House Committee on House Administration
Oversight Hearing on the Federal Election Commission and the 527 Rulemaking Process
Testimony of Bradley A. Smith, Chairman
Federal Election Commission
May 20, 2004
Thank you for the opportunity to testify today about the Commission’s interpretation of political committee status under the Federal Election Campaign Act of 1971, as amended (the Act), and our regulations. While prominent members of Congress have cautioned that we should not consider the proximity of an election when engaged in rulemaking, this matter has the interest it has with the public and the Hill precisely because a presidential election is less than five months away. Apart from whatever partisan interests may be at play, it is certainly a cause for anxiety among all political activists whenever the agency governing them contemplates a major change in the rules of engagement, resulting in a substantial expansion of its regulatory reach. Therefore, I want to offer an overview of the political committee issue before offering my views on the proper role of the Commission. To understand where we are, we need to look at where we have been, since none of us – not Congress, and certainly not the Federal Election Commission, write upon a blank slate.
I. Definition of “Political Committee”
Let us begin with the standard for “political committee” in the Act. Under the Act, once a group becomes a political committee, it must register, report, and follow the contribution limits and prohibitions set forth in other sections of the Act. That is, it may accept contributions of $5,000 or less from permissible donors in a year, and may not take funds from corporations, labor organizations, foreign nationals, or government contractors. Once it meets the requirements of a multicandidate committee, it may contribute $5,000 per election to candidates and other committees, and $15,000 to national party committees. A group of persons becomes a committee when it receives contributions or makes expenditures of over $1,000 in a calendar year. This seemingly straightforward rule becomes more complex, however, when we consider the definitions of “contribution” and “expenditure.” For both, the Act requires the payment be “for the purpose of influencing any election for Federal office.”
The complexity in the analysis results not so much from the statute enacted by Congress, but from the judiciary’s interpretation of those words. Prior to the passage of the Bipartisan Campaign Reform Act (“BCRA”), courts, including the Supreme Court, repeatedly held “for the purpose of influencing any election for Federal office” was unconstitutionally vague unless applied only to “express advocacy” of the election or defeat of a clearly identified candidate. Because of this construction, groups only become political committees if they engage in express advocacy.
The judge-created standards do not stop at “express advocacy.” Courts have also concluded that a group may only be regulated as a federal political committee if, in addition to meeting the statutory threshold, its “major purpose” is to influence federal elections. The courts have not decreed a clear standard for determining major purpose. The major purpose “test” comes into play only to determine whether a group that otherwise meets the statutory definition may yet be exempt from political committee status.
BCRA changed none of these fundamental terms, nor did it articulate a different scope of interpretation.
The definition of “political committee” and “expenditure” have been understood by activists and practitioners for many years, and that understanding included interpreting “expenditures” to be “express advocacy,” even after the effective date of BCRA. For example, in January 2003, 10 months after passage and two months after BCRA’s effective date, several campaign finance reform groups wrote the IRS asking it to more rigorously police disclosure requirements for 527-exempt and 501(c) exempt groups. In that letter, the reform commenters stated that “for well over a decade” the law had not made 527s and 501(c)s become political committees, unless they accepted contributions or made expenditures for express advocacy. Thus, they were not required to disclose their receipts to the FEC, even thought they engaged in issue advocacy, voter registration, get-out-the-vote and other activities.
This was not the first time that campaign finance reform efforts turned to the IRS. Alarmed by the increase in issue advertising by groups that did not qualify as political committees, Congress in 2000 enacted legislation requiring 527s to file disclosure reports with the IRS. Under that law, groups that are not political committees already required to register and report with this Commission or with state or local regulators, and that have receipts of over $25,000 per tax year, must file disclosure reports with the IRS. In enacting this law, Congress intended to regulate such groups by requiring disclosure. It did not choose to alter the law so that they would be considered political committees under FECA. That such a change was not made is important. One of the catalysts for the legislation was the expenditures made by Republicans for Clean Air for advertisements critical of presidential candidate John McCain in the context of the 2000 presidential primary, in which Senator McCain was running against President George W. Bush. That group, it was discovered, had been funded by two ardent Bush supporters. Although the perceived threat posed to the system by Republican for Clean Air in 2000 seems similar to that attributed to certain groups active in 2004, Congress concluded in 2000 that disclosure, not regulation as a political committee, was the appropriate remedy. It did not reconsider that choice when it enacted BCRA.
