Legislative Update

Government Contractor Executive Order

Since outlining its initial proposal in April, the Obama Administration has been contemplating a series of new disclosure requirements for all prospective government contractors. Central to these disclosures are political contributions and expenditures made by the bidding entity, its directors or officers, or any affiliates or subsidiaries that exceed $5,000 to a given recipient in a given year. The release of the Administration’s draft Executive Order (EO) resulted in substantial criticism from Republicans, business groups, and a number of Congressional Democrats. The critiques have thus far has delayed the Administration from finalizing these new disclosure obligations.

Despite the opposition, campaign finance reform organizations support the administration’s initiative. Sixty-two House Democrats wrote a letter to the president in July offering their support for the draft EO. Opponents of the measure have proposed legislative restrictions as "riders" to several appropriations bills that would prevent implementation of the EO if finalized. The uncertainty surrounding the final shape of the appropriations process for the coming fiscal year leaves this effort in an equally uncertain posture.

Shareholder Protection Act of 2011

In a continued effort to reinstate more rigorous campaign finance regulation in the wake of the Citizens United decision, lawmakers in both chambers have introduced legislation that would require shareholder approval of certain political expenditures by corporations. The Shareholder Protection Act of 2011, introduced in the Senate by Sen. Menendez (D-NJ) and in the House by Rep. Capuano (D-MA), would amend the Securities Exchange Act of 1934 by requiring a shareholder vote to authorize corporate political activities, which the bill defines as an independent expenditure (IE) or electioneering communication (EC), and any dues or payments to trade associations or organizations that could be reasonably be anticipated to be used for IEs or ECs. The bill also requires the board of directors to vote on political activities exceeding $50,000. In addition, the bill requires companies to file quarterly disclosure reports listing the expenditures made for political activities, the votes of each member of the board of directors authorizing the expenditure, and information about the candidate or trade association to whom the expenditure was made.

The Brennan Center for Justice spearheaded a letter praising the legislation, saying the bill would "help mitigate the effects" of last year’s "damaging" Citizens United decision. Thirty organizations signed onto the letter, including CREW, Common Cause, Democracy 21, and Public Citizen. Republicans have traditionally opposed such initiatives, citing concerns that the business-judgment rule could be diluted if executives are required to consult more extensively with shareholders on company decisions.

Office of Congressional Ethics

An amendment to the Legislative Branch appropriations bill that would have cut the budget of the Office of Congressional Ethics (OCE) by 40% failed on a vote of 102-302. Offered by Rep. Mel Watt (D-NC), the amendment is likely not the last attempt to defund the OCE., Created in 2008 by then-Speaker Nancy Pelosi (D-CA) and comprised of eight Members, chosen by the Majority and Minority Leaders. The OCE is tasked with investigating allegations of ethical violations by lawmakers, and their findings are sent to the House Ethics Committee, who decides whether to pursue the matter against the individual lawmaker.

Joint Select Committee on Deficit Reduction

The Budget Control Act of 2011, signed into law by President Obama on August 2, 2011 established the Joint Select Committee on Deficit Reduction (the "Joint Committee"). Comprised of 12 Members of Congress (six Republicans and six Democrats), the Joint Committee is tasked with reaching an agreement on at least $1.2 trillion in deficit reduction proposals. Following passage of the Budget Control Act, Sen. Vitter (R-LA) introduced legislation that would require the members of the Joint Committee to disclose within 48 hours after receipt to the FEC any campaign contribution received totaling $1,000 or more from the time of such Member’s appointment to the Joint Committee through January 31, 2012. The disclosure would include the name of the Member or Member’s committee (e.g., leadership PAC) to whom the contribution was made, and the contributor, date, and amount of the contribution. While it is unclear whether this legislation will become law, it highlights the scrutiny that Members of Congress serving on the Joint Committee are expected to receive in terms of their campaign financing activities during this period from appointment to January 31, 2012.

Regulation of Lobbying Activity

Lobbyist Disclosure Enhancement Act

The Lobbyist Disclosure Enhancement Act (H.R. 2339) would enhance the disclosure obligations of registered lobbyists and any person or entity that engages in lobbying contacts. Sponsored by Reps. Quigley (D-IL) and Polis (D-CO), H.R. 2339 makes several modifications to the Lobbying Disclosure Act (LDA) and requires the Attorney General to establish an LDA Enforcement Task Force to prosecute lobbyists or lobbying firms who violate the LDA. The Task Force would also be charged with conducting an annual audit of lobbyists, lobbying firms, and registrants, and would establish a toll-free hotline for reporting noncompliance with the LDA. In terms of the LDA, H.R. 2339 would make the following changes:

  • Currently, a "lobbyist" does not include an individual whose lobbying activities constitute less than 20 percent of such person’s services provided to a client over the quarterly reporting report. H.R. 2339 would eliminate this 20 percent threshold so that any individual who was retained or employed for compensation to conduct more than one lobbying contact would be considered a lobbyist, and thus, subject to the reporting and disclosure obligations of the LDA.
  • Under current law, lobbying registration is triggered when a lobbyist first makes a lobbying contact or is employed or retained to make a lobbying contact. The LDA requires such registration to occur within 45 days of either event, whichever is earlier. H.R. 2339 would reduce the 45-day threshold to five days, creating a near "real-time" system of lobbying registration. Registration would have to occur online.
  • Under current requirements for quarterly lobbying reports (the LD-2), lobbyists must disclose on what issues and bills they lobbied. H.R. 2339 would require disclosure of each covered official lobbied and the date of the meeting. If the covered official was a congressional staffer, lobbyists would have to disclose which Member of Congress, committee, leadership office, or joint committee for which such staffer works or performs official duties, along with the date of the meeting.
  • Federal law currently imposes a semi-annual filing by all registered lobbyists to disclose certain political contributions (e.g., campaign contributions, contributions made to honor or recognize a Member of Congress) on the LD-203. H.R. 2339 would mandate that this disclosure occur quarterly to align with the existing LD-2 reporting calendar.

This legislation would increase the disclosure obligations of registered lobbyists and even those individuals who make two lobbying contacts in a quarterly period without meeting a time threshold - the most significant change since enactment of the Honest Leadership and Open Government Act of 2007. As the courts move toward broadening campaign finance law to greater participation and Congress and the FEC remain at a deadlock on how to respond to recent campaign finance and disclosure developments such as Citizens United and the Obama Administration’s proposed federal contractor executive order, increasing scrutiny on lobbying and lobbyists is the natural next step for Members of Congress who favor greater transparency in how the government works. It is unclear whether this legislation will gain traction in Congress, but the failure of other avenues to regulate the broad arena of interactions with the government could lead to growing support for greater lobbying transparency.

American Bar Association Recommendations

The role of lobbyists, and their connection with political fundraising, has emerged as a hot topic, with multiple public interest groups seeking to impose more onerous disclosure and reporting requirements on lobbyists who interact with lawmakers and their staff. The American Bar Association (ABA) recently approved a proposed reform initiative for the regulation of lobbying. The latest pitch comes from a special task force on lobbying within the American Bar Association. The task force, created at a 2009 ABA conference, released its recommendations and report in January. The recommendations were approved by the policy-making body of the association earlier this month. Proponents of the ABA plan intend to approach Congress and to ask lawmakers to consider the proposal, though they have also said they are not seeking immediate Congressional action. The American League of Lobbyists (ALL) expressed disappointment that ALL was not consulted in the development of the proposal.

Reporting frequency and disclosure content would not change under the ABA proposal. However, the registration threshold would encompass even more individuals than the expanded rules under H.R. 2339. The ABA proposal not only eliminates the 20 percent threshold, but requires registration by individuals engaged in lobbying activity notwithstanding a lack of lobbying contacts. This means that individuals engaged in activity that supports lobbying would have an obligation to register.

In contrast to H.R. 2339’s focus on registration and reporting, the ABA proposals contains a significant change to the rules regarding fundraising and lobbyists. The ABA proposal would prohibit lobbyists from raising money for a Member of Congress whom he or she has lobbied during the past two years, or from lobbying a Member of Congress for whom he or she has engaged in campaign fundraising during the past two years. The proposal prevents lobbyists from making or soliciting financial contributions to a Member’s re-elect campaign if the lobbyist has been retained to lobby that Member for an earmark or other narrow financial benefit. Lobbyists also would be prevented from entering into a contingency fee contract with a client to lobby for an earmark or other narrow financial benefit for that client. An initial recommendation to slash limits on lobbyists’ individual campaign contributions by half was not included in the officially approved proposal. The recommendations also call for LDA enforcement authority to be transferred from House and Senate officials to a ‘suitable administrative authority,’ though no specific agency was named.

Legal Developments

Van Hollen v. FEC

The federal judge presiding over a lawsuit filed against the FEC by Rep. Van Hollen (D-MD) has ruled that two nonprofit groups, both of whom spent funds on advertisements targeting Democrats in the 2010 elections, should be permitted to intervene in the case. The two nonprofits that filed motions to intervene are the Center for Individual Freedom (CFIF) and the Hispanic Leadership Fund (HLF), both conservative groups. The FEC, the defendant in the suit, did not indicate whether it opposed or supported intervention by the two nonprofits.

