Late yesterday, the Campaign Legal Center filed an amicus brief inProtectMarriage.com v. Bowen in the U.S. Court of Appeals for the Ninth Circuit, in support of disclosure provisions in California’s Political Reform Act.  The brief urges the court to affirm a district court decision upholding the state ballot measure committee contribution disclosure requirements.

This ProtectMarriage.com case is part of coordinated campaign that has resulted in a flood of litigation nationwide with the goal of undermining disclosure laws.  The plaintiffs in ProtectMarriage.com, who are seeking to overturn California disclosure laws, raised and spent tens of millions of dollars in support of Proposition 8, a successful statewide ballot initiative that amended the California Constitution to define marriage as valid only between a man and a woman.

“The groups bringing these challenges across the country have repeatedly tried to draw flimsy parallels between any criticisms they may have received from their political opponents to the very rare exemptions to disclosure laws granted by the courts in the past,” said Paul S. Ryan, Campaign Legal Center Associate Legal Counsel.  “It is shameless to attempt to compare themselves to groups like the Socialist Workers Party or the Alabama NAACP circa 1950, groups granted exemption from disclosure laws because their members suffered serious threats to their lives and livelihoods.  The courts have repeatedly seen through these grossly disproportionate comparisons and remained loathe to liberally grant exemptions and undermine a democratic cornerstone like disclosure.”

In the last decade alone the Supreme Court has upheld disclosure laws by votes of 8-1 three times, most recently in Doe v. Reed. In his concurrence in the case, Justice Scalia made very clear the importance of transparency to the health of our democracy:

Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.  For my part, I do not look forward to a society which, thanks to the Supreme Court, campaigns anonymously (McIntyre) and even exercises the direct democracy of initiative and referendum hidden from public scrutiny and protected from the accountability of criticism.  This does not resemble the Home of the Brave.

To read the Legal Center brief ProtectMarriage.com v. Bowen, click here.

Today, Campaign Legal Center Senior Counsel Paul S. Ryan testified before a Congressional Forum on Campaign Finance in the U.S. House of Representatives.  The Forum focused on the drastically changed playing field and the flood of outside money into the federal campaign finance system over the past two years.
 
Ryan’s testimony focused on the faulty assumptions in the Supreme Court’s highly controversial decision in Citizens United and how those assumptions are playing out in the current election cycle.  His testimony detailed how current laws and regulations, along with a dysfunctional FEC, have “made this year’s elections a ‘Wild West’ of money in politics.”
 
The full opening statement follows below.
 
April 18, 2012
 
Distinguished committee members, thank you for this opportunity to provide my views on significant changes that have occurred in campaign finance law and practice over the past two years, since the Supreme Court’s landmark decision inCitizens United v. Federal Election Commission (FEC) and the D.C. Circuit Court decision built upon it, SpeechNow v. FEC.
 
The Campaign Legal Center (CLC) is a nonpartisan, nonprofit organization founded in 2002 that works in the areas of campaign finance, elections and government ethics.  The Legal Center offers nonpartisan analyses of issues and represents the public interest in administrative, legislative and legal proceedings.  The Legal Center also participates in generating and shaping our nation’s policy debate about money in politics, disclosure, political advertising, and enforcement issues before the Congress, the FEC, the Federal Communications Commission (FCC) and the Internal Revenue Service (IRS).  The Legal Center’s President is Trevor Potter, former Chair of the FEC, and our Executive Director is Gerry Hebert, former acting head of the Voting Section of the Civil Rights Division at the Department of
Justice.  I serve as Senior Counsel at the Legal Center and have more than a decade of experience practicing election law.
 
Citizens United and Speech Now
 
The Supreme Court in Citizens United based its decision to unleash a flood of corporate money into U.S. election on two faulty assumptions.  First, the Court wrongly assumed that such funds would be spent “independently” of candidates and, therefore, could not give rise to corruption or the appearance of corruption.  Second, the Court assumed that the source of such funds would be disclosed, permitting “citizens and shareholders to react to the speech of corporate entities in a proper way” and enabling the “electorate to make informed decisions and give proper weight to different speakers and messages.”
 