II. BCRA and Political Committee Status
BCRA prohibited national parties and federal officeholders and candidates from raising or spending nonfederal funds. It placed strict restrictions upon state and local party committees’ use of nonfederal money. It also barred the use of corporation or labor funds for “electioneering communications” during the 30 days before a primary, caucus or convention and 60 days before a general election. In doing so, Congress did not change the definition of "expenditure" or "political committee," although it was well aware of the restrictive judicial and regulatory interpretation applied to these key concepts. It is beyond question that, at the time BCRA was enacted, the Commission was applying express advocacy to determine whether activities were “expenditures” and Congress did nothing in BCRA to modify this approach.
Numerous comments made during the debate indicate that members understood BCRA’s limited reach, and conceded that fact:
Senator Murray, a supporter, noted that it “also has the potential to give a disproportionately larger role in elections to third party organizations.”
Senator Jeffords, in describing the electioneering communication provision he coauthored with Senator Snowe, stated “it will not require such groups to create a PAC or another separate entity.”
Senator Hutchison, a critic of the reform legislation, observed that it allowed “unregulated special interest groups to raise and spend unlimited amounts of soft money without any real reporting requirements. . . we have elevated the status of groups such as that by curtailing the ability of our political parties . . . we are limiting the amount of soft money that can go to the political parties while outside groups are not limited at all.”
Senator Snowe defended the measure as adequate to stem the corrupting influence of soft money : “Some of our opponents have said that we are simply opening the floodgates in allowing soft money to now be channeled through these independent groups for electioneering purposes. To that, I would say that this bill would prohibit members from directing money to these groups to affect elections, so that would cut out an entire avenue of solicitation for funds, not to mention any real or perceived ‘quid pro quo.’”
A number of other Senators made similar comments indicating that they understood BCRA to contain some compromises, but that it was nevertheless worth supporting.
After the passage of BCRA, the Commission entered an extensive round of rulemakings to implement that law. There, as here, we received extensive comments from all sides, including comments from the authors and key reform supporters of BCRA. During the rulemaking, BCRA’s authors noted in a comment to us that “funds provided to entities that are not political committees [for electioneering communications] are not contributions and do not in themselves trigger political committee status.” At no time did any commenter during the regulation process suggest that the Commission needed to change its definitions of "political committee" or "expenditure" in order to put BCRA into effect. After the regulations were adopted, they were challenged in Court by the lead House sponsors of BCRA, for failing to properly implement BCRA. However, neither that complaint, which is still pending before the trial court, nor any of the briefs filed in support of its arguments allege that the Commission should have redefined "expenditure," "contribution," or "political committee" to properly implement the law.
III. The Effect of McConnell v. FEC and Political Committee Status
A. The Court’s Decision
In December 2003, the Supreme Court decided McConnell v. FEC. The Court rejected plaintiffs’ arguments that any standard other than express advocacy was unconstitutional. However, the Court did not – and could not – apply that law more broadly than enacted by Congress.
In McConnell, the Supreme Court said one thing that has attracted great attention in the present matter. It observed that the “express advocacy” standard, to the extent it required use of magic words, was “functionally meaningless,” both because advertisers could easily evade their use, and would seldom choose to use them even if permitted. Moreover, the Court observed that an advertisement lacking express advocacy could be clearly intended to affect an election. The Court said that speech beyond express advocacy could be regulated by Congress if the law was neither vague nor overbroad. It held the electioneering communication standard in BCRA, limiting broadcast ads that named a federal candidate within 60 days of an election, unlike “for the purpose of influencing,” was neither vague nor overbroad.