Both Van Hollen and the FEC have filed their summary judgment motions, the latter’s arguing that current disclosure rules are reasonable and should be permitted to remain in place. Judge Jackson has put the case on a fast-track schedule, which means that a possible hearing and decision could follow the parties’ responses, due September 23.

In the States

Matching Funds – Maine

Following an Arizona case decided by the Supreme Court in June, a federal judge in Maine ruled a provision in the Maine Clean Election Act related to matching funds unconstitutional. The plaintiffs, a legislative candidate, a PAC, and a private citizen, challenged the part of the public campaign finance law that called for candidates to receive additional public funds when privately funded opponents hit a spending trigger against them. The court dismissed the plaintiffs’ challenge to the new contribution limits, enacted last month, which doubled maximum contributions to gubernatorial candidates from $750 to $1,500 and for candidates for other state or municipal offices from $350 to $750.

IRS and 501(c)(4) Groups

Regulatory, media and political attention continues to focus on tax-exempt 501(c)(4) groups and their involvement in political activity. Campaign reform groups Democracy 21 and the Campaign Legal Center have filed a rulemaking petition with the IRS in an effort to provoke new rules on 501(c)(4)s that would restrict their political activity. Specifically, the petition urges the IRS to adopt new regulations to provide that organizations intervening or participating in elections will lose tax-exempt status if the organization spends more than an insubstantial amount of its total expenditures on campaign activity.

The request follows a series of attempts to place disclosure requirements and contribution limits on 501(c)(4) groups, which currently are not required to publicly disclose donors and are not subject to limits on contributions. These nonprofit groups played a large role in funding the last elections, and will likely serve as a major driver in how the money flows in the 2012 elections, as 501(c)(4) groups have the ability to maintain donor anonymity while participating in campaign activity, as long as that is not the primary purpose of the organization.

Developments at the FEC

FEC Staff

Alec Palmer, currently serving as the Chief Information Officer (CIO) for the FEC, has been officially appointed as the Commission’s new staff director after a salary issue was resolved. Palmer will continue serving as the CIO in addition to filling his staff director duties. The FEC has also recently announced plans to bring on a new general counsel. While Christopher Hughey has been serving as acting general counsel since last year, Anthony Herman is expected to begin in that position in September. Hughey will remain at the Commission as deputy general counsel.

Request for Consideration of Legal Question

Effective August 1, the FEC has adopted a new procedure that provides a means for individuals or entities to have a legal question considered by the Commission earlier in the report review process or the audit process. If a person or entity going through either the report review or audit process is requested to take corrective action, such person or entity may request FEC review of a material dispute on a question of law. Such request is limited to questions of law on material issues only when: (1) the legal issue is novel, complex, or pertains to an unsettled question of law; (2) there has been intervening legislation, regulation, or litigation since the Commission last considered the issue; or (3) the request to take corrective action is contrary or inconsistent with prior Commission matters dealing with the same issue.

A person or entity seeking Commission consideration under this procedure must seek review within 15 business days of being obligated to take corrective action. If two Commissioners agree that a request should be considered within five business days of notification to the Commissioners of such request, the Office of General Counsel will prepare a recommendation. Within 15 business days of the OGC’s recommendation, it will be circulated for a Commission vote. If there is an objection, the matter will be placed on the agenda for the next FEC meeting. If the Commission has not resolved the issue or provided guidance on how to proceed by an affirmative vote of at least four Commissioners within 60 business days of a person or entity filing the request for consideration, the Office of Compliance may proceed with the matter.

The request for consideration, along with any relevant FEC materials, will become part of the record of the report review or audit. Any final decisions on a legal question under this procedure will become FEC precedent for future matters. Factual disputes will not be considered under this new procedure and this process is not permitted as a substitute for the Advisory Opinion process.

FEC Filing Deadlines

The following lists key filing deadlines for the remainder of political activity conducted in 2011:

Click here to view table : PAC Reports for Monthly Filers

Click here to view table : PAC Reports for Quarterly Filers

Political committees that make independent expenditures at any time during 2011 are required to disclose this activity within 48 hours each time the expenditures aggregate $10,000 or more. Entities that make disbursements for electioneering communications in 2011 that aggregate $10,000 or more must disclose this activity within 24 hours of public distribution of the communications.

Future FEC Meeting Dates

The following lists upcoming dates for FEC open meetings and closed executive sessions for the remainder of 2011:

Click here to view table