Several months after the Citizens United decision, the Supreme Court’s faulty assumptions were compounded by the D.C. Circuit Court of Appeals inSpeechNow, when it relied on Citizens United and held that if independent expenditures cannot give rise to corruption, then contributions to groups making such expenditures cannot be limited.  The SpeechNow decision gave birth to “Super PACs.”
 
I welcome the opportunity to discuss with you today the Citizens United Court’s faulty assumptions and how they are playing out in the elections currently underway.  Specifically, I will detail how current laws and regulations, combined with a dysfunctional FEC, have made this year’s elections a “Wild West” of money in politics.
 
Super PACs
 
The ability of Super PACs to accept unlimited contributions, including contributions from corporations and labor unions that had for decades been off-limits for federal political committees, poses a serious threat of corruption in U.S. elections.  Notwithstanding the Supreme Court’s promise that the corporate money it was unleashing would be spent independently of candidates, current laws have been interpreted by the FEC to allow very close relationships between Super PACs and candidates.
 

Coordination Rules
 
Congress, in passing the McCain-Feingold law in 2002, ordered the FEC to rewrite its long-ineffective coordination rules.  The FEC’s coordination rules (11 C.F.R. § 109.21) responding to the mandate of Congress were woefully, and some would argue intentionally, inadequate.  They have twice been invalidated by federal courts in two separate lawsuits brought by former Representatives Shays and Meehan over the past decade and remain ineffective today.
 
Many assume that the coordination rules regulate and restrict general interaction between candidates and outside groups, but instead, current coordination rules regulate only discreet expenditures—discreet ad buys, for example—made by outside groups.  Current coordination rules accommodate close personal relationships and regular interaction between candidates and individuals operating Super PACs wholly dedicated to electing those candidates.  Indeed, the most prominent Super PACs today are operated by friends and former employees of the candidates they support.  And we have seen prominent funders of Super PACs closely involved with candidate campaigns.
 
Solicitation
 
The McCain-Feingold law prohibits candidates and officeholders from soliciting unlimited funds, as well as corporate and union funds in any amount—so-called “soft money”—in connection with any election.
 
However, last year the FEC nonsensically ruled in an advisory opinion (AO 2011-12, Majority PAC) that candidates and their staff may attend, speak and be featured guests at Super PAC fundraising events without violating the soft money solicitation ban—so long as they do not make the actual pitch for unlimited contributions.
 
Threat of Corruption
 
The FEC’s failure to effectively regulate soft money solicitation and coordination between Super PACs and candidates has allowed the rise of candidate-specific Super PACs operating as shadow campaign committees fueled by soft money.  The close relationships between Super PACs and candidates fall far short of the “independence” likely envisioned by the Citizens United Court.  And unlimited contributions to candidate-specific Super PACs pose precisely the same threat of corruption posed by unlimited contributions directly to candidates.
 
501(c) Organizations
 
The Citizens United Court’s second faulty assumption was that disclosure laws would provide voters with the information needed to hold corporate America accountable for its political activities and to make informed decisions on election day.
 
Section 501(c)(4) organizations like Crossroads GPS, as well as 501(c)(6) organizations like the U.S. Chamber of Commerce, will likely spend hundreds of millions of dollars on election ads this year without disclosing their donors.  Indeed, such tax-exempt corporations will likely play an even bigger role in this year’s elections than Super PACs—precisely because they offer donors anonymity.
 
This explosion in use of such tax-exempt entities to evade campaign finance disclosure laws was entirely predictable at the time of the Supreme Court’s decision in Citizens United.
 
FEC-Created Disclosure Loopholes
 
Back in 2007, the FEC promulgated a rule (11 C.F.R. § 104.20(c)(9)) gutting the McCain-Feingold law’s donor disclosure requirement for “electioneering communication.”  Whereas the statute (2 U.S.C. § 434(f)) requires groups that spend more than $10,000 in a year on electioneering communication to disclose the names of “all contributors who contributed . . . a $1,000 or more” to the group, the FEC’s rule only requires disclosure if the donor gave their funds “for the purpose of furthering electioneering communications.”  Under the FEC’s rule, donors to 501(c)(4) groups have simply refrained from designating their contributions for the specific purpose of funding electioneering communications and, therefore, have evaded disclosure.
 