Significantly, the Court then went on to conclude that the electioneering communication law was also not underinclusive, rejecting the Plaintiffs’ contention that the law should also include print media and the Internet. The Court reacted: “One might just as well argue that the electioneering communication definition is underinclusive because it leaves advertising 61 days in advance of an election entirely unregulated.” The Court understood that “60 days in advance of an election,” an independent group could run advertising that promoted, supported, attacked or opposed a candidate. The recent proposal before the FEC would regulate exactly such speech as an “expenditure,” rendering the Court’s observation here nonsensical.
Similarly, the Court held that the phrase to “promote, support, attack or oppose” a candidate was not unconstitutionally vague, as applied to candidates and party committees. That is because “actions taken by political parties are presumed to be in connection with election campaigns.” Again, despite the apparent breadth of this pronouncement, its scope is limited. The Court did not address the phrase as applied to non-party committees with complex policy agendas – that issue wasn’t before the Court, since BCRA itself does not apply the standard to non-party committees. The Court’s contention that the phrase “promote, support, attack or oppose” (“PASO”) is clear in the party context is just that. The Court did not and could not consider it as applied to other groups, because the statute does not apply it to other groups. In our 2002 BCRA rulemakings, however, commenters that now ask us to apply PASO broadly to nonparty groups told the Commission that the phrase required additional definition before it could be constitutionally extended to independent groups. They told us that, while it was sufficiently clear in the context of “inherently electioneering entities (i.e. parties and candidates),” it was not sufficiently clear when used in the context of other persons or groups.
B. Reaction to McConnell
Even given McConnell’s limited scope, in its wake some began to argue that if “express advocacy” is not a constitutional prerequisite for regulating political activity, then the Commission should, or at least could, fashion a new definition of “political committee” or “expenditure.” Others argued that McConnell itself had the effect of changing the definition of expenditure articulated in previous cases.
Some ramifications of BCRA and McConnell in this area were addressed in an Advisory Opinion request submitted by Americans for a Better Country, AO 2003-37. In an effort to address any remaining uncertainties, the Commission in January 2004 began planning a Notice of Proposed Rulemaking (“NPRM”) on the issue. An aggressive schedule was adopted, along with the Notice, at a March 4, 2004 open meeting. The schedule called for hearings on April 14 and 15, required commenters who sought to testify to submit comments by April 5, and set a target date for a final vote on May 13. In response to the NPRM, the Commission received over 150,000 comments. While many thousand were mass emails, many thousand more were individualized comments, and hundreds involved substantive and non-duplicative analyses of the law and the policy before us. During the hearings, we took testimony from 31 witnesses. The vast majority of those witnesses opposed the FEC's proposed rule.
After the hearing, a majority of Commissioners agreed that the May 13 target date should not dictate a pace that would preclude considered judgment. However, Commissioners Toner and Thomas drafted their own proposal and, following Commission procedures, asked to have it placed on the agenda for May 13. At that meeting, the Office of the General Counsel presented its recommendation that the Commission take no action at that time, while the Counsel continued to analyze the scope and effect of the proposed rules, their legal basis, and the comments related to them – all necessary measures if the rule we adopt is to withstand legal challenge and not be found “arbitrary and capricious.” The proposal presented by Commissioners Toner and Thomas, which has been described in detail elsewhere, was defeated 2-4, with a majority of both Republican and Democratic Commissioners opposed to it. An alternative, that would put forward only the allocation portion of their proposal, was defeated by another bipartisan vote by 3-3, with Commissioner Mason joining Commissioners Thomas and Toner in favor. A third alternative, which would present the original proposal with an effective date after the 2004 election, failed by a bipartisan 2-4 vote. The Commission then adopted the General Counsel’s recommendation by a unanimous vote of 6-0.
With additional time, I expect that the Counsel’s recommendation and the Commission’s consideration will be better informed, tailored to the situation before us, supported by a well reasoned Explanation and Justification, and appropriately within our administrative discretion. The irony of the present focus upon the “delay” is that, given Congress’s review of regulations under the Congressional Review Act and the Regulatory Flexibility Act, it is unlikely that any rule promulgated on May 13 would have been in effect for much of the election cycle in any event.
