated funds” (SSFs) to bundle donations from individuals to pay for broadcasts that refer to federal candidates within the restricted time periods. While unincorporated organizations and individuals are not covered by the electioneering communications rule, incorporated groups are subject to the restrictions, and therefore cannot coordinate their efforts with candidates for federal office. But they can spend unlimited funds on non-broadcast communications that mention federal candidates through phone banks, mass mailings, the Internet, billboards, etc. They can also spend hard money -- raised subject to BCRA’s limits on contributions -- on campaign broadcast ads without restriction as to content. The majority decision in McConnell noted that this outlet makes the electioneering communication provision a regulation of expression, not a ban on speech. Incorporated entities, including nonprofit organizations, would have to have contributions expressly for broadcast ads, keep them in a SSF, and report those donors of $1,000 or more to the FEC. The Court agreed with the reformers’ argument that corporations and unions can air genuine issue ads by not mentioning the names of candidates, or pay for them through individual contributions to an SSF. The McConnel decision also held sham issue ads to be the “functional equivalent” of express advocacy, and therefore subject to regulation. It is important to note here that the opinion speaks solely in terms of “ads,” not broadcasts. There is a strong argument that BCRA was intended to address the soft money/sham ad problem. As a result, the FEC rule exempting unpaid broadcasts seems entirely reasonable. In discussing ads in the 60/30-day time window, the court said the regulation is justified “if ads are intended to influence the voters’ decisions and have that effect.” (p. 99) It found that evidence presented to the lower court demonstrated that the vast majority of ads that ran within the 60/30-day time window were true electioneering ads, which clearly supported or opposed a candidate for office. They concluded that the record showed that application of the rule to pure issue ads would be insubstantial. However, the Court’s majority opinion leaves the door open to future litigation arguing that specific applications of the rule that involve genuine issue ads might not be constitutionally justified. For example, there is a footnote (p. 100, fn 88) that states: “As Justice Kennedy emphasizes in dissent, post, at 44-45, we assume that the interests that justify the regulation of campaign speech might not apply to genuine issue ads.” A strong argument can be made that the justification (preventing undue influence over officeholders by campaign donors) does not apply to charities, since tax law prohibits partiality for or against candidates. Exceptions to the Electioneering Communications Restrictions The majority decision in McConnell, while noting the exemption for news media, did not discuss the provision that allows the FEC to create further exemptions. The decision did impose, however, an additional exemption not included in the BCRA, but generally recognized as constitutionally required: the "MCFL" or "independent group" exemption, stemming from the Supreme Court’s decision in FEC v. Massachusetts Citizens for Life v. See 479 U.S. 238 (1986). In that case the Court said independent groups are not subject to the restrictions on campaign contributions and expenditures in FECA. The definition of an independent, or “MCFL”, group is very narrow. The group must be an “organization formed for the express purpose of promoting political ideas, have no shareholders, are not established by a business corporation or labor union, and do not accept contributions from those entities.” In McConnell the Court applied the same principle to the electioneering communications rule, holding that the administrative burden imposed by the SSF requirement could not be constitutionally justified for such groups. Since the Court did not address the issue of 501(c)(3) organizations, there is a strong argument that the same rationale should apply, since these groups are prohibited from supporting or opposing candidates and must pass a public support test to maintain public charity status. There are also limits on how much charities can spend for grassroots lobbying. These factors are strong deterrents to major soft money donors attempting to use 501(c)(3)s as conduits. Since donations to these groups are tax deductible, soft money donors have had an incentive to give to charities all along. The fact that these groups have not become soft money conduits in the past argues that they will continue to be insulated from this influence. Disclosure of Donors and Expenditures for Electioneering Communications The McConnell decision upheld the disclosure requirements for electioneering communications, which also applies to both MCFL groups and individuals spending $1000 or more made within 20 days of an election. This prevents sponsors from hiding behind misleading organizational names (i.e. Citizens for Better Medicare). The disclosure must be made at the time contracts with broadcasters are signed, not when the ads appear or when actual payment is made. Shays-Meehan Lawsuit's Potential Impact on Nonprofit Issue Advocacy If the Shays-Meehan lawsuit is successful in its efforts to overturn the exemption for 501(c)(3) organizations and unpaid broadcasts, charities would have to immediately change the way grassroots lobbying and public education campaigns are conducted during a federal