Last year Representative Van Hollen sued the FEC challenging this 2007 regulation and, several weeks ago, prevailed in his challenge before a federal district court.  However, an appeal is pending and it is unlikely that the FEC will act anytime soon to comply with the court’s order.  The Campaign Legal Center is proud to be part of the legal team representing Representative Van Hollen.
 
A similar hole exists in the disclosure law and regulation pertaining to “independent expenditures” (2 U.S.C. § 434(c)(2)(C) and 11 C.F.R. § 109.10(e)(1)(vi)).
 
The Campaign Legal Center urges Congress to enact the DISCLOSE Act of 2012, which would close these loopholes and dramatically improve our federal campaign finance disclosure laws.
 
Tax Law Disclosure Loopholes
 
Section 501(c)(4) of the Internal Revenue Code establishes tax-exempt status for “[c]ivic leagues or organizations not organized for profit but operated exclusivelyfor the promotion of social welfare….”  (26 U.S.C. § 501(c)(4)).  Internal Revenue Service (IRS) regulations make clear that spending to influence candidate campaigns does not constitute “promotion of social welfare.”  (26 C.F.R. § 1.501(c)(4)-l(a)(2)(ii))
 
The courts, however, have held that section 501(c)(4) organizations are permitted to engage in an “insubstantial” amount of activities that do not further their exempt purposes—including candidate election intervention.
 
The IRS has interpreted these court decisions allowing “insubstantial” candidate election activities by 501(c)(4)s to allow such organizations to intervene in candidate elections as long as such campaign activities do not constitute the “primary” activity of the organization.  (26 C.F.R. § 1.501(c)(4)–1(a)(2)(i))
 
These regulations are commonly interpreted by practitioners to allow section 501(c)(4) organizations to engage in substantial candidate election intervention—as much as 49 percent of the organization’s activities—so long as such activity does not constitute the organization’s “primary” purpose.
 
Importantly, section 501(c)(4) groups are not required by tax law to disclose their donors to the public.  Consequently, 501(c)(4) groups have become attractive vehicles for spending millions of dollars on election ads without having to reveal the identities of donor who would rather stay hidden from public scrutiny.
 
Many newly-created 501(c)(4) groups—including Crossroads GPS, the American Action Network, Americans Elect and Priorities USA—clearly have the overriding purpose of influencing candidate elections and should be deemed ineligible for their claimed tax-exempt status under section 501(c)(4).
 
The Campaign Legal Center urges Congress to amend the federal tax code to make clear that 501(c)(4) groups may not engage in more than an “insubstantial” amount of candidate election spending, and defining “insubstantial” using a bright-line ceiling on campaign expenditures of no more than 10 percent of an organization’s total annual expenditures.
 
Conclusion
 
Thank you for the opportunity to testify before you today.
 

In a letter sent to the IRS today, Democracy 21 and the Campaign Legal Center again called on the agency to investigate and take appropriate enforcement action against Crossroads GPS for its apparent misuse of a privileged tax status.   The letter specifically calls attention to a secret $10 million dollar contribution to the 501(c)(4) group to run attack ads that The Washington Post recently brought to light.

Political operatives are increasingly turning to the 501(c)(4) tax status to hide their donors from the public despite the fact that they are not “social welfare” organizations but are primarily dedicated to supporting and opposing candidates and are poised to spend hundreds of millions of dollars on election advertising this year.

“The continued refusal by the IRS to reign in scofflaws abusing a privileged tax status has only encouraged even more blatant disregard for the law by these groups and their anonymous funders,” said J. Gerald Hebert, Executive Director of the Campaign Legal Center. “A secret ten million dollar contribution to run attack ads shows pure contempt for the law, the agency’s willingness to enforce it, and the public’s right to know who is funding our elections.  The IRS must do its job and enforce the law even in the face of political pressure to let the scofflaws continue.”

“It is essential that the IRS act to stop the farce that Crossroads GPS is a ‘social welfare’ organization,” said Fred Wertheimer, Democracy 21 President. “Karl Rove and Crossroads GPS are thumbing their nose at the American people. They are injecting secret, million dollar and multi-million dollar contributions into federal elections in direct conflict with the basic right of citizens to know the donors financing campaign expenditures to influence their votes. This cannot be allowed to continue. The IRS must take action against all groups not entitled to 501(c)(4) tax-exempt status.”