Many critics assert that our decision will set off a frenzy of activity, which is puzzling. The Commission has not changed any rule. The rules remain as they have been, and as both supporters and opponents of the Toner/Thomas proposal clearly understood them to be through the end of 2003, when this new proposed interpretation was first raised. Our coordination and allocation rules still apply, and we remain actively pursuing complaints in this area under our enforcement procedures. We are still able to answer questions about the Act when asked through Advisory Opinions, such as the one issued to Americans for a Better Country. In this highly technical area of campaign finance law, and with uncertainty about the proper scope of BCRA and McConnell, maintaining consistency and regularity in our rules would seem to be the only responsible course for the Commission.
IV. The Commission Must Defer to Congress
The General Issue: While the Commission has chosen to review the matter further, speaking for myself I have become increasingly skeptical that the Commission enjoys discretion to rewrite the scope of such fundamental terms as “political committee” and “expenditure” without action from Congress. As you know, any agency’s power to promulgate regulations is limited to the authority delegated it by Congress. Administrative agencies like the Commission shall give effect to Congress’s expressed intent. If Congress has left an interpretive gap to fill, and the agency has been expressly delegated the authority to promulgate regulations that fill the gap, then the agency may write such rules provided they are not arbitrary, capricious, or contrary to law. In any case, regulations must be consistent with the statute under which they are promulgated. The question is whether the “statutory scheme as a whole justifie[s] promulgation of the regulation.” Rules of the type proposed are not, in my view, gap-filling but instead a rewriting of the Act. A useful analysis that also concluded that the Proposed Rule is not within our regulatory power was submitted to the Commission by the United States Chamber of Commerce, and that relevant portion is attached to this Statement.
Courts have considered the extent to which regulatory agencies can promulgate rules after Congress has acted in an area. They have concluded that to the extent Congress relied upon or wrote a statue incorporating a regulatory interpretation, the agency lacked discretion to revisit that interpretation. Essentially, the administrative gloss on the law becomes Congress’s, and may no longer be susceptible to regulatory tinkering by the agency. Additionally, legislation is often the product of compromise, and the Supreme Court has held that agencies “must respect and give effect to these sorts of compromises.” I do not believe that the core proposals in the Toner/Thomas proposal, or in the Proposed Rule, are allowable interpretations of the Act given Congress’s apparent willingness to work with and around existing FECA concepts in the 527 disclosure law passed in 200, and in BCRA, as outlined above.
Allocation: Similarly, Congress did not revise the manner in which entities already registering and reporting under the Act – like ACT and MoveOn.org -- fund their mixed activities. The Commission has in place a pre-BCRA framework to allocate mixed activities of non-party federal committees with non-Federal accounts, and this general framework was not changed by the passage of BCRA. Much public attention has been focused on one group which has claimed a 98% non-federal allocation ratio. In that regard, I note that the Commission of course remains able to examine the basis for that ratio and compel filers to revise them as well as to pay penalties if we find they have made impermissible use of nonfederal funds.
“Promote, support, attack or oppose” messages as “expenditures”: Congress articulated PASO as a standard applicable only to certain entities. BCRA defined a new term “Federal Election Activity” (FEA) as, among other things, public communications referring to a clearly identified candidate that promote, support, attack or oppose a candidate. FEA – and by extension, PASO -- is applied in only two parts of the Act as amended by BCRA. It first appears in the section devoted to “state, district and local committees” of political parties. FEA also appears in the act in relation to solicitation restrictions on parties and Federal candidates and officeholders. Parties are prohibited from soliciting or directing funds to a 501(c) organization that makes expenditures or disbursements in connection with an election for Federal office (including expenditures or disbursements for FEA). Federal candidates and officeholders are prohibited from soliciting or directing funds in connection with an election for Federal office, including for any Federal election activity, unless the funds are subject to the Act. PASO is not applied to other groups, such as independent 527 groups.
