The Kentucky Registry of Election Finance has issued new guidance in response to a court ruling that enjoined enforcement of Kentucky's ban on corporate campaign contributions. As a result, unless and until further guidance is issued by a court of competent jurisdiction, corporate contributions to Kentucky candidates or committees remain prohibited. Unions and limited liability companies (LLCs), furthermore, are now prohibited from contributing. On a positive note, corporations may now establish and maintain political action committees (PACs), paying the administrative expenses from corporate funds and preserving the PAC’s funds for use as contributions to candidates.

On March 31, 2016, the United States District Court for the Eastern District of Kentucky ordered, effective immediately and until further notice, that the Kentucky Registry of Election Finance (KREF) may no longer enforce the corporate contribution ban in a manner that results in unequal treatment of corporations, unions, and LLCs. In addition, the Court ordered that corporations, LLCs, and unions are entitled to equal treatment in the exercise of a PAC option, including state PACs. See Protect My Check v. Dilger, et al., E.D.Ky. 3:15-42-GFVT.

Subsequent to Protect My Check, KREF is now interpreting Kentucky law to prohibit contributions to candidates by unions and LLCs. By prohibiting contributions from unions and LLCs, KREF contends that it has remedied the unequal treatment of corporations, and thereby removed the constitutional defect forming the basis for the injunction prohibiting it from enforcing the ban on corporate contributions. As such, despite the Protect My Checkinjunction, Kentucky candidates and committees should expect that KREF will enforce the ban on corporate contributions by finding candidates, committees and contributing corporations, LLCs and unions in violation of Kentucky law. Both civil and criminal penalties could apply.

KREF has indicated:

"Based on the Court’s ruling, the Registry will enforce the law as follows:

  • All corporations, LLCs, and unions are to be treated equally under Kentucky’s campaign finance law;
  • Under Kentucky’s campaign finance law, “corporation” means any corporation, company, partnership, joint stock company, or association;
  • Corporations may sponsor and administer a state Permanent Committee (PAC) and pay the state PAC’s administrative expenses from corporate funds;
  • Corporations remain prohibited from making contributions directly to candidates, slates of candidates, or committees, but may sponsor and administer a state PAC, and pay the state PAC’s administrative expenses from corporate funds;
  • Unions and LLCs may sponsor and administer a state PAC and pay the state PAC’s administrative expenses from union or LLC funds; and
  • Unions and LLCs are prohibited from making contributions directly to candidates, slates of candidates, or committees, but may sponsor and administer a state PAC, and pay the state PAC’s administrative expenses from union or LLC funds.”

It is not immediately clear whether KREF has the authority to prohibit union and LLC contributions by reinterpretation of the statute, and thus whether the unequal treatment of corporations has been finally resolved. It is clear, however, that KREF will consider corporate, LLC and union contributions to candidates or committees in Kentucky as a violation of the law. Prudent committees and contributors should exercise caution before accepting or making such contributions and seek legal advice.

The option to establish and administer a corporate-sponsored PAC, however, is one that corporations should investigate and take advantage of immediately. It will no longer be required that a PAC reimburse a corporation for expenses such as legal and compliance fees, postage, copies, telephone charges, office supplies, employee time for PAC administration, and potentially the costs of fundraising such as food and entertainment. This important development will allow PACs to preserve the funds they raise for their intended vital purpose funds – contributions to candidates and party committees. Corporations and existing PACs should seek legal advice on the rules applicable to corporate-sponsored PACs.

The Opinion from the United States District Court for the Eastern District of Kentucky can be found here.

The Guidance from the Kentucky Registry of Election Finance can be found here.