In addition to calls to investigate Crossroads GPS, the brainchild of long-time Republican party operative Karl Rove, the letter called on the IRS to enforce the same laws with regard to Priorities USA, American Action Network and Americans Elect, other organizations in apparent violation of their 501(c)(4) tax status.

Priorities USA is a group that backs President Obama’s re-election, American Action Network is a group founded by former U.S. Senator Norm Coleman that supports Republican candidates, and Americans Elect is a group that has gained ballot access as a political party in numerous states to run a candidate for president. These groups also claim status as tax-exempt “social welfare” organizations.

To read the full letter, click here.

A dozen government integrity groups yesterday asked President Obama to appoint new commissioners to the completely dysfunctional Federal Election Commission (FEC) and requested a response guaranteed by the White House regarding the successful petition drive.

“The FEC is an agency with a long, disturbing history of not doing its job, but today has reached a low ebb by any measurement,” said Meredith McGehee, Campaign Legal Center Policy Director.  “In particular, the Republican Commissioners are blatantly refusing to enforce any laws they don’t personally agree with or which they feel might be detrimental to GOP fundraising.  Then-Senator Obama promised to address the broken agency while running for President, but his lack of action to date and his lone nomination indicate the White House is comfortable with business as usual at the FEC.”

In the letter sent to the White House, the organizations reminded President Obama that it has been two months since the 25,000-signature threshold was reached on the White House website.  The website guarantees a response for those petitions reaching the threshold.

The letter emphasizes that FEC is a broken agency and is now the responsibility of the White House:

The national scandal at the FEC is your responsibility to address; the agency will not change until you exercise your executive branch authority to nominate new commissioners. It is essential that these nominations be based on merit, skills, qualifications, experience, background and professional reputation. It is also imperative for nominee to have a basic commitment to enforcing the campaign finance laws as written by Congress and interpreted by the courts. Individuals ideologically opposed to campaign finance regulation have no place on the commission.

The groups signing the letter with The Campaign Legal Center included: Americans for Campaign Reform, Citizens for Responsibility and Ethics in Washington, Common Cause,

CREDO Action Network, Democracy 21, League of Women Voters of the U.S., MapLight, Public Campaign, Public Citizen, United Republic and U.S. PIRG.

The full text of the letter follows below.

April 11, 2012
 
President Barack Obama
The White House
1600 Pennsylvania Ave., NW
Washington, D.C. 20500
 
Dear Mr. President:
 
Yesterday marked two months since our organizations successfully reached 25,000 signatures on our petition, calling on you to nominate new commissioners to the Federal Election Commission (FEC) who will faithfully enforce existing campaign finance laws and close existing loopholes. Our broad coalition still awaits your response as promised by the process established by the White House that clearly states there will be a response when 25,000 or more signatures are submitted on a petition.
 
The FEC is widely recognized as a dysfunctional agency that consistently refuses to enforce federal campaign finance laws enacted to prevent the corruption of federal officeholders and government decisions. Five of the six current commissioners are serving despite expired terms, and three openly flaunt their routine refusal to enforce existing campaign finance laws, even where the FEC’s professional staff has called for an investigation. As the New York Timeseditorialized this past weekend, this is an unacceptable situation.[1]
 
During the 2008 presidential campaign you recognized the problems at the FEC and unequivocally called for new commissioners. In response to questions raised in September 2007, by the Midwest Democracy Alliance, you stated:
 
I believe that the FEC needs to be strengthened and that individuals named to the Commission should have a demonstrated record of fair administration of the law and an ability to overcome partisan biases. My initial goal as president will be to determine whether we can make the FEC more effective through appointments. What the FEC needs most is strong, impartial leadership that will promote integrity in our election system.
 
You also promised to appoint commissioners committed to enforcing our nation’s election laws. With the exception of one unsuccessful attempt in 2009, however, you have failed to nominate anyone to replace any of the five lame duck commissioners.
 
The national scandal at the FEC is your responsibility to address; the agency will not change until you exercise your executive branch authority to nominate new commissioners. It is essential that these nominations be based on merit, skills, qualifications, experience, background and professional reputation. It is also imperative for nominee to have a basic commitment to enforcing the campaign finance laws as written by Congress and interpreted by the courts. Individuals ideologically opposed to campaign finance regulation have no place on the commission.
 