BCRA’s sponsors had reasons for selecting party committees for special treatment. As explained in the Brief of Intervenors before the District Court, “[u]nlike interest groups, which pursue an issue-based agenda that transcends the election of candidates, parties are primarily and continuously concerned with acquiring power through electoral victory. Parties never engage in public communication without regard to electoral consequences.” Accordingly, BCRA’s sponsors selected party committees for special regulation: “BCRA’s state party provisions are carefully tailored to strike a balance between Congress’s anti-corruption and anti-circumvention interests and the states’ interest in controlling their own elections. That balance is reflected in the definition of ‘federal election activity’ which confines the effect of BCRA to those state party activities that most clearly affect federal elections . . . .”
The Supreme Court in McConnell v. FEC also explicitly recognized that Congress could treat some groups differently from others without running afoul of constitutional equal protection guarantees. In so doing, it recognized that independent groups would remain free from restrictions placed upon parties. The Court stated:
BCRA imposes numerous restrictions on the fundraising abilities of political parties, of which the soft money ban is only the most prominent. Interest groups, however, remain free to raise money to fund voter registration, GOTV activities, mailings, and broadcast advertising (other than electioneering communications).
124 S. Ct. at 686. The Court continued:
Congress is fully entitled to consider the real-world differences between political parties and interest groups when crafting a system of campaign finance regulation. . . . Interest groups do not select slates of candidates for elections. Interest groups do not determine who will serve on legislative committees, elect congressional leadership, or organize legislative caucuses. Political parties have influence and power in the legislature that vastly exceeds that of any interest group.
Id. (citation omitted).
Moreover, the evidence produced in McConnell shows that during that litigation it was expected that BCRA imposed regulations upon political parties that would not be imposed upon “interest groups.” See McConnell v. FEC, 251 F. Supp.2d 176, 520-22 (Kollar-Kotelly) (summarizing evidence about effect of BCRA on interest group activity).
Voter Registration as “expenditures”: The Thomas/Toner proposal would consider certain voter registration expenses to be “expenditures” counting toward political committee status. Yet this would appear to conflict with BCRA. BCRA contains a provision that allows federal candidates and officeholders to solicit funds for voter registration, identification and get-out-the-vote in amounts up to $20,000 from individuals. This is well over the $1,000 trigger for political committee status or the $5,000 political committee contribution limit. Yet, if such voter registration activity renders a group a political committee, this exception has no effect and makes no sense.
V. Effect on 2004 Election
Contrary to the claims of many, I do not see the Commission’s restraint in the matter as opening a “loophole.” From the legislative history, it seems clear that the shift of activity we are witnessing to outside groups is what both supporters and opponents of McCain-Feingold predicted. Moreover, I do not think this undermines BCRA. The avowed goal of the legislation was to remove officeholders and parties from “soft money” fundraising.
Today, even without a rulemaking, BCRA would be violated of a federal officeholder, candidate, or party representative solicited or directed corporate and labor funds to these groups, or if these groups came under the control of a party or candidate, or even if they coordinated with parties or candidates.
At the same time, adopting a rule that limited only 527 organizations would simply drive the much independent activity into 501(c) organizations, accomplishing nothing. In fact, 501(c) organizations have even fewer disclosure requirements than do 527 organizations.
The interpretation set forth above, then, is supported by the clear terms of the law, its legislative history and the compromises and policies behind it, and norms of statutory construction.
I find no Congressional grant of rulemaking authority to support the Proposed Rule of the NPRM or the Thomas/Toner proposal. I leave open the possibility that, with the research and analysis forthcoming from the General Counsel, there may be an opportunity to revisit some aspects of our regulations, such as those that govern the allocation of federal and nonfederal funds by committees with nonfederal accounts. This may seem like an arcane area, but it is an important aspect of our jurisdiction, and one where courts have expressly held we enjoy some discretion. If activities of so-called “shadow parties” are to trigger political committee status by considering PASO communications to be “expenditures” -- which would lead to mandatory compliance with the Act’s reporting requirements, limits and prohibitions -- Congress must so declare. Whatever the Commission promulgates, I am confident it will be challenged by talented legal counsel on behalf of politically active groups and individuals. There is no profit in our releasing a Rule hastily when our power to rewrite the fundamental definition of “expenditure” and “political committee” is so uncertain.