election season. The host of negative potential effects would include: · Further complication in legal rules for grassroots lobbying and public education; · The chilling impact of criminal penalties for violators of the electioneering communications restrictions; · Difficulty in raising funds for separate segregated funds (SSF) to pay for grassroots lobbying broadcasts; · Confusion about application of rules between federal, state and local elections; · Inadvertent violation of the rule when challengers who hold state or local office are mentioned in ads that address state or local issues; · Increased administrative burden from disclosure requirements; · Opening up the door to donor disclosure for 501(c)(3)s; and · Possible extension of the ban to non-broadcast communications, including phone banks, mass mailings, etc. Consider the following scenario. Congressional committees with jurisdiction over specific issues might consider legislation during a period of time that coincides with federal primaries or a general election season. In order to air grassroots lobbying ads targeting particular members of Congress, a charity would need to take the following steps: · Create a SSF that would only accept contributions from individuals; · Comply with FEC donor disclosure requirements; and · Make sure that any ads run within the 60/30-day window paid for entirely by funds in the SSF. This scenario is complicated further by the fact that only some states will be holding their primary elections at the same time as a lobbying campaign. Some of the ad costs would therefore be paid through the SSF, while others would be paid for through normal organizational expenditures. What is not clear is whether contributions to the SSF would be tax deductible. It is could be argued that contributions to the SSF would not be deductible because donations to the account would not be considered a contribution to the tax-exempt entity, but instead be a joint fund of individual donors. Moreover, it sets it up a bizarre situation for charities – funneling funds into a SSF for “electioneering communications,” yet charities are prohibited from electioneering. What Comes Next? Nonprofits need to be aware that some reformers are calling for an extension of the electioneering communications rule to non-broadcast communications, which could conceivably include email correspondence, web site announcements, phone banking, direct mailings and canvassing. Sen. Mitch McConnell’s (R-KY), chief opponent of BCRA in Congress and before the Supreme Court, reacted to the BCRA decision saying, “outside special interest groups have become the modern day political parties”. In other words, candidates and parties will not be able to control the public debate during election season. This is a result reformers anticipated and praised during Congressional consideration of BCRA, saying a shift toward the grassroots would help level the playing field. However, since the decision some groups are calling for extension of the soft money ban to PACs and other nonprofits. This has been a reaction to creation of new PACs (527s) that have gotten soft money from major donors, such as George Soros, for voter mobilization activity. The day after the decision the New York Times noted that parties will have to compete for donations with PACs that do not have the same limits on the size of donations or the amount of expenditures. These groups “could displace the parties as a home for large donations.” Incoming FEC Chair Bradley Smith said there could be new rulemaking proceedings to address possible extension of the soft money ban beyond political parties. However, that is may be beyond the scope of what BCRA authorizes and could require further legislation. The FEC will now have to enforce the law and the regulations. Smith has been quoted in the press as saying the Supreme Court decision did not provide much guidance for enforcement, including the definition of communications that promote or attack candidates. These issues are likely to be resolved through Advisory Opinions and enforcement cases. The fight over what PACs can do has already begun. Americans for a Better Country (ABC), a Republican leaning PAC, has filed an Advisory Opinion request at the FEC asking it to determine the legality of dozens of specific activities being undertaken by Democratic leaning PACs. The FEC has accepted the request, and is expected issue an Advisory Opinion some time February. One clear result of the Supreme Court decision will be a shift of funds from broadcast advertising to more grassroots based communications, such as phone banks, mass mailings and canvassing. The National Rifle Association, which spent $25 million on adds in 2002, has said it is making such an adjustment. Conclusion Activity in the courts (Shays-Meehan lawsuit), in addition to FEC advisory opinions and rulemakings, will continue to highlight the these issues in ways that will impact non-electoral advocacy activity by 501(c)(3) organizations. Will criticism of a Member of Congress or the President that is broadcasted 60 days before a general election or 30 days before a primary election be a felony? Will nonprofits be able to broadcast an incumbent candidate’s stance on an issue during the restricted time period? If not, then will be there be less accountability in the legislature? Resources and Additional Information FEC’s Campaign Guide for Corporations and Labor Unions: BCRA Supplement FEC Website: BCRA Consolidated Reporting Provisions OMB Watch Comments to FEC on Electioneering Communications Rules