Nominating commissioners based on merit and qualifications may well create conflict with congressional leaders accustomed to choosing commissioners themselves. Given the completely dysfunctional state of the FEC and the enormous damage that has been done to our campaign finance laws, however, we believe this is a fight worth having.
 
Once appropriate nominations are made, the responsibility will pass to the Senate to address the FEC scandal. Senators will face a clear choice: vote to confirm new FEC commissioners selected on the basis of merit and qualifications, or vote to perpetuate a system undermining enforcement of the nation’s campaign finance law at a time when there is growing public anger over the money pouring into federal elections.
 
The effort to remake the FEC and restore the integrity of our campaign finance laws cannot begin until you nominate new commissioners. Our coalition and an overwhelming majority of Americans strongly support your taking this important step on the road to reforming the FEC. Thank you for your consideration and we continue to await your response.
 
Sincerely,
 
Americans for Campaign Reform
Campaign Legal Center
Citizens for Responsibility and Ethics in Washington
Common Cause
CREDO Action Network
Democracy 21
League of Women Voters of the U.S.
MapLight
Public Campaign
Public Citizen
United Republic
U.S. PIRG
[1] Editorial, That Campaign Promise About Campaigning, April 7, 2012.
 

The Campaign Legal Center yesterday filed an amicus brief in Doe v. Reed in the U.S. Court of Appeals for the Ninth Circuit, in support of a Washington State disclosure law in an as-applied challenge after the U.S. Supreme Court already ruled the law constitutional in a facial challenge in 2010.

“The Supreme Court, by an 8-1 vote, made very clear that it believes disclosure is vital to the health of our democracy,” said Paul S. Ryan, Campaign Legal Center Associate Legal Counsel.  “As Justice Scalia wrote, ‘requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.’  The legal bar for exemption from disclosure is appropriately very high and should not be lowered in this case.  To imply that these petition signers face a threat akin to members of the Socialist Workers Party or the NAACP in the Deep South during the civil rights era is an affront to real civic courage.”

The case was brought on behalf of “John Doe” and Protect Marriage Washington, a group opposed to same-sex marriage and domestic partnership rights, in an effort to halt Washington State from releasing, under the state Public Records Act, petitions filed in a 2009 referendum campaign to repeal a domestic partnership law enacted by the state legislature.

Doe v. Reed is just one of many cases challenging state, local and federal disclosure laws as part of a nationwide litigation campaign seeking to undermine transparency in politics.

To read the Legal Center brief, click here.

In a sweeping decision issued late yesterday, a Texas Court upheld numerous Texas campaign finance laws that had been challenged on constitutional grounds in Texas Democratic Party, et al. v. King Street Patriots, et al. Judge John K. Dietz of the District Court of Travis County Texas issued the final summary judgment in the challenge to provisions of Texas campaign finance law, including the state restriction on corporate contributions to candidates, officeholders and political committees, and the disclosure and organizational requirements applicable to political committees.

“The decision represents the latest in a string of victories against an aggressive nationwide litigation blitz aimed at overturning a host of state campaign finance laws in the aftermath of the Supreme Court’s Citizens United decision,” said J. Gerald Hebert, Campaign Legal Center Executive Director.  “Judge Dietz saw right through the unsubstantiated attempt by attorneys for the King Street Patriots to imply that Citizens United extended to corporate contribution restrictions and disclosure requirements despite the fact that the case did not address the former and upheld the latter by an 8-1 majority.”

The Texas Democratic Party originally alleged that the King Street Patriots, a non-profit 501(c)(4) corporation, made in-kind contributions to the state Republican Party in violation of Texas’s restriction on corporate political contributions, and failed to register as a “political committee” and comply with state disclosure law.  The King Street Patriots, in response, filed a broad counterclaim challenging numerous provisions of Texas campaign finance law.

The Campaign Legal Center filed an amicus brief in the case to defend the constitutionality of Texas’s campaign finance laws.  The Legal Center was supported in the case by the law firm of Gray and Becker in Austin, Texas.

The summary judgment allows the original Texas Democratic Party action to move forward seeking damages and declaratory and injunctive relief in connection to several violations of state campaign finance laws allegedly committed by the King Street Patriots.

To read the summary judgment, click here.

To read the Legal Center’s amicus brief opposing the King Street Patriots’s counterclaim, click here.