Over the past several months, the Texas Ethics Commission has promulgated rules that impact candidates, PACs, and other persons involved in elections. These rules provide clarity in the law.

Dark Money

So-called dark money groups have sprung up since the U.S. Supreme Court issued its ruling in Citizens United. These groups are generally nonprofit corporations that raise and spend funds on campaign ads, but do so as a relatively small part of the group’s total budget. By operating in this manner, the groups do not become PACs—meaning they do not need to disclose their donors. Generally, on the federal level, a group must have as its “major purpose” being involved in campaigns to become a PAC. On the state level, a group must have as “a principal purpose” being involved in campaigns to become a PAC. Historically, this ambiguous term has posed issues in compliance with Texas laws.

As we have previously reported, the Texas Ethics Commission adopted a rule defining “a principal purpose” to require more than 25% of the group’s total annual expenditures to be campaign related. The Commission is currently tweaking the language, but the key is that if a group spends less than 25% of its total annual expenditures on campaign expenditures, the group is not a PAC, and does not need to disclose its donors.

More recently, the Commission also adopted a rule to define what is a campaign expenditure. The statute simply defines a campaign expenditure as an expenditure made “in connection with a campaign”. Under the new rule, a campaign expenditure includes only the following expenditures:

  • An expenditure that expressly advocates the election or defeat of a candidate;
  • An expenditure that is made by a candidate or PAC to support or oppose a candidate;
  • An expenditure that is a campaign contribution to a candidate or a PAC; or
  • An expenditure that contains the functional equivalent of express advocacy that is broadcast or distributed within 30 days of an election to a group in the geographical area the candidate supported or opposed seeks to represent.

Put together, these two rules provide clarity to groups seeking to determine whether they have crossed a threshold to register as a PAC. Similarly, the rules provide guidance to other persons—including interest groups seeking to do legislative advertising—about actions they can take without fear of becoming a PAC on accident.

Discounts

Many campaigns—just like individuals and businesses—receive discounts from vendors in the ordinary course of business. Often, questions arise whether a discount is actually an in-kind contribution. The question of valid discount (not a reportable in-kind contribution) versus invalid discount (a reportable in-kind contribution) is important, particularly when dealing with campaigns that have a contribution limit (such as judicial campaigns and some local campaigns) or when dealing with incorporated vendors.

The Ethics Commission adopted a rule that provides clarity and guidelines to follow to ensure the discount does not become a reportable in-kind contribution. Specifically, the rule states that the discount is not a reportable contribution if the terms of the transaction reflect the usual and normal practice of the industry and are typical of the terms offered to political and non-political persons alike. Otherwise, the value of the in-kind contribution is the difference between the fair market value of the goods or services received and the amount charged.

Reporting

The Texas Legislature provided additional funding to the Texas Ethics Commission in the 2013 session for the express purpose of creating a new electronic filing system. Since the end of the 2013 session, the Commission has worked with its vendor to create a new web-based filing system, covering campaign finance, lobby, and personal financial statement filers.

At the same time, the Commission decided to update its forms and require additional reporting by filers. Below are some notable changes in reporting:

  • All expenditures by credit card must be reported on a separate schedule, and any payments to the credit card company must be reported as a regular expenditure. Previously, a filer would never report the payment to the credit card company, unless that payment was for annual fees, interest, or a late payment penalty.
  • Any expenditure incurred in one period but not paid by the end of the period must be reported on a separate schedule as an unpaid incurred expenditure. In a subsequent period, when the expenditure is paid, it must be reported again as a regular expenditure. Previously, an expenditure was reported only when it was incurred, regardless of when - or if - the expenditure is paid.
  • If the filer accepts pledges (many do not), the filer must report the pledge in the period received. When the filer subsequently receives the contribution, the filer reports the contribution as a regular contribution. If the pledge and the contribution are received in the same period, the filer does not report the pledge. Previously, the filer would only report the pledge, and would not report the subsequent contribution.